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Final ACO Rules

Stanley Feld M.D.,FACP, MACE

In the hope of getting more hospital systems and practices to participate in Accountable Care Organizations CMS has again changed the rules.

Below is a summary of the new rules.

  1. Regional benchmarks will replace national benchmarks.Cost benchmarks will now be based on regional spending data, as opposed to national spending data, when an ACO signs up for a second or subsequent contract period. ACO efficiency will be measured against other regional providers instead of against past performance.
  2. Track 1 ACOs will have the option of renewing under a two-sided model.If the application for renewal is approved, the ACO can defer exposure to downside risk for one year before transitioning to Track 2 or Track 3.
  3. Timeframes have been established for appealing calculations for shared savings or losses.ACOs will have four years to file an appeal.
  4. The new methodology will be implemented in phases.It will begin with ACOs entering contract periods on or after January 1, 2017.”


The goal of CMS is to use the ACO model to move reimbursement from a fee for service model to a value-based model.

Health policy wonks got the idea that if you attach reimbursement to quality care you will get less expensive care.

The problem is it is not known how to measure the value of medical care in automated computerized terms. The government needs medical care to be measured in computerized terms so that value can be automatically determined and related to reimbursement. Reimbursement should be congruent to both medical and financial outcomes.

Many false assumptions are made in evaluating quality medical care. Many important elements of quality medical care are ignored.

Three of the most important elements of quality medical care are the patient-physician relationship, the patients owning the responsibility for their health, their adherence to the care recommended by their physician, and making sure they are responsible for their follow-up care.

The new rules also ignore a consideration of physicians’ medical judgment in evaluating quality medical care. Medical judgment is very important in the delivery quality medical care.

These three elements of quality medical care are difficult to measure on a computer in an ACO model. ACOs focus on best practices using evidence based medicine and documentation of appropriate testing and treatment. The goal is to reduce the cost of healthcare.

ACOs shift financial risk to physicians and hospitals. ACOs ignore the financial responsibility of patients and their performance in their self-care.

In the new rules the healthcare policy wonks got one thing right. They are trying to increase the financial incentives for physicians and hospitals to do a better job. However, the methods the measurements are wrong.

So far there are only 433 Medicare Shared Savings Program ACOs. There are 3000 hospital systems that should be participating in Obamacare’s ACO program.

Only 14% of the hospital systems are participating after 3 years.

There are many large physician practices that should be participating in the ACO program. The number of physician groups that would qualify for an ACO program is unknown.

Only 22 of the 433 ACOs are in the track 2 group. Track 2 shares in both the profit and the loss of the group at the end of a year. There are 411 in the track 1 group. These 97% only share in the profit and not in the loss.

In the new rules the government is attempting to move from a fee for service system to a value-based care system with physicians and not the government or insurance companies being at risk.

What are the problems with the new rules?

The government is trying to increase the incentives for everyone to accept financial risk for increased quality care using inaccurate and unproven quality measurements.

The government is trying to soften the blow by giving ACOs an optional 4th year of staying on track 1 before being forced into tract 2. It doesn’t encourage the non participants to participate in the ACO program.

The changed rule does not encourage non-participating hospital systems and physician groups. The non-participants might not have the resources to participate.

The government believes benchmarking savings is the problem. In 2017 the government is changing to regional benchmarking in an attempt to encourage greater physician and hospital buy in and participation.

The elephant in the room is not the benchmarking rule,” said Clif Gaus, CEO of the National Association of ACOs, a trade group run by hospitals and physician groups.


“It is: What is CMS going to do to improve the business model for the one-sided ACOs and provide a lower-risk track for the two-sided programs?”


The determination of bonuses and penalties has been difficult for CMS. There is a deep mistrust of government and new rules in the medical community. The government is now saying trust me it will work out.

Many have raised concerns that the CMS still is not doing enough to increase provider trust and ease providers fear into riskier ACO models.

The government has basically gone all-in with the ACO as the vehicle to try and control fee-for-service, and they will continue to tinker with the regulations and the rules until they find something that works,” healthcare consultant Nathan Kaufman said.

 There was an inherent unfairness to the initial benchmarks the government set. It was based on the historical Medicare spending of a hospital system or practice.

Periodically the benchmarks were reset. Healthcare systems with higher costs and waste in the ACO system were more likely to share in the savings with the government than a more efficient system that had less potential for eliminating waste.

It also meant that at the next reset of the benchmark the newly improved healthcare system would have less chance of improving efficiency and therefore less chance of sharing savings with the government. In the track 2 of the ACO system, the hospital system would have more chance of having a penalty.

In other words the sharing system become a disincentive to improve because physician and hospital payment would decrease against a continuingly improving delivery of care.

The new rule sets regional benchmarks. In the long run it would have the same negative effect if everyone improved.

“ Some health systems have pulled out of the ACO programs in the past few years due to the lack of regional factors associated with bonuses.”

“The problem is so few ACOs have been able to generate the incentives to encourage physician participation,” Kaufman said.

Experts say the benchmarking changes will not fix an underlying problem. Most physicians and hospital systems are wary of the program’s more aggressive tracks. They are afraid of facing sizable penalties if they don’t contain costs as directed by the government and the healthcare insurance industry.

These providers are still are risk to keep patients healthy. It might be a risk that physicians understand are not under their control.

The risk of keeping patients healthy is under patients’ control! They must follow the advise of their physicians.

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

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