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Assessing the Financial Risk in ACOs

April 7, 2011
by Mark Hagland
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One expert sees a relatively small number of providers establishing ACOs

With the release by the federal Centers for Medicare and Medicaid Services (CMS) of the proposed rule for accountable care organization (ACO) development on March 31, experts having been poring over the details of the rule and analyzing its implications for providers of different types. One industry expert who sees ACO development as an expert-level type of enterprise is Paul Keckley, Ph.D., who leads the Washington, D.C.-based Deloitte Center for Health Solutions, a division of the global Deloitte consulting firm. Keckley spoke this week with HCI Editor-in-Chief Mark Hagland regarding his analysis of the proposed rule. Below are excerpts from that interview.

Healthcare Informatics: Overall, what is your impression of the proposed rule?

Paul Keckley, Ph.D.: I think it’s quite complicated and comprehensive; it seems to me that the delay from when it was first anticipated in January until March 31 was the result of caution [on the part of federal healthcare authorities] in making sure that they could accommodate varied types of markets for those with very well-integrated systems, and also those that are fairly fragmented. Second, they seem to have tried to accommodate antitrust issues; there’s been a question since ACOs were first included in the healthcare reform legislation, that they could potentially create cartels, in which doctors, hospitals, and long-term care, for example, potentially might become so integrated that it would impact costs.

Paul Keckley, Ph.D.

So I think that the delay partly speaks to their addressing those issues. I didn’t see anything in what I’ve now read twice that was necessarily surprising. You definitely see the complexity of this in various sections of the rule. For instance, the way they’ve calibrated quality scores, up to 130 points, with 62 of the points with treatment of various elderly populations; or the methodology they’re using to allocate payments.

This is a rule that’s now being put out as CMS’s best effort. I think it will get a lot of reaction. I don’t think the ACO is necessarily for everyone; but I don’t necessarily think it was intended to be. When you read the Affordable Care Act, you read about accountable care organizations, the medical home, bundled payments, value-based payments, and readmissions work; and the glue that holds all that together is information technology. You must have both clinical and administrative data-sharing. And I think we’ve now seen one piece of that puzzle in this proposed rule. It’s consistent with what else we’ve seen in the Affordable Care Act. And I anticipate they’ll make some changes based on feedback.

HCI: With regard to the creation of two risk models, one involving “one-sided” risk and the other involving “two-sided” risk models, we’ve had experts tell us that they believe very few provider organizations would be able to handle the “two-sided” model, and some are even expressing skepticism about the terms around the “one-sided” model. Your thoughts?

Keckley: I can understand that comment, but we’ve got about 120 integrated systems already taking on risk, many of them already owning their own plans. I believe that the fact that they created the two models means that they believe there are groups ready to take on the risk. And the fact is that under the two-sided model, you get 60 percent of the savings if you achieve 90 percent or higher on the quality scores, whereas you get 50 percent of the savings if you achieve 90 percent or higher on the quality scores under the one-sided model; so the differences aren’t that dramatic.

HCI: So you think some groups will be able to take on the two-sided model?

Keckley: I think what was intended was that they wanted to set the bar low enough to get 75-150 organizations that would pursue this. This is actually a rule, and in this 429-page rule, there is this explicit statement that they anticipate between 75 and 150 organizations to be eligible as either one-sided or two-sided ACOs; and between 1.5 and 5 million Medicare enrollees would be encompassed.

And they said they’re really not sure how many will anticipate, and how effective this will be in reducing costs; and they’ve put this out for comment. So I think they’ve produced a very intellectually honest rule. And they started with a whiteboard, and this is very complicated, and they were pretty intellectually honest here. So I’m impressed with the scope of the rule.