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New ACO Rules Outline Gains And Risks For Doctors, Hospitals

Doctors and hospitals that join together under a new model of care could pocket as much as 60 percent of the money they save Medicare but could also face hefty penalties if they fall short under rules proposed by the Obama administration.

The Medicare Shared Savings Program, which would allow providers to band together as “accountable care organizations,” has been one of the most eagerly awaited creations of last year’s health care law. Its architects said they hope these closely coordinating organizations would help reduce the often disjointed and duplicative methods through which much medical care is delivered today.

“We need to bring the days of fragmented care to an end,” said Kathleen Sebelius, secretary of health and human services. “For way too long the federal government has been a bystander and in some cases a barrier while others work to improve a health care delivery system that frustrates providers and fails patients.”

Initially, regulators estimated, between 75 and 150 ACOs would be formed and approved by CMS. They would care for anywhere between 1.5 million and 4 million Medicare beneficiaries.

The Centers for Medicare & Medicaid Services anticipated the new ACOs could save Medicare between $170 million and $960 million over three years. That’s a droplet given that Medicare anticipates spending $1.8 trillion during this period. But ACO proponents hope these new models would proliferate and be expanded for privately insured patients.

The details in the 429-page proposed rule – as well as the fact that CMS issued it only after months of tinkering and consultations – reflect the challenging task facing the agency: how to encourage doctors and hospitals to experiment with a new financial model without putting the government in danger of being stuck with a big tab if it fails.

Under the proposed rule released Thursday, Medicare would continue to pay ACO providers seeing at least 5,000 patients on a fee-for-service basis – as it currently does under the traditional Medicare system. But CMS envisions some ACOs caring for 60,000 or more beneficiaries and acknowledged that its rules encourage such larger organizations, which could realize bonuses more easily than would smaller ACOs.

The rules would give ACOs two routes to participate in a three-year arrangement, starting as early as next January.

ACOs with more appetite for risk could opt for potential bonuses of up to 60 percent of savings. But they would have to agree to repay Medicare for cost overruns. At most, a badly performing ACO would have to repay the government 10 percent of what Medicare would have spent on those patients if they weren’t in the ACO.

CMS said this approach was designed for health care systems where doctors and hospitals already operate like ACOs – places such as the Mayo Clinic in Rochester, Minn., and Intermountain Healthcare in Salt Lake City. 

ACOs that are less experienced or more risk adverse could choose an alternative path to avoid any financial risk for the first two years. They would be eligible for smaller bonuses, up to 50 percent of the savings they achieved for Medicare. Even these ACOs would still face potential penalties in the third year of up to 7.5 percent of what CMS estimated their patients should have cost.

The government projects ACOs together would earn bonuses of $800 million over three years by spending less money on patients than anticipated by CMS while meeting quality standards. The government also estimated some ACOs would have to repay a total of $40 million for care that was worse or more costly than anticipated.

“CMS is trying to make this less scary,” said Erik Johnson, a senior vice president with Avalere Health, a Washington consulting firm. But he said many potential ACO partners have been increasingly nervous about the concept and “I don’t think there’s anything in the rule today that’s going to change anyone’s minds.”

One of the big challenges for ACOs would be the initial costs, which include installing electronic health records to link all the different specialists and facilities so they can share information with each other and CMS. The government estimated the first year start-up and operation costs for all the ACOs would total between $132 million and $263 million. Given the initial expenses, Jeff Ruggiero, a lawyer at Arnold & Porter and general counsel to the Queens County Medical Society in New York, said the inclusion of penalties was “somewhat disappointing.”

“We all know that the first couple of years of the operation of these organizations don’t typically achieve a great level of efficiency and it takes time and investment costs to get it going,” he said.

Providers are additionally hesitant because in an earlier model of ACOs that CMS experimented with, the Physician Group Practice Demonstration, only six of 10 participating groups earned bonuses over three years.

Still, some hospital systems said the details in the new rule made them more eager to apply. Dr. Kenneth Wilson, a vice president with Norton Healthcare, a large hospital system in Louisville, Ky., said the limited risk model “really opens the door for us.” Like a number of health systems, Norton last year began putting together an ACO, working with Humana, a commercial insurer and initially enrolling employees of both the hospital and insurer.

Under the rules, ACOs will have no control over which Medicare beneficiaries they are responsible for. CMS would automatically assign them responsibility for Medicare beneficiaries who received most of their primary care from providers in the ACO. Those beneficiaries, however, would always be allowed to see any Medicare provider they wanted.

ACOs would have to notify patients that they were participating in the program at the time they sought services. ACOs would also have to post signs around their facilities and provide written notices before obtaining a beneficiary’s health information from Medicare claims data.

Beneficiaries could opt out of the ACO or decline to let their information to be obtained, although such sharing between specialists and facilities is one of the main ways ACOs seek to improve care and better coordinate services.

CMS plans to require pre-approval of all marketing materials, including web pages, e-mails and brochures, to make sure patients aren’t mislead. Those requirements reflects CMS’s concerns that ACOs might attempt to steer low maintenance patients into their ACOs, or discourage existing patients from seeking expensive care from other providers – since the ACO would still be held responsible for the cost.

Blair Childs, a spokesman for Premier, a hospital-owned company running two ACO collaborations, praised many aspects of the rule but said without the prospect of a higher share of the Medicare savings, for some ACOs – particularly smaller ones – “the calculation is harder to see that the return is worth the investment.”

ACOs could be cut out of the program if their participating patients dipped below the 5,000 threshold-either because they formally dropped out, moved out of the region or chose to receive much of their care from providers who weren’t part of the ACO.

Paul Keckley, director for the Deloitte Center for Health Solutions, the research arm of the health consultancy Deloitte LLP, said specialists may be most threatened by ACOs, since the primary care physicians would seek to limit those expensive services.

“If you’re in a traditional market where specialty practices are independent, you probably would look at this and say this is probably a nightmare for us and you’re going to have figure out how to play in this,” he said.

CMS’s proposed regulations included provisions to relax strong antitrust rules that now prohibit many doctors and hospitals from collaborating to the degree required for an ACO. New ACOs that account for fewer than 30 percent of a local market would be given leeway from prosecution unless they engaged in deliberately anticompetitive behavior. The Federal Trade Commission, which worked with CMS in devising the rule, would evaluate larger proposed ACOs within 90 days to determine if they would violate anti-trust laws. Providers in rural areas may get additional exemptions.

“We are going to continue to be vigorous in enforcing the antitrust laws but are committed to making the ACO systems work,” said Jon Leibowitz, the commission’s chairman. “It’s a brave new experiment.”

David Balto, a health care lawyer and former FTC regulator, said the rules remove “some unnecessary roadblocks to the kind of integration Congress had intended to occur” when it wrote the health care law.

Insurers, who have been worried ACOs will establish so much market leverage that they can dictate prices, reacted cautiously to the proposal. “We remain concerned that ACOs could accelerate the trend of provider consolidation,” America’s Health Insurance Plans President Karen Ignani said in a statement. She praised the regulations for “taking steps to address this issue with proposed guidelines.”

CMS will accept comments on the proposal until June 6 and issue a final rule later this year.

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Cost and Quality Health Industry Medicare The Health Law