Proposed ACO Rules Raising More Questions Than Answers

This month, Washington, DC, has been buzzing about “ACOs” – accountable care organizations – now that the Centers for Medicare and Medicaid Services (CMS) has released the proposed rules for establishing these entities. Although the rules were meant to provide more clarity on how ACOs would function, instead they have been raising more questions, as evidenced by recent panel discussions and published commentaries.

According to CMS, an ACO “refers to a group of providers and suppliers of services (e.g., hospitals, physicians, and others involved in patient care) that will work together to coordinate care for the patients they serve with Original Medicare (that is, those who are not in a Medicare Advantage private plan). The goal of an ACO is to deliver seamless, high quality care for Medicare beneficiaries. The ACO would be a patient-centered organization where the patient and providers are true partners in care decisions."1

And who are those partners? The health reform law states that ACOs may include the following types of groups of providers and suppliers of Medicare-covered services:

  • ACO professionals (i.e., physicians and hospitals meeting the statutory definition) in group practice arrangements,
  • Networks of individual practices of ACO professionals,
  • Partnerships or joint venture arrangements between hospitals and ACO professionals, or
  • Hospitals employing ACO professionals, and
  • Other Medicare providers and suppliers as determined by the Secretary of the Department of Health and Human Services.2

Some health care analysts have noted that today’s discussions about ACOs are similar to debates in the early 1990s, when the federal government last tried its hand at health care reform. Then, the discussion focused mostly on a capitated environment, where the focus is only on managing costs. In an ACO, providers have at least some financial responsibility and they are also accountable for the quality of care they provide. However, as Dr. Lawton R. Burns, James Joo-Jin Kim Professor of Health Care Management and department chair at the University of Pennsylvania’s Wharton School, pointed out during a panel discussion at an Association of Health Care Journalists (AHCJ) conference, even in the 1990s, health experts were focused on three interdependent aims: cost, quality and access. Not surprisingly, those three aims are present in today’s ACO discussions as well.

Why create an ACO? According to Premier Healthcare, one of the nation’s largest health care strategic alliance enterprises, health care today is fragmented: “doctors and hospitals are paid for every service they provide” and “providers don’t always ‘talk’ to one another, leading to unnecessary repetitions of recent procedures because data is stored with another physician or hospital at the time it’s needed to support decision‐making.” “This disconnected healthcare ‘production’ model creates perverse incentives that directly lead to serious problems, i.e., unsustainable spending, inefficiency, waste, poor care coordination and, sometimes, sub‐optimal outcomes. ACOs are widely viewed as a way to transform health care to address these concerns simultaneously. In an ACO, providers will no longer be rewarded for the volume of care provided to those who are sick. They will instead be paid based on their ability to keep people healthy.”3

 But it’s unclear whether ACOs developed under CMS’ proposed rules would be financially viable, according to Steven M. Lieberman, president of Lieberman Consulting and a visiting scholar at the Brookings Institution, speaking at the AHCJ conference on April 16. “It depends on how the CMS rules play out,” he said.

According to the proposed rule, “Medicare would continue to pay individual health care providers and suppliers for specific items and services as it currently does under the Original Medicare payment systems.  CMS also would develop a benchmark for each ACO against which ACO performance is measured to assess whether it qualifies to receive shared savings, or to be held accountable for losses.” In addition, “CMS is proposing to establish a minimum sharing rate that would account for normal variations in health care spending, so that the ACO would be entitled to shared savings only when savings exceeded the minimum sharing rate.  The amount of shared savings depends on whether on an ACO meets or exceeds quality performance standards.” The standards are in five key areas:

  • Patient/caregiver care experiences
  • Care coordination
  • Patient safety
  • Preventive health
  • At-risk population/frail elderly health.4

Some health care stakeholders, like AdvaMed president Steve Ubl, remain concerned that quality measures do not hinder innovation. In a blog post for Health Affairs, Ubl wrote, “Quality measures must not freeze medical practice in place, and we should not discourage providers from using new treatments…  [I]f the new treatment proves to be a better alternative, it should be incorporated into the quality measure.”

The proposed rules have only been out for a few weeks, so it’s still too early to tell how ACOs will evolve under the CMS structure. But we’ll be watching closely to see how the bigger questions are being addressed. 

The public has until June 6, 2011, to comment on CMS’ proposed rules, which were published on March 31, 2011. Interested in learning more about ACOs? Check out NPC’s suggested reading list.

1 Accountable Care Organizations: Improving Care Coordination for People with Medicare. Accessed April 26, 2011.
2 Ibid.
3 Accountable Care Collaboratives, Premier Inc. Accessed April 26, 2011.
4 Accountable Care Organizations: Improving Care Coordination for People with Medicare. Accessed April 26, 2011.
5 Ubl, S. ACOs: Improved Care Or Roadblocks To Innovation?, April 25, 2011. Health Affairs blog, Accessed April 26, 2011.