visit ontolawgy™ LLC’s main site


A rose by any other name: ACOs to receive kickbacks for reducing short-term Medicare expenditures

Let’s start with the basics:

“ACO” stands for “Accountable Care Organization”. This is a new type of entity designed to allow the government to pay kickbacks to certain organizations that provide health care to Medicare patients, as authorized by §§ 3022 and 10307 of the Patient Protection and Affordable Care Act of 2010 (“PPACA”), a.k.a. Pub L. 111-148, a.k.a. H.R. 3590 ENR, a.k.a. the “health care reform” law. (This is a lovely example of PPACA amending itself; for even more “fun”, check out § 10309, all its references, and the additional amendments made by the Reconciliation Act, Pub. L. 111-152).

At its core, an ACO is a “group[] of providers of services and suppliers”—in Medicare-speak, that’s (very) generally hospitals, nursing homes and similar facilities, and doctors or other professional practitioners—who can get kickbacks from Medicare for incurring lower than average costs to treat their Medicare patients. Of course, the statute gets a bit more specific on eligible “providers ... and suppliers”, goes into a bit more detail than “average”, and it doesn’t call the payments “kickbacks”, but that is the gist of the program, which is due to start in 2012. (Note: The ACO model seems likely to run afoul of civil and criminal statutes that prohibit kickbacks and certain referral arrangements, but Congress has authorized HHS to “waive” the application of those statutes to allow ACOs to operate. This will likely begin to get sorted out over the next 16 months or so in the regulatory process that is scheduled to begin in the fall of 2010.)

Like any good government program, the ACO payment arrangement has an appropriate euphemism: the “shared savings program.” Why? Because the Medicare program saves money on patient treatment and shares some of that money with doctors and hospitals.

How does an ACO work?

For (a very basic) example, person A with diabetes and a heart condition visits an ACO doctor 3 times in a year, and person B with diabetes and a heart condition sees a “regular” doctor 5 times in a year; both A and B have the same outcome (let’s assume that neither A nor B go into a diabetic coma or have a heart attack).

The ACO and Medicare split the difference between the cost of treating A and the cost of treating B. That is, the ACO doctor gets paid for 3 visits, and the ACO gets paid some portion of the difference between 3 and 5 visits. The exact ratio, as well as some additional conditions, will start to be determined by regulation within the next 16 months or so. The doctor treating B would still get paid for 5 visits, assuming the visits were not “not reasonable and necessary” (the statute that authorizes all Medicare reimbursement is written in the double negative) and met other coverage criteria.

So, why would a doctor choose to join an ACO, if he or she might get paid less (in the short run) for treating the same kind of patients?

There are other components to the “shared savings program” that may help explain. Medicare will only pay the “shared savings” to an ACO that meets certain to-be-determined “quality” standards, which require Medicare to collect patient outcome data from the ACO. Thus, Medicare gets data on patient outcomes that it will (one hopes) use to adjust payment policies to encourage health care provider behavior that leads to better outcomes; you could look at this as Medicare paying a consulting fee to efficient health care providers for data on best practices. You could also look at it as a kickback for skimping on care, but these are ACOs, not HMOs, right? Well, maybe; we’ll get to that in a bit....
In the meantime, what’s in it for the ACOs? Medicare will likely “assign” patients to them, so the ACOs have a built-in referral source (which raises some interesting issues that the coming regulations will almost surely address). This means that the ACO members may see higher volume than they otherwise would. That is, theoretically, ACOs could treat more people less often, resulting in an overall increase in revenue.

One potentially exciting aspect of the program is that Medicare would finally be allowed to step into the 20th century: ACOs will be encouraged to use practices such as “telehealth”, that is, telephone and video (e.g., Skype) conversations with patients. Medicare generally only pays for those now if you, as a patient, are physically present in an area so remote that there is likely no telephone or internet service, and happen to be named Yossarian. (I exaggerate slightly, but under current law, it is exceedingly rare for Medicare to pay for “telehealth” services). The “shared savings program” also encourages “remote monitoring” (e.g., check your blood sugar at home, electronically send results to your doctor), for which Medicare does not currently pay at all.

These technologies can, theoretically, cut down on the need for costly office visits, so patient A, above, might only actually physically see the ACO doctor one time a year, and the ACO would split the difference with Medicare for the difference between 1 office visit and 5 office visits—again, ratio TBD, but add that up over a few hundred patients, and now you, as a doctor or hospital, are quite possibly doing less work for more money, not to mention keeping your patients healthier.

What’s not to like?

Well, that’s just the first part. The rest, hidden down in PPACA § 10307, adds some interesting wrinkles.
The “shared savings” payments under § 3022 were designed to be made based on actual projected savings, but § 10307 authorizes a a “partial capitation” model, where ACOs are “at risk for some or all” of the services furnished to its patients under Medicare Parts A and B. This could be limited to ACOs that are “highly integrated systems of care” or are “capable of bearing risk”, which raises the question: What is a group of hospitals and/or doctors that is a highly integrated system of care that is capable of bearing risk? It sounds quite a bit like an HMO to me.

Granted, these latter two conditions are not “requirements”, but Medicare is authorized to make them requirements in order to make these payments to an ACO. There is also a statutory cap on the capitated payments to prevent a political disaster similar to the one in which Part C plans were getting paid more per patient than the average Medicare Part A & B patient cost the Medicare programs. CMS has also—so far, informally—stressed that unlike an HMO, patients would not be required to go to the ACO for care, which raises some other questions about how “savings” could be reliably measured.... Congress has also given CMS carte blanche to implement “any payment model that the Secretary determines will improve the quality and efficiency of items and services furnished” without incurring additional program expenditures.

Stay tuned for further developments and examples of how the ontolawgy™ platform can help to navigate the coming ACO regulatory system. If you have specific questions or would like a demonstration, please contact me via or Twitter.

© 2010 Alex M. Hendler. All Rights Reserved.