Doug Hastings Featured in Article About the Financial Impact of ACOs on Hospitals

AIS's Health Reform Week

Douglas Hastings, Chair of the Board of Directors and a Member of the Firm's Health Care and Life Sciences practice in the Washington, DC, office, was featured in an article titled "Hospitals Fear Financial Impact of ACOs, Seek Clarifications on Legal Issues, Pay."

Here is an excerpt from the article:

If physician practices are ecstatic about their prospects in the Medicare Accountable Care Organization (ACO) program created in the new health reform law, many hospitals seem to be somewhere between concerned and terrified. They understand the desirability of integrated care that saves money, and buy into the ACO concept of groups of providers responsible for the full continuum of patient care and accountable for its costs. But since much of the savings is likely to come from reduced hospital admissions and emergency room visits, they fear the financial toll the progress could take on them in the short run.

The reform law grants the HHS secretary authority to waive provisions of enforcement statutes, says attorney Douglas Hastings. Such waivers would "facilitate clarity," and there "are discussions going on" in the Obama administration about doing this. HHS may not make "specific use" of a waiver, he cautions. Nevertheless, he notes that other departments and agencies also are involved, and tells HRW that instead HHS might just "signal" what is permissible.

And whatever comes out won't resolve the financial questions surrounding potential loss of revenue for hospitals in ACOs, Hastings points out. Since the current FFS system doesn't provide incentives to hospitals for care coordination, and because a move to global capitation, in which hospitals could do well, won't come immediately, he says, "the transition could put you out of business."

He adds that there are penalties in the law for short-term readmissions to hospitals, thereby increasing the potential financial peril.

While the move to ACOs will be "somewhat messy," asserts Hastings, hospitals realize "this is not ephemeral" like the capitation "craze" in the 1990s and that it needs to occur, especially in light of tight financial conditions. Nevertheless, "only a small percentage" of hospitals want to be "out in front" in the move to ACOs, he contends.

A related issue, Hastings says, is that "size and scale is a factor" in successful ACO participation, and that hospitals may want to get bigger, whether through contractual arrangements or formal consolidations, to deal with this. He says he knows of hospitals already discussing contractual arrangements sparked by the move to ACOs.

But any decision to make big investments for the purpose of participating in ACOs will depend on HHS establishing benchmarks for payment of shared savings that have "sufficient upside potential," according to Hastings. "One level of concern is that the baseline [for cost reductions that qualify for shared savings] is always going to be lower" each year, he observes.

The reform law discusses assigning patients to ACOs on the basis of who their primary care physician is but does not provide for informing patients about those assignments, Hastings points out. Moreover, he says, how ACOs will be able to "interact" with those patients is a "big open question" that he expects will be addressed in the forthcoming guidance.