By: Don Good
President, InContext
You’re a radiologist, part of a newly formed Accountable Care Organization (ACO) during its first few years in business. Whether you realize it or not, you’re sitting in the back of the bus, maybe feeling like an afterthought and not really driving anything. Much of what we outline below might be news to you from your back seat.
What does an ACO look like?
There are ACOs that cover Commercial, Medicare Advantage and self-insured populations but for now we’ll stick to the most prevalent model, a Medicare ACO. In this instance, when we talk about reporting, patients etc., we’re dealing strictly with traditional Medicare patients, not commercial or Medicare Advantage.
An ACO is typically organized as a Limited Liability Company (LLC). In the past, the “Owners” (economic sponsors) have been hospitals and health systems but over the last several years, this began to change as publicly traded companies and private equity-backed companies entered the game. (More on this topic in a future article.)
ACOs have the option (which changes over time) to sign a CMS contract that has upside- only or two-sided risk. Two-sided risk means if the ACO spends too much money caring for its patients, the ACO would need to write a check to CMS to cover some portion of the overspending. Most ACOs initially opt for upside-only and typically remain in upside-only agreements as long as possible. Upside-only agreements shield the ACO from repaying CMS from any overspending. The ACO agreement with CMS is calendar year-based, so score keeping takes place with results from Jan. 1 to Dec. 31 of any given year.
ACOs are not cheap to set up (or run) and while the industry numbers vary widely, assume that an average size ACO (10,000 patients) likely costs $1M-$4M to set up and $1-2M annually to run. The start-up and ongoing operating costs are typically funded by the owner, the hospital or health system.
The ACO, LLC will ultimately enter into a contract with CMS to care for a specific set of patients for a five-year term (previously 4 years), with annual out clauses. The ACO is rewarded based on how well it does with the following goals, which CMS describes as the “Triple Aim:”
- Patient Satisfaction
- Quality
- Cost
Who gets to board the ACO Bus?
Now that we’ve set up the LLC, who needs to be on the bus? First, we need primary care physicians (PCPs) because they supply the patients under CMS’s “attribution” methodology, which links (attributes) patients to primary care providers based on which providers in the community historically rendered most of the care for that patient. Assuming an average PCP works with a panel 2,000-3,000 patients, 30% of which may be Medicare, we need roughly 15-20 busy primary care providers to meet the goal of 10,000 “beneficiaries,” or Medicare patients.
Next we’ll want to load up the surgeons and specialists (cardiology, oncology, orthopedics, etc.) since their decisions drive much of what we’re measured on, especially re-admissions and cost (assuming we decide to tackle cost reduction in the future).
Are we almost done filling the bus? We can add all providers in the community, radiologists, pathologists and anesthesiologists, for example. There isn’t much they have to do but being “inclusive” is good PR for the health system. And they might enjoy just sitting in the back of the bus and not having to do much of anything. A free ride of sorts!
Recruitment efforts over, our ACO’s list of participants (National Provider Identifiers by Tax Identification Number) is turned into CMS for vetting, and if all goes according to plan, CMS will link the TINs and Providers to the ACO Contract. Note: this process of “credentialing” and confirming the providers who are part of the ACO takes place every year. This is important as it drives how CMS views MIPS and or QP status. We’ll cover both of these economic opportunities in a future article as well.
Who is driving the bus and what does that mean?
Typically, a Hospital employee moves over to become the CEO/Director of the ACO and often the hospital’s Chief Medical Officer draws the short straw. The ACO establishes a Board, comprised of physicians, one or more patients, and usually filled out with hospital folks. Note: CMS has specific requirements for Board composition that must be followed.
Initially, the Board spends its time on approving an operating budget and funds flow, or shared savings distribution model, that drives how the dollars are to be split up, assuming the ACO earns money from CMS.
Shared savings distribution model.
While there are no CMS regulations in place regarding how these models should work, there tends to be some commonality from one ACO to another. So, assuming the ACO gets a $100 check from CMS a typical Shared Savings distribution model would include:
- Hospital takes a first cut for repayment over time of their upfront investment. If we assume a 5-year repayment, then the hospital would get 20%.
- Hospital. Again? I thought we covered that, but not so fast. Typically, the hospital or outside vendor needs to be paid for running the ACO so assume another 15-20% to cover that.
At this point we’re left with roughly 60% of the payment to distribute to the providers:
- The PCPs will generally get the most and this is likely fair, since they are doing most of the work associated with capturing the quality data, and if it’s in place, supporting Care Coordination. Assume that they end up with the lion’s share (40-45%) of the 60%.
- The disease specific and surgical specialists come next with 10-15% typically heading their way. This number will likely be higher in ACOs that have started to invest in Cost reduction.
- Finally, those in the back of the bus (radiology, anesthesia, pathology). Well, they get what’s left over, maybe 2-5% with typical per-provider pay-outs ranging from $100 to $1,000 and that’s assuming the ACO was wildly successful.
What does the day-to-day activity in the ACO look like for the first 3+ years?
Beyond required governance activity, the CEO is usually playing the role of physician liaison, recruiting more practices to get on the bus and meeting regularly with independent community practices to make sure they are happy. Generally, ACOs will add practice operational resources to help the office-based practices understand the quality measures the ACO needs to submit and getting optimal workflows in place to capture the quality measures such as depression remission, A1-C, high blood pressure and similar measures that will drive a large portion of the ACO’s quality score.
You might logically ask, “What about decreasing cost?” Most ACOs do not invest in data, analytics and care coordination until they are forced to. Why? It’s extremely expensive to build out these functions, and while there’s a return on investment, it may not start to come until 2-3 years down the road. This is not a good business case for a typical hospital CFO writing the annual check to fund the ACO’s operation.
Now that you have a sense for who is on the bus and how this thing is likely going to work, in future articles we’ll cover the following issues:
- CMS says ACOs are wildly successful. Is this true?
- I’m in the back of the bus and I’m a radiologist. What does being in an ACO mean to me and my group?
- I’m a radiologist minding my own business, but the hospital is pressing my group to join the ACO. What should I consider in making this decision?
Don Good
President, InContext
Don is the Founder and President of InContext, focused on helping Health Systems and large physician enterprises operationalize Value Based Payment, Analytics and Revenue Cycle Optimization. Prior to InContext, Don co-founded PMP, a Revenue Cycle Management and Analytics Company which was ultimately sold to NextGen Healthcare.
Don speaks nationally on the topics of MIPS, MACRA and Value Based Payment.
