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Leaders at Eastern Maine Healthcare Systems, which serves the northern two-thirds of the state, have known for some time that their demographic trends didn't bode well for their financial bottom line.

The Brewer, Maine-based system, with six hospitals including some critical access facilities, relies primarily on public payers. Roughly two-thirds of patients are covered by Medicare or Medicaid and an additional 10 to 15 percent are uninsured, says Erik Steele, D.O., the system's chief medical officer. That leaves approximately 20 percent commercially insured patients.

"Our ability to continue raising rates to the commercial market, in order to make up for the Medicare and Medicaid shortfalls we are really running out of that rope," Steele says. "We really felt like we needed to get moving to a different [reimbursement] model."

EMHS is one of relatively few rural-based hospital systems to be tapped by Medicare officials as a Pioneer Accountable Care Organization, one of the federal government's new programs to begin testing alternatives to fee-for-service payments.

The various ACO programs, created by the Affordable Care Act, still only cover a slice of the Medicare population, more than 2.4 million people as of mid-2012, according to Centers for Medicare & Medicaid Services officials. But the sprawling program's involvement in alternative payment approaches raises the stakes and related decisions for rural hospital leaders as they tend to serve communities with aging populations.

Joining or creating an ACO, however, is no small feat for rural facilities given the logistical and mindset challenges, says Clint MacKinney, M.D., deputy director of the RUPRI Center for Rural Health Policy Analysis at the University of Iowa in Iowa City. To move forward, rural ACOs need an electronic health record and the ability to mine it for patient treatment and financial patterns, as well as an affiliated network of physicians and home health and other services to help keep patients well after they leave the hospital. Above all, MacKinney says, board members "must stop thinking about hospitals as just inpatient buildings."

In some respects, rural hospitals can more nimbly adapt to the changing environment, with budgets less weighed down by costly equipment and other overhead expenses compared with their urban counterparts, says Jeff Spade, executive director of the North Carolina Center for Rural Health. They also have deep community roots to tap, which can make it easier to form partnerships with doctors and nonprofit organizations, he says.

Perhaps most daunting, say Spade and others, is the timing question. While the ACO movement is emerging, nearly all revenue still comes from fee-for-service payment arrangements. How do hospitals redesign care to keep people out of the hospital without cannibalizing their own bottom line?

"I believe the early adopters aren't gambling," Spade says. "They know something about themselves — they know what they can do. What they are looking for is a model that actually supports the kind of health care they believe is better."

But even enthusiasts admit to an occasional bout of nerves. Jim Nicholson, Eastern Maine's board chair, believes that cost pressures by insurance providers and the system's own care coordination experience have illustrated that they should move now. Yet, when asked how it feels to govern a hospital that is both pioneering the ACO concept and operating in a fee-for-service world, Nicholson doesn't mince words.

"Scary as hell," he says. "The full board unanimously is behind this project and at the same time we're scared. This is new. This is something that we know we need to do. But we really don't know as a board how this is going to play out in the future."

Risks versus Rewards

EMHS is one of 32 health organizations selected in late 2011 for the first crop of Pioneer ACOs. The model, developed by the CMS Innovation Center, is touted as an alternative to the Medicare Shared Savings ACO option, for health organizations that are willing to assume more financial risk — and potentially reap more savings — during the transition from fee-for-service reimbursement (see sidebar below). By mid-2012, CMS officials had tapped more than 150 health organizations to participate in some type of shared savings ACO model.

For most rural hospitals, their inherent size and structure likely will make it more difficult for them to shoulder that financial risk without teaming up with other health partners, says Caroline Steinberg, vice president of trends analysis at the American Hospital Association.

Because their patient volume is small, particularly at critical access hospitals, even a few unanticipated high-cost patients can wipe out any potential savings from other care coordination efforts, Steinberg says. Rural hospitals also don't necessarily provide the full spectrum of treatment, such as bypass surgery or other complex procedures. So they will need to form some type of partnership with those referral hospitals, she says.

Another potential hurdle: To qualify, an ACO must include at least 5,000 Medicare beneficiaries. Assuming that Medicare-eligible residents comprise at least 15 percent of a rural community, that stipulation would require a total population that exceeds 33,000 residents, a high bar for some rural providers, according to an estimate provided in a 2011 Journal of Rural Health article, which MacKinney co-authored.

Plus, those 5,000 beneficiaries are counted based on whether their primary care doctor is part of the ACO. Not surprisingly, one of the common threads among the early wave of rural Medicare ACOs is long-standing relationships with local doctors, if not direct hospital employment. Other themes: They've mined their EHR system to identify financial and patient treatment patterns. And prior to applying for ACO status, they already have conducted some initiatives with a seemingly counterintuitive goal — at least where fee for service is involved — to keep patients out of their hospitals.

Kurt Pittner, a board member at Trinity Regional Medical Center, also one of the first 32 Pioneer ACOs, credits that hospital's long-standing relationship with Trimark Physicians Group, which he says includes the bulk of the local doctors. The 200-bed hospital in Fort Dodge, Iowa, also is affiliated with five critical access hospitals and other key services, including a mental health center and a home health agency.

The community's population is aging; nearly 60 percent of Trinity Regional's patients are insured through Medicare. "We thought, 'If this can't work in Fort Dodge, Iowa, I don't think it can work anywhere in the United States,' " Pittner quips.

The Trinity Pioneer ACO was launched with 7,700 people and will add roughly 5,000 more in early 2013, according to Trinity chief executive officer Susan Thompson. Patients with chronic medical issues are being followed more closely after discharge, to the nursing home and sometimes to their own home, Pittner says. "It's not just episodic treatment anymore," he says. "We are going to seek you out, we're going to try to keep the community as healthy as possible and we're going to do all that we can."

Leaders at EMHS also piloted a more comprehensive wellness approach, starting in 2010, as part of a three-year $12.75 million grant, which funded initiatives around the country that used EHR technology to improve patient care. By late 2012, nearly 1,300 people had enrolled in the related Bangor Beacon Community project, serving a region that includes the system's flagship 411-bed Eastern Maine Medical Center in Bangor.

Early on, the Bangor Beacon assigned nurse care managers to the target chronically ill population, which included those with one of several diagnoses, including asthma and congestive heart failure. Data are still being collected, but the project already is showing a notable decline in hospital services.

Emergency department visits are down 43 percent among patients who have been assisted through the project for at least 12 months, compared with those patients' prior usage. Hospital admissions also have declined 42 percent and walk-in urgent care visits by 75 percent. "The Bangor Beacon experience told us that despite how relatively efficient we already were, there was more opportunity," Steele says.

As EMHS launched its Pioneer ACO in 2012 — it anticipates enrolling more than 22,000 Medicare patients by early 2013 — it has added additional nurse care managers to support primary care practices, Steele says. At his practice, a nurse manager regularly checks on his sickest patients, regardless of their diagnosis. He also is quick to identify patients in need of additional medical help, such as someone with a pattern of ED visits, Steele says.

The system also is piloting telepsychiatry to reduce hospitalizations and improve care for patients seeking care at the system's far-flung hospitals. Via the telemedicine technology, a psychiatrist or psychiatric nurse practitioner at the system's mental health facility, Acadia Hospital, can assess the severity of a patient's symptoms. From January to October of 2012, nearly two-thirds of the 26 patients thus screened were able to return home with outpatient follow-up. The remaining patients were either admitted for 24-hour observation or to the inpatient unit.

Both Steele and Michelle Hood, CEO of EMHS, anticipate a lot of these sorts of innovative ideas. "Once you get some kind of payment system that isn't about volume and piecework, you start to invest differently," Steele says.

Painful Waiting Period

As they move forward, systems like EMHS and Trinity will have to reconcile patient care and financial decisions while straddling two reimbursement worlds.

Take the debate among physicians about the best treatment strategy for acid reflux disease, says Joseph Scopelliti, M.D., president and CEO at Guthrie Health, a nonprofit health organization serving northern Pennsylvania and southern New York.

Some physicians prefer a conclusive reflux diagnosis via endoscopy before starting a patient on medication, says Scopelliti, also a gastroenterologist. An alternative, since the medication is highly specific to treating acid reflux, is to routinely try the medicine first and only move to endoscopy if it doesn't work. That latter approach won't reap as much reimbursement under the fee-for-service model, given that the hospital and physician would lose out on compensation from more routine endoscopies, he acknowledges.

As of late 2012, Scopelliti said that Guthrie Health was considering Medicare ACO models as well as investigating the possible creation of a private ACO. And these sorts of financial-treatment conflicts clearly were weighing on his mind. "As a system, the challenge is that you have to commit to one standard of care," he says. "It would be illogical, to say the least, for patients to get a different standard of care based on their insurance."

At EMHS, leaders already have seen some impact on their budget. Annual hospital revenue at Eastern Maine Medical Center declined by roughly a million dollars, due to reduced ED usage and admissions among patients served by the Bangor Beacon Community project, Steele says.

But Hood also sees room for expansion as the system shifts its focus beyond inpatient needs. She cites outpatient surgery as a potential growth area to meet the needs of the active, aging baby boomer population.

"We are trying very hard to send a message to our clinicians and our caregivers that it's really about what's right and best for the patient, and let us worry about the impact that has on the financials," Hood says.

As hospitals transition from fee-for-service reimbursement, they also will need to revisit physician pay, Scopelliti says. Rather than focusing so much on volume, he predicts that more quality benchmarks, including patient satisfaction, increasingly will be incorporated.

From EMHS' perspective, making the shift away from a bipolar reimbursement structure can't happen quickly enough. "If the financial benefit of our doing the right thing continues to accrue solely to the payers, then that's not economically sustainable," Steele says. Under the Pioneer ACO model, hospitals that demonstrate savings during the first two years will be eligible to start moving to a capitated system in the third year, in which they're paid a monthly amount per Medicare enrollee.

Even if rural hospital leaders prefer to wait and not partner with an ACO, they're still vulnerable to the related market dynamics, MacKinney says. One potential scenario: doctors treating patients in four nearby rural communities, each with its own hospital, could form a physician-led ACO. But they'll still have to select a referral hospital, he points out. "Where are they going to send their patients? … To the hospital with the highest quality, the highest patient experience and the lowest costs. That means that three out of those four hospitals are not going to do well."

In the end, Trinity's Pittner says that the Iowa hospital's board decided to help influence reimbursement discussions, rather than later be forced to react to a new structure implemented by CMS officials. Trustees need to plan their strategy now, as the pressure over rising health costs continues to mount, he says.

"No matter what your CEO says," Pittner advises fellow trustees, "this change is coming and your reimbursements are going to be affected.

"It's kind of like, 'Are you the chef or are you the meal? I'd rather be the chef.'"

Charlotte Huff is a writer in Fort Worth, Texas.

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How can rural hospitals straddle the two worlds of reimbursement? Experts offer suggestions in the Web-only feature, "Bridging the Payment Gap" at