Medicare Supply of Medical Services

What’s the difference between an ACO and Managed Care?

Medicare recently release a request for proposal for health care agencies to participate in both the Medicare Shared Savings Program and the Pioneer Accountable Care Organization (ACO) pilot project.  The Pioneer ACO project is similar to the Shared Savings Program but has higher levels of cost sharing and (in year 3 of the pilot) partially uses population-based reimbursement.  The goal of both these project is basically to move towards more integrated care.  Although ACOs seem new, they are basically just efforts to move towards something akin to a staff-model HMOs.

There are some differences however.  Both Medicare ACO programs require the ACO to notify the beneficiary that they are participating the ACO.  Further, the ACO will be responsible for reducing cost for these beneficiaries.  Unlike in a traditional HMO, however, on the patients end the ACO is non-binding.  Whereas many private managed care plans force patients to choose a primary care provider (PCP), Medicare patients can still see any physician they want without a referral.  According to CMS:

Medical ACO models on offer do not involved beneficiary enrollment or lock in.  They do not involve gatekeeping or pre-authorization.  It is traditional Medicare.

Instead,  Medicare assigns the beneficiary to physicians in the ACOs based on the patient’s base treatment history.  [Note: In the Pioneer ACO, Medicare assigns beneficiaries to a physician in an ACO who has the largest amount of primary care evaluation and management (E&M) claim cost].

Another similarity between ACOs and managed care is that Medicare ACOs are moving towards capitation payments.  In the third year of the Pioneer ACO pilot, Medicare will give the ACO a population-based payment worth 50 percent of the estimated cost of care for that beneficiary.   Providers will only receive 50 percent of their typical payments in the for of fee-for-service reimbursement, and the ACO will determine what share of the population based payment each provider should receive.

ACOs also increase the size of the provider organizations.  The Shared Shavings Program mandates a minimum number of beneficiaries of 5,000; the Pioneer ACO minimum is 15,000 (except for rural areas).   This trend towards larger provider organizations  could increase provider leverage in negotiations with Medicare regarding future reimbursement rates.

Why does Medicare like ACOs?  It gives providers a significant incentive to reduce cost.  In the Shared Savings Plan:

…an ACO that meets the program’s quality performance standards would be eligible to receive a share of the savings it generates below a specific expenditure benchmark that would be set by CMS for each ACO.  The proposed rule would also hold ACOs accountable for downside risk by requiring ACOs to repay Medicare for a portion of losses (expenditures above its benchmark).

Putting providers at risk for cost increases will incentivize savings, but physicians are not known as the best risk managers.  It a managed care, population based capitation payment is where Medicare is heading, incentivizing more people to join Medicare Advantage may be a more sensible option.

For more information on ACOs, see some of my previous posts.


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