Medicine, Law & Policy
The ACO Dilemma: Should We or Shouldn’t We?
Accountable care organizations are being touted for their potential to make health care more efficient. Physicians, however, should be cautious about joining these new entities.
By Todd I. Freeman, J.D.
A shared-savings program created by the Patient Protection and Affordable Care Act (PPACA) allows accountable care organizations (ACOs) to receive incentive payments in addition to regular fee-for-service payments starting in 2012.
This provision in the PPACA comes on the heels of efforts in the private market to create similar organizations that would increase competition and, ultimately, hold down costs. Most of these efforts have been spearheaded by hospital systems, and physician providers have been aggressively recruited to join these entities.
Although the Republicans in Congress have vowed to repeal the PPACA, it is highly unlikely that the entire act will disappear. Given that shared-savings programs will be revenue generators for the federal government, they have an excellent chance of being implemented. The prevailing view is that much needs to be done to make health care more effective and cost-efficient—and that this is a first step.
What Is an ACO?
An ACO may take almost any form so long as it meets the following statutory requirements:
- The organization is willing to be accountable for the quality, cost, and overall care of the Medicare beneficiaries assigned to it;
- It will commit to the Centers for Medicare and Medicaid Services’ (CMS) shared-savings program for at least three years;
- It has a formal legal structure that allows it to receive and distribute shared-savings program payments to participating providers;
- It includes enough primary care physicians to provide care for at least 5,000 Medicare beneficiaries; and
- It promotes the tenets of patient-centered care specified by CMS, including the practice of evidence-based medicine, patient engagement, coordinated care, and the ability to report on quality and cost measures.
CMS will develop criteria to determine whether an ACO is eligible to receive shared-savings payments. The criteria will include measures of clinical outcomes, quality, and performance improvement. In March, CMS issued proposed rules that describe 65 quality measures in five categories: 1) the patient experience of care, 2) care coordination, 3) patient safety, 4) preventive health, and 5) the health of at-risk populations and the frail elderly. CMS has proposed that the quality requirement for receiving payments in 2012 may be met by complying fully with the reporting requirements related to these measures.
Should I Join an ACO?
The incentive for providers to become part of an ACO is the potential for receiving shared-savings payments. In order to qualify, however, the Medicare beneficiaries assigned to the ACO must incur costs that fall below 98% of an “applicable benchmark” set by CMS. Therefore, when deciding whether to become part of an ACO, you will need to consider a number of issues.
Cost Versus Benefit. Because CMS has yet to finalize the regulations, the details about what will be required of an ACO are not yet known. However, it is likely that participating providers will have to comply with new reporting mandates, use standardized protocols, and have access to an electronic health record system. The concern is that ACO participants will have to make the necessary investments—in terms of dollars, staff training, and changes in operations—up front, without any assurance of a return.
Also, neither the ACO nor the physicians participating in it will be able to reliably predict whether they will receive any extra revenue from taking part in the shared-savings program. CMS is requiring ACOs that apply for the shared-savings program to opt for “one-sided” or “two-sided” participation. The one-sided approach provides less potential benefit (a maximum sharing percentage of 50%) than the two-sided approach (a 60% maximum). If the costs of an ACO’s patient population are greater than 102% of the benchmark, then the ACO must pay back a portion of this “loss.” The one-sided model imposes this risk only in the third and final year of participation, while the two-sided option carries this risk in all three years. Are you willing to make the investments needed to be part of an ACO without any guarantee of a return?
Private Market Pressures. All providers are feeling pressure to deliver more cost-efficient care. However, the push to create ACOs could drive further consolidation in the health care market and create additional pressure, as hospitals and health systems may feel they have to merge with others in order to preserve their market share. Will your group feel it has no choice but to become part of a larger entity in order to maintain your ability to participate in health plan networks?
Political Pressures. Primary care physicians are at the heart of any ACO, as an ACO must be able to provide primary care to at least 5,000 Medicare beneficiaries in order to qualify for shared-savings payments. Primary care physicians are the ones who direct referrals to specialty physicians. Because many primary care physicians are employed by hospital systems, the hospital itself may exert pressure on specialists to join their ACO. Are you in a position to potentially alienate your referral sources by opting not to participate in an ACO?
Legal Impediments. ACOs may find themselves at risk for violating the anti-kickback rules and Stark, anti-trust, and other laws. The Federal Trade Commission, Department of Justice, Internal Revenue Service, and CMS recently invited comments on their proposals to facilitate ACOs. The proposals thus far are not friendly toward physician ownership of ACOs. What will the exceptions or safe harbors ultimately look like? What risks are you willing to take in what will likely be an uncertain regulatory environment?
If You Decide to Join
Assuming your group decides to join an ACO, either reluctantly or enthusiastically, and is willing to share and disclose data and make the necessary investments, you need to define or resolve several other issues.
- What percentage of incentive bonuses will go to each provider? The ACO itself needs to have a plan for how the funds it receives through the shared-savings program will be allocated to its various providers. If, for example, physicians as a category are to receive a portion of the payments, then it needs to be clear how that money will be allocated to each provider.
- Will the distribution be fair? The method for allocating money will need to distinguish between those providers who have contributed toward the efficiencies that have resulted in incentive payments and those who have not. These determinations will likely be based on utilization and outcome measurements. The ACO may simply translate the quality measures imposed by CMS for shared-savings payments into its internal method for distributing any savings to participating physicians.
- To what extent are you willing to commit? Although the rules dictate that an ACO must be committed to the shared-savings program for at least three years, it is uncertain as to the extent to which individual providers must commit. Therefore, as all of this is shaking out, it may be prudent to make relatively short-term commitments when it comes to participation (ie, only the initial three years). If, however, your practice must make a considerable up-front investment to participate, you may want to commit to a longer relationship.
Reason for Skepticism
Both public and private payers are encouraging providers to form ACO-type organizations by offering payments on top of what they receive on a fee-for-service basis. There is a good chance that these bonus payments are fool’s gold, as the criteria for receiving a portion of the savings could change from year to year. For example, if the cost threshold for providing care to a given ACO patient population in 2012 is $10 million and the actual cost of the care provided ends up being $8.5 million (generating a $1.5 million savings), it is unlikely that the threshold will remain at $10 million after the first three years.
Rather, the new “standard” would probably be $8.5 million, which may make it difficult, if not impossible, to generate an incentive payment. It is also possible that this approach could lead to overutilization. For example, if the new cost threshold is set at $8.5 million and the providers in the ACO believe it is impossible for them to receive future incentive payments, they could easily revert to their old ways, causing the aggregate cost of care to go back up to $10 million. CMS has already indicated that it will not tolerate such an increase in cost, as all ACOs will be required to share in any “losses.” How these losses will be measured has yet to be determined.
Conclusion
The idea of creating a successful ACO by the end of the year appears daunting. What is relatively certain, however, is that the current health care delivery and payment systems are unlikely to continue in their current forms. This provides a fertile environment for innovation. ACOs are but the latest experiment.
With the regulations that put meat on the bones of the requirements for ACOs still to be finalized, and with the incentives yet to be defined, there is no clear financial reason for a physician to join an ACO at this time. If the ACO concept fizzles, then new models will emerge that may provide incentives or impose requirements in order to continue participating in government or private health plans. Until that time comes, physicians may be best served by sitting on the sidelines and watching what develops. To the extent that physicians want, or feel compelled, to join an ACO, they need to pay careful attention to the requirements for participation and the up-front investment needed. MM
Todd Freeman is a shareholder with Larkin Hoffman Law Firm in Bloomington. He is also CEO of the American Association of Accountable Care Organizations.