Thanks to the removal of downside risk in the October 2011 final regulations for the Medicare Shared Savings program, many hospital executives are again considering their strategy related to Value-Based Care Organizations. The year 2012 saw the creation of 115 new Medicare ACOs, and more are expected in 2013. In addition, many private payer ACOs are being developed. In these ACOs, hospitals take risk on their own self-insured employee populations or work with other self-insured employers in their service area.

As your organization formulates its strategy for how it will approach Value-Based Care, we recommend prioritizing the following tactics:

Understand Your Costs
Successful ACOs will lower the expected total cost of care provided to beneficiaries of a population. But in order to impact the cost of care provided, physicians and executives must both understand the components of that cost of care. We advise clients to break down cost to the DRG or APC level, and then look at the individual components of cost. Comparing this level of data across each of your physicians and against your competitors will provide you with the data needed to target costs that are out-of-line and improve performance.

Address Chronic Disease
Many of the excess costs in the system result from patients with chronic disease. Driving down the cost of patients with chronic disease requires coordinated disease management with a focus on patient navigation. Many hospitals are prioritizing the development of patient-centered medical homes (PCMH) as a strategy for tackling these issues. Specific disease management resources should also be a focus.

Manage Referrals
In order to manage the cost of a population, providers within your ACO need to actually care for your population. As such, building referral management systems to ensure patients do not “leak” to a provider outside of your ACO who does not have incentive to manage cost will be important. Within your ACO, referring physicians should be given the information necessary to make a judgment on which specialists provide the most efficient care, and give them information on how they should direct their referral volume.

Tighten Relationships
Two major drivers of population cost will likely occur outside the providers in most ACOs: high-acuity diagnoses requiring a tertiary referral, and post-acute care. Given that your ACO will be held responsible for the costs incurred in these locations, having relationships with the most efficient providers in each of these areas is in your ACO’s best interest. These providers should be evaluated and engaged in discussions around how they can help you manage the costs associated with your patients. If they are unwilling to work with you or cannot help you, it is likely time to evaluate new partnerships.

Engage Employers
The Medicare Shared Savings Program has made the term “ACO” synonymous with Medicare patients, and as such, much of the focus of ACO development is around managing that population. However, 99% of our clients make their margin on commercial volume, which is generated by local and regional employers. Just like Medicare, self-insured employers around the country are looking for ways to manage their healthcare spending, and hospitals with the capabilities to manage cost are the ideal partners. A direct contract with your largest employers can therefore mean additional commercial volume and secure market share.

Re-evaluate Physician Alignment
As payment incentives change, hospitals must be aware of how shifting incentives will impact their physician alignment strategy. Creating an ACO is cause to revisit and review any employment, co-management, or joint venture agreements to ensure provider incentives align with the current interests of the organization.


Travis Ansel

Chief Executive Officer and Managing Director, Strategy