ACO Special Report: The right medicine for our ailing health system?

June 25, 2011

The proposed accountable care organization regulations arrived on March 31 and have caused much strife and speculation in the medical and legal communities in recent months.

The proposed accountable care organization (ACO) regulations arrived on March 31 and have caused much strife and speculation in the medical and legal communities in recent months.

According to the preamble preceding the proposed ACO regulations, CMS will save $510 million during the first 3 years of operation. Other sources have indicated projected savings up to $960 million. The estimates for the subsequent bonuses to ACOs range from $560 million to $1.13 billion in that same time period.

How accurate are these projections? Many experts believe that the numbers are inflated and inaccurate and that many potential factors have not been considered. The ACOs essentially will be new businesses, and a very real danger exists that many of them simply will fail. They may not be able to pull together the internal management and information technology (IT) systems required. They may not be able to successfully meet the 65 quality-of-care markers imposed on them. Or they may just not be able to generate the savings required to turn a profit.

The only external group with a stake in these ACOs will be the government, which is working "without a net." If an ACO fails, the government will suffer some of that loss. Taxpayers will not want the government to "bail out" ACOs that are failing, but pressure from patients, physicians, and investors may prove too strong. This scenario has played out before: In the 1990s, millions of dollars in losses occurred when practice management companies boomed, and then dramatically busted, at the great expense of thousands of physicians.

Remember, before any of the promised savings are realized, a multitude of requirements must be met:

5,000 PATIENTS, AND ONLY PRIMARY CARE PATIENTS COUNT

Each ACO will be required to have 5,000 or more primary care Medicare patients, and only primary care patients count. Patients of a specialist who are not "signed on" with one of the ACO's primary care physicians (PCPs) will not be included as ACO patients for the 5,000 patient requirement or for financial reward purposes. If at the end of a year the ACO does not have enough patients, it has a 1-year grace period to correct this issue. If at the end of the grace period year the ACO's population has not reached at least 5,000, then the arrangement will be terminated and the ACO will not be eligible to share in savings for that year.

Although 5,000 patients generally is the minimum required to be in the program, ACOs will want to have more patients, because the minimum savings rate that an ACO must achieve to receive payments under the program is lower if an ACO has more patients.

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