A troubling trend emerges as healthcare reimbursement shifts from volume-based to value-based systems: rural hospitals are increasingly at risk for closure. There are many factors contributing which make these closures more and more prevalent.

One principal reason is that more patients are shunted to urban hospitals as EMS transfer systems become more efficient, especially for heart attack and stroke care. For a modest fee of $50,000, one may take a 30-minute helicopter ride from his or her local community to the nearest regional hospital. Unfortunately, many of these transfers ultimately prove unnecessary and deprive local hospitals of admissions that could have been managed locally.

Second is the perception that more volume means better care. A plethora of published studies suggest that doing more CABGs, transplants, and so forth translates into lower complication rates. The press generated by such journal articles fuels an erroneous public perception that care at rural hospitals is inferior or simply “no good.”

Finally, value-based reimbursement now penalizes facilities for complications such as catheter-associated urinary tract infections or readmissions within 30 days of discharge for the same diagnosis. While large hospitals might be able to “take the hit,” rural hospitals with smaller margins are quite vulnerable to insolvency when reimbursement is reduced or denied for setbacks that are not necessarily the result of improper care.

So, what are rural hospitals to do to survive?

In my experience, the first priority is to staff rural hospitals with physicians who have a stake in the community, preferably qualified local physicians. In my little town, four of my partners and I take turns working at the hospital every five weeks. Since we assumed inpatient care responsibilities last spring, patient satisfaction surveys for our hospital have gone from abysmal during the tenure of out-of-town hospitalists to the highest in the Saint Thomas Hospital system at the end of April 2018 under us. I am of the opinion that when you have to see patients in the grocery store or at church, you try a little harder to deliver good care.

Second, having great case managers is a must. Close communication between case managers and physicians about length of stay and how to get someone to qualify for an admission who needs it remains a financial necessity for a rural hospital’s survival.

Third, cultivate a working relationship with a reputable tertiary care center. Even if your local hospital does not make a profit, if you are capturing business for a tertiary center by transferring patients who require a higher level of care than your facility offers, you might be able to subsidize your local hospital’s operations through a partnership.

Furthermore, develop a safety net between your hospital, nursing home, and home health providers to keep “frequent fliers” out of the emergency room. It is no secret that many patients come to the ER for problems that could have been managed with a phone call or an office visit but instead trigger a 30-day readmission. Having a committee of representatives from case management, nursing homes, and home health agencies who can devise strategies to care for noncritical patients at home pays dividends to all. Home health networks and nursing homes get to keep their patients, and hospitals do not get penalized for unnecessary hospitalizations.

Finally, be a champion for your facility. When you do something well, make sure it gets press in your local news media. Get happy patients to tell their stories. The positive feedback might make other patients think twice about seeking care at large hospitals fifty miles away instead of yours.

Having a local hospital is a boon for small towns. It can mean the difference between having a booming community or a declining population. Rural hospitals provide a means to care for patients locally without their families driving long distances to be with them for simple problems that do not necessarily require specialty care (illnesses such as pneumonia, CHF exacerbations, COPD flares to name a few). Sure, if I am having a heart attack, get me to a big urban hospital for a cath. If I am dehydrated from a virus, just give me a couple of liters of saline at my local hospital.

Sadly, if communities do not support their local hospitals, their facilities will certainly close. The negative ripple effects of such closures will be painful and likely irreversible. Therefore, if you do not have a plan to keep your small-town hospital open, then I suggest you get busy right away!

SUMMARY

Factors causing rural hospitals to close:

• Loss of volume to urban hospitals from improved EMS transport
• The erroneous perception that bigger is always better
• Reimbursement penalties for complications and 30-day readmissions

The simple blueprint to save rural hospitals:

• Staff them with qualified local physicians when possible
• Invest in excellent case managers
• Cultivate a partnership with a larger tertiary-care hospital network
• Develop a safety net between case managers, nursing homes, and home health to reduce unnecessary ER visits and admissions
• Be a champion for your facility – word-of-mouth from satisfied customers is the best way to advertise your services

Today is the day my classmates and I have been working toward for the past 21 months. It’s Graduation Day for the Physician Executive MBA (PEMBA) Class of 2018! (Sorry if you didn’t get an invitation – since it’s my fourth graduation ceremony, I thought sending out announcements might be overkill!).

I confess I am a bit ambivalent about graduating – I am relieved to be finished with all the work, but I am also sad to be saying goodbye to classmates with whom I have forged close friendships.

As I look back on my studies, I am grateful for all I have learned – especially the accounting, finance, and leadership skills. I will tell anyone who cares to listen that my MBA has been invaluable to my medical practice and that I would do it all again without hesitation. Furthermore, my network of business and healthcare connections has blossomed. My classmates include practicing physicians like myself, Chief Medical Officers (CMOs), and others working on their own startups as true entrepreneurs!

In truth, I would never have quit my practice to pursue an MBA as a full-time student, so the real strength of Auburn’s PEMBA program is its hybrid structure, offering a mix of classroom instruction and distance learning. I would even argue that working while earning an MBA actually gave me the opportunity to apply what I learned to real world situations immediately, an advantage that full-time programs lack. Details about the Auburn PEMBA curriculum can be found here: http://www.auburn.edu/academics/executive/physicians-executive-mba/the-program.php

I would be happy to answer any questions for anyone interested in the program – feel free to contact me on LinkedIn. Here’s a link to my profile: https://www.linkedin.com/in/steve-cooper-640396112/

War Eagle!

Foreword

You should read this article if any of the following conditions apply to you:

• You are participating in an Accountable Care Organization (ACO) as a manager or as a clinical provider
• Your ACO depends on earning Shared Savings to fund its continued operations
• You are a Center for Medicare and Medicaid (CMS) official wondering about the long-term future of Shared Risk arrangements
• You are curious what ACOs and Charlie Brown have in common

The Promise of MSSPs / Track 1 ACOs 

Many of us participating in ACOs began our journeys in so-called “Pioneer ACOs” under a Medicare Shared Savings Program (MSSP) called Track 1.

The premise was straightforward: if ACO Providers reduce per-member spending on their Medicare beneficiaries below a certain threshold, they earn eligibility to receive up to half of the money they save as compensation, referred to as “Shared Savings.”

At its inception, it certainly sounded like a good deal for us clinicians in the trenches!

The threshold for earning Shared Savings was typically 2% below a spending threshold set by CMS which varies year to year.

There are basically 3 spending scenarios one sees in Track 1 ACOs (see Figure 1A, in which the Diamond Symbol ◊ indicates the ACO annual per-member spending in each scenario):

Scenario 1 (spending in the red zone): The ACO per-member spending at the end of the year exceeds the Government’s target savings threshold. Here, the government fails to save money, and the provider (having no risk) does not lose any money.

Scenario 2 (spending in the yellow zone): The ACO successfully reduces per-member spending below the Government Savings Threshold but fails to achieve the target for earning shared savings. In this situation, the government saves money, but no money is distributed to the ACO.

Scenario 3 (spending in the green zone): The ACO manages to spend below the cutoff for Shared Savings, and everyone wins! The Government saves money, and the ACO receives shared savings which it can apply to its operations and/or distribute to members.

Obviously, everyone wants their ACO to achieve Scenario 3, right?

If, however, you find yourself in Scenario 1 or 2 in which your ACO fails to earn Shared Savings, you can at least take consolation in the fact that you don’t have to pay the government a penalty if you accidentally spend more than the government’s threshold.

Do such penalties exist?

Yes – such an arrangement is called “Shared Risk,” and we will talk about that next.

Shared Risk / Track 1+, 2, 3, NextGen

CMS is now steering ACOs in Track 1 (a shared savings model) into new “Shared Risk” models in which participating providers will be on the hook to pay back money if they exceed a certain spending threshold.

Such Shared Risk models are more perilous for physicians to participate in because the payback for exceeding the threshold can be considerable – such penalties are referred to as “Shared Losses.”

To illustrate this more clearly, consider Figure 1B which depicts how two different ACO “overspend” scenarios in Shared Risk Models play out:

Scenario 1 (pink zone): The Government fails to save/loses money, but the ACO loses nothing. This is a so-called “risk corridor” that insulates ACOs from losses slightly above the threshold.

Scenario 2 (dark red zone): The ACO has to pay money back to CMS as a “shared losses” penalty for spending considerably above the threshold.

Sure, in Shared Risk Models, providers could still earn shared savings if they hit 2% below the target, but considering many factors are out of your control (smoking cessation of your beneficiaries, for example), how would you like to work hard and end up having to pay money back to the government despite your best efforts?

For me, that would be the day that I stop taking Medicare – and that day may come sooner rather than later.

Now, ladies and gentlemen of the jury, I will present evidence that Shared Risk models are a poison pill for ACOs – and we will get to the real reason that ACOs are like Charlie Brown.

How Shared Savings becomes a Zero-sum Game in the Long Run

Hypothetically, assuming the providers in your ACO are actively trying to save money, your ACO spending over time should look like the Charlie Brown ACO in Figure 2:

Two important things are important to note about Figure 2:

• The biggest drops in ACO per-member spending (depicted by the blue line) occur in the first three years of participation when managers find out ways to cut wasteful spending and more appropriately manage healthcare expenses.
• As time passes, note that ACO spending tends to level off and hover about around an equilibrium level (the purple line on the graph). This equilibrium level will be above the lowest theoretical minimum spending possible assuming operations go perfectly.
• Also notice that the equilibrium point is reached relatively quickly (by Year 5 or so).

Why does this matter?

Look at Figure 3, and I think you will understand:

At year 4, several important things happen if you are a Track 1 ACO that will affect your profitability:

• You will be herded into a Shared Risk Track in which you could be penalized for spending that exceeds a certain level above the government’s threshold. Therefore, note that at Year 4 and beyond, the red line depicting the threshold for Shared Risk appears on the graph. Spending above this red line means that your ACO will have to pay money back to CMS.
• The target spending threshold starting in year 4 becomes an average of your spending in the prior 3 years.

This means that the benchmark for Shared Savings will drop each year until it eventually becomes impossible to achieve.

It also means that you cannot do something on the sly like spending way more on your beneficiaries in order to intentionally move your benchmark upward for future years – doing so would put you above the red Shared Risk (payback) line!

It’s sort of like that game Limbo: if you make it under the threshold, the bar gets lower the next year. Eventually, you hit a point where you cannot squeeze your body under the bar no matter how good you are, and that’s when you stop achieving shared savings.

The implication is that if your ACO depends on earning Shared Savings to fund its operations, your ACO will ultimately become financially insolvent. In other words, the quest for Shared Savings becomes a Zero-Sum Game in the long run.

One might liken the scenario to CMS (Lucy) holding the football for you as if you can achieve Shared Savings, and when your ACO (Charlie Brown) runs toward it and tries to kick it, CMS pulls the football out of the way as you whiff and end up on your back in pain.

So, is that what I meant when I said that ACOs are like Charlie Brown?

No – but it is one similarity, I suppose.

The more important reason I think ACOs have something in common with Charlie Brown is the pattern they share.

Look at Years 7-10 of ACO Spending (Figure 4):

Notice the zigzag pattern?

Now, remember Charlie Brown’s shirt?

OK! So that’s it – that is how ACOs and Charlie Brown are alike. The ACO zigzag pattern about the equilibrium reminds me of Charlie Brown’s shirt!

For the record, I want credit for coining the phrase “Charlie Brown-ing” that describes the long-term spending pattern that ACOs get into.

(Underwhelmed by the analogy? Sorry.)

Actually, my partner Will Sherwood, MD, thought that the ACO pattern was more fittingly compared to V fib:

Props to Will for that, since it makes an even more fittingly ominous analogy!

Anyway, if you have an interest in ACOs, what does this mean for your future?

• If you are managing an ACO which depends on Shared Savings for ongoing operations, you will eventually become insolvent because participating in Shared Risk ultimately becomes a zero-sum game. You must find other income to supplement operations.

I personally have some good ideas on how to do that, but each organization must find its own way.

• If you are a Provider in such an ACO, realize that you must decide on whether the benefit of staying in the ACO is worth it – assuming that you will never again get an income distribution from Shared Savings after a certain point.
• If you are a CMS policy maker, and you think the ACO model is beneficial, you should assume that many ACO managers will be knocking on your door about going bankrupt in the near future if you do not find a way to continue subsidizing the operations of ACOs. After all, few people are willing to work for nothing.

That is our lesson for today, everyone. I hope you enjoyed it!

Steve Cooper, MD MBA