College of American Pathologists
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  Labs ponder the latest in cost-saving schemes


CAP Today




July 2011
Feature Story

Karen Lusky

What’s the simplest and cheapest way to save an accountable care organization the most money? With an at-home device, a clinical lab test of sorts, said George Lundberg, MD. “It’s called a bathroom scale.”

Dr. Lundberg, pathologist and former editor of JAMA, is “cautiously optimistic that widespread dissemination of ACOs might actually bend the [cost] curve,” he told Executive War College attendees in May. If pro­gress isn’t made in bringing costs under control, he sees “Medicare for all five years out.”

Dr. Lundberg is one of several who shared their predictions and plans for ACOs at the War College or more recently in interviews with CAP TODAY, or both. Leo Serrano, director of laboratory services at Avera McKennan Hospital and University Health Center, Sioux Falls, SD, is another. He calls the ACO an “old dog with a new collar” and predicts the movement won’t last.

There “will be a big flurry with everyone jumping on it and people will be dissatisfied and go away. I’ve seen the cycle time and time again.” Until then, “wait out the cycle and do things like use order sets and educate a new group of doctors to think a little more selectively and creatively.”

For pathologists and laboratories now, the issue is whether they will be able to make the case, as pathologist W. Stephen Black-Schaffer, MD, puts it, for playing a “meaningful, inspiring role” in coordinated-care delivery models. To be sure, it’s important for pathologists to be part of ACO formation, says Donald Karch­er, MD, chair of the CAP ACO Network Steering Committee. It can make the difference in whether an ACO succeeds, he says.

Less certain is whether and how providers will participate in Medicare’s ACO program, which begins in January 2012. Says Dr. Black-Schaffer, vice chair of the CAP Economic Affairs Committee, “If organizations fail at being an ACO, CMS’ risk, which is very substantial, is that the idea of ACOs will itself be discredited.”

This much is clear: ACOs are not, as some believe, a largely untested concept that the government invented for Medicare in the Affordable Care Act, said Tom Williams, Dr PH, MBA, director of California’s Integrated Healthcare Association, which oversees California’s physician pay-for-performance program for eight health plans. In his War College presentation, he said ACO-type entities have been successful for decades in California. But “there are many very high-performing ACO-type organizations in the country outside of California,” too, he says. In fact, he does not see the ACO movement as dependent on the government’s Medicare ACO program. Yes, the Affordable Care Act and Medicare helped direct attention to ACOs. “But there’s been a lot of momentum already on the commercial side.”

As for how labs and pathologists can negotiate with ACOs, a first step, said Jack Shaw, executive director of Joint Venture Hospital Laboratories, at the Executive War College, is to realize that the axiom “when you’ve seen one payer contract, you’ve seen one contract” also holds true for ACOs, which will come in different forms. Most ACOs will be local, he predicts.

Dr. Black-Schaffer, who is associate chief of pathology at Massachusetts General Hospital, believes that providers of services to ACOs will offer varying value propositions. “Larger commercial labs’ value proposition may be that ‘we can do everything and more cheaply.’ Large commercial labs can work with physicians in their offices who have an EMR, but these labs are not as likely to have a pathologist involved in the actual care of individual patients across the continuum of care as would an integrated care delivery system,” he says.

A local pathology group, on the other hand, “may have the value proposition that ‘we don’t do everything, but we do what’s cost-effective and in a way that’s integrated with your clinical services. And we can offload some of the lab-specific decisionmaking from PCPs [primary care physicians], and even from some specialists.’” This involves managing not just the costs of the tests themselves, but also the costs and effectiveness of all components of test-based patient care, Dr. Black-Schaffer says.

“In between these extremes, some regional labs associated with a health care system, such as Mayo and ARUP, are more inclined to value the pathologist’s role in health care,” he adds. “They may be more oriented to coordinating care with local pathologists than the large national labs.”

“All of these possibilities are still only just emerging, and we will have to follow them closely to see how they each turn out.”

Health care providers are also watching for the CMS’ final rule to see what the Medicare Shared Savings ACO program will look like. “The folks at CMS are plenty smart,” says Dr. Black-Schaffer, “but they came up initially with just about the worst imaginable set of ACO proposals.”

Sarah Swank, a principal in Ober/ Kaler’s Washington, DC, law office, told CAP TODAY that under the CMS proposal, ACOs may share savings only if there are actual savings and they meet 65 quality in­di­cators. And given pro­vi­ders’ “mixed review” of that prop­osition, the CMS, which is under political pressure to get the ACO program going on time, quickly went through the Center for Medicare and Medicaid Innovation to come up with new ACO options, Swank says. They are the Pioneer ACO Model, the Accelerated Development Learning Sessions, and the Advanced Payment Initiative.

CAP ACO Network Steering Committee chair Dr. Kar­cher, who is director of laboratories at George Wash­ington University Medical Center, says the proposed Advanced Payment Initiative “would ‘advance’ some of the anticipated shared savings to a provider organization for use in building the necessary infrastructure to become a successful ACO.” But “this advance would be at risk should the ACO not generate enough savings.”

Swank says the Pioneer model, in contrast, “is a separate program for 30 mature ACOs that have well-developed coordination-of-care abilities.”

Here’s how the CMS describes the Pioneer ACO Model: “designed to test the movement of organizations experienced in providing coordinated care across settings more rapidly to population-based payment arrangements and to work in coordination with private payers to achieve cost savings and improved health outcomes for Medicare beneficiaries.”

Says Dr. Karcher, “The College and many others are excited about the Pioneer option, because it offers more opportunities for significant savings and return on investment.” This is particularly true for organizations that already have ACO-type experience.

Partners HealthCare in Boston, which provides a full continuum of services, is considering applying to become a Pioneer ACO, Dr. Black-Schaffer says.

George Washington University would not qualify to participate in the ACO or Pioneer models, says Dr. Karcher, because “like many academic medical centers, we have relatively few primary care providers, as defined by CMS for ACOs.” That means GWU does not provide primary care to enough Medicare beneficiaries to qualify for either model. The CMS ACO model requires at least 5,000 beneficiaries, and the Pioneer model requires 15,000 beneficiaries in a non-rural setting. GWU’s Medical Faculty Associates, which now has about 500-plus physicians, has plans to increase that number to 1,000 by 2015, says Dr. Karcher.

Dr. Karcher notes that GWU is negotiating value-based purchasing arrangements with some of its private payers. “We haven’t anything yet, but we are much more advanced in those discussions than we are with CMS ACOs.”

In a talk at the War College, Rick Panning, MBA, MLS(ASCP) CM, vice president of laboratory services at Allina Hospitals and Clinics in Minneapolis, shared his organization’s due diligence planning to become an ACO. Allina has formed a broad-based physician network that extends beyond its employees. The health system’s pathologists would need to become a part of the ACO as they work on a contractual basis with Allina.

Allina is also participating in a small ACO model pilot with a private payer. “That has been going on for over a year and we have seen some significant positive changes in terms of managing costs and clinical outcomes,” Panning says, who adds that the “curve has not yet been bent but it has been straightened.” The intent, he says, would be to expand that beyond a small part of the organization.

Joint Venture Hospital Laboratories in Michigan isn’t necessarily going to be the lab provider in an ACO. But the network, Shaw says, which includes 120 hospitals, “will work with hospitals so they will have the data reporting capability to be the primary lab provider to ACOs.” That won’t be difficult to do. “Right now, virtually all the 20-plus payers contracting with JVHL want the results of lab testing we do for their members,” Shaw says.

Geisinger Health System, which its chair of laboratory medicine, Conrad Schuerch, MD, says is “well-developed as far as ACOs go, although the health care reform act coined that word,” will probably delay entering the Medicare Shared Savings program. But that’s only because it participated in the original physician group practice demonstration project and is now in the transitions program, which bases payments on quality and cost outcomes.

When entering the formal Medicare ACO program in the future, Geisinger “would expect to accept the highest level of risk offered, if we enter as Geisinger Health System,” Dr. Schu­erch says. If the ACO is defined to include a number of other hospitals and health care providers, he says, “we may start at a lower level of risk.”

Geisinger has experience managing risk, at least internally with its own health plan, which covers 250,000 people. With the health plan and hospitals under a single foundation, the health system was able to model a warrantied payment concept, says Dr. Schuerch, which provided one of the inspirations for payment redesign in the effort to reform health care.

Geisinger initially applied the warrantied payment concept to coronary bypass, whereby the clinics and hospitals agreed to accept a designated lump sum from the Geisinger health plan for coronary bypass in a program called ProvenCare. The payment included the historical reimbursement for the average coronary bypass procedure, plus half of the historical extra costs of related hospital readmissions and complications.

To be able to provide care for that set amount, says Dr. Schuerch, Geisinger came up with a bundle of highly reliable evidence-based practices supported by the electronic medical record. It also revamped its processes and tracked and improved performance on each part of the bundle.

“The clinical outcomes—including complications, infections, mortality, and readmissions—all improved,” he says. Hospital length of stay dropped by a half day, and readmissions decreased by 45 percent. The providers and health plan realized large financial gains.

Next, Geisinger applied the warrantied payment model to other clinical situations, for example, hip fracture, back pain, coronary angioplasty, prenatal care, and use of Epogen, all “with measurable improvements in quality and decrease in cost,” Dr. Schuerch says.

In Sioux Falls, Serrano says Avera McKennan Hospital and University Health Center are setting themselves up to be an ACO but won’t “jump the gun” to be one. For example, they’re setting up order sets by diagnosis, which involves tapping databases for best practices. The effort is multidisciplinary, involving physicians, pharmacy, laboratories, imaging, rehabilitation, and nursing. “The doctor can go to the order set and select what he or she wants done. We have had the different specialties go over it and make sure it’s not missing something.”

Serrano is also setting up his laboratory to be ACO-ready. But is he going to go looking for it? “Absolutely not.”

“If you look at the ACO movement,” he says, “it’s essentially the same controls and the same liabilities [imposed] on the provider that were in place under the original HMO concept. The thing is that nobody is telling you how you’re going to get paid” as an ACO.

There’s also the question of what quality measures ACOs should use. Dr. Williams says Integrated Healthcare Association has worked with all the payers in California to develop a uniform set of 87 measures for IHA’s physician pay-for-performance program. The measures include, in part, patient experience, clinical care, appropriate resources, health IT, and care coordination. The framework, he says, is similar to Medicare’s proposed measures for ACOs, many of which are process-oriented. However, “everyone is trying to move to outcomes-based measures, and lab data are important for measuring and improving outcomes,” he notes, pointing to hemoglobin A1c and cholesterol testing as examples.

In its comments to the CMS about the proposed ACO rule, the IHA warned that 65 quality measures are too many in the first year for new ACOs. The letter noted that IHA’s pay-for-performance program started with 25 measures in 2003 and built up to the current number over the years. (IHA’s measures are on page 2 of its letter to the CMS, at

Of Medicare’s 65 proposed quality measures, Swank says, 31 are for frail populations. Why? Because the CMS doesn’t want “ACOs to dump the sick or frail patients and wants to ensure ACOs provide them good quality care.”

Selecting the right quality measures for ACOs gets tricky, however, in Swank’s view: “If we do not take into account other conditions that are part of the person as a whole, health care reform will not work. People have other issues in their lives when they get sick that go beyond their medical problems.” They may become homeless or have home-related issues that will require significant case management. “Also, patients may not be compliant with their plan of care. Under the ACO program, there has been discussion of ‘paying’ patients for compliance in the form of lower copayments and the like.”

Having readily available and accepted evidence-based medicine also helps, but IHA’s Dr. Williams and others note the shortage. “We have to bring objective evidence to the table that’s not affected by special interests,” Dr. Williams says.

“Evidence-based medicine,” says The Dark Report’s Robert Michel, organizer of the War College, “is getting lots of attention by health policymakers. Unfortunately, it requires substantial amounts of money to conduct the types of broad clinical studies” that are needed to determine clinical efficacy. That’s one reason, he says, why evidence-based medicine is likely to play a more limited role in medical care and attempts to reform health care.

Making use of the Internet is one approach to accelerating the pace of medical research, an initiative Dr. Lundberg is involved in on the cancer front as editor in chief of Cancer Commons ( It’s a horizontal and vertical platform that allows patients, providers, companies, and researchers to communicate about cancer, he says. Cancer Commons has “verticals by diagnoses. First was melanoma, second lung cancer, and third will be colorectal cancer. We are moving right ahead on those; others will follow.”

“There’s no question that the concept of using the Internet to produce a greater degree of open source science in real time could apply across all elements of medical and other science,” says Dr. Lundberg, who is also editor at large at MedPage Today and consulting professor of pathology and health research policy at Stanford.

As for those who compare ACOs to the old HMOs, Dr. Lundberg says there’s a similarity between what HMOs were and what ACOs could become. “What’s different is that we learned what didn’t work with HMOs and what did. Many HMOs survived and flourished. Kaiser Permanente works very well.”

Also, “all HMOs weren’t all bad—it was the for-profit ones that tended to behave badly,” he says. Everyone would benefit from applying to ACOs what did work for HMOs, in Dr. Lundberg’s view, and using social media to connect pro­viders and care recipients. He adds, “One would also have to throw in a large smattering of good will and professionalism.”

The nonprofit Lundberg Institute (, he says, talks about “the care of one patient, one physician, one moment, one decision—let it be a shared decision—informed by the best evidence and considering cost. You take that concept and apply it across a group that chooses to come together in an ACO and get them to work together to get the most bang from the buck—because it’s their buck and their lives.”

Serrano doesn’t foresee a decline in health care costs until each part of a “four-legged stool” has been addressed, including “huge pharma” costs and tort reform. If you don’t do tort reform, he says, “Guess what? Physicians are going to continue to practice defensive medicine and order everything under the sun for fear of getting sued.” The third leg is the cost of providing the health care. “It’s interesting to me that all the vendors continue to raise their prices to us even though our reimbursements are going down.” He calls the fourth leg “probably the most dangerous”: health care consumers. “We want what we want and we watch TV and read on the Internet and find out the latest thing. We are asking for the magic pill. We are Americans and like instant gratification.”

When Serrano began his career, physicians didn’t have laboratory panels. “Instead, they ordered what they needed. In the 1960s, we did stuff manually without all this automation.” Physicians didn’t have to grapple with “all the lawsuits or hassles. Patients often had minimal insurance. One major sea change occurred with Medicare DRGs where everyone said this is the death of health care as we know it. But people adapted and figured out how to make money with DRGs.” It’s now a “new game with a new name,” he says.

Geisinger’s Dr. Schuerch says it isn’t that there’s a shortage of money for health care in this country. “The problem is we don’t use it well. Some providers waste it or take the money and run. By contrast, coordinated medical practices like ours are lean and aiming to get leaner. We avoid a lot of internal competition and inefficiency, improve our processes to reliably deliver best practices, and get better outcomes as a result. That’s the idea behind all of this.”

Karen Lusky is a writer in Brentwood, Tenn.