Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


ACOs in the Real World: HHS Envisions Lots of 'Unicorns'

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] .  

Publication Details