ACOs: Myths and fables debunked

Legally Speaking

Daniel F. Shay
Alice G. Gosfield

Daniel F. Shay, Esq. and Alice G. Gosfield, Esq., are health care attorneys at Alice G. Gosfield and Associates, P.C.

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Since the passage of the Patient Protection and Affordable Care Act, 2010’s health reform law, there has been rampant physician anxiety and confusion over “accountable care” and Accountable Care Organizations (ACOs). They are not the same thing. Where dermatologists fit in this new landscape will be only a little clearer after you read this article, because most of what happens in this arena will depend heavily on local context. But there are practical steps dermatologists can take to position themselves for new developments.

First, the legislation itself does not mandate the creation of ACOs. They are not a pilot program or a demonstration. Physicians will not be required by law to participate in ACOs. The legislation offered a barely described opportunity, in Medicare, for organizations to step forward and apply to have a contract with the government to deliver a full continuum of care under Medicare. The basic idea is that some entity — whether driven by a hospital, a physician group, or some combined entity — would be able to accept Part A and Part B monies. To the extent the participants’ changes in care delivery save money, the ACO would get a portion of those savings to distribute among the participants.[pagebreak]

Where did the idea come from?

The idea emanated from a Health Affairs article in 2007, “Creating Accountable Care Organizations: The Extended Hospital Medical Staff,” which called for hospitals to be measured in part on the performance of physicians who never even attend there, the so-called “extended medical staff.” Then, Mark McClellan, MD, PhD, having recently left CMS as administrator to join a think tank, published on the Health Affairs blog, an article describing the ACO as a “shared savings program.” In fact, the subtitle of the section in the legislation which creates the opportunity is referred to by that phrase.

When the legislation was enacted, no ACO existed. They were variously described as unicorns, HMOs in drag, and more. But to the extent commentators thought some health care organizations could step up to address the issues of being measured and accountable for the quality and value of care delivery, accepting both Part A and Part B dollars, the likeliest candidates were the kinds of organizations which had participated in the Medicare Group Practice Demonstration Project (MGPDP), which all had to be organizations of at least 200 physicians. Interestingly, in that three-year project, all the physician groups improved quality but only five out of 10 got any money, and only the Marshfield Clinic earned significant dollars, according to a 2009 report to Congress.

The American Medical Group Association (AMGA) was supportive of the ACO legislation assuming that its members would be best qualified to get the contracts CMS would make available. In many ways, the legislation governing ACOs mirrors major elements of the MGPDP approach. Successful contractors would have to serve at least 5,000 Medicare beneficiaries who would be assigned to them. Hospitals and physicians would be paid by Medicare on DRGs and the fee schedule, along the way, and then shared savings would be distributed at the end of three years. The entity would be accountable for quality in accordance with to-be-determined measures.[pagebreak]


When proposed regulations were published early in 2011, they were soundly excoriated from all corners. All of the demonstration project participants stated publicly that they would refuse to participate without major changes. Under the proposed rule, ACOs would be subjected to 65 quality measures. Beneficiaries assigned to them not only would not know of such assignment, but CMS would do nothing to channel beneficiaries to their assigned ACO, because it was believed this would smack of closed managed care panels which Americans had roundly rejected in the mid-1990s. The amount of money successful ACOs could earn was too small to be worth the effort. Almost immediately CMS announced two other pathways to ACO status — through the Pioneer ACO program and another Advanced Payment ACO model. CMS has selected 32 organizations which applied to be Pioneer ACOs.

In the meantime CMS revised the regulations, eliminating some of the most controversial elements of the proposal, including lowering the number of quality measures from 65 to 33. Because of the sharing of money across providers, various aspects of the law to protect Medicare in its traditional programs would have to be waived. In particular, the Stark statute which prohibits referrals by physicians to hospitals, among others, where there is a financial relationship unless it meets an exception, and the anti-kickback statute which is similar but broader, would prevent ACOs from operating to accomplish their purpose. The Office of the Inspector General and CMS have issued guidelines regarding the waivers that will be available for ACOs. They are liberal and allow much more sharing of dollars across participants than would be allowed for traditional Medicare providers. There are also potential antitrust issues in the combinations of providers that will form ACOs, so the FTC has also published a statement of how it will approach enforcement of the antitrust laws. Finally, for not-for-profit hospitals which would want to participate, the tax exempt entity rules would be applied more liberally to permit hospitals to reward participating physicians for contributing to improved value.

Many have commented that the final interim regulations offer significant improvement over the proposed regulations. But even in its rosiest predictions when the proposed regulations were announced, CMS anticipated that there might be 75-100 ACOs across the nation. There are more than 5,000 hospitals and more than 300,000 physicians in the United States. They will not all be in ACOs. Whether a dermatologist will have to pay attention to the Medicare ACO program depends on the market in which he or she practices. If there is one hospital in town, it employs most of the physicians, and they increasingly refer only “within the network,” then participation in an ACO may be worth considering. If dermatologists are part of large multi-specialty groups which are participating, they may find themselves confronting some of the issues the ACO regulations generate, especially those pertaining to quality measurement and potential sharing in distributions at the end of three years. But Medicare ACOs are not likely to be a major factor in most dermatology practices. That said, “accountable care” is a different story altogether.[pagebreak]

Accountable care

Medicare ACOs will exist under specific legislation and regulation. Commercial payers, however, are also moving toward fostering ACOs of some kind, in varying degrees, throughout the country. (In Massachusetts there is a bill that would require ACOs throughout the state as the way health care will be delivered and paid for, but today, it is only a bill and not law.) These ACOs tend to be focused around hospital-centric entities. Sometimes larger medical groups can lead the way, but the broad continuum of care to be addressed by organizational reconfigurations is only part of the story. The more important story for dermatologists is the one about accountable care regardless of the organizational structure.

No ACO will succeed without a clear understanding of for what it is accountable. But even outside of ACOs, most physicians will have to change some aspects of their care delivery in light of the new emphasis on accountable care.

Throughout the health reform legislation and increasingly in private payer initiatives, the principle of physicians being expected to be accountable for care is proliferating. This means all physicians can expect to be measured in terms of their quality and especially the patient experience of care. Their efficiency in terms of the cost effectiveness of care is also squarely on the table as employers seek to reduce their health care costs. Together, the new emphasis on measured quality and improved efficiency defines the new paradigm of value. Commercial payers are using pay-for-performance programs as well as selected networks of high scoring physicians to motivate a shift to higher value health care.

Unbeknownst to many physicians who are hearing the drumbeat that fee for service is disappearing, in fact there is a mandatory program of accountability in the health reform law that will affect their Medicare payment. Beginning in 2013 with composite quality measures, the Medicare physician fee schedule will be subjected to a value-based purchasing modifier. Beginning in 2015, physicians’ efficiency will be measured by an episode grouper — a software package that takes fee-for-service claims data and stitches it back together into a defined episode of care around a diagnosis — for which CMS will select a single vendor to report to physicians their resource utilization. In addition, the Physician Quality Reporting System (PQRS) in Medicare is voluntary for physicians today and offers additional money for reporting, but beginning in 2015, those who do not report in this system will have their payments from Medicare reduced.[pagebreak]

What should dermatologists do?

Because physicians will increasingly be measured for their quality performance, patient experience of care, and value, they should know what measurement programs currently exist in their community. If you cannot find that by relying on local resources, or if none seems to be present, then measure yourselves using good clinical practice guidelines. Survey your patients about their experience of care. Study the data and analyze the results. (See sidebar for information on tools the Academy offers to help members with this task.)[pagebreak]

Physician practices that will succeed in the new environment will undoubtedly be those that are clinically integrated, even within their own practices. These will be “Physicians working together systematically, with or without other organizations and professionals, to improve their collective ability to deliver high quality, safe, and valued care to their patients and communities.” There are at least 17 attributes of a clinically integrated entity, including a physician practice. A good exercise would be to use a new self-assessment tool, available at, to figure out where your practice is on the continuum of integration for value, and then start to plan how to improve your performance.

ACOs will unfold over the next few years and only some dermatologists will be involved. Being accountable for your care, however, will be increasingly inescapable.

Quality measurement tools

The Academy offers tools, the Clinical Performance Assessment Tool (CPAT) and patient and peer surveys, to help members achieve the quality measurement of the sort that will be expected in an accountable care environment while fulfilling the requirements of component 4 of the American Board of Dermatology’s Maintenance of Certification program.

CPAT is a Web-based program that allows users to review and reflect on their clinical practice data, develop and implement an improvement plan, and assess and report on changes in their practice as a result of that plan. The patient survey program provides a secure method of conducting information-gathering from patients and evaluating the feedback, while the peer survey does the same with peers in the medical community, helping dermatologists to obtain input from colleagues regarding best practices and clinical management skills and develop an action plan to enhance collaboration between physicians.

Visit to learn more.

AADA analysis of ACO rule

The American Academy of Dermatology Association analyzed the final rule on accountable care organizations, published Oct. 20, 2011. Learn more about it in the Health System Reform Resource Center.



Quality measurement tools
AADA analysis of ACO rule
Quality measurement tools
AADA analysis of ACO rule