By Gunter Wessels, Partner, TIGI
Delivering advisory services to healthcare organizations across the vertical in the US and internationally has focused our analysis of the proposed ACO rule in a bit of a different way. We’re looking at the practical commercialization implications of an array of potential and likely outcomes of ACO-based healthcare delivery transformation. The healthcare reform debate is rife with non ACO relevant topics like reducing duplicative tests and assessments, fraud and abuse, and other important but unrelated delivery system improvements. These emotional issues have clouded the discussion in our opinion. The way we see it, whatever shape the final ACO rule takes, it will have to do a few things to deliver on it’s intent. These outcomes are simple but consequential.
[Editors note: Gunter is my guest on ACO Watch: A Mid-Week Review, Wednesday, July 6th, 2011 at 11AM Pacific/2PM Eastern. To listen live or via archived replay, click here.]
To achieve needed savings and the platform for expansion ACO rule for CMS must:
- 1. Reduce utilization in a few key disease states
The US, and a few international systems are primarily burdened by Chronic Kidney disease (including End-stage-renal disease and dialysis), Heart Failure, and Diabetes. Managing these three disease states consumes nearly 70% of medicare spending according to the USRDS. All three diseases are handily managed in the outpatient setting, but when care management is poor, inpatient utilization is increased along with cost.
- 2. Increase non-acute care delivery
Non-acute care is less expensive, and a more conservative option for treatment of the cost drivers in medicare, i.e. chronic disease states.
- 3. Improve transitions of care
Care management and care coordination are critical in handling chronic disease. Affected patients are high consumers of healthcare goods and services; devices, testing modalities, pharmaceuticals, and education services. They require explicit and detailed direction, are sometimes easily confused, and are sometimes prone to making poor choices. These patients need care and attention, but case managers, and care managers are few and often overworked.
- 4. Reward participants
Payment for not doing something is much more difficult than payment for doing something. There are complex considerations in structuring incentives that aim to reward the right provider behavior when monitoring is expensive or untenable. The CMS will have its hands full crafting the right incentive package for ACO participants. The right package will need to balance the inability to monitor with perverse incentives like denying access or rationing care. Fortunately, core measures, and other quality metrics are now a bigger part of the healthcare system, and these create a useful platform.
The picture changes when the requirements for providers are considered. To be a profitable ACO, big things are required. These are:
- 1. Strong, effective, and agile medical policy
We call this the “Dr. Bieber” effect. A “rock-star” medical policy maker and influential and informed medical policy staff will be required to update care-pathways, develop and implement new standards of care, and champion patient communication and quality initiatives.
- 2. Powerful IT infrastructure
ACO IT needs to be able to process claims, collect information from disparate systems including paper based records, transmit quality data, create alerts, dashboards and financial controls, as well as adapt to medical policy changes and clinical decision support tools. The system needs to be mobile, and easy to use. In other words, it will be very expensive and require many support resources etc.
- 3. Robust care coordination infrastructure
The name of the game in reducing unnecessary cost is coordination. Care coordinators are required as the human extension of the elaborate IT infrastructure. These coordinators will be charged with educating, communicating, as well as care triage. Without coordinators that can act in time, patients could stumble around the system and inadvertently interfere with the ACO’s ability to reduce cost and improve outcomes.
- 4. Significant financial resources
High cost and difficulty in forming and operating an ACO needs to balanced against the prospect of financial gain in the program. A quick calculation shows that the economics are just not there in most cases. Therefore, providers venturing down the ACO path are doubling down, and sponsoring private insurance backed plans as well. If the ACO can enjoy the underwriting profit, i.e. collect more in insurance premium than it spends, the economics work out much better. However, launching an insurance company or renting part of one requires additional human and capital resources.
The ACO rule
The ACO rule is in our view an important beginning to a new polarization in healthcare delivery. Providers can opt in, or opt out at their choosing. We are noticing that many are contemplating opting out, but this action is not risk-less. By having ACOs in the delivery ecosystem a cascade of changes is set in motion. Providers that can reduce utilization and effectively manage chronic disease will likely be more adroit at managing acute disease. Hence these ACOs will be powerful players in their local markets. However, being a good ACO should not require owning the whole continuum of care. Rather, affecting patient flow within the continuum through care management can be done from the primary care level.
Therefore, on one pole the ACOs will exist and on the other pole the highly capable and differentiated speciality or tertiary care providers will exist as a procedure hub. As the hubs, these organizations will require the services of a large proportion of specialists and expensive equipment. Hub providers that can demonstrate overall care improvement and outcomes benefit through the use of sophisticated new diagnostic and treatment modalities should enjoy a bright future when partnering with ACOs. Radio-surgery, high-volume/dynamic volume imaging, molecular diagnostics, and robotic surgery all have positive outcomes profiles that could benefit the ACO, and the non-ACO provider partner. We see the need for expensive and difficult intervention capabilities in the future, but the mission of these organizations will be an evolution over the current state. Hub organizations will be paid a premium to deliver highly effective complex care.
In between these poles, the undifferentiated and moderately capable provider will struggle, especially in competitive and highly populated markets. The “mid” market will devolve in urban areas, and struggle in rural markets where volumes are mixed, and population mobility expands the competitive reach of hub-providers.
As the healthcare system evolves, new players will likely emerge, but we foresee these new actors as focused and operationally competent. In an ACO world, specialization and network affiliation will carry more weight than regional presence. Having a clearly defined value proposition, investing in clinical capabilities that create operational efficiencies will grant sustainable financial outcomes. In the end, a more modern and capable health system can be expected in the near future.
Gunter Wessels, partner at TIGI joined the firm in 2006 after launching his own consultancy while completing a Ph.D. in Marketing. Gunter has consulted with numerous companies in the private sector, principally focused on the healthcare vertical market, but also including insurance and other industries. His expertise is in the domains of marketing and persuasion. In practice he most often consults in personal selling and sales management, but also develops go-to-market strategy, pricing, integrated marketing communication tactics, and value proposition tools.