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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.

Here’s my sense of how a formal ACO (formed primarily for contracting with Medicare) will think about this:

Our ACO needs critical mass. The start up costs for an ACO are huge. While we formed our ACO primarily to contract with Medicare, we need to contract with anybody and everybody we can — commercial health plans, Medicaid, employers… We need to gain critical mass and market clout as quickly as possible.

But health plans are likely to have a much more mixed reaction:

We see that Saint Acme has formed an ACO in the region. Do we want to contract with them? On the one hand, the ACO represents a group of providers who have taken the time and effort to organize themselves and are promising to coordinate care — this is not an easy thing to do.  From that vantage point, contracting directly with a formal ACO is appealing.

However, one of the biggest concerns we have about ACOs is that they consolidate providers into a stronger bargaining unit — a union — and that can have the effect of reducing our bargaining ability and raising prices.  This is a really big concern, and makes us hesitant.

We see another route worth considering. Let’s take a divide and conquer strategy.  We don’t need to contract directly with the ACO — we can contract directly with individual care providers who are members of the ACO and we will be better able to control the terms and direction of the deal.

How will this play out? Not clear… my hunch is that most health plans will have significant concerns about contracting directly with ACOs.

The implications are huge:

  • Can formal ACOs gain enough critical mass to survive and thrive if only Medicare wants to contract with them?
  • Can care coordination across different ACO and AC-Like initiatives be achieved?
  • How will competitive dynamics between care providers an health plans play out? The market is sending a mixed message right now — “We want health plans and care providers to work closely together, but we still want robust competition in the marketplace.”

Worth watching as this issue develops… your thoughts?

 

 

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Comments

1.
On April 5th, 2012 at 1:50 pm, Christel said:

Enjoyed the “Implications”. See my take below:
•Can formal ACOs gain enough critical mass to survive and thrive if only Medicare wants to contract with them?

Christel — No. The information systems to maintain the ACO for operations and accounting and supporting staff would make non-profitable. Imagine an ACO revenue neutrality when going for ICD9 — ICD10. Who would do this? How would the testing and preparation be paid for.

•Can care coordination across different ACO and AC-Like initiatives be achieved?

Christel — Yes, if you have the dollars. Would suggest outsourcing the ACO and AC-Like IT/Process Platforms and let the Physicians and Clinicians stick to what is their core value. Nothing with Operations and IT enablement is cheap even if it is outsourced. I just cannot see the cost/benefit. Market is not stable and will not be stable for some time…too many chefs in the kitchen. Changing status quo needs to be timed and now is not the time. The pain of staying in status quo has not exceeded the pain to change.

•How will competitive dynamics between care providers an health plans play out? The market is sending a mixed message right now — “We want health plans and care providers to work closely together, but we still want robust competition in the marketplace.”

Christel — If you look at ICD10 transactions, testing preparations should be happening between the provider and payor NOW before production. Scenarios need to be run to avoid Administration Costs of not getting it right once in production. The latter is not a requirement or certification between payer and provider for ICD10. If it was, who would pay for the expenses? It will take a collaborative team that does not exist today….they will need funding.

2.
On April 6th, 2012 at 7:12 am, Vince Kuraitis said:

Christel, Thanks for your perspectives and for bringing this very important issue to our attention!

Mentions on other sites...

  1. Vince Kuraitis on April 5th, 2012 at 7:15 pm
  2. Vince Kuraitis on April 5th, 2012 at 7:22 pm
  3. SuccessEHS on April 5th, 2012 at 7:26 pm
  4. Michael Stanton on April 5th, 2012 at 7:29 pm
  5. Christel Kellogg on April 5th, 2012 at 7:29 pm
  6. Perficient Health IT on April 5th, 2012 at 8:21 pm
  7. Don Rosenthal on April 5th, 2012 at 8:22 pm
  8. Perficient Health IT on April 5th, 2012 at 8:29 pm
  9. Trust.MD on April 5th, 2012 at 8:47 pm
  10. Netspective Health on April 6th, 2012 at 4:14 am
  11. Aparna M K on April 6th, 2012 at 4:16 am
  12. Aparna M K on April 6th, 2012 at 4:16 am
  13. Vince Kuraitis on April 6th, 2012 at 5:54 pm
  14. Erik Pupo on April 7th, 2012 at 2:10 am
  15. Rx Wealth Network on April 12th, 2012 at 6:15 pm