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ACO-Bound? Consider the Financials First

David A. Lips, for HealthLeaders Media, December 30, 2010

Once established, an ACO enters into a contract with HHS that lasts at least three years to provide a continuum of care to patients that HHS assigns to it (not necessarily with the patients' knowledge or consent). To participate in the program, ACOs must have the following:

  • A formal legal structure that would allow the organization to receive and distribute payments for shared savings … to participating providers of services and suppliers
  • Enough primary-care providers to handle at least 5,000 patients
  • A way of implementing "quality and other reporting requirements"
  • A leadership and management structure that includes clinical and administrative systems
  • Processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.

All of these elements but the second will potentially require a substantial investment.

The goal of ACOs is to improve quality of care and drive down costs by providing an incentive (through shared savings) for better patient outcomes and lower expenditures (for example, by lessening the need for intensive care). Rather than being paid on the number of medical services provided, physicians, hospitals, and practitioners in ACOs have the opportunity to be paid, in part, at the end of each ACO contract year for keeping patients healthy, based on comparing current costs with per-beneficiary Medicare expenditures over the past three years. But the feasibility of creating or entering into an ACO depends on regulations that are due to be released this January, covering the following points:

  • What are the required performance standards?
  • What is their benchmark and how will they be measured?
  • What configurations of ACOs are permissible other than those described in Section 1899?
  • What are the reporting requirements?
  • What is the basis of comparison used to determine cost savings?
  • How much savings are required before savings are shared?

ACOs will require up-front costs. Among the most obvious is intellectual technology that will report and store data. Since all providers in an ACO will be jointly accountable for quality and cost measures, IT will have to be compatible for multiple providers in order to allow them to share information. The IT costs may be high enough to weed out small physician groups and solo practitioners from considering joining an ACO. And the up-front costs may be bigger than expected. Most early clinically integrated networks, which are precursors to ACOs, took longer than was anticipated to put in place and had greater than expected start-up cost and staff requirements. Recently organized physician groups may also lack the history needed for benchmarking costs that would be required for an ACO.

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