Will Meaningful Use and EMRs help jump
the ACO hurdle?
June 2011

ACO – The Accountable Care Organization is the government’s latest attempt to improve
quality of patient care and control the ever escalating growth in health care costs. The
Affordable Care Act (commonly known as the health reform law) encourages via financial
incentives and penalties the formation of “accountable care organizations” by organizing
health care teams, technology and knowledge around patient needs.  As might be
expected, there are many complex organizational, monetary, and other significant policy
issues surrounding the ACO model of care delivery.

The ACO concept is not new to the health care world. In past decades we called them PHO
(Physician Hospital Organizations) or HMOs (Health Maintenance Organizations).  Both of
these in the 1980-1990s had only a small impact on health care costs. Many PHOs and
some HMOs are still in existence today. In fact we have always had some form of ACO
going as far back as 1939. For example, the Kaiser Health Plan, The Cleveland Clinic,
Sharp Healthcare, Geisenger Clinic, and many others are basically ACOs, and if they
include an insurance component they are more like an HMO. The simplest definition of an
ACO is a health care delivery system where the physicians and hospitals work under one
corporation, have one set of in-sync patient objectives, and share in the profits /losses of
normal operations. Medicare wants doctors and hospitals to work together and accept one
payment for all levels of care and accept the responsibility for coordinating the care of the
patient across all modalities of care.  

Where ACOs Work and Why
If you look at why the concept has worked in the Mayo, Kaisers and Cleveland Clinic, it’s
because the attending docs are part ‘owners’ in the hospital. They get paid a salary and
bonus on both the performance of their practice, and the performance of the hospital and
other health services. For example the physicians readily accept that less support staff will
save the hospital money, which in turn could result in a year end monetary bonus while
hopefully improving patient care. That in turn can lead to more patient referrals and more
revenues. The same is true for ordering less tests or procedures. Less tests equal less
costs and under a fixed payment system like Medicare’s DRGs that means more profit.

But today the independent physician makes his/her money seeing as many patients in
his/her office as possible. The hospital is just a cost neutral and convenient place for
physicians to do complex procedures. So, if an ACO is that simple and beneficial why are
there so few?

How’d we get here?
Today, and for the past half century, we have been in a situation where the person most
responsible for ‘product definition’ and most responsible for ‘bringing in the business’ is
not an employee of the hospital. That person is the attending physician, or sometimes
called the independent practitioner. It goes back to the establishment of the AMA and the
AHA in the early 20th century. Both of these groups were focused on increasing utilization
of hospital and medical services and even at that time, just as today, medical care was
relatively expensive.  So to drum up business they both came up with the idea to sell a
medical insurance policy. Rather than work together, around 1940 the AMA founded Blue
Shield and the AHA started Blue Cross. Each with its own similar, yet different objectives.
Keep in mind that almost all doctors in the early part of the twentieth century were
independent practitioners and hospitals were places to be avoided.

                           In 1966 along came Medicare. If you go back and study the
                           legislation of the day you will find that physicians fought Medicare with
                           a vengeance and wanted no part of the government or the
                           institutional side of the package. Of course today if you tried to take
                           Medicare away you’d have a rebellion – and not just from seniors.
                           So, Medicare in 1966 solidified the doctor /hospital split via separate
                           payment systems by creating Medicare Part A for hospital payments and
Part B for physician payments.

Then in 1972 as the health insurance industry matured the Federal Trade Commission
became concerned that doctors and hospitals selling insurance was a little to ‘cozy’, the
AMA had to spin-off Blue Shield, and AHA split with Blue Cross. Later, as the Blues saw
themselves more as insurance companies than part of the medical establishment, many of
the Blues merged and eventually morphed into today’s United Health, Wellpoint, etc.

To drive the hospital /physician wedge deeper in 1993 Congress passed OBRA which
contained the infamous Stark amendment. The Stark amendment made it a crime for
doctors to refer patients to a hospital in which they had a financial interest. The feds saw
this as a conflict of interest that would drive up health care costs.  

The structure we have today, that of full physician independence, has been around a very
long time and has been repeatedly fortified through separate provider and piece work
based payment systems raising today’s big question; Who is accountable for all the care a
patient receives?  

How can we create more ACOs?
Now, after more than a half century, the government has come to the conclusion that
doctors working separately from hospitals with separate payment systems and different
incentives is a counter-productive operating model. Too bad we didn’t see that coming
when we initiated the Medicare/Medicaid systems. Now under the duress of very large
federal deficit, in part a result of health care costs, we are trying to reverse seventy years
of misdirected legal and financial incentives. Under an ACO the feds want both parties to
work together, share the payments, and share the risks.

The ACO statute of April 2011 lists the following provider combinations as potentially
eligible ACOs:

   1.        ACO professionals in formal group practice arrangements.
   2.        Networks of individual practices of ACO professionals.
   3.        Partnerships or joint venture arrangements between hospitals
              and ACO professionals.
   4.        Hospitals employing ACO professionals.
   5.        Such other groups of providers of services and suppliers as
              the Secretary determines appropriate.

Combinations 2 and 3 are what I call the ‘virtual’ ACO. Combinations 1 and 4 are more like
the PHO/HMO of the past or the Mayo model.

As stated by CMS, ACO compliance with the requirement to reduce costs and improve
care may involve a range of strategies which they state include the following examples:

A capability to use predictive modeling to anticipate likely care needs.
Utilization of case managers in primary care offices.
Having a specific transition of care program that includes clear
    guidance and instructions for patients, their families, and their caregivers.
Remote monitoring.
The establishment and use of health information technology,
    including electronic health records and an electronic health
    information exchange to enable the provision of a beneficiary’s
    summary of care record during transitions of care both within and
    outside of the ACO.

Promote the ‘virtual’ ACO
As can be seen from the compliance strategies CMS is leaning heavily on HIT and EMR to
help avoid some very difficult political battles. As an interim step they are encouraging
hospitals and physician groups to use EMR systems to build and support a ‘virtual’ ACO. In
this scenario the physician and the hospital would remain corporately separate, but the
patient information and the payment would be shared. This dovetails with the new federal
HiTECH Act that promotes EMRs and stronger coordination of care via interoperability.

CMS has defined the five levels of ACOs and has set target dates for providers to achieve
one of the levels. If a provider organization achieves an ACO level during the next five
years they will get a financial bonus, if they don’t, their Medicare payments will be reduced.
Sounds like MU all over again.

Initially the AMA was indifferent towards the ACO concept, and AHA gave it mild support.
But after CMS issued draft regulations in April noting the bonus /penalty provisions and
the shared payment component, both associations came out strongly against it. Of course
the 800 pound gorilla is; Who should run the ACOs, physicians or hospital executives? If
there’s to be a single payment for Medicare patient services to the ACO how do you split
that payment? CMS is staying out of this battle and leaving it to the docs and hospitals to
fight it out. To say the least, AMA probably views it as the death knell for the independent
physician practice, and AHA may see it as the surrendering of institutional autonomy to

I think it will be a long arduous road getting to real ACOs. Remember the overall objective
is to reduce the costs of health care. According to a CMS analysis of the proposed
regulation Medicare could potentially save as much as $2 billion over the first three years,
so somebody’s ox has to get gored. But as we stumble down this long and very bumpy
road I believe in the early years the focus will be on the ‘virtual’ ACO, and the CIOs office
will be right in the middle of it. If you look at the Meaningful Use criteria for CCR, CCD and
interoperability the first hurdle is staring us in the face.

Frank Poggio
The Kelzon Group
June 2011
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This article was first published in
HIS Talk