The Normative Meets the Practical: Who Should Can Lead ACOs

One of the many $64,000 questions in the accountable care organization (ACO) debate has been who should lead these organizations.  In a policy adopted in November 2010, the American Medical Association (AMA) made clear its view that ACOs must be physician-led.  The American Hospital Association (AHA) refrained (at least in its public letter to CMS) from asserting its entitlement to the ACO helm, based, for example, on its management experience and pools of capital.  Instead, it simply urged CMS to “defer details of the organization, such as leadership and management structure, to each ACO.”

CMS seems to have heeded the AHA’s advice because its recently released proposed rule does not directly take on this normative debate.  (See Summary of CMS Proposed Rule on Accountable Care Organizations recently posted by Jordan T. Cohen for an overview of the proposed rule.)  While “ACO participants must have at least 75 percent control of the ACO’s governing body” to be eligible for participation in the Shared Savings Program (proposed Section 425.5(d)(8)), the definition of “ACO participant” in the proposed rule includes physicians and hospitals, among others (proposed Section 425.4).

V. Van Gogh, "Corridor in the Asylum" (1889)

Similarly, the proposed rule simply requires that the “ACO’s operations must be managed by an executive, officer, manager, or general partner whose appointment and removal are under the control of the organization’s governing body and whose leadership team has demonstrated the ability to influence or direct clinical practice to improve efficiency processes and outcomes” (proposed Section 425.5(9)(ii)). The proposed rule does not address who or what would make the best such leader.

The proposed rule, however, clearly preserves a role for physicians to form and lead ACOs. For example, it recognizes that ACOs may be comprised of professionals in group practice arrangements and networks of individual practices, independent of hospitals (proposed Section 425.5(b)).

In addition, “[c]linical management and oversight [of the ACO] must be managed by a full-time senior-level medical director . . . who is a board-certified physician . . .,” and “[a] physician-directed quality assurance and process improvement committee must oversee an ongoing action-oriented quality assurance and improvement program” (proposed Sections 425.5(9)(iii) and (iv)).

The proposed rule also builds in a preference for ACOs comprised of all physicians or physician groups with fewer than 10,000 assigned beneficiaries by proposing to exempt them from the 2 percent net savings threshold adjustment under the one-sided model (proposed Section 425.9(c)(4)(i)).  It also proposes to vary confidence intervals, which affect the minimum savings rate, by the size of the ACO in the one-sided model “to improve the opportunity for groups of solo and small practices to participate in the Shared Savings Program” (Preamble to proposed rule at Section II.F.10).

But on a practical level, the specifics of CMS’ proposal may — unintentionally, perhaps — give hospitals the greater chance to take the reins, at least initially.  An apparently leaked CMS internal discussion document reflects some level of concern that physicians may have a hard time taking the lead with ACOs.

The proposed rule’s regulatory impact analysis estimates that the average start-up investment and first year operating expenditures for an ACO in the Shared Savings Program will be $1,755,251.  In addition, the proposed rule uses a 6-months claims run-out (proposed Section 425.7(a)).  Presumably, that means ACOs — assuming they satisfy all program requirements — will not see a dime of shared savings for more than eighteen months.  CMS also proposes to withhold 25 percent of any earned shared savings accrued in a given year to ensure repayment of any losses to the Medicare program in subsequent years of the three-year ACO agreement (proposed Section 425.5(d)(6)(iii)).

Even if private physicians can amass the capital to make these upfront investments, there of course is no guarantee they will regain their outlays. A recent study published online by the New England Journal of Medicine, as reported by the American Medical Association, found that participants in CMS’ Physician Group Practice Demonstration did not recoup, at least in the initial years of the demonstration, all of the money they invested to establish ACOs.  As the AMA summarized:

Early adopters, for the most part, did not recoup their set-up costs in the first three years of operation.  The 10 integrated health systems that were studied spent an average of $1.7 million to take part in the demonstration project.  Eight received no shared savings payments in the first year of the project.  Six got a payment in the second year, and five received a bonus in the third year.

The Everett Clinic in Washington, for example, reportedly spent approximately $1 million on infrastructure for its ACO but recouped only $129,268 in shared savings during the first four years of the demonstration project.

The Doctor Luke Fildes, Samuel Luke Fildes (1843-1927)

According to a 2007 report from the National Center for Health Statistics (NCHS), in 2003-04, 80.6 percent of office-based medical practices in the United States consisted of one or two practitioners and 94.8 percent had five or fewer practitioners.  The risks associated with forming an ACO are considerable for these smaller practices to absorb, especially when, at best, the ACO will see 75 percent of its portion of any shared savings upwards of eighteen months down the road and could instead be responsible for its share of losses.  It is not clear how many small practices are willing and able to assume these risks without some substantial financial or management support.  Not surprisingly, the AMA’s statement on the proposed ACO rule specifically identifies “the large capital requirements to fund an ACO” as a significant barrier that must be addressed if physicians in all practice sizes and settings will be able to successfully lead and participate in ACOs.

Another aspect of the proposed rule that may present a particular challenge to independent physicians is proposed Section 425.11(b)’s requirement that “[a]t least 50 percent of an ACO’s primary care physicians must be meaningful [Electronic Health Records (EHR)] users, using certified EHR technology as defined in §495.4, in the [Health Information Technology for Economic and Clinical Health (HITECH)] Act and subsequent Medicare regulations by the start of the second performance year in order to continue participating in the Shared Savings Program.”

Personal Robot Pictogram, Tradelpus

Physician practices indisputably have increased their use of EHR systems in recent years.  According to the National Ambulatory Medical Care Survey conducted by NCHS (reported here), only 17 percent of physicians in 2008 reported that they had a “basic” EHR system (which is defined as having electronic patient demographic information, patient problem lists, patient medication lists, clinical notes, orders for prescriptions, and laboratory and imaging results).  Recent NCHS data (reported here) show that that number has climbed nearly 50 percent to 24.9 percent of office-based physicians.

But basic use of EHRs is not sufficient under the proposed rule, which requires “meaningful use.”  Survey data from the Office of the National Coordinator for Health Information Technology, as reported here, show that only 41.1 percent of office-based physicians plan to apply for billions of federal dollars in EHR incentive payments that are available to Medicare and Medicaid providers under the HITECH Act, compared with 80.8 percent of acute care non-federal hospitals.  Additionally, as reported here, a recent survey from the Medical Group Management Association (MGMA) found that only 13.6 percent of medical practices that have adopted EHRs and plan to apply for the EHR Meaningful Use incentives currently are able to satisfy the fifteen core criteria necessary to establish that they are meaningful users.   Medical practices have a long row to hoe.

But the news is not all bad for physicians.  The MGMA survey also found something that suggests this issue is far from resolved on a theoretical or practical level.  As reported here, “almost 20 percent of responding independent medical practices that owned EHRs said that they had optimized their uses of EHRs” whereas “[o]nly 8.8 percent of responding hospitals — or [integrated delivery system (IDS)] — owned practices with EHRs said they had optimized their EHR use.”

Almost certainly, it is not just a coincidence that physicians are devoting their energy to becoming meaningful EHR users just as the first EHR Meaningful Use incentive payments are available. If CMS or private foundations develop additional incentive programs to help smaller practices cover the start-up costs associated with forming an ACO, the individual physician could still be in this game.  Notably, the AMA’s brief statement on the proposed ACO rule reiterates its recommendation to CMS to increase access to loans and grants for small practices as part of this puzzle.  It remains to be seen if any such programs are viable in this fiscal climate.

As promised, future posts will address the normative question of who should lead ACOs.