Department of Health and Human Services
Centers for Medicare and Medicaid Services

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR Chapter IV by adding part 425 to read as follows:

SUBCHAPTER B–MEDICARE PROGRAM

PART 425–MEDICARE SHARED SAVINGS PROGRAM

Subpart A–General Provisions

§425.2 Basis and scope.

(a) Basis. This part implements section 1899 of the Act by establishing a shared savings program that promotes accountability for a patient population, coordinates items and services under parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient services. Under this program, groups of providers of services and suppliers meeting criteria specified by the Secretary may work to together to manage and coordinate care for Medicare fee-for-service beneficiaries through an accountable care organization (ACO). ACOs that meet quality performance standards established by the Secretary are eligible to receive payments for shared savings. During years in which the ACO is participating in a two-sided model, the ACO may be required to share losses.

(b) Scope. This part sets forth the following:
(1) The eligibility requirements for an ACO to participate in the Medicare Shared Savings Program (Shared Savings Program).
(2) Program requirements, including quality and other reporting requirements.
(3) The method for assigning Medicare fee-for-service beneficiaries to ACOs.
(4) Payment criteria and methodologies (one-sided model and two-sided model).
(5) Compliance monitoring and sanctions for noncompliance.
(6) Reconsideration of adverse determinations.

Proposed rule (429 pages):
http://www.ofr.gov/OFRUpload/OFRData/2011-07880_PI.pdf

Comment: 

By Don McCanne, MD

Accountable care organization (ACO) is a concept that grew out of concerns over excessive levels of spending for health care that is often only mediocre. It was thought that health care professionals and facilities could organize themselves into integrated organizations through which they would become accountable for both the cost and the quality of health care.

The Affordable Care Act established the Medicare Shared Savings Program which would use ACOs to achieve savings in the Medicare fee-for-service program, and the savings would be split between the ACOs and the government. The proposed rule for ACOs has now been released. I’ll try to reduce the 429 pages down into a few salient comments.

* The ACO would be composed of professionals arranged in networks or in group practices, and may partner with or be employed by hospitals.

* The ACO is accountable for the quality, cost, and overall care of the Medicare fee-for-service (FFS) beneficiaries assigned to it.

* The ACO shall include primary care ACO professionals that are sufficient for the Medicare FFS beneficiaries assigned to the ACO (minimum 5000 beneficiaries).

* The ACO shall have in place a leadership and management structure that includes clinical and administrative systems.

* The ACO shall define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.

* A benchmark will be established based on recent spending in the fee-for-service Medicare program.

* If spending for patients assigned to the ACO falls below the benchmark, the ACO will be rewarded with a portion of the amount saved, and the government keeps the rest.

* If spending for patients assigned to the ACO is more than the benchmark, then the ACO must pay a penalty of a portion of the excess (with a maximum two-year exemption for ACOs participating as a “one-sided” model with lower rewards but no penalty).

* The ACO must meet detailed quality requirements to qualify for the shared savings, but also may be terminated for failure to meet minimum standards.

* Patients will have free choice of any physician at all times, but will be assigned to an ACO based on plurality use of primary care services, for the purpose of assigning accountability for savings and quality. The ACO, which theoretically controls cost and quality for the patient assigned to it and will be rewarded or punished for the results, will have no control of the cost and quality of care delivered outside of the ACO.

* And over 400 pages of etc., etc.

Under the proposed rules, ACOs are not simple organizations formed on just a handshake. They require a formal legal structure with management, a specified governance board, a medical director, a quality assurance program, and more. They must implement evidence-based clinical guidelines.  The required documentation of quality is particularly onerous. They must have an infrastructure, such as information technology, to collect and evaluate data, and provide feedback. They must comply with extensive legal, business, and clinical documentation requirements. Since ACOs often involve consolidation within the health care delivery system, they must coordinate with antitrust agencies.

Obviously, considerable time, effort and expense is involved, so the reward must be worthwhile. And what is that reward? If they can improve their productivity while meeting quality standards, the financial benefit accrues to the government, but the reward is that the government lets them have a fraction of their productivity gains, providing that they are compliant with the complex set of rules. Since it’s almost impossible to continue to improve productivity in health care year after year, the reward would dry up soon.

With the trend of increasing frequency and intensity of services, there is a risk that the ACO may exceed the benchmark and have to pay back to the government a portion of the higher spending as a penalty.

What would happen if a group of professionals who were considering forming an ACO decided not to? First, they wouldn’t have all of the extra expenses and effort that establishing an ACO would require. They certainly would not have an incentive to reduce Medicare’s spending (i.e., reduce their income) since they would keep all revenues and not have to share them with the government. And if their spending for Medicare exceeded the benchmark? They would still keep it all, and wouldn’t have to pay a penalty.

Since most people with any business sense would never participate in such a scheme, why is it that there seems to be such a rush to form ACOs? In my opinion, they are not looking for the Medicare fee-for-service business. They are forming commercial ACOs in the private sector, looking for the private insurance business that will expand greatly in the new insurance exchanges. They are taking advantage of the prevailing attitude that we must back off on enforcing antitrust regulations in order to provide flexibility for the ACOs. They are consolidating to gain greater market control. Many are using “accountable care organization” as a deceptive label for expanded managed care oligopolies and monopolies.

The notion of accountable care organization was originated as a well meaning, altruistic, aspirational concept by individuals who really care about the health care that all of us receive. To be successful in improving quality and reducing costs the concept would have to be dependent on patients and health care professionals and administrators who were determined to do the right thing regardless of pecuniary or other self-interests. Yet health care, as the business that it is – like it or not – cannot afford to embrace altruism, for it would fail in its business responsibilities to maximize market
opportunities.

Does it have to be this way? Do we really need to depend upon private stewards devoted to the amoral business ethic to administer the financing of health care? Well, when you think about it, a single payer system is an automated system of financing health care that does not depend on the altruism of its players. That’s because the single payer model is structured as an altruistic, aspirational system that, quite automatically, actually does, in itself, improve quality and control costs. It just works.

Department of Health and Human Services
Centers for Medicare and Medicaid Services

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR Chapter IV by adding part 425 to read as follows:

SUBCHAPTER B–MEDICARE PROGRAM

PART 425–MEDICARE SHARED SAVINGS PROGRAM

Subpart A–General Provisions

§425.2 Basis and scope.

(a) Basis. This part implements section 1899 of the Act by establishing a shared savings program that promotes accountability for a patient population, coordinates items and services under parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient services. Under this program, groups of providers of services and suppliers meeting criteria specified by the Secretary may work to together to manage and coordinate care for Medicare fee-for-service beneficiaries through an accountable care organization (ACO). ACOs that meet quality performance standards established by the Secretary are eligible to receive payments for shared savings. During years in which the ACO is participating in a two-sided model, the ACO may be required to share losses.

(b) Scope. This part sets forth the following:
(1) The eligibility requirements for an ACO to participate in the Medicare Shared Savings Program (Shared Savings Program).
(2) Program requirements, including quality and other reporting requirements.
(3) The method for assigning Medicare fee-for-service beneficiaries to ACOs.
(4) Payment criteria and methodologies (one-sided model and two-sided model).
(5) Compliance monitoring and sanctions for noncompliance.
(6) Reconsideration of adverse determinations.

Proposed rule (429 pages):
http://www.ofr.gov/OFRUpload/OFRData/2011-07880_PI.pdf

Accountable care organization (ACO) is a concept that grew out of concerns over excessive levels of spending for health care that is often only mediocre. It was thought that health care professionals and facilities could organize themselves into integrated organizations through which they would become accountable for both the cost and the quality of health care.

The Affordable Care Act established the Medicare Shared Savings Program which would use ACOs to achieve savings in the Medicare fee-for-service program, and the savings would be split between the ACOs and the government. The proposed rule for ACOs has now been released. I’ll try to reduce the 429 pages down into a few salient comments.

* The ACO would be composed of professionals arranged in networks or in group practices, and may partner with or be employed by hospitals.

* The ACO is accountable for the quality, cost, and overall care of the Medicare fee-for-service (FFS) beneficiaries assigned to it.

* The ACO shall include primary care ACO professionals that are sufficient for the Medicare FFS beneficiaries assigned to the ACO (minimum 5000 beneficiaries).

* The ACO shall have in place a leadership and management structure that includes clinical and administrative systems.

* The ACO shall define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.

* A benchmark will be established based on recent spending in the fee-for-service Medicare program.

* If spending for patients assigned to the ACO falls below the benchmark, the ACO will be rewarded with a portion of the amount saved, and the government keeps the rest.

* If spending for patients assigned to the ACO is more than the benchmark, then the ACO must pay a penalty of a portion of the excess (with a maximum two-year exemption for ACOs participating as a “one-sided” model with lower rewards but no penalty).

* The ACO must meet detailed quality requirements to qualify for the shared savings, but also may be terminated for failure to meet minimum standards.

* Patients will have free choice of any physician at all times, but will be assigned to an ACO based on plurality use of primary care services, for the purpose of assigning accountability for savings and quality. The ACO, which theoretically controls cost and quality for the patient assigned to it and will be rewarded or punished for the results, will have no control of the cost and quality of care delivered outside of the ACO.

* And over 400 pages of etc., etc.

Under the proposed rules, ACOs are not simple organizations formed on just a handshake. They require a formal legal structure with management, a specified governance board, a medical director, a quality assurance program, and more. They must implement evidence-based clinical guidelines.  The required documentation of quality is particularly onerous. They must have an infrastructure, such as information technology, to collect and evaluate data, and provide feedback. They must comply with extensive legal, business, and clinical documentation requirements. Since ACOs often involve consolidation within the health care delivery system, they must coordinate with antitrust agencies.

Obviously, considerable time, effort and expense is involved, so the reward must be worthwhile. And what is that reward? If they can improve their productivity while meeting quality standards, the financial benefit accrues to the government, but the reward is that the government lets them have a fraction of their productivity gains, providing that they are compliant with the complex set of rules. Since it’s almost impossible to continue to improve productivity in health care year after year, the reward would dry up soon.

With the trend of increasing frequency and intensity of services, there is a risk that the ACO may exceed the benchmark and have to pay back to the government a portion of the higher spending as a penalty.

What would happen if a group of professionals who were considering forming an ACO decided not to? First, they wouldn’t have all of the extra expenses and effort that establishing an ACO would require. They certainly would not have an incentive to reduce Medicare’s spending (i.e., reduce their income) since they would keep all revenues and not have to share them with the government. And if their spending for Medicare exceeded the benchmark? They would still keep it all, and wouldn’t have to pay a penalty.

Since most people with any business sense would never participate in such a scheme, why is it that there seems to be such a rush to form ACOs? In my opinion, they are not looking for the Medicare fee-for-service business. They are forming commercial ACOs in the private sector, looking for the private insurance business that will expand greatly in the new insurance exchanges. They are taking advantage of the prevailing attitude that we must back off on enforcing antitrust regulations in order to provide flexibility for the ACOs. They are consolidating to gain greater market control. Many are using “accountable care organization” as a deceptive label for expanded managed care oligopolies and monopolies.

The notion of accountable care organization was originated as a well meaning, altruistic, aspirational concept by individuals who really care about the health care that all of us receive. To be successful in improving quality and reducing costs the concept would have to be dependent on patients and health care professionals and administrators who were determined to do the right thing regardless of pecuniary or other self-interests. Yet health care, as the business that it is – like it or not – cannot afford to embrace altruism, for it would fail in its business responsibilities to maximize market opportunities.

Does it have to be this way? Do we really need to depend upon private stewards devoted to the amoral business ethic to administer the financing of health care? Well, when you think about it, a single payer system is an automated system of financing health care that does not depend on the altruism of its players. That’s because the single payer model is structured as an altruistic, aspirational system that, quite automatically, actually does, in itself, improve quality and control costs. It just works.

Robert Wood Johnson Foundation
December 2010

Cost-sharing: Effects on spending and outcomes
By Sarah Goodell, M.A. and Katherine Swartz, Ph.D., based on a research synthesis by Swartz

This brief examines how cost-sharing affects the use of services, whether some patients are more sensitive to cost-sharing than others, and whether reduced use of services as a result of cost-sharing has an effect on health outcomes. All of these issues factor into whether and how cost-sharing could be used to reduce the rate of growth of health care spending.

Policy Implications

Recent studies of patient cost-sharing confirm the primary conclusion of the HIE — demand for most health care services is price sensitive. When people have to pay more, they reduce their use of health care. The HIE’s exclusion of the elderly, the increase in the prevalence of chronic conditions, and changes to medical care and insurance design since the 1970s, however, make it important to re-examine the role of cost-sharing. Findings from more recent research highlight important implications for policy-makers, including:

*  Patient cost-sharing is not necessarily an effective mechanism for significantly slowing health care spending. Most people are healthy and cost-sharing would only modestly affect their health care spending. People who are very sick or who have serious chronic health conditions are typically deferring to their physicians rather than making choices about medical care based on cost-sharing. Moreover, by itself, cost-sharing is highly unlikely to slow the growth in spending unless the expected increases in the costs of appropriate care for the very sick also slow.

*  Cost-sharing is not well-targeted on low-value services. Patient cost-sharing generally has been organized in broad categories (e.g., outpatient care, inpatient care, emergency department care). These broad categorizations do not help people distinguish between essential and nonessential services. Comparative effectiveness research could help insurers and government programs better target cost-sharing to improve value.

*  Caution should be used when increasing cost-sharing for low-income populations or the chronically ill. Not only are low-income populations disproportionately affected by increased cost-sharing, but they also are more price sensitive than other income groups. Unless the cost-sharing increases are concentrated on services that are ineffective or unnecessary, low-income groups may avoid necessary medical care as a result. Increased cost-sharing for people with chronic conditions may result in higher expenditures for hospitalizations and other adverse outcomes if necessary care is reduced.

Policy Brief:
http://www.rwjf.org/files/research/121710.policysynthesis.costsharing.brief.pdf

Full Research Synthesis Report by Katherine Swartz, Ph.D. (40 pages):
http://www.rwjf.org/files/research/121710.policysynthesis.costsharing.rpt.pdf

Comment: 

By Don McCanne, MD

This is a very important report. Let me tell you why.

Conservatives have framed the problem of our very high health care costs as being due to a lack of sensitivity of health care prices by patient-consumers who are simply demanding too much care. This is been repeated so many times that moderates and liberals are now parroting the same message. They profess that patients must face large deductibles, co-payments and coinsurance if we are ever going to get our health care costs under control.

It is true that these forms of cost-sharing do reduce health care spending, but is the savings significant? And is there any downside, any unintended consequences, to applying these price sensitizers to health care shopping?

Too much care?

When is the last time that you went to your health care professional and demanded too much care? If it isn’t you who is guilty of this transgression, then who is? I didn’t see these people in my very busy practice. Sure, you can find a few anecdotes, but most people simply are not motivated to use their time and money to seek out care that they don’t need.

Reduction in spending

The healthier one-half of our population uses only three percent of health care. They may be price sensitive shoppers when they have significant cost-sharing, but even if they reduced spending by ten percent, the savings of three-tenths of one-percent would represent only a negligible decline in our national health expenditures.

Twenty percent of us use eighty percent of the nation’s health care. These are people with very significant problems who are preoccupied with accessing the health care that they need, and are no longer concerned about the deductibles that they’ve already gone through. Cost-sharing is not intended to apply to individuals with significant illnesses or injuries anyway. So cost-sharing has very little impact on eighty percent of our national health expenditures.

The remaining thirty percent of us use about sixteen percent of health care. Some of this is urgent care, over which we have little choice, so price shopping isn’t an issue. But suppose that we could actually reduce spending in this group by about ten percent; that would still be only about 1.6 percent of our national spending. Combined with the 0.3 percent above, that’s still under two percent.

If you read the report, you will find that it is common for people to make unwise decisions as to which care they decline because of the out-of-pocket costs involved. These studies show that the net costs are sometimes higher because forgoing treatment can result in a greater incidence of emergency department visits and hospitalizations, and can sometimes intensify their chronic problems, making them more expensive to manage. Much of the relatively paltry savings from creating price sensitivity is lost due to the offset of the higher costs of deferred medical management.

As this report states, “cost-sharing is highly unlikely to slow the growth in spending unless the expected increases in the costs of appropriate care for the very sick also slow.” We need to consider more effective options than cost-sharing if we want to tame health care costs.

Unintended consequences

Cost-sharing has been demonstrated to result in adverse outcomes in two particularly vulnerable groups: low-income individuals and families, and individuals with chronic disease.

Although Medicaid selectively covers the low-income sector with more generous benefits and usually without significant cost-sharing, as a chronically underfunded welfare program, access is often impaired because of a lack of willing providers. Also, as states struggle with their budgets, some are introducing more cost-sharing into their Medicaid programs in order to reduce spending.

For those with incomes just above the level at which they would qualify for Medicaid, the standard plan in the exchanges will have an actuarial value of only 70 percent, which can be achieved only by including cost-sharing in the plan design.

Creating financial barriers to care for this vulnerable sector clearly reduces their access to beneficial health care services – the opposite of what a well functioning health care system should be doing.

The same applies to the chronically ill. The health care financing system should be designed to help them get the care that they need. Cost-sharing does the opposite. Also it is in this sector that cost sharing has often been shown to result in the opposite of its intent. Instead of reducing health care spending, the financial barriers of cost sharing have often resulted
in higher costs because of more expensive emergency department and in-hospital care that must be rendered due to the financial barriers that result in inadequate chronic disease management.

Prevention of financial hardship

A prevalent concept is that the purpose of insurance is to protect against catastrophic loss, but individuals should be personally responsible for routine medical expenses. That has been repeated so often that it is widely accepted. Yet many studies have confirmed that so-called routine expenses can be very burdensome financially. When medical debt contributes to personal bankruptcy, the routine expenses of cost-sharing have defeated this purpose of preventing catastrophic loss since the necessity of filing bankruptcy is, in itself, catastrophic.

We need to abandon the glib definition of insurance as being only for the purpose of covering catastrophic loss, and replace it with the definition that a health care financing system is for the purpose of removing financial barriers to the care that a patient should have. Cost-sharing does the opposite by creating financial barriers that should be removed.

Solidarity

Another prevalent attitude is that the government should stay out of our lives, and we should each tend to our own needs. As an abstraction, that concept has a certain appeal, and, consequently, a wide following. But there are very few of us who are not offended when we hear real-life stories of people who suffer when they fail to receive the medical care that they should have. We are particularly offended when we hear that the individuals’ insurance failed them in their times of need.

Insurance should be designed to help people get the care they need. Yet, as we all know, it is frequently designed to reduce spending on health care for the business purposes of keeping insurance premiums competitive and enhancing profits. One of the most important tools used by the insurers is cost-sharing. At times it seems as if they are a business set up more for the purpose reducing health care spending than helping us get health care.

Traditional private insurance has represented a form of social solidarity in which we join together to pool our risks so that none of us would have to suffer financial hardship in the face of medical need. But the interests of private insurers are very different from the interests of patients. The tool of cost-sharing serves the interests of the private insurers very well, but it fractures the solidarity that was intended to bring those with needs the health care that they need.

Other nations have expressed solidarity in a more effective manner. The people join together, through their governments, to finance their universal pools to serve as a resource for funds to pay for health care that people need. Many of those nations have rejected the concept of cost-sharing because of its perversities. They provide first dollar coverage for health care.

Those nations that do eliminate the barriers of cost-sharing still provide comprehensive benefits for everyone at a cost much lower than what we spend here in the United States. That’s the kind of solidarity that we need and that we would have if people weren’t confused by prevailing misperceptions that our goal should be to stop people from demanding too much care, and that we can do that by assessing the penalties of cost-sharing on people who attempt to access the care that they need.

You should consider downloading the RWJF brief for future use. We need to change the national discourse from that of using the consumer-directed tools of cost-sharing – tools that save very little money and impair outcomes – that are being used to address the alleged but fictional excess patient demand for care. Instead we need to have a national dialogue on how we can improve access to the care that patients need, and do it in an affordable manner (i.e., single payer).