Shay Jacobson, RN, MA, NMG, LNCC, CNLCP
Martha Kern


Late last summer, Lifecare Innovations researched and developed the following summary of Accountable Care Organizations, helping to identify what they are, what their goals are, who can participate and what the anticipated effects might be on various segments of the health care industry.  Presented here is the core material, along with updates related to performance measures, the popularity of ACOs and proposed penalties for skilled nursing and home health providers.

Accountable Care Organizations, otherwise known throughout the industry as ACOs, represent the new model in health care.  Stemming from the Affordable Care Act, these collaborative organizations are charged with the responsibility of reducing health care costs in the Medicare population.  Care will be delivered differently.   Everything will change.  Our businesses and jobs will be affected, and it’s up to us to prepare for the transition just ahead.

Update: The Bundled Payment model, which allots funds and measures results based on episodes of care rather than on the outcomes of a pool of Medicare patients, is also in the pilot stages.  Under the Bundled Payment model, a certain dollar amount will be allotted for a given treatment episode, i.e. a hip replacement, versus a dollar amount allotted for the care of a pool of patients.  It is anticipated that the health care realm may ultimately use both models, but observers seem to feel that the ACO model is gaining traction more rapidly.

What Exactly is an Accountable Care Organization?
An ACO is a group of healthcare providers who work together to coordinate care and deliver service more efficiently to Medicare beneficiaries.  Moving away from the traditional fee-for-service model, Accountable Care Organizations will work to reduce inefficiencies, keep patients at the least expensive levels of service their conditions permit, and avoid waste, duplication and fragmentation of care.  If they succeed, they will be rewarded with a percentage of the money they save Medicare.

There are different types of ACOs.  The two principle formats are:

Pioneer ACOs: There are roughly 35 such organizations at work now testing the impact of different payment arrangements and cost-containment programs on their ability to succeed with this new mandate.  Pioneer ACOs are at particular risk.  Significant investment is involved.  As a reward for this risk and investment, Pioneer ACOs stand to participate in the financial rewards of their efforts to a substantial degree.  They will be liable for losses, however, and herein lays the risk.

It has already been fairly widely reported that nine of the original 35 Pioneer ACOs have already dropped out of the program.  Of the nine, two were obligated to return funds to Medicare  under the sharing of loss aspect of the program, and one of these providers indicated their earlier successful efforts to reduce costs and inefficiency rendered it nearly impossible to post additional measurable improvements under the program.  Seven of the nine will transition to a different ACO model, outlined below.

Medicare Shared Savings Program: This is a permanent program designed to encourage the formation of ACOs.  Participants must agree to accept risk for at least 5,000 Medicare beneficiaries for a period of three years.  They are monitored by CMS to measure compliance with eligibility, quality performance and data reporting requirements.

Importantly, beneficiaries are free to choose their own healthcare providers, making this program far less restrictive than the HMO’s of past eras.  The ACO, however, remains responsible for the cost of care rendered to these individuals, despite their freedom to seek care from whichever providers they choose.  These ACOs will all be held to a benchmark that will determine whether or not they realize savings or losses.

Also of note:

  • ACOs will receive payments under the Medicare fee-for-service program at the usual allowable amounts.  After two years, Pioneer ACOs will start receiving a combination of fee-for-service and population-based payments.  Reportedly, the ultimate goal is for providers to take full financial responsibility for a patient population for a fixed payment.
  • Beneficiaries are assigned to ACOs but may not even be aware they are part of the program and they may be assigned retroactively, meaning care has already been provided when the ACO assumes responsibility for efficiencies and cost reductions.
  • ACOs may need to develop patient incentives to stay within their group when seeking care as a means to better control costs.  Patients, rather than being forced to choose providers from within a particular network, will retain the choice to go elsewhere.    Discounts and other incentives may inspire them to patronize ACO-specific providers. Patients also retain the right to deny data sharing access within the ACO.
  • Many observers have expressed concern over rapid consolidation of services in regions across the country.  Hospitals and physicians have formed large networks which give them extra negotiating muscle and also limit consumer choice.  It’s possible the diminished competition in a given marketplace will cause prices to rise.

Who Can Be in an ACO?
ACOs must include primary care physicians (some ACOs do not even have hospital partners). The program is designed to include group practices, networks of individual practices, partnerships between hospitals and ACO professionals, hospitals employing ACO professionals, and other groups of providers the Health & Human Services Secretary determines appropriate.

ACO professionals include:

  • Doctor of medicine or osteopathy legally authorized to practice medicine and surgery
  • Physician assistant, nurse practitioner or clinical nurse specialist
  • Certified registered nurse anesthetist
  • Certified nurse midwife
  • Clinical social worker
  • Clinical psychologist
  • Registered dietitian or nutrition professional

Eligible organizations must be capable of doing the following:

  • Defining processes to promote care quality, report on costs, and coordinate care.
  • Developing a management and leadership structure for decision-making.
  • Developing a formal legal structure that allows the organization to receive and distribute bonuses to participating providers.
  • Including the primary care physicians (PCPs) of at least 5,000 Medicare beneficiaries
  • Providing CMS with a list of participating PCPs and specialists.
  • Having contracts in place with a core group of specialist physicians.
  • Participating for a minimum of three years.

Update: Since the third round of MSSP participation began in January, 2013, almost 200 additional public and private ACOs have been formed nationwide.  Physician groups have become the primary sponsors.  An estimated 18 million Medicare patients are now covered by an ACO.

Private insurers are echoing this concept in the private sector.  Collaborative Accountable Care initiatives have been launched by some major insurance companies, with the same aim as ACOs – improving health care, reducing costs and eliminating duplicative or inefficient treatments.  At the center of these initiatives is the Medical Home model which promotes and supports a team-based approach to care.  A primary care physician leads the team and coordinates care, and has access to all patient information via EHR (Electronic Health Records).  Patients at high risk for readmission are followed closely to ensure they receive follow-up care, are free of medication conflicts and do not have worsening chronic conditions.

Update: In August of 2013 115 C-suite hospital executives were surveyed, primarily CEOs (43.5%), chief financial officers (17.4%) and chief operating officers (16.5%), across 35 states.

Survey results show an increase in ACO popularity. According to respondents, ACO participation has almost quadrupled since spring 2012: More than 18% say their hospitals currently participate in an ACO, up from 4.8% in spring 2012. This growth is projected to accelerate, with about 50% of respondents suggesting their hospitals will participate in an ACO by the end of 2014. Overall, 3 out of 4 senior executives surveyed say their hospitals have ACO participation plans. Twenty three percent say they will not participate in an ACO in the foreseeable future.

Emerging Roles for Other Providers
Other service providers, such as skilled nursing facilities and home health providers, can partner with ACOs to help them deliver the favorable outcomes for which they are rewarded by Medicare.  Many view this as a must if survival in the new environment is to be achieved.  ACOs will drive patient referrals, and they will be filling patient needs through their partner organizations. There may be little business opportunity for entities and professionals who are not connected to an ACO at least peripherally.

Skilled Nursing Facilities
Perhaps more than any other tier of care, skilled nursing facilities are pivotal in the ACO world.  In the push to reduce costs and care for patients at the least expensive level their conditions afford, SNFs will see an increase in acuity and a dominant role in post-hospital care.  Patients whose acuity formerly qualified them for inpatient hospital status will now receive care at SNFs.

One of the newer concepts taking hold in the SNF realm is the “transitional care center”.  This is a unit set up for post-hospital transitional care and it is designed as an interim step between hospital and home, much like rehabilitative units have always been.  The SNF will be an extension of the hospital and short stays will be the rule.  Patients will be sicker and they will turn more quickly.  Once stabilized, they will transition yet again to a less expensive setting.

Many SNFs are hiring dedicated staff to serve in these units.  RNs are more important now, given the level of patient acuity, and some are labeled “navigation nurses”.  In addition to medical services, these nurses work on the transition to the next tier with patients and their families, with the aim of moving them out as soon as possible.

Hospitals are seeking small groups of elite, preferred providers to partner with them.  These partners will demonstrate that they can:

  • Control the cost of care
  • Provide care management oversight
  • Prevent patient conditions from worsening
  • Keep patients at the SNF level and not transition them back to the hospital

Importantly, industry experts encourage SNFs to proactively take the lead in forming these partnerships.  Equipped with favorable metrics on patient outcomes, SNFs can approach senior-level hospital executives with proof of their effectiveness, their interest in becoming go-to providers that can work with hospitals to achieve ACO benchmarks, and their willingness to invest capital to strengthen technology and become an arm of the hospital.

Like hospitals, SNFs will see admissions around the clock, many of them complex, and will have to staff accordingly.  Collaborative training with hospital staff is recommended, as is work at the SNF level on employee buy-in to what will be a major change in the way SNFs function and care for patients.

Update: It is anticipated that, like hospitals, Skilled Nursing Facilities will soon be subjected to reimbursement penalties based on hospital readmission rates.

Assisted Living Facilities
Assisted living facilities have historically not been a part of the medical model except as a residential option with some medical (nurse) oversight.  They are not funded by Medicare and are paid solely by private funds.  Supportive Living Facilities, on the other hand, offer the same spectrum of service but accept residents who are receiving Medicaid benefits.

It would stand to reason, given this non-medical model, that ACOs would not have a major impact on AL facilities.  AL providers are already somewhat accustomed to transitioning residents who develop more acute, medical care needs to SNFs, and this practice will likely continue as ACOs expand.  When a resident has a debilitating stroke or heart attack, for example, they will receive hospital care and then be discharged to a setting where higher acuity can be managed.

Of note, however, is the opportunity ACO expansion offers AL providers who want to gain access to the Medicare revenue stream.  In states where regulations permit AL facilities to furnish higher levels of care (New Jersey, for instance), AL communities are creating special post-acute units designed to increase their abilities to manage patients as they step down from SNF-level care.  Although they cannot take patients requiring ventilators or true 24-hour nursing needs, they can offer a step-down option at a lesser cost than a SNF would charge.

In states where regulations would make such a conversion impossible, ALs can still make themselves valuable and attractive to ACOs and their partners.  Once again, a proven ability to keep residents well and out of the hospital, and particularly to prevent readmissions when they have been hospitalized, will make an AL a pivotal ally for hospitals and SNFs seeking vendors who can assist in the drive to reduce costs.  Many assisted living communities are adding services, such as 24-hour nursing coverage and companion care, to strengthen their capacity to identify and manage health complaints before they become serious.  They can treat dehydration with intravenous fluids, for example, or monitor a lower respiratory infection in-house rather than sending those patients to the hospital.

Home Health and Home Services
Never have home-based services been more attractive and necessary than they are under the ACO model.  Home is generally viewed as the least expensive setting for care.  There will be considerable effort expended to care for patients in their homes at the earliest opportunity and knowledgeable vendors who can supply this care will be sought after.  A demonstrated ability to prevent hospitalization, lower costs and reduce readmissions is just as essential at the home-care level as it is in higher-acuity environments.

Home Health and Home Services vendors can perhaps find their greatest chances for prosperity in partnering with assisted living communities to monitor their residents in that setting, and with skilled nursing facilities to improve outcomes for their transitional patients as they head home.  Entities offering multiple services toward the goal of fewer hospitalizations/readmissions will be more attractive to ACO participants than those who are unaffiliated and with limited capability.

What remains to be seen, however, is whether or not hospitals and other ACO participants will form their own home health and home services companies or partner with existing entities.  Hospitals have already shown a great propensity for buying up physician practices with the goal of becoming the employer of most of their ACO providers, and thus the recipient of the financial windfall issued from Medicare if they succeed in meeting benchmarks. It stands to reason that they may also want to own other participating provider operations.

Volume may be high under the ACO model, but margins will be especially slim.  Quite a few partners are involved in achieving the benchmarks set forth by Medicare and fewer dollars will be available to fund them.  Payments to home care and other providers may be a mere fraction of what they receive now.

Update: The Medicare Payment Advisory Council has recommended that home health agencies be subjected to reimbursement penalties based on hospital readmission rates.  The format for these penalties would be similar to that used with hospitals and which is also proposed for skilled nursing facilities.

Also of note are anti-trust concerns raised in situations where ACO provider groups refer exclusively to home health agencies they own or have a financial stake in.  

Social Workers
With increased emphasis on discharge planning, coordinated care, prevention of hospitalization and access to health-oriented resources, social workers seem to be in high demand.  They are in a good position to reach people with complex needs in whichever setting they find themselves, and can follow patients as they transition down to less acute circumstances.  As private insurers develop their own ACO-like models and monitor large patient populations, they rely on the acumen of social workers to identify issues before they blossom into acute scenarios.   Physician practices, too, will use the services of social workers to monitor patients and coordinate care during the first critical month outside the hospital.  Much of this follow-up care will be telephonic to further reduce costs.

Care Management companies employ social workers to provide expert eyes and ears across the spectrum of care, seeking treatment for clients before matters reach a higher level of acuity, ensuring adherence to discharge plans and taking clients to follow-up appointments, overseeing medication use and otherwise coaching clients on habits and practices that will yield less medical intervention and more independence.

Hospice/Palliative Care
A chronic disease “explosion” is anticipated as the baby boom generation ages into the Medicare population.  Hospice and palliative care providers will bring to the ACO partnership an ability to offer specific disease intervention, chronic disease management, palliative intervention and symptom control when other treatment endeavors are stopped.  Both hospice and palliative care feature comfort, and can be delivered outside of costly settings such as hospitals and SNFs.

As with other ancillary businesses, hospice and palliative care providers will need to show ACOs that they can reduce each of the following:

  • Hospital readmissions
  • Emergency/urgent care visits
  • Length of hospital stays
  • Inpatient hospital mortality rates

While the future of these spheres appears promising, hospice admission is still limited to a six-month end-of-life prognosis and palliative care is not “officially” recognized by Medicare.  Palliative Care is not mentioned in the ACO regulations, though it seems likely that the ACO model will accommodate built-in triggers for referral to this realm of medicine when other interventions have failed.

Prepare for Change
Although it will be some time before the realities of all this change are fully known, we can be assured that change is here and it will continue to manifest for years to come.   The ACO model may or may not deliver desired outcomes as margins shrink and people live longer.  What does seem certain, though, is that future prosperity in health-related businesses will revolve around solid partnerships, service expansion, proactive care, prevention, delivery of care in non-hospital settings, and metric evidence of your company’s ability to identify and mitigate medical problems before they become acute.  Electronic and telephonic monitoring will become more common, and information will be accessed via electronic health records systems.  Fee-for-service care will be replaced by payments to collaborative groups that also stand to share in the money saved by Medicare.

Each provider must bring something valuable and proven to the ACO table.  As volume increases, Medicare reimbursements and margins may shrink.  Some investment may be required to access electronic health records and to provide the one-stop chronic care management the ACO model relies upon.

ACOs must deliver quality care at a lower price point, and it’s up to all of us to make ourselves and our businesses relevant in this new landscape.

Update: The tabulated results from ACO performance in 2012 indicate that out of 114 ACOs, 29 reduced spending enough to keep some of the money Medicare saved.  A total of $126 million was split among these 29 successful provider groups.

As of January, 2014, a total of 606 private and public ACOs had formed.

©Lifecare Innovations, Inc.