Lawyers Share Insights about ACO Contracting

To date, nascent ACOs are negotiating to align participating hospitals and physicians

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CEO SUMMARY: Most pathologists have yet to be involved in any substantial contractual negotiations that would allow them to assume a significant role in accountable care organizations (ACOs). Instead, hospitals and health systems are putting the building blocks in place by acquiring physician practices and installing the necessary infrastructure that their ACOs will need to deliver cost savings. That means pathologists have time to establish their value proposition with ACO administrators.

HUNDREDS OF ACCOUNTABLE CARE ORGANIZATIONS (ACO) now cover as much as 10% of the American population. That makes it essential for every laboratory and anatomic pathology group to have a strategy for providing lab testing services to these new models of integrated healthcare.

Fortunately, pathologists and lab executives have some breathing room. Lab testing is not yet on the radar screen of most ACOs because of bigger issues. That’s the opinion of two healthcare attorneys who represent clients participating in the organization and development of ACOs.

“Physicians, hospitals, health systems, and health insurers are in active negotiations with each other as it relates to ACOs in their communities,” stated Richard S. Cooper, Attorney at McDonald Hopkins of Cleveland, Ohio. “These nascent ACOs seem to be moving at a deliberate pace to develop the web of contracts necessary to align all the providers and define new roles to support the ACO’s mission.

“Most ACO administrators are focused on priorities other than laboratory or pathology services at this moment,” added Attorney Jane Pine Wood, a colleague of Cooper’s at McDonald Hopkins. “To date, none of our client pathologists have been involved in any substantial contractual negotiations that would allow pathologists to assume a significant role in ACOs. Instead, health systems are still putting in place the building blocks.”

Practical Insights

Cooper and Wood have practical insights to offer about the progress of the ACO trend. Their law firm’s client list includes all categories of providers. Thus, each attorney is involved in different aspects of contract negotiations, strategy development, and the legal and compliance issues associated with organizing and operating an ACO.

“Each situation is unique, given that we are in the earliest days of the ACO trend,” noted Cooper. “Providers of every type are struggling to identify their role in an ACO and understand the consequences that value-based reimbursement will have on their financial position.”

“In some cases, we see organizations positioning themselves to become ACOs by buying up physician practices and installing the infrastructure that their ACOs will need in the coming years,” added Wood. “Other organizations—including academic medical centers and health systems that have risk-sharing contracts with physicians and other providers—are prepared to become ACOs in a relatively short time.”

Cooper and Wood agreed that many of the fastest-moving ACOs are being developed from existing independent physician associations (IPA) or with physician-hospital organizations (PHO). IPAs and PHOs often have global contracting arrangements that can be easily adapted to the needs of the ACOs.

Using Existing Contracts

“This trend is quite visible in Massachusetts, New York, and other states,” observed Wood. “It is happening where IPAs and PHOs have had at-risk contracts in place for a number of years with third party payers.

“Additionally, there are communities where some information technology infrastructure may already be in place,” she continued. “Where that is true, it is easier and faster for the hospitals and physicians in that community to come together and add an ACO to that structure.

“The priority of many ACOs at this time is to ensure that the relationships with the direct referring physicians and their patients are on a solid basis,” explained Wood. “We consistently see that as the first step in the development of ACOs.”

Cooper and Wood emphasized that the Medicare program is only one mover in the ACO–risk trend. “At this time, Medicare ACOs are commencing operations, and increasing numbers of private payers are embarking upon similar risk- contracting models,” noted Cooper.

No Bundled Payments Yet

“Keep in mind that there are no bundled payments or other discounted arrangements under Medicare ACOs,” noted Wood. “The Medicare shared-risk ACO model continues to pay fee-for-service rates to providers, with shared savings determined on the back end, based upon overall financial performance.

“For a Medicare ACO to make money (including its share in the cost savings), it must control the ordering decisions and the practice patterns of the doctors,” she noted. “The first emphasis is on order patterns of primary care physicians. The second emphasis is on the ordering patterns of surgeons and specialists.

“This emphasis by Medicare ACOs on changing physician ordering patterns is relevant for labs and pathology groups,” continued Wood. “Primarily, labs are the recipients of tests that are ordered by referring physicians and labs will be paid at Medicare allowable rates for whatever tests they run.

“The fact that Medicare will reimburse on a fee-for-service basis is why, at this moment in time, Medicare ACOs are not actively pursuing special deals for lab work,” she said. “However, this is not true for risk sharing models under development by private payers. For some of these risk sharing models, the intent is to reimburse providers—including labs—via bundled payment contracts.

Bundled Payments Approved

“There is one important issue to watch regarding Medicare.” advised Wood. “This involves bundled payments. Medicare officials are moving forward with this program.

“At the end of January, Medicare approved more than 500 organizations to start bundled payment programs,” Wood noted. “This is the launch of the ‘Bundled Payments for Care Improvement (BPCI)’ initiative from the federal Centers for Medicare & Medicaid Services (CMS). We are waiting to see how many, if any, of these organizations develop a bundled payment scheme that includes laboratory testing services.”

“In the meantime, CMS has either approved or is reviewing the applications for some 450 ACOs,” added Cooper. “However, not all of these Medicare ACOs are in full operation yet.

“That has a practical consequence for labs and pathology groups,” he stated. “It means many of the organizations planning to become ACOs or engage in risk-sharing contracts are not at the stage yet where they are ready to negotiate and enter into long term contracts with pathologists.”

“Having said that, it’s clear that health systems believe that ACOs and risk-sharing arrangements will be very important in the future from a strategic positioning standpoint,” observed Cooper. “Therefore, if they have the market share and resources to develop an ACO-type model now, they believe they should take the necessary steps to do so now because that will put them in a strong position in the future.

“Until then, the short-term strategy for some health systems is to view ACOs as a way to capture market share,” he noted. “This forces physicians and other community providers to align with the largest organizations in the market which are generally the ones driving ACO development.

“With these ACO building blocks in place, the health systems create a framework that aligns them with the integrated clinical care models that will be prevalent in the future,” emphasized Cooper. “It is a strategy that I think is driven by the goal of becoming that community’s dominant ACO.

“As they create this framework for ACOs, health systems are causing concern among the pathologists and those who run laboratories,” he continued. “That is because, at the moment, hospitals and health systems are concentrating on acquiring physician practices.

Dilemma for Pathologists

“This creates an immediate dilemma for pathologists, particularly those who have outreach labs,” he said. “It means they may lose access and market share as many of their referring physicians are acquired or absorbed into the local hospitals that are developing ACOs. As employees of the hospital, these former client physicians are often pressured to send their specimens to the lab of their parent hospital.

“By buying up referring physician practices as one step forward in the creation of their ACOs, health systems are realigning the physician marketplace,” added Cooper. “It must be recognized that these events represent a fundamental shift in the marketplace for laboratory testing services. There will be fewer independent physicians who are free to choose their laboratory and anatomic pathology provider.

“That said, among our laboratory clients, those who are hospital labs are likely to have a place at the table when the time comes to negotiate with these dominant ACOs,” he continued. “But if you’re an independent lab, you have to ask yourself: how do you get a spot at that table?

“Consider this scenario: If the ACO is controlled by a hospital, that hospital is not likely to have an incentive to bring an independent lab to the table because it may want to mitigate competition in the area,” stated Cooper.

“That’s why we see our independent lab clients trying to forge mutually beneficial relationships with hospitals and health systems today,” he said. “In an effort to position themselves for the ACO marketplace, they are actively seeking to develop joint ventures or form other types of partnerships that could tie them into ACOs.”

Timing for Cost Reduction Linked to Base Line Year

THERE IS ANOTHER ISSUE TO CONSIDER about Medicare ACOs and the important role that pathologists can play,” noted Jane Pine Wood. “Pathologists should start to think about ways they can advise referring physicians about controlling costs for lab test ordering.

“But they should not do so right away,” added Wood, an attorney with McDonald Hopkins, the law firm based in Cleveland, Ohio. “This might seem counterintuitive, but there’s a good reason for it.

As stated earlier, at this time Medicare pays fee for service in an ACO,” she said. “The goal of the ACO is to cut costs compared with costs in a baseline year. If 2013 is to be the baseline year for costs in your ACO, you don’t want to cut costs in the baseline year.

“Instead, costs should be cut in the first year after the baseline is set,” stated Wood. “At the end of 2013, Medicare will look at what was spent on patient care. If costs decline in the next year, meaning 2014, then the ACO will get part of that recovery as a bonus payment.

We know there is waste in clinical lab tests because unnecessary tests are routinely ordered for many hospital inpatients,” she noted. “On the molecular side, some physicians are ordering high-end tests that may not be clinically appropriate.

“In certain areas of the country, there have been risk-sharing contracts between IPAs/PHOs and private payors that aim to keep lab costs down,” explained Wood. “The private payers are trying to keep ancillary costs down or are doing so by negotiating for returns of withholds or bonus payments for keeping ancillary costs under control.”

 

Timely Opportunity for Pathologists to Offer Ways to Deliver More Value to Physicians, ACOs

MOST PATHOLOGISTS HAVE A TENDENCY not to promote their good works. While this self effacing quality can be admirable in individuals, it may work to one’s disadvantage in a pathology or laboratory setting, said Rick Cooper, a lawyer with McDonald Hopkins.

“Pathologists often fail to let people know the good things that they do daily that involve quality care, achieving cost savings, and keeping the medical staff happy,” he said.

“In accountable care organizations (ACOs), pathologists will want be more proactively engaged with clinicians,” continued Cooper. “As they do this, it is essential that they also become more adept at quantifying the benefits of their work. It will be necessary for pathologists to be comfortable ‘tooting their own horn’ so that ACO administrators appreciate their clinical and operational contributions.”

In this respect, Cooper and Jane Pine Wood, his colleague at McDonald Hopkins, said that hospital contracts for Medicare Part A clinical pathology services are good models to use in ACO contracting. “Many pathology groups that we represent have successfully negotiated bonuses based on past cost savings in contracts for Medicare Part A services,” said Wood.

Some pathologists have the personality that’s needed to effect change in a hospital,” said Wood. “They recognize the benefits of spending more time advising physicians on how to more effectively use lab tests, along with the importance of explaining how their efforts saved money for the hospital. But other pathologists are more reluctant to collaborate with referring physicians.

“Some pathologists are concerned about the increased liability risk that comes with advising referring physicians more closely,” she added. “Still others complain about the hassles and aggravation of working with other physicians.

But for pathologists who want to have a potential income stream from cost savings in an ACO, it will be necessary that they work much more closely with referring physicians,” explained Wood.

Cooper agreed, saying, “In an ACO where providers will share in cost savings, pathologists need to be bring something to the table that produces cost savings or improves the quality of care or both. If pathologists fail in this regard, they risk being viewed as little more than ancillary providers.”

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