Many accountable care organizations have formed across the nation in the past year. Though the ACO model is still developing, one thing is certain: Organizations need to be prepared financially for the new healthcare delivery model. Hospital and health system CFOs need to be heavily involved in the ACO formation process in order for the new organization to be successful in reaching the lowered cost aim for which all ACOs strive.
Jim Fox is a director and senior CFO consultant for Warbird Consulting Partners and the former CFO of Fairview Health Services in Minneapolis. Here, he gives a beginning checklist for CFOs whose organizations are considering becoming ACOs, and outlines some of the main financial hurdles to ACO formation that CFOs need to anticipate.
1. Does the hospital have the capabilities to assess the financial risk being taken on? Checking this one off of the list could entail using actuaries who can project what kind of population the organization can expect to serve going forward, according to Mr. Fox.
2. Do you have the capabilities to measure and monitor the financial impact on a regular basis, either in real time or monthly? With the financial questions related to ACO formation, it is especially important to be able to close the books on each month and determine if the organization was on track so timely changes can be made.
3. Do you know your network's ability to manage patients in a more effective way? Mr. Fox compares this point with Einstein's definition of insanity: doing something the same way and expecting different results. In order to truly lower costs as an ACO, the organization will have to change how it delivers care.
4. What portion of services can be managed in network or out-of-network? Mr. Fox says that some expensive procedures, such as transplants, may not be services provided in the ACO model by some organizations, and those procedures will then need to be contracted out. CFOs will be essential in determining which procedures the organization can afford to cover and which services are provided outside of the network. Many of these out of network services can be high cost.
One of the major financial hurdles will be creating a physician network required for an ACO. Mr. Fox says there are two parts to this hurdle. The first is the cost of the IT systems needed in order to manage a population. Physicians will need concurrent information about what services have been provided to which patient, because in an ACO model, the more services provided usually means less money for the organization. Therefore, hospitals will need to be able to measure services in real time, according to Mr. Fox. The second part of the hurdle is developing the processes across the physician network to create value. "Not all physicians practice the same; they treat at different levels and use different diagnostics," Mr. Fox says. "The cost of training the [physicians] in the network to act as a group becomes a cost of education, training and monitoring as you develop consistent high value services."
The other two main financial hurdles are related to covering procedures and patients that are out-of-network. First, hospitals must develop and negotiate contracts for services that are not covered in the ACO. Mr. Fox used the example of transplants not being covered by the network. A hospital will have to contract with someone to do those procedures for them. Also, hospitals will need to cover patients that travel out of its geographical sphere of care and need a treatment. For example, the patient goes on vacation and needs emergency care far from his home hospital. The hospital will need to contract that or pay the going rate for that service, which can get pretty pricey, according to Mr. Fox. Many of the out-of-network services will be on a fee-for-service basis and will have high variation as to the cost of the services, according to Mr. Fox. ACOs need to be prepared to cover these somewhat unexpected costs.
Jim Fox is a director and senior CFO consultant for Warbird Consulting Partners and the former CFO of Fairview Health Services in Minneapolis. Here, he gives a beginning checklist for CFOs whose organizations are considering becoming ACOs, and outlines some of the main financial hurdles to ACO formation that CFOs need to anticipate.
CFO checklist
Before an organization even considers starting an ACO, Mr. Fox says CFOs should go through this checklist and make sure the answer to each of the questions is 'yes' to ensure it is financially ready to form an ACO.1. Does the hospital have the capabilities to assess the financial risk being taken on? Checking this one off of the list could entail using actuaries who can project what kind of population the organization can expect to serve going forward, according to Mr. Fox.
2. Do you have the capabilities to measure and monitor the financial impact on a regular basis, either in real time or monthly? With the financial questions related to ACO formation, it is especially important to be able to close the books on each month and determine if the organization was on track so timely changes can be made.
3. Do you know your network's ability to manage patients in a more effective way? Mr. Fox compares this point with Einstein's definition of insanity: doing something the same way and expecting different results. In order to truly lower costs as an ACO, the organization will have to change how it delivers care.
4. What portion of services can be managed in network or out-of-network? Mr. Fox says that some expensive procedures, such as transplants, may not be services provided in the ACO model by some organizations, and those procedures will then need to be contracted out. CFOs will be essential in determining which procedures the organization can afford to cover and which services are provided outside of the network. Many of these out of network services can be high cost.
Financial hurdles
After going through the checklist and determining that the organization is financially able to become an ACO, there will still be hurdles that CFOs will need to guide their organization through during the process.One of the major financial hurdles will be creating a physician network required for an ACO. Mr. Fox says there are two parts to this hurdle. The first is the cost of the IT systems needed in order to manage a population. Physicians will need concurrent information about what services have been provided to which patient, because in an ACO model, the more services provided usually means less money for the organization. Therefore, hospitals will need to be able to measure services in real time, according to Mr. Fox. The second part of the hurdle is developing the processes across the physician network to create value. "Not all physicians practice the same; they treat at different levels and use different diagnostics," Mr. Fox says. "The cost of training the [physicians] in the network to act as a group becomes a cost of education, training and monitoring as you develop consistent high value services."
The other two main financial hurdles are related to covering procedures and patients that are out-of-network. First, hospitals must develop and negotiate contracts for services that are not covered in the ACO. Mr. Fox used the example of transplants not being covered by the network. A hospital will have to contract with someone to do those procedures for them. Also, hospitals will need to cover patients that travel out of its geographical sphere of care and need a treatment. For example, the patient goes on vacation and needs emergency care far from his home hospital. The hospital will need to contract that or pay the going rate for that service, which can get pretty pricey, according to Mr. Fox. Many of the out-of-network services will be on a fee-for-service basis and will have high variation as to the cost of the services, according to Mr. Fox. ACOs need to be prepared to cover these somewhat unexpected costs.
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