Topics: Accountable Care, Market Trends, Strategy, Health Care Reform, Payer and Regulatory Policy, Reimbursement, Finance
Josh Gray, Financial Leadership Council
Over the last six months, the Centers for Medicare and Medicaid Services (CMS) has introduced a series of payment reforms, including the Shared Savings Program, Bundled Payments for Care Improvement Initiative, and Pioneer ACO Program. Private payers are following CMS’s lead in many markets, accelerating the health care industry’s migration toward accountable care.
Taken in their entirety, these innovations have enormous potential to influence health system economics. Even those organizations preferring to take a wait-and-see approach may find themselves vulnerable as hospital-based competitors pursue risk-based contracts or, perhaps most concerning, independent physician groups do so on their own with the goal of profiting from reductions in hospital utilization.
Imperatives for managing the transition to accountable care
The migration toward accountable care poses significant risks to health system margins as finance executives attempt to balance the conflicting financial incentives of fee-for-service and risk-based reimbursement structures. Following a fiscally responsible migration path—preserving margins while funding accountable care investments—is among the most important challenges currently confronting finance leaders.
The following guideposts, culled from interviews with a number of the country’s most progressive health systems, offer useful guidance for charting a course to accountable care:
1. Align delivery system with payment strategy. Health system executives need to ensure that their reimbursement structures are progressing in lock-step with their delivery system capabilities. Systems that negotiate aggressive risk-based contracts for too large a portion of their patient population revenue risk implementation failures that could lead to substantial financial losses and reputational injury. On the other hand, hospitals that proactively modify their delivery systems to reduce readmissions and minimize unnecessary care will deprive themselves of fee-for-service revenue under existing contract structures.
2. Secure payer support in building care management capabilities. Look for private dollars to fund care innovation. Federal and state governments have earmarked stimulus and health reform money to aid in the transition to accountable care. Foundations are also interested in supporting this delivery transformation. A number of health systems have also secured support from private payers, in many cases to defray the costs of establishing a medical home infrastructure.
Payer support need not be monetary. For example, one 1,500-bed medical center in the Midwest that draws complex cases from a wide area had little visibility into true readmission rates, as patients were often readmitted to smaller nearby hospitals. One of the medical center’s major payers offered blinded data on community-wide readmissions, providing essential information that supported a major, clinically-proven readmissions reduction program. The payer incurred costs to assemble the data but earned it back many times over in reduced utilization.
3. Share development costs with other systems. Consider sharing the costs of developing care management infrastructure with other systems. For example, one health system with an aggressive accountable care strategy is partnering with two nearby hospitals to fund the development of a shared organization that will assist each partner in medical management, actuarial activities, and accountable care contracting. By pursuing this venture in partnership, the system projects savings of 40% for the combined functions.
4. Scale up from small pilots. Launch smaller risk-sharing pilots that are confined to specific geographies, payers, physicians, or lines of service. A successful pilot can be scaled broadly once skills are demonstrated and funding is in place. If a smaller pilot fails, damage will be minimal.
5. Leverage employees. Experiment with risk-based reimbursement by launching bundled payment or shared savings initiatives with your self-insured employee population. In a recent survey of approaches to accountable care, half of providers expecting to implement bundled payment are planning to do so with their own employees, as are a majority of those planning to pursue shared savings projects. Forty percent of respondents are planning total cost of care contracts, and a majority of those are planning to do so with their own employees.
6. Tailor approach to inpatient capacity. The cost-benefit analysis of risk-based contracting structures varies dramatically depending on current inpatient occupancy levels. Bundled payment can be profitable for hospitals regardless of current capacity, while shared savings contracts tend to be financially attractive for hospitals with occupancy and problematic for those seeking to fill inpatient beds.
Learn more at our national meeting
Financial Leadership Council members may register now for the upcoming national meeting, Positioning for Reform: Preserving Margins While Retooling for Accountable Care. Not a member of the Financial Leadership Council? Daily Briefing readers with questions about the Financial Leadership Council may learn more on our website.
