The Role of Nursing Homes in ACOs

Author: Arthur Y. Webb*

There is a great deal of expectation and anticipation for the new integrated delivery vehicle being implemented in the Pa-
tient Protection and Affordable Care Act: Accountable Care Organizations, or ACOs. It is hoped that ACOs can simultane-
ously improve quality-of-care while “bending the cost curve” on health care spending.

Unfortunately, while residents of long-term care facilities consume a dramatically disproportionate share of spending,
and while the facilities themselves represent a great deal of potential for efficient care coordination, the ACO legislation
gives scant attention or opportunity for skilled nursing facility participation. This paper discusses briefly the background
of ACOs, the current skepticism for their success, and the more significant opportunity that a nursing home population
brings to the equation.

ACCOUNTABLE CARE ORGANIZATIONS: BACKGROUND

ACOs are contained in the Patient Protection and Affordable Care Act (PPACA or simply ACA) under SECTION 3022.
MEDICARE SHARED SAVINGS PROGRAM. (See appendix)

Dr. Elliot Fisher, who coined the term of “accountable care organization,” noted in one his papers that at the core of these
models are physicians who are either directly affiliated with local hospitals through their inpatient work, or through the care
patterns of the patients they serve. Dr. Fisher refers to these multi-speciality group practices that are bunched around lo-
cal hospitals as an “extended hospital medical staff.” He argues that improving quality and lowering cost should be realized
by fostering greater accountability on the part of this “extended medical staff.”

While integrated delivery systems have been promoted before, CMS is now putting significant money and attention to the
idea. In brief, the shared savings initiative for accountable care organizations (ACOs) assumes enrollment for Medicare
beneficiaries (5000 enrolless) that utilize a “cluster” of providers anyway.

In a recent Urban Institute paper on ACOs by Kelly Devers and Robert Berenson, the authors point to three essential char-
acteristics of ACOs:

1. The ability to provide, and manage with patients, the continuum of care across different settings;

2. The capability of prospectively planning budgets and resource needs; and

3. Sufficient size to support comprehensive, valid, and reliable performance.

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A reading of the legislation highlights some other key elements assumed to be part of any ACO:

XX Patient-centered “medical homes” that deliver primary care and coordinate effectively with other providers

XX Population health information infrastructure to enable community-wide care coordination, including integrated elec-
tronic health records (EHRs)

XX Strong outcome and per-beneficiary measurement capabilities.

WILL ACOS REALLY WORK?

There remains skepticism about whether ACOs can simultaneously reduce costs and improve quality. Some of the argu-
ments against their success include:

XX The fact that a good number of hospitals have already formed – and failed with – partnerships between themselves
and their admitting physicians. Many PHOs (Physician-Hospital Organizations) have been disbanded, and the advan-
tage in managed care contracting never appeared.

XX Many physicians are wary of formal organizations that may limit their control over their practice or income.

XX The States’ fiscal conditions are at their weakest points in a long while – can they really establish the regulatory infra-
structure needed to advance ACOs?

XX The Medicare market is already fairly well penetrated with Medicare Advantage Plans, Medicare Special Needs Plans,
and even PACE organizations. Who claims the Medicare dollar and the savings, and what disadvantages could exist-
ing Medicare insurers pose to fledgling ACOs?

XX Could the Medicare savings really reach the level that the Congressional Business Office estimates?

XX Will legislators see this as an opportunity for providers to “game the system”?

XX What role will Medicaid play in this development? Remember that the most costly Medicare beneficiaries are dually-
eligible for both Medicare and Medicaid.

HOW SKILLED NURSING FACILITIES MAKE A DIFFERENCE

The hope for quality and cost improvement under ACOs is based on the successes of entities such as the Mayo Clinic, the
Cleveland Clinic or Kaiser Permanente. It is not envisioned as an initiative specific to high-cost/high-need chronically-ill
Medicare beneficiaries, and yet the concept applies even better to this population, but only when skilled nursing facilities
are included.

Most importantly, hospitalization – and its costs – is disproportionately tied to skilled nursing and other long-term care
residences:

XX According to the report just released by the Kaiser Family Foundation, “Medicare Spending and the Use of Medical
Services in Nursing Homes and Other Long-Term Care Facilities: A Potential for Achieving Medicare Savings and
Improving Quality of Care” (Jacobson, et. al. 2010) reveals that long-term care residents use more than double the
spending for matched seniors in the community, $14,538 versus $6,726. Put another way, nursing home residents
comprise only 6% of the Medicare population, but use 17% of the dollars, $45 billion.

*Arthur Webb has been involved in health and human services since 1971, with over 20 years of experience as a provider of a wide range of health and
human services and almost 18 years as public official in New York State government. His government experience includes responsibility for Medicaid
budgets in the budget division; commissioner or director of four government agencies including Department of Social Services (the welfare, Medicaid
and social services agency); Office of Mental Retardation and Developmental Disabilities; Office of Substance Abuse Services; and Health Planning
Commission. As a provider, Mr. Webb was president & chief executive officer of Village Care of New York and, most recently, chief operating officer of
St. Vincent’s Catholic Medical Centers in New York.

The Arthur Webb Group provides advice and consultation to health care providers, health plans, disease and utilization management companies and
government officials. The group specializes in offering innovative solutions in the post-acute world.
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XX Nursing Home admissions represent a large portion of all hospital admissions. Estimates are over 10% in many com-
munities, and, of the Medicare beneficiaries, can approach 25% for some hospitals, especially those proximate to a
large skilled nursing facility.

Secondly, nursing homes are a much more significant health resource in this country than most people realize:

XX There are 15,000 nursing homes serving 1.7 million people in the U.S. annually

XX More than 17% of Americans over the age of 85 live in nursing facilities. As this age group is the fastest-growing
cohort, the demand for good skilled nursing care will only increase.

XX About half of all people turning 65 will enter a nursing home in their lifetime.

XX They consume large amounts of public dollars.

We also know that, with the right incentives, skilled nursing facilities can dramatically reduce hospitalizations without
hurting quality-of-care. Perhaps the best example of this is the Evercare Program, of United Healthcare. Enrolling Medi-
care beneficiaries residing in nursing homes, and working with the facilities to enhance their clinical capabilities and care
management and monitoring skills, they have consistently spent less than Medicare fee-for-service residents in the areas
they serve, despite adding spending and resources at the nursing facility level.

This is consistent with the Jacobson study findings that a full quarter of all hospitalizations for nursing home residents
were for ambulatory-sensitive conditions, considered preventable or routinely treatable. However, without changing the
current financial incentives, residential facilities will continue these high-hospitalization patterns, and Medicare savings
potential is greatly limited.

Lastly, for older adults with multiple chronic conditions, the cluster of providers in that “extended medical staff” typically
includes not only a physician group and a hospital, but also a skilled nursing facility, at the very least for short-term post-
acute care. In fact, in many geographic areas, the physicians with privileges at the nursing home are the same ones car-
ing for a preponderance of frail older adults in their private practices, and the same ones who attend on the geriatric units
of the hospital. In the greater New York City Metropolitan area, some high-profile triple-linked entities include:

XX Mount Sinai, Martha Stewart Center for Living and Jewish Home and Hospital

XX North Shore-LIJ, Geriatric Medical Group, and Parker Jewish Geriatric Institute

XX Maimonides Medical Center, Geriatrics Ambulatory Care, and Metropolitan Jewish Geriatric Center

If the ACO is really to be effective at achieving Medicare savings, incentives must be put in place to include skilled nursing
facilities in the organization. It is surprising that this opportunity has been ignored, considering this is really the “low-
hanging fruit.”

Of course, for nursing homes to participate, they must undertake certain investments to fairly and competently “step up
to the plate.” These include:

XX Ensuring consistent primary care and physician collaboration in facility caregiving

XX Implementation of an electronic medical record, to facilitate communications among the internal caregiving team, as
well as to expedite communications with specialty, ancillary and hospital providers.

XX Create 24-hour/7-days-a-week capability for direct admission to bypass hospitalization.

XX Along those lines, create 24/7 capability to provide acute treatments such as IV antibiotics, more intensive diagnos-
tics, and other services

XX Follow transitional care guidelines for patients/residents admitted from hospitals, to reduce the need for re-hospital-
ization.

XX Capably negotiate with the hospital(s) and physician group(s) in the ACO, to ensure sufficient savings are shared with
the nursing facility to cover these investments.
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Of course, if the ACO really functions as a team, the hospital(s) and physician group(s) should be able to expedite nursing
home capacity building, particularly acute treatment protocols, transitional care guidelines, and health information tech-
nology infrastructure. The partners must also recognize the frailty and medical complexity of nursing home residents and
post-acute patients, and ensure sufficient resources in line with high needs.

Another consideration for ACOs with skilled nursing facilities is the opportunity to integrate Medicare and Medicaid pay-
ments. While ACOs are currently envisioned as only a Medicare vehicle, encompassing both Medicare and Medicaid for
dual-eligibles is another goal of national health reform, and skilled nursing facilities in ACOs may just be the way to “kill
two birds with one stone.”

* * * * *

All-in-all, Accountable Care Organizations which are well-structured with patient-centered medical homes and informa-
tion technology do stand a great chance of simultaneously improving quality and reducing cost. However, the potential
to achieve this is limited when the highest cost population – the one most in need of careful collaboration across settings
– is not an equal partner. As we have discussed, skilled nursing facilities have the potential to greatly reduce hospitaliza-
tions and reduce overall expenditures, but only with important investments in clinical capabilities and electronic medical
records.

It would be easy enough to mandate that a defined proportion of the total ACOs authorized include at least one skilled
nursing facility as an equal partner. From the vast potential savings, these investments can be achieved, quality can be
improved, and ACOs can indeed reach their potential.

Contributions from: Allison Silvers, MBA, Director of Strategic Initiatives, VillageCare