The meaning of 'risk' in an ACO

"providers are accepting more financial risk because the construct is lopsided."

Accountable care organizations can be risky business. ACO care partners must be able to depend on one another for proper patient handling, data flow, clinical cooperation, revenue sharing and other agreed-upon measures. At first glance it is a tenuous relationship that hasn’t been part of the traditional healthcare model and pitfalls can take many forms.

The concept of “risk” also means different things within these new-style affiliations, says David Burton, MD, senior vice president for Salt Lake City-based Health Catalyst.

“It is a checkered landscape with no easy answers,” he said. “People talk loosely about ACOs when in fact it is a CMS invention. The deck is stacked against providers because in this model patients can act as if they are in a fee-for-service model and may not even be aware they are part of an ACO. So there is a major stakeholder who is not really engaged. As a result, providers are accepting more financial risk because the construct is lopsided.”

If ACO sponsors are assuming the most risk, then physician clinics fall into that category, Burton says, because they are the fastest-growing sponsor group.

[See also: ACOs get down to brass tacks.]

“They tend to put the hospital at the top end of the whip and avoid using it most of the time and use it when they need it,” he said. “There will come a time when the realization occurs that this is a partnership and that the risk needs to be spread around.”

Brett Furst, CEO of Ann Arbor, Mich.-based Arbormetrix, agrees that physicians are taking the lion’s share of risk in the ACO equation.

“More than half of the ACOs in existence are led by physician clinics and there are more than 600 right now,” he said. “By contrast, hospital-led ACOs represent only 3 percent of the total.”

Shared savings models can be difficult based on the specific contract design

The CMS focus for ACOs is to define populations and take on risk, with 33 measures centered on preventing hospital readmissions through wellness and chronic disease management programs. CMS will be adding 16 extra measures, looking for more specifics about the conditions and will be more episodic in analysis, Furst said.

“Physicians will be the tip of the spear to make ACOs successful,” he said. “Health plans are clamoring for physicians to take on more risk and be more aggressive. Hospitals will be paying attention because they have the data.”

Nature of risk
For providers, risk appears in several forms, such as decreases in fee-for-service dollars, the costs associated with changing business models, the possibility of an unbalanced alignment and penalties for hospital readmissions.

“Value-based care arrangements are often the first step in business model transformation because they offer the contract structure, metrics and the incentives for change,” says James Starr, CFO for St. Louis-based Lumeris. “However, many ACOs are based on the desire to enhance an organization’s care delivery model. For ACOs to make sense, provider groups and hospitals will need to model out their financial future and will likely need a partner to help them.”

Shared savings, shared risk and global payment models of value-based care all require risk, Starr says. Consequently, hospitals should seek out a partner to help them model their risk strategy, the contract structure and incentives that make sense given the organization’s and provider’s level of readiness.

[See also: When disaster strikes: Risk management and business continuity.]

“Shared savings models can be difficult based on the specific contract design,” Starr said. “In some cases, the bonus from shared savings does not offset the requisite decrease in acute care volume, resulting in a net loss to the system.

Contract design, financial modeling and looking closely at physician compensation are all crucial pieces to health system success in shared savings contracts.”

Risk mitigation
Because the Affordable Care Act is designed to put everyone on the same page and have them looking at the care model the same way, its implementation gives the healthcare industry a better opportunity to understand the provision of care and mitigate risk, says Marc Perlman, global vice president of Redwood Shores, Calif.-based Oracle Healthcare and Life Sciences.

“Risk mitigation puts processes, technologies, capabilities and tools in the hands of providers to have the best outcomes and how to do it most efficiently,” Perlman said. “The system is more transparent than ever and information is being shared. Data needs to be pulled together in a consolidated way that is meaningful.”

In terms of mitigation, the issue becomes how to share the data across the continuum to lower costs and raise efficiencies for all, Perlman said. It is a holistic view that he says can be achieved through cooperation and understanding.

“The point is we’ve got to support the drive for true interoperability,” he said. “The shining light is an effective healthcare system without walls, which means data has to flow. Measure what you manage and use solid manufacturing techniques to make it as lean as possible without sacrificing quality.”