Facts about ACOs

Background information 

On Oct. 20, 2011, the Centers for Medicare and Medicaid Services (CMS) within the U.S. Department of Health and Human Services (HHS) introduced a final rule under the Patient Protection and Affordable Care Act (ACA) to help doctors, hospitals, and other health care providers better coordinate care for Medicare patients. Under the rule, CMS established Accountable Care Organizations (ACOs) to create incentives for health care providers to work together to treat patients across care settings.

Key definitions

An Accountable Care Organization (ACO) refers to a network of health care providers (doctors, hospitals, and other non-physician health care providers) who work together through various integration models to coordinate care. ACOs have formed in both the public and private sector.

The goal of a Medicare ACO is to lower health care costs by integrating patient care among providers, while ensuring that performance standards on quality of care are met. An ACO aims to serve as a patient-centered system where providers and patients work together to determine the best course of care.

Fundamental concepts

ACOs have arisen from the presumption that health care in the United States is fragmented and that much of the high cost of health care stems from duplication of care (lab work, tests, etc.) and an overall lack of coordination of care.

Proponents of ACOs argue that costs can be significantly reduced by creating a network of providers who can coordinate high-quality, cost-effective care and, through active communication, consequently save money. Savings are thought to be realized by eliminating the duplication of what is deemed “unnecessary” care and by emphasizing quality care. It is estimated that Medicare could potentially save up to $960 million in the first three years of an ACO.

There is a great deal of variability in the structure of entities that are now ACOs. It is difficult to predict whether or not the ACO payment system is here to stay. Some theories suggest that payment systems based on quality care, patient safety, and cost effectiveness could replace fee-for-service systems. There is speculation that these shared-savings entities will transition to global payment. ACOs may not be right for everyone, but it might be helpful for providers to take steps to enhance their value within an ACO-populated environment. Providers may want to continue building relationships with primary care physicians, as well as putting systems into place that document quality of care and cost effectiveness.

ACO models

CMS offers three ACO programs: the Medicare Shared Savings Program (MSSP), Advance Payment Model, and the Pioneer ACO Model. Note: The MSSP ACO option is the only ACO option that was set forth under the 2010 ACA. Read more about each ACO program in “ACO options for dermatologists.” Additionally, there are several ACOs in the private sector with myriad program designs.

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Medicare Shared Savings Program

A Medicare Shared Savings Program (MSSP) facilitates coordination of care among a network of providers to improve the quality of care for Medicare Fee-for-Service beneficiaries, while realizing cost savings. If accepted into the MSSP, an ACO would be required to serve at least 5,000 Medicare patients and agree to participate in the program for three years. Medicare would continue to pay providers for services as it does under original Medicare payment systems.

ACOs can share in savings under the MSSP. CMS develops a benchmark for each ACO based on estimates of what total expenditures for Medicare fee-for-service Parts A and B would have been without the ACO structure. This benchmark is updated/re-evaluated every year within the three-year performance period.

CMS offers a one-sided risk model and a two-sided risk model. In a one-sided risk model, the ACO shares in the savings for three years, and shares in the losses for the third year. This is ideal for less-experienced ACOs. In a two-sided risk model, the ACO shares a greater portion of savings for each of the three years, but also shares the losses for all three years. This model is ideal for more experienced ACOs. 

ACOs that do not meet quality measures and do not achieve cost-savings targets will be held accountable for losses. 

Advanced Payment Model

The Advanced Payment Model is an initiative developed by the CMS Center for Medicare & Medicaid Innovation for ACOs already participating in the MSSP. It is targeted primarily at physician-owned and rural ACOs that might not have the capital to effectively participate in the MSSP. Note: The Advanced Payment Model ACO was not set forth under the 2010 ACA, but, rather, serves as a testing initiative for future models of ACO payment systems.

The Advance Payment Model offers ACOs advance payments that will be repaid by the ACO from future shared savings that are compared to a benchmark based on estimates of what total expenditures for Medicare fee-for-service Parts A and B would have been without the ACO structure. The goal of the Advanced Payment Model is to increase participation in the MSSP by providing incentives up front.

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Pioneer ACO Model

The Pioneer ACO Model is a Medicare initiative developed to test various payment arrangements for experienced and well-established ACOs. The Pioneer ACO Model offers higher levels of risk and reward, as compared to the MSSP. Note: The Pioneer ACO Model was not set forth under the 2010 ACA, but, rather, serves as a testing initiative for future models of ACO payment systems.

In the first two years of the Pioneer ACO agreement, shared savings are determined by comparing the expenditures for the first two years with previous CMS expenditures for the patients that are affiliated with the Pioneer ACO. If the Pioneer ACO has realized savings, it will be eligible to change to a population-based payment model in its third year. Population-based payments allow for per-beneficiary per month payments which would replace the ACO’s fee-for-service payments.

ACOs and providers

CMS does not provide rules regarding how income is distributed internally among the individual members of an ACO. Providers who are considering joining an ACO must review all contracting provisions.

Forming an ACO

Participation in an ACO by health care providers and patients is voluntary. Specialists can join more than one ACO, but should evaluate local circumstances carefully prior to making that decision.

Integrated delivery systems (IDSs), independent physician associations (IPAs), multispecialty practices, and hospitals are all eligible to form Medicare ACOs.  Any provider who is enrolled in Medicare and bills Medicare directly for services may join a Medicare ACO; however, providers who do not bill Medicare directly for primary care services may not form a Medicare ACO, unless they are joined by a provider who bills Medicare directly for primary care services.

Joining an MSSP

Dermatologists can join a multispecialty practice that is forming an ACO, contract with an existing ACO, join a network of individual practices that include primary care services to form an ACO, or become employed by a hospital that joins or forms an ACO. Dermatologists also can contract with an IPA or a large primary care practice that has formed an ACO. Providers must join or form an integrated care network and then apply to CMS for acceptance into the MSSP program. Learn more about the application process.

Joining an Advanced Payment Model

To participate in an Advance Payment Model, an ACO will need to be accepted into the MSSP. For more information, see “How would a dermatologist go about participating in a Shared Savings Program ACO?” CMS is no longer accepting applications for the January 2013 start date for Advanced Payment Models. Learn more about the application process.

Joining a Pioneer ACO Model

The application process for the Pioneer ACO Model is now closed. More information about the Pioneer ACO Model is available here.

The patient factor

ACOs are not managed care or capitated care systems like those that were prevalent in the 1990s. Reimbursement remains fee-for-service. Patients in ACOs do not necessarily elect participation in ACOs and may not even know that they are participants because some models may assign patients retrospectively to an ACO.

Patients are asked to participate with the reassurance that they will receive better health care in the ACO environment. In return, patients in Medicare ACOs are asked to allow Medicare to share their medical records with all the providers in the ACO.