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Accountable Care Organizations and Physician Joint Ventures

Jeffrey P. Harrison

Chapter 9

“I will continue with diligence to keep abreast of advances in medicine. I will treat without exception all who seek my ministrations, so long as the treatment of others is not compromised thereby, and I will seek the counsel of particularly skilled physicians where indicated for the benefit of my patient.”

—from The Hippocratic Oath (modern version)

Learning Objectives

Demonstrate an understanding of the interparty relationships associated with healthcare joint ventures and accountable care organizations.

Understand some of the dynamics and controversies surrounding the concept of accountable care organizations as an alternative approach to the current marketplace.

Demonstrate a basic understanding of the patient-centered medical home with attention to how it supports network-based delivery systems.

Master the concept of physician–hospital alignment and health system integration including consumer, provider, and regulatory developments.

Assess the emerging role of medical groups and hospital-owned group practices across the continuum of healthcare services.

Key Terms and Concepts

Accountable care organization (ACO)

Clinical integration

Equity-based joint venture

Hospitalist model

Integrated physician model

Medical foundation

Patient-centered medical home (PCMH)

Introduction

A positive relationship between hospitals and physicians is important to the success of the US healthcare system, because hospitals and physicians can be both collaborators and competitors.

Many hospitals and healthcare systems have moved to various models of physician integration through which hospitals hope to capture market share and physicians seek financial security.

After the Affordable Care Act (ACA) was passed in 2010, physician–hospital alignment became driven by another factor: cost control and quality outcomes in the accountable care era (Reiboldt 2013).

Physicians work in a wide range of settings and serve in leadership positions that have significant responsibility for quality of care.

Clinical Integration

What Is It?

Coordination of patient care between hospitals and physicians across the healthcare continuum— e.g., an accountable care organization (ACO).

Provides an opportunity to coordinate services through centralized scheduling, electronic health records, clinical pathways, management of chronic diseases, and innovative quality improvement programs.

Clinical integration is necessary to delivering high-quality, affordable care in the current environment (Jacquin 2014).

Clinical integration facilitates access to expensive medical technology, allows for greater economies of scale, and enables subsidization of unprofitable services.

Clinical Integration

Physician and Hospital Relationships

Hospitals and physicians are inherently interdependent. Examples of this interdependence include the following:

The ability to recruit and retain quality physicians is critical to a hospital’s reputation, market share, and long-term profitability.

Most patients are admitted to hospitals because of physician referral.

Hospitals seeking to increase their market share would be wise to focus on improving their relationships with physicians (Reiboldt 2013).

Physicians rely on hospitals to provide facilities, state-of-the-art technology, and high-quality clinical staff.

Exhibit 9.1: Trends in Medical Budget Spending for Average US Family

Patient-Centered Medical Home (PCMH)

The PCMH is a care delivery model where a primary care physician coordinates patient treatment to ensure that it is timely, cost-effective, and personalized.

The term home does not refer to a physical place for patients to live. It reflects the idea that patients are comfortable with their medical care because they know the team, because the team is focused on safety and quality, and because care is accessible on demand.

The goal is primary care for Medicare and Medicaid patients at a lower cost.

The PCMH was designed to focus on individual patients with complex conditions who were disconnected from the healthcare system.

The PCMH helps patients navigate the continuum of care (see Exhibit 9.2).

Source: wordpress.com(2014)

Patient Centered-Medical Home (PCMH)

Shift care to outpatient settings using a team-based approach to make optimal use of nonphysician caregivers.

The multidisciplinary approach to care should maximize the clinical outcomes for patients with complex conditions and enhance wellness and prevention.

Emphasizes ease of access, partnerships between physicians and hospitals, and the use of innovative technologies to improve patient care.

Adoption has been shown to decrease readmissions, emergency department visits, and length of hospital stays. Reimbursement penalties for poor readmission rates could reduce Medicare costs by $8.2 billion between 2010 and 2019 (CMS 2010).

Exhibit 9.2: PCMH and the Continuum of Care

PCMH—Organizes team members to coordinate care across the continuum and avoids duplication of efforts

Potential Structures for Physician–Hospital Integration

Accountable care organizations, medical foundations, hospital-owned group practices, and joint venture initiatives are all potential solutions for economic challenges.

Development of a formal, board-approved physician–hospital alignment plan can help hospitals achieve this goal.

Useful objectives in an alignment plan (Zeis 2013):

Physician engagement in strategic planning

Development of an organizational culture that supports physicians

Improved communication with physicians

Increased emphasis on physician retention

Investment in physician leadership development

What Is an ACO?

Accountable care organization (ACO) is a group of healthcare providers, hospitals, and organizations who come together voluntarily to provide coordinated care.

Established by the Affordable Care Act of 2010.

ACO models have changed over time but have been consistently aimed at improving quality at a lower cost.

The Centers for Medicare & Medicaid Services (CMS) uses a calculated benchmark to pay the ACO for the service. When the ACO succeeds in both delivering high-quality care and spending healthcare dollars more wisely, the amount paid will be greater than expenses.

Accountable Care Organizations

History

CMS sponsored the Pioneer ACO model starting January 1, 2012, with 32 organizations. After some organizations dropped out of the experiment, 19 ACOs remained and were compared to similar populations of Medicare beneficiaries (in terms of age, race, and chronic illnesses).

During Pioneer ACOs’ first two performance years, CMS found that the Pioneer spending increase was approximately $385 million less than spending on similar FFS beneficiaries.

Outcomes were due to decreased hospitalization and decreases in primary care as well as office visits. There were small increases in the use of diagnostic tests, procedures, and imaging services.

ACO Statistics

585 ACOs in 2015—12% increase from 2014.

5.6 million Medicare beneficiaries (11% of Medicare population) received care from ACO.

35 million non-Medicare patients received care from ACO (6% increase).

49–59 million Americans served by ACO’s (15-17% of the population).

⅔ of Americans have access to at least one ACO; more than ½ have access to two ACOs (Oliver Wyman 2015).

ACOs and Standardization

Integration presents opportunity for standardization across providers and sites:

Centralized scheduling

Shared technologies—i.e., EHR

Coordinated care

Quality improvement initiatives

Standardization increases efficiency, which increases quality.

Accountable Care Organizations

Downsides

ACOs cannot require patients to use a particular set of providers.

Regulators worried that providers would game the system by denying costly care.

Providers face added financial risks that may be impossible to control.

Providers do not know if they might have overusers or noncompliant patients, nor can they focus additional incentives or resources on participants to influence their health behavior.

Regulators were also concerned about the requirement to meet benchmarks for quality measurement, governing structure, and information transmission.

The administrative costs could add millions to expenses, and whether the expected savings will offset the additional costs is unclear.

Medical Foundation

Medical foundation model: Arrangement under which independent physicians sell their practices to a medical foundation and then contract with the foundation to provide professional services at the foundation’s practice sites.

A foundation is typically a not-for-profit corporation affiliated with a hospital.

This arrangement allows hospitals and health systems to create not-for-profit legal entities to employ physicians.

It provides flexibility for hospitals seeking to employ physicians and other providers directly.

The medical foundation model allows physicians to be more independent than hospital-employed physicians and is a strategy for improving physician–hospital relationships.

Medical Foundation

Medical foundations have been successful at recruiting physicians and establishing clinics.

Opposition to medical foundations is growing among individual physicians, small practices, and loosely affiliated independent practice associations.

This opposition is growing because hospitals and physicians can jointly participate in managed care contracts under this model, thereby gaining greater market share and more business.

This situation increases competitive pressures on individual physicians in small-group practices because they have a limited presence in the overall marketplace.

The medical foundation model remains attractive to young family-practice physicians just out of their residency training because it provides them adequate compensation, and they do not have to make significant investments in facilities and technology (the clinics furnish these essentials).

Hospital-Owned Group Practice

Hospital acquisition of medical group practices began in the 1990s as healthcare organizations created integrated delivery systems.

A primary motivation was to gain market share in the local community.

Primary care practices were the first type of physician group that hospitals sought to purchase.

Today, hospitals may purchase a variety of practices, including cardiology groups, orthopedic groups, and neurosurgery groups.

Hospitals that purchase medical groups can improve integration, expand patients’ access to care, and foster long-term relationships with their patients and physicians.

Medical groups might wish to sell their practices as a result of the growing complexity of medical group management and increasing operating costs.

Hospital-Owned Group Practice

Statistics

In 2015, 63 percent of physicians said they were employed by hospital-owned medical groups.

Less than a third (32 percent) were in private practice.

In 2015, the average compensation for a primary care physician was $195,000, and the compensation for a specialist was $284,000.

For physicians in private practice, compensation includes earnings after taxes and deductible business expenses.

The lowest earners were pediatricians ($189,000), family physicians ($195,000), and endocrinologists and internists (both at $196,000) (Peckham 2015).

Since employing physicians is a growing part of a hospital’s strategic plan, planners must take into account physician compensation.

Hospitalist Model

The hospitalist model requires a patient’s outpatient physician to transfer responsibility for the patient’s care to a dedicated inpatient physician (hospitalist) when the patient is hospitalized.

This hospitalist physician supervises all of the patient’s inpatient care until discharge.

Hospitalist physicians can be hospital employees or members of an independent hospitalist physician group.

In 2012, there were approximately 30,000 hospitalists in the United States, an increase from 20,000 in 2008, making hospitalists the fastest-growing medical specialty (AAMC 2012).

Hospitalist

Impact

Hospitals using the hospitalist model had a return on assets of 3.1 percent, whereas those not using the hospitalist model had a financial loss, with a return on assets of −1 percent.

One study showed those hospitals with a hospitalist model had decreased length of stay, decreased payment denial by 2 percent in spite of increased admissions, and increased average reimbursement per patient day by 22 percent.

The rapid growth in hospitalist physicians shows that organizations that have implemented a hospitalist program believe it enhances the efficiency and quality of care they provide.

Hospitalist

Strategic Plan

Consider hospital size to determine whether a given model is appropriate or feasible.

Hospitalists are more prevalent in large, complex hospitals that offer a wide range of clinical services.

Hospitalist physicians are critical to the coordination of inpatient care across multiple clinical service areas.

Smaller hospitals offering fewer inpatient services should consider implementing the hospitalist model because it improves quality and efficiency.

It can help smaller hospitals better manage inpatient workload when a limited number of specialists are available.

Joint Venture Initiatives

Joint ventures are created when two organizations create a legal entity to participate in an economic activity.

Each party contributes money or other value and shares in its profits.

Increased innovation combined with new hospital–physician enterprises allows synergistic benefits such as shared technology, collaborative research, shared expertise, and increased market share.

The legal processes required to establish joint ventures fall on a continuum ranging from merger to affiliation.

On the left side of the continuum, for mergers and acquisitions, these characteristics are less important because one party is usually the controlling party.

On the right side of the continuum, there must be similarity in those characteristics (from strategy and vision to operational and financial goals), or the chance of eventual breakdown or failure of the joint venture increases.

Exhibit 9.3 Hospital–Physician Joint Ventures

Equity-Based Joint Ventures

Equity-based joint venture: Organization whose ownership is divided between a hospital and physicians on the basis of their contributions to the enterprise.

Focuses on complementary relationships among physicians, hospitals, and suppliers.

From a hospital’s perspective, a joint venture does not always have to generate a profit because other benefits may accrue to the organization.

Where hospital–physician joint ventures have not succeeded, the greatest problems were lack of trust, unequal contribution of capital, and disagreement on overall control (Zasa 2011).

To prevent such problems, all parties must agree on the goal, strategic direction, and anticipated financial performance of the joint venture before embarking on it.

Physicians and Hospitals

Hospital strategists may opt to directly hire physicians.

Physician employees are more likely than independent physicians to stay with their hospital employer over the long term.

The disadvantages of physician employment include the high cost of recruitment and increased ongoing costs for salary and benefits.

An integrated physician model is the result of a series of partnerships between hospitals and physicians developed over time.

Essentially, it is a combination of many joint ventures, which are connected through congruent goals.

Summary

Hospital–physician integration can take many forms.

The employment of physicians by hospitals and health systems is a growing trend.

Recent innovations such as PCMHs and ACOs illustrate a growing commitment to managing across the continuum of care.

Outside of the government sector, many healthcare leaders believe that increasing clinical integration and coordination of strategic planning between hospitals and physicians are necessary to improving healthcare.

Large, integrated healthcare delivery systems will be better able to deal with future healthcare needs because they have greater access to capital and deliver clinically integrated care.

Questions

Harrison

References

Agency for Healthcare Research and Quality (AHRQ). 2015. “Defining the PCMH.” Accessed September 7. https://pcmh.ahrq.gov/page/defining-pcmh.

Association of American Medical Colleges (AAMC). 2012. “Estimating the Number and Characteristics of Hospitalist Physicians in the United States and Their Possible Workforce Implications.” Association of American Medical Colleges 12 (3): 1–2.

Centers for Medicare & Medicaid Services (CMS). 2015. “Accountable Care (ACO) General Information.” Updated August 31. http://innovation.cms.gov/initiatives/aco/.

———. 2014a. “CMS Releases New Proposal to Improve Accountable Care Organizations.” Published December 1. www.cms.gov/Newsroom/MediaReleaseDatabase/Pressreleases/2014-Press-releases-items/2014-12-01.html.

———. 2014b. “Methodology for Determining Shared Savings and Losses Under the Medicare Shared Savings Program.” Published April. www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/ACO_Methodology_Factsheet_ICN907405.pdf.

———. 2010. “Affordable Care Act Update: Implementing Medicare Cost Savings.” Accessed September 7, 2015. www.cms.gov/apps/docs/aca-update-implementingmedicare-costs-savings.pdf.

Harrison, J. 2006. “The Impact of Joint Ventures on US Hospitals.” Journal of Health Care Finance 32 (3): 28–38.

References

Harrison, J., and R. Ogniewski. 2004. “The Hospitalist Model: A Strategy for Success in US Hospitals?” The Health Care Manager 23 (3): 310–17.

Herzberg, R., and C. Fawson. 2012. “Accountable Care Organizations: Panacea or Train Wreck?” National Center for Policy Analysis. Published August 14. www.ncpa.org/pub/ba769.

Hurtado, M., E. Swift, and J. Corrigan (eds.). 2001. Envisioning the National Health Care Quality Report. Washington, DC: National Academies Press.

Jackson Healthcare. 2013. Filling the Void: 2013 Physician Outlook and Practice Trends. Accessed December 22, 2014. www.jacksonhealthcare.com/physiciantrends2013.

Jacquin, L. 2014. “A Strategic Approach to Healthcare Transformation.” Healthcare Financial Management April 1, 74–79.

Lundberg, S., P. Balingit, S. Wali, and D. Cope. 2010. “Cost-Effectiveness of a Hospitalist Service in a Public Teaching Hospital.” Academic Medicine 85 (8): 1312–15.

Milliman. 2013. “2013 Milliman Medical Index.” Published May 22. http://us.milliman. com/uploadedFiles/insight/Periodicals/mmi/pdfs/mmi-2013.pdf.

———. 2008. “2008 Milliman Medical Index.” Published May 1. http://us.milliman.com/ insight/Periodicals/mmi/pdfs/2008-Milliman-Medical-Index/.

References

Moses, H., D. H. Matheson, E. R. Dorsey, B. P. George, D. Sadoff, and S. Yoshimura. 2013. “The Anatomy of Health Care in the United States.” Journal of the American Medical Association 310 (18): 1947–63.

Nyweide D. J., W. Lee, T. T. Cuerdon, H. H. Pham, M. Cox, R. Rajkumar, and P. H. Conway. 2015. Association of Pioneer Accountable Care Organizations vs Traditional Medicare Fee for Service with Spending, Utilization, and Patient Experience.” Journal of the American Medical Association 313 (21): 2152–61.

Patient-Centered Primary Care Collaborative (PCPCC). 2015. “History: Major Milestones for Primary Care and the Medical Home.” Accessed September 7. www.pcpcc.org/content/history-0.

Peckham, C. 2015. Medscape Physician Compensation Report 2015. Published April 21. www.medscape.com/features/slideshow/compensation/2015/public/overview#page=1.

Phillips, R. L., M. Han, S. M. Petterson, L. A. Makaroff, and W. R. Liaw. 2014. “Cost, Utilization, and Quality of Care: An Evaluation of Illinois’ Medicaid Primary Care Case Management Program.” Annals of Family Medicine 12 (5): 408–17.

Reiboldt, M. 2013. “Physician-Hospital Alignment in 2013: 17 Trends.” Becker’s Hospital Review. Published August 30. www.beckershospitalreview.com/hospital-physician-relationships/physician-hospital-alignment-in-2013-17-trends.html.

Starfield, B., L. Shi, and J. Macinko. 2005. “Contribution of Primary Care to Health Systems and Health.” The Milbank Quarterly 83 (3): 457–502.

References

Wyman, O. 2015. “Accountable Care Organizations Now Serve Between 15 and 17 Percent of the United States, According to New Research from Oliver Wyman.” Business Wire. Published April 27. www.businesswire.com/news/home/20150422005203/en#.VTl6NaN0yM8.

Zasa, R. J. 2011. “Physician-Hospital Joint Ventures; Alignment of Physicians with Hospitals.” Becker’s Hospital Review. Published September 8. www.beckershospitalreview.com/hospital-physician-relationships/physician-hospital-joint-ventures-alignment-ofphysicians-with-hospitals.html.

Zeis, M. 2013. “How the Dynamics of Physician Alignment Are Changing.” HealthLeaders Media. Published September 13. http://healthleadersmedia.com/page-3/FIN-296271/How-the-Dynamics-of-Physician-Alignment-Are-Changing.