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One of the most-discussed provisions of the federal health care reform law is going into effect, turning the concept of an accountable care organization into a business reality for at least one major health system in San Diego.

Sharp HealthCare announced Dec. 19 that it will be taking part in the government’s “Pioneer” Accountable Care Organization program — designed for health care groups that already use an integrated-care approach.

“We believe that the accountable care organizations are consistent with the focus that we’ve had for a number of years for an integrated delivery system,” said Sharp HealthCare President and CEO Mike Murphy.

The national pilot program for Pioneer ACOs, which includes just 32 health care groups, is expected to save as much as $1.1 billion in Medicare costs during the next five years, according to the U.S. Department of Health and Human Services.

Meanwhile, other local hospitals and affiliated doctor groups are sizing up their options for partnering with the federal government, with San Diego-based Scripps Health and Tri-City Medical Center in Oceanside saying they expect to move forward with an ACO application in 2012.

What They Are

ACOs are generally defined as groups of providers — such as hospitals, physicians and medical specialists — that coordinate care for the Medicare patients they serve, with the goal of lowering costs and improving quality of care.

As of press time in late December, the ACO initiative was scheduled to take effect Jan. 1.

The Sharp ACO will serve about 32,000 Medicare beneficiaries in San Diego County, Murphy said.

For the first two years of the Pioneer pilot program, Medicare’s fee-for-service billing will remain, Murphy said. Sharp will be expanding its current infrastructure to capture more patient data and share health care utilization information with the government.

Murphy said it’s too early to say how much money Sharp may save through its enhanced efforts to coordinate care across settings — for example, tracking a patient from ambulatory care to the hospital, and then to a home health setting. Sharp and other ACOs will get a financial “bonus” from the government based on the quality of patient outcomes and how much they lower Medicare billing versus current levels.

As an incentive to participate in the Pioneer program, ACOs will get a greater percentage of their total savings than other ACOs, but the model is riskier because they’ll also share in any financial losses. The U.S. Centers for Medicare & Medicaid Services will publicly report the performance of Pioneer ACOs on its website, with the first performance period starting Jan. 1.

The Mysterious ACO

With ACOs still in their formative stages, many health care industry leaders have likened them to the elusive unicorn, said Scripps Health President and CEO Chris Van Gorder. “Everyone can describe one but no one has ever seen one,” he said.

Van Gorder said that he withdrew Scripps’ application from the Pioneer program because he deemed it too risky for an untested model, and now favors the recently revised version of Medicare’s standard ACO, called the Medicare Shared Savings Program. The government unveiled a new structure for the program in November.

“The new regulations are much, much better,” Van Gorder said. “You can start participating with very little risk. I think it’s likely that we will proceed.”

With the government cutting medical reimbursements across the board, “We recognize we need to take a look at cost and quality of care,” he said. “That’s what’s driving all of us in health care.”

Tri-City Medical Center is shooting for a July 1 ACO designation, according to CEO Larry Anderson, with plans to submit its application in early 2012.

“The fact is that Medicare has moved in the ACO direction, is committed to this direction, and that’s not going to change,” said Steven Valentine, president of The Camden Group, a Los Angeles-based hospital consulting company that’s done business with all of the major health care players in San Diego. “It’s time (for hospitals to) get on board.”

However, he noted, not all hospitals are convinced of the value of setting up an ACO — at least not right away.

If they’re starting from scratch, with absolutely no infrastructure in place for sharing patient data across doctor groups, it could “easily” cost $3 million to $4 million in information technology upgrades and new physician partnerships, Valentine said.

“You just don’t flip this switch overnight,” Valentine said. “You’re talking about really getting doctors to function in a different way.”

Taking a Pass

In San Diego, Alvarado Hospital Medical Center is among those deciding to hold off.

Luis Leon, regional CEO of Alvarado, said the hospital is taking a “wait-and-see approach,” with the possibility of becoming a late adopter.

Palomar Pomerado Health, with facilities in Escondido and Poway, also has decided to go against the ACO grain. “It’s going to require significant dollars to just create the infrastructure, and there are still questions about reimbursements,” said CEO Michael Covert. “We think there is a better use of our resources. Our goal is to be in a position to plug and play with other health systems in our area.”

Valentine said that some hospitals in California also may not be keen on the idea of sharing their savings with the government. “They say, ‘Why would I want to take a big discount right out of the chute?’ ” he said. “They see that they’re doing all of this extra work and not really getting paid any more money.”

Another big San Diego player, Kaiser Permanente, which is known nationally as a model for integrated care, also is not pursuing ACO status, said David Langess, Kaiser’s director of communications for health care reform.

“Our level of integration already is far beyond what the ACO language calls for,” Langess said. “We’re very happy to see the movement begin to take hold because Kaiser believes that the solution to our nation’s health care problems lies in a future that is much more integrated. But we have no need to undertake an expense like that.”


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