ACOs: What you need to know

Monday, April 25, 2011

The biggest buzz in D.C. over the last year has been ACOs--the new acronym in our healthcare lexicon. On March 31st, the government's plans were unveiled when CMS issued a proposed rule that implements this provision of the Affordable Care Act of 2010. The "Medicare Shared Savings Program" will establish incentives for healthcare providers to work together to treat an individual patient across care settings--including doctor's offices, hospitals and long-term care facilities--as an accountable care organization (ACO). 

The underlying objective of the Medicare Shared Savings Program is to improve the quality of services and to lower costs by encouraging healthcare providers to create integrated  delivery systems. These systems will test new reimbursement methods intended to incentivize healthcare providers to enhance quality and lower costs. The program is expected to save about $5 billion in its first eight years. 

Under CMS's proposed rule, healthcare providers meeting certain criteria would be recognized as ACOs beginning Jan. 1, 2012. Each ACO must have a formal legal structure that will allow it to receive shared savings payments and distribute them among providers, while demonstrating it can meet quality and reporting standards.

ACOs would enroll in the savings program for no less than three years and must have at least 5,000 beneficiaries assigned to it to be eligible to participate. The proposed rule calls for Medicare to take a retrospective look at the beneficiary's use of services to determine whether a particular ACO should be credited with improving care and reducing expenditures. This means that an ACO would have an incentive to improve the quality of care for all patients seen by its member providers and suppliers. Healthcare providers forming an ACO are required to notify the beneficiary that they are participating in an ACO and disclose eligibility for additional Medicare payments as the result of improving the quality of care the beneficiary receives and reducing overall costs, or they may be financially responsible to Medicare for failing to provide efficient, cost effective care. Upon this notification, the beneficiary may choose to receive services from the healthcare provider or seek care from another provider that is not part of the ACO. Therefore, beneficiaries will remain free to use non-ACO providers, and payments for services by both ACO and non-ACO providers will continue to be made on a fee-for-service basis.

Patients who receive most of their care from ACO-affiliated providers would be treated as "assigned" to the ACO. At the outset, they would not be formally enrolled, would not be required to obtain services through the ACO, and might not even know the ACO existed. The assignment process would allow payers to define a population for which the ACO could be held accountable. Critics of this approach believe that patients should have a choice in participating in an arrangement that could reward providers for reducing services.

Traditional delivery systems such as integrated delivery systems, multispecialty group practices, physician-hospital organizations, independent practice associations, and virtual physician organizations are those models that are expected to thrive as ACOs, although most provider types are eligible to participate. 

A spending benchmark will be set for each ACO, based on its assigned beneficiaries' past Medicare expenditures. The ACO will be deemed to have achieved savings if it keeps spending growth for its population below average per capita spending growth for all Medicare beneficiaries. If the ACO also meets the Secretary's quality performance standards, it will receive some share of the calculated savings. How savings will be divided between the ACO and Medicare will be determined by the Secretary, although the ACO will determine the shared incentive structure for each organization.

Entities eligible to become an ACO under the Medicare Shared Savings Program include: (1) ACO professionals (i.e., physicians and hospitals meeting the statutory definition) in group practice arrangements; (2) networks of individual practices of ACO professionals; (3) partnerships or joint ventures arrangements between hospitals and ACO professionals, or (4) hospitals employing ACO professionals. CMS maintains the discretion to make eligible other Medicare providers and suppliers in the Medicare Shared Savings Program such as certain critical access hospitals as deemed by the Secretary. In its proposal, CMS did not define any additional provider or supplier groups (e.g., DME providers) that would be eligible entities, but it stated that it reserved the right to do so in the future.

If an ACO is already comprised of a self-contained financially and clinically integrated entity that has a pre-existing board of directors or other governing body, the ACO need not form a separate governing body or create a new legal entity. The existing entity, however, must be recognized under applicable state law, be capable of receiving and distributing shared savings and repaying shared losses, and meet the other ACO functions identified in the statute. 

Payers would collect data on utilization and costs for the ACO population health. A healthcare provider could be required to meet minimum quality standards in order to continue to participate in the ACO. In addition, quality reporting requirements would encourage improvements in ACO-wide information systems, a key factor in developing coordinated care. For 2012, CMS proposes to use a number of quality measures to establish the quality performance standard ACOs must meet to share in savings, provided they also meet the program's cost savings requirement. These 65 measures span five quality domains: patient experience of care, care coordination, patient safety, preventive health and at risk population/frail elderly health. 

According to a recent American Hospital Association report, 70% of hospital leaders believe that their institution could be a part of an ACO within the next five years. With that expectation, HME providers need to be working on collecting data to demonstrate their services are cost effective and lead to better outcomes, and should be developing and solidifying relationships with hospitals and physicians.

CMS will take comments on the proposed rule until June 6 and will issue a final rule in advance of the Jan. 1, 2012 deadline. The 429 CMS proposed rule can be found at The CMS summary and fact sheets can be found at

Cara Bachenheimer is the senior vice president of government relations for Invacare.