Accountable Care Organizations (ACOs) for Duals
At the June 3 Alliance for Health Reform meeting on Dually Eligible Beneficiaries (i.e. beneficiaries who have Medicare and Medicaid benefits), the discussion focused on how to address the needs of the most complex, costly and frail beneficiaries. Currently only 100,000 of 9 million duals are in integrated systems. The incentives in Medicare and Medicaid clearly reward shifting care and costs to the other program, e.g. if a beneficiary is shifted to a hospital from nursing home, Medicare will pick up the cost or if a beneficiary is shifted to a nursing home from a community setting, Medicaid will pick up the costs.
While the integrated Medicare and Medicaid funding and benefits in the PACE program is a gold standard for the dual population, this program remains small and is currently serving only 22,000 beneficiaries. Multi-payer ACOs offer an alternative that could better serve a broader segment of the dual population. ACOs are patient centered and offer a structure to coordinate Medicare and Medicaid benefits and funding streams. By focusing on shared savings from better care and integrated care, dual ACOs could avoid the cost shifting incentives in the current programs. Partial or full capitation from Medicare and Medicaid would facilitate the ability of ACOs to make the best use of federal and state funds in the most appropriate setting. Minnesota is embarking on an ACO model for its Medicaid program and a number of the Integrated Delivery Systems in Minnesota are pursuing a Medicare Pioneer ACO demonstration. While the Minnesota ACOs will not be specialized dual ACOs, they will have duals assigned to their providers and there will be an opportunity to see how flexible the ACO model can be in serving this vulnerable population. CMS has funded 15 states to develop fully integrated dual programs and states should consider the ACO model as part of their designs.
Exchange Will Do You Good
Two interesting items have been posted in recent weeks that perfectly capture the contrary motion of health reform implementation. The first, found in the Washington Post, addresses the laggard's pace many states are keeping in implementing provisions of health reform--- in particular the health insurance exchanges that subsidize the purchase of private insurance by low and middle income citizens. The controversial second, which appears this month in a McKinsey newsletter describes the incredible market pressures to do just that.
For years, Washington wonks and informed political spectators have marveled at the left's inability to tie the issue of health care coverage to the interests of small businesses, which politicians of both persuasions never miss an opportunity to refer to as "the engine of the American economy." Money that goes to high employee premiums does not go to creating jobs--- at least, not for the small business in question. The McKinsey article projects that 30% of employers will "definitely or probably" stop offering health insurance to employees after 2014 (the schedule date of exchange implementation) and that more than 50% of companies with a high awareness of the health care law will simply stop offering insurance and send employees to Exchanges. Wowza.
There are a number of interesting things about this extraordinary (if it turns out to be true) change in coverage: first, the tremendous churn of beneficiary eligibility across subsidy levels just got more interesting, as a new class of pseudo employer-sponsored beneficiaries floods the market. Second, the risk pool changes. Lastly, if you make your living selling small group business policies, it may be time to open that Ebay store because your job is a whole heck of a lot less secure beginning in 2014. You'll be in good company. Many state Governors may find themselves in the same boat if they do not implement the exchanges in a timely manner, thereby depriving small businesses of the ability to make coverage the Government's problem and find more productive uses of capital. To do so gives the opposition party a golden talking point going into the 2012 elections.
The State of Play on Medicare ACOs
The comment period for the Medicare Accountable Care Organization (ACO) Notice of Proposed Rulemaking closed yesterday, June 6. In the last two months CMS has taken a beating from virtually every corner on the draft regulation as being overly burdensome.
Dozens of groups, including the American Hospital Association (AHA), American Medical Association (AMA) and America's Health Insurance Plans (AHIP), submitted their comments on the proposal. High-profile Physician Group Practices (PGPs) such as the Cleveland Clinic and Mayo Clinic have said they are unlikely to participate in the Medicare ACO initiative.
AHA fears high implementation costs and excessive quality requirements will prevent hospitals from forming ACOs. AHA believes it will cost a 200-bed hospital with 80 primary care physicians and 250 specialists $11.6M to launch a Medicare ACO; a 1,200-bed, 5-hospital system with 250 primary care physicians and 500 specialists is expected to run $26.1M.
Battle lines were drawn on antitrust issues in comments from AMA and AHIP, which offered diametrically-opposed recommendations.
We believe CMS will listen to entreaties to reduce the quality reporting burden and will help provide improved cash flow for ACOs (we hope through partial capitation and getting rid of the 25% withhold) and possibly increase the share of savings that ACOs can keep, to encourage adoption. But given the huge volume of comments and political sensitivities in Congress on ACOs, we think it will be toward year-end before a final regulation is issued.
The "Pioneer ACO" Demonstration is scheduled to begin this fall, with applications due to CMS July 18 and a full program launch January 1st. We are seeing moderate interest among marquee providers — especially those with their own Medicare Advantage plans -- in participating in the Pioneer ACO Demonstration and believe chances are good that CMS will fill its 30 slots for these "ready to launch" ACOs if the agency listens to industry input on partial capitation arrangements in the coming weeks.