How Accountable Care Organizations Will Operate Under Healthcare Reform

The Patient Protection and Affordable Care Act, better known as the health reform law, contains more than a thousand pages of often fairly obscure provisions, but Section 3022 has particular significance for hospitals and physicians in the future, says Brian Silverstein, MD, senior vice president at The Camden Group.


This part of the law, titled the "Shared Savings Program," contains provisions that "fundamentally change the healthcare reimbursement system," Dr. Silverstein says. It organizes physicians, hospitals and other organizations into so-called accountable care organizations that can work closely with each other, create a more efficient process of care and, literally, "share the savings."

"ACOs drive incentives from a volume-based to a value-based system," Dr. Silverstein explains. Under the current system, more volume of care means more fee-for-service payments. But under the new system, providers are paid for "value" — the savings they should realize from coordinating care and providing better disease management, different clinical care models and information to help patients make better healthcare choices.   

This is a big change for hospitals and physicians, but Dr. Silverstein says it is inevitable. Cost-cutting measures are necessary because the Medicare program is due to go bankrupt by 2017, he says. He thinks the shared savings program is fairer and makes more sense than recent tactics to keep Medicare costs in check, such as removing consult codes, imposing deficit reduction requirements across all reimbursements, and slashing imaging reimbursements.

Rather than impose indiscriminate changes across the board, the new approach forces hospitals and other providers to "get smarter," he says.

Time to start planning
Dr. Silverstein says some forward-thinking hospitals are already planning for ACOs. Even though the finer points have not been finalized yet, he says there are enough specifics in the law to get planning started. There is a relatively short timeline for implementation. Medicare beneficiaries whose providers are participating in the program will be assigned to ACOs by Jan. 1, 2012. He adds that private payors may adopt these or similar models even sooner than Medicare does.  

To create an ACO, hospitals will need to bring in physicians and perhaps other providers to cover a specific geographic area. While providers can stay independent from each other, the ACO needs to create "a leadership and management structure that includes clinical and administrative systems," the law states. It must be able to report clinical processes and outcomes, patient experiences, utilization, such as rates of hospital admissions for some conditions and, where practicable, caregiver experiences.

The organization must also have at least 5,000 Medicare beneficiaries assigned to it. The law identifies primary care physicians as critically important to an ACO and specifies that the organization must have enough primary care professionals to support its beneficiaries. The ACO must agree, for a minimum of three years, to "become accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it," according to the law.

The ACO is paid a lump sum for all services to the patient and then distributes the money to the relevant providers. The payment will include an incentive if care is delivered at a lower cost than the benchmark level. Dr. Silverstein says the incentive payments could be small at first but are expected to become more important over time. "This is a series of evolutionary changes, which, when added together, are monumental," he says.

Because the shared savings program covers the full scope of care, its reimbursements are like the old capitated payments for HMO care, but the new system is quite different from capitation, Dr. Silverstein says. While capitation was a strict per-member, per-month payment, the initial payments to the ACOs will be at Medicare fee-for-service rates, plus the incentive payment. And unlike HMOs and their "gatekeepers," the ACO does not control the patient. Patients can go outside of the ACO for care, without penalties, but the ACO will still be penalized for higher-cost treatment. The possibility of these higher costs is an incentive for ACOs to lure the patient back to their care network, he says.

Unresolved issues
In the next year or so, HHS will need to issue proposed regulations on ACOs and then allow for a public comment period. The regulations will need to clarify several unresolved aspects of how ACOs would work. Dr. Silverstein identifies a few.

  • How many primary care physicians will be needed? The law says an ACO must include "sufficient" primary care physicians. HHS will need to determine what "sufficient" is.
  • How will quality and efficiency be defined? HHS will need to define how an ACO has to be accountable for quality, cost and overall care, setting down expectations with actual measurements. This very crucial piece of the ACO-based system could be quite complicated and time-consuming to put together.
  • How will Medicare patients be assigned to ACOs? Dr. Silverstein says there are models for how that can be done, such as in Medicare's physician quality reporting initiative (PQRI), the Medicare group practice demonstration program.

Learn more about The Camden Group.

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