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To Be An ACO, Or Not To Be

Karen Minich-Pourshadi, for HealthLeaders Media, April 4, 2011

After much anticipation, the public comment period on the proposed Accountable Care Organization regulations from the Centers for Medicare & Medicaid Services began last week. The release of the proposed regs prompts me to ask: Are the potential cost savings worth the effort to establish an ACO, and if so, is now the time to set one up?

These aren’t simple questions to answer.

Donald Berwick, MD, the CMS administrator said in a March 31 perspective published in theNew England Journal of Medicine that the purpose of ACOs is to foster changes in patient care so as to accelerate progress toward:

  • Better care for individuals
  • Better health for populations
  • Slower growth in costs through improvements in care

Should your facility jump on the bandwagon? The answer is likely yes, but you may want to do so with optimistic trepidation. Here are few areas to keep in mind:

Details of an ACO

An ACO is an organization whose primary care providers are accountable for coordinating care for at least 5,000 Medicare beneficiaries. CMS will grant groups of Medicare providers the ability to share in cost savings if they create an ACO.

CMS will require ACOs to report metrics on their clinical processes and outcomes, patient experience, utilization, and costs - - all of which will be calculated to create a per-member cost for treatment in a given timeframe. This figure would be compared to benchmarks the government will establish based on rolling averages of per-beneficiary costs for the ACO, plus an adjustment to account for national expenditure growth.

Now, if the ACO meets the quality and patient perspective benchmarks, and manages to exceed a minimum savings threshold (also set by CMS), then the participating hospitals or health systems will be able to share savings with Medicare. How the money will be distributed among the participants of the ACO is based on the patient’s utilization of services within the ACO. Currently, the proposed regulations do not specify how much the incentives for providers will be.

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3 comments on "To Be An ACO, Or Not To Be"


Mike (4/5/2011 at 3:30 PM)
"the enthusiasm increases with the square of the distance from clinical practice and inexperience with the realities of full-risk capitation." Great line. Thirty years of healthcare finance and CFO of a large system with a large health plan has taught me that providers will likely take a bath with an ACO. No control over underwriting/actuarial, administrative burdens (but not money) consistent with what I get in an MA plan, 10% risk (see actuarial/underwriting concerns above) with no game plan for how to capitalize these ACOs, no real time utilization management system, savings/risk sharing based on current beneficiary costs (which means minimal opportunity for anyone in a low cost Medicare community), etc. etc. If you're still enthralled with this, take another look at the 400+ pages as if this was a contract proposal from a health plan? Would you take it? Only if you wanted to lose your shirt, which is exactly what you're going to do.

Bruce Landes (4/5/2011 at 12:01 PM)
I can see a limited market for ACOs, perhaps in a small city 200,000 to 300,000 where one hospital dominates the market. But the problem there is the FTC/DOJ who, interestingly enough are still referring to their 1996 "DOJ/FTC Statements Of Antitrust Enforcement Policy In Health Care" in their new ACO regulations. Commercial insurers enjoy anti-trust exemptions dating back the McCarren-Ferguson Act of 1945. In a major market you not only will not be able to keep patients in the ACO network. You won't even know that they went out of network and spent your money until weeks or months later. As far as building a network, if the doctors are not hospital-employed, you will have trouble signing up some doctors when they hear that they have to turn over their entire Medicare billing information to the ACO Administrator on a regular basis for the FTC reports. Not to mention all of the reporting needed for only a fraction of their patient base. You will be competing for patients with Medicare Advantage plans who are getting paid 14% higher capitation PMPM. They will be adding patient-friendly features, like dental and eyeglasses while you are adding administrative costs and more hassles and a smaller network. Competition? You won't be close. Finally, I am the president of a 1500 physician IPA which has been in existence since 1983. With the ACO you are becoming an insurer. When we took full risk-capitation in the mid-to-late 90's on 83,000 patients, both commercial and Medicare, it took less than thirty complex patients to blow our budgets out of the water. What will it take with 5,000 patients or just a few more? I think the worst place for a Hospital or Physician group who don't have the experience of managing risk and running an insurance company like Kaiser-Permanente or Hill Physicians Group in the SF Bay Area is to be on the "bleeding edge" of ACO development. This is one of those political ideas for which the enthusiasm increases with the square of the distance from clinical practice and inexperience with the realities of full-risk capitation.

TumTum (4/5/2011 at 9:41 AM)
The only way to reduce costs is to get away from fee-for-service medicine and adopt a better payment system where the interests of the patient, the payer and the provider are aligned. That's exactly what ACOs (and a decade earlier PHOs) do. The rules will evolve, and in time, we will see the playing field leveled - and free-market forces entering healthcare. True hospitals in some areas may continue to gouge certain communities butif ACOs catch on their gouging days are numbered. (One non-profit hospital in an East Coast city is spending its huge profts in building a "healthcare museum" even while they remain unaffordably high cost!). And there will be doctors who will invest in multiple "side" businesses but none of them will survive just from servicing their ACO patients - too small a population. They'll survive only if they market their servioces and offer competitive rates - like any other business. We need "sunlight" and thanks to Dr. Berwick we are creating a system that has patients and doctors at the very center. Even if they "fail" I can see it benefiting patients - and that's a "good" bet.