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MedPAC Mulls Future of ACOs

By John Reichard, CQ HealthBeat Editor

April 4, 2013 -- The Medicare Payment Advisory Commission spent much of its first session taking stock of an experiment in team-based care it had a big hand in launching—and found much to stress about.

The topic? Accountable care organizations (ACOs), the form of health care delivery the health law envisioned would bring higher-quality, more efficient treatment to traditional Medicare. A shared-savings program under the law established payment incentives to create ACOs that would foster a more team-based care.

Much of the commentary about the ACOs at last week's meeting was critical. "We are starting to pick apart an idea we were among the first to support," commissioner Peter Butler of Chicago's Rush University Medical Center said midway through the conversation. While much uncertainty was expressed about how to proceed with the experiment, commissioners voiced little or no regret that it had been launched.

A briefing on ACOs by MedPAC staffers David Glass and Jeff Stensland showed that the organizations are now fairly plentiful in Medicare and operate in many states. Along with Medicare's new incentives, providers also are responding to pressure from commercial insurers to form the organizations.

So far 252 ACOs are taking the first steps toward coordinating treatment for 4.1 million beneficiaries.

Of those, 32 "pioneer" ACOs were launched in January 2012 and provide care for 860,000 Medicare beneficiaries. Another 27 ACOs with 370,000 beneficiaries were started in April, 2012; 87 opened in July with 1.3 million beneficiaries, and 106 more ACOs that serve 1.6 million Medicare recipients started up in January of this year.

Pioneer ACOs and regular ACOs have certain common features. The organizations have primary care providers who are responsible for coordinating care for Medicare beneficiaries. They may have a hospital or specialists too, but are not required to include them.

Both types of ACOs can assign people to their groups by contacting Medicare beneficiaries they've billed for primary care services and explaining that the ACO has an incentive to provide more coordinated, cost-effective care because the participating providers would share any savings achieved with the government. Patients have the right to opt out by saying they don't want data on their care included in determining whether the ACO meets quality and savings targets.

Both types of ACOs also must distribute bonuses to doctors who meet quality of care and savings targets. They have to define ways to promote evidence-based medicine. They have to report on quality and cost measures. And they must be "patient-centered." Beneficiaries are free to choose any provider inside or outside of the ACO.

Pioneer ACOs differ from regular ACOs in that they have larger minimum populations – 15,000 versus 5,000. They agree to move to reimbursement that for some services are fixed per capita payments. They also get to keep a higher share of savings they produce.

CMS would like ACOs to be subject to both rewards for meeting quality and savings targets and penalties for missing them. However, MedPAC staff said that only 8 of the 220 regular ACOs have agreed to be subject to both rewards and penalties. The other 212 only get bonuses if they meet targets, but pay no penalties if they miss them.

Commission staff members also assessed the relative strengths and weaknesses of ACOs and Medicare Advantage plans. MA plans have more tools to control service use but have higher overhead costs. ACOs have lower overhead because they don't enroll people the way MA plans do, negotiate rates, or process claims.

But the ACOs have less ability to control costs. That's because they have no authority to limit the size of provider networks. They can't demand "prior authorization," which requires a doctor to get plan approval before providing a given service. And they have no ability to assess higher out-of-pocket charges to discourage utilization.

Given their limited ability to control costs, ACOs tend to be clustered in markets where fee-for-service spending is relatively high and MA plans have shown they can reduce spending.

Commissioners expressed various concerns about ACOs, including their limited power to deliver savings. One concern relates to the fact that hospitals in ACOs have a limited incentive to reduce spending because any bonuses they get as a result are smaller than the revenue losses they suffer from Medicare if they deliver less care.

MedPAC Chairman Glenn Hackbarth said he was worried about an eventual beneficiary backlash against ACOs. He said a system in which the ACO and the government share in any savings but beneficiaries do not could, over time, create resentment. And that could lead to more Medicare beneficiaries opting out.

Hackbarth wondered what reaction ACOs get from beneficiaries when they "assign" them. "It does get beneficiaries' attention and they do get a lot of telephone calls," a MedPAC staffer said. But based on interviews with selected ACOs, only about 5 percent of those assigned to the organizations opt out.

Hackbarth's overall assessment of ACOs was that they are a step in the right direction, but they suffer from design features that limit policymakers' ability to improve the efficiency of the traditional Medicare fee- for-service system. They are at best an interim step, he said.

Butler noted that hospital managers face many goals from Medicare. They include not only establishing ACOs, but meeting dozens of quality measures, making effective use of health information technology, and responding to incentives under Medicare's value-based purchasing programs. It's hard to know where to focus management energies, Butler said.

But, he added, that in order to be credible to commercial insurers, hospital officials have to show they are working toward more efficient care. The ACO structure helps providers do that. On balance, providers are learning a lot and the ACO structure is forcing them to reorganize care in a way that ultimately will benefit the health of the population they treat, Butler said.

Commissioner Craig Samitt of the Dean Health System in Madison, Wis., made a similar point. He said he's worried that three years from now the commission will decide ACOs aren't worthwhile because on average they may not show great quality or efficiency gains. But Samitt said that concern about averages shouldn't blind commissioners to another benefit of ACOs. And that's that some ACOs will prove to be top performers and will identify best practices that other providers can then follow.

Overall, commissioners weren't clear about how to remedy the flaws of ACOs to make them more effective in the future. But they indicated that the beginnings of more coordinated treatment were worthwhile. And they expressed relief that the commission is now beginning the process of figuring out where to go from here.

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