ACOs: We’re NOT There Yet

by Brian Klepper

On The Health Care Blog, veteran analyst Vince Kuraitis reviews a report from the consulting firm Oliver Wyman (OW), arguing that the trend toward reconfiguring health systems to deliver more accountable care is more widespread than any of us suspect.

“The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise,” our analysis finds that 25 to 31 million Americans already receive their care through ACOs-and roughly 45 percent of the population live in regions served by at least one ACO.”

OW provides a well-reasoned analysis and conclusions, but I’m skeptical. In discussions with health system executives around the country, I hear some movement toward change, but relatively few organizations are materially turning their operations in a different direction. The specter of policy change is looming, but it is still abstract. As I’ve described before, market forces are intensifying, but they’re mostly still scattered and immature.

ACOs: Are We “There” Yet?

 

A  recent analysis of the ACO market by Oliver Wyman market suggests we’re well on our way toward being “there”.

My personal take on this report:

Provocative, fresh, thoughtful, well reasoned, expansive — albeit a bit of a stretch

However, I suspect many others will describe it as: 

Speculative, harebrained, unsupported, overly extrapolative, out-to-lunch, wishful to the point of being woo woo

So now that I hopefully have your attention, what’s this report all about? In a nutshell: 

The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise”, our analysis finds that 25 to 31 million Americans already receive their care through ACOs—and roughly 45 percent of the population live in regions served by at least one ACO.

Let’s dig in to the report. In this blog post, I’ll summarize their math, surface their critical assumptions and observations, and comment on their reasoning. I’ve indented direct quotations from the report and have italicized wording that spells out the major assumptions.

While I don’t agree with all of Oliver Wyman’s math and assumptions, I applaud them for the process they have gone through. Please take my commentary as “quibbling at the edges” and that overall I’m on board with their methodology and conclusions.

Are Hospital Business Models on a Burning Platform? Not Yet, But It’s Inevitable.

From reading recent headlines, one might easily get the impression that hospitals are resistant — or at least ambivalent — in their pursuit and adoption of accountable care initiatives.

Are Hospitals Dragging their Feet on Accountable Care?

Commonwealth Fund: “only 13 percent of hospital respondents reported participating in an ACO or planning to participate within a year”

KPMG Survey: “(only) 27 percent of [health system] respondents said current business models were either not very or not at all sustainable over the next five years”

Health Affairs: “Medicare’s New Hospital Value-Based Purchasing Program Is Likely To Have Only A Small Impact On Hospital Payments”

The Bigger Picture

Do hospitals today perceive their current business model on the metaphorical “burning platform” — when the status quo is no longer an alternative?

Physicians Shouldn’t Wait for Big Data: “Small Data” Can Jumpstart Your Care Management Program

by David C. Kibbe MD, MBA and Vince Kuraitis JD, MBA

Everywhere we turn these days it seems “Big Data” is being touted as a solution for physicians and physician groups who want to participate in Accountable Care Organizations, (ACOs) and/or accountable care-like contracts with payers. We disagree, and think the accumulated experience about what works and what doesn’t work for care management suggests that a “Small Data” approach might be good enough for many medical groups, while being more immediately implementable and a lot less costly. We’re not convinced, in other words, that the problem for ACOs is a scarcity of data or second rate analytics. Rather, the problem is that we are not taking advantage of, and using more intelligently, the data and analytics already in place, or nearly in place.

For those of you who are interested in the concept of Big Data, Steve Lohr recently wrote a good overview in his column in the New York Times, in which he said:

“Big Data is a shorthand label that typically means applying the tools of artificial intelligence, like machine learning, to vast new troves of data beyond that captured in standard databases. The new data sources include Web-browsing data trails, social network communications, sensor data and surveillance data.”

Applied to health care and ACOs, the proponents of Big Data suggest that some version of IBM’s now-famous Watson, teamed up with arrays of sensors and a very large clinical data repository containing virtually every known fact about all of the patients seen by the medical group, is a needed investment. Of course, many of these data are not currently available in structured, that is computable, format. So one of the costly requirements that Big Data may impose on us results from the need to convert large amounts of unstructured or poorly structured data to structured data. But when that is accomplished, so advocates tell us, Big Data is not only good for quality care, but is “absolutely essential” for attaining the cost efficiency needed by doctors and nurses to have a positive and money-making experience with accountable care shared-savings, gain-share, or risk contracts. The promotional literature for Big Data is peppered with jargon and catch phrases — “close to the point of care,” “synthesizing large amounts of information,” “transformational analytics,” and so on — that promise to “de-fragment” the current health care environment and offer predictive insights that the doctors, nurses, and patients do not now possess.

This all may be true. But why wait for Big Data to be put in place, when what we’ll call “Small Data” is already available and can offer information and analytical insights sufficient to get a good start on care management programs capable of improving quality and reducing some unnecessary costs?

The ACO Antitrust Police — Nothing to Do

One of the biggest concerns about ACOs has been their potential to enable market consolidation— that by uniting health care providers the ACO gains market clout and ability to charge higher prices.

While this is a legitimate concern about ACOs, so far it’s not playing out.

Why?

 

Medicare Announces 27 ACOs. A New Species?

I’m surprised and intrigued by Medicare’s announcement of 27 new Shared Savings model ACOs.

Surprised

I had been anticipating this announcement as a defining moment for Medicare’s thrust into accountable care. My expectations had been that we would see either:

Boom — a big splash of new Medicare shared savings ACOs announced, including big name hospitals and medical groups that were starting large scale ACOs, perhaps with hundreds of thousands of patients.

Bust — no one showed up at the party. Providers would have concluded that Medicare ACOs were too risky, bureaucratic, and high effort.

Intrigued

What we got is something in the middle:

Will Health Plans Want to Contract with ACOs? Maybe, Maybe Not.

On the Perficient Health IT blog, Christel Kellogg writes:

I am hearing that carriers are staying away from ACOs and are not planning on partnering.  What have you heard?

This is one of those blip-on-the-radar-screen comments that jarred my attention — and it raises very important questions about industry dynamics.

First, let me expand on the issue.  As I’ve written before, there are at least two broad categories of “accountable care initiatives”:

1) Formal Accountable Care Organizations (ACOs) by which care providers contract with Medicare

2) Informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans.

The list of accountable care animals in the forest is likely to keep growing. For example, just this week Oregon announced details for CCOs (Coordinated Care Organizations) for Medicaid.

So how are different stakeholders likely to react to the opportunity of a formal ACO contracting with commercial health plans? Let’s look at this from a couple of different angles.

A 6th Difference Between ACOs and “AC-Like” Arrangements

Last week I wrote about five key differences between formal ACOs (mainly care providers contracting with Medicare)  and informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans.

  1. Transaction costs
  2. Timing
  3. Incrementalism
  4. Flexibility
  5. Capital cost

There’s an important  6th  difference worth noting:

Visibility

Elephants

Formal ACOs will be visible from miles away — think elephants on the Serengeti.

An ACO that wants to contract with Medicare must establish itself as a corporation. The Medicare ACO models have substantial disclosure and reporting requirements. We won’t know everything about formal ACOs, but we will know a lot. ACOs cannot hide.

Chameleon

AC-Like arrangements between care providers and commercial payers could be much more difficult to spot and categorize — think chameleons in the jungle.  

Platform Failure and Success: Lessons from Outside Healthcare

Healthcare is just starting down the road of adopting platform technology and business models. What lessons can we learn from other industries?

A recent article by Andreas Constantinou in Vision Mobile blog provides guidance. The article lists a Dead Platform Graveyard from the past 10 years — you will probably recognize some of the names: Meego (Nokia/Intel), Palm 5/6, Symbian OS (Nokia) WebOS (HP), Windows Mobile (Microsoft). Blackberry RIM is a candidate to make next year’s list.

Software platforms have failed for a combination of reasons:

  • Cost of ownership
  • Conflicting revenue model
  • Lack of network effects
  • High adoption barriers

The author also provides great lessons and guidance as to what DOES work:

Leavitt ACO Report: Overstating or Understating Accountable Care Activity?

Accountable Care Organizations (ACOs) have been likened to

a unicorn — a fantastic creature that is vested with mythical powers. But no one has actually seen one.

a camel — a horse designed by a committee, one that already has its nose in the tent

With this background, you can begin to appreciate the difficulty of conducting an accurate census of ACO animals in the wilderness.  Yet, this is exactly the task undertaken in the excellent Leavitt Partners report measuring ACO activity in the US.

As I will explain, the Leavitt report has the potential both to overestimate and underestimate ACO and accountable care-like activities. In my judgment, however, it’s far more likely to be understating just how much accountable care activity actually is going on.

Findings in the Leavitt Report

The Leavitt researchers “identified ACOs from news releases, media reports, trade groups, collaborations and interviews through the beginning of September 2011. Also included were entities that either self-identified as being an ACOs or specifically adopted the tenets of accountable care.”

The report counts 164 ACOs — 99 that are primarily sponsored by hospital systems, 38 by physician groups, and 27 by insurers.

Here’s how Leavitt summarized their results: