Previously, we gave an introduction to accountable care organizations (ACOs) and why they are coming. But what about them? What do they do? What is required of an ACO? What does it take to become an ACO? This time, we’re going a little deeper into ACOs to help medical billing managers and staffers better understand the coming changes.

What is an ACO?

•     The result of the 2010 healthcare reform legislation.

•     A network of physicians, hospitals and other providers that share the responsibility for the delivery of patient care.

•     A way to improve the quality of healthcare while reducing its costs

What does an ACO do?

•     Makes a formal commitment to helping the healthcare needs of at least 5,000 Medicare beneficiaries for a period of at least three years.

•     Unites providers into a group for the purpose of pooling resources in order to improve care coordination and patient outcomes at reduced costs.

Do ACOs exist presently?

Some examples exist, and they helped inform the model set forth in this program. But the ACO concept is fairly new. (The term “accountable care organization” was coined in 2006.) More significant, though, is the fact that organizations are presently and actively enhancing their infrastructures and grouping into ACOs in order to meet the January 2012 launch of the Shared Savings Program. There are also examples of groups already calling themselves ACOs, some in advance of knowing precisely what constitutes — and is required of — an ACO.

What is required of an ACO and its member providers?

•     Provide and demonstrate better care at reduced costs.

•     A formal business structure to receive and distribute the shared-savings payments to its member providers

•     Be “meaningful users” of electronic health records (EHR)

•     Measure and demonstrate quality in patient experience, care coordination, patient safety, preventive healthcare and care of at-risk populations.

To be sure, these requirements are a tall order. In fact, there are growing concerns that the additional burden and costs associated with these (and other) obligations could lead to poor participation in the program. (More on that later.)

How can ACOs cut costs?

Everything is fair game, including removing cabinet doors for greater efficiency. In the ACO model, a committee of physicians and other personnel will look for new efficiencies throughout their operations. Along with the significant IT upgrades needed to meet the program’s requirements, ACOs will be looking for how they can also leverage IT to reduce paper, streamline processes and generally do more tasks more quickly and at a lower cost. Primary cost savings, of course, come with sharing resources among providers in the ACO and eliminating waste and redundancies, such as duplicate blood tests or conflicting treatment plans. Preventive care and coordinated care are also vital to reducing healthcare’s cost.

What else must an ACO and its affiliated providers do?

•     Have sophisticated healthcare information technology (HIT) systems. They need to track performance and measure clinical outcomes They must handle individualized care plans, preventive health, care coordination and a number of new reporting requirements. And they need to be able to achieve true data interoperability with other providers, an essential to the new accountable-care reality. .

•     Have the ability to communicate evidence-based medicine and clinical knowledge in an understandable way.

•     Provide patients easy access to their medical records

•     Establish a care-coordination infrastructure, including fielding case managers.

•     Review patient records to identify potential clinical concerns as well as cost efficiencies.

•     Engage in collaboration and discussion to enhance group skill and quality of care

•     Meet all of the rules and requirements of ACOs specified by the CMS in its recently published program specifics, which span hundreds of pages.

What is the incentive for an ACO?

It’s a carrot-and-stick operation. There are financial incentives, and they encourage early adoption. Meaningful use of electronic health records (EHR) is rewarded. Cost-cutting efforts will lead to significant long-term aggregate savings. Participation in the Medicare Shared Savings Program is certainly a primary driver. That all constitutes the carrot.

The stick is that an ACO must meet the standards of quality or lose its participation in the Shared Savings Program… and potentially its contracts.

What types of providers participate in an ACO?

In theory, all types of practices should be part of an ACO. The premise is to have an organization that is responsible for providing better care, that solves the current problems of people getting their healthcare in small component parts from a multitude of different sources. This means demonstrating outcomes that outperform historical measures. It means a focus on prevention and on coordination of care for chronic diseases and the elderly. This all requires a team consisting of a cross-section of healthcare disciplines and providers working together for greater efficiency and effectiveness. HOWEVER…

A significant problem surrounding Medicare’s Shared Savings Program at present is the fact that many providers are not planning to participate in it. The American Medical Group has expressed its concerns formally after 93% of surveyed members said they wouldn’t participate in the program without major changes to the rules. The American Hospital Association has asserted that startup and year-one costs for an ACO are many times higher than CMS estimated and, therefore, the financial incentives should be higher to encourage and enable providers to participate. This is what is happening presently, but we’ll dig deeper into it in a future post.

Stay tuned for more in our series on the topic of ACOs. We’ll cover the current concerns and criticisms about ACOs, and we’ll get into how accountable care and the sweeping changes are presently affecting medical billing and healthcare billing personnel.

For more information, see our previous posts on ACOs, including a glossary of ACO terms, summary of public comments on the proposed ACO plan, and an assessment of what ACOs mean for practices.

Accountable Care Organizations (ACOs) were advanced as a money-saving program for Medicare through the Affordable Care Act (ACA), but the mechanism to allow physicians and hospitals to participate and share in the savings must still be defined by a legislative rule.  The CMS proposed an ACO rule in late March, and accepted public comments through last Monday, June 6. 

As could be expected with any important legislation opened to general public comment, there were some wide ranging reactions!  Hundreds of comments were posted publicly on the Regulations.gov website.  Many significant issues were raised, especially through thoughtful submissions by leaders of the nation’s healthcare organizations as well as scores of individual healthcare professionals.   It will be interesting to see if and how the final rule – which is expected to be revealed later this summer – addresses some of the more challenging comments, which included:

• Too much risk

Participating ACOs won’t just benefit from shared savings if they succeed, at some point the ACO must also share the downside risk that Medicare costs increase for their patients.  Moreover, as the AMA noted in its comment letter, the extremely steep costs of technology investments most ACOs would need to make to comply with the terms or the program already represent a substantial risk to ACOs – having to also accept the uncertain downside on Medicare patient costs may make the program just too risky overall.  Without knowing more about how the benchmarks will be determined or what they can really control, many prospective ACO teams may opt to sit on the sidelines for now. 

The current rule proposal also seems to carry a high penalty for ACOs that can’t meet CMS’s standards quickly.  As the Robert Wood Johnson Foundation observed in its comment, the rule as currently drafted seems to make it impossible for ACOs that fail to get a future shot at qualifying again – a seemingly inconsistent idea for a brand new, still uncertain initiative, and an impediment to trial. 

• No scaling down for rural areas

Although CMS provided some amendments to its first draft of the ACO rule that were intended to lower the bar for rural medical providers, commenters like the NRHA and the AAFP still believe the structure is too weighty for adoption by smaller practices and smaller hospitals. 

This not only has the potential to limit the effectiveness of the program, it could have more troublesome unintended consequences for rural health care if, for example, larger market systems aggressively recruit rural doctors and patients to urban areas to expand their numbers.

• Bias towards hospital-centered ACOs

Anti-trust rules and the need for significant technology, legal and management resources to run an ACO seem to make hospitals the inevitable drivers of ACO formation.  The AMA commented that the upside potential of ACOs for hospitals could accelerate the trend of hospitals buying medical practices, particularly primary care practices.  This in turn gives hospitals increasing market power – which ultimately (ironically) erodes the competitive environment that can help keep costs down and ensure patient choice.

• Fee-for-service status quo

Many commenters noted that the layering of ACOs on top of the existing fee-for-service Medicare payment model is unlikely to encourage reduced billing by providers.  As the AAFP put it: “Unless or until CMS is able to pay ACOs (and, in turn, facilitate ACOs paying their participants) in a manner more consistent with the desired outcomes (i.e., through a blend of fee-for-service, partial capitation, etc.), we do not believe the Medicare ACO program can succeed.”

• Unclear or unfair patient assignments

Under the proposed ACO rule, patients are tied to an ACO based mainly on their relationship with a primary care physician in the ACO.  The current provision would assign patients passively to an ACO based on the physician who has provided the preponderance of their primary care – even if they haven’t had the role of managing the patient’s care, or had that role exclusively.  The ACO’s ability to actually consolidate the patient’s care might be very limited depending on the patient’s previous patterns of healthcare utilization.

For example, as the MGMA noted in its comment letter, many Medicare patients live seasonally in different parts of the country.  While living elsewhere, they’ll receive Medicare services from physicians who aren’t participating in their ACO – and, the ACO’s savings accounting will be affected by those billings, even though they’re completely outside the ACO’s control.  MGMA also noted that many Medicare patients seek the majority of their care from specialists that they work with directly – limiting the impact of the primary care-based ACO savings approach.

• Primary care physicians limited to one ACO

The currently proposed ACO model appears to limit primary care physician participation to just one ACO.  However, since primary care physicians typically refer their patients to a wide range of specialists and facilities, it is unlikely that any one ACO would include all the organizations and colleagues a primary care physician collaborates with already.  By restricting the primary care physician to a single ACO, the rule would force primary care physicians to either limit the options they offer their patients or refer outside of their ACO team.  The AAFP predicts that this aspect of the regulation, if unchanged, will mean “very little incentive for even the most sophisticated primary care practice to pursue Medicare ACO participation.”

• Potential for perverse incentives

The authors of the proposed rule delivered many components designed to prevent “gaming the system,” but with any government program, the potential for manipulation is always lurking. ACO commenters identified a few undesirable possibilities.

For example, in its comments, the AAMC observed that teaching hospitals could be disfavored by ACOs because of the extra payments they receive from Medicare for their educational programs.  Since these payments would presumably count in overall cost calculations, ACOs would likely prefer to use non-teaching hospitals whenever possible.

Another example, provided by the medical home advocacy group PCPCC in its comment letter, involves the focus on physicians as primary care providers.  The PCPCC argues that practices could manipulate the total savings by shifting billings for costlier patients to mid-level providers instead of physicians – i.e., by explicitly excluding non-physician primary care providers, the ACO rule could open the door for patients to be creatively excluded from the comparison population to artificially ‘improve’ cost controls.

This is the second in a series of articles by Laurie Morgan on ACOs. Read the first article, ACO Incentives Around the Bend for Medical Practices: Plan Now or Wait and See?

Laurie Morgan is a management consultant with Capko & Company. She specializes in marketing, management and technology for medical practices and blogs about practice management issues at www.capko.com/blog . Laurie has a BA in Economics from Brown University and an MBA from Stanford.