Skip to main content

New Rules for High Quality, Coordinated Care

The Centers for Medicare & Medicaid Services (CMS) released rules on Accountable Care Organizations (ACOs) last week. Many see ACOs as the start of a new era in health care delivery, where providers are held accountable for the cost and quality of care they offer patients. Improving care quality and lowering costs are the fundamental goals of many health reform efforts. Establishing a strategy to achieve both goals at the same time led to high levels of anticipation as members of the health community waited for the unveiling of the rule.

Changes to How Medicare Pays Doctors

The new rules explain how providers can officially become an ACO for purposes of payment by Medicare, called the “Medicare Shared Savings Program.” In a Medicare ACO, providers who achieve savings by being more efficient and delivering better patient care will get to “share” in the savings to Medicare in the form of bonus payments. The potential for reward also comes with risk – if providers fail to meet their cost and quality goals, they stand to lose money.

How Risky Can an ACO Be?

ACO cost goals will come in the form of a benchmark, a baseline goal for spending based on averages. (To provide a ballpark estimate — nationally, Medicare spending per beneficiary is a little over $8,300). ACOs that come in under the benchmark will earn bonuses. ACOs that go over budget will have to pay much of that excess spending back to the CMS.

The new rules let providers choose how much risk they want in the short-term. A “one-sided” ACO can only earn bonus payments for the first two years of the program, while a “two-sided” ACO accepts the potential for loss over all three years of the program in exchange for the possibility of greater shared savings.

The “C” is for Cooperation

The key to a successful ACO is collaboration and cooperation among member organizations. Providers eligible to join together and form an ACO include some combination of hospitals, large multi-specialty physician groups, or networks of smaller physician practices. No matter what the composition, ACOs must serve at least 5,000 Medicare beneficiaries and need enough primary care professionals to care for a patient population of that size – and 5,000 is not that big.

Is Johnny Getting Better?

Experts agree ACOs need a pretty big patient pool to get a fair and statistically accurate picture of care quality data and patient outcomes – especially since ACOs will earn financial incentives based on this quality and performance data. Quality measures include preventive care and screening for at-risk populations, patient experience, care coordination, compliance with federal standards for the use of health information technology, and reduced rates of hospital acquired infections (see the full list here).

Wired Up, Ready to Go

Effective health information technology (IT) is the foundation of a successful ACO. All participating providers must be able to share patient data, meaning they must all be wired with electronic health records (EHRs) that are compatible and able to communicate efficiently. As mentioned above, an ACO’s quality score will depend on compliance with federal standards for health IT, known as “meaningful use.” These standards are in the process of refinement (read more here), but they essentially call for health IT that improves patient care, records patient demographic information and vital signs, tracks medications, allergies, and diagnoses, and ensures important medical information is available to patients and providers upon request.

This week, several large health systems – Mayo Clinic, Geisinger, Kaiser Permanente, Intermountain Healthcare and Group Health – launched a pilot program to securely exchange data, the Care Connectivity Consortium. Successful data exchange across ACOs will help reduce waste, improve patient safety, and streamline treatment. For example, if an ACO patient walks into their local hospital, doctors will be able to see the patient’s medical history, recent test results, and medication allergies immediately through their EHR, no duplicative procedures, paperwork or guessing necessary.

Job Creation for Lawyers

Under the new rules, ACOs must be integrated into a legal entity capable of collecting payments and distributing them fairly. Many providers in a certain area working together to coordinate care can be a good thing that improves patient health, but it can also give that provider group a lot of power over the local marketplace. Current antitrust laws are intended to prevent such concentrations of power, so, for example, a single entity does not have unlimited power to set and control prices.

Similarly, ACOs must be careful to delineate between kickback payments for cutting or withholding care (illegal) and bonus payments for improving quality and reducing wasteful care (the goal of ACOs). The CMS Office of the Inspector General (OIG), the Department of Justice (DOJ) and the Federal Trade Commission (FTC), and the Internal Revenue Service (IRS) also released complimentary rules and guidance for navigating the legal barriers to ACOs. ACOs may be able to waive certain antitrust, fraud and abuse laws (within reason), so long as they maintain transparency and achieve their cost and quality goals.


The Medicare Shared Savings Program will begin January 1, 2012. This payment and coordination experiment with ACOs is an important test case for improving quality and lowering costs. Still, many experts believe that if the ACO concept takes off it will be because the private sector invested in this payment reform.

2011-04-08 00:00:00

Read Next