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Medicare ACO Final Rule Includes Changes Designed to Attract Industry Interest

By Rebecca Adams, CQ HealthBeat Associate Editor

October 20, 2011 -- The 696-page final rule for Medicare’s core program to encourage providers to coordinate patient care differs significantly from an earlier proposal panned by provider groups. Officials hope the new version released Thursday will help create as many as 270 ACOs, double the number in the proposed regulation.

The program would give providers the opportunity to earn bonus Medicare payments if they save money by working closely together through so-called accountable care organizations, or ACOs, which each oversee care for at least 5,000 patients.

The final rule, designed to address providers’ complaints, includes revised provisions allowing providers to avoid penalties if they do not meet savings targets. It reduced the number of measurements to assess the quality of care from 65 to 33 metrics; relaxed requirements for provider use of electronic health records; and gave physicians and rural providers access to up-front capital through an “advanced payment” program.

Centers for Medicare and Medicaid Services (CMS) officials estimated that about 50 to 270 provider groups would participate under the revised plan. Actuaries said that the Medicare program could lose money on the program. But if it works as intended, a median estimate— which assumes about 90 ACOs would join—shows that the federal government would save about $470 million, and all of the participating provider groups collectively could save $1.3 billion, over four years.

The ACO program is a key element of the 2010 health care overhaul law (PL 111-148, PL 111-152).

Some Providers, Groups Still Worried
Medical providers who had sharply criticized the early draft of the regulation applauded most of the changes in the final rule, although some said they were disappointed that regulators did not include all of the changes they wanted. For instance, the American Hospital Association was pleased that the agency had reduced the amount of reporting that hospitals would have to do to show that they are providing high-quality care, and it was also pleased that hospitals will have an option to allow them to avoid penalties if they do not hit their savings goals. But hospital officials were disappointed that the final version did not allow providers to keep as much of the savings as they would like.

And some manufacturers of medical products were concerned that physicians or other medical professionals might try to save money by limiting the use of high-priced products, even if they improve patient care.

“The ACO program may have the effect of limiting treatment options and discouraging physicians from adopting new advancements in care,” said Ann-Marie Lynch, executive vice president of the Advanced Medical Technology Association.

Still, CMS Administrator Donald M. Berwick said that the new version was “a stronger ACO program than was contemplated” in the first draft, which was released in March, and a thoughtful response to more than 1,300 comments the agency received, many of which were negative.

The so-called shared-savings program is a signature issue for Berwick, whose appointment expires at the end of the year. His goal is to engineer an incentive for providers to coordinate more closely on patients’ care.

“With ACOs, we have a chance to transform health care delivery,” Berwick said on a call with reporters.

But it is unclear how much of that opportunity will be realized. The regulation repeatedly says a wide range of outcomes is possible. And some analysts said that it would take years and an enormous amount of effort to change the incentives in the nation’s current health care system, which generally pays piecemeal for individual procedures rather than for the complex holistic care of a patient.

“The new rule is an easier pill to swallow, but still difficult for most systems to fully digest,” said Dan Mendelson, CEO of Avalere Health, a consulting company. “Fundamentally, most health systems continue to struggle with the fact that their present operations are oriented toward billing per service, and not taking on risk and responsibility for quality.”

The changes in the final rule “reflect a desire by CMS to encourage providers to participate and its willingness to listen to industry,” said Paul Keckley, executive director of Deloitte Center for Health Solutions.

Some Penalties Gone From Final Rule
One issue in the proposed rule that had caught providers by surprise was that it would have exposed everyone who participated in the program to penalties if they didn’t meet their savings goals. The final rule modified that provision.

The program will still offer two options for participants.

The first route is for providers with little experience in operating an ACO. Unlike in the proposed rule, those groups won’t have to worry about penalties if they don’t save enough. CMS officials said that ACOs will have to save between 2 percent and 3.9 percent of an amount set by a formula that will be based on what providers would have gotten under the traditional Medicare program. But once they have saved that much money, Berwick said that agency officials will go back and credit the providers so that they will share in all of the savings that have accrued. Providers in this track will get as much as half of the savings.

Under the second track, providers will get up to 60 percent of the savings. These providers, who are more experienced in operating ACOs, will still, as in the proposed rule, risk losses if they don’t achieve savings.

But under both tracks, Medicare officials are capping the total amount of savings that provider groups can keep.

Under the proposed rule, patients would have been assigned to an ACO long after care was delivered. Under the final version, beneficiaries will be assigned each quarter. Patients who have received a plurality of their treatment by a particular physician would be assigned to an ACO that includes that physician.

After many groups complained that the first version seemed designed mostly for hospitals in urban areas, officials working on the final rule made an effort to include and build interest from physicians, federally qualified health centers and rural providers. Medicare officials say the advance payments for physicians and rural providers that join the program in 2012 will make a big difference. An average-size group could expect to get about $3.5 million for start-up costs under the advance payment program. The providers would have to pay back those funds later from any savings that develop. The total amount of funding for the advance payments will be $170 million.

Providers who want to participate do not have to join right away. They could sign up on a rolling basis in 2012, 2013 or 2014.

Separate provisions affecting anti-trust rules also were issued Thursday.

Rebecca Adams can be reached at [email protected] .

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