Implementation of Accountable Care Organizations

Orlando—Soon after the Department of Health and Human Services (HHS) announced the proposed regulations for accountable care organizations (ACOs) in March 2011, many constituencies in the healthcare industry derided the rules as too cumbersome. They voiced their concerns, and HHS acquiesced to their feedback.

Last November, when the final rules for the Medicare Shared Savings Program were revealed, the response was much more positive. Now, some organizations are attempting to implement the theory into practice while also juggling other changes brought upon by the Patient Protection and Affordable Care Act.

“This is the most interesting time in healthcare that I can remember,” said John M. Harris, MBA, principal at DGA Partners, a healthcare consulting firm. “There is so much going on.”

In a session at the Spring Managed Care Forum titled ACO Financial and Strategic Analysis, Mr. Harris defined an ACO as “an entity that is clinically and fiscally accountable for the entire continuum of care that a given population of patients may need.” He said any group of healthcare providers can call themselves ACOs, but they need to apply to be part of the Medicare Shared Savings Program from the Centers for Medicare & Medicaid Services (CMS).

The program is based on the triple aim of better care, better health, and lower per capita cost that former CMS administrator Donald Berwick described when he ran the nonprofit Institute for Healthcare Improvement. It is among several Medicare initiatives aimed at saving money and managing population health, including lowering fee-for-service rates, implementing bundled payments, relying on value-based payments, and shifting to private Medicare Advantage plans.

Mr. Harris said there was a “resounding negative response” to the preliminary rules for the Shared Savings Program, which provides financial incentives for ACOs that keep costs down while meeting quality benchmarks in caring for patients. However, the final rules included less risk and easier quality standards for providers, while providing them with more generous sharing in the cost savings.

The trend to reward providers for quality and cost savings is not solely for government payers, according to Mr. Harris. Commercial payers are implementing initiatives such as pay-for-performance, tiered or narrow networks, care coordination payments, patient-centered medical homes, and shared risk contracting.

Under the final rule, the following groups are eligible to apply for the Shared Savings Program: professionals in group practices, networks of individual practices such as an individual practice association, hospitals and professionals in a partnership such as a physician-hospital organization, and hospitals with employed professionals. Federally Qualified Health Centers and Rural Health Clinics are also eligible if they meet certain requirements.

If ACOs want to share in the savings, Mr. Harris said they must achieve sufficient scale, invest in care management and information technology, generate savings, meet quality scores, and grow their market share. The changes made in the final rules include reducing the quality measures from 65 to 33 to lower the reporting burden for ACOs; making the use of electronic health records a quality measure, not a requirement; providing physicians in ACOs with more frequent information on how they are progressing in care management and quality improvement efforts; and lowering the costs of starting an ACO by not making mandatory review a requirement. The most significant provisions may have been the financial ones that do not require ACOs to take on any risk in the first 3 years so that they will not lose any money. They will also receive a percentage of the first dollar of savings, which Mr. Harris said would give them greater rewards to cut costs and lead to more ACO applicants.

Still, although primary care physicians have shown more interest in being part of ACOs, specialists are not as optimistic, according to Mr. Harris. He said specialists fear losing patients and are concerned that the collaboration with other providers would not be lucrative and will cost a lot of upfront money that could be hard to recoup.

In December, HHS announced 32 pioneer ACOs in 18 states and projected a collective savings of $1.1 billion for the pioneer programs in the next 5 years. The pioneer model was intended for providers who had experience in the collaboration of care coordination. Of the 32, 6 were in California; 5 were in Massachusetts; 3 were in Michigan; 2 apiece were in Minnesota, Texas, and Wisconsin; and 1 apiece were in New York, New Mexico, Illinois, Vermont, Nevada, Colorado, Pennsylvania, Florida, Indiana, Iowa, Arizona, and Maine.

In April, CMS selected the first 27 ACOs to take part in the Medicare Shared Savings Program. Mr. Harris said 90% of the applicants were approved. Of the 27, 19 were physician-driven and 5 received advance payments to help set up ACOs. Mr. Harris said the advance payments are intended for physician groups with <$50 million in revenue. An estimated 10,000 physicians (1.4% of all physicians) and 10 hospitals (0.2% of all hospitals) are involved, according to Mr. Harris.

The initial 27 ACOs in the Shared Savings Program were in the following states: 4 in New York; 3 apiece in North Carolina, New Jersey, and Florida; 2 apiece in California, Texas, Georgia, and Massachusetts; and 1 apiece in Pennsylvania, Kentucky, New Hampshire, Wisconsin, Arizona, and Mississippi.

As of late April, an additional 150 ACOs have applied for the next round of the Shared Savings Program, which begins on July 1. Mr. Harris did not know how many ACOs would be selected, however, he said that 50 of them have requested advance payments. The final group of Shared Savings Program participants will begin on January 1, 2013.

By next year, Mr. Harris said there could be 200 ACOs participating in the Shared Savings Program with a total enrollment of nearly 3 million beneficiaries. The 33 quality measures for ACOs are spread across 4 subsets: 7 are based on patient/care giver experience, 6 are based on care coordination, 8 are based on preventive health, and 12 are based on at-risk populations, defined as patients with diabetes, hypertension, ischemic vascular disease, heart failure, and coronary artery disease.

Although the pioneer ACOs and Shared Savings Program ACOs will account for a small proportion of Medicare beneficiaries, Mr. Harris said they could make a significant impact, particularly on hospitals. He noted that because hospitals have high fixed costs, reduced utilization as a result of ACO implementations could cause them to lose a significant amount of money.