ACA, ACOs and the Impact on Hospitals: Thoughts from California

By Don Crane, president and CEO
California Association of Physician Groups

The Supreme Court just upheld the Affordable Care Act, which contains provisions that support the formation of accountable care organizations and other delivery system models that have promise for improving value in health care delivery. The California Association of Physician Groups applauds this decision. We have long believed that care coordination and payment reforms are the building blocks for creating a healthcare delivery system that is efficient and achieves quality. With a small sigh of relief that the law stands in our favor, our groups will proceed with implementing delivery system reforms and will continue to work to ensure the success of their Pioneer and Shared Savings ACOS, as well as other delivery system projects already underway.

ACOs are taking shape all over the country in a variety of formations. The nation might want to make note that of the California organizations participating in Pioneer ACOs, all are physician groups, with one exception, Sharp, which has a nice interwoven arrangement between its two groups and multiple hospitals. At present none of the other Pioneer ACOs have a conspicuous hospital partner in their structure. In order for these groups to be successful as an ACO they will have to enter into contracts and work closely in a collaborative fashion with a strong hospital partner, which, at the outset, is not an equity holders in the ACO. This may be challenging.

Currently, all of the players in health care are trying to figure out where they fit in an evolving world — this new world of accountable care. Everyone wants to be relevant and do good work. That’s a common feature among hospitals, medical groups, individual physicians, health plans, and every other stakeholder.

But hospitals have a unique set of challenges. Generally (acknowledging that all generalizations are partially true and partially inaccurate), hospitals do not get paid via a pre-paid capitated methodology. Most of them are accepting DRGs for original Medicare and per diems for their commercial work. So hospitals by virtue of their business model are not well aligned with capitated physician groups.

The whole concept of the ACO movement is to reward providers for living within a budget. There are no longer unlimited dollars to pay for health care services. What is being tested today in the various Medicare and commercial accountable care programs is which payment methodology works best? Is the best payment method through shared savings, or partial capitation, or a movement to global capitation?  ow does a health care provider live and make a profit under shared savings or under capitation? Entrenched in a fee-for-service business model (where filled beds means more profit), hospitals will need to make a paradigm shift — and that’s probably doubly true outside of California.

Hospitals are reacting  to this movement with different kinds of physician integration strategies. One of them is to hire physicians, which is permissible outside of California. Another strategy is to acquire physician groups, which under California law is the more utilized strategy here. We are seeing that reaction occur at a pretty brisk pace.

A concern of many proponents of coordinated accountable care is that we don’t want to see the movement somehow stymied by hospitals whose strategy is to acquire all the physicians in the community and lock them into the old fee-for-service model through market power. However, I personally don’t believe that will happen for a number of reasons — the foremost of which is that the value lies in the coordination of physician care. Primary care and the ability to manage chronic diseases is almost predominantly the domain of physicians in physician groups and organized systems of physician groups.

In the end, that’s where the value of the Affordable Care Act and health care reform lies — in managing costly disease and preventing further disease — so that’s where the dollars will flow. We may be watching health plans and hospitals purchase physician groups, but in the end, to be successful,  the value will float to the top, therefore physician groups will float to the top. As go the physician groups, so will go the whole industry, in my opinion.

The accountable care movement and how providers will be paid within it will be an iterative process that will unfold over time. You will not see many instances where people will leap into full tilt capitation on day one. This will be a gradual evolutionary approach.

Clearly, models have developed over time that aren’t supportive of the Triple Aim of accountable care, that is, to improve population health, enhance the patient experience, and control the cost of care. Many of those old models are entrenched. The Supreme Court and the ACA have given us the reins create new models of care that address our national health care crisis and that also are good solutions for physicians, hospitals and others providers of care.

The country is asking a lot of providers to change the way they do business. Change is difficult. It’s costly. It’s inconvenient. It’s scary. There probably will be some winners and some losers. But at the end of the day, the reformed will produce better care and higher value. And there’s plenty of room for everybody to participate in it — individual physicians, health plans, and hospitals. There are roles for us all moving forward, and while it won’t be pain free or easy, over time, I believe, people will accept and adapt to the new model simply because it’s a better one.

Recent Posts
Robert Nesse, MD, CAPP Board Member