Health Reform Medicare

Accountable Care Organizations: Update on Medicare Implementation

Health Reform’s Accountable Care Act (ACA) mandates the creation of Accountable Care Organizations (ACOs).  Dartmouth researcher Elliott Fisher stimulating much of the interest in ACOs by introducing the concept of an “extended hospital medical staff” at a 2006 meeting of the Medicare Payment Advisory Commission (MedPAC).

Today, I review an article by Berenson and Burton (2011) describing the latest ACO developments.

ACOs have three core characteristics which separate them from standard capitated health plans.

  1. Shared Savings.  ACOs are paid through a FFS system, but can earn bonuses if they reduce medical cost for their average beneficiary.
  2. Accountability for Quality.  ACOs will be measured on 33 different quality measures.  High quality plans can earn bonuses.
  3. Free Choice of Providers by Patients.  Although providers are responsible for the care their patients receive, patients can visits physicians both inside and outside the ACO with no penalty.

When Medicare implements ACOs, there will two separate types.  In the Medicare Shared Savings Program (MSSP), ACOs would receive a share of the cost savings that are able to produce for Medicare.  Pioneer ACOs, on the other hand, rely on a shared risk concept where the providers not only can bonuses by reducing cost, but can also incur penalties if their beneficiaries are more costly than expected.

Medicare Innovation Center is facilitating the creation of ACOs a number  ways. For instance, CMS will “allow some ACOs participating in the MSSP, including small physician practices and rural community hospitals, to take out loans from CMS to pay for infrastructure investments, such as purchasing electronic health records and hiring nurse care managers.”

Berenson and Burton are skeptical that ACOs will reduce cost.  They cite the disappointing results from the Medicare Physician Group Practice Demonstration, which also used shared savings framework to provide financial incentives to demonstration sites to reduce cost.  Further, even if ACOs can reduce utilization, they may also drive up cost.  ACOs may aim to improve care coordination, but it also increases the market power of providers.  “Because of the concern that newly formed ACOs could use their newfound market power to demand and receive higher payment rates from private insurers, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued a proposed statement earlier this spring offering guidance about ACO configurations—in terms of size and provider composition—that are safe from antitrust scrutiny, those that might be problematic, and those that are unacceptable.”

Private sector PPOs are also implementing ACOs.  Unlike Medicare, however, the ACOs in the private sector give patients financial incentives


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