Accountable Care Organizations: Updates to know
Accountable Care Organizations: Updates to know

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Accountable Care Organizations to become operational

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Establishment of Accountable Care Organizations (ACOs) has been described as the most significant change in health care delivery since the Medicare and Medicaid programs were begun in the 1960s.

The creation of ACOs is part of the “Medicare Shared Savings Program” of the Patient Protection and Affordable Care Act passed by Congress in 2010.
Starting January 1, 2012, the federal government will pay ACOs for caring for Medicare patients. The goal is to have health care providers join together to deliver care in a high-quality, cost-efficient manner. If costs are saved, the ACOs will receive bonuses that will be shared with the providers. If costs exceed benchmarks established by the Centers for Medicare and Medicaid Services (CMS), the ACOs will have to pay back some of the funds they have received.

In April 2011, CMS issued a proposed rule governing ACOs. Health care providers and members of the public had two months in which to submit comments on the rule. After considering the comments and probably making some modifications to the proposed rule, CMS will issue a final rule.

Requirements for Accountable Care Organizations

Under the proposed rule, in order to qualify as an ACO, the organization must care for at least 5,000 Medicare beneficiaries and enter into a three-year agreement with CMS to provide care. CMS will assign beneficiaries to an ACO if a beneficiary has received a plurality of his or her primary care from physicians associated with the ACO, although beneficiaries are free to change physicians (and ACOs) if they wish.

Use of electronic health records is an important part of achieving the goals of ACOs to improve quality and reduce costs. Under the proposed rule, at least 50 percent of the primary care physicians in an ACO must be “meaningful users” of electronic health records. (“Meaningful use” of electronic health records is the subject of other federal regulations. It includes recording and transmitting patient demographics, vital signs, diagnoses, allergies, clinical quality measures and prescriptions, as well as use of electronic systems for clinical decision support.)

Physicians who are working with an ACO are likely to find their practice of medicine more subject to controls by the organization than would be the case in small medical practices. Under the proposed rule, “The ACO must implement evidence-based medical practice or clinical guidelines and processes for delivering care consistent with the aims of better care for individuals, better health for populations, and lower growth in health care expenditures.” The rule adds that the guidelines should “tak[e] into account the circumstances of individual beneficiaries.”

Management of Accountable Care Organizations

The proposed rule is flexible regarding what types of organizations can set up ACOs. The most likely types of organizations are hospitals, large groups of physicians and insurance companies. An organization will need significant amounts of capital and administrative support to establish an ACO.

Clinical management of an ACO must, in the words of the rule, be handled “by a full-time senior-level medical director who is physically present on a regular basis in an established ACO location, and who is a board-certified physician and licensed in the State in which the ACO operates.” The rule also provides that “At least 75 percent control of the ACO’s governing body must be held by ACO participants.” ACO participants include physicians, hospitals, skilled nursing facilities, hospices, home care agencies and suppliers.

Two Accountable Care Organization tracks for level of payments

The proposed rule provides two tracks for payments to ACOs. Both tracks make reference to “benchmarks” established by CMS for each ACO that are based on multiple factors, including the claims history of Medicare beneficiaries cared for by the ACO, the health status of the beneficiaries, and CMS’s estimate of what it would have paid for services without the cost-saving measures being implemented by the ACO. The tracks involve different levels of payment and risk for the ACOs, and the ACOs may choose which track to be on.

Under Track 1, also known as the “one-sided model,” in the first two years of the program, participating ACOs may receive bonuses up to 7.5 percent of its benchmark for savings achieved, provided the ACO achieved a minimum level of savings. That minimum level of savings varies between 2 and 3.6 percent of Medicare Part A and Part B payments, depending on the number of beneficiaries served. In the first two years, there is no downside. If costs exceed the benchmark, the ACO would not be obliged to pay back money to CMS. In the third year, however, ACOs on Track 1 would be sharing risks as well as the savings. The maximum payback amount (“recoupment”) in the third year would be 5 percent of the benchmark.

Under Track 2, also known as the “two-sided model,” ACOs share in the risk as well as the potential savings, beginning in the first year of the program. In exchange for the added risk, ACOs on Track 2 will have a higher cap on savings they may share—up to 10 percent of its benchmark (rather than the 7.5 percent limit for ACOs on Track 1). In addition, Track 2 ACOs share in the first dollar of savings and do not have to wait until a minimum level of savings is achieved. The maximum payback amount would be higher for ACOs on Track 2 than ACOs on Track 1: 5 percent in the first year, 7.5 percent in the second year, and 10 percent in the third year.

ACOs on both tracks can receive added bonuses for providing services for Federally Qualified Health Centers and Rural Health Centers. In order to receive bonus payments, ACOs, in addition to achieving savings, will need to meet quality performance measures in five areas: (1) patient/care giver experience, (2) care coordination, (3) patient safety, (4) preventative health, and (5) at-risk population/frail elderly health.

Potential losses for physicians participating in ACOs

Although many providers would be pleased to receive bonuses for effective cost-saving programs, enthusiasm for ACOs is tempered by the high cost of setup and operation, which may exceed bonuses received. If an ACO incurs expenses that exceed the benchmarks set by CMS, the ACO will have to pay back money to CMS, and thus experience a loss for participation in the program.

For physicians considering participating in an ACO, it will be important to determine the degree to which individual physicians will share the savings or be at risk, depending on whether savings goals and quality measures are met. Under the proposed rule, ACOs must describe to CMS how savings will be shared with participants, but the rule does not specify how savings must be shared.

For now, participation in the program is optional as the government seeks the best way to promote the dual goals of improving quality and saving costs. If, a few years from now, the government continues to believe that ACOs are the preferred way to deliver care, we can expect that participation in ACOs may be more mandatory, or there will be financial penalties for providers that do not participate. In addition, private insurers may adopt payment models similar to those used by the government if the insurers find that ACOs are a useful method for controlling costs.


Jeff Atkinson

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