Klar 4: Why is it important for CMS to Share Claims Data with ACOs?

Ron Klar, MD, MPH

Ron Klar, MD, MPH is a health care consultant with a long history of involvement in federal health care policy and health plan innovation. He published a recent series of three posts regarding the draft rules for the Medicare Shared Savings Program (MSSP) in the Health Affairs Blog, an influential forum for debating health policy issues. This is my last in a series of 4 posts describing areas of agreement and disagreement with Dr. Klar. (The others are available at post 1, post 2 and post 3)

In his third post to the Health Affairs Blog, Dr. Klar proposed to eliminate CMS sharing of claims data with providers. He argued that it is too delayed to serve any useful purpose to the ACO, either for clinical operations or analysis.  He also argued that supplying ACOs with claims data would be expensive for both CMS and the ACOs that would need to create interfaces, databases and applications to receive and use the data.  He argued that it would distract providers from investment in electronic health records (EHR) and health information exchange (HIE).  Finally, he argued that it would violate the confidentiality of non-ACO providers who would be identified in the data.  Klar implies that all of the data needs of the ACO can be met with EHR data, augmented with HIE data.

I strongly disagree with this thinking.  The success of ACOs will require a transformation of the health care organization from one that reactively cares for individual patients to one that also proactively takes responsibility for a population of patients.  The analytics to support that transformation requires a comprehensive view of all the health care services received by the population.  Since patients are free to seek care from any provider participating in Medicare, only CMS can provide this comprehensive view of the data. An EHR may be richer and more up-to-date, but it lacks this comprehensive view.  An HIE might increase the completeness somewhat, but without data from the payer, it is not possible to know how much missing data might be beyond the reach on any particular HIE at any point in its development.  For the foreseeable future, EHR and HIE data are too inconsistently structured and too incomplete to give a true population-oriented measure of utilization.

In earlier demonstration projects of accountable care and care management, the participants complained that the data shared by CMS was not delivered in a useful and timely way.  So, not only must we keep the CMS claims data sharing in the ACO rules, we must also make sure that CMS does a better job of delivering it this time around.


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Klar 3: The necessity of re-qualifying the population to avoid regression-toward-the-mean bias in historical comparison groups

Ron Klar, MD, MPH

Ron Klar, MD, MPH is a health care consultant with a long history of involvement in federal health care policy and health plan innovation. He published a recent series of three posts regarding the draft rules for the Medicare Shared Savings Program (MSSP) in the Health Affairs Blog, an influential forum for debating health policy issues. This is my third in a series of 4 posts describing areas of agreement and disagreement with Dr. Klar. In my first post, I described areas of agreement.  In my second, I covered my disagreements about Dr. Klar’s proposed changes regarding care relationship derivation.  In this post, I will describe my disagreement regarding Klar’s proposed changes to the approach to selecting a comparison group for savings assessment.

In the draft MSSP rules, CMS proposed two “options” for methods of selecting the comparison group for determining savings. The rules, following the lead of the health reform legislation language, mislabels the comparison group as a “benchmark.” CMS is not really trying to determine if an ACO is better than or comparable to the best-performing provider organization, as is implied by using the term “benchmark.”  What they really intend is to compare the actual cost to the cost that would have been expected to occur if the same beneficiaries had been cared for by non-ACO providers. CMS indicates in the draft rule that they prefer option 1, which involves using the same assignment algorithm in the prior time period as is used for the accountability/performance period. This approach is described as “requalification” in the care management evaluation standards published by the Disease Management Association of America (DMAA). Option 2, for which CMS is seeking feedback, involves using historical information for the cohort of beneficiaries that was actually assigned to the ACO.

In Dr. Klar’s first post, he explained that he prefers option 2, arguing that option 1 has no “face validity” because the individual beneficiaries will be different. I strongly disagree.

As I noted in my blog post last week, when claims-based patient selection logic is applied, the selection is determined based not only on unchanging characteristics of the person (like gender), but also on data regarding health care events that happened at particular points in time. The person-months in the years before meeting the assignment criteria do not have the same risk as the person-months after meeting the assignment criteria. There is randomness in the timing of events, as people experience peaks and valleys of individual risk. When you select people based on recent health care events, you are not selecting randomly. You are preferentially picking people who tend to be in a risk peak as evidenced by recent health care utilization. Without any intervention, continuing random variation will cause the risk of the selected population to decrease over time, toward the mean risk of the overall population. This is known as a regression-toward-the-mean bias.  This type of bias is strongest when the patient is being purposefully selected based on being a high risk outlier, such as when a predictive model is used to generate a risk score used to select patients to be targeted for outreach for a care management program.  But, this type of bias exists in a weaker form for any patient selection based on recent health care utilization.  Patients naturally have higher risk in the time periods just before and after health care utilization, since they seek health care in response to illness episodes that drive cost.  To avoid regression-toward-the-mean bias, I prefer option 1, which offers a symmetrical selection process for the ACO intervention population and the historical comparison population.

Dr. Klar correctly points out that if no risk adjustment is done, ACOs could be incentivized to preferentially seek care relationships with lower risk patients. I feel this should be solved by doing risk adjustment (as has been proposed in the rule), rather than by using option 2.

Klar goes on to propose a variety of additional modifications to the rules that illustrate the complications of using the option 2 pre-post design, such as having to apply a weighted average scheme to deal with people with different numbers of years of available history and people who died during the performance period.



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Klar 2: The great attribution debates: Include specialists or not? Plurality or majority? Retrospective or prospective? Derived or declared?

Ron Klar, MD, MPH

Ron Klar, MD, MPH is a health care consultant with a long history of involvement in federal health care policy and health plan innovation.  He published a recent series of three posts (post 1, post 2, and post 3) regarding the draft rules of the Medicare Shared Savings Program (MSSP) in the Health Affairs Blog, an influential forum for debating health policy issues. In a recent post of my own, I described where I agree with Dr. Klar.  In this post, I’ll describe some areas of disagreement related to the methods of defining the population for which the ACO is to be held accountable.  In two future posts, I’ll cover some additional areas of disagreement.

First, let’s define some terms.

I use the term “care relationship” to describe the data linking patients to providers.  Care relationship information can be “derived” based on other data such as encounter claims records.  Care relationships can be “declared” explicitly when the participants in the relationship – patients and providers – indicate that they intend for the relationship to exist or when they explicitly validate care relationship data that has previously been derived.  Or, care relationship data can be created and maintained through a mixture of derivation and declaration.  Others typically use the terms “attribution,” “assignment,” or “alignment” to describe care relationships, revealing their tendency to think only in terms of derived care relationships.   Derived care relationships can be determined “prospectively,” in advance of an accountability period.  Or, they can be determined “retrospectively,” at the end of an accountability period.

The draft rules for the MSSP proposes to define the population using derived care relationships.  The rules call for accomplishing this derivation by selecting the primary care physician that provided a plurality of the evaluation and management (E&M) encounter claims for a beneficiary, using an assignment process that is partly prospective and partly retrospective.

Dr. Klar proposed to change many aspects of the rules regarding care relationship derivation:

  1. Include specialists, rather than just primary care physicians
  2. The selection should be based on providing a majority (more than half) of the E&M services for a beneficiary, rather than just a plurality (more than anyone else)
  3. The derivation should be purely retrospective

Include specialists or not?

Klar’s proposal to include specialists is based partly on the fact that it will increase the proportion of beneficiaries assigned to an ACO.  Some beneficiaries have visits to specialists, but not visits to PCPs.  Such beneficiaries will only be assigned to an ACO if the assignment includes specialists.  Klar also asserts that including specialists in the assignment will stimulate organizations to “tie” specialists into the ACO.

For both of these same reasons, we originally included specialists in the “attribution” algorithms in the Physician Group Incentive Program (PGIP) at Blue Cross Blue Shield of Michigan (BCBSM).  But, we determined it was necessary to switch to what we called a “pure PCP” algorithm due to unanticipated consequences of including specialists in the attribution. When attribution includes specialists, beneficiaries with expensive conditions requiring specialist care are relatively more likely to be assigned to a physician organization (PO) or ACOs that include specialists, while PO/ACOs that don’t include specialists will tend to have a lower risk population.  Within the PO/ACO, a primary care physician that manages more of the heart failure in her panel of patients will have those patients assigned to her.  Another primary care physician who chooses instead to refer his heart failure cases to higher cost cardiologists will end up with those patients being assigned to the cardiologist.  As a result, the PCP that refers out heart failure management will have a more favorable utilization and cost profile.  These biases make it difficult to interpret performance comparisons when specialists are included in attribution.  I strongly prefer the “pure PCP” attribution approach.

Use plurality or majority?

In the PGIP program, as in the draft rule for the MSSP, we derived care relationships based on a plurality of E&M services, not a majority.  Whether the topic is managed care, patient-centered medical home, organized systems of care, or accountable care organizations, the idea is for providers to take responsibility for the care of a defined population.  Patients that flutter among many PCPs and don’t see any one PCP the majority of the time are still part of the population.  In fact, convincing such patients to have a more stable, exclusive relationship with one physician, or at least one primary care practice unit, should be a key objective of an ACO.  A majority standard would leave more members of the population without a derived care relationship with a PCP.  Therefore, a plurality standard is better than a majority standard.

Prospective or retrospective?

The draft rule for the MSSP proposes an assignment process that is partly prospective and partly retrospective. Many critics of the draft rule have called for a purely prospective derivation, arguing that ACO providers should only be held responsible for the cost and quality of care for patients that they knew about in advance.  But, Dr. Klar went against the crowd, calling for a purely retrospective derivation. He argued that the delay in claims data used for the derivation is too long, resulting in too much inaccuracy in care relationship data due to people switching their actual care relationships during the year.  Based on 25-33% annual turnover in care relationships, 44-55% of beneficiaries assigned before the start of a performance year would not still be assigned after the end of that performance year.  On that point, I agree with Dr. Klar.

But then Dr. Klar went on to provide another argument against any prospective assignment.  He asserted that prospective assignment would create an “undesirable distinction” among Medicare beneficiaries, causing prospectively assigned beneficiaries to be “treated differently” by providers.  He considered such distinctions to be inconsistent with expectations for the traditional Medicare fee-for-service program.  On this point, Dr. Klar has a lot of company.  Many advocates for Medicare beneficiaries are strongly defensive of the unlimited choice of providers currently intrinsic to the traditional Medicare program.  In that spirit, the health reform legislation prohibits restrictions limiting beneficiaries’ ability to  seek care from any participating Medicare provider. This prohibition could be interpreted as implicitly forbidding providers from having care relationship declaration processes where patients document their intention to have a primary care physician relationship, since that would possibly give the impression of “lock-in.”

The underlying debate about the role of the PCP

When I step back from the technical details and look at the bigger picture, it seems to me that Dr. Klar, like many others engaged in discussions about ACOs, seems to have a different conceptualization of the role of PCPs in ACOs than I do.  In proposing the inclusion of specialists in care relationship derivation, and by expressing concern about even giving the impression of fettering beneficiaries’ choice of providers, Klar reveals a conceptualization of an ACO that emphasizes the value of the organization, but does not necessarily emphasize the central role of PCPs.

I feel that a powerful, influential care relationship between a patient and her primary care physician is the main active ingredient in achieving ACO cost savings. In this context, the process of having patients declare or validate their care relationships is an important tool to creating the type of care relationship consistent with the vision of the patient-centered medical home (PCMH). In a PCMH care relationship, the patient understands the roles and responsibilities of the members of the team, and conceptualizes the patient and family as engaged members of that team.  In a strong PCMH-style primary care relationship, the primary care team can influence the patient’s behavior, encouraging adherence to the care plan, and promote effective self-management, involvement in informed medical decision-making, and healthy lifestyle behaviors.  Moreover, in a strong PCMH primary care relationship, the PCP can influence referrals for specialty and facility care, steering the patient toward specialists and facilities that are efficient and prudent. Such a role, when enforced through HMO-style mandatory referral authorization, can seem undesirable from the patient’s perspective, earning the pejorative title “gatekeeper.”  But, in a PCMH and ACO context, the primary care physician is challenged to effectively fulfill the gatekeeper function with one hand tied behind his back.  In an ACO, the patient is not required to seek a mandatory referral authorization from the PCP.  Therefore, to have influence over referral patterns, the PCP is challenged to earn the trust of patients and their families by demonstrating clinical competence and offering excellent service.  They are challenged to exert referral influence in softer ways designed to be satisfying or at least acceptable to the patient.  This influence causes more specialty and facility care to be delivered by more efficient providers.  And, it incentivizes all specialists and facilities to be more efficient.  In my estimation, this form of influence is the strongest active ingredient driving savings in ACOs – stronger than care coordination, stronger than patient-self management support, stronger than avoiding gaps in care through clinical decision support, and stronger than the avoidance of duplication of services through health information exchange.

Of course, there needs to be clear communication to beneficiaries of the voluntary nature of care relationships.  It must be clear that any declared care relationship information maintained by ACOs will not be used to determine shared savings or for any other CMS program administration purposes. But, the worry that ACO providers might implicitly influence patients to have an exclusive primary care relationship with them is not a risk.  In fact, the success of the ACO concept depends on it.

In summary, I’m willing to join Dr. Klar in his contrarian idea of using a purely retrospective care relationship derivation to determine MSSP reward payments.  But, I feel that the care relationship should be “pure PCP,” and the derivation algorithm should cast a wide net with a plurality criteria.  And, MSSP rules should make it clear that ACOs are permitted to create their own processes to track current care relationships, including processes that involve physician and patient declarations of care relationships.


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Klar 1: Key points of agreement about changes needed for Medicare Shared Savings Program

Ron Klar, MD, MPH

Ron Klar, MD, MPH is a health care consultant with a long history of involvement in federal health care policy and health plan innovation.  He recently did an analysis of the draft rules for the Medicare Shared Savings Program (MSSP), the Medicare program that establishes accountable care organizations (ACOs).  Dr. Klar published his critique as a series of three posts in the Health Affairs Blog, an influential forum for discussion of health policy issues.  The first post focused on the sharing model and issues regarding assignment, identification and beneficiary choice.   The second post focused on methods for computing the savings and other financial issues. The third post focused on the approach for assessing quality, rates for shared savings and losses, limits to payments and losses, and sharing of CMS data.

Dr. Klar’s series differed from many critiques of the MSSP by offering detailed proposed changes and by explaining his reasoning.  The posts are quite long, going into technical details that can be tedious (but, who am I to throw such stones!)  They are a valuable contribution to the debate about the MSSP.  They also cover issues that are generally applicable to all value-based contracting arrangements between payers and providers.

Just to make it a more interesting read, I will break up my review of Dr. Klar’s three posts into four posts of my own.  In this post, I’ll describe where I agree with Dr. Klar.  In the remaining posts, I’ll describe some areas of strong disagreement.

First, I agree that the MSSP needs to include a pure shared savings model, with no sharing of losses. Dr. Klar proposes that CMS treat the model that involves sharing of losses as an experiment and make it optional.  He acknowledges that CMS was concerned about the risk of paying a reward that might be undeserved, and that CMS wanted providers to have “skin in the game.”  But, he argues that the program already reduces this risk by:

  1. Requiring ACOs to describe their roadmap for development of population management capabilities
  2. Requiring annual attestation of progress according to this roadmap
  3. Establishing a size-related minimum savings rate to reduce the role of lucky random variation

He proposes to add additional “skin in the game” commitment by adding public transparency in the form on an “ACO Compare” website.

Second, I heartily agree that the savings to be shared should include the full difference between actual vs. expected cost, without subtracting the 2 percent minimum savings rate. Klar points out that the proposed rule does not conform to clear language in the legislation.  This seemingly technical modification by CMS rule makers would remove a huge portion of likely shared savings if not overturned.

Third, I agree that the MSSP should determine eligibility and calculate the amount of payment based on a smaller set of claims-based outcomes measures, and have all other proposed measures serve only for reporting and monitoring purposes. This is a reasonable suggestion except for the elimination of valid claims-based process measures.  Dr. Klar argues that only outcomes measures should be used.  I prefer a mixture of process and outcomes measures, since process measures are more causally proximal and less likely to be obscured by unrelated downstream factors, while outcomes measures more directly reflect  the ultimate value.

Forth, I agree that the MSSP should assess quality performance by comparing an overall summary measure of performance to a local comparison group, not by comparing each separate measure to an arbitrary target. The idea is to assure that ACOs are not harming overall quality.  Klar proposes to impart a bias on these performance measures by doubling the weight for particular measures where the ACO performed more poorly than the local comparison population, and by requiring the ACO to exceed the local comparison group by a growing margin, starting at zero and growing to 5-10% over three years.  That sounds like a reasonable compromise for those that expect ACOs to eventually perform better, not just the same as non-ACO Medicare providers.

Fifth, I agree that the shared savings should be restructured to include a pre-determined “base” rate, plus an additional rate that depends on the quality performance, up to a more generous maximum sharing rate. Klar correctly points out that this will allow prospective ACOs to plan on achieving the base shared savings level (presuming they will achieve minimum quality and other eligibility provisions), while viewing the remainder as a possible bonus.  Klar proposes a base sharing rate of 40 percent for his proposed pure shared savings model and 50% for the shared savings and losses model.  Dr. Klar proposes to increase the maximum sharing rate to 52.5% for pure shared savings, and 75% for the shared savings and losses model, not including the 0.5% to 2.5% “special additions” for having a high rate of FQHC or rural health care.  That sounds at least partly responsive to those who want a more certain and generous sharing of savings.

Sixth, I agree that it is important to eliminate the 25% withholding of shared shavings (intended to cover possible future losses) and limit the shared losses paid during any particular year to 10%. Dr. Klar correctly advocates for establishing symmetry between the base sharing rates and the losses sharing rates.   This proposal seems to go against that principle.  But, it nevertheless seems justified to me based on the recognition that people have a strong fear of losses, and they discount gains if they are earned farther in the future.

Klar argues convincingly that, to be successful, the MSSP must win high participation rates from providers.  The loud chorus of negative feedback from prospective ACO participants suggests that, as currently structured, the program will certainly not achieve significant participation. Even the leading provider organizations thought to be best suited for the program have signaled their reluctance to participate, including Cleveland Clinic, Intermountain, Geisinger and Mayo.

If these six important changes were made, I would feel that CMS had been responsive to skeptical providers, and I would be disappointed if those providers did not seriously consider participating in the program.


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Part 2 of Critique of AHA analysis showing higher ACO-related costs: Is being “local” worth 40% more?

The American Hospital Association (AHA) engaged McManis Consulting to develop a model of ACO-related start-up and ongoing costs for Accountable Care Organizations (ACOs). The recently released analysis was based primarily on information gleaned from studying four case examples of provider organizations of different types and sizes that have already established many of the 23 types of “ACO activities” in recent years.  The analysis concludes that ACO-related start-up costs are between $5-12 million, and ongoing costs are between $6-14 million, depending on the size of the organization.

In part 1 of my critique of this model, I commended the work but argued that they had significantly underestimated the cost of process transformation efforts in primary care clinics and the cost of wellness and care management services.  In this part 2, I am exploring the implicit assumptions made by AHA/McManis of the dis-economies of scale of smaller ACOs organized around a single hospital.

The AHA/McManis report provided cost estimates for a mid-size ACO, with 250 primary care physicians (PCP), 500 specialists, and 5 hospitals with a total of 1,200 beds.  Based on an assumption of 2000 patients per PCP, I estimated the size of the population for which such an ACO is taking responsibility at about 500,000 for all payers.  The AHA report also provided ACO cost estimates for a hypothetical single-hospital system, with 200 beds, 80 PCPs, 150 specialists, and, I would estimate, 160K patients.  Based on those estimates, I calculated the implied “premium” for each category of costs, presumably due to the dis-economies from the smaller scale of operations.  These percentages are calculated on a per patient basis, assuming that the average primary care physician’s patient panel size is the same for large and small ACOs.

As shown in the table, the AHS/McManis model estimates that both start-up and ongoing ACO costs are roughly 40% higher for a smaller ACO, which might be the largest possible ACO for many rural health care markets.  The premium percentages vary widely for the different ACO activities.  Surprisingly, the model implicitly assumes that the start-up cost for healthcare information technology (HIT) would be lower on a per-patient basis in a smaller ACO.  However, I assume that these numbers may not be intended by the modelers.  They may have just never looked at their results this way.

Why is this a good way of thinking about the cost estimates?

As health care leaders contemplate new alignments, mergers or acquisitions to create successful ACOs, they need to address the fundamental trade-off of scale.  On the one hand, it has become established industry wisdom that “all health care is local” — a take-off on Tip O’Neil’s 1982 statement “all politics is local.”  According to this view, a successful health care organization — including ACOs — should focus on local needs, local stakeholders and local resources.  But, the obvious down-side of being local is the dis-economies that come from small scale operations.  In smaller organizations, the fixed costs of management, technology and analytic infrastructure are spread over a smaller population of patients.  According to the AHA/McManis model, such dis-economies appear to impose roughly 40% additional cost, which could be conceptualized as the “premium” paid to obtain more local responsiveness. Given that populations of people in different towns have the same organ systems, plagued by mostly the same diseases, it is reasonable to question whether “local-ness” is really worth paying 40% more.

In other industries, creative organizational models have evolved that attempt to achieve both local focus and large scale.  For example, the “franchise” model used in retail, food services and other industries puts product development, brand management, and other functions at the home office, while retaining local ownership and leadership of franchises well suited to attend to the details of service quality and local relationship-building.  When I was at Henry Ford Health System in the 1990s, we talked often about the applicability of the franchise model to health care.  Tom Royer, MD, the leader of the Henry Ford physicians at the time,  jokingly referred to this approach as the “french-fry model.”  In that same time frame, there was a great deal of attention paid in health care organizations to the concept of the “smallest replicable unit” — sweating out the design details of the layout, processes and information systems of a single clinic or nursing unit and attempting to replicate that standardized design to other clinics or nursing units.

I predict that this fundamental trade-off between scale and local-ness will drive a lot of creative thinking over the next few years.  We would be advantaged by learning from other industries that have addressed similar problems and keeping our minds open to rejecting old assumptions about the structure of our health care delivery system.

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Part 1 of Critique of AHA analysis showing higher ACO-related costs: Still underestimating care management cost

The American Hospital Association (AHA) engaged McManis Consulting to estimate the start-up and ongoing costs for Accountable Care Organizations (ACOs). The recently released analysis was based primarily on information gleaned from studying four case examples of provider organizations of different types and sizes that have already established many of the 23 types of “ACO activities” in recent years.

The analysis concludes that ACO-related start-up costs are between $5-12 million, and ongoing costs are between $6-14 million, depending on the size of the organization. These numbers are far higher than the $1.7M start-up figure that has been widely discussed, which was based on the Medicare Physician Group Practice demonstration project.

The AHA wrote a letter to the CMS Director, Don Berwick, to summarize these new calculations and argue that that the draft regulations of the Medicare Shared Savings Program (the ACO program included in the healthcare reform bill) need to include less risk and more gain sharing by providers in order to make the voluntary program worthwhile.

Re-framing the AHA Numbers from a Physician and Population Health Perspective

I applaud the AHA for undertaking quantitative calculations and releasing them for public scrutiny. Whenever I see such numbers, I feel compelled to take out my calculator and start doing some math to see whether the implicit assumptions behind the calculations align with my own “walking around numbers” based on prior experience.  I have previously done such a review of ACO-related model results released by Haywood and Kosel in the New England Journal of Medicine.  And, I previously did a 2-part review of an ACO model released by Milliman, the actuarial consultancy (part 1 and part 2).

When a hospital association thinks about costs, they naturally think of the unit of analysis to be a “hospital system” — hence their reporting of results based on a “1-hospital” and “5-hospital” system. But, when I think of an ACO, I think first of a physician-initiated concept of an ACO, intended to take responsibility of the defined population of patients that have care relationships with those physicians. Therefore, I think of the start-up costs as being most naturally expressed on a per-physician basis. When thinking of ongoing costs — particularly for functions such as network management and clinical programs, I think first of the context of health plans who have traditionally carried out those functions. Health plans most naturally think of such ongoing costs expressed on a “per member per month” (PMPM) basis. To calculate PMPM cost, one has to be able to count “members” (the defined population for which the ACO is taking responsibility). I found it amazing that the AHA/McManis model never mentions the size of the population, revealing a hospital-centered rather than population-focused mental model. To estimate the population size, I assumed that each primary care physician would care for an average all-payer panel size of 2000 patients.

I found the AHA/McManis “activity” categories to be pretty intuitive, but I felt the need to rename them slightly to conform to my own terminology, and to break out the “clinical programs” category to align with the way health plans break out such programs, separating the member-facing wellness & care management activities vs. the provider-facing practice improvement support (including Lean thinking) vs. the provider-delivered hospitalist services.

Based on this lumping, splitting, labeling and math work, I came up with the following revised summary table for the analysis.

The table reveals that start-up costs are an affordable $16K per physician, two-thirds of which are health information technology (HIT) costs. At least some of these HIT costs would be offset by HIT “meaningful use” funding included in the federal stimulus package, and some additional portion would be offset by eventual office efficiencies expected to accrue due to automation. The table shows that ongoing cost amount to $2.35 PMPM, 40% of which is for administrative overhead for leadership and network management.

In my opinion, the most shocking number for start-up cost is the $200 per physician for practice improvement.  In my experience, the work to initially establish the basic set of patient-centered medical home processes and population management processes in physician offices is a huge undertaking, involving taking clinic staff off-line from patient care duties and leveraging practice improvement coaches (including Lean coaches).   $200 does not seem like a reasonable assumption for that work.  The text of the AHA report said that they assumed $10K per “practice” just for NCQA PCMH certification, but the final calculations do not seem to include that amount.  Even if the entire $16K per physician start-up cost was dedicated to starting up such processes, I would conclude it is an under-estimate based on my experience observing this activity in many clinics.

Wellness and Care Management Costs are Substantially Underestimated

The estimated ongoing costs for wellness and care management is only $0.59 PMPM.  This is a very low number, particularly since the AHA/McManis report says “all of the case studies are pursuing disease management strategies aggressively.”  Health plans are far more aggressive, at least in terms of budget.  By comparison, the typical PMPM cost that commercial PPO health plans invest in wellness and care management services would be in the $1-5 range (with $2 being my estimate of most typical), while Medicare Advantage (MA) plans would typically spend $5-15 PMPM on such programs (with $10 being my estimate of most typical).  Therefore, typical MA plans spend 17 times as much as the AHA estimate on wellness and care management.

It is true that many health plans outsource such programs to vendors who typically charge more per hour of service than a clinic is likely to pay for its own internal staff members.  On the other hand, most health-plan sponsored programs are delivered through efficient, high volume telephone call centers.  I am convinced that integrating wellness and care management programs into primary care clinics will make them far more effective.  But, such integration with primary care clinics will also increase the operating cost, particularly for smaller clinics and in scenarios where the providers are delivering such services only to a subset of their patients for which they receive ACO-type reimbursement.  In such a scenario, clinic-based wellness and care management costs must include waste from underutilized care managers and/or travel time for shared care managers.    In any case, I feel the AHA numbers are really low-balling wellness and care management processes.

I noted that the AHA assumptions described in the text of the report included “1 care coordinator per 350 patients with chronic conditions (works out to 1 coordinator for every 1.5 physicians) at $75K per coordinator.”  Based on my calculations, that would add up to between $1.30 and $3.80 PMPM, just for care coordinators, depending on whether you interpreted them to mean all physicians vs. just PCPs.  So, I was unable to get close to the numbers in their final report based on my own validation calculations.

So, does that mean ACOs are not a good investment?

In recent weeks, since the draft regulations were published for the Medicare Shared Savings Program, there has been a roar of voices declaring that the ACO concept is dead on arrival.   In my opinion, and in the opinion of many health care leaders, the surge in ACO pessimism is premature.

The excellent list of 23 ACO-related “activities” outlined in the AHA/McManis report represent a thoughtful long-range “to-do” list that should be considered by provider organizations of all types as being necessary preparations for a future state where they are able to take more responsibility for population health and associated costs.  That general direction seems certain, even if the specific initiatives of various government and private payers and other stakeholders may pose challenges along the way.  Healthcare leaders should not look at the CMS ACO regs and conclude “well, it’s clearly not worth it to invest in population health management capabilities.”

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New “Pioneer ACO” Program to offer fast track toward capitation (but they don’t use the “C” word)

The Center for Medicare and Medicaid Innovation has announced a new “Pioneer ACO” program, available to provider organizations that are already experienced in population management and bearing risk for performance and cost.  The new program has a three year term, with the first 2 years offering a higher level of risk/gain-sharing than is permitted under the draft rules for the regular Medicare Shared Savings Program.  During year 3, if the ACO has exceeded a savings threshold during the prior years, the ACO will be able to opt for a percentage of Medicare reimbursement to be a “population-based model,” which seems to be CMS’s new word for “capitation.”

The program will be designed with some flexibility to facilitate coordination with private payer value-based reimbursement initiatives, seemingly acknowledging that  providers may transition more rapidly if they face consistent reward criteria and metrics across payers.

This Pioneer ACO program will include both quality and patient experience ratings, both of which will be publicly released.  CMS expects about 30 ACOs to participate in this program, each of which will be required to have at least 15K Medicare beneficiaries (or 5K for rural areas).

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AMGA Letter to Berwick: 93% of AMGA physician organizations won’t participate as ACOs without major changes to draft regs

In a May 11th letter to CMS Administrator, Dr. Don Berwick, the American Medical Group Association (AMGA) President, Don Fisher, complained that the draft regs for the Medicare Shared Savings Programs were “overly prescriptive, operationally burdensome, and the incentives are too difficult to achieve to make this voluntary program attractive.” In particular, Fisher mentioned concerns raised by AMGA members regarding:

  • Risk sharing requirements
  • Static risk adjustment
  • Retrospective attribution
  • Quality measurement requirements
  • Minimum Savings requirements

He reminded Dr. Berwick that most policy experts believe “multi-specialty medical groups are best poised to become ACOs in the short term.”  But he warned that,  in a survey of AMGA members, 93 percent said they would not enroll as an ACO under the current regulatory framework.

Mr. Fisher worries that CMS may not be willing to make sufficiently substantial changes in the regs at this point, that providers will not voluntarily participate in large numbers, and that the federal government response will be across the board “draconian” cuts.

I share Fisher’s worries.  But, I choose to be optimistic that CMS can show some real agility and re-work the regulations to regain the momentum they had just a few months ago.

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How does behavioral economics and “gamification” relate to ACOs?

The transformation of our health care system requires many different people to change their behaviors. Leaders of health care organizations have to be willing to make investments that they have historically not been willing to make. Physicians have to change the way they relate to patients, the way they interact with their non-physician team members in the clinic, the way they allocate their time during clinic visits, the orders they write, and the referral patterns they have established. Patients may have to change their care relationships with providers, and change their tendency to be passive regarding health care decisions. Most importantly, and most difficult of all, patients have to change their lifestyle and self-management behaviors.

In my experience, the leaders of health care organizations and health plans tend to be unsophisticated in their approach to affecting the behaviors of front line providers. And health care providers — particularly doctors and nurses — tend to be unsophisticated in their approach to changing the behaviors of their patients. In both cases, the unsophisticated approach relies too heavily on two things: (1) education (communicating facts) and (2) communicating negative consequences of failure to change behavior.

Furthermore, in the case of affecting provider behavior, a huge amount of attention has been paid recently to the economic incentives intrinsic to fee-for-service vs. bundled payment reimbursement models. The federal government, as well as many commercial payers, have implemented “pay for performance” or “gain sharing” programs that offer relatively small financial rewards in the relatively distant future with a relatively high degree of uncertainty. Such incentives are designed with zero data about the probability that particular behaviors are going to change in response to such incentives. The government and commercial payers just know that they should begin to initiative financial incentives. And they know that for economic and political reasons, they can’t afford for those incentives to be very large. But, paying a financial incentive that is too small to “buy” the desired behavior change is pure waste. It’s just symbolic, not transformative.

To be successful, leaders of ACOs need to raise their game in behavioral economics, following the lead of many other industries that have been studying and putting into practice effective techniques for behavior change. In the electronic world, millions of people play video and computer games, and millions interact with commercial web sites that have been “gamified” — incorporating point sytems, competition, virtual rewards, and other techniques shown to modify behavior without relying on financial incentives. In the health care field, health plans have been at the forefront of exploring the application of such techniques to health and wellness. But, these applications have not yet been shown in well-designed studies to have a significant impact on health outcomes and health care costs (notwithstanding a slew of poorly-designed studies showing miraculous results).

The following video is a lecture delivered at Stanford by Rajat Paharia, the founder and Chief Product Officer of Bunchball – a developer of a technology platform that supports the incorporation of “game mechanics” into commercial web sites. Rajat’s lecture is entitled “Driving User Behavior with Game Dynamics and Behavioral Economics” and was delivered February 19, 2010. The video is an hour long. But, I recommend it for clinical program designers in ACOs, physician organizations and health plans as a clear, accessible summary of the behavioral economics evidence base and the current real-world commercial applications of that body of knowledge.

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Links to CMS ACO Proposed Rules and Dr. Berwick’s associated NEJM comments

After much delay, the Federal Government has finally released the following:

Looks like it will be a long weekend curled up with some long documents!

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