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Premier Alliance Execs Say ACO Precursors Are Delivering Real Savings

By John Reichard, CQ HealthBeat Editor

November 14, 2011 -- It was tempting to completely discount assertions by Premier Alliance hospital executives at a news briefing last week that accountable care organizations (ACOs) and similar programs touted by federal officials are going to produce genuine savings and possibly begin slowly easing the nation's health cost crisis.

Tempting—except they said they were basing their claims on actual savings produced by their own health systems, which are far along in retooling their health care delivery systems to fully adopt the ACO model. And they say they are making those changes in close collaboration with private insurers—and not just because of federal efforts to launch ACOs in the Medicare program.

ACOs are teams of doctors, hospitals, and other types of caregivers that will be paid under the traditional "piecework" fee-for-service system that compensates providers for each and every element of care that they provide. That system rewards quantity—not quality and efficiency—but to begin moving health care toward those two latter goals, ACOs will be given savings and quality performance targets, and their participating providers will get bonuses if they hit them.

Terry Carroll, a senior vice president with the Minnesota-based Fairview health system, told reporters, "We're not doing this as an experiment." In addition to preparing to launch ACOs in Medicare and Medicaid, Fairview is working with private payers such as HealthPartners, Blue Cross, and Preferred One.

Models in which Fairview and insurers share savings from better-coordinated care have already begun to pay off, said Carroll. In the commercial market, Fairview is delivering care for some 250,000 people under shared savings reimbursement. Those efforts reduced hospital admissions by 3,000 in 2011 in the Fairview system, he said. Emergency department admissions also have begun to fall as patients get improved access to primary care that keeps them out of the ER. As patients get earlier, better-coordinated care from doctors, "their demand on the system has actually started to come down." Fairview has been able to take health care costs down by 3 percent to 4 percent, he said.

Fairview gets money when that happens by sharing in savings and also from other bonus payments to participating providers who deliver treatment more efficiently.

Carroll said there are two ways to deal with these lower costs—increase the number of patients one is treating, even if one is treating them less profitably—and "reconfigure assets."

That term suggests reducing staffing and closing hospital beds and other measures to reduce fixed costs from the health care system. But Jan Mathews with the CaroMont Health system in Gastonia, North Carolina, said that doesn't necessarily mean layoffs.

Mathews said her system has reduced emergency department use and that it staffs according to admission levels but that instead of losing their jobs, caregivers may see their roles change from directly providing primary care to care coordination overseeing the care of individual patients.

Still, officials at the briefing emphasized that savings have to come out of the health system and suggested that could mean a leaner health care system. And they said if hospitals and other providers don't get the job done, they face draconian changes in government policy, over which they would have little control and could be more devastating to them financially.

But Blair Childs, an executive with Premier, said that ACOs and similar efforts to improve efficiency fostered by the federal government are going to work because the private sector is also moving in that direction. Medicare is no longer a bastion of fee-for-service medicine pulling providers back into older ways of delivering care—which is likely to drive fundamental change as a result, he suggested. "We're going to hit a tipping point," Childs said. "When we hit a tipping point, we're going to see real change in health care."

An organization that provides various management support services to some 2,500 hospitals nationwide—about 40 percent of U.S. hospitals—Premier is at the forefront of national efforts to form ACOs. It has an "implementation collaborative" consisting of 23 health systems representing 70 hospitals that, in a number of instances, may be ready within the next year or so to offer Medicare ACOs. And Premier also has a "readiness collaborative," which includes another 57 systems representing 250 hospitals that have taken steps to form ACOs but are not as far along.

Several elements distinguish the two groups. The implementation group is more likely to have appointed executives whose specific job is to form and run an ACO and to have developed health IT systems to better manage care and track the health care needs of the local population. It also is more likely to have adopted "health homes," or doctor's offices that are paid to oversee the overall care of patients; and to have partnerships with payers to redesign payment to encourage efficiency and quality.

As the federal government works to develop its Medicare ACOs, officials are taking into account the fact that some organizations are further along in the process. As early as next month, federal officials are gearing up to announce some Pioneer ACOs, groups that will be ready soonest to begin contracting with Medicare.

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