The State of Play on Medicare ACOs

June 7, 2011
|In Policy & Health Reform, Provider Relations, Strategy, ACOs
|By GHG Advisors

The comment period for the Medicare Accountable Care Organization (ACO) Notice of Proposed Rulemaking closed yesterday, June 6.  In the last two months CMS has taken a beating from virtually every corner on the draft regulation as being overly burdensome. 

Dozens of groups, including the American Hospital Association (AHA), American Medical Association (AMA) and America’s Health Insurance Plans (AHIP), submitted their comments on the proposal. High-profile Physician Group Practices (PGPs) such as the Cleveland Clinic and Mayo Clinic have said they are unlikely to participate in the Medicare ACO initiative.

AHA fears high implementation costs and excessive quality requirements will prevent hospitals from forming ACOs. AHA believes it will cost a 200-bed hospital with 80 primary care physicians and 250 specialists $11.6M to launch a Medicare ACO; a 1,200-bed, 5-hospital system with 250 primary care physicians and 500 specialists is expected to run $26.1M.

Battle lines were drawn on antitrust issues in comments from AMA and AHIP, which offered diametrically-opposed recommendations.

We believe CMS will listen to entreaties to reduce the quality reporting burden and will help provide improved cash flow for ACOs (we hope through partial capitation and getting rid of the 25% withhold) and possibly increase the share of savings that ACOs can keep, to encourage adoption.  But given the huge volume of comments and political sensitivities in Congress on ACOs, we think it will be toward year-end before a final regulation is issued. 

The “Pioneer ACO” Demonstration is scheduled to begin this fall, with applications due to CMS July 18 and a full program launch January 1st.  We are seeing moderate interest among marquee providers — especially those with their own Medicare Advantage plans — in participating in the Pioneer ACO Demonstration and believe chances are good that CMS will fill its 30 slots for these “ready to launch” ACOs if the agency listens to industry input on partial capitation arrangements in the coming weeks.