Medical Center Establishes Infrastructure to Manage Care Under Capitated Contracts, Leading to Better Chronic Care Management and Lower Utilization and Costs

A New York Medical Center Achieves Success as an Accountable Care Organization Before and After CMS-Sponsored Efforts

By Andrew Croshaw
Partner at Leavitt Partners and Director of the Center for Accountable Care Intelligence

As health care costs continue to grow at unsustainable rates, the stage is set for the emergence of smarter, more efficient health care delivery. Traditional fee-for-service payment models have become increasingly unsustainable, especially within government entitlement programs that serve the elderly and poor. In an effort to contain cost growth and manage care in Medicare and Medicaid, government entities have cut payment rates, leading to provider discontent and a reluctance to treat people enrolled in these programs.

The passage of the Patient Protection and Affordable Care Act (PPACA) in 2010 provided a major catalyst for the emergence of new care delivery models. The Act authorized the Centers for Medicare and Medicaid (CMS) to create the Medicare Shared Savings Program, which calls for the establishment of accountable care organization (ACO) contracts with Medicare starting January 2012. In response, many provider-led health care organizations, as well as other organizations, have sought to become ACOs.

But what is an ACO? ACOs are not merely a continuation of the health maintenance organization (HMO) movement of the 1990s. A clear distinction is that the primary goal of HMOs was to manage costs, which often led to unacceptable levels of provider risk and low payments, while the objective of ACOs is to manage health, which in theory will lead to cost reductions. Payment approaches vary with respect to the level of risk that providers are expected to assume. For example, in Medicare’s Shared Savings Program, providers receive a regular fee-for-service payment but qualify to share in any savings resulting from cost reduction and achievement of performance and utilization targets.

Three principles are characteristic of an ACO:

It bears financial risk for the majority of the health care needs of a determined population.
It has the infrastructure to coordinate care and oversee the clinical provision of care across the continuum of health care services.
It has the ability to provide measured outcomes related to both cost and population health.

Upon examination of these defining principles, it becomes clear that some organizations began to implement ACOs years before the passage of PPACA. Montefiore Medical Center in the Bronx, NY, affiliated with Albert Einstein College of Medicine, was one of the earliest hospitals to create a new health care infrastructure using the ACO principles. CMS designated Montefiore Medical Center as one of 32 Pioneer ACOs in December 2011 due to its early adoption of care coordination and other accountable care principles, with the aim of accelerating its transition from a shared savings payment model to a population-based payment model such as capitation.

On the financial, risk-bearing front, Montefiore developed a capitated rate based on assumptions and historical trends about their patient population, including the number of hospital beds and lengths of stay. In setting a projected payment rate for the next 3 years, Montefiore had to be financially savvy enough to account for the cost of the new infrastructure. This ability is critical for aspiring ACOs.

To coordinate care, and thereby ultimately reduce costs, many ACOs will seek to minimize expensive hospital stays. Montefiore has a broad provider network that includes more than 3,200 physicians, along with social workers, physical and occupational therapists, and other professionals who focus on prevention, chronic disease management, and outpatient medication management. Montefiore also uses an electronic health records system that enables staff providers to share up-to-date patient information and submit laboratory and pharmaceutical orders. However, it is not clear whether contracted physicians can access that data as readily as staff physicians.

As a result of these efforts, Montefiore has achieved impressive reductions in expenses for hospital admissions and readmissions, and for the treatment of chronic conditions. For example, improved management of diabetes resulted in fewer hospital admissions, and improved management of asthma and heart failure resulted in fewer emergency department visits. Overall, there were fewer hospital admissions and readmissions for Medicare patients.

Given the breadth of the patient population that Montefiore serves, the program could be generalized to other geographic areas, although variation in payer dynamics, and in patient income and health, must be taken into consideration.

It remains to be seen how ACO cost savings will influence the health care system. Will payers put more pressure on providers to accept increasingly narrow profit margins? Will ACOs become ubiquitous? As we observe how this movement plays out, Montefiore and other organizations are providing strong evidence that the ACO model is effective in improving patient health as well as lowering costs.

About Andrew Croshaw: He is a Partner at Leavitt Partners, where he directs the Center for Accountable Care Intelligence. The center informs client decisionmaking through research, analytics, and seasoned perspectives that provide insight into how payment models and care integration trends are impacting the health care landscape. Mr. Croshaw also coauthored the white paper, Growth and Dispersion of Accountable Care Organizations: June 2012 Update, available at http://leavittpartners.com/wp-content/uploads/2012/06/Growth-and-Dispersion-of-ACOs-June-2012-Update.pdf External Link

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Disclosure Statement: Mr. Croshaw reported no financial interests or business/professional affiliations relevant to the work described in this commentary.