ACO's Competing for PPO Business

Historically, ACO (Accountable Care Organization) groups have serviced HMO contracts.  Because of this fact, they have flown under the radar of most PT and MD offices that provide services to PPO patients.  But will that always be the case?  It has yet to be determined, but it is one of the key ideas that will need to be ironed out if the ACO movement is going to have an impact nationally.

• If you were running an ACO, why wouldn't you want PPO business?  The primary reason would center around the capitated pay structure most ACO's were built around and how that impacts how it's physicians are paid.  PPO's with fee-for-service structure don't fit this model easily.
• However, attracting PPO business is important since increasing numbers of national employers are getting away from individual, local HMO products and purchasing national PPO plans for their employees.  This trend has shifted overall insurance coverage away from HMO plans.  
• PPO's are also attractive because they are not regulated by groups like The California Department of Managed Health Care (DMHC), which place significant regulations on ACO business.  PPO service is resultantly much cheaper and easier to provide to patients. 

No one has yet come up with the perfect fix for this HMO/ PPO problem, but given that both providers (ACO groups) and insurers are motivated to find out a solution via the Obama-care initiatives that are coming, it will eventually get worked out.  If a cost effective model can be created (call it whatever you want), the employers who have been getting killed with increasing annual premiums will jump on board quickly if it helps them save money on their bottom line.  And when that happens, the ACO issue might become very real to the general public.

Looking forward, here's where it gets a little scary.  What if you are an independent provider in an area where an ACO aligns itself with all the providers (Medicare, PPO, HMO)?  What if the ACO includes the largest hospital system in your neighborhood?  Can you still compete?  Where are your patients going to come from?  Will your reimbursement rates be anywhere close to theirs?  

For those of you thinking, "Isn't it illegal for hospitals to employ physicians in California?"  Well, there is a business structure called "the foundation model" that makes it all work legally.  The physicians become part of the hospital's foundation, creating an obvious allegiance, but are not considered simple "employees" of the hospital.  The result is you have a group of MD's that become part of that hospital system.  

• The sales pitch from the ACO to the consumer will be that they will be able to provide the best care around because of their signifiant integration of great doctors, the hospital, ancillary services, and great electronic communication.  Patients won't have to fill out their information repeatedly for each doctor they see, since all their information will be shared amongst each of their providers.  This will increase efficiency on both ends and also cut down on repeat tests due to improved communication.  There is a lot of truth to all this.  This is the utopic vision that is driving the EMR revolution.  
• The ACO pitch to the insurer will be that since they can control costs better, they should be able to offer lower rates to their customers.  Initially that may be the case, but eventually the more probable truth of the matter will be that you will have an entity that cannot be overlooked at the negotiating table.  The ACO will have significant leverage to negotiate contracts with PPO providers, which will only make the playing field that much more unbalanced for the independent providers.  Sure there are federal anti-trust laws that help protect against these practices, but they are already in place, and look how fair things are currently!?  The combination of hospital reimbursement rates for Medicare patients and leveraged increases in PPO reimbursement, due to the percentage of the population they are serving, makes sense for the ACO.  But it could very well spell difficult times for those outside the ACO umbrella.  
• Would you want to compete against this group?  I hope for your sake you never will, but I wouldn't bet on it.  Keep an eye on this topic as 2012 unfolds.