The Future of Reform: Fleshing Out the Rules for Accountable Care Organizations

Today, the Obama administration released newly revised rules for “accountable care organizations” (ACOs) that are designed to persuade hospitals, doctors, and other health care workers to collaborate in providing better value for our health care dollars. In an ACO all providers involved in treating a particular patient or condition share a single flat fee. That fee will be higher if they succeed in achieving better outcomes for less, lower if they fail. In other words, providers are being asked to share in the risk that patients and payers now face when they agree to undergo treatment—or to pay for it. The lump sum payment creates an incentive for hospitals  and doctors to work together to achieve the best possible results. They will win the wager only if they co-ordinate care.

If teamwork leads to more efficient diagnosis, fewer unnecessary tests and procedures, fewer infections, better communication among providers, speedier recoveries, and happier outcomes for patients, both providers and the Centers for Medicare and Medicaid (CMS) will profit. The administration estimates that ACOs could save the government $940 million from 2012 through 2015. But the goal is not just to save money: when care is coordinated, and patients receive the right care at the right time, they suffer less.  Higher quality care and more affordable care go hand in hand.

Needless to say, providers are wary of the risks. Moreover, when the administration released a draft of proposed regulations for ACOs earlier this year, many groused about the high cost of complying with the rules. Hospitals and doctors argued that the bonuses were too small when compared to the burden of being required to report on sixty-five measures of quality, while also investing in electronic health records (EHRs). (The draft stipulated that primary care physicians involved in the program must show that they are making “meaningful use”of EHRs by the second year of the program.)

Changes in the Regulations

Under the new rules, providers will no longer be required to share risks from the outset. Instead, they will have two choices. If they select “track 1,” they will enjoy a slice of any savings, but will not share losses during their first two years as an ACO. In year three, however, they will be expected to share in risks as well as rewards. By contrast, if they choose “track 2”, they will share in losses as well as savings from the very beginning, and will enjoy a larger share of savings. “Two tracks are offered for ACOs at different levels of readiness” the Appendix to the report explains.  (To see the entire Appendix—which does an admirable job of detailing changes in just three pages—click on the three pictures at the end of this post.)

As the Appendix reveals, the administration responded to many of the providers’ complaints. They are now asked to report on thirty-three measures of quality—not sixty-eight—and the EHR requirement has been dropped, though having an EHR is retained as one measure of quality. This seems to me a wise change: when it comes to Health Information Technology, the state of the art is still evolving. Physicians who sink capital into  EHRs today may discover that they have chosen technology that is neither user friendly nor easily linked to EHRs that other doctors and hospitals are using.

In addition, instead of compensating providers for reporting on quality measures only in the first year, then paying for performance in the second and third year, ACOs will be paid for reporting in the first year, and paid both for reporting and for performance in the second and third year.

The revised regulations also expand on who is eligible to become an ACO, including Federally Qualified Health Centers (a.k.a. community clinics) and Rural Health Clinics. Since reform legislation provides funding to expand community clinics by 50 percent, I think they will become increasingly important providers, especially for many patients who now go to an ER for care. Giving them the opportunity to share in the rewards of providing better care is an excellent idea.

Accountable Care Organizations provide a model for radically transforming our health care system. Recognizing the challenges of converting a money-driven fee-for-service system hooked on “growth” (more tests and more procedures equals more revenues) to a patient-centered system that focuses on providing safe, effective, affordable care, the administration is giving ACOs more time to improve performance. While the first round of applications are due early in 2012, and some ACO agreements will start as early as April 1, 2012, others will not begin until July 1, 2012. Most importantly, the first performance “year” will be eighteen or twenty-one months. ACOs that start up in April or July of 2012 will not have to report on quality measures until calendar year 2013.

Let me add that accountable care organizations are just one model for reform. Rather than joining an ACO, many family physicians may well elect to turn their practices into “patient homes” that help patients manage chronic diseases so that they can stay out of hospitals. If they’re successful, they too will receive bonsues  My guess is that some community clinics will choose to become patient homes. Going forward I also hope that we will see more nonprofits like Kaiser Permanente and Geisinger that offer insurance coverage as well as  medical care, giving insurers and providers a motive to work together to improve the health of patients over the long-term.

Many in the media have pointed out that the Mayo Clinic, Geisinger and some other highly respected organizations have announced that they do not intend to become ACOs. This makes sense. They already are streamlining care and improving outcomes. Why would they possible want to throw out a model that is working, and start over? They are not rejecting the notion of “accountable care.”  In many ways, they have inspired the ideas behind ACOs: doctors are on salary and are encouraged to share their knowledge, looking over each others’ shoulders as they strive to improve outcomes. Electronic Health Records help them offer evidence based care. Performance is constantly measured, with an eye to continuous improvement.

Below, the Appendix to the revised regulations. Each page is an image you can click on to enlarge (once open, click again to make it even larger).






7 thoughts on “The Future of Reform: Fleshing Out the Rules for Accountable Care Organizations

  1. What a fascinating and exciting program. I am intrigued at the possibilities of such an idea and I really appreciate the concept of more cohesion among physicians with shared patients. This strikes a good balance between overseeing doctors to be sure of appropriate care and fewer unnecessary tests and helping doctors organize with specialists so as to provide optimal care to the patient.
    You bring up a good point about EMRs, however, that I would like to address further. What if it were possible for physicians to ‘shop around’ for a EHR system that worked for them and for their peers in other medical specialties? The Affordable Care Act encourages a market-like method of choosing proper insurance for citizens, and I believe doctors could also benefit from a system of choosing EMRs based on the same principle. It would obviously be difficult to tell on first glance whether or not a particular electronic medical record program would suit that physician’s practice or style of care. It would be helpful to have samples, or perhaps trial periods, so as to find programs that sync easily with other practices in the area and support the physician in his or her care of patients. If doctors preparing to undergo organization into ACOs could work together with other physicians to find a EHR that works for all of them, I believe ACOs will be that much more successful from the beginning.

  2. MKL-
    Thanks for your comment.
    Unfortunately, the learning curve for using EHRs is long enough, and steep enough, that it is difficult to “shop around”–trying one system, then trying another.
    Trying any system requires a major investment of time.
    This is why I think that the letting “the market” find the best EHRs as thousands of consumers shop around is a very expensive idea. Much time and money will be lost.
    This is why, in many countries, choosing a system has been a “top down” decision.
    When I say “top down” I don’t mean that IT experts in government should be choosing a system (or systems) for the nation.
    Physicians and nurses need to be very involved in that top-down decision. Only they fully understand the context in which health IT will be used. That context is very, very different from other industries where IT has been used for years.
    This is why so many Health IT systems just aren’t user friendly. They weren’t designed by healthcare workers.
    Bottom line: I don’t think these decisions should be made in the market-place and I don’t think that for-profit vendors or IT “consultants”
    should be at the center of decision-making.
    We need a panel of doctors and nurses with no axe to grind, preferaby docs and nurses coming form a place that has a IT system that works — and works well–(Mayo Clinic, Kaiser, the VA, as well as small practices and small hospitals that have succeeded in putting together and learning a system that works for them.
    I suspect that small practices and large pracrtices, small hospitals and large hospitals need different systems. Few can afford the system Mayo designed for itself, but no doubt much could be learned by analying that system.
    We probably need a variety of systems chosen by one panel with an eye as to how can be linked together.
    Easier said, than done, I realize. And I’m not an expert in this area. But I do sense that a great deal of money is now being wasted . ..

  3. ACO’s and “Medical Homes” are definitely the future of practicing medicine. Moving to a value pay system is the logical thing to do. Great article – thanks!