HHS Opens New ACO Regs Up for Public Debate

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altCould HHS’s new payment structure really save Medicare as much as $960 million over the next three years?

Could HHS’s new payment structure really save Medicare as much as $960 million over the next three years?


When patients are solely responsible for their own care, they go to many different  providers, often resulting in poor communication, repeated tests and increased costs. On April 31st, 2011, the Department of Health and Human Services (HHS) took a step towards attempting to solve this problem by proposing the Accountable Care Organization (ACO) payment model, a structure which they claim could save the Medicare program as much as $960 million over three years. The proposal is available for public comment for 60 days.

An ACO is a group of health care providers who collaborate to coordinate care for a group of 5,000 or more patients. To put it simply, when the ACO meets certain performance standards for the group, they get paid extra. In general, the program puts more control into the hands of primary care physicians, with the understanding that they will know best how to moderate the spending for a patient over time.

The ACO comes together for a three-year period and creates a structure that allows it to receive and distribute payments for “shared savings.” The ACO must include primary-care professionals, but the overall governance of the organization is somewhat flexible, involving providers, beneficiaries and members of the community. What it cannot include are too many business interests – the regulations specifically require that business entities not make-up more than 25 percent of an ACO’s board.


Who is in an ACO? They will be comprised of doctors, hospitals and various healthcare networks. Primary care providers may only participate in one ACO, but a hospital can participate in more than one, as can non-primary care medical and surgical providers. Physicians eligible for primary care provider status include internal medicine, general practice, family practice and geriatric medicine specialists. The role of large emergency medicine contract management groups is still up for grabs in this equation.

ACOs will be graded in five essential areas: patient/caregiver experience of care (think Press Ganey), care coordination (getting a claim out promptly), patient safety, preventive health, and at-risk population/frail elderly health. The Patient Protection and Affordable Care Act required that ACOs define processes to coordinate care. There are a range of ways that ACOs can do so, according to the rule, including predictive modeling, use of case managers in primary-care, use of a specific transition-of-care programs, remote monitoring and telehealth.

There are a variety of other hoops for ACOs to jump through as well. They must develop a process to promote evidence-based medicine, at least 50 percent of an ACO’s primary care physicians must be meaningful EHR users, and each ACO will have significant public reporting requirements in a standardized format.

The amount that an ACO can make depends partially on its tolerance for risk. There are two models being proposed, a lower and higher risk program. The amount of potential loss – and gain – is scaled accordingly. Under the lower-risk model, an ACO that creates a savings of at least 2 percent would get 50 percent of the money above that threshold. But it would have no penalty if it spent more in the first and second year. Under the higher-risk model, an ACO could receive 60 percent of the money above the threshold but would be penalized if it led to higher costs. By the third year of the program, all ACOs would become responsible for losses. The incentive system would provide “shared savings” payments directly to the ACO, which would decide how to distribute those payments among its member providers, hospitals and suppliers.


ACO beneficiaries – the patients – will be assigned to an ACO based on where they receive a plurality of their primary care services. CMS expects 5 million Medicare beneficiaries to receive care from providers participating in a shared savings program. Beneficiaries cannot be members of more than one ACO, and they will not necessarily receive advance notice of their ACO assignment. However, providers participating in ACOs will be required to post signs in their facilities indicating their participation in the program. They’ll have to make available standardized written information to Medicare fee-for-service beneficiaries whom they serve. Patients who are part of an ACO can still go to other Medicare doctors, but the ACO will be “reaching out” to the patients, trying to keep them healthier and out of the system. The fact that an ACO patient is not required to stay “in network” is a critical difference between the ACO model and the oft criticized HMO model.

Critics suggest that the ACO threatens to be an onerous weight for an already burdened healthcare system. For instance, CMS must approve any marketing materials or other communications promoting the ACO. ACOs must agree to be completely open to audits. ACOs must have a data-use agreement with CMS. However, Medicare beneficiaries assigned to ACOs can opt-out of data sharing.

Another concern is bureaucracy; given the scope of the regulations and the number of actions and approvals to qualify, participate and be accountable as an ACO, the regulations likely will require the establishment a massive infrastructure.

The regulations provide for a once-a-year start date of Jan. 1. Under the proposed rule, ACOs would apply for the three-year program and, if accepted, would be part of a cohort of ACOs joining the Shared Savings Program every Jan. 1.

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