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ACO Surprise: Lower Pay If Savings Target Missed

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] .  

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