Since the start, ACOs have been told to reduce cost by increasing the quality of care they provide; yet as simple as this revenue generation sounds, a majority of ACOs are barely above solvent levels. This leads one to ask, "Why aren't ACOs profitable?" In this article we aim to unravel why solvency is hard to come by, and how an ACO can positively change its financial trajectory.
Theory vs. practicality
To begin we must look at how ACOs are designed to generate revenue. The subsequent decrease in cost, generated by accountable care, is theoretically recognized as a profit through capitation, bundled payments, global budgets, shared savings, or more commonly a mix of these reimbursement models. To help ensure avoidance of another HMO-esque backlash, a plethora of quality metrics and contingencies are married into these reimbursement models.
When you add all the ingredients together, it seems a provider must take on more risks (historically managed by payers) and reduce system costs to increase profit margins derived from prospectively set budgets. Often, ACOs start by turning inward; scrutinizing their costs and looking for low-hanging fruit, obvious mistakes and inefficiencies, which, if corrected, will generate a sizeable margin between budget and cost. Sadly, those margins, at best, are episodic in nature. Once corrected, budgets are re-evaluated, reimbursements recalibrated, and the next fiscal year squeezes the provider even more.
This is the exact point where ACOs begin to slip. ACOs often overcommit precious resources looking solely within their walls, searching for wasteful spending and avoidable errors (making the Donald Berwick or Atul Gawande, in all of us, feel gratified). But these corrections, however beneficial, fail to create an entity fully equipped to take on risk. This inability to take on risks is due to the fact that even the most efficiently run, error-free organization can't manage risks if it doesn't have a presence and impact outside of its own walls.
The bottom line is literally to look at the bottom line. As prefaced, cost savings from performance improvements can be lucrative, but eventually the budget in any new reimbursement model will be recalculated and that lucrative margin will decrease. Sustainability, therefore, hinges upon payers. Instead, sustainable profitability should hinge upon the providers, which can only be accomplished by exposing an organization to risks historically managed by payers.
Providers become the payers
Pressured by legislators, consultants and payers, providers have been advised to become more "risk bearing" if they wish to recognize the financial benefits of creating a healthier population. But to become "risk bearing" without the ability to monitor or control (even a fraction of) the major determinants that create a healthier population, is an almost certain path to ACO failure.
Anyone who has ever analyzed what contributes to the development of a chronic disease recognizes the amount of detrimental inputs that have no connection to a healthcare facility. Likewise, anyone who has witnessed a patient overcome a chronic disease, recognizes the amount of positive inputs that lay far outside the walls of a healthcare facility. This exact observation is what should lead ACOs to look outside their doors.
If a healthcare provider wants to move toward a risk bearing model, it must invest in its at-risk patients, individuals who have a higher likelihood for a specific health condition. This initiative must have a foundational focus on assisting individuals before they require a high-cost healthcare setting.
Engagement of at-risk populations must be based upon a population's exposure to correlated health determinants, which yield higher rates of disease prevalence. This process, known as risk stratification, can take many forms and is often hard to conceptualize, as the leading risk stratification models "treat" individuals who aren't always in immediate need of care.
The other obstacle, which is commonly overlooked, is how to recognize the benefits of keeping a patient healthy. For as morbid, cruel and inhumane as it might sound, healthcare providers have historically experienced a unique schadenfreude, benefiting from ailing populations. But now, ACOs aim to realign these historically perverse incentives, enticing providers to be proactive rather than reactive.
Investing in the patient while they're outside the confines of a health facility seems counterintuitive to the fee-for-service mindset; but as ACOs learn to predict and proactively treat their populations, the ACO simultaneously develops the ability to manage risks, opening an entirely new revenue stream.
Turning risks to profit
But before an ACO agrees to put its money where its mouth is (figuratively speaking), and agree to reimbursements set upon prospectively set budgets, it must understand the population for which it will be responsible.
- An ACO prepared to take on risks will be capable of, or currently have, the following:
- Willingness to go into "the weeds" and understand the current diseases and correlated determents impacting their specific populations.
- Evidence-based approaches developed to engage at-risk patients.
- Patients identified and categorized based upon health status, risks and priority.
- Community outreach programs and interventions can be funded, planned and implemented.
- Alignment with local municipal agencies, including law enforcement, labor department, housing department, educators and any other stakeholder who has purview into social determinates impacting the health of a population.
- Transitional Care teams who can assist patient's movement from one setting to the next.
- Promotional Care initiatives (i.e., Vaccination Awareness, Diet Plans, Flu Clinics, Prevention Screenings, etc.)
Once the above is understood, structured, and implemented, providers are in a position to adequately measure their financial impact. This impact is seen in the reduction of costs garnered by aiding patients who avoid high-cost interventions through preventive and promotional care.
An ACO that can successfully keep patients out of the highest-cost settings through ethical, high-quality care, can negotiate with any payer. These negotiations require unique experience and understanding, commonly exceeding the abilities of a management team, and can require a third-party management partnership.
Sustainable models for servicing at-risk populations
Along with the difficulty surrounding the development and construction of new payer relationships, providers must also be able to develop sustainable programs to continuously service their at-risk populations. The key to every model is increasing the healthcare system's ability to manage the risks of its population.
Managing risks, however, can be difficult in terms of how the system intervenes and engages with patients. The goal for a healthcare system should be to build an outreach program that utilizes innovative actuarial analysis and continuously engages patients through a plethora of different forces. The program should act like an ebbing tide, carrying patients away from the highest-cost settings through a continuous force of evidence-based initiatives, balancing access with clinical need. These programs bring together multiple stakeholders (many from outside the healthcare industry) to address the countless variables impacting a patient at a specific stage of prevention or healing.
This figurative tide can vary in strength depending on the risks of an individual patient, but is nevertheless present throughout a population. A stark contrast from the latter outreach program is one that acts as a wall. A wall approach surrounds a high-cost setting and focuses on restricting avoidable, costly care through lower-cost interactions. Rather than having a meaningful impact and change on the population, it focuses only on delivering care in a lower-cost setting. This lower-cost setting will create an initial margin, but once again, will do little in long-term sustainability without a holistic approach to improving the health of a population.
Earn a profit
It's obvious that the road to becoming a risk-bearing entity is a risky process in and of itself, but for organizations that wish to be independent market leaders, they must forge this path in care delivery. Reimbursement models are changing and provider-side risk management is increasing. the opportunity for change and growth is here.
Financial stability is within reach for most ACOs, but as their name entails, accountability is the key for a future of profitability.
Jeb Dunkelberger is Director of Physician Engagement for ACO Services, McKesson Business Performance Services in Somerset, NJ. He brings a breadth of international healthcare experience working with both payer and provider clients. In his current role, Dunkelberger focuses specifically on the development and management of ACO models across the United States. He can be reached at jeb.dunkelberger@mckesson.com.
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