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Meet your newest and toughest customer

November 12, 2010
by Pam Selker Rak
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Navigating the complexities of Accountable Care Organizations

With the transition to MDS 3.0 and RUG-IV now complete, providers may be feeling relieved that they're finally prepared for the newly established demands. But as the old saying goes, “There's no rest for the weary,” as preparation for compliance with 2014 reform mandates presents a whole new set of challenges.

An increasingly competitive market environment that rewards data-driven clinical outcomes requires healthcare providers to undergo a rapid transformation to prepare for approaching requirements. A significant part of that includes providers meeting their newest and toughest customer-Accountable Care Organizations (ACOs).

In the new world of ACOs, providers who demonstrate the lowest re-admits to the hospital, highest quality outcomes, highest customer satisfaction ratings, and lowest costs will have a competitive advantage. And those with lackluster outcomes risk losing their stream of Medicare patients and potentially third-party payer patients because ACOs will seek to partner with providers that have superior clinical outcomes. Competition is absolutely unavoidable and the time to prepare is right now.

The impact of ACOs

ACOs are defined as a group of healthcare providers working together to manage and coordinate care for a defined population that shares in any savings achieved by reducing the total cost of care while maintaining or, better yet, improving patient outcomes. Today, providers are paid to provide a service but are not accountable for the outcomes or health of a patient. If the outcome is bad, often it results in a need for more service. ACOs are designed to hold a set of providers accountable for patient outcomes by providing the right service, at the right time, in the right setting and, in turn, rewarding them for reducing the cost of care.

Pam selker rak
Pam Selker Rak

As a result of being introduced as one of Medicare's programs in the health reform law, ACOs have taken on an even greater significance in the healthcare industry. The ACO model is not just a change in reimbursements policy; it “establishes a benchmark based on expected spending.”


This increase in accountability for quality and cost across the care continuum means that providers must demonstrate decreased re-admits to the hospital, high-quality outcomes, and low operational costs to stay competitive and win more business. According to Loren Claypool, vice president and managing director of VCPI, “ACOs will not award business to providers whose historical outcomes create risk for re-admits for which hospitals will not be reimbursed.”

While this will increase pressure on providers to offer quality care at the lowest cost, it also (1) frees them to deliver the care they always wanted to, but may not have been able to provide in the past due to lack of coverage or reimbursement for certain services; and (2) provides a more cost-effective way to treat residents with chronic conditions. It will be important for providers to remember that if care isn't delivered efficiently, it will result in increased cost so they will need to be creative in how they collaborate.

Working with ACOs will encourage providers to specialize in areas that they can best excel, enabling them to lower the cost of care while maintaining or improving clinical outcomes. And that will be a model for success in the reformed healthcare world.

Seven emerging reform themes

With the recent passage of reform, the time for debate, denial, and avoidance is over. Providers of all types must focus on transforming behavior to ensure future success. “As consumers and payers expect greater healthcare ‘value’-reduced costs while maintaining or improving patient outcomes-as part of ACOs and health reform, we see seven emerging themes for how the operating environment will be impacted by these changes,” says Nicole Fallon, healthcare manager of LarsonAllen, who presented core information at VCPI's recent users' meeting. “Providers must be aware of and familiar with these themes as they continue their preparation for the evolving reform landscape,” she explains.

1. Providers will be asked to accept greater financial risk for clinical outcomes. Provisions such as value-based purchasing, bundled payments for episodes of care, and increased penalties for excessive readmissions or admissions due to hospital-acquired conditions are aimed at reducing reimbursement or shifting it away from those with poor levels of quality.

2. Operational efficiency will be critical. To remain financially viable, it will be essential to continue to scrutinize current costs for waste, but it will be equally or more important to understand what it costs to provide care for certain diagnoses or episodes to be positioned to negotiate for adequate reimbursement under new payment models.

3. Collaboration among all providers will be required for survival. Increased cooperation through redesigned payment systems will most likely involve some form of bundled payment methodology, implementing shared best practices, and improving care transitions across sites of service.

4. Significant investments in technology will be necessary. Success will require technology to easily share critical clinical information among different provider types, along with other uses related to improving patient outcomes.