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The Accountable Care Organizations (ACOs) Plot Thickens.

 Stanley Feld M.D., FACP, MACE

Thousands of articles have been written about forming ACOs. Millions of dollars have been spent by hospital systems to try to form an ACO. Healthcare policy consultants have discovered a new cash cow.

Hospitals systems are wasting their money. They think the return from owning salaried physicians’ intellectual property will be more than worth the cost.

  1. Thousands of physicians have been confused by the concept of ACO.
  2. Many have felt ACOs are an attack on their freedom to practice medicine the best they can.
  3. Many have rejected the concept because they feel they will have to be salaried by hospital systems.
  4. Many physicians do not trust President Obama or Dr. Don Berwick.
  5. The Stage 2 ACO regulations are not easy to understand. They are more ominous than the stage 1 regulations.

The two core stated objectives for ACOs are:

(1) Reducin healthcare costs.

(2) Preserving and improving quality. 

The stated objectives are laudable. The government regulations and controls are confusing. They are a threat to physician autonomy. There are many unwritten rules pending. Physicians are being asked to accept the unwritten rules on blind faith and trust them.

ACO requirements are;

 1.     Agrees to participate for three years.

2.     Cares for 5,000 Medicare patients

 3.     Is prepared to receive and distribute shared savings.

4.     Is prepared to repay shared losses (if it takes economic risk).

5.     Establishes reporting, and ensures ACO participant and ACO provider/supplier compliance with program requirements, including the quality performance standards.

6.     Has shared governance that provides all ACO participants proportionate control over the ACO’s decision making process and includes Medicare patient representatives.

7.     Is operated and directed by Medicare-enrolled entities that directly provide health care services to Medicare patients. ACO participants (e.g. physicians, hospitals) must have at least 75 percent control of the ACO’s governing body.

8.     Has sufficient primary care physicians to meet the primary care needs of the ACO patients.

9.     Has administrative and clinical organization and leadership.

10.  Is patient-centered though the use of such things as patient assessments and individualized care plans

11.  Is subject to substantial monitoring and reporting requirements, including public reporting of quality data to ensure transparency.

The rules get complicated. They will be difficult to execute and enforce.


Those who can participate include,

  • Group medical practices
  • Networks of group practices (e.g. IPAs)
  • Partnerships of joint ventures between hospitals and physicians (e.g. PHOs)
  • Hospitals employing physicians
  • Anything else that accomplishes the objectives of the Act

Group practices are placed at the top of the list intentionally. It is to decrease physicians’ anxiety and sense of losing control.

 The only way ACOs have a small chance of succeeding is if physicians are hired by the hospital systems and the hospital systems divide the money. The fight will then be between hospital systems and their physicians.

Two questions immediately come to mind:

  1. How is the calculation done to divide the money by the hospital system? What money is taken off the top for hospital systems’ salaries and expenses before the savings is shared with physicians?
  2. If there is a loss rather than a cost saving, and the government reduces the ACO’s compensation, how is the distribution of the loss calculated? Let us say four physicians in the system were responsible for 90% of the loss.  Should everyone be responsible? I do not think any of this has been thought out.

The legal issues involved with ACO’s are vast and expensive. One issue revolves around the Stark law and the anti -kickback statutes in the law. How can an ACO participate in the proposed Medicare Shared Savings and not violate the Stark law provisions? Easily say the OIG and CMS. They will issue waivers from the Stark law. The implication is these agencies will bypass congress once more. 

The provisions listed to get an anti-kickback waiver are complicated. It will require expensive compliance. There will be issues which will require expensive legal action by the hospital systems and physicians as a result of a net decrease in reimbursement.

“Conceptually speaking, DOJ has publically stated that they will seek to support organizations which accomplish the law’s two core objectives—lower cost and improve quality. More specifically, DOJ has said “[they] will not challenge an ACO that otherwise meets the CMS criteria to participate in the Shared Savings Program if ACO participants that provide the same service (common service) have a combined share of 30 percent or less of each common service in each ACO participant’s Primary Service Area (PSA), wherever two or more ACO participants provide that service to patients from that PSA.”

 Does anyone understand this? It gets worse.

 “DOJ have even allowed for the possibility of ACOs where the combined PSA share would exceed 30 percent in saying “an ACO outside the Safety Zone may proceed without scrutiny by the Antitrust Agencies if its combined PSA share for each common service, wherever two or more ACO participants provide that service to patients from that PSA, is less than or equal to 50 percent. An ACO in this category is also highly unlikely to present competitive concerns if it avoids certain specified conduct.”

As we get further into the weeds the Stage 2 ACO regulations become even more confusing.

“The Justice Department has stated that they will use the more malleable “rule of reason” analysis when reviewing ACOs. The Antitrust Policy Statement explains, however, that for ACOs that do not meet the Rural Exception, a combined PSA share for common services of more than 50 percent provides a valuable indication of an ACO’s potential for competitive harm.” DOJ is proposing an expedited review process for ACOs; and we can expect many ACOs to line up for the review process.”

My reflex is that you have to trust that President Obama will do the right thing for physicians and their patients.

You also have to trust that the hospital systems that salary physicians will be looking out for their physicians and not themselves while owning physicians’ skills and intellectual property.

It will be a very difficult task!

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.








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