Accountable Care Organizations (ACO)

HHS sets percentage targets for a Medicare value-based payment system — emphasis on ACOs/bundled payments/integrated care –

HHS calls for coordinated design across all payment sectors.

Secretary of Health and Human Services Sylvia Mathews Burwell announced last week that HHS will expand upon current efforts in transforming Medicare’s fee-for-service (FFS) payment system from one that long has been volume-based to one that is value-based. Payment reform initiatives will build in three ways: 1) increasingly tying payment to medical care received by beneficiaries through alternative payment models; 2) supporting integrated, coordinated care delivery models and provider efforts in advancing population health; and 3) harnessing vast data to improve patient care.  “Today’s announcement would continue the shift toward paying for what works,” HHS said in its January 26, 2015 press release.

The Secretary identified two distinct payment percentage goals —

  • By the end of 2016, 30% of all Medicare FFS payments will be tied to quality through alternative payment models such as accountable care organizations (ACOs), advanced primary care medical homes, and bundled payment mechanisms. By the end of 2018, 50% of all Medicare FFS payments will be made through these mechanisms. HHS says that approximately 20% of FFS dollars in 2014 were paid out through programs such as ACOs in the Medicare Shared Savings and Pioneer ACO programs, bundled payments, and the Comprehensive Primary Care Initiative.
  • By 2016, 85% of all Medicare FFS payments, including those made to ACOs and through bundled payments and similar mechanisms, will be tied to quality or value. Other payment programs added to this percentage mix are the Hospital Value-based Purchasing Program, the Physician Value-based Modifier, the Hospital Readmissions Reduction Program, and other initiatives. By 2018, HHS plans that 90% of all Medicare FFS payments will be tied in some way to programs of quality or value. HHS says that now a majority of Medicare FFS payments have a link to quality or value.

To meet its announced percentage goals, HHS will build upon program initiatives now in place and showing promise but also will develop new payment models, for instance, for specialty care (starting with oncology) and for care coordination for patients with chronic conditions. HHS also will invest $800 million through the Transforming Clinical Practice Initiative to provide hands-on support to 150,000 physicians and other practitioners in developing skills and tools needed to improve care delivery and transition to alternative payment models.

HHS will convene a Health Care Payment Learning and Action Network in March to not only develop sustainable payment models fostering coordinated, high quality medical care but also to align Medicare’s efforts with initiatives in other payment sectors. “Making operational changes will be attractive only if the new alternative payment models and payment reforms are broadly adopted by a critical mass of payers,” HHS notes. Representatives to this new Network have yet to be named but likely will include private payers, large employers, providers, consumers, and state and federal government programs. HHS expects the Network to facilitate joint implementation of agreed-upon models of payment and care delivery and to identify and implement common approaches on core issues like beneficiary attribution, financial models, benchmarking, and risk adjustment.

HHS anticipates an ongoing working alliance with the nation’s health insurance industry.  America’s Health Insurance Plans (AHIP), through its president, Karen Ignani, said that health plans have been on the forefront of implementing payment reforms in Medicare Advantage, Medicaid Managed Care, and the commercial marketplace. “We are excited to bring these experiences and innovations to this new collaboration.”

The American Medical Association (AMA) issued a statement saying that HHS’ efforts to align Medicare payment with innovative, high quality, and efficient health care delivery are consistent with AMA objectives. “We look forward to hearing more details behind the percentages HHS put forward as well as their plans to reach these percentage targets.” The AMA also emphasized the need for SGR payment relief, requiring congressional action before April 1 to avoid a 21% SGR reduction in Medicare payments to the nation’s physicians and loss of the 1.0 Work GPCI floor important to Iowa and other physicians in payment localities that otherwise would suffer Medicare Work GPCI payment adjustments below the national average.

It is not clear the extent to which HHS’ 2016 value-based payment percentage goals of 30%/85% will be reflected in its proposed 2016 Medicare physician payment rule (expected release in July of 2015). HHS emphasizes that these 2016 percentage goals are to be realized by the end of that calendar year, indicating implementation starting in 2016. Time is short to reach specified percentage objectives.

Medicare processes over 1 billion Medicare Part A and Part B FFS claims per year. In 2014, Medicare FFS payment outlays amounted to $362 billion.

This link accesses the HHS Fact Sheet supporting Secretary Burwell’s announcement.


On December 1, 2014, CMS released a rule proposing several significant changes to the Medicare Shared Savings Program (MSSP) and calling for input on options under consideration to encourage greater participation in two-sided risk sharing models. The proposed rule was published in the Federal Register, December 8, 2014, pp. 72759-72872 Comments on the rule are due by 5:00 pm on February 6, 2015.

CMS proposes these changes as program refinements based on its experiences and stakeholder suggestions. The proposed changes also formalize guidance CMS has issued previously regarding the program, and the proposed changes further seek to reduce administrative burdens in MSSP operations. The proposed rule changes address the following areas:

  • Data sharing requirements;
  • Requirements for ACO participant agreements, the ACO application process, and CMS review of applications;
  • Identification and reporting of ACO participants and ACO providers/suppliers and managing changes to these lists;
  • Eligibility requirements related to the ACO’s number of beneficiaries, required processes, the ACO’s legal structure and governing body, and the ACO’s leadership and management structure;
  • Modification to assignment methodology;
  • Repayment mechanisms for ACO’s in two-sided performance-based risk tracks;
  • Alternatives to encourage participants in risk-based models;
  • ACO public reporting and transparency;
  • ACO termination process; and
  • The reconsideration review process.

The rule proposes new or changed definitions; adds a process for ACO renewal of participation agreements; clarifies and revises the beneficiary assignment algorithm; expands on beneficiary reporting data CMS would provide to ACOs; and simplifies the claims data sharing opt-out process to provide more timely access to claims data.

CMS believes greater efficiencies and savings remain to be realized by encouraging ACOs to move from Track 1 (shared savings) to Track 2 (shared savings/shared losses) models of operation. CMS proposes mechanisms to ease an ACO’s transition from Track 1 to Track 2, to reduce an ACO’s risk under Track 2, and to establish an alternative Track 3 risk-based model. Much early criticism has focused on CMS’ proposal to allow Track 1 ACOs to remain in Track 1 for an additional 3-year period rather than transitioning to Track 2 as now required; however, those ACOs remaining in Track 1 for a second 3-year period would experience annual reductions in their percentage share of earned savings (i.e., from 50% shared savings to 40% in year 4, to 30% in year 5, to 20% in year 6). Initial stakeholder reaction notes that to-date, most Track 1 ACOs have not met minimum savings thresholds and have not shared in savings; reducing the potential of shared savings in years 4-6 likely means that many Track 1 ACOs simply will not sign up for a second round of MSSP participation. CMS and stakeholders continue to assess long-term, sustainable MSSP operational ACO models.

The MSSP now includes more than 330 ACOs functioning in 47 states, Puerto Rico and the District of Columbia, with 125,000 Medicare enrolled practitioners providing services and impacting roughly 4.5 million Medicare beneficiaries. On November 7, 2014, CMS issued its first financial reconciliation and quality performance results for 220 ACOs with start dates in 2012 and 2013; in that report, CMS identified more than $460 million in qualified shared savings payments to these 220 ACOs as well as 23 Pioneer ACOs. Of the 220 MSSP ACOs, 58 kept spending below their benchmarks and earned shared savings of more than $315 million while 60 ACOs reduced their costs in comparison to their benchmarks but did not meet minimum savings thresholds needed to qualify for shared savings.

Five ACOs serving Iowa beneficiaries were included in the November 7 report. Two of those ACOs generated shared savings.

Accountable Care Clinical Services, PC: Iowa (Heartland Rural Physician Alliance), California, Connecticut, Massachusetts, Pennsylvania; start date 1/1/13; Track 1; earned shared savings of $5,157,823.

Genesis Accountable Care Organization: Iowa, Illinois; start date 7/1/12; Track 1; no earned shared savings.

Mercy ACO, LLC: Iowa; start date 7/1/12; Track 1; earned shared savings of $4,426,331.

Mercy Cedar Rapids/University of Iowa Health Care Accountable Care Organization: Iowa; start date 7/1/12; Track 1; no earned shared savings.

Unity Point Health Partners: Iowa, Illinois, Missouri; start date 7/1/12; Track 1; no earned shared savings.

A separate report issued by CMS in October of 2014 on Pioneer ACOs showed that Iowa’s Trinity Pioneer ACO experienced earned shared savings of $1,218,812 in its second year of performance.

I recently attended a CLE entitled “Accountable Care Organizations: Physician Perspective,” presented by the American Bar Association, Health Law Section, which was presented by David W. Hilgers and Amy K. Fehn.  As a result of the Affordable Care Act mandating that the Medicare Share Savings Program be implemented, many have moved to Accountable Care Organizations (ACOs) as the implementing tool.  Some of the key features of the ACO is that each must have 5,000 beneficiaries (patients) that are assigned to it.  Thus, primary care physicians have a special role in the ACO environment.  ACOs do not need to include hospitals, but many do.  Physician groups, individual physicians and hospitals across Iowa are scrambling to define their roles in this new ACO world.  Iowa Health Clinic attempted to position itself for an early place in the ACO venture world.  Recently the Tri-Health Systems in Fort Dodge Iowa, was identified as one of the pioneer ACOs.  The two large hospital systems in Des Moines, Iowa, Iowa Health Systems and Mercy Hospital, also recently announced their plans for ACOs.  Individual physicians and physician groups will need to carefully analyze the ACO structure and whether they want to be part of it.  There is a fear that without an ACO affiliation, then the physicians or physician groups will not be able to survive.  Thus recently, I helped form an Independent Physician Association (IPA) of primarily family practitioners, which joined a virtual ACO (a very new concept) to share in the shared savings program.  A great deal of information will be learned as this plays out.  In a decision as to whether to join an ACO,  several legal issues need to be considered, including, but not limited to:

1) organizational structure of the entity (both in type and governance);

2) the tax treatment of the organization (will it be tax exempt);

3) antitrust laws;

4) regulatory restrictions (anti-kickback statutes, Stark, Civil and Monetary Penalty Law); and

5) state laws (insurance regulations within each state).