The Centers for Medicare and Medicaid Services (CMS) issued draft, proposed rules on March 31 on requirements and payment incentives for accountable care organizations (ACOs), the centerpiece of the Medicare “shared savings” program that will be implemented on January 1, 2012 under section 3022 of the Affordable Care Act (ACA). ACOs are legally constituted entities investing in and using the infrastructure necessary to promote more efficient, coordinated, high quality care across multiple provider sites (e.g., electronic health record reporting systems enabling the ACO to evaluate patterns of care quickly and to provide immediate positive or negative feedback to involved practitioners). 

The proposed rules show how collaborative teams of hospitals, physicians, and other medical professionals agreeing to participate in ACOs may qualify for Medicare incentive payments if they collectively achieve savings targets as well as quality and performance benchmarks. Savings targets are subject to case mix adjustments and other variables. Each provider participating in an ACO will continue to receive Medicare Part A and Part B fee-for-service payments from Medicare fiscal intermediaries and carriers in the usual manner but the ACO will receive incentive payments from Medicare as a percentage of actual Medicare savings and the ACO may disburse a portion of Medicare incentive payments to participating providers under the terms of agreements negotiated between the ACO and each participant.  

The proposed rules provide for participation in ACOs of important provider types that were omitted from section 3022 of the ACA, such as Critical Access Hospitals, Federally Qualified Health Centers, and Rural Health Clinics.  The proposed rules permit a wide variety of ACO arrangements (partnerships, joint ventures, group practices, etc.) within a framework of appropriate core competencies, governance, reporting capabilities, and authorization under state law. ACOs must have the capacity to serve at least 5,000 Medicare beneficiaries, agree to participate in the Medicare shared savings program for at least three years, and have well-defined processes to promote evidence-based care, care coordination, and accurate reporting of cost and quality data. Recent studies have indicated that ACO start-up investments will be substantial for many organizations, with financial break-even points at or beyond the third year of ACO operations, but successful MCOs have often faced that also. The proposed rules address Medicare incentive payments only but participation in ACOs is open to Medicaid recipients, dually entitled recipients, and others.  State Medicaid agencies may consider contracting directly with ACOs also.  Official publication in the Federal Register is expected by April 7, with a 60 day period for public comments.