Final ACO Regulation Relaxes Requirements

On Thursday, October 19^th, the Obama Administration released its final regulations on Accountable Care Organizations (ACOs), networks of doctors and hospitals that are rewarded under a Medicare pilot program for delivering higher-quality, coordinated care to Medicare patients at lower cost.  ACOs that achieve these goals are permitted to keep a share of the savings they produce. 

Proposed ACO regulations were issued last April, but health care providers said the rules were too burdensome, put too much at risk and contained too few incentives to make them workable. As a result, federal regulators made extensive changes to the regulation to make ACOs more attractive. 

For example, the proposed regulations insisted that all ACOs be exposed to the risk of losing money if they failed to meet cost-saving goals.  Under the new rules, more cautious ACOs can choose to participate in the pilot program under an option where there is no adverse consequence if they fail to adequately control costs (of course, these ACOs won’t receive the rewards they would have received, had they achieved the targeted cost savings). 

In addition, federal regulators have adjusted the formula for calculating the proportion of savings that ACOs can keep, in order to given them a greater share, and cut in half the number of quality standards ACOs must meet (from 65 to 33 standards).

Here’s how an ACO would work for Medicare patients:  They will be assigned to an ACO based on who their doctor is.  If a patient’s doctor is part of an ACO, that patient is automatically included, although the patient can choose to not be included by opting to keep his or her records outside the ACO system.  Unlike patients in Medicare HMOs, patients in ACOs are free to visit any health care provider, just as they are in the traditional Medicare program. 

The final regulation changed the way Medicare beneficiaries will be assigned to ACOs.  Instead of assigning beneficiaries at the end of a year based on which doctors gave them the most care, beneficiaries will now be preliminarily assigned at the beginning of a year, with the Medicare program making adjustments at the end of the year based on where the beneficiaries actually received most of their medical care.

 Other modifications made in the final regulation are:

 Greater flexibility in the governance and legal structure of the ACO;

• Allowance for community health centers and rural health clinics to lead ACOs;
• Authority for federal authorities to supply financial assistance to physician-owned and rural health care providers to help them invest in care coordination;
• An easing of requirements that participating ACOs use electronic medical records;
• Allowance for greater flexibility in anti-trust review (i.e., one of the concerns related to ACOs is that they may reduce competition among healthcare providers in the area in which the ACOs are operating);
• Greater flexibility in repayment of losses for providers who agree to assume the additional risks of cost overruns (in return for bigger rewards if they attain cost-containment and quality targets);
• A softening of quality reporting requirements; and
• Changes that allow ACOs to share in attained cost savings earlier.

Michael Millenson, president of Health Quality Advisors LLC compared CMS’s rule on ACOs to a poker game.  The initial proposed rule, he said was “too complicated, the money wasn’t very good and the cost to enter the game was way too high.  What they’ve done in the final rule is they’ve simplified the rules, they’ve sweetened the pot and they’ve opened up a few new chairs.”

Regulators estimate that between 50 and 270 ACOs will be formed in the next three years, affecting the care of 2 million of the 47 million Medicare beneficiaries. If the program proves successful in fostering more effective and efficient, less costly and higher quality health care, it seems certain the concept will be adopted on a wider scale in the non-Medicare context.