The Centers for Medicare and Medicaid Services (CMS) issued final rules on October 20 on accountable care organizations (ACOs), the centerpiece of the Medicare “shared savings” program to be launched next year under section 3022 of the Affordable Care Act (ACA). CMS estimates that as many as 270 ACOs could be formed over the next three years, replicating models pioneered by distinguished medical organizations such as the Mayo Clinic (Minnesota), the Cleveland Clinic (Ohio), Intermountain Healthcare (Utah and Idaho), and the Geisinger Health System (Pennsylvania). CMS defines ACOs broadly as legal entities representing networks of physicians, hospitals, and other providers that agree to be held accountable financially for the quality and cost of care for fee-for-service beneficiaries. The first round of ACO applications will be due in early 2012, leading to ACO agreements of over three years duration that will be effective on April 1, 2012 and on July 1, 2012.  
    
The final ACO rules include major changes from the proposed rules released on March 31, which elicited over 1,200 comments. The proposed rules offered a “one-sided risk model”, under which ACOs would have an opportunity to earn “shared savings” incentive payments if they reduce Medicare Part A and Part B expenditures through more effective and efficient care; a “two-sided risk model”, under which ACOs could earn even higher bonus payments for savings if they also agreed to be at financial risk for potential losses; and two “tracks” for ACO participation, under which even the more gradual “track 1” would commit the ACO to adopt the “two-sided risk model” for year 3 of the program. The final rules drop that from “track 1”, a victory for potential ACOs that will need more time and experience under the program before they are ready to take on full risk under “track 2.”   

Other important changes in the final ACO rules include reducing the number of quality of care measures (from 65 to 33) that ACOs must report on and achieve in order to earn “shared savings” bonuses, creating a more generous algorithm for calculating the bonus amounts, and switching requirements on primary care physicians’ meaningful use of electronic health records from an ACO condition of participation to a quality of care measure (albeit a very strongly weighted one). CMS also clarified that Federally Qualified Health Centers and Rural Health Clinics, organizations that often serve communities with limited access to other ambulatory providers, will be eligible not only to participate in ACOs but to create and lead them. In a separate October 20 announcement, CMS unveiled an advance payment model under which physician-owned practices and small rural hospitals can receive $170 million (a pre-payment of “shared savings”) covering front-end investments necessary to participate in ACOs. CMS estimates that the federal portion of the Medicare “shared savings” will be a net $940 million over four years after payout of bonuses. The long range impact on the entire health care delivery system could be far greater. The final ACO rules address Medicare incentive payments only, but participation in ACOs will be open to Medicaid recipients, dually entitled recipients, and all other consumers. Blue Shield of California, which has already helped the California Public Employees Retirement System (CalPERS) save $15.5 million using ACOs, announced last week that it is awarding $20 million in additional grants to help 18 California-based medical organizations prepare to participate in ACOs.