ACOs and the Shared Savings Program: Some Common Misconceptions

October 1, 2010

Section 3022 of the Patient Protection and Accountable Care Act (the Act) creates the Shared Savings Program for Medicare. Under the Shared Savings Program, which is to take effect no later than Jan. 1, 2012, Accountable Care Organizations (ACOs) that meet certain requirements established by the Secretary of Health and Human Services will be eligible to receive additional payments from Medicare where certain performance guidelines are met and cost-savings targets are achieved. The amount of the additional payment will be a percentage of the difference between the estimated per capita Medicare expenditures for patients assigned to the ACO and the cost-savings per capita Medicare expenditures threshold.

While ACOs are often touted as the solution to many of the ailments of the current model of healthcare delivery for Medicare, including the need for enhanced quality, improved outcomes, better coordination of care, and greater cost-savings, there are many misconceptions about the Shared Savings Program and a growing list of questions about what form ACOs will take under the law.

The Centers for Medicare and Medicaid Services (CMS), which will be responsible for implementing the Shared Savings Program under the authority of the Secretary, has issued scant guidance on any specifics aside from a brief Preliminary Questions & Answers document posted on its website (the Q&A).

A number of unknowns exist at this time. This article tackles some of the common misconceptions about ACOs and the Shared Savings Program. In a second installment, we will address a number of unanswered questions about ACOs and the Shared Savings Program.

  1. ACOs do not necessarily have to involve a hospital. ACOs are defined by the Medicare Payment Advisory Commission as a set of physicians and hospitals that accept joint responsibility for the quality of care and the cost of care received by the ACO’s patients. Many confuse the concept of ACOs with the concept of payment bundling models involving hospital and physician services and hospital and physician integration efforts. While existing and developing ACOs often involve the integration of hospitals and physicians through contractual arrangements or employment of physicians, the Act and the Q&A make clear that, for purposes of the Shared Savings Program, group practices, physician networks, and networks of group practices can all be ACOs without including a hospital.
  2. There is not much detail available at this time about specific participation requirements for ACOs that want to participate in the Shared Savings Program, but the Act does specify some minimum requirements, including: having a formal legal structure that allows the ACO to receive and distribute payments for shared savings; having a leadership and management structure that includes clinical and administrative systems; and having a defined process to promote evidence-based medicine, report on quality and cost measures, and coordinate care. The Act also specifies that, in order to participate in the Shared Savings Program, an ACO will be required to enter into an agreement with the Secretary to participate for no less than a three year period. In addition, the ACO must be of a size sufficient to provide the bulk of primary care services to a minimum of 5,000 beneficiaries. As the rulemaking process with CMS proceeds, we will have more information about the particular characteristics that a given organization must have to participate in the Shared Savings Program.

  3. An ACO is not a "provider network." Beneficiaries assigned to an ACO are able to seek services from any Medicare provider and are not obligated to receive items and services from the ACO to which they are assigned. ACOs should expect that many of the beneficiaries assigned to them will seek services from providers not involved in the ACO, which will require effective means of coordinating care with non-ACO providers and suppliers.
  4. Participation in the Shared Savings Program is not mandatory. Physicians, hospitals, and other suppliers and providers that are not part of an ACO will still be permitted to participate in Medicare and receive the same fee-for-service payments as providers and suppliers that are part of an ACO. Also, physicians, hospitals, and other suppliers and providers can develop an ACO, but not participate in the Shared Savings Program. However, it is expected that many private payors will be encouraging the development of ACOs through a variety of different payment incentives and there is a growing body of literature to support the quality improvement, coordination of care, and cost-savings benefits of ACOs, so there may be other compelling reasons for physicians, hospitals, and other suppliers and providers to develop ACOs. It should be noted that, as amended by Section 10307 of the law, the Act allows CMS to give preference to ACOs that are participating in similar models with other payers, such as Medicaid and private payors.
  5. ACOs are not paid capitation under the Shared Savings Program (at least not yet). CMS has stated that ACO providers and suppliers will continue to receive traditional fee-for-service payments under Medicare Parts A and B. However, as amended by Section 10307 of the law, the Act allows CMS to employ alternative payment models, including partial capitation placing an ACO at financial risk for some, but not all, of Medicare Parts A and B items and services, such as some or all physicians’ services or all items covered under Part B. It is likely that, for the foreseeable future at least, CMS would limit a partial capitation model to ACOs that are highly integrated and capable of bearing risk.
  6. Neither ACOs nor providers or suppliers that are not ACOs will have their Medicare payments reduced as a result of the Shared Savings Program. Both ACOs and non-ACO providers and suppliers will continue to receive traditional fee-for-service payments under Medicare Parts A and B. A non-ACO provider or supplier will not receive lower fee-for-service payments as a result of not being part of an ACO and not participating in the Shared Savings Program. Similarly, providers and suppliers in an ACO that does not meet the quality performance standards and cost-savings targets will not receive lower fee-for-service payments as a result. It appears as though, for the time being at least, there will be no down-side risk for any provider or supplier, only the up-side risk of receiving shared savings. The exception would be where ACOs agree to participate in the Shared Savings Program on a partial capitation basis as discussed above.

In our next installment we will address some of the unanswered questions about ACOs and the Shared Savings Program.

If you would like to discuss the development of ACOs, specifics about the Shared Savings Program, or any other matter involved in healthcare reform, please contact one of the authors or another member of McGuireWoods Healthcare Department.

Visit the Healthcare Reform section for additional updates and resources.

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