ACO’s Potential Pitfalls

In the past several months I have been asked my opinion about the Accountable Care Organization (ACO) model. While I try to be objective on this subject the reality is that I have seen quite a few similar projects in the past that have not been as successful as the participants projected. However, I always say that I do not know it all and that each situation must be evaluated based on its own merits. Hence the information I write below is simply some of the drawbacks and potential pitfalls that ACOs and their participants should keep in mind as they move thru this process.

My first concern is based on the business structure. Many of the functions of the ACO will be similar to the functions of a health insurance company. This means that they must have an organizational structure (human resources, billing/collection, marketing, contracts, etc.) that is functional and efficient even before they start looking at patient data and services. This also means that their IT infrastructure (hardware and software) must be of considerable strength in order to handle the basic operational requirements of the organization. In fact, start-up costs for ACOs are estimated between $132 million and $263 million.

Next comes the time for the organization to set-up and gain enough stability to be functional. Just selecting basic protocols, training staff and Providers and tracking information normally takes between six months to a year. Ideally there should be a stress test before the organization becomes functional with relevant adjustments to be made before officially opening the doors. However, what I’m seen is a mentality of a firing squad out of order: “fire – aim –ready” instead of “ready-aim fire”. In short, it takes time and cutting corners is contra-indicated.

“Jeff Ruggiero, a lawyer at Arnold & Porter and general counsel to the Queens County Medical Society in New York, said: “We all know that the first couple of years of the operation of these organizations don’t typically achieve a great level of efficiency and it takes time and investment costs to get it going,” he said.”

The next hurdle I see is based on patient demographics. Medicare requires ACOs to have a minimum of 5,000 patients to qualify. This is not such a big challenge as patients will be assigned by Medicare based on active patients already seen Primary Care Providers in the ACO. However, patients do not have to stay within the ACO to receive care as they have the ability to seek care from any Medicare Provider.

Having patients with the ability to look for care outside of the ACO is a risk to consider and minimize. Yet this is not a new issue as Insurance Companies deal with patients seeking care out of the network on a daily basis, hence there are already proven methods to contain and minimize the same. On the other hand, costs remain an issue as Medicare will not pay the ACOs more than what they are currently paying for services. While some ACOs are estimated to make significant bonuses it is also estimated that some ACOs would have to repay a total of $40 million for care that was worse or more costly than anticipated.

Blair Childs, a spokesman for Premier, a hospital-owned company running two ACO collaborations, praised many aspects of the rule but said without the prospect of a higher share of the Medicare savings, for some ACOs — particularly smaller ones — “the calculation is harder to see that the return is worth the investment.”

The key as I see it to minimize these risks would be in ACOs trying to capture as large a population as possible which based on the present rules means a significant number of primary care providers with a healthy Medicare population. However ACOs must not forget that although the Government will be flexible with the ACOs they will not be exempt from the antitrust rules.

Presently ACOs that account for fewer than 30 percent of a local market would be given leeway from prosecution unless they engaged in deliberately anticompetitive behavior. That statement actually brings quite a few questions:

1. If an ACO is greater than 30%; will it be considered in violation?
2. Is the 30% based on available patient population or providers?
3. Will a third party insurance accuse an ACO of price fixing?
4. How strong a negotiable position can an ACO have before its accused of anticompetitive behavior?

A statement by America’s Health Insurance Plans President Karen Ignani expressed concerns regarding antitrust behavior by commenting that there is a potential that ACOs will establish so much market leverage that they start dictating prices.

Another legal liability to consider is the malpractice threat ACOs and their members will be facing.

“Allegations of institutional malfeasance related to cost-saving efforts could increase liability costs and create a chilling effect on ACOs,” wrote authors H. Benjamin Harvey, M.D., J.D., of Massachusetts General Hospital, and I. Glenn Cohen, J.D., of Harvard Law School.
“Moreover,” they wrote, “these suits need not progress to trial to threaten ACOs. The assertion of institutional malfeasance alone adds strength to a lawsuit and introduces the potential for punitive damages. This could increase jury awards and settlement amounts. In addition, the broader nature of the claims will enable more robust discovery beyond the care received by the patient.”

The questions that Providers need to ask themselves are:
1. Will my Malpractice coverage protect me?
2. What is my liability?
3. What is the possibility that we could get sued?
4. What kind of controls are in place to prevent a suit?

The reality is that there are too many variables to consider answering these questions in a way that covers every situation however I provide the following.

Most malpractice insurances are designed to cover the Providers for their direct actions regarding patient care which may not offer any protection in these situations (check with your carrier for details). Liability risks will depend on your position within the ACO and involvement in the care of the patient. Also the structure of the bonuses from the ACOs may be construed as an incentive to reduce care. So it is imperative that Providers be informed before proceeding with any action.

ACOs are not necessarily a bad thing, yet I strongly encourage everyone to ask for advice in their particular situation as they make their decisions.