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ACO-Bound? Consider the Financials First

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

In addition to up-front costs, ACOs will require continuing expenses relating to reporting. These expenses will involve personnel, IT maintenance, and continual coordination among the different members in an ACO.             

ACOs also involve financial and legal risk because so much rests on the forthcoming regulations and on inevitable fine tuning that will occur in the future. Right now, it is unclear how ACOs will be reconciled with the requirements of HIPAA, which restricts sharing patient information among independent providers; the Stark Law, which prohibits Medicare claims for physician services due to referrals to entities with which the physicians have a financial relationship; and antitrust, which has hitherto frowned on physician-hospital joint ventures and independent healthcare providers acting in concert.

While Section 1899 gives the Secretary authority to waive ACO participants from federal fraud and abuse regulations, those waivers – if they are even granted – may come with their own strings.

In 2005, the Centers for Medicare & Medicaid Services sponsored a Medicare Physician Group Practice demonstration involving 10 big integrated delivery systems over five years. The participants in this demonstration project, which ended in spring 2010, were the forerunners to ACOs. Participating physician practices were given awards based on both cost savings and quality improvements (unlike ACOs, which would be eligible for awards measured only by cost savings as long as quality targets are met). In the second year, while all participating practices were paid for quality improvements, only four were paid for cost improvements, based on exceeding target expenditures by at least 2%. The awards to the practices equaled 80% of the cost savings above the 2% threshold.

The Dartmouth-Hitchcock Clinic received the most: $6.69 million. Marshfield Clinic got $5.78 million, and the University of Michigan Faculty Group Practice received $1.24 million. Everett Clinic, a group practice of more than 300 physicians in the state of Washington, received the smallest payment for cost savings: $129,268. (Payments for all five years have yet to be calculated.) Everett Clinic paid more than $1 million in up-front infrastructure costs. The average up-front payment was $489,000 plus $1.26 million in operating costs in the first year. These costs are low estimates considering that the provider systems in the demonstration project had already absorbed other integration costs before the project got under way.

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