Clinical laboratories and anatomic pathology groups should develop business strategies designed to support better patient outcomes and reduced costs for ACO patients

Accountable Care Organizations (ACO) are not only growing in number but some ACOs are also reporting outcomes that indicate their value-based reimbursement model may produce better results for patients than traditional fee-for-service (FFS) medicine.

For the pathology profession, this news further emphasizes the need for medical laboratories and group pathology practices to have a seat at the table during the organization of ACOs so they can make a clinical contribution and negotiate adequate reimbursement from the fixed fees paid to ACOs. At the moment, one big question for labs is how they are to be paid under  a value-based reimbursement model.

ACO Enrollment to 72 Million in Next Four Years

Leavitt Partners, a healthcare intelligence firm, has tracked the expansion of the ACO movement from a low of 64 private and public organizations in 2011, to 744 ACOs spread across all 50 states, covering 23.5 million people as of January 2015. The firm predicts the number of people enrolled in ACOs will reach 72 million by 2020.

Despite such growth, only three states—Maine, Oregon, and Iowa—currently have more than 15% of their population enrolled in an ACO, according to a Leavitt Partners report.

Eastern Maine Healthcare Systems is one example of a system seeing dividends from its move toward a value-based payment model. In the past three years, Eastern Maine has experienced a tenfold increase—from 9,400 to 100,000—in the number of people receiving care under value-based payment contracts, reports a Modern Healthcare article. Its accountable care organization subsidiary, Beacon Health, says that the eight-hospital not-for-profit system has had a nearly 24% increase in primary care visits, while emergency department visits are down nearly 3% and hospital admissions dropped by 21%.

Revenue Shifts Part of Change

Those changes in utilization rates have resulted in lower revenue from fewer admissions and procedures, which is an acceptable tradeoff according to Beacon Health’s Chief Financial Officer Jeff Sanford.

“We can’t continue to do business the way we’ve done business,” Sanford told Modern Healthcare. “We’re not going to sit here and let the change be upon us. We want to be part of the change.”

Advocate Health Care of Chicago, IL, also has made a swift transition to value-based reimbursement. In 2011, Advocate became the first system in the state to enter into a commercial ACO program. Since then, it has added a Medicare Shared Savings ACO and joined Illinois’ new Medicaid accountable-care entity program.

“We definitely have seen a loss of revenue because we’ve decreased length-of-stay and we’ve decreased admissions,” Lee Sacks, M.D., Advocate Executive Vice President and Chief Medical Officer, told Modern Healthcare.

Lee Sacks, M.D

Lee Sacks, M.D., Advocate Executive Vice President and Chief Medical Officer feels the hospital’s loss of revenue from FFS contracts “positions [Advocate Health] to move into more advanced products.” (Photo copyright Advocate Health Care.)

As a result, Advocate Health Care’s revenue from FFS contracts has fallen from 82% in 2010 to 32% in 2014. More than half of its revenue now comes from incentive-based contracts with shared-savings bonuses. The organization also receives financial penalties if the 11-hospital system falls short of cost and quality performance measures, Modern Healthcare reported.

Half of Hospital Revenue to Come from Value-based Contracts within Two Years

Two recent Kaufman Hall hospital surveys revealed that the percentage of hospitals reporting that 10% or more of their revenue comes from value-based contracts increased from 22% to 42% between August 2014 and February 2015. According to the survey, 22% of hospitals anticipated that value-based contracts would constitute more than half of their revenue within the next 24 months.

ACOs Must Ensure Functionality of System

In a Kaiser Health News article, Harold Miller, President and CEO of the Network for Regional Healthcare Improvement (NHRI) and Executive Director of the Center for Healthcare Quality & Payment Reform (CHQPR) in Pittsburgh, PA, compared ACOs to a television manufacturer who has to contract with multiple suppliers to build sets.

“People want to buy individual circuit boards, not a whole TV,” he said. “If we can show them that the TV works better, maybe they’ll buy it. But ACOs will need to prove that the overall healthcare product they’re creating does work better and costs less in order to encourage patients and payers to buy it,” he said.

Miller stated that an ACO must bring together the different component parts of care for the patient—primary care, specialists, hospitals, home health care—and ensure that all of the “parts work well together.”

Because many ACOs launch operations using a modified fee-for-service model in their early years, most clinical laboratory managers and pathologists have not seen radically different reimbursement arrangements. But that is expected to change as both ACOs and patient-centered medical homes transition to a budgeted payment form of reimbursement.

—Andrea Downing Peck

Related Information:

Anthem Blue Cross’ $38 Billion Move From Fee-For-Service Medicine

Accountable Care Enrollment to Triple by 2020

Growth and Dispersion of Accountable Care Organizations in 2015

Momentum Toward Value-Based Payment in Hospitals Growing Significantly, New Surveys Find

A More Complete Picture of Pioneer ACO Results

Hot Zones/Dead Zones: Local Factors Produce Patchy National Shifts to ACOs

FAQ on ACOs: Accountable Care Organizations, Explained

Push by ACOs to Give Patients a Stake in Their Healthcare Provides Opportunities for Engagement by Clinical Laboratories and Pathologists

Ranking of Nation’s 15 Biggest Accountable Care Organizations (ACOs) Shows Fast Growth of This Model of Integrated Clinical Care

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