After the ACO regulations: Accountable care organization answers

by Jeffrey L. Cohen

Patient centeredness, fragmentation and value based purchasing are just a few of the terms that are peppered throughout the newly proposed regulations for accountable care organizations (ACOs).

The healthcare reform law established the Medicare Shared Savings Program for ACOs as a key way to accomplish its two core objectives: (1) reduce healthcare costs, while (2) preserving and improving quality. Like most new legislative ideas, the ACO regs raise lots of questions.

Who can become an ACO?

Answer: Pretty much any legal entity that complies with state law, has a tax ID number, applies sucessfully and which:

  1. Agrees to participate for three years;
  2. Cares for 5,000 Medicare patients;
  3. Is prepared to receive and distribute shared savings;
  4. Is prepared to repay shared losses (if it takes economic risk);
  5. Establishes reporting, and ensures ACO participant and ACO provider/supplier compliance with program requirements, including the quality performance standards;
  6. Has shared governance that provides all ACO participants proportionate control over the ACO’s decision making process and includes Medicare patient representatives;
  7. Is operated and directed by Medicare-enrolled entities that directly provide health care services to Medicare patients. ACO participants (e.g. physicians, hospitals) must have at least 75 percent control of the ACO’s governing body;
  8. Has sufficient primary care physicians to meet the primary care needs of the ACO patients;
  9. Has administrative and clinical organization and leadership;
  10. Is patient-centered though the use of such things as patient assessments and individualized care plans; and
  11. Is subject to substantial monitoring and reporting requirements, including public reporting of quality data to ensure transparency.

Examples in the regs of organizations that might qualify as ACOs include:

  • Group medical practices
  • Networks of group practices (e.g. IPAs)
  • Partnerships of joint ventures between hospitals and physicians (e.g. PHOs)
  • Hospitals employing physicians
  • Anything else that accomplishes the objectives of the Act

Psychiatric hospitals, long term care facilities, rehab hospitals, and children’s and cancer hospitals are not eligible for ACO participation. Additionally, examples in the regs of organizations that are not identified as being able to even participate in the Shared Savings Plan include:

Federally qualified health centers, rural health centers, skilled nursing facilities, nursing homes, long-term care hospitals and critical access hospitals.

Why become an ACO?

Answer: Though an organization may have many motives for becoming an ACO, like protecting market share, the chief incentive seems to be money. If an ACO can deliver high quality care and can reduce the rate of projected cost increase (“value-based purchasing”), it can share in the Medicare savings. ACOs which meet the cost and quality benchmarks to be established by the government (not yet established), will be eligible to participate in shared savings (to a specified amount). ACOs will elect to participate in one of two models: (1) “one-sided risk sharing,” which means the ACO is able to get some savings with no risk of loss for two years, but must accept some risk in the third year; or (2) “two-sided risk sharing,” which means the ACO is eligible to get more savings if they take the risk of loss in the first year. Those which take financial risk right away, there is a proposed 25 percent withhold of shared savings in order to offset any future losses under the two-sided model.

Does an ACO have to enroll in the Medicare program?

Answer: The ACO itself is not required to enroll, but the ACO participants (e.g. physicians and hospitals) must be.

What role do Medicare patients have in the ACO?

Answer: Plenty. Medicare patients have the choice to participate in an ACO or not. they have to be notified that they are participating in an ACO and they have the right to refuse to allow their claims data being shared within the ACO.

What role does primary care play in ACOs?

Answer: A huge one. The regs require assignment of Medicare patients based on their primary care utilization. The regulators are clear in the regs that primary care professionals (defined as family physicians, internists, geriatric physicians, pediatricians and the nurse practitioners, physician assistants and clinical nurse specialists who work with them) have the best opportunity to reduce costs and to improve quality. “Primary care professionals may have the best opportunity to reduce unnecessary costs by ensuring care coordination for beneficiaries with multiple chronic conditions. By coordinating with specialists to whom the beneficiary has been referred, primary care providers can reduce unnecessary repetition of laboratory testing or imaging. By ensuring timely access to the outpatient services, primary care providers can also reduce the number of avoidable admissions.” These are extraordinary statements, which reflect a clear preference for an expanded role of primary care (albeit watered down through the use of non physicians in light of the primary care physician shortage) in the delivery of healthcare. The most telling comment of regulators: “The savings generated by ACOs, in many cases, are expected to result from reduced inpatient admissions.”

What about all the legal hurdles faced by ACOs?

Answer: The government is working across Department lines to facilitate the roll out of ACOs. A joint notice from the OIG and CMS has stated that they will issue waivers from certain laws (like Stark and the Anti Kickback Statute “AKS”) to ACOs participating in the Medicare Shared Savings Program. Their proposal is to waive certain provisions of the AKS in two scenarios—

  1. Distributing shared savings received by an ACO from CMS (a) to or among ACO participants, ACO providers/suppliers and individuals who were during the year in which shared savings was earned, or (b) for activities necessary for an directly related to the ACO participation in and operations under the Medicare Shared Savings Program; and
  2. Any financial relationship between or among the ACO, ACO participants and ACO providers, suppliers, etc. for an directly related to the ACO’s participation in ands operations under the Medicare Shared Savings Program that implicates the Stark Law and which fully complies with the Safe Harbors.

As far as the anti trust issues are concerned, an exception or “Safety Zone” for ACOs has been proposed. First, the Justice Department has stated that they will use the more malleable “rule of reason” analysis when reviewing ACOs. Conceptually speaking, DOJ has publically stated that they will seek to support organizations which accomplish the law’s two core objectives—lower cost and improve quality. More specifically, DOJ has said “[they] will not challenge an ACO that otherwise meets the CMS criteria to participate in the Shared Savings Program if ACO participants that provide the same service (common service) have a combined share of 30 percent or less of each common service in each ACO participant’s Primary Service Area (PSA), wherever two or more ACO participants provide that service to patients from that PSA.” They have even allowed for the possibility of ACOs where the combined PSA share would exceed 30 percent in saying “an ACO outside the Safety Zone may proceed without scrutiny by the Antitrust Agencies if its combined PSA share for each common service, wherever two or more ACO participants provide that service to patients from that PSA, is less than or equal to 50 percent. An ACO in this category is also highly unlikely to present competitive concerns if it avoids certain specified conduct. The Antitrust Policy Statement explains, however, that for ACOs that do not meet the Rural Exception, a combined PSA share for common services of more than 50 percent provides a valuable indication of an ACO’s potential for competitive harm.” DOJ is proposing an expedited review process for ACOs; and we can expect many ACOs to line up for the review process.

What now?

Answer: The proposed regs are proposals at this time. Comment and input is sought and should be provided by May 27, 2011 on a large array of questions posed in the regs, including:

  1. The kinds of providers/suppliers proposed as ACO participants;
  2. The benefits or concerns regarding including certain provider/supplier types;
  3. The administrative measures to implement and monitor certain partnerships;
  4. Operational issues associated with the proposed regs.


The proposed regs are not shocking in any way. In fact, they are completely in line with statements from key government regulators since the healthcare reform law was passed. That said, there are very core issues that need to be worked out, most significantly the quality and financial metrics that will be tied to shared savings. As far as the public “buy in,” that is hard to tell. First, given the enormity of the change being teed up, patients will require loads of information and reassurance. Second, there is the “guinea pig” factor. Will Medicare patients flock to new payment/deliver models or will they wait it out to see how it works out? It is one thing to say there is a need to slow the rate of cost increase. It is another to throw oneself into new healthcare delivery models, even with the stated protections in the proposed regs to, for instance, terminate ACO participation of ACOs that improperly incentivize reduced care.

Where physicians and hospitals are concerned, many of the key challenges remain. Though the proposed regs require collaboration between ACP participants, including at the level of governance, ACOs led by hospital systems will do best when they (1) have a collaborative relationship with their medical staffs, and (2) have a strong primary care base (either as employees or another affiliation model like an IPA). Moreover, the paradigmatic shift necessary to take advantage of the shared savings opportunity is a huge one. Many hospitals have taken a defensive posture in the face of reform by shoring up their in-house services (e.g. open heart) with employed specialists and still link profitability to census. Hospitals that can take advantage of the opportunity will view primary care physicians as a tremendous asset and will view patient admissions with more skepticism.

Physicians who look for the opportunities in the new law will find them everywhere. Though primary care physicians are a particularly empowered lot in the proposed regs, the ACO structure is flexible enough to allow large specialty practices to plug in. The role of IT is locked into the proposed regs, and it seems clear that data is power. Physicians who embrace the cost/quality linkage have the most to gain.

There is a huge question about the impact of the federal moves on the commercial insurance market. The commercial market will likely watch the government spend the time and money on developing the models, then implement the same sorts of structures if they in fact do bring down cost and improve quality.

There are huge questions to tackle, like what the cost/quality metrics will be that entitle an ACO to share savings and how much and also how state insurance regs match up with financial risk sharing. The only serious remaining questions are not the government’s resolve to pushing the healthcare reform agenda forward, but rather (1) how much the public is willing to pay for it and for how long, and (2) whether the outcomes will be worth the investment. Only time will tell, lots of it.

In the midst of the huge shift healthcare is facing, it is easy to see all of the marketplace through the single lens of healthcare reform. Businesses which gain the most will appreciate the complexity of their own local market and will continue to assess where alternate models, like concierge practices, fit. The Medicare patient population relevant to ACOs will likely not be a one size fits all population and neither will the commercial and purely proprietary markets.

Jeffrey L. Cohen provides legal counsel for the Florida Medical Association, and can be reached at The Florida Healthcare Law Firm.

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  • Doc D

    Why don’t ACO authors talk about the results of the ACA demonstration project? All the physician groups cherry-picked to participate suffered investment losses, and earned little in shared savings over 3 yrs. See the New England Journal, Mar 23, 2011 (10.1056/NEJMp1100950).

  • doc99
  • Tim Richardson

    A watering down preference for physicians may be just what the doctor ordered in order to save money under Medicare ACO’s.

    When expensive specialty consultations fail to deliver the same benefit that diet and exercise can provide, primary care doctors will have to turn to physical therapists and dietitians.

    Primary care is underpaid at $191,000 (median) per year but even they don’t have the time nor the skills to implement lifestyle modifications that promise bigger long term benefits than most medications and surgeries.

    Physical therapists can also provide primary care services, using HIT-supported clinical decision rules to screen for pneumonia, stroke, DVT, long bone and spinal fracture, and chest pain best treated in the ICU.

    Nurses and PA’s already do these things but are hampered by physicians’ organizations blocking their scope of practice in state legislatures.

    I wish I could express myself with more collegiality but I see the biggest hurdle to ACO success as resistance by self-interested physicians, not patient concerns.


  • Tom

    The most important question hasn’t been addressed above: Who benefits? Not physicians, and likely, not patients. As Doc99′s article points out, it will be the lawyers and consultants, making money off our work… ..again.

    ‘I see the biggest hurdle to ACO success as resistance by self-interested physicians”

    Self-interested physicians? Maybe it’s time we took an interest. I fail to see why we should be forced to sit idly by as outside parties slash our pay again and again, all the while adding new, more byzantine regulations and care structures on top of actual patient-centered documentation.

    We are being told that we must accept cuts to our reimbursement for the public good. Funny, I don’t see anyone else doing so, and all the while, public employee salaries are going up and up. We are being driven out of business in the name of public good. Well, what is the replacement? ACOs? It won’t work, you know. HMOs failed, as I recall, and I don’t see much difference between what’s proposed and the usual capitation fees.

  • alex

    “I wish I could express myself with more collegiality but I see the biggest hurdle to ACO success as resistance by self-interested physicians, not patient concerns.”

    Indeed, those ridiculous self-interested physicians. Opposing your innovative plans for physical therapists to use decision rules to provide primary care (?????).

    Aside from that laugher, let’s see some data on the cost savings provided by things like dietician consults. Oh, wait, it’s just another hand waving “holistic care must save money even if all actual evidence shows it costs more!” from the granola crowd. Oh, well. Why let reality interfere with a good belief system.

    • Tim Richardson

      A belief system seldom provides falsifiable data. Here’s some data for you.

      90% of care processes in healthcare are the kind of low-level decisions that can be made by nurses, physical therapists and physician assistants.

      Why do we want a $500,000 per year orthopedic surgeon examining a routine ankle sprain? Oh yes, because it drives volume.

      We do need Greg House, MD – but not for low-level decisions. And, we wont need as many specialists under Medicare ACO’s.

      Healthcare that physicians provide accounts for only 10% of “health” – the rest is lifestyle, genetics and environment. Yet, we allow 800,000 physicians to drive 17% of our economy.

      Why should I pay $806,000 per year for an American neurosurgeon when I can import foreign trained physicians for $200,000 per year?

      If physicians could persuade more Americans to eat their granola we’d have more “health” but we’d need less “healthcare”.

      Tim Richardson, PT

      • alex

        Are you seriously saying that random generalizations like “90% of care decisions can be made by nurses and PTs” are what you consider data? Sure it’s not 95%? Or 50%? Holy cripes. I know the joke about 95% of statistics being made up on the spot, but you’re not supposed to carry that over to arguments.

        Then you wander over into outsourcing, which is ridiculously tangential. Why pay 80k for an American PT when you can get one from India for 20k? Why pay 20 million dollars for an American CEO when you can get a Chinese one for 200k? Guess what – there is literally no job in America that shouldn’t be replaced by some random person from another country. Actually, if anything the argument for outsourcing PTs is better. No other country on earth has surgical training comparable to the US. The objective values like case numbers, teaching autonomy and work hours are through the roof compared to anywhere else (look into what surgical training consists of in, say, Germany). Pretty sure they’re using similar PT textbooks in China. Hmm…

        • Tim Richardson

          I agree – surgeons in the US are so good they feel like they can do surgery on healthy people who don’t need surgery.

          Then, they want to “kick ass” whenever some lesser mortal has the comeuppance to question their decision making:

          No, its time put orthopedic surgeons and other production line workers into a system that values their skills and rewards them appropriately. Commoditized? Sure, why not? Thirty stent replacements in one day? Super-human? Machine-like?

          I’ll bet you could train Physician Assistants using Six Sigma techniques to crank those out at far less cost than a cardiologist.

          Medicine is the only industry in the world where the worker controls both the supply and the demand.

          Most doctors probably went to medical school to help people but then they got caught up in the healthcare system. Its an unholy alliance of money and power that’s not healthy for anyone.

          Tim Richardson, PT

          • Tom

            The above is simply rank, bad-tempered speculation. Let’s take this one paragraph at a time.

            “surgeons in the US are so good they feel like they can do surgery on healthy people who don’t need surgery”. Sorry, this is the rare exception, rather than the rule, and is universally condemned. Further, you’re projecting on them your dislike of surgeons. How do you know what all surgeons feel?

            “its time put orthopedic surgeons and other production line workers into a system that values their skills and rewards them appropriately.” All, right, I agree, a free market system, free of government reimbursement and interference, is the best way to do this. Still, production line workers? Why the insult? Do you know anything about the complexities of surgery? Have you done a surgery? Have you done a stent?

            “I’ll bet you could train Physician Assistants…” Rank speculation, and uninformed, at that. There really is more to the job than just cutting, a fact seemingly lost on you.

            In a nutshell, you’re assuming an awful lot about motivations, training, and the healthcare system. Further, most of your assumptions are unwarranted. You occupy a safe position in healthcare, with little liability and little personal stake in the game. I don’t know that you have a good perspective on the field overall. Maybe you need to return to that collegiality you departed from with your initial post.


    @Tim Richardson

    1….you get what you pay for.

    2…it may be $200,000 for the first year. The second year is $500,000….the third year is $800,000…and now you have created another mouth to feed.

  • Pamela Wible MD

    Wow! ACOs make something so simple and pleasurable as providing patient-centered care so complicated and burdensome. Will be interesting to see how this all plays out. . .

    I think I’ll continue to provide ideal medical care as defined by my patients (

    Pamela Wible MD

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