Embracing Cost Reduction to Improve ACO Profitability

Value-Based Care

August 18, 2023
A male patient is talking to a female doctor over a video call in his home office.

Key takeaways:

  • Value-based care models exist to improve patient care and lower costs
  • Participation in value-based care models often lowers reimbursement and increases costs initially as organizations build care coordination and preventive care capabilities
  • The opportunity to increase reimbursement for sustainability is shrinking. Healthcare organizations must pivot and look at cost reduction as a mandatory strategy to increase practice profitability.

Medicare and Medicaid are committed to finding new ways for providers across the country to offer patients better, more affordable care. Working through the Center for Medicare and Medicaid Innovation, also known as the CMS Innovation Center, they focus on new care delivery and payment innovation models. These are tested to improve patient care, lower costs, and better align payment systems to promote patient-centered practices.  

The 2008 Medicare Improvements for Patients and Providers Act (MIPPA) legislation paved the way for value-based careprograms. Now, the healthcare industry must continue transitioning from fee-for-service to alternative payment models (APMs).  

APMs differ in terms of performance thresholds and reimbursement incentives. Each expanded variation of the model shares two common principles:  a) Reimbursement is based on the value of care delivered rather than volume, and b) reimbursement requires providers to assume more risk.

The two types of built-in risk in risk-based models are:  

  1. Upside risk (less risk = less reward):  Also referred to as one-sided risk, the provider treats patients for a fixed amount of payment per member. The payer and the provider share profits with the payer. There are no penalties if the provider goes over budget.  
  1. Downside risk (more risk = more reward): Also referred to as two-sided risk, the provider treats a patient with the budget allotted by the payer. Depending on the contract, the provider is rewarded with a larger percentage of profits. However, if the provider goes over budget during treatment, they are held accountable for the extra expenses.  

Accountable Care Organizations (ACOs) are comprised of local clinicians, hospitals, and other healthcare providers who work together voluntarily on a value-based contract. Together, they share responsibility for the quality, cost, and coordination of care treatment for patient populations, especially the chronically ill. In exchange, ACO participants who reduce their total cost of care for patient populations receive a portion of earned savings, which come from contracted payers, such as Medicare, Medicaid, or commercial insurers.

While the majority of public and private ACOs contracts rely on the one-sided/upside-risk payment approach to compensate participants, the adoption of downside risk models is increasing. This is due in part due to CMS requirements and the general maturation of the value movement. Both upside and downside risk arrangements play a role in transforming the nation’s healthcare system, shifting from rewarding volume to value.

Growth of ACOs

After years of steady growth, ACO tracking data shows plateaus or slight declines. Across all payers, ACO participation has continued, but growth in the number of new ACOs, new ACO contracts, and ACO-covered lives has slowed. The end of the first quarter 2022 revealed 1,010 known ACOs, with 1,760 public and private ACO contracts, covering more than 32 million lives.

That said, the Biden administration’s priorities include a continued focus on value-based care, especially access to specialty care, with ACOs playing an integral role. CMS sets a goal to enroll the majority of Medicare (original and Medicare Advantage) members in value-based program relationships by 2030.  

Value of an ACO

An article on common physician practice challenges in Medical Economics® on July 31, 2023, reports the transition to value-based care has resulted in lower reimbursement for doctors.  

“The goal of value-based care is a great one, but the revenues is in the back end, so you have to succeed for quite a while, sometimes a year or two, in order to reap the benefits,” explained Chad Anguilm, vice president of growth at Medical Advantage, part of The Doctors Company Group.

Managing costs with an ACO

Five cost-reduction methods help ACOs succeed by reducing patient expenses and maximizing incentive revenue. They are:

  1. Implement care coordination and management
  1. Launch disease management and preventive care programs
  1. Monitor patients to avoid unnecessary emergency department (ED) visits and hospitalizations
  1. Optimize medication management processes
  1. Encourage end-of-life planning

These value-based strategies provide a long-term impact on patient health and outcomes. They often incur new operational costs as hospitals and medical practices hire additional personnel to build extended care teams and capabilities to coordinate care.  

By laser-focusing on operational efficiency and reducing operational costs, healthcare organizations can remain profitable during the period of lower reimbursement. This approach requires practices to critically look for ways to manage operations differently.

A nationwide 2022 survey of healthcare workers found staff retention and administrative busywork stand out as top pain points:

  • Retention remains a challenge: Half (48%) are worried about their health system’s ability to retain and hire staff if they do not prioritize automation.
  • Staff spend too much time on documentation and not on patients: On average, respondents said staff at their organization spend 57.5% of their time on repetitive tasks such as data entry and documentation.

An acute need exists for ACOs to implement innovative solutions aimed at retaining staff and skilled healthcare professionals including nurses.  

It is time for ACOs to embrace digital communication to help alleviate these problems

The digital world is revolutionizing every aspect of consumers’ lives ─ and is fundamentally altering the advancement of provider-patient engagement. Digital health transformation is delivering better care by enabling better interactions to individual patients, populations and communities through these four breakthroughs:

  1. Streamline patient intake

First Choice Neurology (FCN), the nation’s largest private neurology group throughout South Florida, is a physician practice leader in digital care transformation. FCN successfully digitized patient intake, orders follow through, and payment notification tasks to support all 90 adult and pediatric neurologists and other physician specialists working at 50+ care centers servicing 1,600+ patients across five counties.  

The neurology group initially set out to select a digital solution to provide relief to overwhelmed healthcare workers and reduce in-person patient volume in an at-risk infectious environment. The 60 adult neurologists and 16 pediatric neurologists sought a HIPAA-compliant, consumer-friendly care solution to engage parents and caregivers responsible for their diverse patient mix: children with congenital and cognitive conditions and adults age 50-plus with memory issues.  

In December 2020, FCN implemented secure texting, chatbots, and virtual visits. The practice also launched Neuro2Go, an on-demand, face-to-face chat with a board-certified neurologist. The digital solutions were quick and easy to scale and implement.  

“We needed a flexible communications solution that staff could personalize to meet each physician’s unique, specialized needs. With QliqSOFT's web-based platform, we could easily customize our chatbots based on location and without hiring expensive IT resources. Our specialists particularly liked the ability to create highly specific clinical questionnaires.”
─ Jose Rocha, Director of Central Business Office, First Choice Neurology  

Through digital self-services, FCN has empowered its patients to perform routine activities online, such as prepare for appointments, complete insurance forms for preapproval, access test results at their convenience, and receive patient education. They can also initiate chatbots to consult their doctors or other clinicians about pre- and post-visit clinical concerns and outcomes.

Over two years, FCN fully rolled out the solution to 45 clinics and created multiple unique physician workflows, delivering 10X operational and cost efficiency ROI results:

  • Reduced staff overtime 22%
  • Saved 19 minutes per patient seen
  • Scored 4.8/5 in patient satisfaction survey  
  • Streamlined physician workflow, saving 8 to 10+ minutes per visit enabling two to three more patients per daily
  • Increased clinic revenue 24%
  1. Adopt secure patient texting

Texting is a fast, efficient, convenient, and highly adopted method of communication. Mobile devices can receive messages from any location. HIPAA-secure messaging solutions support the sending of audio and video files, images, and other file attachments via secure text.  

Studies reveal text messaging has overwhelming support. Here’s why ACO participants should pay attention:

  • More than 95% of Americans own a cell phone; every three in four have a smartphone.
  • Approximately 90% of patients aged 50+ use personal technology to stay connected.
  • Roughly 85% of smartphone users prefer mobile messages to emails or calls.
  • Roughly 90% of patients agreed that text updates help them avoid calling the office.

Moreover, healthcare organizations report that up to 35% of front office staff time is spent playing phone tag in attempting to reach patients. Waiting on hold is the main reason customers are unhappy. Studies found that 44% of people feel annoyed, irritated, or angry when they must wait on hold for 5-15 minutes.

With the growing options from retail-based disrupters, ACOs should take this research seriously. Digital capabilities, such as self-scheduling and the ability for patients to securely communicate with their doctor’s office, reduce barriers to accessing care.

Savvy ACO providers are tapping into this digital trend and extending HIPAA-secure texting to patients, increasing efficiency by dramatically reducing phone calls, while improving both staff and patient satisfaction.  

  1. Implement proactive outreach to close gaps in care

ACO risk-sharing contracts are designed to emphasize wellness and prevention through incentive payments and financial risk arrangements. Most ACO participants can identify which patients are due for preventive screening; however, few possess the outreach tools to foster patient engagement and provide relevant patient education at a population level. Since hiring extra staff is often unfeasible, the opportunity to invest in a digital communication platform rapidly becomes a must-have commodity.

AllianceChicago, a national network of more than 70 community health centers across 19 states, is a success story of launching a patient outreach campaign supported by a chatbot innovatively. The network’s medical researchers took note that well-child visits and immunizations among children in the U.S. declined at the pandemic’s onset and that vulnerable populations were disproportionately affected.

AllianceChicago used artificial intelligence (AI)-powered chatbots to personalize messages and facilitate appointment scheduling over a six-month period. The study was conducted at a Community Health Center in Chicago, Illinois, serving 10,500 children consisting of 82% racial and ethnic minorities.  

Conversational chatbots facilitated a relative increase in well-child visits and immunizations by 27% in the intervention group of in-network parents and guardians who engaged with the chatbot.

Today, AllianceChicago is realizing comparable results expanding use of chatbots to adult wellness and screening services, which include identifying and addressing social determinants of health (SDOH) barriers that influence health outcomes. Part of the ACO REACH value-based model, this population-level intervention supports disease prevention and early detection, while increasing incentive revenue payments for the ACO.

  1. Adopt telehealth to support service lines

In a purely fee-for-service environment, reimbursement is one barrier to adopting telehealth and concern is widespread. Results of a study published in June 2023’s American Journal of Accountable Care (AJMC) concluded that reimbursement will largely influence the future of telehealth. An ACO, with incentives to avoid ED and hospital visits, may choose to expand the use of telehealth as a tool to manage utilization.

Virtua Health, a regional community health system serving southern New Jersey and Philadelphia, created six distinct service lines supported by digital solutions. Their virtual health programs include: urgent care telehealth visits of COVID-19 patients; remote patient monitoring of inpatient, discharged ED and long hauler COVID-19 patients; and inpatient warm handoff to outpatient social worker via chatbot.

Virtua Health reports the following positive outcomes resulting from the virtual care:

  • Increased volume of patients in urgent care telehealth
  • 32% relative reduction in readmissions
  • Reduced recurring ED visits
  • 43% reduction in 14-day ED return visits
  • An NPS score of 80 demonstrating high patient satisfaction using digital tools
“Our clinical and administrative staff manages all patient communications. Staff who use the chatbot can quickly redirect patients to the appropriate services within our larger healthcare community, resulting in more streamlined service offerings for both patients and staff.  Additionally, the virtual care platform enables video consultations and traditional telephone calls directly with the patient.  We best utilize chatbots by augmenting the technologies in use by our live agents. Whereas a traditional telephone call permits handling only one patient at a time, our platform empowers staff to toggle four or more patients simultaneously.”
– Angela Skrzynski, DO, lead physician and Urgent Care physician, Virtua Health  

The opportunity to increase reimbursement for sustainability is shrinking. Healthcare organizations must pivot and look at cost reduction as a mandatory strategy to increase practice profitability. Digital communication strategies yielding positive results starting in the first month of deployment are critical to ACO leaders’ ability to manage effectively at a population level and contribute to improved outcomes.

The Author
Bobbi Weber

Bobbi is a lifelong learner who is passionate about enabling healthcare transformation. She has 20+ years of healthcare experience in care delivery, consulting, healthcare IT, and market strategy.

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