PCPs and Hospitals Lobby for Purse Strings in Formation of ACOs

Physicians and hospitals are gearing up for a mad dash in the healthcare reform-mandated formation of Accountable Care Organizations (ACOs), with both sides scrambling to hold the purse strings.

“Whoever controls the primary care providers—the point of entry into healthcare—is going to own the show,” said orthopedic surgeon Ed Homan, MD, from Tampa, Fla., and a state legislative leader from 2002-10.

Jerry Thompson, MD, 2011 president-elect of the Memphis Medical Society and chairman of the Tennessee Medical Association’s insurance committee, refers to the new model of healthcare delivery as “The List.”

“If you’re not on the list of preferred providers for ACOs, you may not have patients coming in your door,” he said. “That’s why it’s so important for a collaborative effort on the part of medical societies and doctors in their communities to be proactive as ACOs are being organized.”

Recently, hospitals like Orlando, Fla.-based Florida Hospital have been snapping up primary care practices to better position themselves in the ACO landscape. The acquisitions have seemed on the surface like a good exchange, and arguably many of them represent win-win scenarios. Selling their practice has been attractive to physicians tired of dealing with administrative headaches, declining reimbursement rates, and lower profit margins. “After all,” said Homan, “doctors have been taking it on the chin.” The lure of upfront cash—$200,000, for example—combined with a salary and benefits that include medical malpractice insurance coverage, along with having the hospital retain and pay for the clinical staff, seems reasonable in exchange for admitting all practice patients to that hospital.

“They’ll have the money, the patients, and the medical records and birddog Medicare patients to be sure that when they get their total hip replaced, they get the $1,000 prosthesis, not the $7,000 one,” he said. “And if there’s a choice between a stent and open heart surgery and the results are about the same, it’s not going to be a decision made between the patient and doctor regarding the treatment. It’s going to be made in favor of the cheapest treatment going, as long as no one can deny that we’re providing care. We can turn this around and save money.” 

But some primary care physicians who sold their practices to hospitals in 2008 with a 3-year salary guarantee on a 5-year contract, are finding themselves in an unpleasant predicament in 2011. This summer, physicians in a small Florida city are looking at a 40 percent reduction in salary. Because their contract included a non-compete clause limiting the physicians from practicing medicine within 30 miles of the hospital, their choices in this poker game are limited: either try to negotiate a smaller pay cut without bargaining power, stand together as a group to generate bargaining power, accept the terms being offered, retire, or move outside the 30-mile radius and start again.

“This scenario is more common than many physicians think,” said Thompson. “That’s even more reason to collaborate and be proactive.” 

Some state medical associations such as Florida and Texas are looking for ways to give doctors more control over patient care through ACOs. If doctors or medical societies form an ACO, then they hire the hospital.

“The problem is, there aren’t enough doctors who are businessmen or leaders to do the sort of thing that’s like herding cats,” said Homan. “They’re independent businessmen who don’t work for large companies like GM, RCA or Xerox. They’re not organized in the sense of how other industries are organized. Even hospitals are organized with a leadership ladder and are growing in size like Adventist in Orlando or BayCare in Tampa or HCA. That’s a handicap for doctors as a group.”

Thompson said the Memphis Medical Society would love to form an ACO, but “it takes a lot of time and money to do it.”

The timing of the move to ACOs coincides with the anticipated push by Florida lawmakers this year to expand mandated managed-care enrollment in other areas of the state beyond the five pilot counties. The playing field would tilt if state legislators allowed ACOs as an alternative to traditional managed care.

“Basically, our position is that we still oppose the move to managed care,” Jeff Scott, director of governmental affairs for the Florida Medical Association, told Health News Florida, “and we will fight that.”

Bruce Rueben, president of the Florida Hospital Association, said conversations are underway at hospital systems statewide to determine how they might establish and maintain ACOs without violating antitrust laws. But questions linger about many details until federal rules are in place.

“There are a lot of ifs,” said Homan.

Tennessee Medical Association spokesperson Russ Miller pointed out that mergers with hospitals for all specialties have been growing statewide, not only primary care practices.

“One thing we’ve been acutely focused on recently is the ACO,” he said, quickly adding there are multiple reasons for the mergers. “Some are hospitals wanting to be better positioned. Some are medical practices that are being threatened or have had the rug yanked out from under them. Then others are purely collaborative efforts. There are a lot of reasons why that’s happening.”

Noting trends that are developing as a result of the ACO model, Thompson said that Medicare has severely reduced reimbursements for imaging services at cardiology practices, adding that hospitals have not been affected. “That sent a very strong signal over where future cuts are going to be,” he said.

While healthcare systems, hospitals and physician practices are weighing the options until solid information is accessible, they should be cautious about making a move too quickly, said Thomas E. Bartrum, a Nashville attorney with Baker, Donelson, Bearman, Caldwell & Berkowitz, and co-chair of the American Health Lawyers Association’s new ACO Task Force. 

“If you move too quickly, increase your efficiency and increase your cost accountability for care, what you’re going to see is a decrease in revenue without any corresponding savings to share with anybody,” he explained. “I don’t want to say there’s a fair amount of gamesmanship here, but I don’t think you want to get too far in front of the curve, either.”

He cautioned healthcare providers to be cognizant of consultants who appear quite knowledgeable about ACOs. Instead, he suggested, initiate a self-evaluation to identify opportunities to save money and improve care for patients.

When ACOs are finally in place, Bartrum believes the Shared Savings Program might be “an opportunity for real money.”

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