Last week’s commentary provided some background on Pharma’s perfunctory experience with Accountable Care Organizations, and under what circumstances a company might engage with an ACO. Here, I will lay the framework for why ACOs should be front-of-mind for Pharma—as well as other disparate suppliers and providers, from medical device manufacturers to home health care—and will discuss some options for how to move forward with ACOs and other evolving organized customers.

While to some Pharma veterans it may feel like 1990 all over again, ACOs are distinctly different entities operating in a much different economic, social, technological and political environment. Our rationale for why Pharma should lead, and not follow, stems from the following inarguable facts:

1. While some debate the longevity of ACOs, the move population health approach is underway. There is little doubt that this approach to delivering care in the U.S. is here to stay. Closely tied to population health management is the notion of value-based purchasing. CMS has a goal of 30 percent of all payments by year-end 2016 being through some form of alternative funding (such as ACOs or bundled payments) and 50 percent by 2018. Pharma must consider alternative pricing and payment models as an increasing number of patients fall under alternative funding.

2. ACOs have the potential of having more power and influence than managed care ever did. Why? Physicians have skin in the game: in many cases they have an ownership stake in their ACO. Therefore, the motivation to save money, earn bonuses and maintain quality is significantly stronger than in a managed care setting. 

3. Many ACOs are born from Integrated Health Systems (IDN, IHS, ICN used interchangeably) which are structurally organized to coordinate care, eliminate waste and negotiate contracts with suppliers.

4. Substantial public and private resources are being bestowed on the ACO concept, with CMS support and insurance companies using the ACO brand to sell their contracts to employers as an alternative, if not superior, product.

5. The technology curve is accelerating and maturing. As Epic and Cerner battle it out, sometimes as we’ve seen here very publicly, nascent technology providers are launching innovative solutions to control costs and improve the quality of care. Put differently, what MCOs couldn’t effectively measure or manage in the late 1980s and 1990s, ACOs can today. The technology allows them to do so much more.

As an aside, note that in some cases there is a blurring distinction among ACOs and provider types (IHS/IDN/MCO). For example, Montefiore, the largest system in the Bronx, owns clinics, hospitals, behavioral health facilities, has an IPA and sometimes functions as an MCO. Montefiore also has a Pioneer ACO, several commercial ACO agreements, and recently launched its own insurance product. As we have seen first hand through interviews with Montefiore executives, management practices are shared: what’s practiced within the ACO spills over throughout the organization. Companies that treat the Montefiores of the world as just another health system do so at their peril.

One potential answer to Pharma’s question about how to work with ACOs is to follow the formula for managed care, recalling lessons learned from mistakes made in the early days of the managed care boom. An ACO executive is not interested in expensive dinners and lavish events, and under current ethical guidelines such events would in any case be prohibited. Pharma must start with the relationship between the company and the ACO with dedicated, knowledgeable account management, with the understanding that talking to Pharma isn’t a top priority for most ACOs right now.

Patient education, physician engagement, partnerships for population health management, physician education—each of these strategies can demonstrate Pharma’s commitment to a collaborative, working relationship to achieve high-quality patient care. Pharma knows how to do this kind of customer service well; it has perfected it over the years with MCOs and other organized customers.

ACOs should be open to pharmacoeconomic arguments, and any product discussions should have the data behind it to show cost-effectiveness. Because in addition to being committed to good clinical outcomes, ACOs are financially driven entities. It isn’t enough to produce a back-of-the-envelope cost-benefit analysis. If a drug reduces hospitalizations or readmissions, ACOs want to know how much, down to the dollar, they will save. For products that offer this kind of favorable profile there should be little concern. For products that offer a comparatively less-attractive profile, even if that drug has somehow escaped the scrutiny of PBMs and MCOs, it is unlikely to be considered for use within an ACO, if that ACO has carved out its own formulary. Recall that in our research, about 30 percent of hospital-led ACOs have a formulary that differs from the hospital formulary.

The ultimate question is whether Pharma, or any other supplier, should engage in contracting directly with the ACO. Our research from late last year points to some activity in this area already, although risk-based contracting is very rare. And in any case, it’s often difficult to say exactly who you would be contracting with; in the 11.3 percent of panelists we surveyed, more than likely the contract was executed through the health system with which the ACO is associated. 

Using the Montefiore example, its Pioneer ACO patients receive drug benefits through Medicare Part D. But it has several other ACO agreements with commercial carriers. And throughout the system it has negotiated contracts with group purchasing organizations and multiple PBMs. Even for the most seasoned managed markets negotiators the lines of contracting become entangled quickly. As one seasoned executive recently told me, “There’s only so much price to go around.”

If the opportunity for contracting presents itself, there are 33 quality measures on which every Medicare ACO is evaluated, in part addressing at-risk populations including patients with diabetes, hypertension and coronary artery disease, ischemic vascular disease and heart failure. If drugmakers can keep costs down and improve outcomes for these populations—which they certainly can—a potentially stronger, more enduring partnership can be achieved through contracting.

At the moment, most ACOs are focused outside the pharmacy for cost control, and are instead focused on improving physician engagement, eliminating unnecessary hospital and emergency room visits, reducing unnecessary diagnostic testing, ensuring that they have the right EHR and outcomes management technology in place, and managing expensive chronic conditions. If Pharma can demonstrate a positive effect on any of these areas, that’s a good enough reason to start the conversation with ACOs.

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