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Viability of ACOs, Reasonable Rules and Wise Use of HCIT

June 25, 2011
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What drives the performance variation?


Viability of Accountable Care Organizations, Reasonable Rules and Wise Use of HCIT

In recent days and weeks, a flurry of articles and white papers has been written in response to the proposed Accountable Care Organization regulation. In simple terms, there is broad consensus that we have great people and institutions involved in delivering care today. If we use technology wisely, subject to reasonable regulation, we should be able to improve value (access, quality, and cost), through better decision making and coordination of care.

Implementing HCIT that provides the functionality and capacity to meet Meaningful Use criteria now and in the long term will play an equally important role for those healthcare organizations that opt to participate in the ACO initiative. And we should all keep in mind that if the initiative shows even a modicum of success, payers other than Medicare are likely to adopt similar value-based reimbursement models.


In the meantime, questions have arisen as to the real world viability of the ACO initiative. The proposed regulation has come under considerable scrutiny by a number of influential healthcare leaders and organizations. To say the least, it is still a work-in-progress, but a work that’s mandated by Congress to be in place by January 1, 2012.


As pointed out by many over the past several months, including John K. Iglehart in NEJM, December 22, 2010, CMS has previously sponsored a relevant demonstration project that began in April 2005 with 10 large physician group practices participating. The project measured both quality and shared-savings payments over a four-year period.


Of note, only two of the participating PGPs received payments each year. Four received no shared saving payments, and only three achieved double-digit savings greater than $10 million cumulatively. Further, more than half of the savings were accrued by just one of the 10 participating PGPs. Where does the variation come from? Is this predictive of success or failure for your organization under an ACO? Iglehart’s article outlines the analysis and informed conjecture concerning the project as provided to CMS by RTI International. It’s well worth a read.


During the Healthcare Informatics Executive Summit last month in San Francisco, I asked two of the most informed physician leaders in attendance, “Where does this variation come from?”

I posed my question first to the opening keynote speaker, Farzad Mostashari, MD, ScM, National Coordinator for Health Information Technology, who replied:


“It’s about how you choose to play the music. The elements of Meaningful Use are like the keys on a piano. You can do a lot with them. A lot right and a lot wrong. A lot of it is about culture, it’s about workflow, it’s about leadership, and it’s about the intangibles. Meaningful Use is (only) about the tools.

There is always going to be variation, whether it’s a car dealership, or a plumber, or healthcare organizations that implement healthcare information technology.

Our mission is to shift the curve, and not just have a few benchmark institutions that do amazing things. We are trying to move the mass of American healthcare to a different place.”

The closing keynote speaker was Carolyn Clancy, MD, director of the Agency for Healthcare Research and Quality, U.S. Department of Health and Human services. Her style and tone was that of a calm, collected scientist when answering my question:


“The short answer is I don’t know off the top of my head what drove the variation in the Medicare Physician Group Practice Demonstration Project. A number of organizations that participated have been meeting and working together over the last year or two (to try to figure that out). They see the Innovation Center as an opportunity to further their efforts (to understand that).

One of the things they’ve learned is that at almost every level, whether it’s how they implemented their electronic records (even when they are using the same system more or less), to how they do Medication Reconciliation, to how they assess measures for PQRI, to anything else, at almost every step of the way, they have their own tweaks on it.

This would suggest to me that there isn’t a robust evidence base. We can learn a lot from this variation in terms of what seems to work.







You make a very large number of important and valuable points in the above post!
First, I agree completely that before we can even intelligently and fairly assess issues like variations in care and outcomes, we need to carefully look at how we're measuring such variations. Tools and methodology really do matter!

Also, I agree that meaningful use and the ACOs proposed rule are both still phenomena in progress. I think it will be extremely important for CMS to show flexibility in both processes going forward. As I've said myself in previous writings, part of doing all this right is setting the bar for any particular program at just the right height, not too high, or everyone will fail, and very little good will come from it but not too low, either, or it will become a meaningless exercise. With regard to ACOs, getting the bar set at the right level will be even more difficult than for meaningful use, IMHO, as the issues are even more complex.

Thank you again for sharing your insights, perspectives, and information with our audience!

Hoffer's quote makes a Biblical allusion (Matt. 5:5). I am
reminded of a parable:

For which of you, desiring to build a tower, does not first sit
down and count the cost, whether he has enough to complete it?
Otherwise, when he has laid a foundation and is not able to
finish, all who see it begin to mock him, saying, 'This man began
to build and was not able to finish.' Or what king, going out to
encounter another king in war, will not sit down first and
deliberate whether he is able with ten thousand to meet him who
comes against him with twenty thousand? (Luke 14:28-31)

Before institutions commit to ACOs, they need to make a very
careful accounting and specify explicitly the steps they will
take to receive 'shared savings.' This is a painful degree of
specificity for many institutions who have little handle on
quality metrics in general, let alone the real-time quality
metrics needed to ensure that performance stays within the
boundaries for ACO rewards.

I thought Dr. Mostashari's answer somewhat flippant and agreed
with you that Dr. Clancy (as usual) gave a more measured,
thoughtful response. Whether tweaks or 'playing the right keys,'
both answers highlight the need for much savvy on the
nitty-gritty ACO rule details to turn them to gain.

In response to Dr. Mostashari, I'd say, "It's all fun and games, or
piano keys, for the government, but life and death for
institutions who rush in where Angels fear to tread: the
Byzantine intricacies of government regulation on ACOs."

Again your blog hits with a theme both timely and insightful. As a trained hospital administrator, I've been well aware for more than three decades that health care financing systems have been evolving to narrow the role that hospitals play in the US health care delivery system. Initially, the pressure was to shift from expensive in-patient care to less expensive out-patient care. Then managed care and DRG methodologies led to pre-admission reviews and decreased length of stays. Now, as you point out, ACOs are on a not-very-distant horizon with the avowed goal to reduce hospitalizations.

The gist of the ACO concept is to optimize care across the continuum. Two key predicted outcomes are fewer re-admissions and avoidance of hospitalizations. In both instances, the result is decreased revenue for the traditional hospital.

Once again hospitals are facing the prospect of fewer admissions to support massive human, financial, intellectual, social and technical capital investments. Once again, hospitals have to predict the future and choose their paths in order to survive and thrive in the next decade.

How to respond to the evolutionary threat? The three classical options: remove the barrier go around the barrier go through the barrier. For ACOs, that means: attempt to politically create an evolutionary dead end for ACOs find a work-around to offset the reduced admissions or embrace the ACO concept and reinvent the institution to ride the wild new beast.

Consistent with current federal policy, the ACO proposed rule focuses effort on patient-centered care by a virtual team of informationally linked caregivers. Never mind that historically most caregivers in the US are individuals who are captains of their own ship and also in competition with each other for patient services, and that informational linkages are still embryonic.

It will be interesting to watch how the hospital industry responds. I expect that there will be many who try each of the three classic options and many that invent new fourth or fifth alternatives.

Dr Cook,
We are in violent agreement.  Although I do believe evolution requires CHIT; I don't think technology is sufficient without policy that covers what care society pays for.

What you are calling out, however, are much higher "Horizon Of Focus" issues (affordability and individual accountability).  Horizon of Focus, as exemplified in this graphic below comes from David Allen's GTD(R) WORKFLOW MAP SET, available through this link.  Is described in general here.  Readers who are not familiar with David Allen's "Getting Things Done" are encouraged to learn more here.

Your valid comment starts at "Purpose, Vision, and high level Goal."  You are at the 30 to 50 thousand foot level.  Meaningful Use is clearly below the 12 thousand foot level.  It represents a series of projects and calendar-specific staged deliverables.

Staying with the framework, your observation (e.g. WHY) appears to be, the "Accountable" in Accountable Care Organization isn't broad enough.  The horizon of focus needs to be at the level of Goals and Responsibilities for all impacted participants, which includes patients and the health and wellness of people who haven't become patients.

Is this a fair restatement of your perspective?  And if so, does the evolution of our current system through an ACO delivery and payment path fundamentally undermine personal accountability (individual responsibility) to achieve affordability in your opinion?

This is a very good post and the comments thus far have been outstanding. I was especially impressed by what Rich Land wrote. He really put things into prospective concerning hospitals and the ACO initiative. It's obvious that ACO and MU are both posing considerable challenges.

In the quotes you presented, I think Dr. Mostashari made valid points that Meaningful Use is about the tools and variation will always occur. However, if MU is really about the tools, then where are the standards that will make it possible to achieve within a reasonable period of time and in a cost-effective manner? It seems to me that we may have another potential fiasco brewing because government isn't putting the horse before the cart. Things could be made much simpler with a little more thought on the part of the powers that be. Further, the drive toward MU (and ACOs) may be a factor in removing the innovation from variation the innovation that could produce results that are superior to elements of MU criteria. I question whether homogenizing healthcare will make the best use of the great medical minds we have in this nation.

Additionally, I read a few of the remarks Dr. Mostashari presented to the Accountable Care Organization Summit and the Health Information Technology and Delivery Transformation Summit in Washington, D.C., as published on this website.

According to Healthcare Informatics, he said in his conclusion that about 86 percent of hospitals are intending to apply for MU incentives. "They are not doing it just because of the money. They are doing it because it is aligned with what they need to do. Meaningful use is not a distraction," he stressed. "It is a roadmap to prepare, and it helps mitigate some of the costs. But if we are not succeeding, if it is a distraction, then we need to change it."

Let's get both feet firmly on the ground here. Within the narrow MU time frame for Stage One, of course hospitals are doing it for the money — the money involved from the incentives and to help meet CMS criteria for reimbursement, therefore, long-term financial viability. Also in these same remarks, Dr. Mostashari categorically stated that MU is not a distraction, and then two sentences later said if it is, we need to change it. Doesn't this give anyone but me the feeling that the MU initiative (as well as ACO) may not be that well thought out?

So tell me Dr. Joe, are the points I raise here totally invalid? Am I just playing devil's advocate? What have I missed?


Thanks IA and TenKnocksOut for your comments.

IA, I was heading down the same path you are describing. My interpretation is similar to yours. The management and related modeling to succeed under a shared savings reward structure appears to have deep sustainability challenges. As has been reported by others and evidenced in the sources cited, the data collection and feedback required don't generally exist in sufficient form today.

Regarding Dr Mostashari's comment, I think part of the vital context was lost. He was trying to position MU attainment as a layer that was important and distinct from other layers, like payment reform. He did cite the challenge of government regulators trying very hard to reference existing laws and policies, rather than create more intricacies. For example, the ACO regulatory required 50% of privates to be Meaningful Users, rather than coming up with a differently defined standard.

TenKnocksOut, I think you bumped the ACO viability discussion up to a whole new and important level. Profitability and Healthcare delivery disconnects have historically been addressed by organizational "mission." Whether community mandate, religious or other institutional driver, there have been methods other than ACO-type constructs to try to keep individuals and institutions whole financially.

If they are vital and not addressed in ACOs, then ACO's wont be viable. This connection, by the way, is not limited to healthcare. There are several good sections of Richard Farson's book, The Power of Design, with examples in other professions including education and criminal justice. Farson's point appears to me to be that professional cannot abdicate their responsibilities to getting design right, despite often enormous pressures to do so.

Thanks Mark and Joe for your kind words and observations.

Joe, I especially liked your reinforcing that this needs to be an ongoing learning experiment. There was an Eric Hoffer quote shared by Dr Gary S. Kaplan, Chairman and CEO of Virginia Mason Medical Center in the National Priorities Partnership last week, shown here:  (It's all about learning!)

More interestingly, perhaps, was Dr Kaplan's demonstration of VMMC's improvements using a Toyota / Lean methodology.

Notice their significant reductions in hospital days and number of acute admits.  This is in counter distinction to the most significant savings in the Medicare PGP demonstration project described in the main post above.  From highlighted Iglehart excerpt, "The majority of the savings at all sites [in the PGP study] occurred in outpatient, not inpatient services."

Following the variation to learn where learners are achieving savings would appear to be essential to make HCIT-enabled payment reform work.

Very interesting article. RE the CMS page and post - while Marshfield Clinic had the highest number of beneficiaries, and the largest savings, I would be interested in the cost per beneficiary vs. 'largest savings.'

I noted that St. John's Clinic had the next highest number of beneficiaries - 80% of Marshfield's - but only half the number of providers. While they are part of an IDS, it would seem that more metrics would provide more insight.

Jack, thanks for your comment and your question: "Am I just playing devil's advocate? What have I missed?"

I think the answer to your question lies in the Eric Hoffer quote above (paraphrased):

Learners inherit the earth,
and the Learned are ill-prepared.

A more playful way of putting this, and Harrison Ford/Indiana Jones in Raiders of the Lost Ark agrees with us, is, "I'm making this up as I go along."

On a more serious note, what the policy makers are trying to do, in a legal and inclusive manner, is arrive at a logical and defensible step forward, called Meaningful Use. The intent is to drive enough standardization (certification for products, and reporting for measurement) to improve two things: Care Delivery and the related dimensions that I call the Vowels of Care.

In simpler terms, Jack, the goal is to find an immediate path in the right direction, not agree on a final, specific destination.

In this post, we have the opportunity to see if it's worth trying to, or refine, a course based on the experience of the ten travelers who set out in 2005.   Can we make progress by focusing on an incentive of shared savings that hopes to counter some of the ill of the fee-for-service incentive system that we have today?  Does the learning here inform if and how we should structure ACOs?  Those are the topics for learning.

Thanks Rich and IA. It's becoming clear each month that Stage 1 Meaningful Use is only the beginning. Payment and accountability reforms, as well as heightened expectations on hospitals and employed physicians are taking shape. Last year's question, "Should we pursue MU in 2011?" is looking trite.

Carolyn Clancy's comment on provider-specific "tweaks [at every step]" really speaks to importance of our day-to-day work in HCIT.

As always, your comments are both insightful and thought provoking. The variation in results is an all of the above answer. Each practitioner has a unique style and approach, each patient has a unique story and set of complaints and needs, and each IT system works in it's own way. Each area of the country has it's own flavor as well. I think that longterm studies will start to tease out areas for collaboration and improvement. Short term this must be considered an ongoing experiment.

Terrific post.  Thank you.  The only thing I'd like to add is that the number of enrollees did not drive the variation.  If you go here,, you'll find the 2009 report to Congress which contains the enrollee data from PY2:

As you can see, the assignment was not related to the extent of shared savings.  It's interesting that Marshfield Clinic did have largest number of assigned beneficiaries and the largest savings. That information was not predictive of the variation in payments beyond them.

On that same CMS page, look at the site reports, you'll find additional details that will help understand the organizations and the impact relative to non Medicare patients.  This may help organizations better understand their prospects of earning shared savings under similar programs.  For example, the Geisinger site reports states that they "already had an infrastructure in place that could be levered for use in the demonstration; if Geisinger had not had such systems in place, their participation [including 63.9% of their total enrolless assigned], their participation would have been much less likely."  The report also describes their physician incentives program.  Required reading for organizations planning an ACO!

Your and the replies are cogent but miss the point. Embedded in your blog and the comments is the major point.  ACO's as currently structured are not viable.  "Tweaking" is like rearranging the deck chairs on the Titanic.
If you asked "Can Reasonable Rules and Wise Use of CHIT [Certified HCIT] Assure the Viability of ACO's?"  I would give you the same answer.  WHY?
Let's go back to intent - affordability.  "Healthcare" today is treating disease and treating trauma.  Both entities, disease and trauma, are predictable within a few percentage points given a large population and the regional social demographics.  They cannot be predicted with accuracy in individuals and small populations.  This is the social equivalent of Heisenberg's Uncertainty Principle. ACO's require certainty.
The intent is to make Healthcare nationally affordable for all citizens and guests of this great nation without affecting quality and creating unfunded mandates.
CHIT in its current condition is not sufficient.  "Healthcare" tomorrow is about preventing and treating disease and trauma.  Incentivizing the individual's prevention responsibility will shape affordability.  That is the message of individual centered healthcare. That will require PC-CHIT (Patient Centered-CHIT).  That leads to the central question.  How do we evolve toward individual responsibility?


Thanks for your comment. I had neglected to notice the variation in relative panel sizes, i.e. number of patients divided by number of providers. I agree that understanding cost per beneficiary (with sufficient volumes, risk adjustment and then correlation to savings, perhaps based on medians rather than averages) would be necessary to draw conclusions that a provider organization could manage from.

Perhaps the major learning from the MPGPD follows Dr Cook's comment above: "Provider organizations CANNOT predict their expected ACO performance for exactly the reasons you are raising. Bringing in more data elements would almost certainly lower our confidence of the predictive value of our analytics."

I agree with Dr Cook. ACOs as currently conceptualized are not viable. And it's really a question of "compared to what?" ACOs are a response to the non-affordability of fee-for-service, as experienced by Medicare.  They might be better than the pure volume incentives of fee-for-service, but that's not good enough.

A non-addressed underlying problem is that healthcare is managed for profitable value.  Most of the VPs of the care management service lines in my organization are really smart MBAs with no clinical background whatsoever.  Often in their mid 30s.  To them, somewhat understandably, if treating a small bowel obstruction isn't profitable, they would prefer not to invest in the relevant quality, safety, reliability and efficiency management.  Frankly, it's pretty clear that they dont see hospital and clinic operations as care delivery at all.  At least not as most healthcare professionals think of care.  Perhaps what's at issue is that definition of professionalism.

With ACOs and their associated required analytics, there will be greater pressure to cherry pick patients, despite the retrospective assignment.  The outcome?  If you call for an ambulatory appointment with a non-favored age-gender-insurer and co-morbidities, you'll get an appointment in four months, after waiting on the phone for 40 minutes.  For worrisome symptoms such as palpitations or rectal bleeding or finding a lump, that four months can be the difference between living and dying.  Driving the access decision by profitability is simply wrong.

Once some ACOs demonstrate some viability, the stage will be set to reduce fee-for-service payments.  At that point, the profit orientation will reduce access for care; that wont produce cost savings for the system, or better health.  It leaves us with the expensive disease care system, rather than the less expensive and more desirable healthcare system.  The one with same-day appointment access, and a payment system that is truly aligned with managing health, wellness and disease in its earliest stages possible.