Accountable Care Organizations

Value metrics and capital formation

Robert Cimasi serves as chief executive officer of HEALTH CAPITAL CONSULTANTS (HCC). Mr. Cimasi’s firm is a nationally recognized healthcare financial and economic consulting agnecy headquartered in St. Louis, MO, serving clients in 49 states since 1993. He is author of a three-volume set that offers a comprehensive reference guide to the factors involved in consulting with and valuing healthcare practices. In this article, Mr. Wandtke reviews Volume Two, Professional Practices. See http://www.healthcapital.com/advisersguide.

Accountable Care Organizations

With the passage of the Patient Protection and Affordable Care Act (ACA) of 2010, also known as “Obamacare,” many healthcare reforms that were in process immediately became a potential opportunity for healthcare providers to increase the number of constituents that receive healthcare under various insurance plans.  The new law extends patient healthcare services that aim to  lower healthcare costs for the federal government and also improve healthcare outcomes.   On June 28, 2012, the U.S. Supreme Court in National Federation of Independent Businesses et al v. Sebelius, Secretary of Health, affirmed the constitutionality of the legislation and thus gave the federal government the power to implement the ACA.

The book begins with an introduction to a wide range of cost-savings efforts and health monitoring that had been attempted by the federal government with various medical groups.  These healthcare agencies were distributed across the United States and varied in size.

Only four pages of the ACA are dedicated to accountable care organizations (ACOs).  These agencies hold one of the opportunities in the new legislation that offers healthcare organizations an opportunity to receive bonuses for improved patient satisfaction and care.  Additional compensation is also available for improved outcomes.

The book provides significant background on the history of managed care, and proceeds to discuss various other approaches that have occurred in the delivery of healthcare service with the goal of lowering medical costs and delivering higher patient benefits.  The historical information is detailed and covers each of the approaches that have been tried and then discarded.  This process eventually leads to the ACO model.

After discussing the concept of federal ACOs, the book discusses the purposes of these organizations, the concept of shared savings programs, and the rules the federal government developed to increase healthcare quality while decreasing cost to deliver these services.   Further information is presented on the past experience the government has had with ACOs and how those experiences have led to the federal ACO program that is now available.  Further information is provided as to the feedback from hospitals, the American Medical Association, the American Group Medical Association, the American Academy of Family Physicians, American Health Insurance Plans, and the Medicare Payment Advisory Commission.

In further discussion, the book details the impact that ACOs are expected to have on the healthcare industry.  Special attention is given to how ACOs attempt to address industry concerns, the potential impact on healthcare providers, and the effect anti-kickback laws may have on the implementation of ACOs.

The most significant chapters are six through nine.  These chapters provide multiple insights on the financial aspects of ACOs.  The author takes the reader through various iterations of value metrics based on different approaches to analyze the financial feasibility for various ACO investments. 

Chapter eight provides insight to the external benefits from an ACO to society.  Here, Cimasi discusses the three non-monetary objectives; reduced admission rates, reduced obesity rates, and improved health literacy.  Value here is measured by quality of outcome improvements.

The monetary objectives discussed include reduced administrative and clinical costs  and a reduction of federal spending (or entitlements).  Value here is observed in the form of cost reductions or lower cost expenditures.

The book concludes with a focus on the role of the healthcare consultant.  Here, the author discusses a number of opportunities that will arise for specialists in this area. The employment opportunities envisioned include continued professional-consulting services, periodic or specific project-professional services, value-metric services, and financial-feasibility services.  Valuation services are discussed as they deal with a financial valuation, establishing fair market value, and commercial reasonableness opinions.   The book provides guidance for developing financial models based on the potential size of entity being appraised. 

The author provides many citations to multiple sources for guidance in the development of professional services for an ACO engagement.  Federal, public professional resources, industry experts, and many other public documents and publications are also cited in the book.  This reference book is a very specialized resource for the healthcare professional consultant or valuation organizations that are looking for a single “go-to” source of information on dealing with ACO engagements. 

Ed Wandtke, CPA, CVA, MBA, is principal of Wandtke & Associates and Executive Staffing Solutions, Inc., both based in Columbus, OH.  The firm provides valuation services for service companies, intellectual property, and intangible assets, and also provides business brokerage services. For further information, visit www.wandtke.com.