Accountable Care Organizations

Negotiating Tips for ACO Contracting

January 12, 2016 2:50 pm

The CFO of a health system with a successful ACO shares key terms to focus on during contract negotiations.

With 29 hospitals and more than 300 health centers and clinics, Banner Health, Phoenix, is one of the few organizations that has led successful accountable care organizations (ACOs) with both government and commercial payers. Through its ACO, Banner Health Network (BHN), Banner has participated in the Center for Medicare & Medicaid Services Pioneer ACO program and also has established ACOs with several commercial payers.

“For all practical purposes, the infrastructure of the ACO was established when we entered the Pioneer ACO program, and then it was natural to bring it into the commercial side,” says Greg Wojtal, Banner Health’s CFO.

With each commercial ACO, Wojtal says the payment model either has been or will be transitioned from care management to shared savings to shared risk. “Each new product goes through that cycle,” he says.

Put infrastructure first. Before a health system is ready to enter into an ACO agreement with a payer, it must build a solid infrastructure of capital, resources, and data, Wojtal says. These elements will enable the health system to conduct the care management that is the essence of any ACO.

BHN comprises 350 full-time employees funded through a $30 million budget, Wojtal says. About half of the FTEs are health coaches, case managers, and social workers; about one-quarter are in service roles, such as call center, billing, and claims payment; and the remaining quarter are in administrative roles in contracting and finance.

In order to understand the level of acuity of its patient population, and therefore its level of risk, a health system will need patient demographic, clinical, and financial data, such as patient age, clinical diagnosis, and clinical services used. Some of that data is supplied internally, from hospital records, and some is supplied by the payer, Wojtal says.

In addition to these essential elements, an ACO also should have a committee that represents both the health system and the payer, Wojtal says. BHN and its payers have a joint operating committee (JOC) comprised of members from executive clinical management, care management, finance, contracting, and claims operations. The committee may number anywhere from 10 to 15 members, Wojtal says, and is charged with deciding the clinical responsibility of each part in the ACO. “It’s a vehicle for putting issues out there to jointly discuss what makes the most sense in delivering the care,” he says.

Focus on key terms. The infrastructure is likely to evolve as an ACO matures (for example, data may become more sophisticated and FTEs may be added), Wojtal says. However, once the basic elements are in place, the health system is ready to enter into the agreement. Wojtal says there are several key terms that should be the focus of negotiations, including the data exchange, level of risk, clinical responsibility, and revenue cycle processes.

Negotiate data availability. Providing appropriate care management first requires understanding who is being managed. A health system relies on data to obtain knowledge on the demographics, types of conditions, and acuity levels of its patient populations. Some of the data, such as claims information, will be supplied by the payer. However, a payer may not be willing to provide a health system with claims information out of concern that its rates with other health systems will be revealed, Wojtal says. Therefore, a payer may be willing to provide only certain kinds of data.

A health system must negotiate upfront in its ACO agreement the specific type of data that the payer will provide. Data negotiations are especially important if the health system enters a risk-based agreement, in which a certain amount of payment is at risk if the health system does not perform according to specified quality or financial targets. The greater the amount of data, the greater loss of payment the health system may be able to risk, Wojtal says.

Recognize the relationship between risk levels and available data. Banner’s level of risk differs with each of its commercial contracts, Wojtal says. Some contracts have no risk. Under one contract, Banner is paid for coordinating the care of health plan members, ensuring that hemoglobin A1C levels and the weight of members with diabetes, for example, are regularly screened. Another contract is a shared savings agreement, in which any savings resulting from more efficient practices, such as reducing unnecessary testing, is shared between the health system and payer. Wojtal says most shared savings contracts are 50-50 agreements, as are Banner’s, with the health system and payer evenly splitting any savings.

The remainder of Banner’s ACO contracts are risk-based, in which the health system will lose an agreed upon portion of payment if it does not meet quality targets established by both Banner and its payers. Wojtal says a health system should base its level of risk on the strength its data. The more data the health system has and the more supplied by the payer, the greater the level of risk a health system can take. A health system has to decide if it has the appropriate amount and type of data to manage the risk proposed by the payer; if not, the health system should negotiate less risk, Wojtal says. “So, there should be a correlation between data exchange and the amount of risk, particularly on the provider’s side,” he says.

Establish clinical responsibility. Just as the level of risk needs to be negotiated, so too does the clinical roles for the health system and the payer. Wojtal says one of the issues that can arise within an ACO is who is responsible for specific services, such as case management or managing clinical programs for diabetes or congestive heart failure. If the roles are not clear, patients may become confused, especially if they are given different directions or guidance for managing their conditions. Such roles should be negotiated by the JOC and documented in the contract.

“The document defines: ‘We’re going to do this piece, you’re going to do that piece’” Wojtal says. Which side takes on what responsibility should generally be based on who has the greatest expertise. With Banner ACOs, Wojtal says the health system has the most experience with case management, while the payers manage estimating the risk along with planning and developing the insurance plan. “There’s some natural divisions built into that, but there’s also overlap,” he says. For example, a payer may have a strong program for managing a population of diabetes patients. “So, then it makes sense to use the insurance company’s case managers,” he says.

Wojtal says that understanding the level of expertise for either the health system or the payer is often a learned experience. The JOC may use outcomes data to decide the division of responsibilities, he says.

“In the early stages, you’re going to stay in your respective zones of what you do best and then evolve from there,” he says.

Agree on revenue cycle processes. If the purpose of an ACO is to coordinate care to reduce inefficiency in the care process and provide patients with a higher quality of care, then improving the back end—revenue cycle—for patients also is important to the program’s success, Wojtal says. One way to do that is to stipulate in the agreement how revenue cycle processes will be managed. Typical issues surrounding billing practices, such as how denials are handled, should be a part of the negotiation process. For example, both sides can agree to handle denials in such a way that a patient does not receive a statement until the denial issue has been resolved, he says.

Although discussion of revenue cycle process issues in traditional payer contracts can be contentious, Wojtal says when both sides benefit from planning and seeking agreement over various issues and share the savings or understand the risk of subpar performance, the negotiations often go more smoothly. Other revenue cycle processes that should be stipulated in the contract include: pre-authorizations, out of network definitions, patient classification, and necessity of treatment.

Overall, Wojtal advises healthcare leaders to view ACO contract negotiations with a very different perspective than fee-for-service contracting. “What used to be an across the table negotiation process to get the best rates, now becomes a partnership responsibility,” he says. “And we gear it toward the Triple Aim.”

See related tool: Checklist for Implementing a Successful ACO

Karen Wagner is a freelance healthcare writer based in Forest Lake, Ill., and a member of HFMA’s First Illinois chapter.

Interviewed for this article: Greg Wojtal is CFO, Banner Health, Phoenix, and is a member of HFMA’s Arizona Chapter.

Discussion Starters

Forum members: What do you think? Please share your thoughts in the comments section below.

  • Is your organization ready for the cultural change to replace fee-for-service with fee-for-value?
  • Does your organization have sufficient patent data to enter into a risk-based ACO agreement?


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