The final regulations governing Medicare accountable care organizations were released by the Centers for Medicare and Medicaid Services in October, and they represent a sea change in healthcare’s future. They also represent a victory for healthcare providers, who vociferously collaborated to let CMS know that the proposed rules released last May were a recipe for failure.
“The draft regulations imposed significant burdens and financial risks on ACOs while providing limited opportunities for financial rewards,” said Jeremy A. Lazarus, MD, president-elect of the American Medical Association. “CMS clearly took our concerns seriously because the final rule is a substantial improvement over the proposed rule.” Lazarus spoke in November at an AMA-hosted webinar designed to outline the major provisions of the new regulations for its members.
The idea behind ACOs is to coordinate patient care among multiple providers, make service delivery more efficient and save money. ACOs that meet certain quality standards can share in any resulting savings. One major change from the proposed to the final rules is that the number of quality measures required was cut from 65 to 33, a substantial victory for providers. In addition, the final rules don’t require that all ACOs face potential penalties, and, in fact, possible bonuses are increased.
At the time of the final rules’ release, the American Hospital Association weighed in, commending CMS for listening to the concerns of hospitals while acknowledging that hospitals “will be held increasingly at financial risk in improving outcomes for patients and becoming more efficient in the delivery of services.”
AHA President and CEO Rich Umbdenstock said, “The AHA is also encouraged by the historic effort among several federal agencies to achieve the goal of better coordinated care. Specifically, the antitrust agencies responded to hospital concerns and reversed their plan to require antitrust preapproval for every ACO applicant and instead provided guidance. We believe removing this barrier was essential to encouraging ACO participation.”
AMA President Peter W. Carmel, MD, said the rule “includes a number of positive changes. The AMA recommended that the risk and payment structure for potential ACOs should encourage participation by physicians in all practice sizes, and we are very pleased that this final rule allows ACOs to share in every dollar of cost savings and includes an option that limits financial risk.”
The final rules even include an advanced payment initiative created through the Centers for Medicare and Medicaid Innovation to provide financial assistance for up to 50 small and rural physician-owned organizations interested in collaboration. Up to $170 million is allocated for advanced payments.
During the webinar, Harold Miller, executive director of the Center for Healthcare Quality and Payment Reform and the president and CEO of the Network for Regional Healthcare Improvement, walked through the crux of the final rules – the shared-savings program. Here’s how he described it: “The basic idea is that CMS will total the current spending level for the patients who are in the accountable care organization. This is total spending of all types – physician charges, hospital charges, home care, etc. The second step is that CMS will project how much they think that spending would increase based on national trends in the absence of anything that the accountable care organization would do. The third step is to total up what was actually spent on those patients. Notice that this is not talking about necessarily a reduction in spending over the past; this is a reduction in spending compared to what would have been expected to happen in the absence of the accountable care organizations. In step four, if the savings is large enough, Medicare will divide it between Medicare and the ACO and pay a bonus payment to the accountable care organization. If over time the accountable care organization can keep Medicare spending below the amount that Medicare would have projected it would have otherwise spent, the ACO can continue to get larger and larger bonus payments from Medicare for doing that.”
The final rules establish two shared-savings tracks. For Track 1, there’s no penalty if savings aren’t reached; Medicare covers the increased costs and there’s no bonus. For Track 2, the ACO is required to repay a portion of the money if savings aren’t achieved. “You might think, why would you ever want to be in Track 2?” Miller said. “The reason is because there are some incentives for joining Track 2.” Track 1 must have a larger minimum savings rate than Track 2 in order to share savings – up to 3.9 percent versus 2 percent. Also, ACOs in Track 1 may garner 50 percent of savings, but Track 2 ACOs get 60 percent.
Miller rhetorically asked why physicians should even go through the hassle of launching or affiliating with an ACO. The reason is because 79 percent of Medicare spending doesn’t go into the pockets of physicians today, yet doctors may influence other Medicare spending categories such as nursing care, home health, prescriptions and hospital stays. “If the physicians can find a way to reduce spending on those other items, it may mean an increase in the amount of payments for physicians,” Miller said. “That’s the basic concept behind shared savings and why it might be attractive to physicians to participate.”
ACO applications are due either by Jan. 20 or March 30 (see table). 2012 applications are already posted on the CMS website.