Unbiased Analysis of Today's Healthcare Issues

Accountable Care Organizations in Medicare

Written By: Jason Shafrin - Dec• 18•12

I have written numerous posts about the pros and cons of Accountable Care Organizations.  In 2012, Medicare begame allowing providers to form ACOs.  An article by Pope and Kautter provides an overview of the initiative.

The Medicare program, which covers the elderly and disabled, is the largest medical insurance system in the USA. One major initiative is a voluntary shared savings program for ‘accountable care organizations’ (Section 3022 of PPACA).

The general concept behind the ACO initiative is that it is a way of promoting integration and care coordination while avoiding some of the perceived problems of past efforts to achieve these goals, such as restricted provider networks (Devers and Berenson, 2009). Under the ACO program, to begin in 2012, groups of providers may affiliate as ACOs to take responsibility for the cost and quality of care of their assigned Medicare fee-for-service (FFS) patients (CMS, 2011). For ACO purposes, ‘assigned’ means those beneficiaries for whom the ACO professionals provide the bulk of primary care services. Assignment will be invisible to the beneficiary and will not affect their guaranteed benefits or choice of doctor. ACOs may be integrated systems of physicians and hospitals, physician group practices, networks of physician practices, hospital/physician joint ventures, and other arrangements that are large enough to manage the care of at least 5000 Medicare patients.

The major payment system specified by the PPACA for ACOs is ‘shared savings’. In addition to its usual FFS payments, an ACO will have the opportunity to receive a shared savings payment. Under shared savings payment, the actual annual Medicare FFS payments for an ACO’s assigned patients are compared with a benchmark target. If the actual payments are less than the target, savings are said to exist. A portion of the savings may be shared with the ACO as a reward for its cost control behavior and quality performance. The remainder of the savings is retained by Medicare. According to the PPACA, the benchmark target expenditures are to be derived from a baseline of the three most recent years of ACO-assigned patient expenditures updated by the national absolute expenditure growth amount.

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