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					                 Accountable Care Organizations in Medicare
                   and the Private Sector: A Status Update

                          Timely Analysis of Immediate Health Policy Issues
                                           November 2011
                                          Robert A. Berenson, Rachel A. Burton

Why Is Everyone Talking                    At the time, many providers that were    control under new payment incentives
About ACOs?                                preparing to become ACOs were            that encourage greater prudence in the
                                           dismayed when CMS chose to lay out       use of health services. Furthermore, as
Many health care providers, policy-        a program that was more stringent and    with current fee-for-service systems
makers, and analysts complain about        less generous than CMS’ ACO precur-      of care, patients retain the freedom
the incentives inherent in the current     sor experiment, called the Physician     to seek additional services from any
fee-for-service payment approach,          Group Practice Demonstration (PGP        clinician or facility at any time. And to
which rewards providers financially        demo), which ran from April 2005         prevent providers from inappropriately
for prescribing as many services as        through March 2010.3 Shortly after       limiting patients’ access to services
possible while driving up health care      the release of CMS’ proposed rules,      in order to save money, the ACO is
costs for patients. For many, the holy     many prominent health care systems       monitored through its performance on
grail of health policy-making has been     announced that they would not partici-   a suite of quality measures designed
to find a model that aligns health care    pate in the program being proposed.4     to ensure that it is providing recom-
providers’ and patients’ interests. In     (For more details, see “CMS Responds     mended services and high-quality
the 1980s and ’90s, some thought           to Provider Concerns about the Medi-     care. Performance on these measures
that health maintenance organizations      care Shared Savings Program” later in    also determines providers’ financial
(HMOs) might be such a model, but          this paper.)                             bonuses. (“What Makes the ACO
patients, encouraged by their physi-                                                Concept New?” below describes other
cians, eventually objected to HMOs’        Having received more than 1,300          features of ACOs.)
perceived intrusion into patient care      comment letters, some with stinging
decisions, causing HMOs to back off        criticism of its proposed regulations,   This paper provides an overview of
from some of their earlier approaches      CMS regrouped and made numerous          ACOs, their origins, and the cur-
and to now fade from prominence.           changes in response. Some provider       rent status of adoption of this model
                                           groups and their advisors lauded CMS     by both Medicare and private health
Two decades later, the next great hope     for “br[inging] ACOs back to life.”5     insurance plans.
of many has become accountable             With the revised regulation, prospects
care organizations (ACOs). Although        have increased for a broad test of the   When the ACA established the MSSP,
known primarily as a Medicare              ACO concept in Medicare—and with         ACOs made the leap from being a
program authorized in the Affordable       other payers as well.                    conceptual idea6 tested in only one
Care Act (ACA), ACO-style payment                                                   demonstration7 to forming the basis
arrangements have already been ad-         ACOs consist of networks of pro-         of a national effort poised to transform
opted by private insurers, even before     viders that are rewarded financially     the way care is delivered.8 Beginning
the Centers for Medicare & Medicaid        if they can slow the growth in their     in January 2012, CMS will begin ac-
Services (CMS) issued its final regula-    patients’ health care spending while     cepting applications from providers
tions for the program on October 20,       maintaining or improving the quality     that are interested in forming ACOs
2011.1 CMS’ final regulations for the      of the care they deliver. An impor-      and working to lower their patients’
Medicare Shared Savings Program            tant difference between HMOs and         health spending enough to earn annual
(MSSP), as it is called, respond to        ACOs is that providers themselves,       bonus payments.
many concerns raised by providers          rather than an often distant insurance
                                           company, control the diagnosis and       Since Medicare is the largest health
in response to the agency’s proposed                                                plan in the United States, this new
regulations published in March 2011.2      treatment decisions, but exercise this
                                                                                    approach is likely to affect how other
health plans pay providers. Already,       tion of their payments to a population-   zations” (PSOs) established in Medi-
many private health insurance plans        based model in which they would           care in the Balanced Budget Act of
have entered into contracts with           receive a dollar amount per beneficiary   1997. In both PSOs and ACOs, CMS
groups of health care providers to         per month—true capitation—instead         contracts directly with providers, not
serve as ACOs for their plans’ private-    of continuing to layer ACO bonus          insurers, to take financial responsibil-
ly insured enrollees.9 Some HMOs,          payments on top of traditional fee-for-   ity for their patients’ health care and
especially those in California, have       service reimbursement.11                  essentially function as a health plan.
been way ahead of fee-for-service                                                    However, to date, only three PSOs
Medicare in delegating traditional         The Innovation Center will also allow     have ever been created.16 ACOs may
insurance company functions to pro-        some ACOs participating in the MSSP,      be less intimidating to set up than
vider organizations, and doing so by       including small physician practices       PSOs because they do not require
providing financial rewards for more       and rural community hospitals, to         providers to immediately abandon fee-
prudent spending and penalties for         take out loans from CMS to pay for        for-service reimbursement for fully
overspending. But Medicare’s ACO           infrastructure investments, such as       capitated payments and do not restrict
approach may influence many more           purchasing electronic health records      patient choice, and so are less likely
health plans because it provides a         and hiring nurse care managers.12         to involve the complex insurance-like
model for an intermediary form of de-      These loans would be deducted from        regulations that contributed to the lack
livery: putting providers in a position    any future shared savings payments        of provider interest in the PSO option.
somewhere between being paid solely        the ACO might qualify for from CMS.
through volume-increasing fee-for-         The Innovation Center is also trying to   Dartmouth researcher Elliott Fisher
service payments and operating within      encourage the development of ACOs         deserves credit for stimulating broad
tightly managed, prospectively defined     through free conferences for execu-       policy interest in the ACO approach by
capitated budgets that place providers     tives on core ACO competencies, such      introducing the concept of an “extend-
at full financial risk for all spending    as improving care delivery, effectively   ed hospital medical staff” at a 2006
for their enrolled populations.            using health information technology       meeting of the Medicare Payment
                                           and data, and building capacity to as-    Advisory Commission (MedPAC).17
CMS’ new Center for Medicare and           sume and manage financial risk.13         Fisher presented findings showing that
Medicaid Innovation, which was also                                                  Medicare beneficiaries received most
created by the ACA, is testing alterna-    Where Did the ACO                         of their care from relatively stable
tive ACO models in addition to the         Concept Come From?                        sets of local physicians and hospitals;
MSSP.10 In May 2011, the Innovation                                                  he argued that these providers could
                                           The ACO model has several anteced-
Center announced that it will test a                                                 be grouped together to form “virtual
                                           ents. In 2000, Congress passed a law
new “Pioneer ACO” model, targeted to                                                 organizations” that could be held ac-
                                           directing CMS to test a model now
organizations that already have a track                                              countable for the cost and quality of
                                           widely considered to be the ACO mod-
record of managing financial risk and                                                the full continuum of care delivered to
                                           el when it authorized the PGP demo.14
developing systems for being account-                                                these patients. In the course of discus-
                                           Participating physician groups in the
able for quality-related performance.                                                sion, MedPAC Chair Glenn Hack-
                                           demo were eligible to keep a por-
Providers interested in being Pioneer                                                barth referred to Fisher’s model as an
                                           tion of the savings they generated
ACOs submitted proposals in August,                                                  “accountable organization.” Fisher
                                           for Medicare, relative to a projected
which the Innovation Center has now                                                  apparently liked the term; he adopted
                                           spending target, and could increase
reviewed; announcements of which                                                     it when he published his proposed “ac-
                                           their share of savings depending on
applicants will be selected for this                                                 countable care organization” model in
                                           how well they improved performance
experiment are expected shortly. This                                                Health Affairs shortly thereafter.18 His
                                           on a set of 32 quality measures. This
demonstration program will allow                                                     and others’ ACO models have since
                                           demonstration ran from April 2005
ACOs to earn higher shared savings                                                   evolved to require actual organiza-
                                           through March 2010, and involved
bonus payments than under the MSSP,                                                  tions, rather than virtual organizations,
                                           nine multispecialty group practices
but will also put them at risk of paying                                             but the term has stuck.
                                           and one physician-hospital organiza-
back higher amounts to CMS if they
                                           tion. (For more on this demo, see         What Makes the ACO
increase spending above projections.
                                           “Will ACOs Save Money?”.)15               Concept New?
And in the third and final year of the
Pioneer ACO experiment, ACOs that          The ACO concept also bears resem-         Although private health insurers are
meet a specified level of savings will     blance to “provider-sponsored organi-     now pursuing ACO contracts with
be eligible to move a substantial por-
                                                                               Timely Analysis of Immediate Health Policy Issues   2
providers, the term ACO was initially               1. Shared Savings. In current ACO                         patients are not “locked in” to see-
developed in the context of Medicare.                  arrangements, providers generally                      ing particular providers within a
The new MSSP explicitly relies on                      receive bonuses if their patients’                     designated provider network.
ACOs, which CMS has defined as                         health care costs are below a pro-
organizations of providers that ac-                    jected amount based on their own                  Do ACOs Exist in the
cept accountability for a population of                historic spending, regardless of                  Private Sector?
Medicare beneficiaries, coordinate all                 whether the level of their historic
                                                       spending is high or low. The size                 Although CMS has only recently is-
of the services received across the care
                                                       of these bonuses depends, in part,                sued final regulations laying out its
continuum, and encourage investment
                                                       on how much savings the ACO                       ACO program for Medicare, private
in infrastructure and redesigned care
                                                       produces. Both the MSSP and                       health insurers have already begun to
processes for high-quality and efficient
                                                       private ACO contracts have been                   enter into ACO contracts with provider
service delivery. Yet this operational
                                                       layering these bonus payments on                  groups.19 These private ACO contracts
definition does not emphasize what
                                                       top of traditional fee-for-service                are giving patients added incentives to
makes ACOs different from well-
                                                       reimbursement, rather than mak-                   seek care within their plan’s provider
established provider organizations
                                                       ing the leap to capitation (pre-paid              network, such as by offering reduced
that private health insurance plans
                                                       fees paid per patient, see glossary               premiums for individuals who receive
(including Medicare Advantage plans)
                                                       for complete definition).                         care from providers taking part in such
regularly contract with, including mul-
                                                                                                         arrangements.20 By contrast, Medicare
tispecialty group practices and inde-
                                                    2. Accountability for Quality. The                   has so far chosen not to offer such
pendent practice associations (IPAs),
                                                       ACO’s performance on numerous                     financial incentives to Medicare ben-
using prospective, per-capita payments
                                                       quality metrics is also central to                eficiaries to stay within their ACO’s
rather than fee-for-service reimburse-
                                                       determining whether the ACO is                    provider network.
ment.
                                                       eligible for shared savings and, if
                                                       so, the amount of shared savings                  At least eight private health insurance
The three major characteristics that
                                                       it receives from the sponsoring                   plans have entered into ACO contracts
differentiate ACOs from existing
                                                       payer.                                            with providers using a shared risk pay-
health plan and provider arrangements
                                                                                                         ment model, making providers eligible
in various parts of the country —
                                                    3. Free Choice of Providers by                       for both bonuses and financial penal-
whether they are operating under con-
                                                       Patients. Patients assigned to an                 ties.21 Many more (27, by one count)
tracts with private health insurers and/
                                                       ACO are still free to continue to                 have entered into shared savings con-
or public payers like Medicare—are
                                                       seek care from any other provider                 tracts, which make providers eligible
the presence of the following central
                                                       that accepts their insurance. In                  for bonuses, but do not put them at
features:
                                                       short, there is no enrollment and                 financial risk if they exceed spending

                                            Glossary: Provider Payment Approaches
 Fee-for-service – When health insurance plans or payers pay providers a fee for each service performed.
 Capitation – A specific per-capita dollar amount paid per patient per month (or per year) to providers, in return for providing what-
 ever quantity of services is needed to meet the health needs of a defined patient population.
 Partial capitation – The combination of payment of a preset, prepaid capitated amount and payment based on actual use of ser-
 vices. The term also has been used to characterize two other payment models, which may cause some confusion: (1) providers can
 accept full financial risk on a limited set of services (i.e., professional services but not institutional services), or (2) providers can
 accept partial financial risk for all services.
 Shared savings – When at least part of a provider’s income is dependent on the financial performance of a larger organization
 (such as a provider organization or a health insurance plan), and the larger entity generates fewer costs than projected in a given
 time period, providers share in some of these savings. This is also known as “one-sided risk,” although providers actually risk
 nothing financially.
 Shared risk – When financial liabilities are shared among entities. For example, in the MSSP, if an ACO’s patients’ health care
 spending is higher than a projected spending amount, the ACO agrees to pay back CMS for a portion of those excess costs. This is
 also known as “two-sided risk,” since providers are both eligible for bonuses and liable for penalties.
 Source: Adapted from Delaware Healthcare Association, “Delaware Healthcare Association Glossary of Health Care Terms and Acronyms,”
 (www.deha.org/Glossary/GlossaryS.htm#Top).

                                                                                                  Timely Analysis of Immediate Health Policy Issues   3
targets.22 (See glossary for a descrip-                      most other insurers are using shorter                         Although health care organizations are
tion of these and other key terms.)                          periods. Several private ACO contracts                        only beginning to enter into contracts
                                                             are offering providers 50 percent of                          with private insurers to act as ACOs,
The private ACO contracts that have                          the savings they generate (the same                           dozens of major health systems and
been identified so far use shared sav-                       level of savings offered in the bonus-                        provider groups have joined learn-
ings, shared risk, or partial capitation;                    only option of the MSSP), and intend                          ing collaboratives convened by the
none have moved all the way to full                          to transition their private ACO con-                          Premier healthcare alliance and by the
capitation yet.23 Meanwhile, CMS is                          tracts to some form of capitation in                          Brookings Institution and Dartmouth
experimenting with all three payment                         coming years, as in the Pioneer ACO                           College to explore what it might take
approaches. Its MSSP offers two pay-                         model being pursued by CMS’ Innova-                           to become an ACO.24 In addition,
ment options to ACOs: a shared sav-                          tion Center.                                                  the National Committee for Quality
ings (bonus-only) model and a shared                                                                                       Assurance has issued proposed ACO
risk model. CMS’ Pioneer ACO model                           Some health plan representatives                              capabilities, which will form the basis
starts off as a shared risk model and                        and providers question whether full                           of a voluntary ACO accreditation pro-
transitions to a true partial capitation                     capitation is compatible with the ACO                         gram in the fall of 2011.25
model in the third year.                                     philosophy of allowing patients easy
                                                             access to providers outside of their                          Will ACOs Save Money?
The private ACO contracts using                              provider network; they suggest that
shared risk include several Blue Cross                       full capitation may put providers at                          The results of the only demonstration
Blue Shield plans in different states                        too much financial risk with too little                       that directly tested the ACO concept—
(e.g., Illinois, Massachusetts, New                          control over where patients seek care.                        CMS’ PGP demo—suggest that ACOs
Jersey, North Carolina), Aetna, and                          In addition, ACOs’ relative lack of                           will be able to improve the quality of
Anthem/WellPoint. Some of these                              control over patient choices may make                         care they deliver (at least as measured
insurance companies have taken the                           partial capitation more appealing.                            by process-oriented clinical quality
unusual step of entering into five-year                                                                                    measures), but will have a harder time
contracts with their ACO providers;                                                                                        generating savings.26
                           Shared Savings Earned in the PGP Demo (an ACO Precursor)
                                              (in millions of dollars)

                Marshfield Clinic (WI)


           University of Michigan (MI)


                 St. John's Clinic (AR)


 Dartmouth-Hitchcock Clinic (NH/VT)


             Park Nicollet Clinic (MN)


                 Geisinger Clinic (PA)


                   Everett Clinic (WA)


       Middlesex Health System (CT)


         Forsyth Medical Group (NC)


               Billings Clinic (MT/WY)

                                          $0                 $10                    $20                   $30                    $40             $50               $60


                                                                         Year 1           Year 2        Year 3          Year 4          Year 5
 Source: RTI International, “Physician Group Practice Demonstration: Performance Year 1 - Preliminary Performance Year 5 Summary Results,”
 (www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_Summary_Results.pdf).

                                                                                                                   Timely Analysis of Immediate Health Policy Issues     4
The PGP demo’s independent evalu-          ally reducing spending or by merely          to strengthen incentives is to offer
ator has called the savings from the       raising the spending targets they had        providers the option of taking on
program “small.”27 How small? As           to work within by more thoroughly            financial risk, giving them a more
shown in the previous table, annual        recording patients’ diagnoses. (Under        compelling business case for chang-
shared savings payments to the large       the risk-adjustment model CMS uses,          ing the way they deliver care.33 CMS
medical groups participating in the        spending and spending targets are            is now implementing several payment
demo averaged $5.4 million (among          adjusted based on patients’ diagnoses.)      approaches—including offering either
the participants who earned any bonus      CMS’ evaluator noted in the second-          shared savings (bonus-only) or shared
at all), and ranged from a few hundred     year evaluation that if the illness          risk in the MSSP, and shared risk with
thousand dollars to $16 million for the    severity of demo participants’ patient       a transition to partial capitation in the
demo’s biggest winner, the Marshfield      panels had increased at the same rate        Pioneer ACO demonstration—which
Clinic. Only two participants lowered      as other providers in the same geo-          should eventually permit an assess-
health spending enough to receive bo-      graphic areas, only one participant          ment of which payment models are
nuses in all five years of the demo, and   would have qualified for a bonus pay-        best able to achieve the desired reori-
three of the 10 participants received no   ment, instead of four.31                     entation of clinical practice to improve
bonus in any year of the demo.                                                          value for patients and taxpayers.
                                           The bottom line is that the PGP demo
Another analysis estimated that if new     does not seem to have succeeded              Will ACOs Improve Health
ACOs in the MSSP end up making             in meaningfully reducing spending            Care Quality for Patients?
the same average initial investment        growth. However, it should not be
that PGP demo participants did—$1.7        surprising that the demo did not cause       A primary objective of the MSSP is to
million in their first year—they will      providers to dramatically alter the way      improve the quality of care that pro-
need to turn a 20 percent profit to        they deliver care to achieve large re-       viders deliver, and evidence from the
break even over their first three-year     ductions in health care spending. After      PGP demo suggests ACOs will be able
ACO contract with Medicare. Given          all, the current fee-for-service payment     to do this. The 10 physician organiza-
how unrealistic 20 percent operating       system penalizes providers for doing         tions in the demo were able to meet
margins are, these analysts concluded      what was asked in this demo: namely,         performance benchmarks for the vast
that most organizations will lose          to reduce the volume of services             majority of the quality measures they
money in the first three years under the   providers deliver through better care        were held to, which grew from 10 dia-
ACO model.28 Of course, just because       coordination and greater attention to        betes measures in the first year to 32
ACOs may not turn a profit during          evidence of what actually benefits pa-       measures covering diabetes, coronary
their initial three-year contract with     tients. Given the initial three-year limit   artery disease, congestive heart failure,
Medicare does not mean they would          on CMS’ commitment to the payment            hypertension, and cancer screening by
fail to turn a profit during subsequent    approach used in this demo, it might         the fifth year of the demo.
three-year ACO contracts under the         have been foolhardy for participants to
                                                                                        The underlying mechanism driving
MSSP.                                      overhaul their business model, includ-
                                                                                        improvements in care quality in ACOs
                                           ing reducing their revenues from hos-
In addition to producing meager sav-                                                    is the financial bonuses that ACOs can
                                           pital admissions, for a temporary pilot
ings for participating providers, Medi-                                                 receive if they meet quality and cost
                                           being offered by only one payer—
care also accrued relatively modest                                                     benchmarks. This in turn gives provid-
                                           even one as important as Medicare.32
savings from the PGP demo. On net,                                                      ers an incentive to coordinate their
                                           In contrast, although MSSP contracts
the demonstration—which covered                                                         patients’ care to reduce duplication of
                                           will initially extend only three to four
220,000 Medicare beneficiaries in a                                                     services, invest in infrastructure like
                                           years, ACOs that meet performance
select group of large group practices                                                   health information technology, rede-
                                           standards will be able to renew these
judged by CMS as having the neces-                                                      sign care processes, and practice with
                                           contracts, since this is now a fully
sary experience, infrastructure, and                                                    greater adherence to clinical evidence
                                           operational, permanent program, not a
financial strength to succeed29 —saved                                                  of what treatments work best.34 Taken
                                           one-time demonstration.
the Medicare program only $26.6                                                         together, these activities may no-
million30, or approximately $121 per       The PGP demo has also been criti-            ticeably improve the quality of care
beneficiary over five years. Even more     cized for not including strong enough        received by Medicare beneficiaries—
disappointing, CMS’ independent            financial incentives to change pro-          and private insurers’ ACO efforts have
evaluator questioned whether demo          vider behavior. Some policy analysts         a similar potential to enhance care for
participants generated savings by actu-    and MedPAC have argued that a way            their patients.
                                                                                 Timely Analysis of Immediate Health Policy Issues   5
 CMS Responds to Provider Concerns About the Medicare Shared Savings Program
CMS’ proposed rule for the MSSP aroused many concerns                All-or-nothing quality thresholds for payment, and too
among would-be ACOs.1 Here’s a look at some of provid-               many quality measures. CMS had initially proposed assessing
ers’ key complaints, and how CMS addressed them in its final         ACOs on 65 quality measures, some of which were composite
regulations:                                                         measures made up of several measures. Relatively few of these
                                                                     measures would have been generated using already-submitted
Downside risk. The proposed rule would have required ACOs            claims data; others would have required ACOs to collect new
to pay CMS back for a share of their overspending if they ex-        data, often through labor-intensive chart review. Performance
ceeded their spending targets (beginning in either in year one or    on these measures would be used to calculate the size of ACOs’
three, depending on which of two payment tracks they chose).         shared savings bonus payments, using an all-or-nothing ap-
Some argued that the ACA did not intend for all Medicare             proach: if for any single quality measure, an ACO didn’t meet
ACOs to be required to bear such financial risk and that the re-     the minimum performance level (i.e., performing at the 30th
quirement would narrow the pool of potential MSSP applicants.        percentile or doing something 30 percent of the time, depend-
In the final rule, CMS gives ACOs the option of a bonus-only         ing on the measure), they would be ineligible for any bonus
payment track for their first Medicare ACO contract, although        payments.
a risk-sharing option is also still offered as an alternative pay-   In the final rule, CMS cut the number of quality measures it
ment track. Subsequent three-year Medicare ACO contracts will        will use in half, to only 33—but many of these measures will
require all ACOs to take on financial risk.                          still require ACOs to collect new data through medical record
Not enough upside. If spending for an ACO’s assigned patients        review. Also, the approach for determining if ACOs qualify for
is less than what Medicare would have otherwise spent, ACOs          bonus payments has been relaxed: ACOs can now earn bonus
get to keep a share of these savings. But in CMS’ proposed rule,     payments if they meet minimum performance targets for 70 per-
ACOs would have only been allowed to keep 52.5 percent or 65         cent of the quality measures in each of four domains—a more
percent of these savings, depending on which of the two pay-         achievable goal.
ment tracks they selected, compared to 80 percent in the PGP         Retrospective assignment of patients. To determine which
demo.2 Providers saw this share of savings as not high enough        patients an ACO should be held accountable for, CMS proposed
to justify the substantial upfront investments needed to set up      identifying beneficiaries that received primary care services
an ACO and the requirement that they take on financial risk.         from an ACO’s primary care physicians at the end of the year,
The total savings an ACO could earn was capped at 7.5 percent        after care had been delivered. But providers prefer to know who
or 10 percent of their Medicare spending, respectively. Further,     they are responsible for at the beginning of the year, to clarify
ACOs in the bonus-only payment track could only keep a share         both ACOs’ and patients’ roles and responsibilities. To facilitate
of their savings that exceeded a “minimum savings rate,” set at      this, CMS would have given providers lists at the beginning of
2 percent to 3.9 percent of their spending target, depending on      their three-year ACO contracts naming the beneficiaries they
the size of the ACO’s patient panel. Meanwhile, ACOs in the          were likely to be held accountable for, based on which providers
other payment track would have to pass a minimum savings rate        these patients had received primary care from in the past.
threshold of 2 percent before they would be eligible for savings
or losses, but could then keep their share of all savings earned—    CMS has stuck with its approach of prospectively identifying
not just the savings above their minimum savings rate (called        beneficiaries that an ACO is likely to be held accountable for,
“first-dollar” sharing). The purpose of having a minimum sav-        and then retrospectively assigning them at the end of the year
ings rate is to protect CMS from paying bonuses to ACOs for          to assess ACOs’ actual performance—but it is now calling this
random, statistical fluctuations in their year-to-year spending      approach “preliminary prospective assignment.” CMS has
levels that might have occurred unrelated to their own activi-       made an important change in committing to increase how often
ties. Many providers thought the combination of financial risk,      it gives ACOs lists of patients they are likely to be held account-
minimum savings rates, caps on upside potential savings, and         able for; that will now be done quarterly, instead of once at the
the sharing percentage provided too little potential gains for the   beginning of the ACO’s contract.
financial commitments involved with participation.
                                                                     Not counting specialists’ patients in ACOs. To emphasize
CMS’ final rule maintains the minimum savings rate thresholds,       the crucial role of primary care to the ACO concept, CMS
but now allows ACOs in both payment tracks to retain “first-         had proposed counting only primary care physicians’ patients,
dollar” savings once their minimum savings rate is met. CMS          not specialists’, when determining which patients an ACO is
has also raised the cap on the total savings an ACO can earn,        responsible for—even if a specialist provides the plurality of
to 10 percent or 15 percent of their overall spending target, but    visits a beneficiary receives. This would have prevented the
marginally lowered the share of savings that ACOs can keep to        sickest, most expensive patients from benefiting from ACOs’
50 percent or 60 percent (depending on which of the two pay-         enhanced care coordination, since patients with chronic condi-
ment tracks the ACO selects).                                        tions are often cared for by specialists.3

                                                                                      Timely Analysis of Immediate Health Policy Issues   6
 CMS will now allow some specialists’ patients to be included                      constraining associations of separate physician practices such
 in ACOs, if they are receiving primary care services exclusively                  as IPAs.
 from them and not a primary care physician—meaning patients
 making many visits to specialists and a single one to a primary                   CMS will now allow both provider organizations and individual
 care physician will be assigned based on that single visit. CMS                   clinicians to be added or removed at any time during an ACO’s
 will also count patients who receive primary care services                        Medicare contract, as long as they notify CMS.
 exclusively from physician assistants, nurse practitioners, and                   Requires ambitious adoption of EHRs. CMS had proposed
 clinical nurse specialists, which should make it easier for ACOs                  requiring 50 percent of an ACO’s primary care physicians to be
 to form in rural areas where physicians are sometimes in short                    meaningful users of electronic health records by the start of the
 supply.                                                                           second year of their Medicare ACO contract—a high bar, when
 Unrealistic assumption of stable provider networks. CMS                           only 10 percent of office-based physicians currently use such
 had proposed prohibiting ACOs from adding new provider                            advanced software.4
 organizations during their three-year contracts with Medicare,                    CMS is no longer requiring this 50 percent threshold, but is
 but would have allowed ACOs to add individual physicians                          basing bonus payments in part on the percentage of an ACO’s
 working in already-included provider organizations. This would                    primary care physicians that are meaningful users of EHRs.
 have favored organizations with employed physicians, such
 as hospitals and large multispecialty group practices, while

  1
    Meyer, 2011.
  2
    Sebelius, 2009.
  3
    Longworth DL. “Accountable Care Organizations, the Patient-centered Medical Home, and Health Care Reform: What Does It All Mean?” Cleveland Clinic
    Journal of Medicine, 78(9): 571–582, 2011.
  4
    Hsiao C, Hing E, Socey TC, et al. “Electronic Medical Record/Electronic Health Record Systems of Office-based Physicians: United States, 2009 and
    Preliminary 2010 State Estimates.” U.S. Centers for Disease Control and Prevention, National Center for Health Statistics, 2010, www.cdc.gov/nchs/data/hestat/
    emr_ehr_09/emr_ehr_09.pdf (accessed October 2011).


More explicit ACO requirements that                     direct benefits of participating in the                  the 30th percentile or percent (de-
could lead to improved quality of                       program. Health economist Stuart                         pending on the measure) on at least
care include CMS’ decision to have                      Altman has noted that “[t]he great                       70 percent of the measures in each of
ACOs submit written plans explain-                      managed care environment of the                          four domains would not be eligible
ing how they will promote beneficiary                   1990s fell apart to a large extent over                  to share in any savings they generate,
engagement, coordinate care, promote                    the fact that the consumer, the patient,                 and would have one year to improve
evidence-based medicine, and mea-                       felt used.”35 To ensure that ACOs do                     performance before being terminated
sure quality. ACOs will also have to                    not inappropriately avoid beneficiaries                  from the program. ACOs would be
include a Medicare beneficiary on                       likely to need a lot of services, CMS                    eligible for higher shares of savings if
their governing board or provide an                     will monitor ACOs and end their par-                     they perform at higher percentiles on
alternative means of assuring mean-                     ticipation in the program if they avoid                  these measures.
ingful opportunity for beneficiaries to                 at-risk beneficiaries who are likely to
participate in ACO governance.                          generate high costs.                                     The measure set proposed by CMS
                                                                                                                 includes clinical process and patient
Although ACOs have great potential                      Will Quality Measures                                    experience-of-care measures, with a
to benefit patients through improved                    Protect Patients Against                                 few outcome measures. These mea-
care quality and patient-centeredness,                                                                           sures fall into four domains: patient/
the ACO model’s incentive to lower
                                                        Harm?                                                    caregiver experience, care coordina-
health care spending could lead                         ACO proponents think that publicly                       tion/patient safety, preventive health,
providers to stint on needed care to                    available quality measures can go a                      and at-risk population measures. There
save money. However, the backlash                       long way towards protecting patients                     are no efficiency or resource use mea-
against HMOs in the 1990s appears                       against the kind of stinting on care that                sures, presumably because the pay-
to be causing both public and pri-                      patients perceived HMOs as engaging                      ment model itself provides incentives
vate plans to build in protections and                  in during the 1990s.                                     for ACOs to be cost-conscious.
mechanisms to prevent stinting—not
only because withholding needed care                    In the MSSP, CMS will monitor ACOs                       It is unclear whether quality measures
is ethically wrong, but because ACOs                    through their reporting on 33 quality                    currently are up to one of the tasks
could fail if patients do not perceive                  measures. ACOs that do not perform at                    assigned them, that is, to ensure that
                                                                                                                 cost savings will not be achieved by
                                                                                                         Timely Analysis of Immediate Health Policy Issues           7
stinting on care. Although the selected    a quarterly basis. Then, at the end of      ensuring that patients remain in good
quality measures address some areas        the year, CMS will calculate ACOs’          health, which could “raise all boats”
that have not been given sufficient        shared savings bonus payments based         and thus shrink the current dispari-
attention in current volume-based          on a re-assessment of where those ben-      ties in the receipt of high-quality care
payment systems, such as care coordi-      eficiaries actually ended up receiving a    among these subgroups.37 On the
nation and care of at-risk populations,    plurality of their primary care services.   other hand, ACOs may end up form-
they do not cover the full range of        CMS calls this approach “preliminary        ing in areas that have more resources
areas that an organization responsible     prospective assignment.” Beneficiaries      available to devote to the infrastruc-
for the entire continuum of care for a     cannot opt out of having their data         ture investments necessary to get an
population of Medicare beneficiaries       used to measure the performance of          ACO up and running—for example, in
should address; for example, appro-        their provider’s ACO, but they will         areas where a higher proportion of the
priate referral to specialized centers     have the opportunity to decline to          population has private insurance and
outside the ACO, when specialized          allow their clinical information to be      providers are therefore reimbursed at
expertise is needed to treat particular    shared with the ACO to which they           more generous reimbursement levels.
forms of cancer.                           are likely to be assigned, for privacy      This could lead to an inadvertent exac-
                                           reasons.                                    erbation of health disparities, if racial
As noted earlier, CMS will be requir-                                                  subgroups are left behind as other
ing ACOs to describe in their applica-     For their part, private ACO contracts       populations are targeted by ACOs.
tions how they will ensure the delivery    suggest that there is not yet a con-
of evidence-based medicine, patient        sensus on the best way to attribute         CMS’ Medicare ACO regulations in-
engagement in care, care coordination,     patients to an ACO. Some of Aetna’s         clude some provisions designed to en-
and quality measurement. Monitoring        ACO contracts use prospective patient       courage ACOs to form in areas likely
whether ACOs actually engage in the        attribution, and others use retrospec-      to have fewer resources and lower-
activities they describe could be used     tive attribution. Blue Cross Blue           income patients. For example, under
to address quality issues not easily       Shield of Illinois uses an approach         the final regulations for the MSSP, fed-
amenable to quality measurement.           that it calls “prospective based on         erally qualified health centers (usually
For example, if an ACO commits to          retrospective utilization,” and Anthem      located in underserved areas), rural
producing referral guidelines that         / WellPoint uses a similar hybrid ap-       health centers, and critical access hos-
would inform clinicians of the specific    proach. Meanwhile, Blue Cross Blue          pitals (located in remote areas) are all
conditions that are appropriate to refer   Shield of Massachusetts uses prospec-       allowed to form ACOs.38 The ultimate
to specialized centers of excellence,      tive attribution, while Horizon Blue        impact of these provisions, and ACOs
CMS could monitor the ACO to see           Cross Blue Shield of New Jersey and         more generally, on health disparities
whether the guidelines were generated      Medica Health Plan in Minnesota both        remains to be seen.
and whether providers are using them.      use retrospective attribution.36 Within
                                           a few years, health plans and provider      Will Provider Consolidation
Will Patients Get to Choose                organizations should have learned           into ACOs Raise Prices for
Whether to Participate in an               some useful lessons about the pros and      Private Insurers?
ACO?                                       cons of these different patient attribu-
                                           tion approaches.                            ACOs are designed to reduce fragmen-
In the MSSP, beneficiaries will retain                                                 tation and poor coordination between
the freedom to seek care from any          Will ACOs Address Health                    different providers, which could lead
health care providers they choose. But     Disparities?                                to lower health care utilization, but
if a beneficiary obtains the plurality                                                 they could also produce higher prices
of their primary care from a provider      Although ACOs will focus on im-             as hospitals and physicians consolidate
who belongs to an ACO, that ben-           proving adherence to evidence-based         and become more powerful nego-
eficiary’s total health care spending,     medicine in order to improve provid-        tiators.39 This could worsen existing
along with care quality metrics, will be   ers’ performance on clinical quality        problems: studies exploring why U.S.
measured and used to assess whether        measures, it is unclear whether this        health care spending far exceeds that
their provider’s ACO is eligible for       focus will ameliorate or exacerbate         of other countries have already found
shared savings bonus payments. ACOs        current health disparities among racial     that substantially higher prices—and
will be sent lists of beneficiaries they   and socioeconomic subgroups. On the         not the overuse of services such as
are likely to be held accountable for      one hand, racial minorities may benefit     doctor visits and hospitalizations—is a
under CMS’ assignment algorithm on         from ACOs’ increased attention to           leading cause of our higher spending.40
                                                                                Timely Analysis of Immediate Health Policy Issues   8
Because of the concern that newly          ted to CMS, a different antitrust           It remains unsettled whether the pri-
formed ACOs could use their new-           enforcement approach would focus            mary purpose of the MSSP and com-
found market power to demand and           on an ACO’s actions, not its size and       panion Pioneer ACO model should be
receive higher payment rates from          configuration. One such performance         to test the ACO concept to see if it is
private insurers, the U.S. Department      metric that could be used is per capita     broadly scalable to diverse providers,
of Justice (DOJ) and the Federal Trade     costs for non-Medicare patients served      whether or not it generates substan-
Commission (FTC) issued a proposed         by a Medicare ACO. If CMS measured          tial early savings to the government,
statement earlier this spring offering     ACOs against norms of private per           or whether the goal of the program
guidance about ACO configurations—         capita health spending, raising prices      should be to move as many providers
in terms of size and provider compo-       for private insurers would be self-de-      as possible into the program as soon
sition—that are safe from antitrust        feating for ACOs. Some private health       as possible to satisfy political pres-
scrutiny, those that might be problem-     plans are already collecting data on        sures to slow the growth in Medicare
atic, and those that are unacceptable.41   costs generated per patient as part of      spending.45
The proposed statement also called for     their private ACO contracts with pro-
a mandatory antitrust review for ACOs      viders, which suggests that reporting       In its final regulations, CMS seems
that met certain thresholds for provider   this data to CMS might not be admin-        to be adopting the former viewpoint.
concentration, i.e., if two or more pro-   istratively burdensome.43 Although          MedPAC has sided with this view; it
viders participating in an ACO provide     it might seem a stretch for CMS to          has stated to CMS that “it would be
a common service to patients from the      consider the ACO’s performance in           a mistake to assess the success of the
same Primary Service Area and have a       caring for non-Medicare patients as         shared savings program by counting
combined market share of 50 percent        a major determinant of its participa-       how many ACOs participate in the
or more.                                   tion in a program specific to Medicare      initial agreement period.”46
                                           beneficiaries, CMS’ final rule notes        In the view of Jay Crosson, former
The objective of these provisions is       that it has requested that the antitrust
to permit ACO configurations that are                                                  executive director of Kaiser Perman-
                                           agencies conduct a study examining          ente’s physician component, the ACO
large enough to truly become account-      what impact ACOs participating in the
able for the quality and cost of large                                                 concept is “too vitally important to
                                           MSSP have on the quality and price          fail.” He argues that the likely alterna-
populations, but not large enough to be    of health care in private markets. This
able to demand and receive high prices                                                 tive for providers if ACOs do not take
                                           leaves open the possibility that CMS        root could be blunt, across-the-board
from private health plans because of       could change the eligibility criteria for
their market dominance. The ACO                                                        cuts to payment rates.47 By the end of
                                           Medicare ACOs in the future to more         2012, we should know how success-
antitrust guidance provides protections    explicitly consider impact on market
against ACOs amassing market power                                                     ful CMS’ program was in attracting
                                           competition, using such performance         provider interest in the ACO model
by limiting an ACO’s permitted share       measures.
of providers who would otherwise be                                                    in Medicare, and how extensively the
competing in its market area.42                                                        private sector plans to experiment
                                           How Fast Will ACOs                          with this payment model. Within a
Many would-be ACOs opposed man-            Spread?                                     few years after that, we should have
datory review of ACOs for various          CMS estimates that the MSSP will            a much stronger evidence base about
reasons, including the argument that it    generate net savings of up to $940          how to improve quality and reduce
would be bad public policy to change       million over its first four years, assum-   costs using ACO-style payment ar-
the nature of antitrust enforcement        ing that 50 to 270 ACOs sign up to          rangements, given the experiments
from law enforcement to administra-        participate. According to the American      that Medicare and private sector
tion of a regulatory regime. In the        Medical Group Association, more than        providers and payers are currently
final rule, CMS no longer will require     100 of its member medical groups are        embarking on.
receipt of a letter from a reviewing       well positioned to become ACOs,44
antitrust agency (i.e., DOJ or FTC)        and many other providers are likely
confirming that it has no present intent   to be interested in exploring the ACO
to challenge an ACO on antitrust           concept. So far, the reception to CMS’
grounds, but CMS still recommends          final regulations has been positive.
that prospective ACOs seek a volun-        But how many organizations actually
tary review by an antitrust agency.        apply to CMS to be ACOs is another
As suggested in comments submit-           question.
                                                                                 Timely Analysis of Immediate Health Policy Issues   9
The views expressed are those of the authors and should not be attributed to any campaign or to the Robert Wood Johnson
Foundation, or the Urban Institute, its trustees, or its funders.

About the Authors and Acknowledgments
Robert A. Berenson, M.D., is an institute fellow and Rachel A. Burton, M.P.P., is a research associate at the Urban In-
stitute. The authors thank Judy Feder and Kelly Devers for their helpful comments and suggestions. This research was
funded by the Robert Wood Johnson Foundation.

About the Urban Institute
The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, eco-
nomic, and governance problems facing the nation.

About the Robert Wood Johnson Foundation
The Robert Wood Johnson Foundation focuses on the pressing health and health care issues facing our country. As the
nation’s largest philanthropy devoted exclusively to health and health care, the Foundation works with a diverse group of
organizations and individuals to identify solutions and achieve comprehensive, measurable and timely change. For nearly
40 years the Foundation has brought experience, commitment, and a rigorous, balanced approach to the problems that af-
fect the health and health care of those it serves. When it comes to helping Americans lead healthier lives and get the care
they need, the Foundation expects to make a difference in your lifetime. For more information, visit www.rwjf.org.




                                                                               Timely Analysis of Immediate Health Policy Issues   10
Notes                                                    first test ACOs as a Medicare pilot before rolling           Delbanco SF, Anderson KM, Major CE, et al.
                                                                                                                    21

                                                         them out as a permanent program. That bill also            “Promising Payment Reform: Risk-Sharing with Ac-
1
 Centers for Medicare & Medicaid Services, “42           authorized ACO pilots in the Medicaid program.             countable Care Organizations.” The Commonwealth
CFR Part 425, Medicare Program; Medicare Shared                                                                     Fund, July 2011, www.commonwealthfund.org/Publi-
Savings Program: Accountable Care Organizations,”
                                                         9
                                                          Kennedy K. “Health Care Providers Embracing               cations/Fund-Reports/2011/Jul/Promising-Payment-
www.ofr.gov/OFRUpload/OFRData/2011-27461_                Cost-saving Groups.” USA Today, July 24, 2011.             Reform.aspx (accessed October 2011).
PI.pdf (accessed October 2011).                          10
                                                            U.S. Congress. Patient Protection and Affordable        22
                                                                                                                       Bailit M and Hughes C. “Key Design Elements
2
 42 CFR 425, 76 Fed. Reg. 19528 (Apr. 7, 2011). For      Care Act, H.R. 3590. Public Law 111–148. 111th             of Shared-Savings Payment Arrangements.” The
a summary, see: Federal agencies released several ac-    Cong., (March 23, 2010). See Sec. 3021 and Sec.            Commonwealth Fund, August 2011, www.com-
companying public statements and notices: (1) a joint    10306.                                                     monwealthfund.org/Publications/Issue-Briefs/2011/
proposed statement from the Department of Justice                                                                   Aug/Shared-Savings-Payment-Arrangements.aspx
                                                         11
                                                           Centers for Medicare & Medicaid Services. “Pio-          (accessed October 2011).
and the Federal Trade Commission on how ACOs
                                                         neer Accountable Care Organization (ACO) Model
can avoid triggering antitrust concerns; (2) a joint
                                                         Request for Application,” www.innovations.cms.gov/         23
                                                                                                                         Delbanco, Anderson, Major, et al. 2011.
notice from CMS and the HHS Office of the Inspec-
                                                         wp-content/uploads/2011/05/Pioneer-ACO-RFA.pdf
tor General proposing waiving certain federal laws
                                                         (accessed October 2011).                                   24
                                                                                                                       Premier, Inc. “Premier’s Partnership for Care
for ACOs (specifically, the physician self-referral
                                                                                                                    Transformation™ (PACT) Collaboratives,” 2011,
law, the antikickback statute, and the civil monetary    12
                                                            Centers for Medicare & Medicaid Services.               www.premierinc.com/quality-safety/tools-services/
penalty law); and (3) an IRS notice soliciting com-      “Advance Payment Solicitation,” www.innovations.           ACO/index.jsp; American Medical Group Associa-
ments on whether nonprofit organizations thinking        cms.gov/documents/payment-care/APACO_Solicita-             tion. “Accountable Care Organizations,” www.amga.
of forming ACOs need additional guidance on how          tion_10_20_11_Compliant1.pdf (accessed October             org/research/research/ACO/index_aco.asp; The
to do so while maintaining their nonprofit status.       2011).                                                     Brookings Institution. “Brookings-Dartmouth ACO
(See: Office of the Inspector General. “Accountable
                                                                                                                    Learning Network,” https://xteam.brookings.edu/
Care Organizations,” http://oig.hhs.gov/compli-          13
                                                            Center for Medicare and Medicaid Innovation.            bdacoln/Pages/home_old.aspx (accessed October
ance/accountable-care-organizations/index.asp.) In       “ACO Accelerated Development Learning Sessions,”           2011).
addition, CMS issued a Request for Information in        www.innovations.cms.gov/areas-of-focus/seamless-
November 2010, which solicited public comments           and-coordinated-care-models/acolearningsession             25
                                                                                                                      National Committee for Quality Assurance.
on a variety of issues related to program design         (accessed October 2011).                                   “Accountable Care Organizations,” www.ncqa.org/
(See: CMS. “Request for Information Regarding                                                                       tabid/1312/Default.aspx (accessed October 2011).
Accountable Care Organizations and the Medicare          14
                                                            U.S. Congress. Medicare, Medicaid, and SCHIP
Shared Saving Program.” Federal Register, 75(221):       Benefits Improvement and Protection Act. Public Law        26
                                                                                                                      Sebelius K. Report to Congress: Physician
70165–66, 2010, www.gpo.gov/fdsys/pkg/FR-2010-           106–554. 106th Cong., (December 21, 2000). See             Group Practice Demonstration Evaluation Report,
11-17/pdf/2010-28996.pdf).                               Sec. 412.                                                  2009, www.cms.gov/reports/downloads/RTC_Se-
                                                                                                                    belius_09_2009.pdf; RTI International. “Physician
3
 Meyer H. “Accountable Care Organization Proto-          15
                                                           Leavitt M. Report to Congress: Physician Group           Group Practice Demonstration: Performance Year 1
types: Winners and Losers?” Health Affairs, 30(7):       Practice Demonstration First Evaluation Report,            - Preliminary Performance Year 5 Summary Results,”
1227–1231, 2011.                                         2006, www.cms.gov/reports/downloads/Leavitt1.pdf           www.cms.gov/DemoProjectsEvalRpts/downloads/
                                                         (accessed October 2011).                                   PGP_Summary_Results.pdf; Wilensky G. “Lessons
4
  Wolter N, Cooper R, Abelson D, et al. “Letter to
                                                                                                                    from the Physician Group Practice Demonstration—
Donald Berwick, Administrator of CMS,” The Hill,         16
                                                            Devers K and Berenson R. “Can Accountable Care
                                                                                                                    A Sobering Reflection.” New England Journal of
May 12, 2011, www.thehill.com/images/stories/            Organizations Improve the Value of Health Care by
                                                                                                                    Medicine, September 14, 2011, www.nejm.org/doi/
blogs/healthwatch/unhappyacos.pdf; Spencer J and         Solving the Cost and Quality Quandaries?” Washing-
                                                                                                                    full/10.1056/NEJMp1110185 (accessed October
Herb J. “Mayo opposes key health reform provi-           ton: The Urban Institute, October 2009, www.rwjf.
                                                                                                                    2011). Note: The two PGP demo participants that did
sion.” Star Tribune, June 10, 2011, www.startribune.     org/files/research/acobrieffinal.pdf (accessed October
                                                                                                                    not own a hospital were the Marshfield Clinic and the
com/business/123668729.html; Adams R. “Model             2011).
                                                                                                                    Everett Clinic, Sebelius, 2009.
ACO Health Centers Skeptical of Proposed Rule.”
Washington Health Policy Week in Review, May 6,
                                                         17
                                                            Medicare Payment Advisory Commission. (Public           27
                                                                                                                      Pope G, Kautter J and Trebino D. “Financial
2011, www.commonwealthfund.org/Content/Newslet-          meeting transcript, Washington, November 8, 2006.),
                                                                                                                    Results from the Physician Group Practice (PGP)
ters/Washington-Health-Policy-in-Review/2011/May/        www.medpac.gov/transcripts/1108_1109_medpac.
                                                                                                                    Demonstration.” (Presentation at AcademyHealth’s
May-9-2011/Model-ACO-Health-Centers-Skeptical.           final.pdf (accessed October 2011).
                                                                                                                    Annual Research Meeting, Boston, MA, June 2010),
aspx (accessed October 2011).                                                                                       www.academyhealth.org/files/2010/sunday/pope.pdf
                                                         18
                                                              Fisher, Staiger, Bynum, et al. 2007.
                                                                                                                    (accessed October 2011).
5
 Weinstock M, “Bringing ACOs Back to Life,”
H&HN Daily, October 21, 2011.
                                                         19
                                                            Private-sector ACO contracts differ from Medicare
                                                         ACO contracts in that private ACO arrangements are
                                                                                                                    28
                                                                                                                      Haywood TT and Kosel KC. “The ACO Model—A
                                                         typically being implemented in preferred provider          Three-Year Financial Loss?” New England Journal
6
 Fisher ES, Staiger DO, Bynum JPW, et al. “Creat-
                                                         organizations (PPOs), which by definition already          of Medicine, 364(e27): e27(1)-e27(3), 2011, www.
ing Accountable Care Organizations: The Extended
                                                         provide a financial incentive for patients to seek care    nejm.org/doi/full/10.1056/NEJMp1100950 (accessed
Hospital Medical Staff.” Health Affairs, 26(1): w44–
                                                         from a certain network of providers by requiring           October 2011).
w57, 2007.
                                                         patients to pay a higher co-pay if they seek care          29
                                                                                                                         Sebelius, 2009.
7
  Centers for Medicare & Medicaid Services. “Details     outside of the PPO network. By contrast, nearly all
for Medicare Physician Group Practice Demonstra-         physicians accept Medicare, meaning that fee-for-          30
                                                                                                                      Centers for Medicare & Medicaid Services. “Medi-
tion.” August 10, 2011, www.cms.gov/demoproject-         service Medicare beneficiaries are not charged higher      care Physician Group Practice Demonstration,” July
sevalrpts/md/itemdetail.asp?itemid=CMS1198992            co-pays when they go out of network since there            2011, www.cms.gov/DemoProjectsEvalRpts/down-
(accessed October 2011).                                 is effectively no such thing as an out-of-network          loads/PGP_Fact_Sheet.pdf (accessed October 2011).
                                                         provider in Medicare.
8
 U.S. Congress. Patient Protection and Affordable                                                                   31
                                                                                                                         Sebelius, 2009.
Care Act, H.R. 3590. Public Law 111–148. 111th           20
                                                           Higgins A, Stewart K, Dawson K, et al. “Early Les-
Cong. (March 23, 2010). See Sec. 3022 and Sec.           sons from Accountable Care Models in the Private           32
                                                                                                                      Berenson R. “Shared Savings Program for Ac-
10307. Note that the version of the health reform bill   Sector: Partnerships Between Health Plans And              countable Care Organizations: Bridge to Nowhere?”
originally passed by the House in November 2009          Providers.” Health Affairs, 30(9): 1718–1727, 2011.        American Journal of Managed Care, 16(10): 721–6,
used a more cautious approach, directing CMS to                                                                     2010. See also Iglehart JK. “Assessing an ACO

                                                                                                              Timely Analysis of Immediate Health Policy Issues        11
Prototype—Medicare’s Physician Group Practice           that “clinical integration” designed to improve qual-
Demonstration.” New England Journal of Medicine,        ity and efficiency may outweigh the concern that the
364: 198–200, 2011.                                     collaboration will permit the providers to exercise
                                                        their enhanced market power to raise prices to
33
  Berenson R. “Shared Savings Program for Ac-           health plans. Under a “rule of reason” approach, the
countable Care Organizations: Bridge to Nowhere?”       antitrust enforcement agencies can review particular
American Journal of Managed Care, 16(10): 721–6,        circumstances to decide whether the objectives of the
2010; MedPAC. “RE: File code CMS-1345-NC.”              clinical integration are supported by actual behavior
Letter to Donald Berwick, Administrator of CMS,         of the collaborating entity, usually an IPA.
November 22, 2010, www.medpac.gov/docu-
ments/11222010_ACO_COMMENT_MedPAC.pdf                   43
                                                             Higgins, Stewart, Dawson, et al. 2011.
(accessed October 2011).
                                                        44
                                                           Crosson FJ. “The Accountable Care Organization:
 U.S. Congress. Patient Protection and Affordable
34
                                                        Whatever Its Growing Pains, the Concept Is Too
Care Act, H.R. 3590. Public Law 111–148. 111th          Vitally Important to Fail.” Health Affairs, 30(7):
Cong., (March 23, 2010). See Sec. 3022 and Sec.         1250–1255, 2011.
10307.
                                                        45
                                                           Feder J and Cutler D. “Achieving Accountable
35
  “ACOs: Implication for Consumers.” Waltham,           and Affordable Care: Key Health Policy Choices to
MA: Brandeis University, 2011, http://healthforum.      Move the Health Care System Forward.” Center for
brandeis.edu/meetings/materials/2010-14-oct/cr-         American Progress, 2010, www.americanprogress.
2010-oct-14.pdf (accessed October 2011).                org/issues/2010/12/pdf/affordablecare.pdf (accessed
                                                        October 2011); Iglehart J, et al. “Commentary from
36
     Delbanco, Anderson, Major, et al. 2011.            National Thought Leaders,” Accountable Care News,
                                                        2(12): 4, 2011.
37
   Agency for Healthcare Research and Quality.
“2010 National Healthcare Disparities Report.”          47
                                                           MedPAC. “RE: File code CMS-1345- P.” Letter
AHRQ Publication No. 11-0005. Rockville, MD:            to Donald Berwick, Administrator of CMS, June
U.S. Department of Health and Human Services,           6, 2011, www.medpac.gov/documents/06062011_
2011, www.ahrq.gov/qual/nhdr10/nhdr10.pdf (ac-          ACO_CMS1345_MedPAC_COMMENT.pdf (accessed
cessed October 2011).                                   October 2011).
38
  Initially, CMS proposed not allowing most of these    47
                                                             Crosson, 2011.
organizations to form their own ACOs, citing the
ACA’s statutory requirement that beneficiary assign-
ment to an ACO be based on utilization of primary
care services provided by ACO professionals; these
organizations are paid without having to submit
individual claims for services rendered so they did
not meet the technical requirements to be designated
as ACOs. In the final rule, CMS committed to rec-
ognizing alternative payment methods as qualifying
FQHCs and RHCs for recognition as ACOs on their
own.
39
  Berenson RA, Ginsburg PB and Kemper N. “Un-
checked Provider Clout in California Foreshadows
Challenges to Health Reform.” Health Affairs, 29(4):
699–705, 2010.
40
   Anderson GF, Reinhardt UE, Hussey PS, et al. “It’s
The Prices, Stupid: Why the United States Is So Dif-
ferent from Other Countries.” Health Affairs, 22(3):
89–105, 2003; Laugesen M and Glied S. “Higher
Fees Paid to U.S. Physicians Drive Higher Spending
for Physician Services Compared to Other Coun-
tries.” Health Affairs, 30(9): 1647–1656, 2011.
41
  U.S. Department of Justice and Federal Trade
Commission Antitrust Division. “Proposed Statement
of Antitrust Enforcement Policy Regarding Account-
able Care Organizations Participating in the Medicare
Shared Savings Program.” Federal Register, 76(75):
21894–21902, 2011.
42
  The DOJ/FTC proposed statement assumes that
CMS’ proposed ACO eligibility criteria are consis-
tent with the indicia of “clinical integration” that
the agencies have previously set forth for guidance
on whether to assess collaborative efforts among
otherwise independent providers according to more
lenient “rule of reason” analysis rather than strict
“per se” treatment. That guidance adopts the position

                                                                                                         Timely Analysis of Immediate Health Policy Issues   12

				
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