Bonuses, risks of ACOs

Modern Healthcare - - OUTLOOK - —Me­lanie Evans

Hos­pi­tals en­ter the new year with more cer­tainty that health re­form ini­tia­tives, such as ac­count­able care, will ad­vance, but with the prospect of costly new poli­cies to ad­dress the fed­eral debt and deficit is­sues.

Medi­care’s ex­per­i­ment with ac­count­able care was sched­uled to start its sec­ond year on Jan. 1 by in­tro­duc­ing more fi­nan­cial risk for some ex­ist­ing ACOs and by adding a new crop of or­ga­ni­za­tions.

Ac­count­able care ties per­for­mance on qual­ity and cost-con­trol tar­gets to fi­nan­cial in­cen­tives—po­ten­tial bonuses and pos­si­ble losses—for hos­pi­tals and med­i­cal groups. The new pay­ment model is one of sev­eral in­cluded in the Pa­tient Pro­tec­tion and Af­ford­able Care Act that seeks to shift Medi­care spend­ing to­ward in­cen­tives for re­sults and to stop re­ward­ing providers for the vol­ume of care they pro­vide.

Among the first Medi­care ac­count­able care or­ga­ni­za­tions—so­called pioneers cre­ated by the Cen­ter for Medi­care and Med­i­caid In­no­va­tion—some de­ferred the risk of po­ten­tial losses un­til the sec­ond year, which be­gan in Jan­uary. An­other Medi­care ac­count­able care pro­gram, known as shared sav­ings, was sched­uled to ex­pand Jan. 1 be­yond the 116 ACOs named in 2012.

Hos­pi­tals con­tinue to re­spond to pres­sure on op­er­at­ing mar­gins from the weak econ­omy, health re­form and Medi­care cuts sched­uled for 2013 with ef­forts to curb op­er­at­ing ex­penses. But af­ter years of such ef­forts, the strat­egy may prove in­creas­ingly dif­fi­cult to sus­tain, rat­ing agen­cies say.

“Fitch (Rat­ings) be­lieves that the next level of cost re­duc­tion within the in­dus­try will need to be re­al­ized from a change in the care de­liv­ery op­er­at­ing model through in­te­grat­ing clin­i­cal op­er­a­tions, im­ple­ment­ing stan­dard­ized pro­to­cols, co­or­di­nat­ing care and man­ag­ing pop­u­la­tion health­care, which will be more dif­fi­cult to ac­com­plish,” Fitch an­a­lysts said in the agency’s out­look for not-for-profit hos­pi­tals for the coming year. Fitch projects that hospi­tal prof­its will weaken af­ter 2013.

Hos­pi­tals ended 2012 with less cer­tainty over how fed­eral bud­get talks would end up af­fect­ing Medi­care pay­ments and the cost of one pop­u­lar not-for-profit hospi­tal debt mar­ket. A last-minute deal by the White House and Congress to avert tax in­creases and spend­ing cuts sched­uled for the new year de­layed for two months an up to 2% re­duc­tion to Medi­care spend­ing.

Not in­cluded in the deal was a pro­posal the White House pre­vi­ously en­dorsed that could raise bor­row­ing costs for not-for-profit hos­pi­tals that seek cap­i­tal in mu­nic­i­pal bond mar­kets. Through midDe­cem­ber, not-for-profit health­care bor­row­ers is­sued 437 bonds for a to­tal of $29.6 bil­lion (see chart above), ac­cord­ing to data from Thom­son Reuters. The pro­posal would cap the tax break to in­vestors who buy tax-ex­empt bonds.

But the pro­posal will likely resur­face as law­mak­ers work to­ward an­other dead­line to ad­dress the de­layed Medi­care cuts and other pend­ing spend­ing re­duc­tions, says Chuck Sa­muels, an at­tor­ney for the Na­tional As­so­ci­a­tion of Health and Ed­u­ca­tional Fa­cil­i­ties Fi­nance Au­thor­i­ties.

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