Face Up to the Reality of the ACO

By Marjorie Satinsky, MA, MBA

ACOs: The Underlying Concept

To briefly review…Accountable Care Organizations (ACOs) are provider-based organizations that assume the responsibility for meeting the healthcare needs of a defined population. They coordinate the treatment of patients across the continuum of care, and there’s an opportunity for participating providers to share financial gains and losses that are compared to benchmark data. ACOs target the Medicare population. Less important than this particular program is the underlying concept – that of shifting to value-based purchasing by both public and private payers. ACOs are just one brand of what will be many programs that have similar goals for defined populations, not necessarily Medicare beneficiaries.

Changes in the Final ACO Rule

The Final Rule made important changes to the ACO program. We’ve listed ten of them. The list is not exhaustive, so if you want to know more, refer to the CMS website information.

  1. How does the Final Rule change formation of and participation in ACOs?

Entities that are eligible to apply to CMS to qualify as an ACO and to participate in it now include Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs) as well as professionals in group practice arrangements, individual practices of ACO professionals that form a network, partnerships or joint ventures between hospitals and ACO professionals, hospitals that employ ACO professionals, and certain critical access hospitals.

  1. The Proposed Rule offered ACOs two tracks for financial risk-sharing over a three year period. Does the Final Rule change these two options?

The Final Rule offers ACOs a choice of two tracks, only one of which involves risk. Under Track 1, which is called a one-sided model, ACOs share savings for the full term of the initial agreement period and may earn up to 50% of the savings based on quality performance. There’s a ceiling on the payment amount of the savings – 10% of the applicable year’s Part A and Part B updated benchmark. ACOs that begin participation under Track 1 and decide to continue participation in the program beyond the term of the first agreement must switch to Track 2.

Track 2 is a two-sided model that requires ACOs to share in both savings and losses. ACOs that begin the program under Track 2 and continue participation remain in Track 2. These ACOs can share in a higher percentage of savings – 60% – and their payment ceiling is 15% of the applicable year’s Part A and Part B updated benchmark. There’s a Minimum Loss Rate (MLR) of 2%, and a flat 2% Minimum Savings Rate (MSR) for these ACOs. Once an ACO achieves or exceeds the MSR, it can share in first dollar savings – a change requested by many critics of the Proposed Rule. For Track 2 ACOs, there’s no change in the three year phasing in of any losses.

  1. How did CMS respond to many requests that it accelerate the start date of ACOs that were already well underway with their activities?

For 2012, the first year of the Shared Savings Program, CMS offered two application start dates, April 1, 2012 and July 1, 2012. ACOs that started in 2012 have agreement periods that terminate at the end of 2015. CMS made this change with several goals in mind. The addition of a second start date allowed ACOs to apply when ready. The new timing also meant that ACOs could immediately begin to receive historical and quarterly data and information on prospective beneficiaries assigned to them. They therefore had a better understanding of the population assigned to them than they would have had under the Proposed Rule. ACOs that begin in 2012 are eligible to receive PQRS financial incentive payments for each calendar year in which they fully and completely report the Group Practice Reporting Option (GPRO) measures. Thus they have the opportunity to gain some working capital right away. CMS’s final goal with this change was to prevent beneficiary double counting in those geographic areas with more than one ACO.

  1. Does the Final Rule change beneficiary assignment to an ACO? 

The Final Rule corrects several objectionable features of assigning beneficiaries to ACOs based only on allowed charges for primary care services provided by physicians in internal medicine, general practice, family practice, or geriatric medicine. The new process for assigning beneficiaries recognizes the role of specialists and certain non-physician primary care providers (e.g. nurse practitioners, clinical nurse specialists, and physician assistants) in providing primary care for some beneficiaries.

CMS also added a feature to beneficiary assignment to ACOs. The new methodology includes preliminary prospective assignment with final retrospective reconciliation. The Proposed Rule featured only prospective assignment, making it difficult for ACOs to know anything about the population for which they were responsible. With the new prospective feature, the ACO must request the information from CMS; the data is not provided automatically.

  1. Did the Final Rule change the calculation and distribution of shared savings?

This question has a two-part answer. First, the calculation of shared savings compares expenditures by the ACO with benchmark expenditures – i.e., those Medicare Part A and B fee-for-service expenditures of beneficiaries who would have been assigned to the ACO in any of the three years prior to the start of the ACO. There’s basically no change in the method of determining those prior year expenditures. Beneficiaries will still be divided into the categories of End Stage Renal Disease, disabled, aged/dual eligible Medicare and Medicaid beneficiaries, and aged/non-dual eligible Medicare and Medicaid beneficiaries. The methodology applies to Rural Health Canters and Federally Qualified Health Centers that are now eligible to form and participate in ACOs. There’s also no change in the notion of updating the benchmark expenditures to account for changes in severity and case mix.

A big change in the Final Rule is the allowance of ACOs participating in either Track 1 (sharing of only savings in years 1 and 2; sharing savings and loss in year 3) or Track 2 (sharing in both savings and loss for 3 years) to share in first dollar savings.

With respect to the distribution of shared savings, the Final Rule doesn’t change CMS’s intention to make savings payments directly to the ACO without dictating the way in which those savings should be distributed to ACO members. However, the Final Rule does remove a provision by which CMS would have withheld 25% of the savings to ensure repayment of future losses.

  1. If CMS establishes new program standards during the ACOs agreement period, must the ACO continue its participation?

Like the Proposed Rule, the Final Rule holds ACOs responsible for regulatory changes in policy, with exceptions of eligibility requirements, the structure and governance of ACOs, calculation of sharing rate, and assignment of beneficiaries. However, the Final Rule gives an ACO the flexibility to voluntarily terminate its agreement in instances where new regulatory standards during an agreement period are likely to impact the ACO’s ability to participate in the shared savings program.

  1. Does the Final Rule recognize the possibility that an ACO may experience “significant changes” during an agreement period?

Yes – and the changes made in the Final Rule are significant. ACO participants and suppliers can now be added or subtracted during the period of the agreement. CMS must receive notice within 30 days. If a change is significant and results in an ACO’s inability to meet eligibility or program requirements, again CMS requires 30 days notice. Here are two hypothetical scenarios. If a large primary care group terminated its relationship with the ACO, the ACO might not be able to meet its requirement for a minimum of 5,000 beneficiaries. In this type of case, the ACO might need to terminate its agreement.In a different type of situation, a change might require an adjustment to the ACO’s benchmark but still allow it to continue participating in the program.

  1. Does the Final Rule make any major changes to the anti-trust requirements in the Proposed Rule?

The Proposed Rule contained an Antitrust Policy Statement that would have mandated review by the Antitrust Agencies of certain ACOs before CMS would approve their participation in the Shared Savings Program. Under the Final Rule, ACOs are not required to obtain such a letter, and if they do obtain one, acceptance into the ACO program is not contingent upon the contents of the letter from the Antitrust Agencies. As suggested in
comments to the Proposed Rule, CMS will provide the Antitrust Agencies with data and information that is sufficient for them to identify potentially anticompetitive conduct. The result of the change is an expedited review process for ACOs and additional cooperation with the Antitrust Agencies by CMS.

  1. Does the Final Rule change the quality measures contained in the Proposed Rule?

There are two important changes in the quality measures. First, the Final Rule reduced the number of quality measures from 65 to 33 and eliminated one of the categories. The four categories of measures, called domains, now include Patient Experience of Care, Care Coordination/Patient Safety, Preventive Health, and At-Risk Population. Within each domain, ACOs must report all measures and score above the minimum attainment level as determined by CMS on 70% of the measures. Second, an ACO’s receipt of shared savings is no longer contingent on meeting the quality performance thresholds for all of the proposed measures. ACOs that achieve the minimum requirement level for at least one measure in each of the four domains and satisfy the requirements for realizing shared savings can receive that portion of the shared savings for which they qualify.

  1. Does the Final Rule require that 50% of an ACO’s primary care physicians be determined to be meaningful use EHR users by the start of the second performance year in order to participate in the shared savings program?

No. A minimum level of EHR meaningful use by primary care physicians is no longer a condition of participation. Nonetheless, EHR use is still part of quality measurement and will be weighted higher than other measures with respect to quality scoring.


Margie Satinsky, MA, MBA is a Consultant for InGauge Healthcare Solutions.   Contact her for consulting services at margie.satinsky@ingaugehsi.com.  Efficiency in Practice is the free eNewsletter for medical practice managers who want to save time, money and reduce risk.  For more information and to access your FREE report, Patient Collections: It’s Make or Break for Many Practices, visit www.efficiencyinpractice.com 

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