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ACO Executives Struggle to Estimate Degree of Financial Risk

By Michael L. Taylor/Wednesday, August 6, 2014

Michael L. Taylor imageA recent survey found many executives of Accountable Care Organizations (ACOs) are struggling to properly estimate the degree of financial risk their organization can bear. These organizations would benefit from an actuarial assessment of the ACO population for which they are intending to provide care, but many ACOs don’t have the many types of data needed to properly estimate risk. There are two areas of risk to assess:


  • The cost implications for those patients with chronic disease: ACOs need to not only understand the costs associated with chronic diseases such as heart disease, diabetes and cancer, but also the prevalence of these diseases in the population for whom the ACO is assuming risk
  • The cost implications for those without a chronic disease, but at risk for illness due to lifestyle risk factors: A large volume of scientific literature has consistently shown that, in a given population, as the number of risk factors increase, medical cost rises.
Doctors may have this information for the patients for whom they are caring, but they won’t have the data for an entire population. It’s difficult to predict costs without prevalence data.

Obtaining the data necessary to do this risk analysis is therefore necessary, but can be tricky for ACOs. Multi-year administrative claims data can demonstrate the burden of chronic disease, although typically this data isn’t held by any single provider. Regarding lifestyle risk, many large employers use “self-reported” data from health risk assessments for this purpose, but ACOs generally do not have access to these data. There are other factors to consider to predict costs in a population. Socioeconomic factors, level of education, and ethnicity all impact medical costs, but ACOs may struggle to obtain these data as well.

Successful ACOs will need access to these data streams and the ability to analyze the data to make financial predictions and create viable business models. They will also need to factor in the cost of obtaining these various types of data to include in the models. They will then need to partner with doctors and hospital systems to provide high-quality, efficient care in order to be financially viable. It can be done – we have customers that are assembling and integrating multiple data streams, performing and monitoring the analytics, and sharing the results across their enterprises – with careful planning, close coordination, and transparent governance.

Michael L. Taylor, MD, FACP
Chief Medical Officer
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