Earlier this year, technology giant Intel Corp. began an experiment in health care delivery at its largest semiconductor manufacturing facility in Rio Rancho, N.M.
Working directly with not-for-profit health system Presbyterian Healthcare Services in Albuquerque, N.M., the Santa Clara, Calif.-based company spent more than a year creating Connected Care, a custom health plan for its 3,500 Rio Rancho employees and their dependents. Under the arrangement, Presbyterian and Intel share financial risks and rewards if results fall short of or exceed the specific care, cost and performance targets they set.
Employees can choose from 11 medical practices managed by Presbyterian, including Intel’s onsite clinic, or they can go out of network. All of the Presbyterian practices use team-oriented primary care to provide free preventive services and same-day, 24/7 access. They coordinate with regional medical "neighborhoods" of specialists and facilities if needed.
The goal, according to Intel’s director of global benefits design, Tami Graham, is to "get at the core of quality vs. volume by paying for better care, coordination and collective responsibility, rather than just more services."
Several months into the new arrangement, Graham says, signs look promising. As of June 2013, 60 percent of the company’s New Mexico employees had enrolled in Connected Care, and 65 percent of those chose a Presbyterian practice to lead their care. Results will be closely monitored as more data become available later this year. Graham has high hopes.
"This is new, and it’s not easy," Graham says. "But we think employers are in a great position to influence health care. If you set things up so providers are paid for doing the right thing and you hold the system accountable, you can trust the system."
What Intel built—essentially an employer-sponsored accountable care organization (ACO) based on a patient-centered "medical home" model in which providers coordinate patient care—is one of the latest examples in a new wave of solutions for achieving cost-effective health care. And the company isn’t alone in testing the movement.
What Are ACOs? What Can They Achieve?
Accountable care organizations (ACOs) are provider-based entities that have come together with the shared goal of taking responsibility for improving the quality of care and reducing cost growth for a population. They have the potential to achieve better quality at lower cost by aligning incentives to promote coordination and transform health care delivery across the spectrum of providers that participate in a patient’s care.
Source: National Committee for Quality Assurance.
Ever since the Patient Protection and Affordable Care Act powered their creation, ACOs have been expanding their reach across the country and gaining traction among employers.
More than half of the U.S. population (52 percent) has access to these emerging medical care delivery systems, according to a 2013 analysis by management consulting company Oliver Wyman Group in New York City.
Leavitt Partners LLC, a Salt Lake City-based health care research organization that has tracked the growth of ACOs since 2010, estimates that there are 428 such organizations in 49 states. They have more than doubled in number since the start of 2011, says David Muhlestein, senior analyst at Leavitt.
"The implications for employers are that there are clearly more organizations out there starting to talk to employer plan sponsors, and they should expect that these conversations are now going on between their payers, insurers and providers," says Niyum Gandhi, a principal in Oliver Wyman’s health and life sciences practice.
Accountable care organizations are sponsored by many types of groups, but four primary sponsors have emerged:
- Hospital systems.
- Physician groups.
- Community-based organizations.
Employer interest in these models is spiking. According to a 2013 survey of nearly 800 employers by Aon Hewitt, 53 percent said moving toward provider payment models that promote cost-effective, high-quality health care will be a part of their future health care strategy. In fact, one in five identified the trend as one of their three highest priorities. And although just 14 percent of employers polled currently use models like patient-centered medical homes, 61 percent plan to do so in the next few years.
How It Works
Born of the health care reform law, the ACO model was adopted by the federal Centers for Medicare & Medicaid Services. Since 2012, the agency has contracted with more than 250 ACOs nationally to provide care to millions of Medicare beneficiaries.
During that time, ACOs have come to represent a value-based approach to delivering care in the private sector as well.
In contrast to a traditional fee-for-service model, a successful ACO that uses a patient-centered medical home provides incentives for cooperation and reduces costs by encouraging quality care rather than just more volume—in the form of more medical visits, services and tests. Providers assume more financial risk but also gain the opportunity to reap more financial reward for delivering better, more-coordinated care at a lower cost.
Generally, the model works like this: Partnerships of health care providers—typically primary-care doctors, specialists, hospitals and other facilities—agree to a set budget for serving all of the health needs of a defined group of patients. ACOs have incentives to keep patients healthy, efficiently treat those who are ill and help better manage those with chronic diseases. If costs fall below a set benchmark, ACOs share in the savings. If costs exceed the benchmark, some ACOs share in the losses. The contractual agreements are set based on the overall health of the population served, and payments are tied to quality measurements.
Critics Weigh In on ACOs
As benefits leaders continue to study, explore, test and analyze new ways of delivering and paying for employee health care, critics of accountable care organizations (ACOs) are waving some caution flags.
Although they aren’t a form of health insurance, accountable care organizations have some similarities to health maintenance organizations and other managed-care models, notes Families USA, a national nonprofit health care consumer organization in Washington, D.C.
Both models stress the importance of primary care, and both use payment incentives for providers who cut costs. In the past, this approach led some insurers and plan sponsors to close provider networks and limit patients’ choice of doctor.
“By denying coverage of services, there is a risk that poorly designed ACOs could pursue short-term savings by limiting access to care,” the organization warns in a recent issue brief, A Closer Look at ACOs.
Some observers put it more frankly. Clayton Christensen, a professor of business administration at Harvard Business School, has called accountable care organizations outright “latter-day health maintenance organizations.” The co-founder of the Clayton Christensen Institute for Disruptive Innovation, a San Francisco-based think tank focusing on health care and education strategies, has also predicted that “many of them will not succeed.”
Critics have raised concerns over costs associated with the development of accountable care organizations and patient-centered medical homes.
A 2011 American Hospital Association study of startup investment capital required to establish an accountable care organization found that the costs of the necessary elements to successfully manage patient care are considerably higher than the $1.8 million estimated by the Centers for Medicare & Medicaid Services in its proposed rule for startup and one year of ongoing operations.
Meanwhile, medical homes also may incur higher per-patient operating costs because of their spending on additional personnel, electronic medical records and quality improvement measures.
In a study of 669 federally funded patient-centered medical home health centers published in the July 4, 2012, Journal of the American Medical Association, researchers at the University of Chicago and the U.S. Department of Health and Human Services found that higher scores on a scale assessing six aspects of medical homes—such as care management, external management, patient tracking and test tracking—yielded higher operating costs.
Adding another layer of unease was an announcement in June 2013 by the Centers for Medicare & Medicaid Services that nine of the 32 Pioneer ACO Model participants, which serve Medicare patients, are leaving the program. Two organizations will no longer be Medicare ACOs. Seven intend to join Medicare’s Shared Savings Program, which allows ACOs to opt for a payment arrangement that doesn’t include the risk of financial losses if costs exceed targets.
Although the agency had anticipated some shifting between models, the action leaves open questions about accountable care organizations’ ability to achieve their desired goals.
A Work in Progress
“ACOs are still a work in progress, and their eventual success or failure is still to be determined—but their influence is already being felt,” says David Muhlestein, senior analyst at Leavitt Partners LLC. The rest of 2013 and 2014, he believes, may be pivotal in predicting their future.
“In 2013 many ACOs will complete their first year, and their early results will influence how payers, providers and policymakers then experiment with future iterations of accountable care. If the results are good, then the ACO model may become the dominant form of health care here over the next decade. If the results are negative, accountable care may never gain a permanent foothold.”
—Susan J. Wells
The patient-centered medical home is widely considered the foundation of an ACO because it’s the primary-care practice that gives patients the individualized care and support they need to get and stay healthy.
In a medical home, each patient’s plan "resides" in a central place. The patient, the primary-care doctor and a medical team work together to develop and implement a plan of care that details preventive screenings, optimal medication use, healthy diet, an exercise regimen, or other treatments to improve and maintain health. Insurance companies and other types of payers often agree to pay the primary-care practices a little extra per patient per month to provide this enhanced outreach, communication and coordination, with the expectation that the practices will meet certain performance measures for patient treatment and health.
Bringing the Concept Home
Pharmaceutical giant GlaxoSmithKline has offered its employees in the Research Triangle region of North Carolina a patient-centered medical home benefit, called the First in Health program, since 2012. Glaxo collaborated with not-for-profit Community Care of North Carolina, which garnered national recognition for an established medical home program for Medicaid patients in the state that saved nearly $1.5 billion from 2007 to 2009.
Drawing from that experience, Community Care established First in Health in 2011, providing medical home services to Glaxo and four other public and private employers.
The objective, says Rick DeOliveira, Glaxo’s director of U.S. benefits, is to show that by changing the way care is delivered and by increasing the focus on managing chronic diseases, outcomes can be improved and costs can be reduced.
"Community Care bent the cost trend of the North Carolina Medicaid population, so we’re eager to see whether that can translate to the [Glaxo] population as well," he says.
The program gives employees and their dependents a single point of contact to help coordinate their medical care, arrange care with other health professionals when necessary and house their health records electronically. Along with traditional fee-for-service payments to providers, Glaxo pays an additional $5 per medical home patient per month to provide that extra level of care. It also waives co-payments for primary-care doctor visits.
Glaxo will evaluate the program based on several measures, including rates of preventive screenings and office visits, emergency room visits, and performance against quality measures for clinical outcomes.
DeOliveira says 2,000 employees and dependents, or 15 percent of those who are eligible, are enrolled in the two-year pilot program, which could eventually serve as a model for other patient-centered medical home projects across the country.
"We are not going to deem this a success if a certain participation percentage is reached," he says. "We will deem it successful if better health is achieved."
Other employers, too, are testing the concept by collaborating with their regional business coalitions to drive health system change.
Three employers in the Cleveland area, for example—insurer Progressive Corp., specialty-chemicals manufacturer Lubrizol Corp. and the Lake County School District—are joining together through Health Action Council Ohio and Better Health Greater Cleveland. Health Action Council Ohio is a nonprofit health benefits purchasing coalition of private and public employers; Better Health Greater Cleveland is dedicated to improving health care, and its membership includes health care providers. The goal is to persuade a health system in Northeast Ohio to achieve patient-centered medical home recognition from the National Committee for Quality Assurance for all of its primary-care practices. The medical homes would serve workers from each employer.
The parties have agreed that in the future they will negotiate an arrangement in which the health system will share some of the savings that its medical home practices, assisted by employer-funded nurse care coordinators, are expected to generate.
Progressive’s chief medical officer, Dr. Tim Kowalski, is convinced that employees who receive care through medical homes have lower overall costs than those who don’t. He says the Ohio group is eyeing a 2014 launch. Progressive has five other medical-home-accredited onsite primary-care clinics in four states serving 8,000 employees.
"We’ve embraced the patient-centered medical home for a long time," Kowalski says, "because we’ve seen the positive impact on costs and health." Progressive draws 95 percent satisfaction ratings from those using its clinics and saves $1,200 in annual health care costs per participating employee. "We’re firm believers," Kowalski says, "and the corporate community is interested in finding a way to support it."
Building a Solid Foundation
With an approach that binds time-honored elements of the past (close relationships between patient and physician, akin to the Marcus Welby, M.D., television series character of the 1970s) to communication strategies based on modern technology (e-mail communication, electronic prescriptions and electronic medical records), the medical home model seeks to reinvigorate primary care and better manage patient health.
Perhaps no one champions this model more than Dr. Paul Grundy, IBM’s global director of health care transformation and founding president of the Patient-Centered Primary Care Collaborative, a 1,000-member coalition of employers, labor unions, hospitals and others advocating the model.
"The medical home is the heart of any value-based system," he says. "But it’s not easy to make the transformation. It’s tough to do the three things that we need done at once—that is, [putting] skin in the game for patients by transforming how benefits are designed; [transforming] how physicians work toward managing a population; and paying for outcomes. Yet it can be a profoundly powerful transformation."
In 2012, Grundy’s collaborative reviewed 46 medical home initiatives nationwide that were demonstrating cost savings and quality improvements for dozens of health systems, state Medicaid and Medicare programs, health plans, and purchasers. Overall costs and spending dropped, the report found, by reducing inpatient visits, emergency department use and hospital readmissions, among other factors.
In June 2013, the nation’s largest experiment in patient-centered medical homes, CareFirst BlueCross BlueShield, reported that it had reduced costs and improved quality of care even more in its second year than in its first. The nonprofit CareFirst launched its medical home program in January 2011 among primary-care providers serving about one-third of its 3.4 million members in Maryland, Northern Virginia and Washington, D.C.
Conducting a Home Inspection
Making sense of the growing numbers of accountable care organizations (ACOs) and patient-centered medical homes is becoming a Herculean task, experts say. Any evaluation should involve a “balanced scorecard” of comparative performance measures—with the data to back it up.
“We’re still in a situation in many markets where you can’t always tell just who is best driving quality,” says Niyum Gandhi, principal at Oliver Wyman Group.
In the fall of 2011, the National Committee for Quality Assurance, a nonprofit organization in Washington, D.C., that accredits and certifies a wide range of health care organizations, sought to bring some order to the chaos by launching an accreditation program for accountable care organizations.
“It rates how prepared ACOs are to deliver on their promise,” says Patricia Barrett, the organization’s vice president, product development. The benchmark is based on clinical quality measures, efficiency measures and patient surveys. It can help identify the health care delivery groups that are most likely to improve employees’ experience of care, improve population health and reduce costs, Barrett says. The accreditation program evaluates organizations based on seven factors:
- ACO structure and operations.
- Access to needed providers.
- Patient-centered primary care.
- Care management.
- Care coordination and transition.
- Patient rights and responsibilities.
- Performance reporting and quality improvement.
“Ultimately, there will likely be some sets of more-standardized guidelines and ratings, but these will take some time to develop,” Gandhi notes.
CareFirst reported cost savings of $98 million in 2012, compared with $38 million the year before. Most of the savings came from reduced hospital admissions, fewer emergency room visits and lower spending on drugs.
Major insurers including UnitedHealth Group, WellPoint, Aetna, Humana and Cigna are contracting with physicians nationally to operate under similar models of care.
More than 5,700 practices are now recognized as "patient-centered medical homes" by the main accrediting group, the National Committee for Quality Assurance.
"We’ve passed the tipping point with broad private- and public-sector support," contends Grundy, who began his IBM career in HR. "Employers should be asking themselves how they can look at their populations in terms of redefining the standard of care. They no longer have to feel stuck with the same old health plan of the past."
Susan J. Wells, a contributing editor of HR Magazine, is a business journalist based in the Washington, D.C., area.