By John Reichard and Jane Norman, CQ HealthBeat

March 30, 2011 -- The long-awaited proposed rule for launching accountable care organizations (ACOs) in Medicare in January contains a big surprise: financial penalties if these new teams of providers exceed the spending target set for them under the program.

The Centers for Medicare and Medicaid Services (CMS) clearly regards the inclusion of financial penalties in the 429-page proposal as controversial. Critics could say the health law contemplated only that ACOs receive financial rewards for meeting savings targets, an internal government document notes—not that ACOs also be at risk for penalties if they exceeded the spending targets.

“Haven’t you essentially rewritten the law (PL 111-148, PL 111-152) without involving Congress?” says the internal Q & A document on “sensitive or controversial” aspects of the proposal. The answer: “No, we propose to intensify the incentive for shared savings. . . making the policy more likely to meet the goals laid out in the law.”

The answer also notes that the Medicare Payment Advisory Commission has recommended a rewards-and-penalties approach as the best way to control spending and volume of care and that in any event, “the rule is in proposed form and we are interested in hearing public and stakeholder views.”

Most analysts thought this “downside” risk would be an eventual goal. But under the proposal, ACOs will either be subject to the penalties in the first year or the third year. The incentive to take on downside risk in year one is that if providers spend less than the target they can share a larger part of the savings than if they wait until year three to take on downside risk.

Federal officials said that ACOs could save up to $960 million in their first three years. The organizations would have to meet certain quality standards while producing savings.

ACOs are networks of providers within the Medicare system created in the health care law, including physicians, hospitals and health systems. The aim of the networks is to improve the quality of care but also produce cost efficiencies, with any savings to be shared by the government with the ACOs.

According to Centers for Medicare and Medicaid Services (CMS) Administrator Donald M. Berwick, a total of 65 measures will be used to assess whether quality in an ACO is sufficient. In no other part of the economy can collaboration be as helpful as in health care, said Christine Varney, assistant attorney general at the Department of Justice. But she warned that “by forming an ACO, one is not exempt from the anti-trust laws. Those who collaborate to fix prices inappropriately will be prosecuted.”

Also Thursday, the Department of Justice and the Federal Trade Commission are releasing a joint proposed antitrust policy statement. It will include guidance on how organizations may form ACOs without violating anti-trust laws, Varney said. FTC Chairman Jon Leibowitz said both agencies are committed to completing reviews of proposed ACOs within 90 days, allowing the organizations to get up and running quickly.

Leibowitz said, for example, that to avoid antitrust trouble providers in ACOs “should avoid restrictions that prevent payers from sharing information with their insurers about providers’ quality and cost.” He called the guidance “a major step forward and Administrator Berwick should get enormous credit for working on this with us.”

Berwick emphasized that unlike in managed care, Medicare beneficiaries in an ACO have unfettered choice of providers.

“The provider may not indicate to the beneficiary that there is any restriction on their choice whatsoever,” said Berwick. “As far as the beneficiary is concerned they are in the normal Medicare system and they may go anywhere they wish.”

The American Medical Association (AMA) said in a statement that it will review the regulations but also issued a caution.

“ACOs offer great promise for improving care coordination and quality while reducing cost, but only if all physicians who wish to are able to lead and participate in them,” said Jeremy A. Lazarus, speaker of the American Medical Association House of Delegates. “For this to happen, significant barriers must be addressed, including the large capital requirements to fund an ACO and to make required changes to an individual physician’s practice, existing antitrust rules and conflicting federal policies.”

Under the law, an ACO must include primary care providers responsible for coordinating treatment for at least 5,000 Medicare beneficiaries. They must participate for three years. The premise of ACOs is that if the practitioners involved work carefully together to avoid duplicative or wasteful care, they can save Medicare money.

Administration officials speaking on background said that much of the nation’s medical care is fragmented, developed in pieces without connections among providers. The price is paid by patients and their families, who face a lack of coordination that can result in unnecessary testing and repetitive requests for medical histories. “It’s easy for patients to get confused, to feel lost,” said one official.

Physicians have been somewhat uneasy about the concept, though. While they recognize the need for change, many are fine with the current system and worry about being overshadowed by larger players within the ACOs. The AMA has laid out a set of principles for ACOs, chief among them that physicians retain the main role for medical decision-making.

One major question is whether ACOs will live up to their intended purpose of bringing new efficiency and better quality to traditional Medicare, given that seniors will have the right to opt out of these organizations.

The idea of ACOs was bounced around by health policy experts long before the enactment of the health care law. “The approach is practical and feasible,” Elliott S. Fisher, a Dartmouth College researcher, said in a 2009 analysis co-written by Mark B. McClellan, former administrator of the Centers for Medicare and Medicaid Services and now director of the Engleberg Center for Health Care Reform at the Brookings Institution. Other co-authors include John M. Bertko, a former executive with the insurer Humana, Inc.

The approach also is “voluntary for providers, builds on current referral patterns, requires no change in benefits or lock-in for beneficiaries, and offers the possibility of sustained provider incomes even as total costs are constrained,” said the analysis that was posted on the Web site of the policy journal Health Affairs.

John Reichard can be reached at [email protected] .  
Jane Norman can be reached at [email protected] .  

By Jane Norman, CQ HealthBeat Associate Editor

April 1, 2011 -- The Obama administration is selling a plan to coordinate Medicare services, and the program’s success now rests on whether skeptical seniors will choose to participate.

Experts say education will be pivotal to keep beneficiaries from taking any complaints to Congress, where lawmakers have proved highly sensitive to the protests of the powerful elder lobby.

Officials with the Centers for Medicare and Medicaid Services (CMS) announced Thursday proposed rules for accountable care organizations, known as ACOs, that the health care law (PL 111-148, PL 111-152) created. The organizations are intended to get groups of doctors, hospitals and health systems to better coordinate care for Medicare patients. The organizations will create incentives to reward providers if they lower health care costs and meet quality-of-care standards.

The organizations, by design, will do away with unnecessary tests and avoid the need for multiple medical histories for each doctor or specialist.

Federal officials expect 75 to 150 of the organizations to form over the next three years, with about 1.5 million to 4 million of the nation’s 46 million Medicare patients to participate. Savings are projected to reach $960 million in the first three years.

The organizations are entirely voluntary—for patients and for providers. Medicare officials insist that the organizations will not limit health care services by using such managed care techniques as directing seniors to use only member providers.

"An ACO will not limit patient choice," said CMS Administrator Donald M. Berwick. But polls show that seniors already are more skeptical of the health law than most Americans, in part because they’re worried about the impact of Medicare payment cuts on access to care. Seniors also hear growing talk in Congress about curbing entitlements. All of this may influence their willingness to take part in a program that’s new and aims to contain costs.

"My guess is some of these things will start to merge in seniors' minds and they will feel they are under attack," said Maria Freese, vice president for government relations at the National Committee to Preserve Social Security and Medicare.

Certainly, there is a history of seniors rebelling against changes in Medicare. A law enacting catastrophic care was repealed in 1989 after seniors protested a tax that it levied. And the 2006 prescription drug benefit under Medicare, while it survived, faced initial rough going amid confusion about choices offered and frustration with its complexity.

Lawmakers will be monitoring developments. Sen. Orrin G. Hatch of Utah, the top Finance Committee Republican, said the administration has to give lawmakers time to study a proposal that will fundamentally restructure the Medicare system. “Any attempt to short circuit this process would be detrimental to our nation’s doctors and seniors” who need to know the impact, said Hatch.

But Finance Committee Chairman Max Baucus, D-Mont., predicted "top-notch patient care" as well as cost savings.

For it to work, seniors will have to have confidence they will continue to have a choice of providers, said Robert Blendon, professor of health policy and political analysis at the Harvard School of Public Health. "If this gets to be restrictive for seniors, there will be a substantial backlash," he said. "If it looks like it's improving service and coordination, it’s something that would be seen as very positive. People would go out of the system less. But they still would know they have the option."

The law does not require seniors be informed they might be assigned to an ACO. But the proposed rule notes success will be undermined if seniors lack sufficient information. So the regulations call for the development of a communications plan, including educational materials and outreach.

Seniors will be told they may be assigned to an ACO, and that if they agree, their health information may be shared among group providers. During office visits, patients would get forms detailing how they could opt out of the ACO. And the Medicare handbook will be updated.

One problem, though, is that Medicare recipients will not know until the end of the year whether their current doctor has become affiliated with an ACO. AARP, the senior lobbying group, already has expressed misgivings about this issue. The proposed solution is to post notices in provider offices and distribute handouts to patients informing them when providers join or drop out of the groups.

Stuart Guterman, a vice president at the Commonwealth Fund, said the participation of seniors will be critical to the program’s success. The emphasis must be on what seniors will gain, he said.

"When you leave one building, a doctor’s office or a hospital, the next thing that happens to you is planned and is aimed at making you better," he said. “That’s a message that has to be gotten across.”
Blendon said seniors will complain loudly to Congress if ACOs prove restrictive despite the promises of providing choice. If beneficiaries can’t see providers they’ve seen before, "I think members of Congress and the administration are going to hear from seniors," he said.

By John Reichard, CQ HealthBeat Editor

April 1, 2011 -- The accountable care organizations (ACOs) that Medicare will launch in January are being likened to unicorns—such is their rarity in the real world of health care.

But with the March 31 unveiling of a proposed rule for Medicare ACOs, it became clearer what an emerging market populated with teams of doctors, hospitals, and other caregivers might actually look like and how it will operate—at least from the government’s point of view.

Such an assessment might cause some snickers among Wall Street types who doubt the ability of bureaucrats to make business projections. But it’s at least a start toward imagining what a world of unicorns-made-real might look like.

In the proposed rule, the Centers for Medicare and Medicaid Services (CMS) estimated that 75 to 150 ACOs might sign up for its Shared Savings Program in which the teams of providers will split with the federal government any savings that result from spending less than the expenditure targets set by CMS. A total of 1.5 million to 4 million of Medicare’s nearly 50 million enrollees will be “aligned” with ACOs, the proposal said.

CMS is projecting savings from the program of $510 million over a three-year period—$100 million in 2012, $210 million in 2013, and $200 million in 2014. But the agency adds that the savings could rise to $960 million.

The feds say they recognize that there will be considerable start-up costs. At least 5,000 Medicare beneficiaries must be assigned to an ACO, which coordinates their care and monitors its quality while also striving to become more efficient.

ACOs must score well enough on 65 measures of quality to justify receiving any savings—after all, spending less to provide treatment is no accomplishment if it waters down quality. The measures will apply to five “quality domains.” These include the patient’s experience of care, care coordination, patient safety, preventive health and the health of at-risk or frail populations.

ACOs will be measured on factors such as ensuring timely appointments, how well doctors communicate, hospital readmission rates, surgical infections, and blood pressure management. And they are supposed to deliver care based on evidence-based medicine that is shown in the scientific literature to work well.

ACOs are supposed to rely heavily on electronic medical records to reduce unnecessary testing, avoid medication errors, and report data on quality of care. And they’re supposed to help monitor patients to make sure they are taking their medicines and getting the appropriate preventive care.

CMS estimates that on average it will cost about $1.75 million to start an ACO and operate it in its first year.

But an ACO can recoup those costs and take in considerably more money. That will happen if its outlays for the care of participating beneficiaries are well below its yearly spending target (while getting a good enough quality score).

The ACOs’ allotted savings—referred to by CMS in the proposal as “bonuses”—will total $800 million over three years, CMS estimates.

But in a surprising twist, under the proposal ACOs will have to pay penalties to the extent they exceed their expenditure targets. They can either agree to be subject to those penalties in year three or their three-year contracts with CMS or start right away, in year one.

The advantage of waiting is that ACOs would have more time to learn how to become more efficient without fear of losing money. But if ACOs are willing to be liable for spending above the target in their very first year, they get to keep 60 percent of any savings below the target if they spend less. That’s compared to 50 percent of savings if they wait until year three.

CMS says it will calculate expenditure targets or “benchmarks,” for each ACO. The benchmark will be a projection of what total Medicare Part A and Part B costs would have been for the beneficiaries had they not been affiliated with an ACO.

Notably, spending below the target won’t necessarily be counted as savings. That’s because there are year-to-year fluctuations in health spending that may occur regardless of the efficiency or inefficiency of an ACO, CMS says.

To account for that, the agency says savings have to be at least 2 percent below the benchmark before an ACO can get any bonus money.

ACOs that delay becoming liable for spending overruns can only get bonus money for sums exceeding 2 percent of savings. But that’s not the case for ACOs that do not delay. So for example, if those ACOs save exactly 2 percent below the benchmark, any sum below the benchmark counts as bonus money (but they have to reach at least 2 percent in savings for that to happen).

Whether the proposed scheme is workable remains to be seen, government projections or no government projections. Federation of American Hospitals President Chip Kahn said Thursday that the proposal is “incredibly complex” and suggested that it would have to be refined if large number of ACOs are going to contract with Medicare.

Mark McClellan, director of the Engelberg Center for Health Reform at the Brookings Institution and a leading proponent of ACOs called the proposal a “good foundation” but said there is much work left to be done. Asked about the projection of 75 to 150 ACOs, he said “I think it’s speculative at this point.”

McClellan joined with Dartmouth researcher Elliott Fisher, a leading thinker in the ACO movement, in blogging about the ACO proposal Thursday on the web site of the policy publication Health Affairs.
“The regulations represent a comprehensive and thoughtful effort to address a wide range of key issues for Medicare ACOs,” they said. For all the talk about ACOs as unicorns, McClellan and Fisher observed that there is real-world data CMS needs to consider in further developing the ACO regulation. “It is important to recognize that more and more evidence on ACO and ACO-like payment models to support better care is emerging outside of Medicare.”

“Those who care deeply about health care reform all have a common interest in the success of ACOs as a way of avoiding more classic fee-for-service payment cuts to providers; access problems for patients; and the other adverse consequences of rising health care costs and inefficient care,” they said.

John Reichard can be reached at [email protected] .  

By Jane Norman, CQ HealthBeat Associate Editor

March 31, 2011 -- The accountable care organizations (ACOs) proposed for Medicare will allow providers to collaborate without running afoul of federal anti-trust laws, according to officials from the Centers for Medicare and Medicaid Services (CMS), the Department of Justice (DOJ) and the Federal Trade Commission (FTC).

Essentially, the proposed approach is to divide ACOs into three categories, based on how much business each does in a defined geographic area. The largest ACOs will face a mandatory review from either the DOJ or FTC and can’t move ahead without approval, though the agencies are promising a fast process.

Physicians and other health care providers long have worried that ACOs authorized in the health care law (PL 111-148, PL 111-152) for the Medicare program might also expose them to the long arm of the law and prosecution for anti-competitive practices. ACOs are groups of providers who work together to deliver patient care. The goal is to lower costs and increase quality through the collaboration. Under rules proposed Thursday by CMS, they will be eligible for shared savings.

But there’s also a risk that an ACO could dominate a local market and harm consumers with higher prices and a reduced quality of care. That’s because the ACOs might not just treat medicare patients but under separate contract with private insurers.

Christine Varney, assistant attorney general for DOJ, told reporters in a conference call that her agency is committed to better health care at lower cost. But, she said, those providers who collaborate “inappropriately” to fix prices will be prosecuted. “Our goals here are to support those providers who want to bring health care to all Americans at a reasonable cost,” she said.

Clarifying what their approach will be, DOJ and the FTC released a joint Proposed Statement of Enforcement Policy on ACOs that applies to ACOs created after March 23, 2010, not including mergers, which wouldn’t meet the criteria of an ACO.

ACOs with two or more participants who have a combined share of 30 percent or less for each common service in a defined geographic area will be declared to be in a “safety zone.” For example, that might apply to an ACO with two orthopedists with a combined share of 30 percent or less.

In addition, any hospital or ambulatory surgery center in a “safety zone” ACO must be non-exclusive, meaning it is allowed to contract individually or affiliate with other ACOs or commercial payers.

Those in the zone are “highly unlikely to raise significant competitive concerns and the antitrust agencies will not challenge” them absent “extraordinary circumstances,” says a statement from the CMS.
The policy statement says that such ACOs have no obligation to contact the FTC or DOJ.

However, an ACO applicant with a share of 50 percent or more will need to obtain a letter from either the DOJ or the FTC saying the agency does not intend to challenge or recommend a challenge of the ACO. If the DOJ or FTC says it plans to do so, the ACO won’t be eligible for the Medicare program.

Federal Trade Commission Chairman Jon Leibowitz said the agencies are committed to an expedited, 90-day review of requests from ACOs that are above the 50 percent standard. Those ACOs will have to submit a number of documents and explanations, including a discussion of the ACO’s business strategies and likely impact on the quality and costs of care provided to both Medicare enrollees and private payers.

For ACOs between 50 percent and 30 percent, a review won’t be required. The key issue, says the policy statement, is whether they will still provide consumers with high-quality and cost effective health care or increase prices and reduce choice. Such ACOs can still seek a review from either DOJ or FTC, and it will still be completed within the expedited 90-day window.

In addition, CMS and the Health and Human Services Office of Inspector General issued a joint notice in connection with ACOs outlining proposed waivers of several laws that affect competitiveness in health care. The health care law (PL 111-148, PL 111-152) gives HHS the authority to waive certain fraud and abuse laws as necessary to accomplish the measure’s goals, a CMS statement says. The waivers would be applied when shared savings from the ACOs are distributed to the organization’s participants.

They are laws on physician self-referral that ban doctors from making referrals for Medicare services to entities with which they have financial relationships; anti-kickback laws; and laws that ban a hospital from making payments to induce physicians to reduce or limit services to their Medicaid beneficiaries.

“The anti-trust part shows a very coordinated effort between the FTC, DOJ, and HHS,” said Ian Spatz, a health policy expert with the Rock Creek Policy Group.

“No one wants to take on a lot of anti-trust to get involved in an ACO. This was a necessary thing,” he said. “It’s an upfront thing, so you’re not going to start doing the activities unless you know you have a clearance and it’s very important to have that certainty.”

Rebecca Adams contributed to this story
Jane Norman can be reached at [email protected] .  

By Jane Norman, CQ HealthBeat Associate Editor

March 30, 2011 -- Obama administration officials may have to tell Congress it has to break the health overhaul law by not implementing a long-term care insurance program, Community Living Assistance Services and Supports (CLASS), if it cannot be reworked to become financially sustainable, Health and Human Services Secretary Kathleen Sebelius said Wednesday.

Testifying before Senate appropriators, Sebelius said if her staff can’t make the program work financially, “we won’t turn the switch on it.” After the hearing she told reporters that HHS officials continue to work on models of a viable version of the Community Living Assistance Services and Supports (CLASS) program. “But if we can’t have a program design we know at the outset is going to be solvent, I think we’ll return to Congress and say it won’t be solvent and therefore we’ll be violating the law,” she said.

The program, intended to provide a cash benefit for the elderly as well as for younger people with disabilities, has come under fire from both Republicans and the president’s own fiscal commission, which said it should be revamped or repealed. HHS is attempting the former. The program is supposed to launch in 2012.

Under the health care overhaul law (PL 111-148, PL 111-152), the long-term care insurance program would be offered by participating employers to workers automatically, though employees could choose to opt out. There would be no underwriting, which means no one could be excluded for a pre-existing condition. Participants would not be eligible for benefits until five years after enrolling, and the benefit would be at least $50 a day.

At the hearing of the Senate Labor-HHS appropriations subcommittee, Sen. Richard C. Shelby, R-Ala., called the program “one of the most troubling aspects” of the health care law. He said the costs incurred by disabled workers will push premiums to “unacceptably high levels.” That will mean healthy people will decline to buy the insurance, and that will “quickly push the program to insolvency,” Shelby said.

He asked Sebelius why the Obama administration has asked for $120 million in funding in fiscal 2012 for “a program that a lot of experts project will fail.” Sebelius said that under the law, HHS is prohibited from launching the program until it’s projected to be financially stable over 75 years, and actuaries now are working on how to structure it.

The money in the budget “is designed to make sure we have a solvent program” by reaching out to encourage enrollment, she said, especially among Americans who mistakenly think that Medicare provides long-term care.

Jane Norman can be reached at [email protected] .  

By Rebecca Adams, CQ HealthBeat Associate Editor

March 29, 2011 -- If employers eventually see the insurance in exchanges as a better alternative to employer-sponsored coverage and shift workers into the new markets, it would be a positive development, Obama administration health official Joel Ario said Tuesday at a CQ Roll Call and Thomson Reuters briefing.

Ario, who heads the Office of Insurance Exchanges at the Centers for Medicare and Medicaid Services (CMS), said he doesn’t believe a move from employer-sponsored coverage would happen abruptly in 2014, the first year that the exchanges will be in operation.

Employers “will continue to provide [insurance], and we may well end up with an employer-based system for a long time because exchanges may not develop” into a robust marketplace right away, Ario said.

But Ario said he could envision a gradual move from employer-provided coverage to the exchanges if the choices available there are sufficient.

“If it plays out the exchanges work pretty well, then the employer can say, ‘This is a great thing,’” Ario said. Employers could then move workers into the exchange and feel confident that their insurance would be better than the coverage the company had provided. Ario said that he could imagine employers saying, “‘It would be good for them, good for me.’”

Ario made his remarks as he and other panelists at the morning session debated the impact of the 2010 health care law.

Ario noted employers are not required to offer health insurance, so companies are free to reduce or eliminate coverage for their workers if they choose. The main reason many employers continue to offer health insurance is because of competitive pressures from other companies for sought-after employees who value health benefits.

That will change in 2014, when the health care law (PL 111-148, PL 111-152) imposes penalties on employers with 50 or more workers who do not offer health insurance—assuming the law is not struck down by the Supreme Court. Ario declined to speculate on how the justices would rule on the constitutionality of the requirement that most Americans buy insurance or face a penalty.

Ario wrangled with former Health and Human Services Deputy Secretary Tevi Troy about whether GOP health care proposals, particularly plans to offer insurance across state lines, would work. Ario called the proposal to sell coverage across state lines a “completely vacuous, poll-tested idea.”

Earlier in the discussion, Troy said he believes Republicans would be wise to couple such an idea with a plan to cap medical malpractice awards and with tax credits that would help people afford insurance.

Republicans “know they need to have something that’s a little more serious than one that only covered 3.5 million people,” he said, referring to a House Republican plan that was discussed during the congressional health care debate.

When challenged by Ario about the feasibility of offering insurance across state lines and avoiding coverage mandates in some states, Troy defended the proposal. He said that the idea wouldn’t make a difference “overnight” but that over time it could lower insurance rates for some people, because they would be allowed to buy cheaper, less-comprehensive coverage than they can under current state laws in states such as New York, New Jersey and Massachusetts.

Ario pressed Troy on how such a plan would work, posing a hypothetical example of a New York man who felt victimized and limited by the coverage offered in his state. If that man wanted to buy an Oklahoma health plan, then the Oklahoma insurer would have to set up a new network of medical providers in New York to care for the patient.

“It won’t work,” Ario said.

Ario said the health care law offers a solution that will help Americans find coverage because the exchanges will work seamlessly with other federal programs, such as the Medicaid program for the poor.

Other panelists included John Reichard of CQ HealthBeat and Raymond Fabius of Thomson Reuters Healthcare and Science. The panel was moderated by Morton Kondracke of Roll Call.

Rebecca Adams can be reached at [email protected] .