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The ACO Final Rule: Progress Toward Better Care At Lower Cost



October 21st, 2011

Editor’s note: See additional posts on the Medicare Shared Savings Program Final Rule  and related delivery system and payment reform initiatives by Debra Ness and William Kramer, Lawrence Casalino and Stephen ShortellDouglas Hastings, and Don Berwick and Richard Gilfillan.

The release yesterday of the regulation to launch the Medicare Shared Savings Program (MSSP) marks an important moment in the development of Accountable Care Organizations (ACOs). This is not only because of the substantial revisions made in response to concerns about the draft regulation, but also because it comes amid a range of other public and private initiatives that are expanding the adoption of accountable care payment systems.

Our previous blog post on the draft regulations summarized the origins and rationale for the ACO program.  In this initial posting, we focus on what this is likely to mean for the broader movement toward a more accountable, patient-centered and affordable delivery system.

The draft regulations for ACOs under the MSSP were heavily criticized, especially by providers.   Concerns included: rigid governance requirements that would have required substantial and burdensome changes to existing organizational structures and bylaws; a large number of required performance measures; fear that investments to improve care would have exceeded the share of savings that would go to the ACOs; the requirement that all ACOs bear financial risk during their first 3 year performance period; an approach to beneficiary assignment that would have left ACOs uncertain about the population for whom they were responsible.  These and other concerns were highlighted in the many responses that CMS received, including our response, which reflects many ACO experiences in private health plans, Medicaid, and previous Medicare demonstrations.

CMS’ introduction to the final rule summarizes stakeholders’ major concerns and the factors considered in crafting the final regulation.   CMS’ efforts to respond to the concerns resulted in many important improvements over the draft regulation, including:
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  • Less burdensome governance and structural requirements. The governance requirements are less burdensome and more flexible:  for example, ACOs will now be allowed to add or subtract providers within the performance period – an important option for those who wish to start small.  “Meaningful use” of electronic health records is now a performance measure, rather than an early requirement for ACO implementation.
  • Fewer performance measures.  The number of performance measures is reduced from the original 65 to 33, with a more gradual ramp up from pay-for-reporting (year one) to pay for performance (phased in over years two and three).
  • A revised beneficiary assignment approach.  The approach to assigning beneficiaries to the ACO has been revised so that ACOs will get a timely list with quarterly updates of the beneficiaries CMS believes are likely to be attributed.  This will enable an ACO to reach out to beneficiaries, while reconciling the list at the end of the year so that the ACO is not held responsible for those beneficiaries who shifted their care to other providers during the year.
  • Greater financial rewards.  The formula for distributing savings has been revised so that ACOs that achieve savings beyond the threshold intended to demonstrate statistical significance (2% to 3.9% depending upon the size of the ACO) will receive the appropriate share of the first dollar savings (which varies according to risk-track and quality performance).
  • Shared savings only model.  Perhaps the greatest concern with the initial rule was the requirement that all ACOs bear risk by year three.  Under the final rule, participating providers can join a three year, shared-savings only version.

These changes, plus notable additional support for physician-led ACOs and providers serving low-income and rural beneficiaries, will make MSSP more attractive to a broader range of health care providers.   However, the goal of the ACO program is not simply to attract a significant number of providers; it is to help those providers achieve meaningful improvements in the quality of care and costs for beneficiaries – improvements that can’t be achieved with fee-for-service payments alone.

The Hard Work Of Improving Care

Especially in an era of high concerns about costs, improving care is challenging and often time-consuming work. It requires not only new financial investment, but concerted and ongoing leadership by providers working with payers to follow through on their reform initiatives and effectively engaging with patients. In our ACO Learning Network and elsewhere, the experience has been an evolving process.  It has been one that requires starting from where providers willing to do the hard work actually are, making clear progress, and then building on it with further improvements in care and further reforms in payment over time.

Even with these changes, accountable care is still costly and hard work with uncertain returns for many providers. Many physicians still practice in small office-based settings and do not have much support for coordinating care with others.  Most providers still have governance systems, accounting systems, and delivery models focused on providing care paid for based on volume and intensity, not value. Many will still worry that the limited incentives for beneficiaries to engage in the MSSP and the limited interaction of the MSSP with other potentially reinforcing payment reforms (e.g., medical homes and episode-based payment reforms), as well as with existing private-sector and Medicaid ACOs, will make it hard for them to succeed in this program.  They may still want to keep their options open to consider other approaches, both within Medicare and outside it.

The Medicare Shared Savings Program: One Tool Among Many

The MSSP is only one way for providers to begin to move forward with Medicare toward providing more patient-focused, coordinated care.  At one end of the spectrum, many providers who are already well down the road to large-scale ACO implementation, mainly outside of Medicare, have applied to the Pioneer ACO program.  This program offers greater potential rewards to provider organizations who are committed to global payment and well-coordinated care and who are willing to bear some financial risk for both Medicare beneficiaries and other patients in return for more flexibility in payments to support their goals.

CMS has also proposed a variety of other pilot programs under the Innovation Center intended to encourage collaboration among providers in more focused areas, such as the bundled payment initiatives for improving and coordinating specific types of care, and the medical home all-payer demonstrations to improve primary care coordination and support.  In the MSSP rule, CMS expressed a strong commitment to align the performance measures across these and other “value-based” Medicare payment reforms.  If accomplished, this could help strengthen each of these efforts. Indeed, many private payers are increasingly implementing them together already.  Especially since CMS is encouraging providers to choose among these options, different providers may decide to start their Medicare reforms in different ways.

Beyond the federal government, the interest and participation in accountable care reforms has been growing, ahead of Medicare’s ACO program.  At least 12 states have passed legislation intended to support the transition toward ACO-like models for either their Medicaid programs or state employees.  All of the major private health plans have started to implement payment reforms similar to the ACO model: accountability for the full continuum of patients’ care, a component of payment that is contingent upon demonstrably improving the overall quality and coordination of care, and the responsibility to manage costs within a target budget.

The significantly-revised MSSP seems likely reinforce this momentum  Most providers are now seriously weighing their options for alternatives to traditional fee-for-service reimbursement in the years ahead, and more are deciding to move ahead, through ACO options in and out of Medicare and through other payment reforms that promote accountable care. If CMS continues to adapt its approaches to experiences outside of Medicare, it can make a big difference in the urgent need to provide better support for providers and patients in improving care and lowering costs.

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