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CMS Proposes Revising How Accountable Care Organizations Are Paid

By Rebecca Adams, CQ HealthBeat Associate Editor

December 2, 2014 -- Health provider alliances known as accountable care organizations (ACOs) could be paid differently under a proposed rule recently released by the Centers for Medicare and Medicaid Services (CMS).

If hospitals and doctors that coordinate the care of Medicare patients save money, they can share some of the savings with the government. The proposed rule affects the ACOs that operate under the Medicare shared savings program.

Federal officials said the rule is intended to address concerns such as cost targets tied to national increases in Medicare spending that the ACOs are expected to meet. Some ACOs say that costs in their communities are rising higher than the national average.

And providers have been concerned that if they save money early on, they were not rewarded for their efforts.

Federal officials said in the rule that they are exploring alternative methodologies that would not punish ACOs if they saved money and would be less tied to the ACO's past performance. The agency also is considering ways to tailor ACOs' financial rewards to local markets rather than a national average.

Provider groups can get a higher share of savings if they also agree to absorb extra costs if care arrangements don't hit their targets. They also can opt to insulate themselves from financial losses. The ACOs operate under three-year agreements with the government.

The rule proposed that ACOs could renew their agreements once without being required to use the model that could cause them to lose money. Currently, ACOs that share savings but aren't exposed to losses were supposed to switch to a model that would potentially expose them to losses after their initial three-year contract.

And agency officials want to establish a new model for providers that want to get higher savings but are also ready to accept the risk of losing money. Under the new option, CMS would let ACOs to keep up to three-fourths of the money beyond a financial threshold.

The National Association of ACOs said it was pleased that CMS officials embraced some of its members' suggestions but disappointed in other ways. Federal officials applied many of the group's suggestions only to those provider groups that agreed to take on risk and lose money if they did not meet certain financial goals. The trade association had hoped its recommendations would also apply to all ACOs.

ACOs also are encouraged through demonstration projects like the Pioneer program sponsored by the CMS Center for Medicare and Medicaid Innovation, but the proposal does not affect those provider alliances.

The proposal was sent to the Office of Management and Budget  (OMB) on June 26 for interagency review and was stuck there for five months, until OMB officials cleared it on Nov. 26. A federal notice said that the proposal was changed after OMB got it.

Centers for Medicare and Medicaid Services Deputy Administrator Sean Cavanaugh had said in October that officials will "hopefully have a final rule early next year".

Back then, Cavanaugh said that Obama administration officials were trying to encourage providers to participate in ACOs.

"We need to improve the incentives that the ACOs receive, improve the information, and help build the capacity of the ACOs," he said in October.

The program now includes more than 330 ACOs that cover about 4.9 million beneficiaries. More than 125,000 Medicare providers participate in 47 states, plus the District of Columbia and Puerto Rico.

"This proposed rule is part of our continued commitment to rewarding value and care coordination—rather than volume and care duplication," said CMS Administrator Marilyn Tavenner in a statement.

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