Innovations in ACO Risk and Revenue Sharing

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Healthcare reform has led to a resurgence of interest in various types of population-based management tools, according to David Axene, FSA, FCA, CERA, MAAA, in his presentation Innovations in ACO Partner Risk/Revenue Sharing at the National Association of Managed Care Physicians' Spring Managed Care Forum 2014 in Orlando.

Healthcare reform has led to a resurgence of interest in various types of population-based management tools, according to David Axene, FSA, FCA, CERA, MAAA, in his presentation “Innovations in ACO Partner Risk/Revenue Sharing” at the National Association of Managed Care Physicians’ Spring Managed Care Forum 2014 in Orlando. Mr Axene, a health consultant with Axene Health Partners, LLC, stated that without successful implementation of population-based management tools, many believe that a severe federal solution may be inevitable.

Accountable care organizations (ACOs) are at their simplest, just exactly what they claim to be. Physicians become eligible for bonuses when they have achieved more efficient healthcare delivery. Mr Axene’s risk analysis revealed that in order for ACOs to be successful, however, they absolutely must assume more financial risk. Generally, as population-based management activities increase, they will inherently result in greater risk placed on the providers. By contrast, in the fee-for service (FFS) model, the payer assumes most of the risk.

There are several key factors to achieving success, according to Mr Axene. First, the administrative language must be simple enough for a third grader to understand. One client he worked with volunteered a 180-page document, for which he said 180 people were needed in order to comprehend. Second, they must strive for adequate but not excessive payment levels for competition. In the previous FFS model, people always assumed more is better. However, the newer models of care strive for better outcomes at lower costs to increase the likelihood of reimbursement, which creates competition.


In the end, it is most important to maintain healthcare affordability, quality of care, and provider access. “This is what healthcare is all about,” according to Mr Axene. Moreover, he stated, the bottom line is that “a program’s success is directly dependent on its ability to effectively impact on the way care is delivered, while producing minimal potentially avoidable healthcare.”

One illustrative example revealing bulk savings was presented. A hospital system with roughly 55,000 assumed risk had a per-member per-month (PMPM) cost of roughly $656. The current CME index was calculated at 20%. Bed days per 1000 individuals were 283. After increasing their CME index to 80% with projected PMPM health costs of just $468, and bed days per 1000 of just 206, they were able to save approximately $52 million per year. The savings were 60% due to hospital inpatient adjustments, followed by 25% for outpatient adjustments. During his more than 16 years of analysis, Mr Axene has consistently seen that the greatest savings are obtained by modifying the hospital inpatients. This aspect alone is commonly responsible for approximately two-thirds of all savings.

Mr Axene presented a variety of other notable examples. One academic medical center managed to boost their CME index from 25% to 65% with the end-result savings of about $75 million. Another example described a children’s hospital with formulaic risk sharing approaches. Surprisingly, this children’s hospital did not primarily use a FFS model, but instead used 80% capitation. Quality was assessed based on a combination of items including immunization rates, HEDIS scores, and others. The primary care rate averaged 120% of the Medicare rate, while specialists averaged 115%. This was a huge success story.

The question and answers segment was the most active. An audience member asked about CME index correlated with denial rates. Mr Axene strongly stated, “I hate denials. They are the worst things that ever happened to the medical system.” His studies indicate that approximately 40% of the population never complains, thus implying that the industry has all too frequently played on this observation. Nonetheless, it is essential that we acquire this type of data so we can better understand denials.

Another audience member pointed out that value-shared savings charge back to the hospital, and wondered how transparency is gained. Mr Axene expanded on the importance of bringing providers and physicians to the table prior to treatment executions. He expressed a desire for everyone to have 1 cost, and supported base rate payments as a starting point: if the hospital is paid at a base rate, then the doctor should be as well. Sometimes, the price is negotiated too high and this makes the reimbursement go away entirely. One must really go into negotiations with eyes wide open.

One of the many physicians present in the audience asked, “What about the rising medical liability insurance premiums and the possibility of tort reform?” Mr Axene said he believes the problem is overblown. He stated that data indicate that cost savings would be better achieved by simply providing better quality of care. In one study, the results showed a 2% reduction in cost savings due to tort reform, but a 38% savings due to increased patient satisfaction. The actual numbers of unnecessary lawsuits are due to isolated numbers of disgruntled patients, and this number can be reduced through better quality of care, he said.