Accounting Care Organization Reading Essay


After reading the case study please select and answer one of the question posed at the end of the case study. State the question and then provide your answer.

Response to St. Kilda’s ACO Offer

In January 2013, St. Kilda’s, a healthcare system located on the West Coast, was selected by the US Department of Health & Human Services (HHS) to form a new accountable care organization (ACO) to encourage greater physician and healthcare provider coordination and higher-quality care. At that time, HHS had assisted in setting up 250 ACOs for Medicare beneficiaries that set standards for quality and furnished shared savings for providers. Quality measures were guided by the 33 indicators that the Centers for Medicare & Medicaid Services (CMS) had established.

St. Kilda’s reasons for creating the ACO included the following:

Taking a leadership role in providing effective, evidence-based care that truly serves the needs of today’s patients, families, caregivers, and communities

Building a strong network of primary care—a medical home where patients build a real relationship with their healthcare team

Focusing on prevention to keep patients healthy and out of the hospital

Moving toward a system that rewards providers for quality care, successful outcomes, and cost-efficiency—not just for the number of procedures they perform

Eliminating waste in resources, time spent waiting, and duplication of tests

By 2015, St. Kilda’s reported having over 24,000 patients participate in its ACO and having saved nearly $5 million, but, even with this, it did not reach the necessary 2.4 percent minimum savings to achieve the government’s shared-savings payment. However, St. Kilda’s leaders thought participating in this program was worthwhile, as it allowed the organization to harness new and innovative ways to improve health. Its leadership believed that “as we move away from the fee-for-service model and get closer to a fee-for-value approach, we must master the concept of population management. To make that happen, we must step up our efforts in prevention and health maintenance.”

In 2016, St. Kilda’s Health Partners (SKHP), a wholly owned subsidiary of the St. Kilda’s Health System, had an integrated network of approximately 1,400 employed and affiliated healthcare providers in its ACO. It was anticipated that by January 2017, SKHP would be in value-based arrangements with multiple payers to provide care for approximately 170,000 members. The anticipated patients spanned the health–illness continuum from healthy to high-risk disease conditions.

As most of the value-based business, existing and anticipated, would be paid by capitation, SKHP sought ways to reduce its costs. For example, in November 2016, a request for proposals (RFP) identified high-cost services unavailable in its system and sought to establish preferred providers and centers of excellence that would be willing to meet both quality and cost criteria. It requested responses in the following specialty areas:

Transplantation, including single organ, multiple organ, and bone marrow

Women’s health




Neurosciences and spine services

Musculoskeletal and orthopedics




Behavioral and mental health

Endocrinology and diabetes


Successful bidders would have to improve access to quality care and ensure seamless care and communication with primary and specialty care providers. The bid listed the following “value propositions” that successful bidders would have to address:

Improved quality

Improved value

Reduced barriers to access

Enhanced patient and caregiver comfort and convenience



Patient satisfaction

Physician satisfaction

Improved processes

Improved communication

Respondents to the bid were asked to provide a long list of specific data pertinent to their area of expertise and specialty related to the above criteria, including

Length of stay

Risk-adjusted mortality index

Procedural infection rate

Operating room time

Procedure volume

Patient compliance to treatment plan

Disease-specific improvement rates (e.g. diabetes control, weight loss)

Transplant wait time

Transplant graft survival rate

Experience with CMS or payer and employer bundled payments

Readmission rate

Cost per case

Ability to demonstrate affordability and convenience to patient and caregiver while seeking care away from home (e.g., access to low-cost or complimentary lodging, utilities, meals, transportation)

Patient perception of ease of access and timeliness of appointments

Clinical Group Hospital Consumer Assessment of Healthcare Providers and Systems and the Hospital Consumer Assessment of Healthcare Providers and Systems

Patient communication with healthcare team

Accreditation information

Ability to demonstrate accessibility and timeliness of care

Ability to demonstrate a plan to manage the care of SKHP population

Proof of a multidisciplinary, patient-centered approach to care delivery

Respondents were also requested to submit a cost proposal that would delineate the method and amount the respondent would charge St. Kilda’s for agreed-on services, including, but not limited to, medical expenses, necessary travel, overhead, supplies, and miscellaneous costs. The cost proposal had to be valid for at least one year. Contracts were to be for three years, beginning April 1, 2017.

In December 2016, Elizabeth Narvaez-Luna, director of strategy at a large, nationally known pediatric medical center, was contemplating the bid with her staff. In the past, its medical staff and administration had enjoyed a positive relationship with St. Kilda’s and certainly wanted to maintain this rapport. They did not want other facilities to siphon away the pediatric volumes currently coming from St. Kilda’s primary market area. However, a number of significant issues, both positive and negative, caught the staff members’ attention. These included the following:

St. Kilda’s Hospital (not its ACO) had been incrementally adding pediatric capabilities for years. Some of these services were appropriate for their population, but recently some were venturing into areas believed potentially unsafe, as well as inefficient for the larger region (such as a pediatric blood and marrow transplantation program for a handful of patients or a pediatric cardiac surgery program). Partnering with Narvaez-Luna’s pediatric medical center would allow St. Kilda’s to eliminate or diminish these marginal programs and get high-quality services to its community through the contract.

The bid did not guarantee or even address channeling patients. It contained no provision for directing patients into pediatric specialty care. Prior experience suggested that responding to such bids takes a lot of work and data sharing on the medical center’s part, but the pediatric medical center gains little in return, because the bids allow patients to go any hospital they wish. Currently, St. Kilda’s pediatric oncologists refer to a large number of pediatric oncology programs across the west. Without a steering mechanism, the staff was concerned that the medical center would receive no additional volumes. On the other hand, working through this bid might help better position individual providers at St. Kilda’s, to expand their referral networks.

The bid asked broadly for cost information, but the type of requested proposal was unclear. The medical center had a very powerful cost accounting system and could price services quite accurately—therefore, the pediatric medical center has experience providing care under capitation and bundled payments. There are advantages and disadvantages to each payment system.

The RFP called for bids in three weeks. It was not reasonable to develop bundled payment proposals in that period. In addition, the staff felt some fundamental opposition to bundled payments, seen as a “race to the bottom,” in which much energy is expended to set a price that is soon to be undercut by a competitor, triggering yet another cut. The hospital had experienced this cycle in the past in other opportunities to set bundled payments. One option is to share the hospital’s overall cost position compared to competitors (which is very good) but not to commit to specific prices.

Discussion continued. Ultimately, the director and staff knew they had to develop a recommendation to their CEO. Some of the points they would have to cover in the recommendation included the following:

What is the value in responding to the proposal?

How should the medical center address the lack of patient-steering mechanisms in the proposal?

What type of cost proposal or cost information should be included in the bid?

What could be the anticipated response from competitors?

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