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'Accountable Care Organizations' Get a Cautious Nod of Approval from MedPAC

By John Reichard, CQ HealthBeat Editor

November 22, 2010 -- "Accountable care organizations"—given a boost under the health care law to spur greater teamwork among doctors and hospitals—have the potential to improve quality and contain costs in the traditional Medicare fee-for-service program, but they must be carefully structured to get the job done, the Medicare Payment Advisory Commission (MedPAC) said.

ACOs are groups of doctors, hospitals, and other caregivers that work together to improve the quality and efficiency of care.

The commission said in a letter to the Centers for Medicare and Medicaid Services (CMS) that in order to work, ACOs can't simply be given bonus payments if they meet goals for controlling costs and improving quality. They must also pay for some of the overruns if they exceed the spending target they are given.

The letter adds that ACOs could also help Medicare patients "receive more coordinated care and become more engaged with their care management, particularly if beneficiaries are informed when they are assigned to ACOs." The way they are informed will be key to their productive participation, it adds.

Who will tell seniors, in what form, and what exactly they will be told are among the issues CMS must resolve.

The letter is the latest sign that the health policy establishment regards ACOs as a way to begin trying to control spending in the fee-for-service side of Medicare, which pays providers more for each test and procedure they order and perform. That "piecework" approach is encouraging unnecessary care, many analysts say.

The health law gives a boost to ACO formation by creating a "shared savings program" at CMS that provides higher payments when the organizations control costs by a specified minimum while also hitting quality performance targets.

Hospitals, physician groups and other types of providers around the country have been organizing ACOs. They anticipate fundamental changes in Medicare payments designed to encourage greater teamwork among providers and see ACOs as a way to prepare for those changes.

Republicans are on board with the concept, underlying the sense that ACOs will be tested widely. But there is uncertainty about how to proceed.

As envisioned by the health law, each ACO would be responsible for the care of a minimum of 5,000 Medicare beneficiaries. But seniors may not be happy if they get the idea that ACOs will give providers incentives to be stingy about treatment.

Not telling them they have been assigned to an ACO "would run the risk of a repeat of the managed care backlash experienced in the 1990s," the MedPAC letter notes. "The backlash resulted from patients feeling that they were being forced into managed care by their employers and that the financial benefits were accruing to employers or health plans, not them."

Primary care doctors could help make ACOs a success by explaining to seniors how the new approach would benefit them and what their responsibilities would be.

"Receiving higher quality care, improved care coordination, enhanced after-hours access, and greater engagement in their own care should be meaningful improvements from the beneficiaries' perspective, and having the provider describe them would increase the beneficiaries' trust in the value of those benefits," MedPAC advises. For example, beneficiary responsibilities would include more careful adherence to instructions on taking medications.

CMS is expected to issue a regulatory proposal in coming weeks on ACO formation.

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