Latest ACO metrics show cost savings yet to materialize

The upward trend in accountable care organizations (ACOs) will continue because the ACO model is driving improvements in care coordination and a decline in hospital readmissions. However, the cost savings expected from the ACO model have yet to materialize. This is revealed in new data compiled by the Healthcare Intelligence Network (HIN).

ACO activity has doubled in the last year, according to the study, 2012 Healthcare Benchmarks: Accountable Care Organizations, which gathered data from 200 healthcare organizations about ACOs, including new activity, reimbursement models, and the impact and early successes of accountable care.

Here to stay: Two-thirds of responding healthcare organizations say ACOs will continue, no matter what happens to healthcare reform legislation. Almost a third of this year's respondents (31%) participate in an ACO, up from 14% of respondents in 2011. What’s more, one-third of remaining respondents say they will move to an ACO, a further indicator of the durability of the ACO model.

Out of the 200 organizations surveyed, 117 identified their organization type: hospitals or health systems (19%); health plans (14%); multi-specialty physician groups (8%); disease management groups (8%); and “other” (37%).

ROI and costs: Nine percent of respondents in ACOs report ROI between 2:1 and 3:1 from accountable care initiatives. But 88% say they either don’t know the ROI yet or it’s too early to tell. In terms of costs, the vast majority of those responding to the question about how the ACO setup has affected cost metrics, 83% say they cannot tell yet whether there is any impact on operating costs. Similar percentages say it’s too early to see any impact on utilization or pharmacy costs (89% and 83%, respectively).

Cost savings from the ACO model stem from putting a certain amount of financial responsibility on providers to trigger improved care management and cutting unnecessary expenditures. The model uses the pay-for-performance concept to induce providers to better coordinate care to improve patient outcomes, thus reducing the utilization of acute care services.

What to do: Healthcare organizations are now at a point where they have to focus on specific areas of ACOs to reduce cost and benefit patients, according to Jim Fox, director and senior CFO consultant of Warbird Consulting Partners. He told Healthcare Finance News that there are five focus areas within ACOs that can help save money and benefit patients.

1. Implementation of practice. Providers should provide care that's actually needed versus care that isn't.
2. Chronic care management. Providers should reach out to the people in their communities and start to help them manage their health issues. "It's imperative to eliminating acute care episodes through prevention," said Fox.
   
3. Reduce administrative processes. Within ACOs, providers can work with primary payers on getting goals aligned, eliminating unnecessary care, managing chronic care and reducing use of resources to the benefit of both parties. The focus should be on patient outcomes, not getting the best rate.
   
4. Improve access. Some providers are now offering incentives to physicians who work both in-person and through “e-visits” over the Internet. "And rather than having 'simple' stuff done by physicians, organizations can supplement with a nurse practitioner,” Fox noted.
   
5. All-care focus. The HIN survey noted that 100% of ACOs polled use EHRs. That’s because information becomes available across the board thereby reducing unnecessary care and duplication. This enables the focus to be on the care and the experience of the patient, and it's effectively done at lower costs and more convenience to the patients.

Proposed rule could slash payments to hospitals by billions

Hospitals would lose billions in Medicare payments for certain outpatient services under a proposed policy from the Medicare Payment Advisory Commission (MedPAC).

Match game: In a brief, MedPAC says Medicare payments are higher for most services if they are provided in a hospital outpatient department (OPD) than they are when they are provided in a physician’s office. The proposal would reduce the payments to hospitals so they match what’s paid to physicians. The differential can be as high as 90%, according to MedPAC. This could reduce hospital payments by $2 billion a year, according to a letter from the American Hospital Association (AHA), which is opposing the proposed policy.

Avoid this pitfall when valuing a physician practice

The current trend of physicians migrating away from private practice means more hospitals will be acquiring physician practices and entering into employment arrangements. New thinking is emerging that could affect the price a hospital pays for a practice or the value of a physician employment arrangement.

Most lose money: “Market data reveals that most hospitals lose money on their doctor practices,” according to Tim Smith, an appraiser at Touchstone Valuation LLC and author of the new BVR/AHLA Guide to Healthcare Industry Compensation and Valuation, who specializes in the valuation of physician compensation and employment arrangements. He says one cause of this is faulty valuation.

In a recent BVR webinar, Smith pointed out that the “market approach,” the prevailing valuation technique for physician compensation, is based on surveys and physician work relative value units (wRVUs) established by Medicare. The trouble is, this data can be unrepresentative of a particular market or type of physician practice, he says. “Overuse and overreliance on the surveys and wRVUs has led to compensation levels that are unsustainable and questionable from a fair market value perspective,” says Smith.

The complicated nature of physician compensation, with base pay, performance incentives, length of employment, and other unique circumstances, means that a survey-based valuation can lead to imprecise results. Plus, reimbursement rates can be another monkey wrench. “Physician reimbursements can vary greatly within markets and between markets,” says Smith. What’s more, the historical perspective is not necessarily key here—it’s the projected compensation picture that is often the most crucial element in the valuation.

New thinking: An “earnings-based approach” is a more relevant method, advises Smith. This approach is part of “compensation valuation” (CV), an emerging subspecialty of the overall discipline of business valuation (BV). Not only is it important when valuing possible acquisitions and existing physician employment arrangements, but it’s also used to avoid trouble under federal anti-kickback rules. That’s because it helps ensure that compensation paid to physicians is an independent, arm's-length transaction.

The earnings-based approach analyzes the compensation component in terms of historical data and future projections. It also examines the employment arrangement by breaking it down into specific types of services to be rendered. All of these arrangements are different, so this is critical to an accurate valuation.

Hospitals doing their due diligence when looking to acquire a physician practice or analyzing the profitability of an existing practice should pay close attention to the valuation methods used. The valuation should not totally rely on the market approach, but should also use an earnings-based approach for a more accurate and reliable valuation. Says Smith: “Don’t simply put all of your eggs in the market approach basket.”

Is your EHR a sitting duck for new OIG audits?

The use of electronic health record (EHR) systems will come under increased scrutiny in 2013 by the Office of Inspector General (OIG). The agency’s new Work Plan targets EHR systems as an area of potential fraud and abuse. This is in the wake of reports suggesting that EHR systems promote upcoding and cloning to boost revenue (see the October 18 issue of Healthcare Value Wire). Also, the OIG will investigate whether incentive payments doled out to implement EHRs were improper.

As for look-alike records, the Work Plan states: “Medicare contractors have noted an increased frequency of medical records with identical documentation across services.” This can occur because of a system’s use of templates, prepopulated data, and copy-and-paste features. The trouble is, the data can become too standardized and inadvertently lead to problems with coding and billing compliance, and questions about whether the documented treatment was appropriate to the patient.

What to do: The system should not totally “think” for the user. That is, it should not automatically assign codes and allow for unlimited use of a copy-and-paste feature. You should have a policy in place that puts limitations on its usage and possibly prohibit it entirely. In fact, the OIG recently sent out a survey to some hospitals that have received EHR incentive payments, asking about coding procedures. One question was: “Does the hospital have a policy about the use of the copy/paste feature in the EHR?” This demonstrates the OIG’s concern here.

The new audits will also focus on “meaningful use” payments. The American Recovery and Reinvestment Act (Stimulus Act) provided financial incentives to healthcare providers that install and “meaningfully use” officially certified EHRs. Now, the OIG will eyeball the incentive payments to make sure the providers complied with meaningful use criteria. So, in an ironic twist, the providers that stepped up to the plate with EHRs may now be called on the carpet over whether they received the funding in error.

Despite this new crackdown on EHR systems, do not put off implementing such a system. They are designed to increase efficiency and eliminate waste due to unnecessary and uncoordinated care. The key to avoiding trouble is to carefully review the OIG Work Plan and proactively enforce compliance programs through internal audits.