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Customer Experience and Design

ACOs: A Puzzling Business Case…But is it Really?

The release by CMS of the draft ACO regulations last week came as no surprise. What was surprising was the number of articles and comments regarding the differing perspectives around ACOs and their purpose versus the business viability and sustainability of this health reform business model. The interesting challenge around ACOs is whether this is a business model determined by financial contributions to the participants or if the purpose is to drive better and less expensive clinical services.

In one article written by Healthcare Finance News, Cigna indicated that preliminary results from two ACO pilot projects achieved lowered growth in healthcare costs while also improving quality of care. In this program CIGNA shared “gaps in care data” with care coordinators at participating providers. Using this information, care coordinators worked directly with patients to ensure follow-up appointments were scheduled, prescriptions were filled or additional medical tests were completed. The article also indicated that Dartmouth-Hitchcock, one of their test partners, was able to achieve a 10% improvement in the practice’s overall closure rate for gaps in care compared with physician practices without coordinated care.

In a second article published in the New England Journal of Medicine, VHA Inc. indicated that most health systems adopting an ACO model will lose money during the first three years of operation. They concluded, through their pilot program, that high upfront costs make the ACO model a poor fit for most physician practices and that, in their opinion, the time frame to make a reasonable return is more than five years. They also found that most large, experienced and integrated practices could not recover their initial investment within three years.

Making Sense of the Conflicting Reports on ACO

So, herein lies the dilemma. There are two conflicting reports on why or why not to drive an ACO model in your healthcare area.

In my opinion, it is not a question of either/or. In some instances, the question is not whether in the short-term one is able to create an ACO model that is financially viable but whether it is able to connect the partners together in a meaningful and empowered way to enable the impact of the delivery and effectiveness of care. No matter what your view or position on healthcare reform, I do not think anyone can debate that a more effective partnership between all parties (i.e. Providers, Payors, Physicians, Patients) needs to be created to be able to sufficiently impact our current healthcare delivery model. Today, the ACO appears to be conceptually the way to move forward. There is no doubt that early adoption of the ACO concept should start with pilot projects with different objectives. One may focus around a specific disease state and bring the participants together to see if outcomes can be better managed. Others may consider a more proactive model which focuses around the PCPs that are the true coordinator of care with the broader clinical delivery team and who has the strongest long-term relationship with the patient. There are many other pilot options and all should be tried to see what works best over the next few years to hone the execution and to drive real value to the participants.

The Question of Funding

There is of course the question of how an ACO is paid for and, in some cases, maintained with a sustainable business model. Currently, through CMS and some commercial payor partnerships, there are incentive models to help fund some, if not all, of these initial costs. Still others are looking for grant money that can fund these initiatives. However, the bottom line is, does your healthcare environment believe that this model is essential or necessary to sustain your healthcare system? Similar to electronic medical record (EHR) solutions, ACO implementation is increasing a necessary cost of doing business.

I realize that these potential investments come at a time when healthcare systems are under intense cost pressures and reimbursement challenges. Therefore, I believe that pilots and proof of concepts are the best way to test the waters without jumping completely into the deep end of the ACO waters. I do not think that everyone will need to or can adopt all of the defined draft ACO regulations into their new delivery models. However, I do believe that without either the ACO or partnership approach, healthcare systems are putting both their reimbursement model and cost structure at huge risk. There is no silver bullet during these times of healthcare reform. One must be innovative and creative. Ultimately, I believe that ACO is just one more avenue to pursue.

In a future blog post, I will look at the important and essential investments that need to be made to enable an ACO to be a strategic business tool for your healthcare system.

What are your thoughts on the conflicting reports around ACO? Enter a comment here, or come see me this week in Las Vegas at IBM Impact. I will be in the Industry Zone at IZ-4 or check out our IBM Impact landing page

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