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DeParle: With ACOs on Deck, It's On to Phase Two of the Health Care Law Implementation

By John Reichard, CQ HealthBeat Editor

December 20, 2010 -- With any decision by the U.S. Supreme Court on the constitutionality of the overhaul probably a good 18 months away, the Obama administration is busy mixing concrete and laying down pavement to implement as much of the law as it can before then.

After a "phase one" consisting of adopting a series of consumer protections in the insurance industry, the administration is now shifting into "phase two" to spur more efficient health care, White House Office of Health Reform Director Nancy-Ann DeParle told a Washington, D.C., forum Monday.

"As we look toward 2011, we're now beginning to work in earnest on phase two of implementation"—working with the states to create health insurance exchanges, and "delivery system reform," DeParle said at the event, which was sponsored by the Center for American Progress.

Delivery changes include the creation in traditional Medicare of teams of doctors and hospitals known as accountable care organizations, or ACOs—the subject of the forum. If they work together well, these new teams stand to receive payment bonuses.

"Under the new law, ACOs potentially deliver all the health care services that beneficiaries need, in a coordinated way," DeParle said. By setting targets to limit spending growth and spur measurable improvements in the quality of care, Medicare hopes through ACOs to boost quality of care and cut costs, too.

The event illuminated the angst accompanying ACO development, the desire for Medicare officials to get outside help in developing the program, and the difficult design decisions facing regulators at the Centers for Medicare and Medicaid Services. "They're being asked to regulate something that's never existed," commented one participant at the event.

CMS Deputy Administrator Jonathan Blum said final rules for the program, which starts Jan. 1, 2012, will be out next summer, and a proposed rule will be issued early in 2011. But he made a big point of saying that CMS needs help.

"We're all starting from scratch, we're all trying to figure out the ACO program together," he said. Blum said CMS will go forward with "a true proposal, wanting comments back from all perspectives, consumers first and foremost, providers, physicians, health plans, really to help inform our decision making."

"If the ACO program works well, patients . . . will have well-coordinated handoffs from physician to hospital back to physician [after discharge], back to the home," he said.

But in designing the program, CMS has to worry about whether it unduly promotes the market power of providers relative to insurers, he said. It has to think about whether and how to penalize ACOs that miss performance targets—rather than just incentivizing them through bonus payments for meeting targets.

It has to determine how to inform Medicare patients that they are part of ACOs, without causing a backlash against the program of the kind that sunk managed care in the 1990s. While patients will benefit from better-coordinated care, they need to be told, too, that doctors and hospitals stand to gain from providing more efficient care, running the risk that seniors will bolt because they think bonus-minded doctors and hospitals will shortchange them on treatment services.

CMS also has to decide how to give physician-driven ACOs access to data to help manage hospital and pharmaceutical costs—data that can be proprietary, Blum noted.

In a paper also released on Monday, Center for American Progress analysts said ACOs should avoid "the concentration of pricing power by promoting alternatives to hospital-led accountable care organizations." The analysts, Judy Feder and David Cutler, urged that doctor-led ACOs be formed alongside hospital-led ACOs.

Medicare patients should be active participants in improving the quality of their care and benefit financially if, as part of an ACO, they help lower costs and improve quality of care, they added.

The analysts also suggested the adoption of "a payment system that, first optionally and then as a requirement, leads providers to share in the financial risks of overspending as well as in the savings from underspending, relative to spending targets."

They said the ACO program has promise.

"Every analyst who studies health care believes it is possible to simultaneously lower costs and improve quality," their paper said.

Although the health law generally is a big GOP target, ACOs enjoy a fair degree of bipartisan support and may not be a target of the those seeking to repeal and replace the law. Asked whether pending spending legislation would cut funding to implement the ACO program, Blum said he would defer to Obama administration budget analysts to answer that question. But he emphasized that the program is "one of our highest priorities."

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