Final ACO rules satisfy industry

WASHINGTON – The final regulations for accountable care organizations (ACOs), released in October by the Centers for Medicare & Medicaid Services, were a bit surprising, as they contained major revisions from the draft regulations announced earlier in the year.

The draft regulations, released in March, drew a firestorm of criticism from many quarters, including complaints from provider organizations that they would not share enough in the savings created by an ACO. Providers were unhappy with a long and ill-defined list of 63 quality measures an ACO would need to meet in order to qualify for performance bonus payments, as well as retrospective assignment of Medicare beneficiaries to ACOs.

Writing in the New England Journal of Medicine, CMS administrator Donald Berwick, MD, noted that changes to the draft regulations “create a more feasible and attractive on-ramp for a diverse set of providers and organizations to participate as ACOs.”

The modifications came as a result of a strong and voluminous outpouring of more than 1,300 comments on the draft regulations. Some of the more significant changes included:

• Providers will not be required to share downside risk in order to participate in an ACO, and will be able to earn revenue sharing based on ACO savings earlier as opposed to Medicare retaining all the initial savings;

• Quality measures that ACOs will have to meet to qualify for performance bonuses have been reduced to 33 from 65;

• Community health centers and rural health clinics, which were not allowed to form ACOs in the draft proposal, will be allowed to lead ACOs;

• The ACOs will also be told up-front which Medicare beneficiaries are likely to be part of their system as opposed to not knowing which patients were in the ACO until the contract ended.

CMS estimates that the total cost starting-up an ACO will be in the $29 million to $157 million range. Annual operating costs are estimated to be in the $63 million to $342 million range.

Reactions to the revisions across the healthcare industry have been generally positive.

“After preliminary review, the AMA believes the final rule includes a number of positive changes,” said Peter W. Carmel, MD, president, American Medical Association. “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 rule allows ACOs to share in every dollar of cost savings and includes an option that limits financial risk, which is important for many physician practices.”

While the final rule reduced the number of quality measure by about half, Carmel added that “the AMA would have preferred even greater flexibility on which measures practices are required to report.”

Another concern addressed by the final rule was that smaller medical practices would lack the capital necessary to invest in technology and other infrastructure needed to create and participate in an ACO.

To combat this, CMS announced an Advance Payment Model whereby physician-led practices and rural hospitals participating in the Shared Savings Model could receive upfront payments for ACO participation.
This money could then be used for building up the personnel or IT infrastructure needed to effectively participate in an ACO. The upfront payments would be paid back via future incentive earnings.

The advance payments are only available to ACOs that do not include inpatient facilities with less than $50 million in revenue, or ACOs in which the only inpatient facilities are critical access hospitals and/or Medicare low-volume rural hospitals and have less than $80 million in total annual revenue.

“Previously my thoughts on ACOs were mixed,” commented James Ellis, CEO of Healthcare Realty Development Company in Overland Park, Kan. “I feel these new rules are a big step in the right direction for more healthcare entities looking to adopt the ACO model.”

While much of the industry hailed the announcement, America’s Health Insurance Plans took a more cautious approach, namely to the removal of the mandatory review of new ACOs for anti-trust violations by the Department of Justice and the Federal Trade Commission.

“Doing away with the mandatory review process raises concerns that provider market power may not be scrutinized sufficiently, potentially increasing healthcare costs for consumers and employers,” said Karen Ignagni, AHIP president and CEO.


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