CMS Ignites ACO (Accountable Care Organizations) Debate

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Today the Centers for Medicare and Medicaid Services (CMS) released long awaited proposed regulations for accountable care organizations (ACOs). Under the federal Affordable Care Act (Obamacare), ACOs– which are associations made up of groups of health care providers—can share Medicare savings derived from improvements in care.

In CMS administrator Don Berwick’s own words:

The creation of ACOs is one of the first delivery-reform initiatives that will be implemented under the ACA [the national Affordable Care Act]. Its purpose is to foster change in patient care so as to accelerate progress toward a three-part aim: better care for individuals, better health for populations, and slower growth in costs through improvements in care. Under the law, an ACO will assume responsibility for the care of a clearly defined population of Medicare beneficiaries attributed to it on the basis of their patterns of use of primary care. If an ACO succeeds in both delivering high-quality care and reducing the cost of that care to a level below what would otherwise have been expected, it will share in the Medicare savings it achieves.

The release of CMS regulations for ACOs finally puts something on the table to discuss the ramifications of. The 400+ pages of proposed regulations will surely influence the debate on Governor Patrick’s bill that tries to move the majority of the health care market in the Commonwealth towards ACOs by 2015. For the first time, Massachusetts will simultaneously have this policy discussion along with those at the national level. I for one, welcome the parallel discussion– because it will produce a robust amount of research and analysis—something the Massachusetts Legislature has not historically been known for.

CMS regulations

“Accountable Care Organizations: Accountable for What, to Whom, and How?” By Elliott S. Fisher and Stephen M. Shortell. An October 2010 JAMA piece.  Fisher and his team at Dartmouth are seen by many as the intellectual powerhouse behind the ACO concept

Just in the last week the following two papers have been released about ACO challenges:

The ACO Model — A Three-Year Financial Loss? By Trent Haywood, M.D., and Keith Kosel

Examining the limited data we have on ACOs, the report draws from CMS’s past experience with the Physician Group Practice (PGP) demonstration project.The prognosis looks bleak.

In that demonstration, for an “ACO making the mean initial investment of $1.7 million (it) will require the unlikely margin of 20% for the 3-year period envisioned by CMS.”

With a 5-year time horizon… the required margin to break even is 13%. However, the current Medicare Shared Savings Program anticipates a minimum performance period of only 3 years.

Hospitals’ Race to Employ Physicians– The Logic Behind a Money-Losing Proposition By Robert Kocher, MD (fmr Special Assistant to the President for Healthcare and Economic Policy, and as a member of the National Economic Council) and Nikhil Sahni

They discuss the incentives inherent in ACOs for hospitals to pick up more physicians– possibly leading to greater market power.

A major concern in either scenario is the potential for hospitals to convert greater market power into higher prices and less competition

The authors reference a local report by the AG that documented this playing out in the Massachusetts provider community without ACOs, and express a concern ACOs could accelerate that movement.

That is just out in the last week, so let the debate begin.