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ACOs update: Three likely payments

July 15, 2011
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And now we wait. The comment period for the Centers for Medicare & Medicaid Services' proposed rules on Accountable Care Organizations (ACOs) ended in June amid a relative cacophony of alarms raised by major hospital and physician groups in the late spring months. The American Hospital Association said CMS underestimated ACO startup costs—that the first year cost incurred to hospitals would not be $1.8 million, but likely $11 million to even as high as $26 million. The American Medical Association requested ACO final rules be classified as interim final rules, allowing for further commentary and revisions to be made. But what does this noise mean to post-acute care providers?

Long-Term Living Editor Kevin Kolus spoke with Kathleen Griffin, PhD, national director of post acute and senior services at consulting firm Health Dimensions Group, and an expert on integrated health systems, about what to expect when the final rules are published.

What do you see as the potential ACO payment options available to post-acute care providers?

Griffin: I've talked with various fully capitated physician groups, and also healthcare systems that have already developed an ACO even though it's not a Medicare ACO, and it seems like there are a few ways that they are paying.

The most common way is how the managed care organizations are paying now, with a number of certified days and a number of dollars per day based on risk and acuity for the different types of admissions to the sub-acute unit. The certification for the number of days is clearly much shorter than our average length of stay under Medicare fee-for-service, which is about 18-20 days throughout the country for short-term Medicare patients. When we look at the capitated managed care payment, we're typically seeing a certification of somewhere around 7-12 days.

Kathleen griffin, phd
Kathleen Griffin, PhD

We've been speaking with a healthcare system that is in the process of developing its components to become an ACO right now for insurance payment, but will eventually transition into a Medicare ACO, and they've formed a relationship with a proprietary post-acute provider that furnishes a continuum of care. They have long-term acute care (LTAC), sub-acute care, skilled nursing levels of care, home health, hospice. This particular health system is looking at a

bundled payment for all of post-acute care with the exception of the home-based offering.

The third method could be a shared savings amount, and the way I see that maybe happening is that the post-acute care provider, the sub-acute care provider, would continue to be paid under the Medicare fee-for-service basis but most likely have fewer days of care. There will be the opportunity to have some bonus payment if the overall costs of care for the group of Medicare beneficiaries attributable to the ACO come in at below the trigger amount and there's enough savings to share.

Those are basically the three different types of payments I see either occurring now or will be occurring in the future. I think an adjusted per diem based on patient acuity with a certain number of days certified is going to be the most common way of being paid, at least initially. Over time, I believe there is the opportunity for shared risk agreements, and the bundled payment is going to be pretty unusual, at least for the near-term future.

Is it in post-acute providers' best interest to be positioning themselves for ACOs?

Griffin: You already have many ACOs in place that have not applied to be Medicare ACOs because we don't have any final rules. The point is regardless of what Medicare comes out with, the insurers—Medicare advantage plans and insurers—are already looking for shared-risk contracts with selected healthcare systems. So should post-acute providers wait? Well, if they wait, they may be out of luck.

The issue is unless you happen to have a great reputation or you're the only one around, it will be highly unlikely that you're going to be selected by the hospital systems. You'll need to start knocking on doors to make sure that they know who you are and what you have to offer.

In some metropolitan areas, there are major forward-thinking post-acute providers who've approached the healthcare systems that appear to be moving toward ACO status, and it's not like the hospital systems are looking for additional people. For example, the Methodist Hospital System in Houston began its preferred provider relationship program a number of years ago even before it began to contemplate becoming an ACO. Out of 150 skilled nursing facilities in the Houston area, the Methodist Hospital System has a preferred provider network that started out with 26 providers and now it's down to 24. And it's not planning on adding any more. Those 24 are getting more than 50% of its Medicare patients and that's going to be a growing number, which means that the other 126 facilities in the Houston area are getting the other 50%.

Right now, skilled nursing facility providers, sub-acute providers, rehab hospitals, LTACs and home health agencies should all be looking at who they want to partner with and be preparing themselves to be good preferred partners. What you find in various cities is that certain health systems are way ahead of the curve in creating the infrastructure for ACOs. Then you have other hospitals saying we're going to wait and see. What's going to happen to these other hospitals? We don't know yet, but the prediction is there will be some closures.

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