March 23, 2011 17:28 ET

VHA Inc. Perspective Article in New England Journal of Medicine Warns That ACO Model Poses Significant Financial Risk for Providers

Article Highlights ROI Problem for Physician Groups and Hospitals

IRVING, TX--(Marketwire - March 23, 2011) - Health care organizations that are rushing to position themselves to join or form accountable care organizations (ACOs) may be deeply disappointed with their short-term financial results, said officials at VHA Inc., the Irving, Texas-based national health care network. This assessment, outlined in a Perspective article published today on the New England Journal of Medicine website, sounds a cautionary note at a time when many are touting the ACO model for its potential to generate savings and improve care coordination. The article ("The ACO Model-A Three-Year Financial Loss?") is available on the journal's Web site.

The article appears as the Centers for Medicare and Medicaid Services prepares to release proposed rules outlining ACO participation requirements, and suggests that most ACO participants should expect to incur substantial costs that will not be offset with financial gains for at least three years. VHA executives, Trent Haywood, MD, JD, and Keith Kosel, PhD, MBA, MHSA, who co-authored the article, reached their conclusions drawing on data from CMS' Physician Group Practice Demonstration Project, which ran from 2005 to 2010 and was used as the primary basis for the current ACO model.

"To be honest, we were very conservative in the article, as we did not include the operating costs for year two and year three of the program. If we had done so, the financial risks would be even higher," said Haywood, senior vice president and chief medical officer at VHA. "We published the article to make certain that executives fully weigh the risk before becoming swept up in the moment."

To improve ACO participants' chances for success, the authors suggest that CMS modify the current model, given that the concept is relatively unproven. At this early stage, CMS could limit participation in ACOs to the narrow group of hospitals and physician groups that can absorb the likely loss in the early years of participation. A second option would be to change the payment design from an annual model to a cumulative model, which would provide an additional opportunity for participants to achieve shared savings.

"We are not suggesting that hospitals shouldn't explore ACOs, but they need to understand that if CMS doesn't fix flaws in the current payment model, it may take as long as five to seven years or longer before the ACO generates a financial benefit," says Kosel, senior director of Social Sciences Practice at VHA.

For most health care organizations, the authors believe an alternative to the ACO model is a bundled payment model. Haywood states, "The ACO model is not the only value-based option for health care providers. We know that CMS successfully implemented a bundled payment pilot in the past and that it improved quality, generated shared savings, and did not pose the financial risks that are embedded in the ACO model."

"It's clear that clinical integration and care coordination are critical to high-quality, cost effective health care, whether that care is delivered through a bundled payment model or in an ACO," said Michael Regier, VHA's senior vice president of Legal and Corporate Affairs and General Counsel. "Although we recognize the potential promise of the ACO model, we believe health care organizations should fully understand the financial risks involved in creating an ACO as they decide what new models of care delivery and payment are best suited for their communities."

About VHA

VHA Inc., based in Irving, TX is a national network of not-for-profit health care organizations that work together to drive maximum savings in the supply chain arena, set new levels of clinical performance and identify and implement best practices to improve operational efficiency and clinical outcomes. In 2009, VHA delivered record savings and value of $1.47 billion to members. Formed in 1977, VHA serves 1,350 hospitals and more than 30,000 non-acute care providers nationwide, coordinating delivery of its programs and services through its 16 regional offices. VHA has been listed as one of the best places to work in health care by Modern Healthcare since 2008 and one of the best places to work in IT by Computer World since 2007.

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