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Analysis: Tenet stands out by experimenting with core model of Obamacare

A woman explains healthcare benefits at a Covered California event which marks the opening of the state's Affordable Healthcare Act, commonl
A woman explains healthcare benefits at a Covered California event which marks the opening of the state's Affordable Healthcare Act, commonl

By Susan Kelly

(Reuters) - Patients and investors gauging the impact of President Barack Obama's healthcare reform law on hospitals, clinics and other providers need look no further than Tenet Healthcare Corp, the country's No. 3 for-profit hospital chain.

The Dallas, Texas-based company stands out among its peers for experimenting with a core concept of the legislation - the lofty goals of coordinating treatment in a single, integrated system that reins in costs by improving care.

The government-led model, called an accountable care organization, or ACO, ties a provider's pay to how well it cares for patients. It is gaining traction with healthcare professionals willing to bet that care designed to prevent a health problems from becoming worse and more costly will ultimately save money for everyone.

As many as 31 million Americans, or 10 percent of the U.S. population, receive their healthcare through some form of an ACO, according to management consulting firm Oliver Wyman.

Critics question whether the ACO model's potential savings justify the start-up costs. They also fear that the plans will replicate the unpopular health maintenance organizations of the 1990s by making it too expensive.

Rising cost is also a broad criticism that mostly Republican opponents have about the 2010 Patient Protection and Affordable Care Act, commonly known as Obamacare. On Tuesday, online marketplaces and call centers created by the law opened for millions of uninsured Americans to shop for healthcare coverage.

Tenet set up a commercial accountable care organization in Modesto, California, in January 2012 after Kaiser Permanente, known for providing the ACO blueprint, built a medical center there. Tenet is now more deeply involved through its purchase, of a smaller hospital group, Vanguard Health Systems, finalized on October 1 for about $1.8 billion.

Tenet and Vanguard have complementary strategies, Tenet's chief executive, Trevor Fetter, said in an interview.

"We both are very eager to be in situations where we get paid for performance," Fetter said.

Vanguard operates Detroit Medical Center, one of 32 initial participants in the Obama administration's Medicare "Pioneer" program, considered a bellwether for the ACO model. While Detroit Medical Center saved money in the first year and remains a participant in the program, others did not.

IS THE MODEL SUSTAINABLE?

Tenet's willingness to try the ACO approach contrasts with the No. 1 and No. 2 for-profit hospital chains, HCA Holdings Inc and Community Health Systems. They want to see more evidence that the model is sustainable and saves money.

Community Health has said it has not found it necessary to spend the capital to establish an ACO in order to grow.

Their skepticism will put the onus primarily on non-profit hospital networks to work out a successful path to running ACOs in the coming years. The program calls for healthcare providers to have access to a patient's medical history, eliminating duplication of tests and other services deemed unnecessary.

Participants agree to cost and quality targets, such as lowering hospital readmission rates and reducing patients' blood pressure and cholesterol levels, and then share savings or losses tied to meeting those goals.

Most in the Pioneer group achieved quality improvements, but only 18 produced cost savings.

Officials at Medicare, the national insurance program for the elderly, disabled and people with certain diseases, said in July that nine of the 32 Pioneer participants were leaving after the first year. Seven of the dropouts were applying to join the less-stringent Shared Savings plan run by Medicare.

Vanguard also has hospitals in the Shared Savings program, an alternative accountable care organization that has attracted a larger number of healthcare providers because the risk of losing money is lower, though the savings potential is lower, too.

For some hospital systems, the model is working.

Detroit Medical Center, for example, said it reduced costs for treating its Medicare patients by 4.5 percent. All told, 243 healthcare organizations are Medicare ACOs, according to the latest figures from the agency. About 250 others have formed their own private versions.

Insurers are also keen on the idea. UnitedHealth Group Inc, the largest health insurer in the United States, has said it expects its accountable care contracts with hospitals, medical groups and doctors to double to $50 billion by 2017.

But among the largest hospital operators, the doubts include whether the concept can evolve into a viable alternative to the current fee-for-service structure, which pays hospitals, doctors and other providers for each office visit, test and procedure.

"It remains to be seen whether it functions profitably or not," said Alan Miller, chief executive of Universal Health Services, which operates more than 200 hospitals, behavioral health facilities and outpatient centers.

"There has been a lot of discussion of moving away from fee- for-service to something like this, but we are a long way from there," Miller said.

HCA, the largest U.S. for-profit hospital operator, said it is testing a few new payment arrangements with insurers. But HCA president of operations, Samuel Hazen, said it expects no major changes in the near future because the physician community remains fragmented in most markets despite a wave of consolidation in recent years, creating a barrier to implementing significant changes in reimbursement strategies.

Community Health Systems does not participate in many risk-sharing contracts but is open to it, said Chief Financial Officer W. Larry Cash. ACOs affect about 6 percent of Community's patients, but the company does not run one.

"If it became necessary to do something to be competitive, we might change our mind, but right now we think we can continue to grow our business without spending the capital dollars and replacing what managed care companies can do well, just by contracting," Cash told an investor conference in June.

PREVENTIVE CARE

The big opportunity for cost savings lies in getting preventive care for people before they land in the hospital with illnesses such as heart disease, diabetes and asthma, said Dr. Steven Safyer, chief executive of Montefiore Medical Center in the New York City borough of the Bronx.

At Montefiore, medical claims are analyzed to identify the most vulnerable patients. Then care management teams establish relationships with these patients, closely monitoring them to make sure they are taking medicines, showing up for doctors' appointments and receiving follow-up care. Safyer said his organization saved the government $23 million in its first year as a Medicare Pioneer ACO, of which $14 million was returned to Montefiore.

"The way you make this work is not by denying care. The way you save money is by giving the right care to the right patients in the right setting," Safyer said. "My sense is the country is moving toward this. I predict it grows and grows. I bet the ranch on it."

(Editing by Grant McCool)

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