Conceived as part of health care reform, accountable care organizations may become the next big thing in lowering cost. The basic premise involves a network of doctors and hospitals that share responsibility for providing care to patients. Each ACO would receive financial incentives to provide quality care to Medicare beneficiaries while holding down costs. And since the intiative is scheduled to launch in January 2012, there is a scramble under way among physician practices and hospitals to form ACOs. The Obama administration, meanwhile, recently proposed guidelines on how ACOs will work (look here). But what are the implications for the pharmaceutical industry? We spoke with Ian Spatz, a senior advisor to Manatt Health Solutions, founder of Rock Creek Policy Group and a former vp for public policy at Merck, about what lies ahead...
Pharmalot: Why do drugmakers need to pay close attention to how the ACO unfolds?
Spatz: To the extent the concept takes off, which is still very much in doubt, there’ll be a new player out there influencing the use of medicines. Just like managed care and PBMs are a target for pharmaceutical price negotiations and formulary discussions and marketing, the ACO could be a very significant player in determining the use of medicine.
Pharmalot: How would that work and how might this contrast with managed care?
Spatz: It would work differently. We talk about ACOs in a generalized way, but there could be different kinds. There could be a shared savings program – the MSSP, which is the Medicare program. Or there could be an ACO operating under state law or an ACO that’s created privately to work on Medicaid or the private sector. But for the moment, if we talk about what CMS has proposed for Medicare – and it’s only a proposal – it’s a clinical organization that is headed by physician leaders and attempts to integrate lots of different providers. It can be measured by costs, but also by the quality it delivers in medical care… It’s very likely that this integrated clinical organization will be able to have an influence on physicians and other prescribers in terms of directing or encouraging the use of various medicines.
Pharmalot: That sounds similar to managed care goals, yes?
Spatz: Similar in terms of a goal that looks at care coordination. What’s really different about the ACO is that providers remain very separate entities and continue to be paid on a fee-for-service basis by Medicare. Unlike managed care, we’re not talking about a capitated payment system. It’s a clinical and business overlay to the existing fee-for-service system.
Pharmalot: How exactly will this system effect the use and promotion of medicines?
Spatz: The entire ACO is measured on how its costs compare to the overall costs in the Medicare program. When that’s computed, it doesn’t include Medicare part D. So you can anticipate there’ll be a real incentive within an ACO to use Part D medicines aggressively in order to reduce Part B and Part A costs. Where it’s possible, a Part D medicine used appropriately and effectively can keep someone from using a hospital for a visit or going back to the doctor, that’s a plus for an ACO, because their compensation is measured by how well they measure those Part B and Part A costs. And an ACO is on the hook very directly for its use of Part B medicines. So you can also anticipate an ACO will attempt to not necessarily restrict but ensure appropriate use of Part B medicines so overall costs control goals can be met. So there are real impacts on outpatient medicines and medicines provided by physicians.
Pharmalot: And what can drugmakers do to shape this?
Spatz: This is a new player with influence over the use of medicines. It may make sense for pharmaceutical companies to contract directly with these entities and that’s a new opportunity. But it’s not going to be like a contract with a PBM, but they may want to work on medication adherence programs or disease management programs for medicines the company cares about. It may also be possible that pharmaceutical companies could enter into agreements with ACOs in terms of programs that encourage appropriate use of medicines or educational opportunities about disease conditions. I don’t believe it will be a situation where it’s about supply and prices, but it will be continuing to influence the choice of medicines within an ACO.
Pharmalot: What about incentives?
Spatz: There’s going to be continue to be some real legal restrictions on providing incentives that will encourage use of the medicines. There are laws against inducing use of Medicare services directly, but working within those laws, it may still be possible for pharmaceutical companies to partner with an ACO in ways that importantly but indirectly benefit the use of specific medicines.
Pharmalot: Sounds like a big opportunity.
Spatz: The size will depend on the success of the ACO program – how many people choose to form ACOs and to what extent those organizations capture a large share of Medicare beneficiaries and that’s sill an unknown. Some people believe there’ll be a huge interest in Medicare ACOs and these will become common around the country very quickly, while others are skeptical anyone will spend time and money to create these organizations.
Another opportunity is to influence quality standards. Medicare will require of ACOs 65 quailty measures and many relate to the use of medicine. It’s going to be very important between now and when comments are due that companies carefully look at quality measures to see if they capture areas most important to their products.
Pharmalot: What potential downsides do you foresee?
Spatz: I do think there are already concerns about the impact ACOs will have on companies and products in Medcicare part b, because an ACO is rewarded for controlling costs. There’s concern in the pharmaceutical and medical device areas that ACOs will encourage particpating providers to restrict the use of high cost medicines in Part B as a way of meeting their costs goals. It’s a good thing to an extent that an ACO limits the inappropriate use of medicine. But there’s also concern that, by limiting inappropriate use, there may be some serious limitations on appropriate use.
In Part D, there will be incentive for ACOs to increase utilization, but in Part B, they will be on the hook for those costs and there could be incentives to limit use. This will vary from company to company according to their (product) portfolio, but overall for the industry, Part D spending is much higher, so it nets out to be more of an opportunity than a risk.