Monday, June 11, 2012

Accountable Care Organizations: promoting quality and cost effective health care for Medicare beneficiaries

Under the health reform law Medicare is moving away from the fee-for-service payment model that tends to encourage delivery of a high volume of health services rather than quality and efficiency. Medicare is adopting new payment methods that reward medical providers for keeping patients healthy while curbing excessive spending. This is a positive trend that hopefully will not be derailed by the U.S. Supreme Court’s decision on health reform which is due later this month.  

A notable example of the trend toward quality and efficiency over volume is the development of Accountable Care Organizations (ACOs).  ACOs are based to a large extent on models of care developed at systems including Geisinger Health System in Pennsylvania, where hospitals and doctors coordinate their efforts within the same organization. ACOs are a key provision in the health reform law and are intended to slow rising health costs while delivering high-quality care to Medicare beneficiaries. They are designed to change the incentives that influence how doctors and hospitals operate.

Section 3022 of the Affordable Care Act (the health reform law) requires the Centers for Medicare & Medicaid Services (CMS) to establish a Medicare Shared Savings program “by Jan. 1, 2012 that promotes accountability for a patient population, coordinates items and services under Medicare Parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.” Participating entities, referred to as Medicare Accountable Care Organizations (ACOs), that meet quality and performance standards are eligible to receive payments that allow them to share in the savings they achieve.

At present most hospitals and doctors are paid by the amount of services they provide. This means they receive higher payment for delivering more, but not necessarily better, care. ACOs are intended to reverse the incentives and reward providers for holding down costs and meeting certain quality measures, such as reducing hospital readmissions or emergency room visits. 

To maximize their reward, ACO’s must closely monitor patients' needs and work to coordinate the services provided by hospitals, nursing homes and other medical providers across our currently fragmented health care system. If an ACO succeeds at managing its pool of patients effectively from both a cost and quality standpoint, Medicare allows them to share in the savings and boost their profits.

Last Fall CMS released its final rule on ACOs. In conjunction with the final rule, the Department of Health and Human Services Office of Inspector General, the Department of Justice, the Federal Trade Commission, and the Internal Revenue Service issued separate notices addressing a variety of legal issues applicable to the Shared Savings Program.  These included the interaction of the Shared Savings Program with the federal anti-kickback, physician self-referral, civil monetary penalty (fraud and abuse) and antitrust laws, as well as the tax implications for nonprofit entities seeking to participate in ACOs.   

The final rule and related regulatory guidance was published in the Nov. 2, 2011 Federal Register. CMS says that it envisions the final rule will help create as many as 270 Medicare ACOs.

Under the CMS rule an ACO is a network of doctors and hospitals that shares responsibility for providing care to patients. ACOs must agree to manage all of the health care needs of a minimum of 5,000 Medicare beneficiaries for at least three years. Those ACOs that succeed in providing high quality care – as measured by performance on 33 quality measures – while reducing the costs of care may share in the savings to Medicare.  A version of the program allows providers to earn a higher share of any savings if  they have agreed to be held accountable for a share of any losses incurred if the costs of care for the beneficiaries assigned to them increase. 

Participation in an ACO is purely voluntary for providers, and people with Medicare retain their ability to seek treatment from any provider they wish. 

Many hospitals, physician practices and insurers across the country have been preparing and implementing plans to form ACOs, not only for Medicare beneficiaries but for patients with private insurance as well. As of May 2012 CMS had approved 65 ACOs of various variations, and was reviewing more than 150 applications from ACOs that are seeking to participate in the Shared Savings Program beginning July 1.  (The final rule offered ACOs the option of starting on either April 1 or July 1, 2012).  CMS will announce the date for submission of applications to participate in the Shared Savings Program beginning in 2013 later this year.

For more information:

Further information on the Medicare Shared Savings Program including links is available on the CMS website under “Shared Savings Program” at

Portions of this posting were based on articles posted by Kaiser Health News, and by Policy and Medicine,

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