Wednesday, June 8, 2011

AMA points out potential problems with CMS proposals on ACOs

Recently, the Centers for Medicare and Medicaid Services (CMS) issued proposed regulations (76 FR 18,528, April 7, 2011) for implementing ACA Sec. 3022, which provides for the creation of a Medicare shared savings program via Accountable Care Organizations (ACOs). The purpose of the regulations is to facilitate the improvement of care for those on Medicare in ways that generate savings for the Medicare program and to test new delivery and payment models so that medical providers can improve the program and to share in a portion of the generated savings. Under the provisions of the proposed regulations, providers of medical services and suppliers can continue to receive traditional Medicare fee-for-service payments under Parts A and B, and be eligible for additional payments based on meeting specified quality and savings requirements.

Who better than the American Medical Association (AMA) to point out any errors in judgment those over at the CMS may have made when coming up with the proposed regulations? The AMA has sent a letter to the CMS regarding the proposed regulations, recommending that certain provisions be changed in favor of physicians opting to participate in ACOs.

The CMS is apparently planning to keep a substantial percentage of savings achieved by the new ACOs. For example, the CMS will retain the first two percent of each ACO’s savings and, for most ACO’s, approximately 40% to 50% of savings after that. Now, in the new proposed regulations, the CMS also apparently plans to apply a flat 25% withholding rate annually to each ACOs earned performance payment. The AMA points out that this provision would penalize the best-performing ACOs, with no impact on the poorest performing ACOs, because it is based on a percentage of the savings the ACO initially achieves, not on the total expenditures it is working to reduce. In other words, the better an ACO performs in the first two years, the bigger the penalty the CMS will impose on it.

The CMS is also proposing that ACOs pay a penalty to Medicare if patient costs are higher than projected CMS levels. Two models are provided in the regulations - Track 1 and Track 2. In the first track, ACOs will be eligible to recieve shared savings for their first two years, but would have to repay any losses to Medicare beyond the CMS projections starting in year three. In the latter, ACOs would be responsible for any losses to Medicare starting in year one.

The AMA is strongly recommending that the regulations be changed, to provide a higher percentage of savings potential for ACOs, especially in the first few years of operation. The AMA has an extensive list of reasons why ACOs should not have to assume this risk of loss, especially in their first few years. For example, at the moment, providers do not have access to Medicare claims data for purposes of assessing the extent of financial risk they would be taking if they participated in an ACO. Also, the way the proposed regulations are currently written, no ACOs would know which patients are being assigned to them until after the fact. Third, there is no provision in the regulations for adjustment of the CMS projected cost levels if, as is likely, the health status of patients attributed to various ACOs changes dramatically. Furthermore, the AMA points out that ACOs that attract sicker patients, which is presumably what the CMS would want them to do, may be the most likely to see an increase in costs over time.

It's not surprising that the AMA is advocating for more savings for medical providers and fewer payments for the CMS, but it's hard to deny that physicians and other medical providers and suppliers will have to have a good incentive to join ACOs. It will be interesting to see if the CMS utilizes the AMA recommendations in final regulations.

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