Accountable Care Organizations — 9 Observations

1. While ACOs have been promoted as part of the Healthcare Reform Act for Medicare patients, and pilot programs are being established, the real movement with ACOs seems to be with commercial payors at the moment. Further, the acceleration of efforts by some systems to pursue ACO-type contracts is leading to a reaction by competing systems who are attempting to then accelerate the development of their own ACOs and integrated delivery systems. We are just starting to see very aggressive actions between integrated delivery systems and payors using the phraseology of ACOs to try and develop substantial steering of business from one system away from another.

2. Integrated delivery systems that control both the physician and the hospital side of care seem to be best situated to approach payors with ACO types of deals (in essence, deals that allows a system or ACO to share in savings below a baseline as long as certain quality targets are met). Because an ACO needs to contract with a broad range of parties, an integrated delivery system that already includes a lot of the needed components will be able to get to market quicker. Because the ACO movement favors integrated delivery systems as a cornerstone piece of the effort, it is likely to cause a further acceleration of the acquisition of practices and employment of healthcare practitioners by hospitals and other health systems. ACO efforts will also put a new premium/value on primary care physicians who control patient populations. A key challenge as to accelerating integration efforts relates to whether systems can aggregate resources/providers in a manner than makes sense in both a fee-for-service and in a shared risk environment.

3. The ability to actually measure and control utilization depends on significant information systems, great nurse and physician leadership, tracking abilities as well as having a good deal of the medical coverage costs under control. To the extent an ACO has contracts with a great deal of the providers necessary to provide healthcare services, the better it should be able to control costs. ACOs that truly invest in services and in infrastructure and provide a true value in managing costs will have a much greater likelihood of long-term success.

4. The political proposition in the Healthcare Reform Act as well as rhetoric from Washington, D.C., tends to favor the development of ACOs over Medicare Advantage plans. The overall concept of pushing down responsibility for the entire cost of care is a very similar concept in Medicare Advantage plans as it is in ACOs. Thus, it is no surprise that organizations like Humana that were major players in the Medicare Advantage plan business are now examining ways to be in the ACO business with partners.

5. An ACO can be co-owned or it can be owned by one party. Moreover, an ACO can be developed by a wide range of healthcare provider groups from multispecialty physician groups to integrated physician/hospital organizations. This flexibility extends into payment arrangements, which may take the form of the traditional fee-for-service with a percentage return on savings or a flat rate per patient, among others. Whether an ACO is managed by one party or co-owned by parties, it will need contracts with providers that will allow for controlling costs, utilization and quality. Providers who contract with ACOs will be skeptical of the potential financial benefits and how closely they relate to their own efforts. It may start to remind providers of the HMO and PPO withhold contracts of a decade ago.

6. Surgery centers in the ACO environment like many other providers are more likely to simply be a cost center than a manager of patients and costs. If an ACO is really driven by a hospital system, notwithstanding the lower costs of surgery center services, there is a high likelihood that the hospital system will gravitate towards using or rewarding its own operating rooms as a strong preference and reward providers who steer business to its operating rooms rather than towards surgery centers.

7. There is no real proposition currently in healthcare reform as to single-specialty ACOs. However, we will likely see significant developments around chronic high cost diseases.

8. Where two competitive systems contract together to either form an ACO or offer services through an ACO (or an ACO includes each independent and employed physicians), there is a risk (reality) of sharing pricing information and/or a risk of price fixing allegations. This risk is what is leading to the discussion of the need for an anti-trust exemption for ACOs. The Association of Health Insurance Plans (AHIP) discourages such exemption. Providers are pushing for such an exemption. Absent an exemption, many efforts will fall into an anti trust gray area and further encourage complete consolidation.

9. The financial arrangements that are used in ACOs, such as shared savings, raise the possibility of impermissible payments under the Anti-Kickback Statute or the Stark Act. ACOs can attempt to structure their relationships to meet personal services or fair market value exceptions or other exceptions. However, these exceptions are often not a perfect fit. There is also not a simply ability to take advantage of safe-harbors under the Anti-Kickback Statute. The integrated delivery system model generally provides greater legal comfort from an antitrust, Stark and Anti Kickback perspective.

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