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
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.
- 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.
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.
- 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.
- 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.
- 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
- 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
Visit the Healthcare Reform section for additional updates and resources.