Published 11/1/2010
Alexandra E. Page, MD

ACOs: New models for care and compensation

Will shared savings or bundling replace fee-for-service?

Establishing the role of an orthopaedic surgeon and other specialists in an integrated system, such as an accountable care organization (ACO), is complex and actively evolving. The previous article in this series (“ACOs: The future of health care delivery?” AAOS Now, October 2010), outlined the fundamental components of an ACO. Beyond meeting those requirements, however, significant latitude in organizing an ACO exists.

The Patient Protection and Accountable Care Act defines the following options as possible ACO structures:

  1. ACO professionals in group practice arrangements
  2. Networks of individual practices of ACO professionals
  3. Partnerships or joint venture arrangements between hospitals and ACO professionals
  4. Hospitals employing ACO professionals
  5. Such other groups of providers of services and suppliers as deemed appropriate by the Secretary of the Department of Health and Human Services

In addition, under the law, a “shared savings” program must be established by Jan. 1, 2012, for items and services under Medicare Parts A and B.

Shared savings
A model shared savings program is shown in
Fig. 1. Briefly, the “savings” result from the difference between the target spending, which is a goal established by the Centers for Medicare & Medicaid Services (CMS) and/or other payers for providing care to a group of beneficiaries, and the actual spending, or the true cost of providing that care.

As indicated in the figure, the target set by CMS and/or other payers assumes that better coordination of care will result in lower costs than under the current fee-for-service model. These shared savings are then split between the ACO and CMS (or between the ACO and another payer). The ACO must meet certain quality performance standards to qualify for shared savings. To minimize the impact of random variations in a population group, the shared savings will be reviewed over a 3-year period.

Bundling or episode-of-care payments
Bundling is another method that reduces the incentive for providers to order additional services such as tests or procedures, a practice that legislators say is fostered by the fee-for-service (FFS) system. Under this payment model, which is also known as an episode-of-care model, a price is established for providing care for a given diagnosis or procedure, such as acute myocardial infarction or a total knee replacement. Payers would reimburse this amount, which is expected to cover all providers (hospitals, physicians, and ancillary care providers) for the diagnosis or procedure, regardless of the actual cost of providing the care.

Thus, institutions that provide efficient, high-quality care would have a higher profit margin than those providing less efficient or lower quality care. The decision to use additional services (such as advanced imaging, multiple specialists, or more expensive implants) reduces profits. Under this compensation model, hospitals and healthcare providers assume some risk and may need to absorb the costs of an expensive complication such as a stay in the intensive care unit due to a deep infection.

Healthcare reform mandates that CMS must have 10 conditions “bundled” by 2013. Elective orthopaedic surgeries are a likely target because they are already part of the Acute Care Episode (ACE) Demonstration Program.

The ACE program
The Medicare ACE Demonstration Program explores payment alternatives to FFS, including a model for bundling payments to multiple providers. Richard E. White, MD, has been involved with the first test sites and presented preliminary results during the July symposium.

The ACE demonstration applied to Medicare FFS patients receiving certain cardiac procedures and primary and revision hip and knee replacements. It did not apply to other inpatient services or care after discharge. The hospital competitively bid for a bundled payment from CMS, including the physician fees. Costs below the negotiated fee represented the “incentive” portion, but limits were set on how much of this payment could be shared with physicians.

Based on preliminary data from May 2009 to March 2010, Dr. White noted encouraging results. Thus far, the pilot has demonstrated a 10 percent reduction in costs for the average hip or knee replacement episode, and all physicians received the full incentive payment.

What is working now
Among the currently functioning integrated care systems in the United States are Kaiser Perma-nente, Intermountain Health Care, and Geisinger Health Systems. As the ACO model evolves, positive features from these systems may serve as a template to other organizations.

According to Thomas C. Barber, MD, and David S. Jevsevar, MD, who shared their experiences with Kaiser Permanente and Intermountain Health Care, respectively, the ability to track data—including surgeries, outcomes, and complications—was the single most valuable aspect of an integrated care system.

Dr. Barber noted that in a fully integrated healthcare system, data—including operating room utilization and patient satisfaction surveys—are readily available, in part due to a comprehensive electronic medical record. Such data enable an ACO to monitor and report on quality.

For example, the Kaiser Permanente total joint registry includes information on 100,000 total joint surgeries. The registry enables the tracking of infections, interfacility comparisons, and surgeon-level factors to provide feedback on quality for these procedures. Having such data not only fulfills the requirement for quality monitoring, but ultimately can help reduce the cost of providing care as well.

The Intermountain Health Care system, a large integrated system in Utah, employs 39 orthopaedic surgeons, including Dr. Jevsevar. He noted that data must be accurate, real time, interactive, and understandable. Intermountain encourages surgeons to base treatment on evidence-based medicine rather than consensus and constantly evaluates programs for improvement to optimize results.

Healthcare reform is changing established models of providing medical care. With mandates for a shared savings model by 2012 and bundled payments for 10 conditions by 2013, change will happen rapidly.

The ACO model can achieve the goals. It requires that hospitals and providers work together for efficiency and cost-savings, and that quality data are monitored and ultimately used to improve care. Effective integrated care systems exist in various formats. Leaders in these integrated models agree that both patient outcome data and efficient systems are integral to success.

Alexandra E. Page, MD, is an AAOS Leadership Fellow and member of the Health Care Systems Committee. She can be reached at alexe.page@gmail.com

Editor’s note: In July, the AAOS Health Care System Committee (HCSC) organized a symposium on the topic of Accountable Care Organizations. This is the second in a series of articles reviewing the presentations and summarizing the discussions.