Accountable Care Organizations – What are they and what do they mean for pharma?

ACOs are like the weather.  Everyone is talking about them, no one knows what they will really bring. 

ACO Overview

While the term Accountable Care Organization originated in 2006, ACOs were brought into the spotlight through the Patient Protection and Affordable Care Act (PPACA) legislation passed in March 2010.  An ACO is a healthcare provider entity/network that includes the full spectrum of care including PCPs, specialists, hospitals, long term care, etc.  The main principle of ACOs is to unify providers and improve coordination of patient care with the goal of improving patient outcomes and decreasing cost of care.  The driver of the creation of ACOs is a new Medicare reimbursement model described in PPACA and further defined in the CMS draft ruling release March 31, 2011.  The model includes traditional Medicare Fee for Service (FFS) reimbursement, with the addition of an opportunity for ACOs to receive performance incentives in the form of a shared savings model.  ACOs that demonstrate a decrease in overall healthcare costs will be able to share in some of the savings as long as quality metrics are met.  While Medicare is paving the way for the ACO model, many commercial insurers are piloting ACO reimbursement models of their own, using the CMS model as their guide. 

Highlights of reimbursement model

Step 1) CMS determines a baseline from which to measure future savings

In order to determine future savings, a baseline must first be determined.  The method proposed by CMS for determining a baseline uses the per capita cost of Medicare part A and B FFS expenditures over the last 3 years for patients that will be included in the ACO.  This baseline will be adjusted for risk and growth trends.

Step 2) ACO chooses a model of shared savings

There are two shared savings options that an ACO may choose from.  Option 1 is meant for practices that may have a more difficult, slower transition to an ACO.  ACOs that choose this option will share in only in savings for the first 2 years without the risk of penalties for cost increases.  In the third year, the ACO will be at risk for penalties if their cost of care rises above the baseline.  Option 2 is meant for more advanced practices that will require fewer modifications to become an ACO.  Under option 2, ACOs have the potential for higher sharing of savings, but will be at risk for sharing in losses if costs are higher than expected starting in year 1.

Step 3) ACO must meet performance metrics

The draft ruling issued March 31 2010 outlines 65 treatment guidelines and quality metrics that will be monitored.  ACOs will only be able to share in cost savings if enough of these metrics are met.  The five areas that will be monitored are patients’ experiences in receiving care, the extent to which care is coordinated, patient safety, preventive health, and effectiveness of treating patients who are sick and frail.

What ACOs mean for pharma

Pharma must have a tailored approach for these healthcare delivery corporations 

ACOs are large integrated healthcare delivery networks.  As such, the traditional sales model of reach and frequency is not the optimal approach for pharma interaction.  Because ACOs will participate in shared savings based on following treatment guidelines and meeting predetermined quality metrics, they will likely implement some standardized treatment protocols among physicians in the ACO.  We’ve seen this occur in California’s capitated landscape driven by pay for performance which similarly incentivizes for following treatment guidelines and demonstrating quality of care measures.  ACO treatment protocols and prescription decisions are likely to be increasingly made by top-down management in the form of P&T committees, Medical Directors and Pharmacy directors.  As decision making shifts from physicians to management, pharma should shift its focus towards group management.  This shift should not only include changing who at the ACO is targeted for communication, but also who from pharma initiates the interaction.  The right pharma approach to ACO management should involve Account Directors and executive leadership to demonstrate pharma commitment to the ACO’s mission and values.  One model to consider for interfacing with ACOs is a key account manager who serves as the primary liaison to the ACO.  For larger groups, a cross-functional team with roles including HEOR, marketing, and managed markets contracting can provide a breadth of experience and knowledge that will better address various needs and pain points of ACOs. 

Pharma messaging must align with the goals of ACOs: improved patient outcomes with lowered costs

Through the shared savings reimbursement model set by the CMS, ACOs have the potential to share in cost savings to the healthcare system if high quality of care is demonstrated.  As a result, they are motivated to decrease costs and improve outcomes.  Formulary and prescribing decisions made by ACOs are likely to more strongly consider pharmacoeconomic factors.  Pharma has the potential to influence behavior by demonstrating improved outcomes and decreased overall healthcare costs resulting from the use of their products.  The likelihood of prescribing competing products, including generics, may decrease if there is data to support the overall decrease in healthcare costs of a branded product due to lack of complications, hospitalizations, etc. compared to competing products.

The transition to ACOs will be challenging for many medical practices, creating partnership opportunities for pharma

The regulations for qualifying as an ACO were released by CMS in a 429 page document.  It will be a challenge for many medical practices to understand and implement these regulations.  The path from understanding the regulations to meeting the requirements and then developing the infrastructure and protocols to receive the most shared savings financial incentives will be long and bumpy for many medical practices.  As a result there will likely be partnership opportunities for pharma.  Pharma can play a role to partner on programs such as developing treatment guidelines, monitoring and increasing patient adherence and developing education materials which will help ACOs in their evolution while strengthening their relationship with pharma.  The partnership opportunities created by the challenging transition to an ACO model can be leveraged to eventually influence prescribing habits and improve patient outcomes.

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