One of the main tasks of hospital trustees, it would seem, is to keep track of acronyms, and the latest one to decipher is ACO, for accountable care organization, the latest trend in transforming the health care system.
So far, there aren't a huge number of ACOs. A recent survey from the American Hospital Association's Health Research & Educational Trust found just 3 percent of American hospitals currently participate in an ACO, while another 10 percent are preparing to participate. The concept is growing, spurred in part by the Medicare Shared Savings Program that provides financial incentives for ACOs that are able to provide the full spectrum of care for patients, improving quality and cutting costs at the same time. The potential for this model to resolve many of the U.S. health care system's problems also is spurring ACO creation in the private market, with health plans leading the way.
ACOs require partnerships among hospitals, physician groups and other parts of the care continuum, such as health plans, nursing homes, laboratories and others. Assuming the concept maintains momentum, every health care marketplace should be thinking about potential partners. Hospital trustees should be sure their organizations don't get left behind.
At the same time, boards need to be thinking about their own readiness for being part of an ACO. There are a number of different legal models for how to pair up with other organizations, most commonly joint ventures with physicians. These models may require changes to the hospital board or the creation of a new board to oversee the ACO.
In some cases, the board overseeing the ACO needs to have specific membership. For example, the shared savings model requires the board to include a Medicare beneficiary as well as a physician representative. There are also requirements that the board include representatives chosen by each participating organization.
These possibilities mean boards may want to be working toward having consumer and physician representation, says Monte Dube, a Chicago attorney and consultant.
"Meaningful board representation by beneficiaries is a best practice," Dube says. "And increased physician participation in a physician-driven governance structure is becoming more widespread. ACOs are a great test case in determining whether hospitals and health systems increasingly will walk the walk regarding meaningful physician and consumer representation on clinically integrated organizations."
At the same time, requiring that particular business entities be represented on a board goes against good governance principles, says John Combes, M.D., president and COO of AHA's Center for Healthcare Governance. "It shouldn't be representational, it should be committed to the ACO's mission, considering how they maintain the health of the patients they are responsible for."
Past experience with similar business arrangements, such as the physician-hospital organization, shows that even if the board starts out with representation from each party, it eventually evolves to be more focused on the mission of the entity itself. "You want to evolve to a group that is really dedicated to the success of the ACO as measured by an improvement in the health status of patients," Combes says.
It's important to keep that big picture in mind when pursuing new partnerships, says Marian Jennings, a health care strategy consultant. "You need to ask the question, 'What are we trying to accomplish?'" she advises. "Board members need to go back to the core of why they serve on a nonprofit health care organization's board — to serve the community and ensure there will be a high-quality, financially viable organization in the future."
In the survey on hospitals' readiness for population-based accountable care, HRET found muted interest in the concept of ACOs (75 percent of respondents were not pursuing one), but theorized that organizations might be waiting to see final rules about the Medicare Shared Savings Program (the survey was in the field in 2011 before the final rules were issued).
Of the organizations pursuing ACOs, the top form of governance was a joint venture between the hospital and physicians, with 57 percent of current ACOs choosing that structure, 26 percent choosing a physician-led ACO and 10 percent led by hospitals. Among the 131 respondents preparing to participate in an ACO, a joint venture was the most popular governance model, followed by the hospital-led ACO, then physician-led ACO.
The survey also confirmed that in 2011, much of the energy behind ACOs was coming from payers, with 70 percent of the ACOs in the survey having a contract or letter of agreement with a commercial payer.
In terms of readiness for the kind of governance that an ACO requires, the survey asked the percentage of the board comprising consumers. Of those participating in an ACO, most (62 percent) had between 1 percent and 24 percent consumer members, while 18 percent had no consumer members. There was stronger consumer representation among those planning an ACO; 38 percent had between 1 and 24 percent consumer members and another 38 percent had between 25 and 49 percent consumer members. Seven percent had no consumer members.
The HRET report also contains a tool hospitals can use to assess their own readiness to participate in an ACO. For governance, an organization can rate itself on how well its culture fits the values of coordinated care: collaborative, transparent, patient-centered, information-rich and quality focused.
The concept of the ACO is more evolutionary than revolutionary as the next step toward quality, Combes says. So most trustees aren't surprised that this model may be an option for their organizations. "There's a lot of uncertainty about where these are going to go, and how they'll evolve," he says. "People are cautious about it, but a lot of trustees recognize this may be a model that will help us get at the cost reductions that are necessary."
As the health system adjusts itself to a greater focus on quality issues, board composition will follow, in the form of patient and physician representation. And trustees may find that the fiduciary duty they've traditionally thought of as mostly financial is evolving, too. "Maybe their primary fiduciary duty is to quality," Combes suggests.
For more on hospital board structure, read "Right Person, Right Place," June 2012.
Jan Greene is a freelance writer in Alameda, Calif.