On a wooded campus in Falls Church, Va., Inova Health System has executives
in its integrated provider network and its insurance joint venture with
Aetna working alongside each other on one floor of a building. It's
part of the system's $27 million investment in establishing an insurance
arm and an accountable care program.
The physical proximity between leaders of Inova's Signature Partners
Provider Network and its insurance joint venture Innovation Health underscores
the increasing overlap in operations between hospitals, doctors and insurers
as accountable care takes hold across the healthcare market.
“Traditionally, hospitals, payers and physicians have been adversaries,”
said Dr. Matthew Poffenroth, chief medical officer of Signature Partners.
“This is the exact opposite of that. Now, we're all equally
at risk for the quality of care and for the dollar. We have complete alignment
Perhaps not complete alignment, but definitely closer than before. The
Inova ACO is one of hundreds of private-sector ACOs taking shape across
the country as insurers and health systems test new financial incentive
models to reduce costs and improve care. ACOs in the private sector have
grown more rapidly and show more diversity than in Medicare, though not
all provider systems have made investments and embraced financial risk
contracting to the same degree as Inova. For some, these deals will prepare
providers and payers for fully capitated arrangements in which providers
are paid a global fee per member for managing an enrolled population's
Roughly 14 million Americans are covered under commercial accountable
care contracts, compared with 7.8 million in Medicare ACOs and 1.7 million
in Medicaid ACOs, according to Leavitt Partners, a healthcare consulting
firm that tracks ACO developments. More than 100 private insurers and
employers have entered ACO contracts. Growth of private-sector ACOs has
varied significantly by region and market. That commercial ACO growth
comes as Medicare nears the end of its first round of accountable care
contracts and the CMS grapples with regulatory constraints and seeks to
keep hospitals and physician groups participating. Private-sector ACO
participants have greater leeway to negotiate key details such as incentive
structures, benefit designs, quality targets and which patients are attributed
to the ACO. Private-market efforts can customize ACO agreements to each
provider, with the ability to work through operational issues.
“It's not the monopsony Medicare that's (dictating) the
rules,” said David Muhlestein, Leavitt's senior director of
research and development. “It's more a negotiation between organizations
with equal bargaining power.” He said the structure and details
of private-sector ACOs vary so much that it's hard to even generalize
about what a private-sector ACO is.
The laboratory of the marketplace may help guide Medicare's future
ACO efforts, said Dr. Mark McClellan, director of the Health Care Innovation
and Value Initiative at the Brookings Institution and a former CMS chief.
“Everybody wants Medicare to lead, but Medicare has a hard time
leading if it's doing something that people haven't tried and
succeeded at somewhere before,” he said. New Medicare policies on
quality measurement and payment incentives often “come out of models
that have been tried … in the private sector.”
In Virginia, Innovation Health and Signature Partners are close to reaching
a contract that for the first time introduces financial incentives for
cost and quality performance for the network's 1,800 employed and
independent doctors. The contract will at first offer bonuses with no
potential risk of loss.
In future years, the contract will introduce the risk of loss if performance
targets are not met, along with the potential for bonus payments, said
David Notari, CEO of Innovation Health. “It's a great opportunity
to learn and see, (and) make sure it works,” he said.
Eventually, ACO deals will shift doctors and hospitals to capitated payments.
“We know that the market is going to change,” Notari said.
“It has to change.”
But providers haven't fully accepted that yet. Signature Partners'
Poffenroth, who was interviewed jointly with Notari, said independent
doctors remain reluctant to accept downside financial risk in contracts.
Currently, doctors who enter Innovation Health's ACO do so “knowing
they are not at full risk and if this isn't working, they can bail,”
he said. “There is no downside risk here.”
“Short term,” Notari interjected.
Dr. Ken Zweig, a member of an internal medicine group that contracts with
Signature Partners, said the shared-savings contract being negotiated
between Innovation Health and Signature Partners could mean “some
financial benefit for what we've been doing all along.” The
medical group already has invested in care coordination, and a shared-savings
deal could help defray the costs.
His practice, the General Internal Medicine Group, which has about two
dozen providers, joined Signature Partners because of Inova's market
clout. But he said he hopes his group will receive valuable data identifying
the area's most cost-effective quality providers.
Many private-sector ACOs are expanding gradually, Muhlestein said. Commercial
ACO deals in many markets started with pilots, often featuring self-insured
hospitals enrolling their own employees. These pilots are now starting
Peoria, Ill.-based OSF HealthCare is moving forward gradually with its
commercial ACO contract, even though it has experience with financial
risk under contracts with Medicare and Medicaid, including a Medicare
Moving deliberately—and not immediately including downside risk
in contracts—allows providers and payers time to fully understand
how their contract works, said Robert Sehring, CEO of OSF's central
region. Still, he predicts ACO contracts eventually will shift to capitation
in both private and public ACO arrangements.
Several large employers have bypassed insurers and negotiated accountable
care or other types of value-based contracts directly with healthcare
providers. Intel signed an ACO deal with Presbyterian Healthcare Services
in 2013 in Rio Rancho, N.M. Separately, Intel entered into an ACO with
Providence Health & Services in the Portland area. Boeing also signed
an ACO deal with Providence and Swedish Health Services in the Seattle area.
For Providence, the experience of direct contracting with employers has
been eye-opening. Boeing executives set high expectations for healthcare
providers, just as they do for airplane-parts suppliers, said Dr. Joseph
Gifford, chief executive of accountable care for the Providence-Swedish
Health Alliance. “When the corporations get involved in healthcare
benefits, they really bring something to the table,” he said. “It
hasn't always been fun. They bring serious business pressure into
Boeing's demands go beyond high medical quality and efficiency to
top-notch customer service. “That's kind of a religion they've
all gotten,” Gifford said. “They're forcing that on us.
What they want is the customer to be delighted.”
He acknowledged that this has been challenging. Boeing's contracts
have specific customer satisfaction performance criteria for various services
in its contract, and the company deploys secret shoppers to check up.
“It's not just about, 'Is the nurse nice to you?' ”
Gifford said. “Does the doctor ask you what you really want?”
Still, Providence leaders like that these direct ACO contracts with employers
give their system the financial flexibility and customer access that make
it easier to experiment. “This is the license to innovate,”
he said. “Being right across the table from the purchaser is amazingly
different than having an intermediary.”
On their side, employers are seeking direct deals with healthcare providers
because they face significant pressure to reduce healthcare spending and
improve employee productivity. Lowe's Corp., which has launched direct
contracting efforts with providers, spends about $1 billion a year to
cover 210,000 workers and dependents across 1,800 locations. “It
is the only expense, as I am reminded almost weekly by the CFO, that is
… growing faster than our business is growing,” said Robert
Ihrie Jr., Lowe's senior vice president of compensation and benefits.
“So it's a serious concern for us.”
Lowe's went directly to providers to gain more control of financial
incentives for cost and quality. “After three or four years of trying
to deal with health plans who had no interest in being very innovative,
we just gave up and decided we're going to do it for ourselves,”
But Lowe's chose not to go the ACO route because the company lacks
a sufficient concentration of employees in any single market. Instead,
the retailer chose a centers-of-excellence approach, offering to fly employees
to select providers across the country for certain surgical procedures.
The company pays those providers on a bundled-payment basis.
Direct contracting pressure from employers to curb costs and improve patient
outcomes should prove a strong incentive for healthcare providers to change
and improve, said Michael Chernew, a professor of healthcare policy at
Harvard University. Employers “are simply not going to pay the rate
of spending growth that we've seen in the past,” he said.