Time to Think About ACOs And Medical Homes

Is Medicare’s value-based reimbursement a threat or an opportunity for clinical laboratories?

CEO SUMMARY: In less than nine months—on January 1, 2012—the new health reform legislation mandates that Medicare commence value-based purchasing. Medicare must also begin contracting with accountable care organizations (ACO). Experts say these two developments will initiate a cycle of broad change to the nation’s healthcare system. At this year’s Executive War College, a special series of speakers will provide lab leaders with insight and advice on the best ways to respond to these healthcare models.

IT’S A COUNTDOWN THAT SHOULDN’T BE IGNORED by clinical laboratories and pathology groups. On January 1, 2012, the ObamaCare legislation mandates that the Medicare program establish a value-based purchasing model for all hospitals.

That date is just nine months away! It leaves providers with a steadily diminishing window of opportunity to understand this new Medicare payment arrangement and develop an appropriate strategy.

Along with value-based purchasing of hospital services, January 1, 2012, is the first date that accountable care organizations (ACOs), as defined—very loosely—in the Obamacare health bill of 2010, can begin to contract with the Medicare program.

The third reform with the potential to be disruptive is the ObamaCare bill directive that the Medicare program establish a national pilot program for bundled payments by January 1, 2013. The goal of this new reimbursement model is to reduce hospital re-admission rates for Medicare patients.

Plans are for the bundled payment pilot program to pay a single bundled reimbursement for an episode of care that begins three days before admission to the hospital and ends 30 days after the Medicare patient is discharged. The hospital and physicians involved in the patient’s care will share in the bundled reimbursement.

For clinical laboratory administrators and pathologists, these innovative experiments in reforming the delivery of healthcare are fraught with risk and uncertainty. By encouraging hospitals and physicians to come together and deliver integrated patient care from a single business unit and share a single Medicare payment for service, government health regulators are opening up a Pandora’s Box—and the lab testing industry may turn out to be an unwilling guinea pig.

For example, as ACOs develop their clinical services, will they want to leverage their clout with laboratories in the community by seeking deeply-discounted pricing for laboratory tests in exchange for access to the ACO’s patients?

This is not an idle question. Remember the impact that DRGs (diagnostic related groups) had on reimbursement for Medicare Part A clinical pathology professional services? Even today, pathologists continue to deal with the ongoing changes triggered by Medicare’s one basic change to one lab testing reimbursement policy that was implemented back in 1983.

Paying for Lab Test Services

Another source of financial risk for the lab- oratory testing industry could result if ACOs and medical homes found it financially remunerative to directly contract for lab testing services using a global payment scheme or a capitated arrangement.

This practice remains common in California, where independent physician associations (IPAs) continue to benefit from the deeply-discounted lab test contracts offered to them by the national laboratories. Should the ACO care delivery model develop in viable ways—and should ACOs end up negotiating very low prices for lab testing in a global contracting arrangement—this would be a financial set-back for independent labs and hospital lab outreach programs.

But, the ACO and medical home sword could cut the other way and end up benefiting local laboratories. Some lab industry experts speculate that, since hospitals and health systems are aggressively buying physician groups as they assemble the pieces of their proposed ACOs, it would be expected that hospital/health system-owned ACOs would mandate that all physicians in their ACO must use the hospital laboratory for all lab tests.

Experts point out that there are sound clinical and operational reasons to mandate that office-based physicians in the ACO use the hospital laboratory. It means that all testing done on behalf of the patient, whether in inpatient, outpatient, and outreach settings, would be tested by the same laboratory. It also means that all laboratory test results would be run by the same methodology and would have the same reference ranges.

Single Data Repository

Further, since the providers in the ACO would be working from a single patient data repository, all cumulative lab test data—from inpatient, outpatient, and outreach testing—for a patient would be instantly available in the patient’s full electronic health record (EHR).

Finally, it means that the pathologists and laboratory scientists working within the ACO would be positioned to provide a richer level of professional support and consultations to the referring physicians. The importance of this should not be underestimated, since hospital-based pathologists in the community generally develop a very detailed understanding about many patients in their community.

Continuity in Patient Care

This is because the hospital-based pathologists will discuss inpatient cases with physicians, and then recognize the same patients as tests are later performed in support of office-based care. This is continuity in patient care and the ACO model has the potential for pathologists and PhDs to establish a value proposition that is instantly recognized by referring physicians in that ACO.

Look at this same issue from another perspective. The national lab companies would argue that differences in test methodology and reference ranges between their test menus and those of the hospital lab that serves a particular ACO should not be a significant factor. They are also likely to assert that their deeply-discounted prices offer ACOs an important economic benefit.

Reference and Esoteric Tests

National labs of all sorts will also assert to the ACOs that their particular expertise in reference and esoteric testing will be a significant source of value to the ACO. Not only do these labs happen to offer a very large number of different types of assays, but they will point out that they test significant volumes of specimens.

It will be argued that ACOs benefit because the national laboratory company develops professional expertise from working with a large number of specimens for each type of esoteric assay. As well, the large pool of patient data for the assay represents clinical experience that can aid in more accurate interpretation of results for individual patients.

THE DARK REPORT offers these pro and con arguments to make a point. Assuming that ACOs and medical homes set down roots and become a permanent part of the nation’s healthcare system in the next one to five years, then the laboratory industry is going to have a major new type of customer for the first time since the emergence of closed-panel, gatekeeper-model HMOs in the first half of the 1990s.

Just as the new contracting and pricing strategies of HMOs—including capitation and full risk—disrupted the finances of the nation’s clinical labs and pathology groups during the 1990s, now, in the 2010s, ACOs, medical homes, and value-based reimbursement are likely to unleash an equally disruptive cycle of competition.

In city after city, this new cycle of competition will pit hospitals and health systems against each other in new ways, because of their participation in ACOs and their need to demonstrate how they produce better patient outcomes than other ACOs in their communities.

Similarly, this new class of users and buyers of laboratory tests will create a different type of competition among clinical laboratories and anatomic pathology groups. At this time, few pathologists and senior laboratory administrators have considered the strategic consequences of these changing competitive factors.

New Cycle of Competition

There is another powerful reason why this competition will be intense, disruptive, and widespread. ACOs, medical homes, and value-based reimbursement will be a totally new game in healthcare. It will be the first time that, on a wide scale across the United States, hospitals, physicians, and other providers have willingly put themselves into a single organization focused on clinical care.

Another radical element in this new healthcare game are the two new payment models for reimbursing hospitals, physicians, and laboratories. One is value-based purchasing by Medicare and private payers. The second is a payment program that bundles reimbursement for inpatient and post-discharge patient care. Both of these payment arrangements will be linked to how the ACO achieves a target level of patient outcomes for specific procedures or diseases.

Stay Ahead of Developments

Simply stated, for hospitals and office-based physicians, these significant changes mean a radical shift in thinking and in the operational delivery of healthcare. Pathologists and laboratory administrators will want to be ahead of these developments.

For clinical laboratories and anatomic pathology groups, the good news is that all lab testing providers start from a relatively level playing field as these different reforms are implemented by Medicare and emulated by private payers. However, once the new game commences, only those clinical labs and pathology groups with an effective strategy and a willingness to try different service delivery approaches will compete effectively against the national lab companies.

To help laboratory executives and pathologists prepare effective strategies for these coming developments, the 16th Annual Executive War College on Lab and Pathology Management has invited the leading thinkers and experts in ACOs, Medical Homes, and Value-Based Reimbursement to speak. During the May 3-4 conference, these experts will conduct a special extended session on the coming healthcare reforms.

Details about these speakers and their topics are provided in the sidebar on page 5. Information about the full agenda and how to register can be found at www.executivewarcollege.com. These presentations on ACOs, Medical Homes, and Value-Based Reimbursement will be the first time that all three topics have been addressed from a strategic perspective to a single gathering of laboratory leaders.

Bringing Together Top-Flight Experts to Discuss ACOs, Medical Homes, & Value Reimbursement

DURING THE NEXT FIVE YEARS, predictions are that the American healthcare system’s holy trinity of reform will be Accountable Care Organizations (ACOs), Medical Homes, and Value-Based Reimbursement.

It is essential that clinical laboratory administrators and pathologists understand the strategic implications and marketplace ramifications of these new healthcare delivery models. At the upcoming Executive War College on Lab and Pathology Management, which takes place on May 3-4 in New Orleans, a special extended session will tackle these important topics.

Addressing the subject of Accountable Care Organizations will be Tom Williams, Director of California’s Integrated Healthcare Association (IHA). IHA just released a White Paper that evaluated California’s 30 years of experience with ACOs. Williams also actively participates in administering a major physician pay-for-performance program that pays out more than $100 million in incentives each year to physicians in the Golden State.

Medical Homes and More

On the topic of Medical Homes, one of pathology’s brightest thinkers has been tapped to speak on this subject at the Executive War College. James M. Crawford, M.D., Ph.D., is the Chair of Pathology and Laboratory Medicine at North Shore Long Island Jewish Health System in Great Neck, New York. Crawford chairs the working committee which is developing North Shore LIJ’s medical home program. He will share his insider perspective on how doctors practicing in medical homes will be different users of laboratory tests and lab test data.

Value Reimbursement

Speaking about the ways that value-based reimbursement will create opportunities for clinical labs and pathology groups to add value to clinicians will be George Lundberg, M.D., Ph.D., the noted pathologist and long-time editor of several major medical journals. Lundberg is an active commentator on healthcare trends and the reform movement.

This is an unprecedented opportunity for lab managers and pathologists to see, hear, and network with knowledgable experts on these three important health reform topics. After their presentations, there will be an open panel discussion so the Executive War College audience can ask focused questions and gain insights on their areas of keenest interest.

The full agenda can be viewed by visiting www.executivewarcollege.com. Lab leaders interested in attending this year’s Executive War College are encouraged to register early so as to guarantee their place at this information-filled conference.



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