Accountable Care Organizations

Bookmark and Share

Despite the intense focus upon the individual mandate, perhaps the most revolutionary aspect of the Patient Protection and Affordable Care Act (“Act”) is the little-discussed establishment of Accountable Care Organizations (“ACOs”). Section 3022 of the Act obligates the Department of Health & Human Services to establish a Shared Savings Program.[1] Under this Program, doctors, hospitals and other health care providers can work together to manage and coordinate care for individuals enrolled in Medicare Parts A and B (i.e. traditional feefor- service Medicare beneficiaries).[2] ACOs that meet quality standards established by the Centers for Medicare and Medicaid Services (“CMS”) and achieve a specific level of savings are eligible to receive a share of those savings.[3]

Brendan Sanchez

Brendan Sanchez

The cost savings achieved by ACOs, if any, will be the result of integrating the various components required to care for a patient. At its most basic, an ACO is a network of doctors, hospitals, and other Medicare providers and suppliers that agree to manage the totality of health care needs for at least 5,000 Medicare patients. By integrating their clinical and administrative systems, ACOs arguably should run more efficiently and realize certain costs savings as a result of those efficiencies. In addition, the quality standards established for ACOs, which emphasize preventative care and treatment for at-risk patient populations, arguably should improve patient health, thereby reducing overall expenditures.

I. Requirements for Participation in Shared Savings Program

On April 7, 2011, CMS issued a proposed rule that would implement the Shared Savings Program. The proposed rule defines an ACO in terms similar to those set forth in the Act. Specifically, an ACO is defined as a “legal entity that is recognized and authorized under applicable State law,” comprised of an eligible group Medicare-enrolled providers and suppliers of services “that work together to manage and coordinate care” for Medicare Parts A and B patients.[4]

The Medicare-enrolled providers and suppliers eligible to form or join ACOs are identified in the Act and include:

(i) ACO professionals in group practice arrangements (ACO professionals include physicians, practitioners and hospitals, as defined by sections 1861(r)(1), 1842(b)(18)(C)(i) and 1866(d)(1)(B) of the Social Security Act respectively);

(ii) Networks of individual practices of ACO professionals;

(iii) Partnerships or joint venture arrangements between hospitals and ACO professionals;

(iv) Hospitals employing ACO professionals; and

(v) Other providers and suppliers, as determined by the Secretary of the Department of Health and Human Services. [5]

Eligible providers and suppliers must submit an application to CMS requesting designation as an ACO.[6] As part of the application process, ACOs must enter into an agreement to participate in the Shared Savings Program for at least three years and demonstrate their ability to serve at least 5,000 Medicare patients.[7] In addition, ACOs must establish “a leadership and management structure” that encompasses clinical and administrative systems.[8]

II. Quality Performance Standards and Reporting

ACOs will be held accountable by the Medicare program for the quality of care provided to their Medicare patients.[9] Under the Act, CMS is tasked with establishing quality performance standards designed to assess the quality of care furnished by ACOs.[10] CMS’s proposed rule identifies 65 measures developed to promote better care for individuals and better health for populations.[11] These measures are categorized within five “quality domains,” which include the patient/caregiver experience, care coordination, patient safety, preventative health, and at-risk population health. [12] (The at-risk population health quality domain focuses upon six categories of at-risk patients: patients suffering from diabetes, heart failure, coronary artery disease, hypertension and chronic obstructive pulmonary disease, and the frail elderly). [13]

To determine whether an ACO complies with the various quality measures, CMS must review relevant data gathered by ACOs. Consequently, the Act obligates ACOs to “submit data in a form and manner specified by the Secretary [of the Department of Health and Human Services]” regarding those measures deemed necessary to evaluate the quality of care furnished by the ACO.[14] According to CMS, much of data required to assess compliance with these quality measures is already gathered under the claims-based reporting systems already in place.[15] However, ACOs will be obligated to collect additional data (and perform surveys to collect such data) for certain quality measures.

CMS will assign a score rating to an ACO’s compliance with each individual quality measure and tally these scores based upon quality domain. [16] The resulting five quality domain scores will be combined (using a weighted formula determined by CMS) to arrive at a total performance score.[17] This score will determine whether an ACO is eligible to share in any savings.[18] For the first year of the Program, ACOs will be considered to have met all individual quality measures if they have satisfied their reporting requirement. [19]

III. Shared Savings and Losses

Under the Shared Savings Program, providers and suppliers who have joined an ACO will continue to receive fees for services and items as contemplated by the current Medicare payment system.[20] But to share in any savings realized by the Medicare program, the ACO must, on a yearly basis, (1) meet the quality standards established by CMS and (2) achieve total per capita costs for Medicare patients participating in the ACO that are a certain percentage less than a benchmark established by CMS.[21] (This certain percentage of savings has been termed the “minimum savings rate” by CMS and will be adjusted for variations in health care spending. [22])

CMS has proposed two “risk” models for participation in the Shared Savings Program that would impact the total percentage of savings that could be achieved by an ACO. The one-sided risk model allows an ACO to share in savings for the first two years of program participation and share in savings and losses in the third year; ACOs participating in the one-sided model can share up to 50 percent of any savings realized. [23] The two-sided risk model allows an ACO to share in savings and losses for all three years of Program participation; ACOs who adopt this model can share up to 60 percent of savings.[24] According to CMS, ACOs may choose which risk model to follow. [25]

As the risk models suggest, ACOs not only share in savings but losses too. Where the per capita cost per Medicare patient is more than two percent higher than the benchmark set by CMS, ACOs will be liable for a share of the losses.[26] Under the proposed rule, the amount of losses to be shared per year would be capitated (although variable based upon the whether the loss occurs in the first, second or third year of Program participation) and depend, in part, upon the ACO’s overall performance score.[27]

To proponents of the Shared Savings Program, ACOs represent a rare opportunity to improve patient care while lowering costs. Although shared savings incentivize ACOs to cut costs, quality performance metrics and other requirements placed upon ACOs—including obligations to promote evidence-based medicine and patient engagement—arguably prevent saving from being achieved by limiting access to care.[28]

It is not, however, altogether clear whether ACOs will be able to achieve demonstrable savings while meeting the benchmarks for quality established by CMS. Given that the quality benchmarks limit the opportunities for ACOs to cut costs, savings will have to be achieved, in the main, through efficiencies gained via integration and preventative medicine.

In addition, the prospect of substantial integration resulting from ACO formation has the perverse potential to undercut savings. By accelerating hospital mergers and provider consolidation, many critics of ACOs argue that ACOs could reduce competition and drive up health costs.[29] Indeed, significant concerns have been raised as to whether ACOs might violate antitrust law.[30]

It thus remains to be seen whether ACOs permanently alter the health care delivery model or are simply remembered as yet another failed experiment.


- Brendan Sanchez is an associate attorney at the Ware Law Group. Brendan represents hospital medical staffs in a broad array of health law issues including credentialing and peer review, bylaws matters, medical staff policies and procedures, physician hearings and appeals, mandated reporting, disabled and impaired physicians, and patient care issues.


[1] 42 U.S.C. §1395jjj(a)(1).
[2] Id.
[3] 42 U.S.C. §1395jjj(d). See also Centers for Medicare and Medicaid Services, Fact Sheet – What Providers Need to Know: Accountable Care Organizations (April 2011), p. 3 (http://www.cms.gov/MLNProducts/downloads/ACO_Providers_Factsheet_ICN903693.pdf)
[4] Federal Register Vol. 76, No. 67 (April 7, 2011), 19537.
[5] 42 U.S.C. §1395jjj(b)(1). Note that the proposed rule developed by CMS would permit the participation of Critical Access Hospitals in certain circumstances. Please see Federal Register Vol. 76, No. 67 (April 7, 2011), 19539.
[6] Centers for Medicare and Medicaid Services, Fact Sheet – What Providers Need to Know: Accountable Care Organizations (April 2011), p.2 (http://www.cms.gov/MLNProducts/downloads/ACO_Providers_Factsheet_ICN903693.pdf)
[7] 42 U.S.C. §1395jjj(b)(2).
[8] Id.
[9] 42 U.S.C. §1395jjj(b)(2).
[10] 42 U.S.C. §1395jjj(b)(3)(C).
[11] Federal Register Vol. 76, No. 67 (April 7, 2011), 19569-19586.
[12] Federal Register Vol. 76, No. 67 (April 7, 2011), 19594.
[13] Federal Register Vol. 76, No. 67 (April 7, 2011), 19569.
[14] 42 U.S.C. §1395jjj(b)(3)(B).
[15] Federal Register Vol. 76, No. 67 (April 7, 2011), 19592.
[16] Federal Register Vol. 76, No. 67 (April 7, 2011), 19593.
[17] Id.
[18] Id.
[19] Federal Register Vol. 76, No. 67 (April 7, 2011), 19569.
[20] Centers for Medicare and Medicaid Services, Fact Sheet – What Providers Need to Know: Accountable Care Organizations (April 2011), p.2 (http://www.cms.gov/MLNProducts/downloads/ACO_Providers_Factsheet_ICN903693.pdf)
[21] 42 U.S.C. §1395jjj(d)(1)(B)(i).
[22] Federal Register Vol. 76, No. 67 (April 7, 2011), 19611-19613. See also Centers for Medicare and Medicaid Services, Fact Sheet – What Providers Need to Know: Accountable Care Organizations (April 2011), p. 3 (http://www.cms.gov/MLNProducts/downloads/ACO_Providers_Factsheet_ICN903693.pdf)
[23] Federal Register Vol. 76, No. 67 (April 7, 2011), 19603.
[24] Federal Register Vol. 76, No. 67 (April 7, 2011), 19616-19619.
[25] Centers for Medicare and Medicaid Services, Fact Sheet – What Providers Need to Know: Accountable Care Organizations (April 2011), p.3 (http://www.cms.gov/MLNProducts/downloads/ACO_Providers_Factsheet_ICN903693.pdf)
[26] Id.
[27] Id. at 3-4.
[28] 42 U.S.C. §1395jjj(b)(2)(G).
[29] Jenny Gold, “Accountable Care Organizations, Explained,” National Public Radio (January 18, 2011) (http://www.npr.org/2011/04/01/132937232/accountable-careorganizations-explained).
[30] Jenny Gold and Phil Galewitz, “Health Care Providers, Insurers: Accountable Care Organizations Bring Legal Worries,” Kaiser Health News (October 5, 2010) (http://www.kaiserhealthnews.org/Stories/2010/October/05/accountable-care-organizations.aspx?p=1)

Filed Under: Featured

Tags:

RSSComments (0)

Trackback URL

Comments are closed.