Time for Everyone to Get Real on ACOs

Jan. 8, 2015
It was fascinating to speak this week with Alison Fleury, who was CEO of Sharp HealthCare ACO last year, when the Sharp organization pulled out of the Medicare Pioneer ACO Program

It was fascinating to speak this week with Alison Fleury, senior vice president, business development, at Sharp HealthCare, and the person who was CEO of Sharp HealthCare ACO last year, when the Sharp organization pulled out of the Medicare Pioneer ACO Program.

That’s because at the time of Sharp HealthCare’s departure last summer from the Pioneer ACO program, one of two federal programs for accountable care organization development sponsored by the federal Centers for Medicare and Medicaid Services (CMS), Sharp HealthCare executives somewhat downplayed their Pioneer program departure, which was announced in a financial earnings report. At the time, the health system said in its report, “Because the Pioneer financial model is based on national financial trend factors that are not adjusted for specific conditions that an ACO is facing in a particular region (e.g., San Diego), the model was financially detrimental to Sharp ACO despite favorable underlying utilization and quality performance.” In other words, the numbers just didn’t add up for Sharp’s leaders.

As I wrote in a blog a few days later, Sharp’s departure from the Pioneer Program, the tenth among 32 original Pioneer ACOs (all of which joined the program in January 2012), was very much worth noting; indeed, it was significant that all 10 of the organizations that have departed the Pioneer Program had had considerable experience managing risk contracts with private payers; none were new to the risk game.

In fact, Fleury told me earlier this week, “Sharp is the largest provider in San Diego County, and we’ve been in risk contracts for 30 years. We had been in the commercial risk market prior to entering the Medicare risk market. And when the Pioneer model came out, we were interested in the ability to work for population-based payment. We were actually advocating for that sooner rather than later. And we have two Medi-Cal groups, friendly competitors, if you will; and neither the Sharp Rees Staley Medi-Cal Group, nor the Sharp Community Medi-Cal Group, could have done this on their own.”

What’s more, the 28,000 Medicare enrollees attached to the Sharp Pioneer ACO were part of a much larger risk-based population, along with 29,000 already in Sharp’s Medicare Advantage program, and 20,000 in commercial ACO-type plans, through Aetna, Anthem Health, and United HealthCare. Even more broadly, Sharp cares for about 350,000 “for whom we’re at risk,” Fleury noted.

So what was the problem with Pioneer? “One of the main things,” Fleury told me, “was the benchmark model in Pioneer, different from that in the MSSP”—the Medicare Shared Savings Program, the less intensely challenging of Medicare’s two ACO programs. The Pioneer Program, “she noted, “uses a national benchmark, so the benchmark does not reflect labor costs in your individual market. Our area wage index went up  8.3 percent, but our payments didn’t go up. And the Pioneer includes a disproportionate-share formula, but MSSP doesn’t. And disproportionate-share is based on your Medi-Cal proportion”—as the Medicaid program is known uniquely in California.

In a recent memo that Fleury shared with me, she wrote, “Unlike ACOs under the Shared Savings Program, the Pioneer ACO program includes Medicare DSH payments in the financial model.  With the expansion of Medicaid (Medi-Cal) under the Affordable Care Act, hospitals that accept Medi-Cal patients receive higher Medicare payments for treating a disproportionate share of patients for which Medi-Cal reimbursement does not cover patient costs. As a result, ACOs in states like California are harmed under the Pioneer ACO model due to the expansion of Medicaid within their state. To date, only 27 states and the District of Columbia have agreed to expand Medicaid eligibility,” Fleury continued in the memo. “As a result, the national benchmark formula understates Medicare costs for ACOs in Medicaid expansion states, and with the Pioneer ACO at risk for shared losses, the benchmarking model results in a Pioneer ACO’s financial responsibility for Medicaid expansion.  According to San Diego County Health and Human Services, as of April 2014 there were 477,086 Medi-Cal recipients in San Diego County and a backlog of approximately 100,000 applications pending.  The State of California estimates its Medi-Cal beneficiaries will grow by 22% to 34% due to Medicaid expansion under the Affordable Care Act.”

“So,” Fleury told me, “we had expected our Medi-Cal business to go up 25-30 percent, and had expected our Medicare payments to go up” under the Pioneer formula. But, she said, “because the model uses a national benchmark, it doesn’t work that way. We weren’t getting enough money in the benchmark formula, so that what we were paying our providers was not reflected in the benchmark. We were decreasing our utilization significantly, but the financial model showed that we were just breaking even, and we believe that the 2014 would have shown us increasing costs, even though that wasn’t true.” The fundamental problem there, she noted, “is that there is no correlation between shared savings and utilization. The pioneer model did change on January 1,” she added, “but we were not willing to be subject to a loss in 2014 under the old model. Also, the Pioneer model was not risk-adjusted as the MSSP models were. So the benchmark didn’t reflect having sicker patients.”

It is probably still a bit too early to know exactly how the remaining organizations participating in the Pioneer ACO Program will fare this year under the revised formula, but what’s clear is this: if senior Medicare officials can’t make the adjustments needed to keep organizations like Sharp HealthCare involved in programs like the Pioneer program, then those programs will be in serious trouble—because the future of U.S. healthcare delivery and financing will rely on organizations like Sharp HealthCare.

And if you’re wondering what else Alison Fleury might want to share, going forward, about her perspectives on the issues, I would recommend that you join us later this month, when she will participate on a panel I’m moderating at the Health IT Summit in San Diego, sponsored by our sister organization the Institute for Health Technology Transformation, and being held at the Omni San Diego Hotel. She and Scott Fowler, M.D., the president and CEO of the Kingsport, Tenn.-based Holston Medi-Cal Group will join me on a panel entitled “Realizing the Outcome and Financial Benefits of an ACO with IT.” I very much look forward to what I believe will be a fascinating and insight-filled discussion.

And in the meantime, I would keep track of ongoing developments at organizations like Sharp HealthCare, and in the Pioneer ACO Program, as so much of what will matter in U.S. healthcare going forward will emerge first in such organizations and programs.

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