No governmental or private effort at comprehensive healthcare reform can succeed without more closely aligning the interests of physicians and hospitals in order to promote better patient care and control costs. Much of the effort to align these interests over the last few years has involved the acquisition of physician practices by hospitals and healthcare systems.  It is too early to see if this recent wave of practice purchases will make long-term sense for both parties. Moreover, this approach still has its limits as many physicians are not willing to give up their independent practices. As a result, payors, hospitals and physicians are beginning to explore other models of alignment and integration.

One of the most promising models for greater hospital and physician alignment involves private pay accountable care organizations (“ACOs”), particularly ACOs focused on a specific patient population with common characteristics such as a chronic disease like diabetes or kidney failure. Although Medicare ACOs have been routinely rejected because of the myriad of problems with the final Medicare regulations for ACOs, private pay ACOs are not subject to most of these regulations. 

Loosely defined as organizations of multiple providers which share responsibility for the care and costs associated with particular groups of patients, ACOs offer the ability to increase aligned incentives among hospitals, physicians and other provider types and to promote a greater focus on patient outcomes rather than the amount of care provided. Most involve a system of “shared savings” whereby the participating providers split some portion of the savings achieved with the overall payor for the total cost of the care.

Former Health and Human Services Secretary and Utah Governor Michael Levitt is one of the most vocal advocates of private ACOs and the potential such organizations or models have for fundamentally improving healthcare. In the keynote address at the most recent Accountable Care Organization Summit, Governor Levitt made clear that private ACOs are a key area of focus for employers, payors and providers in continuing efforts to lower healthcare costs and improve quality.

Nationally, there are some encouraging examples of successful private ACOs. In at least eleven markets, physicians, hospitals and insurance companies have banded together under a "shared risk" payment model. The relevant contracts pay physicians and hospitals a portion of the reduction in care costs but also incorporate penalties if the costs actually increase. Several of the ACOs are centered around a population with chronic long-term health problems such as diabetics or cardiac patients. These examples involve Blue Cross/Blue Shield plans in Massachusetts, North Carolina and New Jersey as well as WellPoint.

Alternatively, some 34 private health plans now offer "shared savings" models where physicians and hospitals are bonus-eligible but not at risk for any penalties as a result of increased costs.  Different private ACO options involve "partial capitation" in which hospitals and physicians receive negotiated payments per enrolled patient as well as some additional fee for services reimbursement. These models do not typically involve additional payments for achieving certain overall cost reduction targets.

Other insurer-initiated models are also in place. BlueCross/BlueShield’s Patient-Centered Medical Home Initiative has four million patients in almost 40 states. It appears that this program has decreased emergency-room visits and inpatient treatments without compromising the quality of care. Under another model, Aetna has placed nurse managers in physician practices in order to coordinate care for many of its elderly patients with a resulting significant reduction in both hospital days and overall care expenses. Of course, any viable option needs to reward hospitals for their participation in the arrangement and to compensate such hospitals for the better outcomes achieved by any reduction in bed days.

Several Birmingham area hospitals are currently developing integrated physician and hospital networks in order to achieve quality and cost-containment goals. In these networks, independent physicians and the hospital on whose medical staffs they serve, are banding together to contract for care to specific populations. Antitrust requirements mandate that these networks incorporate significant clinical integration between the hospital and the physicians in order to contract on behalf of all of the providers. Initially, it is likely that these networks may concentrate on care for the employees of the involved hospital and their group practices. However, in the future they may seek to market their services directly to employers.

All of these new approaches require physicians and hospitals to work together more closely and to develop greater transparency and accountability. These arrangements have the potential to produce fundamentally better outcomes and lower costs without the prospect of greater government regulation and coordination. Ultimately, these new models, if they can achieve their objectives, have to be good for the patients and those who serve them.

 

Colin Luke is a partner with Bradley Arant Boult Cummings, specializing in health law.