ACO costs may be far higher than estimated, AHA says

The start-up costs to hospitals and providers of implementing and managing a defined population group in an accountable care organization (ACO) are substantially higher--perhaps in the range of $11.6 million to $26.1 million--than the $1.8 million estimated by the Centers for Medicare & Medicaid Services (CMS), the American Hospital Association (AHA) says in a letter to the agency.

The AHA based its comments on findings from a white paper it commissioned from McManus Consulting that looked at the steps and associated costs of establishing an organization that is "poised to be accountable for care." The study identified 23 activity areas that needed to be developed across four categories: network development and management; care coordination, quality improvement and utilization management; clinical information systems; and data analytics.

The study was completed before CMS issued its proposed ACO regulations and, so the estimates should be viewed as "early indicators"--not "definitive measures" for ACOs--in the Medicare Shared Savings Program, McManus said. A second white paper also was created addressing the management and strategic issues involved in establishing ACOs.

The study used information gathered from four organizations that were "relatively far along in establishing the relationships and competencies" related to creating ACOs: New West Physicians, a primary care physician practice in Denver; Metro Health, a hospital system in Grand Rapids, Mich.; Memorial Hermann Health System in Houston; and Catholic Medical Partners, a physician-hospital system in Buffalo, N.Y.

Using that data, the study created two hypothetical examples to estimate the start-up and ongoing costs of establishing an ACO. The first represented a single free-standing hospital, with 80 primary care physicians and 250 specialists. The second example included a five-hospital (1200 bed) system, with 250 primary care physicians and 500 specialists.

Since the CMS estimate falls short of the mark, the "shared savings rate with ACOs should be adjusted to reflect these costs in order to encourage and enable participation in this important program," AHA President and CEO Rich Umbdenstock said in a statement.

For more information:
- see the AHA announcement
- here's the McManus white paper on "The Work Ahead" (.pdf)
- view the McManus white paper on "From Volume to Value" (.pdf)