New Federal Mandate Will Make ACO-Based Provider Networks Responsible for Improving Quality and Cutting Costs

Pathologists and clinical laboratories are positioned to benefit from the provision in the Affordable Care Act of 2010 that is intended to reduce the cost of healthcare. It is the provision which authorizes the use of  “accountable care organizations” (ACOs) and will be triggered in 2012.

Accountable care organizations are not yet a well-defined concept. ACOs are recognized to have some basic characteristics. First, an ACO is an integrated care network of providers with the ability to provide care to, and manage patients, across the continuum of care that should include different institutional settings, such as ambulatory care, inpatient hospital care, and even post-acute care.

Second, the ACO should have the capability of prospectively planning budgets and the resources needed to deliver improved patient outcomes while controlling the cost of care. Third, the ACO should be of sufficient size to support comprehensive, valid, and, reliable performance measurement.

The Affordable Care Act includes incentives linked to ACOs for providers who better manage specific groups of patients. Since better patient management often means close monitoring of chronic diseases through laboratory testing, medical laboratories may see an increase in demand for such tests.

Under the new law, providers who curb Medicare spending will share in the savings if they are part of an ACO, which will be a network of hospitals, physicians, and other providers. The goal of the ACO is to foster integrated care and reward providers for improved health outcomes in ways that reduce the cost of care.

Each ACO will be required to enter a contract to manage care for specific groups of patients. The patients are likely to defined by a geographic area, but disease-specific ACOs are permissible. If the ACO providers are able to reduce costs for these patients, they will earn a share of the savings.

The regulations under which ACOs will operate are a work in progress. The Centers for Medicare & Medicaid Services (CMS) is responsible for developing and publishing these regulations. Meanwhile, several private organizations are already creating their own ACOs, in preparation for the expected launch of the federal incentive program in 2012.

At least 16 multi-hospital health systems—all participating in an initiative through Premier, Inc., the group purchasing organization—were expected to launch their individual networks in May, according to an article in Modern Healthcare.

Wes Champion, Senior Vice President of Premier Consulting Solutions, told Modern Healthcare that he believes the private market push ahead of federal ACO regulations represents “a huge opportunity” to influence federal policy.

Various health policy experts, writing in medical and policy journals, have proposed three options for ACOs. These business models range from less comprehensive and low risk care networks to highly integrated networks with more potential for both financial gain and loss:

Level One ACO Network:

• No financial risk for providers;
• measures basic quality, efficiency, and patient experience;
• provides some share of savings.

Level Two ACO Network:

• Has financial risk for spending that exceeds targets;
• measures quality, efficiency, and patient experience;
• provides greater bonus potential for savings.

Level Three ACO Network:

• Risk for full or partial capitation;
• expanded measures for quality, efficiency, and patient experience;
• provides additional quality bonuses.

According to the Congressional Budget Office, the ACO approach could save about $5 billion over ten years. While that is a drop in the bucket of health costs, it still offers more potential savings than most other proposed changes.

Of the savings CMS hopes to reap from the ACO effort, most will come from fewer hospitalizations and closer communication between hospitals, physicians and patients. For example, existing closed systems, in which physicians and hospitals are compensated as a team (such as the Mayo Clinic in Rochester, Minnesota, and Scott & White Health System in Temple, Texas) have the best track records for hitting both quality and financial targets. These systems also put great emphasis empowering patients to take an active role in their health care.

Some ACOs may adopt this same empowered-patient model within their business models. If so, not only should clinical laboratories be ready to accommodate more lab testing that is driven by evidence-based medicine (EBM) algorithms, they should also be ready to provide more direct information to patients. The advent of the first ACOs is only 18 months away, so there is time for clinical laboratories to prepare to participate in supporting the ACOs in their community.

—K. Branz

Related Information:

A Guide to Accountable Care Organizations, and Their Role in the Senate’s Health Reform Bill

An Accountable Care Organization Reading List

Being Held Accountable, by Melanie Evans, Modern Healthcare, May 17, 2010, pps 6-7 & 14.