OR WAIT 15 SECS
No matter how the Supreme Court rules on healthcare reform, the accountable care model will stick around. To play ball with ACOs, drug companies will need to throw a different pitch.
The US Affordable Care Act may not stand in its current form, but one element of it will continue to be an important trend in US healthcare—accountable care organizations (ACOs). ACOs have gained greater visibility because of their inclusion as part of a CMS Medicare initiative in the law. However, private insurance companies have been actively pursuing ACOs independent of any governmental mandate. Because ACOs are being pursued by both government and private payers, it is a trend that will have staying power independent of the legal fate of the healthcare law. It is also a trend that could have significant pricing and marketing implications for pharmaceutical and medical device companies selling products in the United States.
The ACO model aims to improve quality of patient care while containing overall cost. Private or government insurers enter into contracts with healthcare provider networks (the ACOs) to deliver care for a given patient group at a fixed budget, while still delivering quality care as measured by a number of performance metrics. These arrangements include some kind of shared risk (or gain) between the insurer and the ACO for meeting an agreed-upon budget that covers the entire care for the defined population of patients. Quite simply, if the ACO can manage to squeeze efficiencies and stay under the contractual budget then they stand to make a profit. If the ACO exceeds the annual budget (depending on the contract) they may be liable for paying a portion of the budget overrun.
While some may perceive ACOs to be an initiative driven by CMS, the truth is actually more nuanced. It is true that some of the first ACOs were pilot programs introduced by CMS, such as the Physician Group Practice Demonstration (introduced in 2005). However, in recent years private insurers have taken this idea and made it their own. In fact, the authors at CMS who wrote the ACO guidelines under the Affordable Care Act had to alter their final rules (issued in October 2011) after existing ACOs complained that the quality metrics were too different from those already in use as part of private managed care organization (MCO) agreements. So while CMS may have started the ACO trend, they are no longer the sole driver of development.
One private insurer that offers an ACO program is Blue Cross Blue Shield of Massachusetts, known as the "Alternative QUALITY contract." The multi-year ACO contract sets annual budgets for all BCBS of MA insured patients, encompassing the entirety of patient care (inpatient, outpatient, pharmacy, behavioral health, and other costs). The total payment from BCBS of MA is increased if the ACO reaches certain quality thresholds (up to +10 percent) and is adjusted for inflation. An ACO whose actual expenses are under budget can keep 100 percent of the savings under this program, but they are liable for 100 percent of budget overruns if they exceed the total payments.
Figure 1: Conceptual financial comparison ACO programs from BCBS of MA and CMS.
Figure 1 shows conceptually how the BCBS of MA financial structure differs from the CMS Medicare Shared Savings Program in year one. Whereas the BCBS of MA contract allows the ACO to keep all savings (the amount above the red dotted line), the CMS approach forces the ACO to split savings with CMS (based on performance metrics). It is worth noting that the BCBS of MA approach could end up being more financially attractive for an ACO than entering an agreement with CMS.
Aside from having a greater potential upside, the BCBS of MA approach is a more comprehensive model than the CMS approach. The CMS approach only includes Part A and Part B expenses, notably excluding the pharmacy benefit (Part D). The BCBS of MA program includes a much wider range of patient expenses. The CMS program has an option for ACOs to enter the agreement with only shared savings (and no responsibility if there was a loss). The BCBS of MA approach has the ACO assume risk and reward immediately. So in some ways, the BCBS of MA program is a more progressive ACO concept (i.e., one that pushes the concept of the ACO farther) than the Medicare Shared Savings Program.
Not all private insurers are approaching ACOs in the same way, however. Aetna offers "Accountable Care Solutions" that incorporate tools to help ACOs with clinical decision-making and care coordination. Few insurance companies (and certainly not CMS) go as far as Aetna in terms of this kind of support. Aside from the ACO contract itself, Aetna offers clinical decision-making and care-coordination tools from ActiveHealth (acquired by Aetna in 2005) and health information support including tracking of quality metrics via Medicity (acquired in 2011). The kinds of tools offered by Aetna help address one of the biggest questions about ACOs: Will ACOs be able to identify and exploit efficiencies in order to stay under the budget? The broader question is still open. However, these kinds of tools could make the concept of forming an ACO more attractive to smaller provider networks that may not have the analytical capabilities of larger ACO organizations.
The BCBS of MA and Aetna approaches are just two of many varied ACO approaches being explored by private insurers today. In some cases, the private insurers are actually offering more progressive models for ACOs than CMS is offering under the Medicare Shared Savings Program. Private insurers are innovating the development of ACO programs.
Despite consolidation among insurance companies in the past decade, the US healthcare system is still relatively fragmented compared to other markets. A continuing trend toward ACOs could make the system even more fragmented by introducing ACOs as price-sensitive stakeholders.
In order to be successful, ACOs will need to monitor their budget closely and identify cost-effective protocols and policies at the system level. Each individual ACO will be making tradeoffs between different possible treatment regimens and evaluating whether newly available treatments could help increase efficiency. At a minimum, this would result in significant variation across ACOs in the early adoption rates of new healthcare technologies (e.g., drugs, devices, or diagnostics). And unless ACOs share approaches with each other, there is potential for long-lasting variations from organization to organization. There would be many more stakeholders to convince of the clinical and economic value of a new technology than ever before.
It is not clear what role the traditional US payer would have in this environment. The typical restrictions used today (e.g., prior authorization and step edits) do not have much meaning in the context of ACO global payments. This shift seems to take insurers out of the clinical evaluation business and move them closer to the actuarial roles.
The emergence of ACOs will require a change in the way that pharmaceutical companies and medical device manufacturers market their products. While traditional US payers will still be important stakeholders, value communication will also be critical for ACOs as well. Some potential changes necessary in this new environment could include:
» Broadening the definition of "market access" to include system-wide ACO adoption of new technologies rather than simply formulary position and restrictions
» Tailoring value stories and health economic models toward individual ACOs to drive adoption, with less emphasis on making the case to traditional US payers
» Incorporating quality metrics into clinical trials that are being used in ACO contracts, so as to more concretely communicate value
» Defending the budget impact of new technologies, particularly in areas with high expenditures (e.g., diabetes, oncology, and cardiovascular disease), as these areas are likely to be the first targets for cost savings
Manufacturers should prepare for these kinds of changes because even if the ACA does not survive in its current form, there is little doubt that ACOs will continue to be one of the most important changes in the US healthcare landscape. This model has moved well beyond the pilot stage, and now private insurers are the pioneers in developing ACO programs. There are over 150 hospital systems across the country that have organized into ACOs, and that number is growing rapidly. Many of these newly formed ACOs are large healthcare networks treating a significant number of patients. Partners Healthcare, the largest hospital and provider network in Massachusetts, entered into a contract last year for the ACO program offered by BCBS of MA. The US healthcare system as a whole seems to be embracing a shift toward ACOs, and this trend could significantly change how companies will need to position new pharmaceuticals, devices, and diagnostics for market success.
Alex Gasik is Director at Simon–Kucher & Partners. He can be reached at email@example.com.