April 16, 2010

Succinctly stated, the goal to improve our nation's healthcare quality while reducing the costs to deliver the same is intended to result in a final product that increases healthcare value. The foundation for true healthcare reform will be the implementation of industry-wide, complete adoption of an electronic health records (EHR) platform. This significant and compelling first step will set the tone for important initiatives to follow, including but not limited to:

• Value-Based Purchasing
• Reducing Preventable Readmissions
• Bundling Payments
• Managing Radiology Benefits
• Creating Accountable Care Organizations (ACO)

Accountable Care Organizations provide a model for physician/hospital integration to achieve clinically and economically effective care. An ACO is an integrated healthcare delivery system that relies on a network of primary care physicians, one or more hospitals, and subspecialists to provide care to a defined Medicare patient population. Under this model, the hospital and physician networks will be responsible for the quality of care delivered to patients and receive bonuses for providing high-quality, low cost care.

However, penalties will be imposed for delivering low-quality, high-cost care. Nevertheless, in contrast to many proposals that seek to improve care without imposing reductions in payment rates on providers, the Congressional Budget Office (CBO) has estimated that ACOs are expected to reduce costs by an estimated $4.9 billion dollars. In summary, the ACO model is an attempt to create a more coordinated approach to serving Medicare patient needs - a patient-focused system.

To qualify as an ACO, an organization must meet several requirements, including the condition that the organization agree to be accountable for the quality, cost and overall care of its Medicare beneficiaries, have a formal legal structure that allows it to receive and distribute shared savings payments, include adequate participation of primary care physicians, have a leadership and management structure that includes clinical and administrative systems, and define processes to promote evidence-based medicine, report on quality and costs (must have Electronic Health Records platform to access the data) and coordinate care.

Beginning January 1, 2012, Section 3022 of the Patient Protection and Accountable Care Act of 2010 permits qualifying groups of providers, including physicians and hospitals, to be recognized as Medicare ACOs and to share in Medicare cost savings above a certain threshold, provided that certain quality standards are satisfied. The ACOs may be paid using a partial capitation model or other payment models that improve quality and efficiency. It is important to note that Congress has budgeted $10 billion beginning in fiscal year 2011 to support this work. By January 2, 2012, the Secretary of Health and Human Services must define performance measures, attribution methods, expenditure benchmarks, and savings thresholds for ACOs.

The concept of physicians and hospitals attempting to collaborate as a more efficient delivery system has been around for quite some time. Independent Physician Associations (IPAs) and Physician Hospital Organizations (PHOs) are examples of efforts to create a more provider-engaging system. However, most IPAs and PHOs have failed to establish themselves as true clinically integrated systems. Nevertheless, the ACO may very well represent a solid opportunity for IPAs and PHOs to reach a more sophisticated level of physician/hospital integration. Those who make it will undoubtedly increase healthcare value.

If you have any questions about this issue or if you would like more information about HORNE's Health Care Services, please contact Jennifer Lott at jennifer.lott@horne-llp.com or by phone at 601.268.1040.