Agenda

• What is an Accountable Care Organization?• What kinds of organizational structures are being

used?• What are the requirements?• What payment arrangements and how do they

work?• Framework for success• Private market for ACOs are humming• Variations on a theme

DeMarco and Associates Founded in 1980

• Researches, designs, develops and implements successful strategies to build community based health care organizations.

• Optimizes the relationship between providers and payers.

• Integrates clinical care improvements and reimbursement.

• Aligns purchasers and providers, physicians and hospitals.

• This collaboration helps to prepare for future opportunities and to work together for the mutual benefit of patients, physicians, hospitals and employers.

Pendulum HealthCare Development Corporation

Formed in 2001• Provides supporting infrastructure and connectivity among physicians,

hospitals, health plans, employers and vendors to create a sustainable clinical integration model on a local or regional basis by:– Accelerating legacy to web information technology conversion.– Creating enterprise-wide data exchanges and dashboards.– Building and supporting pay for performance systems allowing providers and

purchasers to share in savings created through more efficient and effective care.

– Assisting clients in using data at all levels to identify gaps in processes and performance to assure consistent, measurable and effective care coordination and management.

• Designs, develops and manages Accountable Care Organizations (ACOs).

What is an Accountable Care Organization?

What is an Accountable Care Organization?

An ACO is a local health care organization and a related set of providers (at a minimum, primary care physicians, specialists, and hospitals) that can be held accountable for the cost and quality of care delivered to a defined population.

The goal of the ACO is to deliver coordinated and efficient care.

A Guide to Accountable Care Organizations and Their Role in the Senate’s Health Reform Bill, March

11, 2010 by Jordan T. Cohen. http://www.rwjf.org/files/research/acosummaryfinal.pdf

What Is an Accountable Care Organization?

• The ability to provide, and manage with patients, the continuum of care across different institutional settings, including at least ambulatory and inpatient hospital care and possibly post acute care;

• The capability of prospectively planning budgets and resource needs; and

• Sufficient size to support comprehensive, valid, and reliable performance measurement.

Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality

Quandaries? (Berenson, p. 2)

To qualify as an ACO an organization would have to meet at least the following criteria:

(1) Agree to a minimum three-year participation, (2) Have a formal legal structure that would allow the organization to

receive/distribute bonuses to participating providers, (3) Include the primary care providers of at least 5,000 Medicare

beneficiaries, (4) Provide CMS with a list of the primary care and specialist

physicians participating in the organization, (5) Have contracts in place with a core group of specialist physicians, (6) Have a management and leadership structure in place that allows

for joint decision making (e.g., for capital purchases), and (7) Defined processes to promote evidence-based medicine, report

on quality and cost measures, and coordinate care.

Source: Senate Finance Committee Report

To earn the incentive payment the organization would have to meet certain quality thresholds

• ACOs must agree to report annually to the Secretary of Health and Human

Services on a specified set of quality indicators.• ACOs would be allowed to report at the group or individual level on measures

specified by the Secretary, including measures of: (1) clinical processes and outcomes (e.g. mortality, improvements in

functionality), (2) patient perspectives on care, and (3) utilization and costs (e.g. ambulatory-sensitive admissions). • For the purposes of calculating quality and cost performance, CMS would assign

beneficiaries to ACOs based on the physician from whom the beneficiary received the most primary care services in the preceding year.

[Note: This is for the purpose of gauging performance only, and does not impact the ability of beneficiaries to choose their own site of care.]

• ACOs would [in addition to the bonus] continue to be paid on a fee-for-service basis.

This is not a PHO

PHOPHO ACOACO

Insurance riskInsurance risk Performance riskPerformance risk

Panel of patientsPanel of patients Population of patientsPopulation of patients

Scrum for share of revenueScrum for share of revenue Rational allocation of revenueRational allocation of revenue

Charge basedCharge based Value basedValue based

Managed care leveragedManaged care leveraged Care coordinationCare coordination

Episodic care focusEpisodic care focus Patient focusedPatient focused

Split control and governanceSplit control and governance Physician leadershipPhysician leadership

Do moreDo more Do lessDo less

InterventionIntervention PreventionPrevention

Clinical integration to achieve anti Clinical integration to achieve anti trust compliancetrust compliance

Clinical integration to achieve efficiencies and Clinical integration to achieve efficiencies and quality improvementquality improvement

Source: Mc Dermott Will and Emery, used with permissionSource: Mc Dermott Will and Emery, used with permission

Relationship Design in a Hospital System

• Structure of Hospital driven planSystem Parent

Accountable Care Organization

System Physician Organization

Foundation Model

Captive Group Practice

Other System Physicians

Hospital

“Affiliated Physicians

IPA Private Physicians

Ownership Relationship in a System

Desired Impact: shared savings

ActiveDisease

Early Symptoms

HighRisk

AtRisk

No/LowRisk

Health is a continuous variable, according to George Isham, MD, HealthPartners Medical Director and Chief Health Officer. A person is not simply healthy or sick; there are various degrees of health. The Partners for Better Health program tries to move members along the disease/health continuum, toward lower risk and greater health through prevention.

Source: HealthPartners, Partners for Better Health.

The Disease/Health Continuum

Pathway To Get From Where You Are

• Setting clinical benchmarks

• Setting spending benchmarks

• Measuring performance

• Quality and efficiency metrics analysis

• Care management process

• Performance payment adjustments

Episode Treatment Groups

Episode of Care – Definition

All clinically related services for a discrete All clinically related services for a discrete diagnostic condition from the onset of symptoms diagnostic condition from the onset of symptoms until treatment is complete.until treatment is complete.

Acute Bronchitis with Co-morbidity

Clean Period

Start

Clean Period

End

Office Visit (Anchor Record)

Lab Services (Ancillary Record)

Radiology (Ancillary)

Pharmacy Records (Ancillary)

Cluster 1PCP 444

Cluster 2 Specialist A

Cluster 4PCP 444

Cluster 3 Specialist A

Insulin Diabetes

All records in the episode share

the same unique episode number

Medical Episode GrouperClaims Data

Inputs include professional Inputs include professional claims, facility claims, claims, facility claims,

inpatient admissions records, inpatient admissions records, and pharmacy claimsand pharmacy claims

Grouping diagnosis codes into Grouping diagnosis codes into one of the over 550 Disease one of the over 550 Disease

Staging categories and severity Staging categories and severity stagesstages

Appropriately group claims into Appropriately group claims into episodes according to disease episodes according to disease

category and relative time category and relative time between servicesbetween services

Output aggregated information Output aggregated information for the episode and allow for for the episode and allow for

analytic flexibility for analysisanalytic flexibility for analysis

Clinical Classification Grouping Methodology Analytic Outputs

Infrastructure

• Health Information Exchange Capability

Specialty Care Providers & Specialty Care Providers & StaffStaff

Retail PharmaciesRetail Pharmacies

Ambulatory ClinicsAmbulatory ClinicsPatients and Family Patients and Family CaregiversCaregivers

Primary Care Providers & StaffPrimary Care Providers & Staff

Re-engineering

• System Redesign

• Financial Redesign

• Patient Financial Interface

Financial redesign

• Business Plan• Management • Systems• Operations• Marketing• Governance• Application development

Management

• Operations Manager: Operations must be managed by an executive, officer, manager, or general partner.

• Medical Director: Clinical management and oversight would be managed by a senior-level medical director who is a board certified physician, licensed in the State in which the ACO operates, and physically present in that State.

• Meaningful Commitment: Participants must have a meaningful commitment to the ACO's clinical integration program to ensure its likely success.

• Quality Assurance: ACOs must have a physician-directed quality assurance and process improvement committee.

• Clinical Guidelines: ACOs must develop and implement evidence-based medical practice or clinical guidelines for delivering coordinated care.

• Data Collection Infrastructure: ACOs must have an infrastructure (i.e. information technology) that allows the ACO to collect and evaluate data and provide feedback across the organization, and report data to CMS.

Benchmarks

• The actual benchmark will be the weighted average of the three years’ averages, after trending and risk adjusting.

• Proposed weights are: 10% in Year 1; 30% in Year 2; and 60% in Year 3. CMS says this approach is more statistically stable than using a simple average of the three years.

• This benchmark determination approach means that the ACO will have to beat its own performance in each 3-year contract period.

• ACOs will experience diminishing returns as their cost efficiency improves. This will earn them savings in one contract period but will become the benchmark they have to beat in the next contract period.

An ACO: Medicare Shares Savings Program (MSSP)

Is defined in Section 3022 of the PPACA (new Health Reform Act) Is very similar to globally capitated IPAs/Medical Groups Must:

1. Demonstrate how they take accountability for a patient population (PCP network, care mgt P&Ps, etc)

2. Coordinate services under Medicare and Medicaid3. Encourage investment in infrastructure4. Design processes for high quality and efficient service delivery

Bonus payments must include quality metric. Optionally PCPs could be positioned as “certified” Medical Homes PGP demonstration quality metrics are starting points

With passage of the law, its now an ongoing program of CMS w/ operational start date of no later than 1/1/2012

Existing demonstration will not be expanded – just continued. Not a pilot program, MSSP is now a statutory program.

ACO/MSSP .vs globally capitated IPA/Medical Group(FYI, 80%+ of Medicare HMO lives in Florida are contracted through globally capitated networks/medical

groups.)

Financial Risk:◦ ACO is 50% of upside: 0% downside◦ Globally capitated IPA/medical group is 100% upside and 100% downside

Capitation benchmark:◦ ACO 98% of risk adjusted historical FFS costs◦ Globally capitated IPA is 83% of CMS payments to Medicare HMOs

Health Benefit Costs:◦ ACO only traditional Medicare benefits◦ Globally capitated IPAs must pay for all the extra HMO benefits

Admin Costs:◦ Simple ACO need only have PCP network – no explicit requirement for hospitals contracts – hospitals

cannot hold an ACO hostage!◦ FI continues to pay claims◦ ACO does analysis from adjudicated claim data files

5% cost advantage to ACO Marketing and Enrollment:

◦ ACO patients are “assigned” by historical claim pattern effective 1st day of operations – no sales commissions, etc. ALL Medicare patients of the PCP not otherwise enrolled in a Medicare HMO/PPO are assigned to the ACO.

◦ 3:1 enrollment advantage to ACO.◦ 5-6% cost advantage to ACO

Years Ended December 31,

2009 2008 2007

REVENUE 354,407,100 317,211,727 277,577,289

Adj for HMO Capitaition Contract vs. ACO/CMS Contract

Revised Revenue 386,425,187

HMO as 84% of premium capitation contract

Adjusted for Medicare HMO premium vs. AOC ben chmark

MEDICAL EXPENSE

Medical claims expense 299,039,806 267,983,448 229,420,767

Medical center costs 14,512,051 12,488,679 11,275,599

Total Medical Expense 313,551,857 280,472,127 240,696,366

Adj for extra HMO benefits over and above traditional Medicare

Assumption is 11% reduction 282,479,150

GROSS PROFIT 40,855,243 36,739,600 36,880,923

New Gross Profit 103,946,036

After 50% sharing w/ Feds 51,973,018

OTHER OPERATING EXPENSES

Administrative payroll, payroll taxes and benefits11,287,110 12,537,118 13,108,160

General and administrative 7,564,251 10,071,781 11,158,177

Marketing and advertising 359,249 1,864,822 3,959,220

Stay bonuses and termination costs of HMO subsidiary- 1,597,674 -

Restructuring expense - - 583,795

Total Other Operating Expenses 19,210,610 26,071,395 28,809,352

OPERATING INCOME (LOSS) BEFORE GAIN ON SALE OF HMO21,644,633 10,668,205 8,071,571

New Operating Iincome 32,762,408

Gain on sale of HMO subsidiary 1,336,470 5,872,769 -

OPERATING INCOME22,981,103 16,540,974 8,071,571

OTHER INCOME (EXPENSE)

Investment income, net 390,183 108,137 1,396,624

Other income (expense), net (22,607) (30,576) (27,457)

Total other income (expense) 367,576 77,561 1,369,167

INCOME BEFORE INCOME TAXES 23,348,679 16,618,535 9,440,738

INCOME TAX EXPENSE 8,900,113 6,414,068 3,526,740

NET INCOME 14,448,566 10,204,467 5,913,998

New Net Income 21,334,735

•Application of ACO model vs. Global Capitation Contract – in the real world.

•Red Font are ACO adjustments to published financials 2009 using Congressional Budget Office scoring formula for ACOs in Health Care Reform Act.

•Roughly 60 PCPs, or36,000 members

Advantages to Physician “Why doctors will do it?”

1. Potential for substantial additional revenue from shared savings program

2. Physician guaranteed current FFS level of Medicare/Medicaid

3. No downside financial risk to join the ACO4. Opportunity to gain and/or preserve market

share5. Additional services from the ACO

Physician groups barrier to entry is the working capital requirement for the

anticipated case mgt, info processing, other admin activities and timelines to

bonus payment

Basic Financial Summary of Start-up ACO

• Annual Benchmark Target– 2013 = $225 Million

• EBITA– 2013 = $7.0 Million

• After Tax– 2013 = $5.8 Million

• Terminal value at end of 2015– 2x EBITA + Cash & S/T Investments + Net Bonus

Receivable– $17 Million

What is that we are looking from You?

• Equity or Contract Joint Venture• PCP recruitment and selection• 50% sharing of operating income• 50% of budget of CMS Application

– CMS Application Budget $550,000– ($250,000 +/- your share)

• Legal entity and contracts,• QI committee P&P• Provider contracting• Application development, submission,

interrogatories, etc.

Pendulum Will Bring For Medicare ACO(Summarized)

◦ Working Capital from 2012 through 2013◦ Projected total working capital $5.5 million.

◦ Administrative: Precise Program and Legal Structures Demographic and claims info: Data, data, data, and reconciliations

Claims submissions “clearing house for par” Non “par” audit, contesting incorrectly paid claims and tracking Demographic, Claims (Dx, CPT, DRG, etc), quality reporting.

Compliance reporting (QA, program integrity, etc) Credentialing process for ACO PCPs to become NCQA “Medical Homes”

◦ Care Management 90 – 90 – 90 Program and Integrated Health Risk Assessment process Road map to deploy best practices intra/inter market Road map to deploy evidence based medical protocols CM/UM/SW personnel, P&Ps, etc. Provider development and contracting Robust quality metric reporting Detailed treatment plan development and patient compliance reporting

Summary• “Whatever form ACOs eventually take, one thing is

certain: the era of fragmented care delivery should draw to a close. Too many Medicare beneficiaries — like many other patients — have suffered at the hands of wasteful, ineffective, and poorly coordinated systems of care, with consequent costs that are proving unsustainable.

• CMS believes that with enhanced cooperation among beneficiaries, hospitals, physicians, and other health care providers, ACOs will be an important new tool for giving Medicare beneficiaries the affordable, high-quality care they want, need, and deserve.”

Donald M. Berwick, M.D., M.P.P., Administrator, Centers for Medicare and Medicaid Services

Private Market

Commercial EmployersCities, Counties, School Districts

Labor Unions, Taft Hartley Trusts, Trade Associations

IPA Opportunities

• Strengthening an IPA and its medical staff relationship with hospitals through direct contracting with employers who have become dissatisfied with local third party controls

• Recasting physicians in their new role as managers of quality standards and review

• Direct linkages to employers who have joined the community organization to share data and have a better understanding of how care can be delivered

• Give employers a “Go to” source for help with care management and billing questions

• Collaborative approach between buyer and physician earns more trust and sets expectations for patient and employers as to what is reasonable care versus excessive or unnecessary

Employer

PhysiciansMSO/JVCO Hospital

New Structure of Community-based Health

Plan

Employer Coalition “ACOs simply call for organizing and providing care in a systematic fashion. Done well,

they should provide a bunch of win-wins, but there will also be some squeezes. These may well hit the hospitals.

Therefore, to protect their interests, physicians - who actually are positioned to create the organization, incentives and processes to be successful - should take the lead in ACO formation and implementation and contract for hospital services, rather than allowing the hospitals to do so and contract the physicians. Ultimately, in hospital-based ACOs the financial needs of the hospitals will take priority over rewarding the physicians for their effort and, therefore, they are likely to be less effective in achieving employer or government goals, i.e. generating greater efficiency, better outcomes and lower cost.”-Ned Lamkin, MD, FACP President Indiana Employers Quality Health Alliance

Potential IPA or Medical Society Role

So Show Me the Money

• Calculation of the bonus follows three published numbers involving what is now being paid to Medicare Advantage plans minus what is used for non health care benefits and what is paid to CMS.

• We have estimated administrative costs and now must put a 7.5% limit on the top under proposed rules.

Creating the Accountable Care Organization

• Step 1 A feasibility study is conducted to answer four questions Is there a market? Is there a market with a need? Can our organization fill that need with current or proposed products? Is this strategy sustainable over time?

Assuming the answers to these questions are favorable and a decision is made to move forward the plan can follow this general framework:

• Step 2: Form and capitalize a viable Physician Organization (PO)– develop and accept participation guidelines– review and respond to insurance and liability issues– file appropriate organizing and securities documents

Decision on physician participation criteria and credentialing service• Step 3: Identify other provider partners, including:

– hospital(s)– free-standing institutional providers– ancillary care providers

Decision on initial delivery system participantsStep 4: Identify non-provider stakeholders in the Local Delivery System

– Employers, residents, investors, vendors (e.g., TPAs)

Creating the Accountable Care Organization (cont)

• Step 5: Develop an initial business plan for the ACO– employer market assessment and enrollment plan– regulatory and legal feasibility– estimate budgets and financial forecasts– health service delivery quality and utilization guidelines– Letters of Intent from employers and providers– Timetable

Decision to create a licensed health plan or affiliate with (and invest in) a licensed risk-bearing entity (HMO)

• Step 6: Create and capitalize the Local Delivery System– enter into development and management agreements as necessary– create the appropriate corporate form– successfully solicit capital– enter into provider agreements– hire local staff to implement plans and programs

Decision to manage the operations of a clinically integrated accountable provider organization

Creating the Accountable Care Organization (cont)

• Step 7: Enter into Provider and Payer Agreements necessary to serve local employers/residents

– third party payers– HMOs– self-insured employers

Decision to create additional market share• Step 8: Develop expansion timetable

– products, Medicare, Medicaid– geography, physicians, hospitals

Decision to consider long term goals and growth potential as a regional Accountable Care Organization

Strategic FrameworkKey Elements for Success

• Organization and Governance• Clinical superiority through medical

management• Sustainable capital; cover the startup and

launch• Infrastructure that is flexible• Capable and experienced staff

ACO Infrastructure

Hospital’s ACO Role

• OwnerShares bonusMay control paymentCould eventually buy practices

• ContractorDelivers services Conforms to CMS standardsPartner but at a distance

Relationship Design in a Physician Driven ACO

• Minimum is 5000 non MA patients

PCPsPCPs

SpecialistsSpecialists

Med groupMed group

IPAIPA

Form an ALLIANCEto raise capital

matched by venture capital

or institutional investors

Form an ALLIANCEto raise capital

matched by venture capital

or institutional investors

ACO Management

Services Company

ACO Management

Services Company

CMSCMS

Other ProvidersHospitals

Home Care

Other ProvidersHospitals

Home Care

Analysis of Options

FactorFactor ACO ( physician model) ACO ( physician model) MA PlanMA Plan CO-OPCO-OP

RiskRisk 7.5% upside years 1 & 2.10% upside 5% 7.5% upside years 1 & 2.10% upside 5% downside Yr 3downside Yr 3

Full Risk Yr 1Full Risk Yr 1 Full Risk Yr 1Full Risk Yr 1

Member RqMember Rq 5000 Non MA (advantage to stay under 5000 Non MA (advantage to stay under 9999)9999)

5000 MA5000 MA CommercialCommercial

BonusBonus Potential BonusPotential Bonus Potential BonusPotential Bonus Potential Bonus and GrantsPotential Bonus and Grants

AntiTrustAntiTrust Filing may be requiredFiling may be required NoNo NoNo

MarketingMarketing NoNo YesYes YesYes

ReimbursementReimbursement Cap Top & floorCap Top & floor 110% Medicare110% Medicare Coml MC+30Coml MC+30

Startup CostsStartup Costs 1.0 Million plus 21 months budget to first 1.0 Million plus 21 months budget to first bonusbonus

Existing license plus 1.0 Mil Existing license plus 1.0 Mil 1.0 mil 750K state license 1.0 mil 750K state license

Cost techCost tech 40%40% 50%50% 40%40%

Cost staffCost staff 60%60% 50%50% 60%60%

Investment Investment availableavailable

LimitedLimited GoodGood Very GoodVery Good

TimeTime 18 months18 months 12 months12 months 12 months12 months

Accountable Care Organization Startup and Management

• Feasibility Study Market Size Physician Leadership and Panel Development Technology Inventory Regulatory Assessment Financial Plan

• Development Plan Capitalization Staffing Education and Communication Clinical Assessment/Profiling Application Preparation Operations Plan

Variations on a theme DeNovo startup of a group without walls

● 20 to 30 physician practices sell to a newco and use this money to start an ACO

● $150,000 per practice if they sell to a hospital● But the value to their Medicare Advantage HMO is

500 X 12 = $6000.00 X 500 = $3 million ● Partner with a management company to

administrate the ACO/HMO● Bonus earned pays back physician and

management company investors● Downside risk covered with reinsurance ● Reinsurance premium factored into the

administrative cost charged to enrollees or payer

Variations on a themeExisting IPA with some capitation contracts

• 200 physician IPA• Small staff of 6• Looking to invest in hardware software data base

($400,000)• ACO startup costs• Proposal to buy the IPA plus cashflow for $7

Million• Reassign staff to Management Company• Share bonus after expenses

Benefits of a Physician driven ACO

• Current opportunities to gather market share and earn a bonus

• Future opportunities to reduce overhead through collective purchasing

• Positioned well for MA Plan, Commercial Plan or Cooperative

• Less reliance on one or two carriers• Genuine possibility to improve the value of the practice

asset and leverage it into a larger and stronger group• Potential to sell practice at a higher asset value and retire

or move to a new practice site

Thank you