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‘ACOchat’ is Born!

On Tuesday, April 26th, 2011, at 3PM Eastern and 12PM Pacific join us for the first ACO focused TweetChat. Our session moderator is Mark Browne, M.D., aka @consultdoc. During the 1 hour scheduled TweetChat, we’ll consider and discuss 3 to 4 topics specific to ACO’s.

(NOTE: With this launch, we’ll add another scheduled TweetChat to an expanding universe of real-time social media conversations. For an excellent compendium of TweetChats produced by our friends at The Fox Group, see the ‘Healthcare Hashtag Project‘).

We’ve been on the ACO narrative for some time now, producing content both for this blog as well the weekly series ACO Watch: A Mid-Week Review. With the recent release of the proposed regulations implementing ACO’s there is considerable downstream buzz: some negative, some positive with a considerable portion in the ‘wait and see’ camp. After all this is only a proposed rule, albeit one formed with various degrees of input across the broad spectrum of healthcare stakeholders, with considerable complexity at its core.

As pointed out recently, there are perhaps more questions that answers embedded in these draft rules, see: The ACO Regulations – Some Answers, More Questions.

For additional context see ACOchat, and please help us make this event a worthwhile community experience.

Bridging the Quality vs. Quantity Divide in Healthcare

By David Nace, MD

Experts point to rising healthcare costs as a symptom of overuse, underuse and misuse of care delivery services. With the 2010 Patient Protection and Affordable Care Act (PPACA), the Centers for Medicare & Medicaid Services (CMS) set a goal of changing the model for payment for care from the fee-for-service model, which rewards providers for quantity of care, to a model that makes the care delivery organizationaccountable for delivering quality and value. The new model focuses on achieving the “Triple Aim” of better health, better care, and lower costs for the overall population.

Key to supporting the change will be healthcare IT. The accountable care organization (ACO) must have an infrastructure that supports information exchange among members and settings of care to achieve care integration and coordinated care delivery. Success also depends on an infrastructure that aggregates and normalizes patient-centric data, provides analytics for population health management, and offers clinical and financial decision support at the point of care.

Skin in the Game

In an ACO, everyone has “skin in the game” — from the practice, to the hospital, to the extended care facility, to the payer. Medical decisions are based on medical evidence, and reimbursement is based on patient outcomes and the cost-effectiveness of treatments. Both the ACO and patient’s primary care physician are responsible for the patient’s outcomes along the continuum of care. In an ACO, members must accept and understand their own and each other member’s responsibilities for the patient’s care. Also important is clarity on when, how, and to what degree responsibility is transferred to other ACO participants during the course of care.

Having a primary care “home” within the organization that is “connected” to the rest of the ACO for the exchange of information is vital for the management of the patient’s care. This includes settings such as hospitals and other acute settings of care, outpatient specialists, extended care facilities, laboratories and pharmacies, as well as the patient and their families/caregivers.

A Range of Risk/Reward Models

As long as the ACO achieves the Triple Aim, models may vary. PPACA supports piloting a broad range of payment models that have varying degrees of clinical and financial risk, such as:

Pay for performance (quality, efficiency, and consumer engagement)
Shared savings for reductions in utilization when quality thresholds are met
Additional payment (per member, per month) for additional care activities that are not on the fee schedule
Bundled payments for clinically defined episodes of care
Partial capitation, including a predefined monthly payment to cover specific services for a defined group of patients

Global budgets or payments that would provide an agreed-upon fixed budget or payment for the medical needs of a population of patients
Coupled with risk assumption is accountability for quality, outcomes, evidence-based processes, consumer access and experience. The greater the risk, the greater the potential for reward.

Analytics — The Enabler

Because the quality and efficiency of care will affect the amount and distribution of payments, healthcare analytics will be used to provide transparency on care performance and cost for individual physicians and business entities in the ACO organization. Analytics also provides the engine for patient care improvement and population health management.

Health IT will connect ACO members, providing them and the patient with…(read complete post here).

Dr. David Nace is vice president and Medical Director with McKesson Corporation, where he is responsible for clinical development of McKesson’s RelayHealth and Health Solutions products and services. Since the early 1990’s, he has played a leadership role in organized healthcare for both the hospital / provider and payer markets. He has served as an advisor for prestigious organizations such as the Robert Wood Johnson Foundation, the United Nations Business Council, and the World Health Organization, addressing issues such as health promotion and wellness from a benefit design and healthcare financing perspective.

Specialists and ACOs: Play or Circle the Wagons’?

By Leigh Page for Becker’s Hospital Review

As hospitals and large multispecialty group practices gear up for accountable care organizations, procedure-oriented specialists are still trying to figure out their role in them.

“Specialists are not taking the lead in the formation of ACOs,” says Aric Sharp, CEO of the Quincy (Ill.) Medical Group, a 130-provider multi-specialty group. “The physicians who are interested are in multi-specialty groups or integrated models with hospitals.”

This makes sense. Most specialists are focused on a particular episode of care, which is not what the ACO is all about. These new models of care emphasize the whole spectrum of healthcare, not just one episode.

ACOs need specialistsEverybody agrees, however, that ACOs will need to reach out to specialists and include them in their networks. Furthermore, even hospitals with many employed specialists may have to add independent specialists to fill out their networks, says Laura P. Jacobs, executive vice president of the Camden Group in Los Angeles. “Primary care physicians in ACOs will need specialists to link up with them,” she says. “They will want them to collaborate.”

But as ACOs begin to reach out to specialists, will specialists respond in kind?

Some observers believe some specialists will be swept up in the general enthusiasm for accountable care and find their place in ACOs. Paul Keckley, director of the Deloitte Center for Health Solutions, says specialists will join ACOs because “it’s better to be in the room. The natural inclination of most specialists would be it’s better to be a player than to be left out.”

The financial incentivesBut what specific incentives does a specialist have to join an ACO? Mr. Keckley and other ACO experts readily admit it could take years for many ACOs to make enough shared savings to pay out significant sums of money. Indeed, these sums would have to be hefty enough to be an incentive for the wary specialist to join up.

One impediment to initially paying out shared savings might….. (read complete article here).

Premier: Proposed Regulations for Accountable Care Organizations

Earlier today, April 8th, 2011, I listened in on a Premier Alliance webinar on ACOs.

The content was well organized and presented. Only twice did I notice drifting into the ‘mego’ (my eyes glaze over) state, which is not bad considering the complexity of the proposed rule on ACO’s and related ‘Agency (DoJ/FTC/IRS) additions.’ First during the itemization of the risk sharing provisions, including ‘minimum saving rates’, caps, etc., and second detailing quality provisions.

Barbara Gray and her colleagues deserve a shout-out for their proactive efforts to serve as a comprehensive resource in this unfolding story.

The preso can be viewed here.

ACO Watch: A Mid-Week Review with Sheryl Skolnick, Ph.D.

On the Thursday, April 7th broadcast, at 11AM Pacific and 2PM Eastern, my special guest commentator is health care industry analyst, Sheryl Skolnick, Ph.D., Senior Vice President of CRT Capital Group, LLC, a Stamford, Connecticut based institutional brokerage. Dr. Skolnick recently published a report titled: ‘First Glance at Proposed Medicare ACO Rule: We Must Be Missing Something’.

For a repost of the report, click here.

In Sheryl’s words:

‘Our concern is this: we must be missing something major because, for the life of us, we can’t understand why any rational provider would incur the burdensome costs of establishing and operating an ACO, only to then be at risk for the major moral hazard inherent in the proposed ACO structure: providers who form ACOs (doctors, hospitals and post-acute providers) would be at risk for the cost of health care chosen by patients, yet would be expressly prohibited from requiring that patient to obtain that care within the ACO’.

To listen live or via archived replay, click here.

The ACO Proposed Rule: A [Skeptical] View From ‘The Street’

By Sheryl R. Skolnick, Ph.D, and Nick Leventis

A first glance at proposed Medicare ACO Rule: What are we missing?

One of the most eagerly awaited proposed regulations under the Patient Protection and Affordable Care Act (PPACA) as amended (health reform), has been the rule that would define and regulate Accountable Care Organizations, i.e., patient-centered organizations charged with coordinating Medicare beneficiaries’ care, improving their outcomes, controlling the cost of said care and sharing in both the potential cost savings and losses. The idea behind the proposal is inherently appealing: providers would theoretically have the financial incentives to ensure that patients receive the right medical treatment at the right time and in the right place, to improve outcomes and reduce costs.

That proposed rule was finally released yesterday and it took the better part of the day to even begin to digest the complexity of the 429-page proposed rule, mostly because we had trouble believing what we were reading. Indeed, we’re sure of only one thing: that we do not yet fully understand all of the nuances, implications, incentives and even some of the definitions contained in this regulation. But we feel compelled to outline the most important aspects of the proposed rule that we’ve identified thus far in our reading of the rule, the companion proposed rule on anti-kickback waivers and all of the supporting documents provided by CMS today. That leads us to raise a key serious issue that we have with this proposed rule.

Our concern is this: we must be missing something major because, for the life of us, we can’t understand why any rational provider would incur the burdensome costs of establishing and operating an ACO, only to then be at risk for the major moral hazard inherent in the proposed ACO structure: providers who form ACOs (doctors, hospitals and post-acute providers) would be at risk for the cost of health care chosen by patients, yet would be expressly prohibited from requiring that patient to obtain that care within the ACO. More, should the patient not comply with their treatment plans (which must be based on evidence-based, best-practice protocols under the rule) and boomerang back into the hospital, the ACO would be penalized. And, it appears that a patient could be assigned to an ACO retroactively so that the ACO wouldn’t know it has a ‘non-compliant’ patient until after the episode of care is completed. Medicare’s data on a patient’s utilization, however, cannot be obtained by the ACO in real-time: the ACO wouldn’t know that its patients had an ‘unnecessary admission’ to a non-ACO hospital until after the patient is discharged from that facility. The only condition under which we can see an ACO being formed under such rules would be if the ACO had monopoly control over the continuum of care in its market, but the proposed rule puts tight restrictions on the ACO’s market share. Finally, we note that the one organization that best describes an ACO today, i.e., Kaiser Permanente (a vertically integrated delivery system in which care is coordinated) appears not to qualify under the ACO definition. The best thing we can say about the proposed rule is that participation in the ACO program is voluntary.

In summary, the proposed rule appears to do a good job of making ACO’s ‘accountable,’ but appears to do a very poor job of making patients ‘accountable.’ Unless we are wrong (and we could truly have missed something here), we simply can’t see publicly traded hospital companies taking on the risk of forming an ACO, putting some significant amount of their cash flows at risk for arbitrary loss by the actions of non-compliant patients because they are stripped of the single tool that would make ACOs work: the ability to limit patient choices to a continuum of high quality, low cost providers.

For those who haven’t tried to digest the rule, we present the highlights [Editors Note: For the published rule in the Federal Register, click here]:

The proposal is a three-year pilot program that would implement section 3022 of the PPACA which relates to Medicare payments to providers and suppliers participating in ACOs.
Patient and provider participation in the ACO is purely voluntary, except it appears that patients can be retroactively assigned to an ACO. The proposed rule states that patients would be assigned to the primary care provider who provided the majority of his/her care.
Providers would be eligible to receive traditional Medicare fee-for-service payments under Parts A and B and be eligible for additional payments if they meet the new ACO quality and savings requirements.

Risk Models:

CMS proposes participating ACOs choose either a one-sided or two-sided model: the one-sided model shares only the savings for the first two years and shares savings and losses in the third year, the two-sided model shares savings and risks in all three years.
There are two risk models because, according to CMS, the Agency wants ‘new’ ACOs to be able to have a period of adjustment, i.e., gaining experience with at-risk reimbursement, before becoming responsible for losses.

Providers eligible to be in the ACO:

Hospitals and physicians in group practice arrangements, networks of individual practices of ACO professionals, partnerships or JVs between hospitals and ACO professionals, hospitals employing ACO professionals, and Medicare providers and suppliers determined by the Secretary.
Private managed care organizations do not appear to be, a priori, allowed to be part of an ACO, although the proposed rule dealing with waivers of Stark Laws indicates that private managed care plans may be part of an ACO under some circumstances. (Some on the Street had believed that health plans could form ACOs, but based on our preliminary reading of the ACO rule, that does not appear to be the case.)

An ACO must take responsibility for a minimum of 5,000 beneficiaries for a period of three years:

Beneficiaries could be ‘assigned’ to an ACO at the end of a period if they received the majority of their care from a physician-member of an ACO. (See pages 392-393 of the document.)
Beneficiaries would be informed that the physician is part of an ACO and that should the patient choose to be treated by that physician, said beneficiary would become a ‘member’ of the ACO. Otherwise, the beneficiary could choose another physician.
But even among those 5,000, patients cannot be limited in their choice of providers and would still receive their full Medicare Part A (inpatient) and Part B (outpatient) benefits.

CMS will develop a benchmark for each ACO against which ACO performance is measured to assess whether it qualifies to receive shared savings, or to be held accountable for losses.

Benchmarks for quality and cost would be established, but before payment of ‘shared savings’ would be made, the ACO would have to show savings of more than 5% of the benchmark.
ACOs who fail to deliver minimum quality standards could be terminated.

CMS proposes to establish a minimum sharing rate that would account for normal variations in health care spending, so the ACO would be entitled to shared savings only when savings exceeded the minimum sharing rate. See our comment below: the financial returns may be insufficient to warrant the risks and investments inherent in forming and operating an ACO.

Measuring Quality Improvement

Patient/caregiver experience of care, care coordination, patient safety, preventive health, and at-risk population/frail elderly health.
Performance standards would incorporate proposals to prevent providers in ACOs from being penalized for treating complex patients.

Antitrust, Anti-Kickback and Anti-Physician Self-Referral Guidance

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have worked to facilitate the creation of ACOs by giving providers guidance so they can operate without violating antitrust laws.
Anti-Kickback and Physician Self-Referral waivers are proposed in a separate rule and would be limited to very specific circumstances related to sharing in savings and losses.

Questions and Thoughts:

Is there enough financial incentive to make providers want to participate? We may be wrong here, but we can’t find enough potential return even for the most efficient, sophisticated and integrated providers to justify the upfront and ongoing costs and the moral hazard risks.
The administrative and ‘set up’ costs appear high, with a heavy governance, compliance, oversight and reporting burden placed on the ACO.
In determining whether or not savings were achieved, CMS will establish an annual spending target and if actual expenditure is more than 5% below the target, an incentive payment will be made:
The rule says: “an incentive payment for each year shall be equal to a portion of the amount by which actual expenditures for applicable beneficiaries under Parts A and B for the year are estimated to be less than 5% less than the estimated spending target for the year” (page 31).
Therefore, the ACO must not only illustrate that costs were reduced, BUT expenditures must be 5% below CMS’ estimate in order to receive an incentive payment.
ACOs must carry 5,000 beneficiaries in order to be eligible: finding 5,000 willing participants or having them assigned retroactively and saving more than 5% versus a target spending level could be too high a hurdle with too little return to induce participation in an ACO.

We believe that only the most technologically sophisticated physician groups and providers would be capable of participating in the program at the outset.

The proposal has many complex regulations that providers would have to adhere to including an almost seamless communication network.
Providers would likely have to have advanced and compatible computer systems to allow them to share patient data.
Although there is a financial incentive for hospitals to meet meaningful use standards for the HITECH Act, there will likely have to be significant technology investments made by small physician groups if they wanted to participate in the ACO program.

The moral hazard issue:

Patients participating in an ACO would be able to see or visit any provider they choose and ACOs are expressly prohibited from preventing such free choice.
ACOs could be penalized if the patient boomeranged back to the hospital for an unnecessary readmission.
How is the ACO supposed to be able to achieve a better outcome and lower spending if the patient leaves the ACO for care at a provider not affiliated with network?o Why make the investment in the ACO if the provider cannot control the care?o How does the ACO make informed decisions when it cannot get ‘real time’ updates on patient status?
The potential for malpractice liability: We are not lawyers, but based on our early read of the rule, we believe physicians in an ACO may potentially face litigation risk if a patient is harmed by another physician participating in the same ACO or, worse yet, outside of the ACO. (The physician is ‘accountable’ as is the ACO, after all.) The rule does not appear to contemplate the malpractice risk.
It appears that patients can be retroactively assigned to ACOs: the ACO may not even know it is responsible for a particular patient’s care. (See pages 392 to 393.) At least, we think that is what the proposed rule says. We hope that we are wrong.

In other words, the proposed rule appears to make the ACO responsible for ACO behavior AND patient behavior, yet gives the ACO few (if any) tools to retain oversight and direct treatment of the patient. This is in direct contrast to the clinic model (Geisinger, for example) where the patient is seen exclusively by the clinic physicians unless specifically referred to an outside provider.

Sheryl R. Skolnick, Ph.D, is Senior Vice President, and Nick Leventis is an Associate for CRT CApital Group, LLC. For more information contact Dr. Skolnick at 203.569.4359, or via email sskolnick(at)crtllc(dot)com, or 203.569.4326, nleventis(at)crtllc(dot)com.

REQUIRED DISCLOSURES: The recommendations and guidance expressed in this research report accurately reflect the personal recommendations and guidance of the research analyst principally responsible for the preparation of this report. No part of the compensation received by the analyst principally responsible for the preparation of this report was, is or will be directly or indirectly related to the specific recommendations and guidance expressed in this report. Direct or indirect analyst compensation may be based on performance-related considerations associated with the recommendations and guidance expressed by the analyst in this report. The research analyst primarily responsible for the preparation of this report received compensation that is based upon CRT Capital Group LLC’s total business revenues, including revenues derived from CRT’s investment banking business.

ACO Roundtable | On ACO Watch: A Mid-Week Review

On Friday April 1st, 2011 (yes, ‘April Fools day’) at 4PM Eastern and 1PM Pacific ACO Watch: A Mid Week Review will host a special roundtable series on the ‘hot of the press’ Notice of Proposed Rule pertaining to the implementation of Accountable Care Organizations. For the published rule, click here.

Our roundtable team will consist of Mark Browne, MD, PYA, aka @consultdoc, Vince Kuraitis, Better Health Technologies, LLC, e-Care Management blog, aka @VinceKuraitis, and David Harlow, the Harlow Group, LLC, aka @healthblawg, with yours truly Gregg Masters, aka @2healthguru, as moderator and host.

To listen live, or via archived replay, click here. During the broadcast you may also listen in via (619) 393-2836, and even participate in the chatroom.

They’re Here!

After 6 or so months of waiting for guidance on the implementation of Accountable Care Organizations (ACOs), the Centers for Medicare and Medicaid Services finally released the first round of the ‘notice of proposed rule making’ via:

Centers for Medicare & Medicaid Services | 42 CFR Part 425 [CMS-1345-P] RIN 0938-AQ22 | Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations

To view the entire document, click here.

Their release was followed by a conference call wherein Don Berwick, MD, the ‘lame duck’ (I hope not), Administrator of CMS took some ‘questions’. First up was a confrontation from a neurosurgeon, who must be a very fast speed reader, who asserted the program was about rationing and denying care, and challenged the package as ‘immoral’. The rest of the calls where more of the more civil and Q&A variety. For an excellent ‘background and context’ piece listen to a replay of the pre-conference call via: (866) 517-3730. You may also listen to replay here.

We are planning a preliminary ‘deep dive’ roundtable of the regs on ACO Watch: A Mid Week Review Friday, April 1st, 2011 at 4PM Eastern and 1PM Pacific.

Since this is very fresh, I have not yet confirmed my guests, though I am offering participation to several physicians in thought leadership, health care attorneys, and health information technology consultants as well.

Please consider joining us!

IPAs Again

By Jeffrey L. Cohen
Independent practice associations (“IPAs”) are gaining momentum in response to healthcare reform and market changes responding to healthcare reform. In an era when consultants are selling one-size-fits-all solutions, physicians have to consider IPAs as a viable option once again, but they have to fine tune their expectation to recent changes.

In the thunderous noise wrought by talk about accountable care organizations (ACOs), physicians are scrambling to see where they might fit in the future of healthcare. While we think those changes will be neither as severe or as pervasive as feared, we do see huge opportunities for ANY organization which can (1) reduce healthcare expenditures, and (2) improve quality. Healthcare businesses of the future will view utilization skeptically. Hospitals of the future will look like medical practices with beds. Medical practices of the future will have a stake in the cost and quality of care being delivered and will view utilization skeptically.

While we think healthcare reform laws may ultimately be found to be unconstitutional, we see that the marketplace has shifted in anticipation of those changes. And we see that, once again, IPAs have a place. But physicians have to understand what they are, how they work, their limitations and how recent changes will impact them.

IPAs are essentially organizations that allow physicians (who may be competitors) to obtain managed care agreements. Since they MUST function to reduce costs and improve quality, and since payment will likely be tied to meeting quality metrics, successful IPAs will have to—

Have strong physician leadership to police “their own” to ensure lower cost and higher quality;

Have strong and sophisticated administrative management to obtain contracts and really understand what payers and patients want and how to give it to them;

Be capitalized sufficiently to pay for a successful organization;

Contract ONLY on a financial risk basis, which means they will not contract with managed care payers on a pure fee for service basis; and

They will create patient accountability.

Understanding applicable antitrust restrictions is key to successful IPA formation and operations. Along with the Sherman Act and other antitrust laws, the revised Statements of Antitrust Enforcement Policy in Health Care issued by the Department of Justice are required reading for those who want to know how far they can go in discussing payer conduct like bundling claims and routine downcoding. The core changes brought by the revised Statements are: (1) expansion of the “rule of reason” analysis for determining whether the antitrust laws have been breached, (2) expansion of shared financial risk beyond capitation; and (3) expansion of the role of the “messenger.” A messenger is someone who operates like a confidential middle man running payer offers back and for the between payer and IPA physician member, generally a huge disappointment. Instead, IPAs ought to abandon the idea of the messenger altogether and embrace the idea of financial risk sharing—cost savings sharing, capitation and the like.

Physicians ought to keep in mind that the Statements have not changed the longstanding prohibition against price fixing and boycotting, the claims IPAs tend to be most vulnerable to in discussing anything with payers. That is, it is still 100% illegal for: (1) two or more competing physicians to agree to charge specific fees for certain procedures in their respective, independent practices, and (2) two or more competing physicians to agree not to do business with a particular HMO.

Given the cost/quality focus of today’s regulations and marketplace, healthcare organizations MUST find ways to enlist patients in the mission to reduce costs and improve quality. Any parent of a teenager knows, expectations without consequences are meaningless. As such, healthcare organizations will have to lean on patients in any permissible way to reward healthy behavior and to punish costly behavior.

For those who experienced the 90s, with networks and IPAs and the like and observed predatory behavior by business owners dedicated primarily to skimming physician income off the top, remember that now quality metrics will be tied to payer compensation. If you wanna get paid, you will have to meet certain measurable quality expectations. If you wanna earn substantially more than you are now, you will have to show cost savings and enhanced quality. Which is causing many to reconsider the cost savings-quality enhancing role of primary care physicians. Today’s regulatory and market changes are definitely presenting huge opportunities for primary care physicians! For specialists concerned about that, they ought to consider that if they are part of an organization with (1) has primary care and (2) contracts on a cost savings basis, the “wealth” would be shared with them.

IPAs in these early years of healthcare reform will be different from those in the past. For one thing, government regulators are promising to ease up on the anti-trust restrictions if the organization can demonstrate reduced cost and improved quality. Moreover, sharing substantial financial risk is something which is desired by the government and payers alike and which also serves to reduce legal risks.

Like it or not, IPAs are coming back. More forward thinking physicians will embrace the opportunity and will step carefully through the minefield of regulatory compliance.

Jeffrey L. Cohen has over 20 years of healthcare law experience including legal counsel for the Florida Medical Association. Cohen is board certified by The Florida Bar as a specialist in healthcare law. Cohen’s practice immerses him in regulatory, contract, corporate, compliance and employment related matters. As Founder of The Florida Healthcare Law Firm, he has distinguished himself and his firm for providing legal services with the right pricing, responsiveness and ethics. See: http://www.floridahealthcarelawfirm.com or call 888-455-7702.

Ignoring Primary Care: Obscuring the Obvious

By Jeffrey L. Cohen

Healthcare reform used to imply just regulatory change. As time marches on, it also implies market change. Most pundits agree that, whatever happens to the healthcare reform law, whether or not it is found to be unconstitutional, the healthcare business community is unleashed. Change is afoot!

If you follow my nahsaying (some say ‘naysaying’) on the issue, then you know I believe the expectations regarding ACOs are overblown and unrealistic. Martians will not land here en masse, although there may be an occasional stow away on a NASA craft. Put another way, as some others have said, ACOs are like unicorns—magical, mythical beasts that no one has ever seen. I don’t expect many to come prancing around in Florida, at least not South Florida, anytime soon.

Regardless of how you define it, and regardless of what the ACO regs (expected out by the end of March, 2011) say, one thing must be accepted: there is a strong movement in the public and private sector to (1) control and reduce healthcare costs, while (2) improving quality. And ANYTHING that can do that will have a strong spot on the chess board, whether you call it an “ACO,” and “Patient-centered medical home” or a “tomato.”

To be sure, the healthcare marketplace has been shaking and rattling for many years. The last time the industry shook anything like this was in the 90s, with the advent of such things as networks, IPAs, fully capitated care centers, PHOs and community healthcare purchasing alliances (CHPAs). As most know, there were two things missing from that evolutionary bump: (1) the requirement of quality metrics, and (2) tying compensation to those metrics. The healthcare reform law has both those features and they are likely to stick, even if the law vanishes under legal challenge.

A third and very important thing to notice about the 90s is that nearly all the integration activity (e.g. PPMs, networks, IPAs, hospital acquisitions) was in the area of specialty medical services, not primary care. Only the highest grossing medical specialties were sought after. And that hasn’t changed much! The integration activity today continues to be in specialty areas like orthopedics, OB/GYN, dermatology and the like.

Even hospital integration activity involves specialty services to feed their hospital based services (e.g. cardiology)! What appears to be going on is simply this: stakeholders jockeying for the best defensive position. Integration appears to be largely designed to develop market share and contracting leverage. Primary care is largely being left out, and yet it is clear to most think tankers that it must take center stage in order to reduce costs and improve quality! Most of the market activity is based on short-sighted economic fears rather than a far-reaching commitment to the above mentioned core objectives. Simply put, it’s tantamount to putting one’s head directly in the sand.

So the question now, assuming that cost and quality will continue to be the leverage points, is how best to deliver care in a way that is extremely cost effective and which clearly demonstrates quality outcomes. And at least one important part of the answer seems obvious: primary care must take center stage. If we look behind the Wizard’s curtain in the regulatory and market changes in healthcare, what we would see is not some bald guy in a green suit.

And it won’t be a hospital CEO who measures profitability by patient census. Nope. We’d see a primary care physician. While integration and growth can be a nice and important short term strategy, without primary care, the long term goal of cost reduction and quality enhancement is unlikely. In the future, only those healthcare businesses with a strong primary care component will be best situated to lead and flourish amidst the change policy makers and the business community seem committed to.

How? Any way you want! Regional primary care IPAs? Good. Large integrated primary care practices? Good. Specialist groups merging with primary care practices? Good. Hospitals employing primary care physicians? Good (for the hospital). Whereas the 90s really ushered in financial opportunity for a small group of entrepreneurial physicians, today’s tie in with quality indicators creates a huge opportunity for physicians to not only adapt, but also to thrive.