A Case Study on Health System Consolidation and How It Affects Pathology

December 15, 2015

ACO Compensation Models Will Lead to Pathologist Employment

  • State’s hospitals consolidate into one health system and start ACO
  • Health system consolidates laboratory services & forces pathology groups to merge
  • Providers must take part in ACO to receive chance at 5% reimbursement increase
  • The next step is pathologist employment

Today let’s take a look at a health system that consolidated its laboratory groups, then its pathology groups into a single entity, which they now compensate via a value-based payment model.

First, a little history. Before this process began, there were nine separate hospitals located around the state.  These hospitals were served by five separate pathology practices.

The hospitals merged over a period of years.  The smaller ones were closed or retooled to be advanced urgent care centers. The bigger ones were also changed by laying off excess administration, expanding the control of the remaining administrators.

The next step: merging the laboratories of the major hospitals and closing the labs at smaller hospitals.  The health system built a new core lab and moved all specialties there.  They kept smaller stat labs at some of the larger hospitals, but consolidated histology under one roof.

Next, the administration approached the separate pathology practices and aligned all their Part A compensation under the same methodology, at the same rate and key performance indicators. This set the stage for the next change.

The administration then picked a “lead” pathologist and requested the groups merge into one larger practice.  Basically, the health system told the lead pathologist, “you merge this together or we will find another option.”  These changes took about three years to complete.

The health system started an Accountable Care Organization (ACO) and requested all their providers join. The ACO was very aggressive in signing with the insurance plans in the state and built their compensation rates with value and utilization metrics.

aco chart

If you think this looks a lot like the Physician Hospital Organizations of the early 2000s, you are correct.  The only difference here is these contracts are now built to compensate or penalize by utilization.

One unique feature in the ACO plan is a direct 5% withhold (i.e., penalty) for failing the plan metrics.   If you meet the goals, you get your 5%; if you don’t, you lose 5%. Here’s the real rub – if you choose not to be part of the ACO, you don’t have the option to collect that 5% no matter what you do.

This type of utilization and value metric plan will only grow in the future, as serves several purposes. First, it forces every group to be part of the deal via the ACO model.  Second, it pretty much guarantees that groups will follow utilization guidelines and eliminate waste.

The final step in the process will be to transition the single pathology group from fee-for-service to a salary position.  The health system will push this as a way to control cost and ensure compliance, since in time the health system’s compensation will be tied to an overall metric that includes ALL providers within the system.

Mick Raich is the President / CEO of Vachette Pathology.  He can be reached for comment at mraich@vachettepathology.com or 517-486-4262.

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