Medicare Rules Will Guide Hospitals, Doctors Toward More Cooperation

BY Lea Winerman  March 31, 2011 at 5:25 PM EST

Dr. Olveen Carrasquillo checks up on Juan Gonzalez in Miami; Joe Raedle/Getty Images

Medicare will encourage doctors, hospitals and other health care providers to team up to provide more coordinated care for patients, according to federal guidelines released Thursday.

The new draft regulations, which are part of the health care reform law, lay out how health care providers can join together in groups called “accountable care organizations.” The goal is to provide better care, at a cheaper price, by making sure that doctors, hospitals and other providers are talking to each other, sharing medical records and coordinating follow-up care. That, proponents say, could reduce medical errors that land patients back in the hospital and get rid of waste such as duplicate medical tests.

The ACO concept isn’t new. Well-regarded health systems such as Geisinger Health System in Pennsylvania work this way. But the healthcare reform law will ramp up the incentives for more providers to join together in ACOs by offering financial benefits through the Medicare system. Under the new rules, ACOs that can prove that they are improving patient care and saving money will get to keep a percentage of those savings.

“For too long, the federal government has been a bystander and in some cases a barrier, while others worked to improve health care delivery systems,” Health and Human Services Secretary Kathleen Sebelius told reporters Thursday. “With the new tools in the Affordable Care Act we’re putting our full weight behind efforts to improve care.”

Federal officials say that the program could save Medicare as much as $960 million over three years, though they caution that it is only an estimate and there’s a wide range of possible savings.

Although the ACO concept has been around a while, there is no one definition of what kind of organization qualifies as an ACO — and the six pages devoted to ACOs in the health reform law left much open to interpretation. The proposed rules released Thursday expand those six pages to 429, clarify the criteria organizations will have to meet in order to participate in the Medicare program, and explain how the financial incentives will work.

New ACOs — which will have to serve at least 5,000 Medicare beneficiaries — will be able to choose between two tracks. Organizations that are farther along in the process will be able to immediately join a program that will reward them for saving money and improving care, but will also penalize them if they don’t meet those goals. Organizations that aren’t yet ready to take the risk of penalties will be able to join a “reward-only” track, in which they’ll get to keep a smaller percentage of the savings for the first two years. Then, in the third year, they’ll accept the risk of penalties too.

Joining the ACO program will be completely voluntary for Medicare providers.

The two-phase program will allow more organizations to sign up, says Stuart Guterman, vice president for Payment and System Reform at the Commonwealth Fund.

“What [Centers for Medicare & Medicaid Services] is concerned about is getting folks in the program who really are going to be prepared,” Guterman says. “The object is not to put organizations at risk, it’s to get organizations to take responsibility for the care they provide patients, and the costs and outcomes.”

Not everyone agrees that accountable care organizations are an entirely good idea. Critics have charged that consolidating so many health care providers could lead to price-fixing and other competition problems, raising prices for consumers.

“In some markets, the dominant hospital is like the sun at the center of the solar system,” Elizabeth B. Gilbertson, chief strategist of a union health plan for hotel and restaurant employees, told The New York Times in November. “It owns physician groups, surgery centers, labs and pharmacies. Accountable care organizations bring more planets into the system and strengthen the bonds between them, making the whole entity more powerful, with a commensurate ability to raise prices.”

To address those concerns, the Federal Trade Commission and Justice Department released antitrust guidelines on Thursday as well. According to the guidelines, ACOs that control less than 30 percent of the market share in a given area would get less scrutiny, and larger proposed ACOs would be reviewed by federal regulators within 90 days.

The rules proposed Thursday are not quite final yet. Regulators will take comments and public feedback for 60 days and release a final regulation later this year. The program will begin in 2012.