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The ACO Concept and Proposed CMS Rules

For more information on ACOs, contact HORNE Health Care Director Barney Hebert at 601.620.5110 or e-mail him at barney.hebert@horne-llp.com.

The U.S. Department of Health and Human Services (HHS) released proposed new rules April 1 to help doctors, hospitals, and other health care providers better coordinate care for Medicare patients through Accountable Care Organizations (ACOs). Comments on the proposed rule will be accepted for 60 days.  CMS will respond to all comments in a final rule to be issued later this year.  These links provide more detail on these proposed rules:

The goal of an Accountable Care Organization (ACO) should be to reduce, or at least control the growth of, healthcare costs while maintaining or improving the quality of care patients receive (in terms of both clinical quality and patient experience and satisfaction).  Many opportunities exist for improving quality and reducing healthcare costs without the need to ration care such as: 

  • improving prevention and early diagnosis
  • reductions in unnecessary testing and referrals
  • reductions in preventable emergency room visits and hospitalizations
  • reductions in infections and adverse events in hospitals
  • reductions in preventable readmissions, and f) use of lower-cost treatments, settings, and providers


What kinds of organizations can serve as ACOs?

  • To maximum extent possible, an organization's ability to serve as an ACO should be determined by its success in improving outcomes - controlling costs, improving quality, and providing a good experience for patients - not on its organizational structure or even the specific care processes it uses.  In the short run, since outcomes can only be known after the fact, some structural and process criteria are needed to define which organizations have the greatest probability of success.
  • The core of an ACO is effective primary care.  Although the majority of healthcare expenditures and increases in expenditures are associated with specialty and hospital care, some of the most important mechanisms for reducing and slowing the growth in specialty and hospital expenditures are prevention, early diagnosis, chronic disease management, and other tools which are delivered through primary care practices.
  • In order for primary care practices to become an ACO, they will need to have at least eight components:
    • complete and timely information about patients and the services they are receiving
    • technology and skills for population management and coordination of care
    • adequate resources for patient education and self-management support
    • a culture of teamwork among the staff of the practice
    • coordinated relationships with specialists and other providers
    • the ability to measure and report on the quality of care
    • infrastructure and skills for management of financial risk
    • a commitment by the organization's leadership to improving value as a top priority, and a system of operational accountability to drive improved performance
  • Efforts to help primary care practices become more efficient, such as the tools of Patient-Centered Medical Homes, the Chronic Care Model, etc., are helpful, but not sufficient.  In order to create a successful ACO, primary care practices must add the capability to manage both cost and quality outcomes.  Moreover, not all of the standards in current Medical Home accreditation programs may be necessary to success as an ACO.
  • Small primary care practices that work together through organizational mechanisms such as an Independent Practice Association (IPA) have a better ability to form an ACO if the number of participating physicians and their organizational structure gives them the ability to a) manage and coordinate patient care, b) manage financial risk associated with the costs of patient care; and c) measure cost and quality in a statistically valid way.
  • It is undesirable to require or encourage all physicians in a geographic area to form a single ACO.  Participation should be voluntary - based on a commitment to success.  There are advantages to having multiple ACOs in a region, but also some additional challenges, and the best approach will vary from region to region.
  • Specialists will continue to play an important role in patient care, but their roles relative to primary care will need to be rationalized and better coordinated, and the volume of referrals to specialists will need to decrease in most regions.  Although an ACO will need to have effective working relationships with specialists, specialists do not necessarily need to be part of the ACO itself.
  • It can be very advantageous to have a hospital included in an ACO if the hospital is committed to the goals of reducing total costs and improving quality.  However, ACOs should not be required to include a hospital, since the interests of hospitals and physicians may be in conflict in the early stages of development of ACOs.
  • Integrated Delivery Systems could serve as an ideal model for ACOs if they have true clinical integration and a commitment by their leadership to fulfill the vision of an ACO.
  • Since providers in different parts of the country differ dramatically in terms of size, clinical and corporate integration, and skills in managing costs, there is no single definition of ACO that will work everywhere.  Four different levels of ACOs should be considered:

Level 1 ACO:  Primary care practices functioning together through an IPA or other organizational mechanism and focusing on prevention and improvement of care for ambulatory care-sensitive conditions.
Level 2 ACO:  Primary care practices and frequently-used specialties, working together through an IPA or multi-specialty group practice, and focusing on prevention and improvement of care for ambulatory care-sensitive conditions and common specialty procedures.
Level 3 ACO:  Primary care practices, specialists and hospitals, working together through an integrated delivery system or other organizational mechanism, and focusing on all or most opportunities for cost reduction and quality improvement.
Level 4 ACO:  Healthcare providers, public health agencies and social service organizations working jointly to improve outcomes for a very broad patient population, including homeless individuals and the uninsured. 

What payment "reforms" are needed to support ACOs?

  • Payment systems need to be changed significantly to support ACOs and achieve a handful of goals:
    • Provide ACO with the flexibility to deliver the right services to patients in the right way at the right time
    • Enable ACO to remain profitable if it keeps people healthier or reduces unnecessary services
    • Pay ACO more for high-quality care than for low-quality care, and encourage patients to use higher-quality ACOs
    • Pay ACO adequately, but not excessively, to cover the costs of the services it provides for all of its patients
    • Avoid penalizing ACO for caring for sicker patients (unless the sickness was caused by ACO itself)
  • Offering arbitrarily defined "shared savings" to an ACO is not sufficient to encourage the formation of ACOs and to enable ACOs to truly transform the way they deliver care.  To be effective, shared savings would need to be based on net savings (including unreimbursed costs of changes in care delivery) and combined with other payment changes.
  • A properly-structured Comprehensive Care Payment (or global payment) system can achieve all of the goals of payment reform.  However, it must be structured to avoid the problems of traditional capitation payment systems.
  • Episode-of-Care Payment can serve as both a transitional payment reform and as an important long-run component of an overall payment system.
  • Hybrid payment models (e.g., partial comprehensive care payments with bonuses and penalties based on savings and quality) can also be used as a transitional payment reform.
  • In addition to implementing new payment methods, effective mechanisms for setting appropriate payment levels will also be needed.  The appropriate mechanisms will vary from region to region and provider to provider, depending on the structure of local healthcare markets.

What should communities do to encourage and support the development of ACOs?

  • Comparable changes in payment systems should be made by all payers.  As a minimum, changes need to be made by the payers that provide health insurance coverage for a majority of an ACO's patients so that the ACO has the resources and ability to change the way it cares for all patients.  Medicare needs to have the flexibility to change its payment systems to match the changes local payers make.
  • The outcomes and measures of success for ACOs should be defined by the community they serve, rather than by individual payers.  States, Regional Health Improvement Collaboratives, large payers, and consortiums of payers can play a key role in building consensus among payers and providers on what the standards for success should be and on the appropriate transitional paths.
  • It is critical to build support among consumers and patients for changes in care delivery and payment, and to have consumers actively engaged in achieving the desired outcomes, rather than trying to hold ACO solely accountable for improving quality and reducing costs without adequate patient support and involvement.
  • Other changes in laws and policy would be helpful in encouraging and supporting ACOs, such as malpractice reform, changes in accreditation processes, and modifications to anti-trust laws and gain-sharing laws.

For more information on ACOs, contact HORNE Health Care Director Barney Hebert at 601.620.5110 or e-mail him at barney.hebert@horne-llp.com.