Schramm Consulting Founder: Cost Control Essential to Hospice-ACO Relationships

A contingent of the nation’s hospice providers are working to build relationships with accountable care organizations to preserve and build their referral networks as well as advance their acumen in working within value-based payment models. A keen focus on efficiency and cost savings is essential to success in those relationships, according to Sue Lyn Schramm, founder and principal of Schramm Consulting, LLC. 

Close to 1,000 ACOs cover 44 million patients nationwide as of 2019, research has found. The ACO model involves groups of physician practices, hospitals and other health care organizations — including hospice and palliative care providers — who collaborate to provide coordinated care to patients. The programs are designed to improve the quality of care while generating cost savings, according to the U.S. Centers for Medicare & Medicaid Services (CMS).

Prior to founding her firm, Schramm worked as a hospice and palliative care executive and consultant for more than 20 years. She has advised dozens of hospice providers and state associations nationwide on matters such as strategic planning, market opportunity analysis, hospice facility planning and certificate of need regulation.


Hospice News caught up with Schramm following her presentation at the National Hospice & Palliative Care Organization’s Leadership & Advocacy Conference to discuss the risks and opportunities for hospices working with ACOs.

What are some of the advantages that a hospice can realize through working with an ACO?

I’m advising my clients to be on top of these topics, ACOs, the other advanced payment models and the Medicare Advantage hospice carve-in, to ensure that they are using every tool in their toolbox to maintain access to their referral stream. I think hospices, and nonprofit hospices in particular, have gotten used to the relationships that they have with providers in their market, but those providers are changing. The relationships among those referral sources are changing. A relationship with an ACO is one more way of making yourself indispensable in your local market.


Can you give a couple of examples of how those dynamics are changing?

You have physician practices that have been acquired by health systems and hospitals. That’s been going on for many years now and doesn’t show any signs of slowing down. There’s growth in Medicare Advantage. [Medicare] is in the very beginning stages of testing the carve-in, but I do expect that to continue to accelerate.

It’s hard to know exactly how the Biden administration is going to tweak some of these programs in Medicare, but it’s clear that CMS is very much interested in moving risk sharing out to the providers, which means cost sensitivity is only going to become more and more important. Any lessons that a provider can learn in working with accountable care organization and being an efficient and a cost competitive provider is going to serve you well.

What do hospice-ACO relationships typically look like in terms of structure and reimbursement?

The variation in hospice involvement in ACOs is so wide from market to market, and a lot of it depends on the sophistication of the leadership at the accountable care organization. What many hospices are trying to do is to get into a preferred provider relationship, because they’ve proven themselves to be cost effective. Success with that varies.

I have some clients that tell me that they can’t get a seat at the table, or that they called the local ACO leadership and were told they could have 15 minutes. There are others that are really forging some very strong relationships. Sometimes that’s because there was a pre-existing, cooperative relationship with the health system that is sponsoring the ACO. I wish that ACO leadership, like health system leadership, were a little more sophisticated about the benefits of post-acute care partnerships. It’s an uphill battle.

Are there pitfalls or risks in working with ACOs that hospices need to keep in mind?

There really aren’t many pitfalls. Your payment is not going to be changed. You’re still in the fee-for-service system. You’re still billing Medicare. The difference is that if this relationship succeeds, you’re more likely to maintain your existing referral stream and not lose it. This is a defensive move as much as anything.

Is there any need for hospice to adapt their business operations when working with an ACO?

You want to know what your per diem costs are in comparison to your competitors. While your payment as a hospice does not change, your internal cost structure does make a difference to the ACO. They’re being evaluated on the total cost of care, including hospice. So even though you’re billing Medicare the same amount as the hospice across town, if one of you has a much better cost per day, then that one is going to be the more attractive partner. You have to compete on efficiency and per diem costs.

There’s been some discussion about next generation ACOs. What differentiates those from previous models and where does hospice fit in?

Next generation ACOs were one of the types of Accountable Care Organizations set up by Medicare. They’ve been in existence for five or six years, and they represent a minority of all ACOs. They have much more risk for making sure that they get those savings.

It’s very important to understand the incentives of the different types of ACOs. Most of the Medicare Shared Savings Program (MSSP) ACOs, when they originally were established offered shared savings, but no penalty if you don’t make your targets. If you succeeded in reducing costs below the targets, then you got a little bit of a bonus from Medicare. That’s what they call upside risk.

The downside risk is the part that really changes behavior. ACOs have the risk of not only not getting a bonus, but having to pay money back if they fail to meet the targets. That’s extremely painful, and it’s very scary for the health systems that are subject to those arrangements. You have to set up an escrow account, and you’ve got to put the payments that you receive or Medicare in there until it’s shown that you actually did make your target.

The next generation ACOs are a capitated payment arrangement. They have population-based, per person payment. If they spend more than what they’re paid, then nobody’s making them whole. That’s a downside risk on their side. They are a much higher risk, more advanced payment model than most of the accountable care organizations that were in the MSSP program.

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