Healthcare Reform and Accountable Care Organizations (ACOs)

Healthcare Reform: The Rise of Accountable Care Organizations (ACOs)
By Christopher K. Lee

Healthcare reform ideas are beginning to manifest into action. Among these developments is the formation of Accountable Care Organizations (ACOs). An ACO is “a local network of providers who agree to manage the full continuum of care for all patients within their network and share any savings and risks involved” (American Academy of Family Physicians, 2012). ACOs may include combinations of solo or group practices, hospitals, health clinics, and other entities. On July 1, 2012, 89 new ACOs began serving 1.2 million Medicare beneficiaries across 40 states and Washington D.C.

Although the Centers for Medicare & Medicaid Services (CMS) advocate organizing ACOs, adoption of the model may be prolonged. Due to the capital and infrastructure required, as well as the risk involved, most ACO pioneers will be hospitals and health systems. Many, however, lack the network of primary care doctors necessary to capture the potential of ACOs. Consequently, they are approaching physicians with practice acquisition offers.

Quality, Efficiency, and Coordination

The ACO model aims to advance three focuses of healthcare reform: care quality, efficiency, and coordination. Ultimately, the goal is to develop an integrated and sustainable healthcare system. Therefore, proper documentation of both clinical and administrative processes is necessary. Medicare ACOs must comply with 33 quality measures established by the CMS to participate in shared savings. These measures promote efficient usage of physician time and resources. Doctors will need to practice with greater financial and clinical considerations. One particularly important measure is the meaningful use of electronic health records (EHRs), which allows the coordination of patient care across clinical settings. EHRs ensure that patients receive comprehensive care and prevent needless duplication of procedures.

Major Transitions in Payment and Practice

ACOs will herald two major transitions in the healthcare system. First, the fee-for-service model will be replaced by value-based (bundled and global) payments. Bundled payment refers to reimbursement based on expected costs of clinically-related episodes of care. They have been proposed as a compromise between fee-for-service reimbursement and capitation. Global payment covers the care patients may receive within a period of time. New financial arrangements require a paradigm shift in clinical practice. While doctors are currently rewarded for performing more procedures, new payment structures will compel them to provide minimal-yet-effective care. In this way, the ACO model seeks to eliminate overutilization and defensive medicine.

The second transition involves a greater emphasis on population-based primary care. For healthcare reform to be sustainable, the focus needs to shift from specialty services to preventive care. Expensive procedures and imaging must be reserved for cases which require them. Demand for primary care providers and practices will escalate over the next decade. As mentioned, hospitals and health systems are purchasing primary care practices to establish ACOs. If a hospital entity seeks to acquire your medical practice there are several issues you should first consider.

Issues to Consider

1. Your goals – Do you want to sell your practice? If so, do you plan to retire or continue working?

2. Your motivations – Are you seeking financial security or lifestyle changes?

3. Your options – If you decide to sell your practice, the hospital ACO offer is not your only option. Have you consulted a medical practice broker about marketing to other potential buyers?

4. Your practice worth – Are you getting a fair offer? The worth of most medical practices comes from their goodwill. Yet hospitals often will not pay for intangible assets. Has a certified medical practice appraiser valued your practice?

5. Your employment terms – If you accept the hospital ACO offer, how much autonomy would you exercise? What would be your financial and clinical responsibilities?

6. Your compensation – During the transition to value-based payments, employed physicians may need to work more to maintain their income. How would you be compensated under hospital employment? Would you participate in shared savings and shared costs?

These, among many other questions, must be considered when approaching a business combination or alliance with an Accountable Care Organization. Each medical market will present a unique set of dynamics and challenges for healthcare practitioners. A critical step in preparing for inevitable change is the development of a robust business strategy which is most applicable to your medical practice and specific market.

Christopher K. Lee is a valuation analyst and healthcare business strategist with Transition Consultants. He works on healthcare business appraisal and hospital integration projects, nationwide, and is a frequent contributor on editorial topics including healthcare reform.

Transition Consultants is a medical practice transaction advisory and appraisal firm. We are your advocate in navigating the post healthcare reform environment. For over 30 years, our associates have guided doctors in make well-informed decisions regarding the sale of their practices, hospital integrations, mergers and acquisitions. We have negotiated thousands of transactions involving solo and group practices, hospitals, and health systems. Transition Consultants is well-positioned to guide our clients through impending changes related to health reform and the Patient Protection and Affordable Care Act. Our organization remains fully committed to client success throughout the constantly-changing health services market. Whether you are evaluating a practice acquisition offer or contemplating retirement, Transition Consultants will ensure results for your goals and motivations. Call us at 800-416-2055 for a complimentary consultation.

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