Medicare ACO Rules: Another Step Toward Value-Based Payment

The Centers for Medicare & Medicaid Services (CMS) recently released the long-awaited “interim final” rules on accountable care organizations (ACOs), setting the stage for the certification of Medicare ACOs by 2012. While CMS still needs to finalize the rules following public comment, it is expected that the final provisions will be extensive and relatively prescriptive, holding these provider-sponsored organizations accountable for achieving good results on quality, cost and patient experience.

This development is another significant step toward a broader shift in payment philosophy—from paying for each service delivered (fee-for-service) to paying for value (better health outcomes, lower cost care, patient-centered care). No matter what happens to the Patient Protection and Affordable Care Act (PPACA or health reform), we anticipate this value-based payment (VBP) approach to pick up steam and be the model of choice going forward for all payers. ACOs will be only one form, albeit comprehensive, of VBP, requiring health care providers to prepare for a multi-faceted approach to paying for value.

To be prepared for VBP, organizations must first understand the key VBP principles and models (e.g., ACOs, bundled payments, medical home) and then assess what is happening in their market area in terms of current and planned initiatives. This requires a scan of the activities and strategies of the key stakeholders, including: health plans, acute care systems, senior living and post-acute providers, primary care providers, Medicaid, Medicare, and employers. As it has been said, all health care is local, meaning that each market will have a unique approach to VBP.

Perhaps the most critical response to VBP is for provider organizations to create value—as measured by quality, efficiency, and patient experience—by improving performance. This involves assessing your organization’s current capabilities and competencies, and then identifying gaps based on this assessment plus scanning your marketplace.

• How well do you compare with other providers looking at publicly-measured benchmarks?
• What will it take to be a provider of choice under this new model of payment?

Certainly not all providers will form or participate in an ACO, but all providers will be subject to VBP in the coming years, at a minimum, in a pay-for-performance model for Medicare reimbursement. Based on the above assessments, providers need to determine their strategic direction, even if it is only to be a preferred provider through VBP arrangements. Providers need to position themselves in this evolving landscape, and prepare to operate within multiple payment models as VBP matures. It may involve developing an ACO, which will require a feasibility analysis. At this point, the options in responding to VBP appear to be “initiate, participate, or anticipate.” Ignoring VBP is not a viable option. Deciding on your business model is a critical move.

It is true that the creation of Medicare ACOs is a major step toward redesigning health care delivery and payment, but it needs to be considered in the context of all other VBP activities in your market. It is not clear at this point how much activity there will be in terms of the development of Medicare, or other payer-driven, ACOs. Chances are the organizations that are developing an ACO to serve their current market will look closely at sponsoring a Medicare ACO as an additional product line. It will certainly be a challenge to develop a Medicare ACO on its own due to the extensive requirements of the proposed rules. We should know soon.