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Book Excerpt: Are You Ready for an ACO Environment?

HealthLeaders Media, April 12, 2012

Financing—Startup and Ongoing Expenses
ACOs will require up-front costs. Among the most obvious is IT that will report and store data. Because all providers in an ACO will be jointly accountable for quality and cost measures, IT will have to be compatible for multiple providers to allow them to share information. Due to the high costs of IT, potential participants, such as small physician groups and solo practitioners, should assess whether joining an ACO is realistic.

An ACO must have an IT infrastructure that enables it to collect, analyze, and share data among providers/suppliers in the ACO organization to support clinical decisions, as well as support CMS reporting. And the up-front costs may be greater 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 startup cost and staff requirements. Original ACO pilots were somewhat amazed at the high costs and extensive time required to build their IT infrastructure. Recently organized physician groups may also lack the history needed for benchmarking costs that would be required for a private ACO.

In addition to up-front costs, ACOs will require continuing expenses relating to reporting. These expenses will involve personnel, IT maintenance, governance, and continual coordination among the different members in an ACO. In an effort to assist providers with the upfront costs of creating a CMS ACO, the government has created a program called the Advance Payment Model. This model allows for three different payment options:

  • Upfront single fixed payment
  • Upfront, variable payment based on number of historically assigned beneficiaries
  • Monthly varying amount depending on number of historically assigned beneficiaries

These advance payments will be recovered from future savings distributed to the ACO—this is a loan, not a grant. Only two types of organizations will be eligible for the Advance Payment program. An ACO cannot include any inpatient facility and also must have less than $50 million in total annual revenue.

The second type of ACO entity that could apply for financial assistance is one that does include inpatient facilities that are critical access hospitals and/or Medicare low-volume rural hospitals and has less than $80 million in total annual revenue. This program specifically excludes ACOs that are co-owned by a health plan, even if they fall into either of the above-mentioned categories. Also, only those ACOs that begin the ACO program in 2012 will be eligible to participate in the Advance Payment Model.

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