Where are we? Where are we going? How will the rules be affecting providers?

In the year 2000, there were approximately 43 million Medicare eligible beneficiaries in America.  When the last of the Baby Boomer generation reaches age 65 in 2035, there will be close to 78 million folks eligible to participate in the Medicare program.  It does not take an advanced college degree to conclude this will be a huge strain on the current system.  Moreover, there still lurks the possibility that Medicare is facing insolvency by 2017.  So, it begs the question, how do we reduce the program’s cost?

Many healthcare providers, policymakers and analysts complain about the incentives inherent in the current fee-for-service payment approach, which rewards providers financially for prescribing as many services as possible while driving up healthcare costs for patients.  For providers, more often than not, this is an unintended consequence of providing complete and comprehensive treatment to patients.  Nevertheless, at the end of the day, it is what it is.  For many, the holy grail of health policy making has been to find a model that aligns the interest of both healthcare providers and patients.  In the 1980s and 1990s, some perceived that health maintenance organizations (HMOs) may be such a model, but patients, encouraged by their physicians, eventually objected to HMOs’ perceived intrusion into patient care decisions, causing HMOs to back off from some of their earlier approaches and to now fade from prominence.

Fast forward to today, and the next great hope of many has become accountable care organizations (ACOs).  Although known primarily as a Medicare program authorized in the Patient Protection & Affordable Care Act (PPACA), Affordable Care Act (ACA) or  “Obama Care,” the ACO-style payment arrangements have already been adopted by private insurers, even before the Centers for Medicare & Medicaid Services (CMS) issued its final regulations for the program on October 20, 2011. The final CMS regulations for the Medicare Shared Savings Program (MSSP), as it is called, respond to many concerns raised by providers in response to the agency’s proposed regulations published in March 2011.

At the time, many providers that were preparing to become ACOs were dismayed when CMS chose to lay out a program that was more stringent and less generous than CMS’s  ACO precursor experiment, called the Physician Group Practice Demonstration (PGP demo), which ran from April 2005 through March 2010.  Shortly after the release of the proposed rules by CMS, many prominent healthcare systems announced that they would not participate in the program being proposed.

Having received more than 1,300 comment letters, some with stinging criticism of its proposed regulations, CMS regrouped and made numerous changes in response. Some provider groups and their advisors lauded CMS for bringing ACOs back to life. With the revised regulation, prospects have increased for a broad test of the ACO concept in Medicare – and with other payers as well.

ACOs consist of networks of providers that are rewarded financially if they can slow the growth in their patients’ healthcare spending while maintaining or improving the quality of the care they deliver. An important difference between HMOs and ACOs is that providers themselves, rather than an often distant insurance company, control the diagnosis and treatment decisions, but they exercise this control under new payment incentives that encourage greater prudence in the use of health services. Furthermore, as with current fee-for-service systems of care, patients retain the freedom to seek additional services from any clinician or facility at any time. And to prevent providers from inappropriately limiting a patient’s access to services in order to save money, the ACO is monitored through its performance on a suite of 33 quality measures across four separate domains designed to ensure that it is providing recommended services and high-quality care. Performance on these measures also determines providers’ financial bonuses.

When the PPACA established the MSSP, ACOs made the leap from being a conceptual idea tested in only the aforementioned demonstration (PGPD) to forming the basis of a national effort poised to transform the way care is delivered. Beginning in January 2012, CMS will begin accepting applications from providers that are interested in forming ACOs and working to lower their patients’ health spending enough to earn bonus payments.

Since Medicare is the largest health plan in the United States, this new approach is likely to affect how other health plans pay providers. Already, several private health insurance plans have entered into contracts with groups of healthcare providers to serve as ACOs for their plans’ privately insured enrollees. Some HMOs have been way ahead of fee-for-service Medicare in delegating traditional insurance company functions to provider organizations, and doing so by providing financial rewards for more prudent spending and penalties for overspending. But Medicare’s ACO approach may influence many more health plans, because it provides a model for an intermediary form of delivery: putting providers in a position somewhere between being paid solely through volume-increasing fee-for-service payments and operating within tightly managed, prospectively defined capitated budgets that place providers at full financial risk for all spending for their enrolled populations.

So far, the reception to CMS’s final regulations has been, unsurprisingly, both positive and negative.  There is much speculation as to how many organizations will actually apply to CMS to become an ACO. It remains unsettled whether the primary purpose of the MSSP should be to test the ACO concept to see if it is broadly scalable to diverse providers, whether it generates substantial early savings to the government, or whether the goal of the program should be to move as many providers as possible into the program as soon as possible to satisfy political pressures to slow the growth in Medicare spending. 

Barney Hebert, J.D., is a director in HORNE LLP's healthcare services practice. He serves on the Accountable Care Organization Task Force for the American Health Lawyers Association.  HORNE is one of the top 50 accounting and business advisory firms in the country and one of the largest firms in the Southeast dedicated to the healthcare industry. For more information on HORNE, visit www.horne-llp.com.

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