ACO’s are a Path, not a Destination

If you’ve ever had to ‘sell’ the idea of an ACO gain share model to your Hospital CFO, then his/her response is likely all too familiar: “OK, so you’re saying that we’ll see reduced revenue to the hospital – let’s say it’s $10 million – and Medicare will keep the first 2%. So that leaves nine and change, and then we’ll pay for infrastructure, so that’s like $4 million or so, and split what’s left with the doctors, so we’ll keep just over $2 million…but since my overhead costs on that same volume is $4 million – we’ll have a net loss of $2 million…do I have that right?”

You fidget in your chair, realizing this is not going as well as you pictured in your head, “Um, well yes, but you see”

“Get out of my office!”

OK, so maybe it went a little better, but only if you were able to explain the real reason to participate in a Medicare ACO.

The Centers for Medicare and Medicaid Services (CMS) have been remarkably clear that the era of fee for service is coming to an end. Bundled payments, capitation, and outcomes-based compensation will be continuing to come at providers in an accelerated pace. So whether we like it or not, we have to get good at managing care. More specifically, we need to understand that volume – that translates to revenue necessary today to keep the lights on, make payroll and deliver bond payments – will be pure expense in the next few years.

The CFO was right. The ACO model is like telling your hourly staff, “Hey, reduce your hours and for every dollar we save, I’ll give you 20% of the savings.”  Most people can’t do it and still make their mortgage payments. If instead you said, “So here’s the deal. I’m moving you to a salary at 80 your current take-home pay (capitation?) to get your work done. So if you can get it done in 10 hours or 40 hours – I don’t care, you still get paid.” While your employee may not be happy, they will likely adapt. They’ll look at their calendar and decide that there are some meetings that they attend that don’t help them with their workload – you might call these ‘unnecessary services’. They’ll verify that the work they are doing wasn’t already completed by another colleague, reducing ‘duplicative services’. They’ll find new ways to communicate, rather than spending four hours a day on email, thereby ‘reducing administrative burdens’. They’ll likely look for new and better ways to accomplish their work by pursuing ‘innovation’ and you can bet they will learn from others the best way to get their work by ‘adopting best practices’.

Shared Savings is the wrong lexicon. The true benefits in developing an ACO is the ability to tear away the arcane structures that have misaligned incentives across the care continuum, and justifying investments in the people, the tools and the processes that are essential to preparing for a world of clinical and economic accountability.  How can we value shared governance today, while we are still tied to the yoke of FFS? Well, we can’t unless we see this as the essential ingredient to create true collaboration among hospitals, physicians and other care givers.

Had our mythical CFO had a few more minutes before talking with the bond rating agency, we might have made the case that investing in these intangibles is as critical as the next building project to upgrade our care delivery capabilities. In the same way that we expect returns on our investments of hard assets, we should also challenge ourselves to forecast reasonable ROI for the capabilities we need to manage whole populations in a fix payment world. 

The ACO provides a relatively safe harbor to run sea trials on the ship that will be required to carry us through the storm of transformation that is coming our way. So, the ACO can’t be a project for a small team of people in the back rooms of the office, it has to be a core element of the corporate strategy with the time, attention and focus that would be place on any other strategic development.

The CFO’s shouldn’t just roll over and accept the pet project of some EVP, but instead ask the tough questions on when this thing called the ACO will return the investments that need to be made to ensure the long term future of the organization. Instead the CFO might say, “Ok, wait a minute, there’s got to be more to this than what’s on the surface – I’m cancelling my next meeting – we need to get this right.”

You sit back, suppress a smile and think ‘now we’re talking’.

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