Hospitals and doctor groups are flooding the U.S. Centers for Medicare and Medicaid Services with applications to form accountable care organizations for Medicare patients. Insurance industry experts said the wave comes in part because providers hope to be at ground level as the U.S. health care market grapples with a new model for treating patients.
But with the majority of ACOs still in their infancy, questions remain about the risks facing the new entities and what coverage ACOs need to carry to guard against those risks.
Under a typical ACO, groups of doctors, hospitals and other health care providers team up to coordinate medical care for a population of patients. Providers are required to meet cost benchmarks for the population as a whole and are held to a series of quality requirements, including limits on readmission rates. When an ACO succeeds in delivering high-quality care and reducing health care costs, providers are able to share in the savings.
The private market began experimenting with the ACO model several years ago as a way to drive down the cost of health care. The Affordable Care Act included provisions designed to apply the ACO model to Medicare as a way to rein in the program's spiraling budget problems.
So far this year, CMS has approved 106 ACOs to treat Medicare patients, bringing the total number to more than 250. CMS said in a statement that approximately 4 million Medicare patients will be treated by ACOs already approved by the agency. Federal savings from the ACO initiative could be up to $940 million over four years, CMS said. Holly Meidl, Marsh USA's national health care practice leader, said CMS is on pace to approve as many as 600 ACOs by the end of the year.
Commercial ACOs that treat non-Medicare patients are harder to quantify because they do not have to submit applications to CMS. However, health care research firm Leavitt Partners has identified 449 ACOs and ACO-like organizations.
"Every hospital in America has probably been approached about forming an ACO. But whether they decided to form 50 or two or none, it's hard to say," Meidl said. "It's kind of the Wild West right now."
She said she has advised ACO clients to purchase directors and officers liability coverage as well as error and omission liability policies because the structure of doctor-hospital partnerships could open ACOs up to lawsuits questioning strategy and medical decisions. Meidl said cybersecurity is another area where ACOs could face increased exposure.
"We're moving to a world where a patient's medical information is being shared across providers, platforms, devices. That raises a lot of privacy concerns and vulnerabilities to risk," Meidl said.
While Meidl said the insurance marketplace is prepared to address those concerns, there are areas where products simply may not be available to cover all of the potential risks. Meidl said she has spoken to owners of ACOs who said they were worried about exposure to compliance and regulatory oversight risks.
"The government is going to be looking for ways to enforce regulations in order to realize cost savings for Medicare. Fines and penalties will quickly pay for those enforcement efforts," Meidl said. "Beazley, Allied World and Ironshore have some experimental products. But there is very little coverage for that kind of risk."
ACOs still represent a small portion of health care spending, Meidl said. But accountable care is increasingly viewed as a way to reduce medical costs.
Meidl said the ongoing budget battle in Washington has spurred interest in ACOs that treat Medicare patients. "The Medicare Shared Savings Program was the only part of the ACA that attempted to deal with the cost of health care in a real way," Meidl said. "Some hospitals may not want to move away from the fee-for-service model right now. But more are starting to realize that there may be benefits that come from getting in early on ACOs to help shape them going forward."
Meidl said the very newness of ACOs has "raised a host of questions about how to track potential risks and how to buy coverage to handle them."
Charles Kennedy, who heads Aetna Inc.'s aligned care solutions division, said ACOs are operating as a fee-for-service model, "but there is a cost-sharing component across a population of patients," Kennedy said. "That is a key motivator for physicians to identify patients who aren't getting the care they need to treat a costly, otherwise preventable illness."
Aetna has made expanding its ACO business a key part of its business strategy.
Kennedy said Aetna currently provides health coverage to 20 "full-fledged" ACOs and has 70 clients he described as "collaborations that are in the initial stages of becoming ACOs." Kennedy said Aetna's ACO business brings in roughly $1 billion in revenue.
In June, Aetna and Northern Virginias Inova Health System announced the launch of a joint ACO venture, becoming one of the first insurer-hospital partnerships in the country. Also last year, Aetna agreed to acquire Coventry Health Care Inc. (NYSE: CVH) in a deal valued at $7.3 billion as it worked to expand its presence in the government-sponsored health market (Best's News Service, Aug. 20, 2012).
Questions about coverage are only the beginning of the uncertainties facing ACOs, industry experts said.
Bruce Campbell, chief medical officer for C.M. Smith Agency Inc. in Glastonbury, Conn., said it may be harder than many providers realize for ACOs to share in cost savings. Under many commercial models, medical costs must be 2% below the benchmark before ACOs can receive a bonus.
"That's really hard to do because many of the costs are out of the providers' hands," Campbell said, pointing to vendor expenses, equipment and pharmaceutical costs as potential obstacles to savings. "All it takes is one blockbuster drug that has a tremendous effect on treatment, and you're not going to be able to save money."
But perhaps the biggest challenge for ACOs will come from doctors having to learn how to work together in an entirely new medical care landscape, said Douglas M. Nadjari, partner at Ruskin Moscou Faltischek who represents doctors in administrative disputes.
"When collaborating on health care, physicians have to be able to trust one another, and now you're asking them to trust doctors they may not even know but who will have an impact on the quality of care they're accountable for," Nadjari said. "There are real concerns about whether there will be any real savings and whether patients will benefit from the excellent care they're supposed to receive under these organizations."