Hospitals Need To Focus On Culture In Order to Be Able to Survive in an Era of Accountable Care Organizations and Medicaid Reimbursement Rates

Kent Bottles, MD

When a health system asked me to facilitate a Board discussion on physician alignment and integration on November 12, 2010, I was already committed to giving a keynote on the future of health care for the American Institute of CPAs in Las Vegas on November 11.Although I usually fly Delta or USAir where I have priority frequent flyer status, the only way I could get to the Board meeting was by flying from Las Vegas on Southwest Airlines.

My experience on Southwest reminded me of the importance of culture in navigating change in a rapidly evolving environment like we have in health care in the United States today. It is all too easy to focus on all the technical issues hospitals face in setting up Accountable Care Organizations to handle the inevitable global payments that will replace the current fee for service system. This blog is a plea for hospitals and doctors and consultants to pay attention to both the technical and the cultural or adaptive challenges we face in transforming a $2.5 trillion American industry.

Recent articles on companies outside of health care have highlighted how important culture has been to the success or failure of Southwest Airlines, QVC and Zagat to respond to changing business conditions. Southwest’s COO states “our culture is our biggest competitive strength,” and the flight attendant and pilots’ union worry about how the recent purchase of AirTran will affect their unique culture. I have seen Southwest pilots help clean up the cabin, and the flight attendant on my recent trip told me she was giving up her day off because the company needed her help. QVC is trying to use the same methods and culture that made selling on TV popular with Internet customers. And Zagat, which had cultural troubles moving from book format to online, is now hoping that smart phone applications will reinvigorate their business model.

Harvard’s Ron Heifetz differentiates between technical and adaptive work, and I have found this concept useful in working with health systems responding to payment reform. Everyone involved in hospital physician integration efforts will need to undergo a cultural (adaptive) shift because the healthcare reform law and the transition from fee for service to global payments mean the old ways of doing things are not sustainable. Even if all the technical tasks are superbly done, difficulties will arise if the leadership, management, care teams, and physicians still have the old mindset and culture.

In attending conferences and working with hospital CEOs, I have found that there is more emphasis on the technical tasks that need to be accomplished in order to form an Accountable Care Organization than on the culture such a change will require. I have heard a lot of keynotes filled with power point slides on defining the role and reporting structures for newly formed physician leadership teams; creating system-wide operational councils; and specific legal structures of ACOs so they can accept and distribute global payments. These are all important technical tasks, but they will fail if the culture does not change too.

Two concrete examples may help make this point. Sony engineers came up with the equivalent of the iPod long before Apple. However, Sony ran into internal obstacles because of its culture, Sony’s leadership and organization was designed to come up with improvements to the next generation of CD players, but the new iPod technology threatened how Sony’s leaders and engineers thought about their product line. They could not overcome the cultural barriers to marketing such a revolutionary product. Sony’s failure was not one of technical expertise; it was and adaptive failure of cultural mindset.

My travels found me in Savannah, Georgia recently having lunch with Joe Scodari who sits on three Boards of Directors in the health care space. Scodari related a similar story of cultural failure to adapt when Kodak engineers invented the digital camera; the film culture at Kodak did not approve marketing such a transformational product that would cut into Kodachrome film sales. Kodak missed out on digital cameras, and film sales plummeted anyway.

So how do hospital system CEOs avoid the fate of Sony and Kodak as they respond to the sweeping changes in the new federal health care reform law? They must focus on both technical and cultural issues. Jane Kornacki and Jack Silversin who pioneered the physician/hospital compact model and Bob Kegan and Lisa Laskow Lahey who developed the immunity to change model for transformation have much to teach all of us. Physician leadership academies are another essential ingredient in transforming culture among newly employed physicians who are not used to being employees.

Southwest Airlines made money when other airlines floundered; they attribute this success to culture. Hospitals that focus on culture and technical tasks will have a better chance of survival in an environment that is increasingly saying you better get ready to survive on Medicaid rates, not private insurance rates.

Kent Bottles, MD is a seasoned thought leader in strategy and implementation issues for hospitals, health systems, medical groups and physician organizations. Dr Bottles has held a number of leadership positions in academia, biotechnology, and community health systems.

Inaugural Program Scheduled: ACO Watch – A Mid Week Review of the Market

On November 30th, 2010 at 10:00 AM Pacific and 1:00 PM Eastern, ‘ACO Watch’ will launch a weekly round-up of action in the emerging Accountable Care Organization (ACO) ‘tsunami’.

As the volume of activity builds in anticipation of the January 2012 ‘go live’ date, we will summarize, vet, and comment on the activities of the major and perhaps below the radar screen, if not stealth, players.

Our first guest commentator is to be announced shortly.

To join us, click here.

4 Accountable Care Challenges for CMS

Tony Miller, for HealthLeaders Media

The Accountable Care Organization model presents extraordinary opportunities.  It promises to move Medicare and potentially other payers from traditional, volume-driven, inherently inefficient, and counter-productive fee-for-service financing to a value-driven, patient-centric approach to payment and care delivery.  And unlike a multitude of other reform initiatives affecting care delivery and payment, the Medicare ACO program will be a nationwide option, not a mere demo or pilot.

Working together under the umbrella of an ACO, health systems, physicians groups, and other health care providers will be able to redesign care and realign economic incentives.  As evidenced by private sector projects led by Carol Corp and other innovators across the country, the benefits of accountable care are impressive:  higher quality of care, increased patient safety, improved patient satisfaction, strong care management and coordination, and lower costs.  In other words, a genuinely win-win scenario for patients, providers, and taxpayers.  The entry of Medicare and the prospect of significant shared savings will serve to make accountable care a viable reform across the marketplace—provided the Centers for Medicare and Medicaid Services (CMS) adopts sound policies.

CMS plans to release proposed rules on…

Full text of article, here.

Tony Miller is the Chief Executive Officer of Carol Corp.

Medicare Program; Request for Information Regarding Accountable Care Organizations and the Medicare Shared Saving Program

Donald M. Berwick

Centers for Medicare & Medicaid Services

This document is a request for comments regarding certain aspects of the policies and standards that will apply to accountable care organizations (ACOs) participating in the Medicare program under section 3021 or 3022 of the Affordable Care Act.

Comment Date: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on December 3, 2010


The Affordable Care Act seeks to improve the quality of health care services and to lower health care costs by encouraging providers to create integrated health care delivery systems. These integrated systems will test new reimbursement methods intended to create incentives for health care providers to enhance health care quality and lower costs. One important delivery system reform is the Medicare Shared Savings Program under section 3022 of the Affordable Care Act, which promotes the formation and operation of accountable care organizations (ACOs). Under this provision, “groups of providers * * * meeting the criteria specified by the Secretary may work together to manage and coordinate care for Medicare * * * beneficiaries through an [ACO].” An ACO may receive payments for shared savings if the ACO meets certain quality performance standards and cost savings requirements established by the Secretary. We are developing rulemaking for the establishment of the Shared Savings Program under section 3022 of the Affordable Care Act. In addition, section 3021 of the Affordable Care Act establishes a Center for Medicare and Medicaid Innovation (CMMI) within CMS, which is authorized to test innovative payment and service delivery models to reduce program expenditures while preserving or enhancing the quality of care. We are considering testing innovative payment and delivery system models that complement the Shared Savings Program in the CMMI. In both of these efforts, we are seeking to advance ACO structures that are organized in ways that are patient-centered and foster participation of physicians and other clinicians who are in solo or small practices.Show citation box

We have already conducted substantial outreach and…

Read full text, here.

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Hearing on Strengthening Medicare and Medicaid: Taking Steps to Modernize America’s Health Care System

Donald Berwick submitted testimony:

To watch the hearing click here.

Chairman Baucus, Ranking Member Grassley, and Members of the Committee; thank you for the opportunity to appear before you to discuss ways to strengthen Medicare and Medicaid and modernize America’s health care delivery system. The Affordable Care Act, passed by Congress and signed into law by President Obama in March of this year, is landmark health care legislation that is bringing comprehensive insurance reforms, expanded coverage, and enhanced quality of health care to all Americans. Millions of people across the country are already benefiting from this law, including the more than 100 million people enrolled in Medicare, Medicaid and the Children’s Health Insurance Program (CHIP). Because of the Affordable Care Act, the fiscal future of Medicare is stronger, new tools to fight Medicare and Medicaid fraud are returning money to the Trust Funds and the Treasury, Medicare beneficiaries have new benefits and lower costs, and State Medicaid programs have additional resources and options to expand coverage, which is especially important in these challenging economic times.

As a pediatrician, I have witnessed both the best and the worst of the American health care system. I had the opportunity to practice pediatrics for 20 years in an organization that promoted integrated care, and saw firsthand the enormous difference that a doctor, nurse, and patient working together can make in health care outcomes. I have devoted my career to the belief that all patients deserve access to high quality health care, regardless of who they are or whether they live in a large city or a small rural community. High quality health care does not necessarily mean the most expensive health care. It means safe care, free from medical injuries, errors and infections; it means reliable care, based on the best available science; and it means person-centered care, in which each patient is treated with dignity and respect for his or her own unique preferences.

These core beliefs will continue to shape my work at the Centers for Medicare & Medicaid Services (CMS). As Administrator, protecting and strengthening Medicare, Medicaid, and CHIP is my top priority. And the Affordable Care Act has provided a number of important tools to help achieve this goal. It explicitly protects the guaranteed Medicare benefits on which so many seniors and individuals with disabilities rely. It will not cut these guaranteed benefits, nor will it ration care. The Affordable Care Act does not prescribe a ―one size fits all‖ approach to health care, because health care is first and foremost about caring for unique individuals. The Affordable Care Act incentivizes hospitals to improve the quality of care and prevent unnecessary readmissions, which are often harmful to patients.

CMS can help lead health care improvement in many ways. With new provisions in the Affordable Care Act, you have presented CMS with additional opportunities to work with others both in the public and private sector to make real improvements in the nation’s health care delivery systems.

CMS can and should be…

For complete testimony transcript, click here.

California Medical Association Adopts Organizing Principles for Accountable Care Organizations (ACOs)

Francisco Silva

Guiding principle – The goal of an accountable care organization (ACO) is to increase access to care, improve the quality of care and ensure the efficient delivery of care. Within an ACO, a physician’s primary ethical and professional obligation is the well-being and safety of the patient.

ACO governance – ACOs must be physician-led and encourage an environment of collaboration among physicians. ACOs must also be physician-led in order to ensure that a physician’s medical decisions are not based on commercial interests but rather on professional medical judgment that puts patients’ interests first.

Voluntary participation – Patient participation in an ACO should be voluntary rather than a mandatory assignment by Medicare. Any physician organization (including an organization that bills on behalf of physicians under a single tax identification number) or any other entity that creates an ACO must obtain the written affirmative consent of each physician to participate in the ACO. Physicians should not be required to join an ACO as a condition of contracting with Medicare, Medi-Cal or a private payor or being admitted to a hospital medical staff.

Savings used for patient care – The savings and revenues of an ACO should be retained for patient care services and distributed to the ACO participants. An ACO’s savings and revenues should not go to insurers.

Flexibility in patient referral and antitrust laws – The federal and state anti-kickback and self-referral laws and the federal Civil Monetary Penalties (CMP) statute (which prohibits payments by hospitals to physicians to reduce or limit care) should be sufficiently flexible to allow physicians to collaborate with hospitals in forming ACOs without being employed by the hospitals or ACOs. This is particularly important for physicians in small and medium size practices who may want to remain independent but otherwise integrate and collaborate with other physicians (i.e., so-called virtual integration) for purposes of participating in the ACO.

For more detailed information, or to view the full report from CMA’s Physician-Hospital Alignment Technical Advisory Committee, click here.



NCQA ACO Comment Period Deadline Looming: 11.19.10

Alston & Bird LLP

On October 19, 2010, the National Committee for Quality Assurance (NCQA) released its draft 2011 Accountable Care Organizations (ACO) criteria for public comment. NCQA’s mission is to improve health care quality through its activities, such as accrediting and certifying health care organizations and recognizing clinicians and practices in key areas of performance. The following advisory provides a summary of the draft ACO criteria, as well as a list of issues on whichNCQA requests feedback.

  1. NCQA Definition of ACO

NCQA defines ACOs as “provider-based organizations that take responsibility for meeting the health care needs of a defined population with the goal of simultaneously improving health, improving patient experience and reducing per capita costs.” NCQA notes that while providers will differ in how they organize themselves as ACOs and what components of care delivery they include in their organization, they all “must include a group of physicians with a strong primary care base and sufficient other specialties that support the care needs of a defined population of patients.” Also, clinical and financial incentives should be aligned for providers; this requires an administrative infrastructure to perform functions including managing budgets, collecting data, reporting performance, making payments related to performance and organizing providers around shared goals.

  1. Draft ACO Criteria

There are seven proposed categories of reflecting core ACO capabilities: (1) program structure operations; (2) access and availability; (3) primary care; (4) care management; (5) care coordination and transitions; (6) patients rights and responsibilities; and (7) performance reporting. Within each of the criteria are a number of standards consisting of elements and factors that are scored. Attached to this memorandum is a table outlining the categories, standards and elements included in the draft ACO criteria.

The draft criteria are geared toward assessing whether an ACO has the infrastructure needed to reduce costs, improve health care quality and improve patient experience. In the draft ACO criteria, greater focus is placed on the organization’s capabilities rather than performance. Noting that it will be some time before organizations can be judged primarily on performance measurement, NCQA believes that there must be “clear standards that assess capabilities that improve the likelihood of a potential ACO’s success and that provide a blueprint and a pathway (with clear stages) to full ACO capacity.”

  1. Comments Requested for Specific Issues

In addition to comments on the individual standards and elements in the draft criteria, NCQA is requesting feedback on the following issues concerning the criteria:

  1. Should certain individual standards or elements reflect a core capability that all ACOs should possess?
  2. NCQA is proposing four levels of scoring for ACOs, and the levels would be based on the organization’s demonstrated capability to function as an ACO and improve quality, increase patient satisfaction and lower per capita costs. NCQA is requesting feedback on what should be the expected capabilities for each ACO level.
  3. Does the eligibility criteria capture the organization types that have the capability to act as ACOs (i.e., provide the full continuum of services, coordinate care, manage resources effectively, report performance)? Also, should additional arrangements or structures be considered?
  4. Should the types of specialists included in the ACO be specified in the criteria? If so, must they be part of the organization’s legal structure (i.e., subject to the direct authority of the ACOs governance)?
  5. NCQA provides a list of available standardized measures for clinical quality and patient experience in an appendix. These measures come from NCQA’s Healthcare Effectiveness Data and Information Set (HEDIS®), the Centers for Medicare & Medicaid Services Requirements of Meaningful Use of Electronic Health Records, the Dartmouth Atlas and the Integrated Healthcare Association California Pay for Performance Program. Not all of these measures have been endorsed by the National Quality Forum. NCQA requests feedback on how these currently available measures might be used immediately to report performance.
  6. Do the criteria align with stakeholder expectations for ACOs? Are there gaps or areas not addressed but should be?
  7. For organizations seeking to become ACOs, does the organization have materials or documents to demonstrate compliance with the criteria? If not, which areas are challenging?
  8. Are there critical functions not included in the current draft standards?
  1. Next Steps

Public comments to the draft criteria are due by November 19, 2010. The comments will be considered as the criteria are finalized for release in mid-2011.

For ACO Draft 2011 Criteria, click here.

Original source reference, click here.

‘Fear and Trembling’ at AHIP?

The impending rise of Accountable Care Organizations (ACOs) as market participants, and their apparent autonomy from an ‘institutional partner’ perspective, whether of the clinical or licensing (i.e., payor) variety, is no doubt raising concerns in certain sectors.

Clearly the guidance to date, which enables ACO anointing absent a hospital partner is causing some hospital CEOs, and/or their parent systems, to lose some sleep. However, lets not forget about the health plan or payor community particularly from the point of view of their trade group voice.

Last month AHIP (America’s Health Insurance Plans), released ‘Accountable Care Organizations and Market Power Issues.’

Chief among AHIP’s concerns is the anti-trust downside of unbridled market power leading to concentrated (monopolistic) market influence in the hands of too few (and perhaps ‘untethered’) players:

ACOs have the potential to improve quality and reduce costs for consumers and payers alike, by providing more patient-centered, coordinated, collaborative care. The ACA provides only the broad outlines of the ACO program, and without proper design, provider aggregation could result in market power, undermining the program’s goals of lower costs and higher quality. To avoid bad marketplace outcomes, the ACO rulemaking should structure the program to minimize antitrust concerns.

Might this be a case of the pot calling the kettle black?

Extracting the ‘H’ from P/H/O: The Anatomy of One Unwinding

Gregg Masters, MPH

Since we now find ourselves at the gateway of resurgent if not soon to be robust exploratory conversations between hospitals, their medical staffs, the broader private medical community and the likely joint venture entities to implement any collaborative vision, this time under the aegis of Accountable Care Organization (ACO)  incentives, I thought it might be useful to recall one unwinding for context and educational purposes.

In the 1990s Presbyterian Healthcare System (PHS) in Dallas, Texas (pre-merger with Harris Methodist Health System and Arlington Memorial Hospital into Texas Health Resources), reading the tea leaves of the wisdom of joint contracting with its medical staff formed ‘System Health Providers’ (SHP) a PHO with it’s primary affiliate IPA (independent practice association) ‘Genesis Physicians Group’ (GPG) and it’s risk contracting derivative, Genesis Physicians Practice Association (GPPA).

PHS had previously formed a first generation PHO doing business as ‘JVE’ which stood for ‘joint venture entity’, a most generic of names which none-the-less represented a culture of commitment by both hospital and medical staff leadership to the idea of collaborating minimally to build provider side leverage in the then fast consolidating managed healthcare industry.

Thus SHP represented a ‘PHO 2.0’ effort – if you will, for at least the PHS side of the JV. All seemed to progress quite nicely, as SHP, a messenger model PPO routinely extracted rather premium pricing when contrasted to other DFW systems including Baylor and the then rapidly consolidating Columbia Healthcare network, and held payor agreements with virtually all major players in DFW.

Yet, somewhere on the road to contracting nirvana, the enterprise stumbled across a ‘trigger event’, initially seen as rather innocuous, but which later began a rather unpleasant and painful unwinding process straining long-standing relationships and testing the goodwill of the partners.

In the fine print of the PHO agreement between the two members (PHS & GPG) was an arcane provision titled ‘mandatory redemption’. Though a rather routine legalese provision, what this language addressed were the conditions under which one member would buy back the share or interest (i.e., redeem) in the JV, and effectively terminate the equity basis for collaboration.

In this case, the ‘offending party’ was PHS, and the trigger event was the merger with Harris Methodist Health System and Arlington Memorial Hospital to form Texas Health Resources (THR).

Following the closing of the merger, the leadership of SHP in consultation with the leadership of GPG and their legal counsel determined that PHS had effectively triggered the mandatory redemption provision, thus forcing the valuation of SHP, and subsequent buy back of PHS’s interest. In other words, the ‘H’ was to be eliminated as this PHO was on the road to becoming a ‘PO’ (physician organization).

One curious little sidebar to the unfolding of events was the CEO of SHP had a financial incentive for the buy back to occur, as the terms of his employment agreement (and perhaps stock ownership) called for a payout under certain circumstances (one of which apparently included mandatory redemption).

Needless to say, hospital and medial staff or affiliate joint ventures even in the best of times, can be a tad tense, but throw into the mix a testy ‘divorce’ and one can definitely challenge even the most skillful managers to maintain the peace.

Much time has passed and the ship apparently has righted itself as both entities continue to work together although I have no direct tie to either.

So what lesson(s) can be extracted from this one experience? One is to choose your partner carefully (do you even need one?), be clear on your intentions, and market upside; then study the fine print of your agreements. Better yet, know your value, understand your goals and make sure you account for likely bumps in the road. While much of the discussion in ACO formation will center around the usual suspects of capital, infrastructure, and core management competencies, a far more important ingredient will be a ‘patients first’ collaborative culture, to endure the rocky road of aligning the partners interests in the JV. Then again, since an ACO does not necessarily need to be a ‘joint venture’ per se, with an institutional partner whether hospital or parent system, do you even want to go down that road? It will no doubt get real interesting, real soon.

Gregg Masters, MPH is an independent heath care consultant in San Diego, California, who served as Vice President for Managed Care and Network Management of System Health Providers, Inc., prior to, during and after the formation of Texas Health Resources.

Creating Accountable Care Organizations: A NEJM Roundtable

Thomas H. Lee, M.D., Lawrence P. Casalino, M.D., Ph.D., Elliott S. Fisher, M.D., M.P.H., and Gail R. Wilensky, Ph.D.

N Engl J Med 2010; 363:e23


Under the Affordable Care Act, Medicare will launch a Shared Savings Program for groups of health care providers that join forces, with or without hospitals or health plans, to form legal entities that agree to take responsibility for the quality, cost, and overall care of a population of patients. What will these accountable care organizations (ACOs) look like? Who will step forward to form them? What are the best pathways and likely hurdles to achieving ACO status? What are the risks of entering the arena, and what are the expected benefits for clinicians and patients? In a roundtable discussion moderated by Dr. Thomas Lee, experts Lawrence Casalino, Elliott Fisher, and Gail Wilensky explored these and other questions.

To watch video clip, click here.

Transcript extract:

1. Introduction to ACOs

DR. THOMAS LEE: Welcome to a video roundtable of the New England Journal of Medicine on accountable careorganizations. I’m Tom Lee, an associate editor of the Journal and network president of Partners Healthcare. In atime of incredible transition in health care, we’re all hoping that where we are headed is a delivery system thatdelivers higher-quality care more efficiently. Are accountable care organizations, or ACOs, the vehicle? Whateveryone says is the devil is in the details.To talk about that today, we’ve got three experts with complementary perspectives. We have Gail Wilensky, aneconomist and senior fellow at Project Hope, who served in a variety of roles with relevance to this topic, includingadministrator of the Health Care Financing Administration and chair of MedPAC. We have Elliott Fisher, who is thedirector of the Center for Health Policy Research and a professor of medicine at Dartmouth Medical School. And wehave Larry Casalino, who is the chief of the Division of Outcomes and Effectiveness Research and a professor atWeill Cornell Medical College.

To download complete transcript, click here.