Could ACOs Appear on the Medicare Payment Horizon?

Janice Simmons , April 13, 2009

While most physicians and hospitals are familiar with acronyms such as HMO or PHO, many might be stymied by one of the newer one under discussion in Washington: ACO—or accountable care organization. Unlike healthcare maintenance organizations or physician hospital organizations, ACOs don't exist yet, but they are attracting attention as a possible way to lower Medicare costs and volume by rewarding providers that promote quality healthcare for specific groups of patients.

At the meeting of the Medicare Payment Advisory Commission(MedPAC) last week in Washington, DC, Chairman Glenn Hackbarth noted "there's a lot of interest in this idea in Congress." Overall, he said that better organized delivery of care is seen as "an important step in improving the healthcare system."

While MedPAC, which advises Congress on Medicare issues, will not be making formal recommendations about ACOs this year, Hackbarth said it still was important to get a concrete discussion about ACOs on the table and into the report it delivers to Congress in June.

MedPAC staffer David Glass said at the meeting that ACOs can include a variety of hospitals, primary care physicians, and possibly specialists. Potential ACOs could be made up of integrated delivery systems, PHOs, hospitals with multispecialty groups, or even academic centers.

However, ACOs would work to promote improved "care coordination and collaboration with providers," Glass said. Working with a defined group of Medicare patients, "the hope would be that unnecessary services would be reduced and quality would be improved."

In turn, provider payments or bonuses would be tied to quality and resource use. Quality benchmarks, for instance, could include objectives such as lower mortality rates or hospital readmissions.

In the long run, eliminating unnecessary care by controlling volume would be preferable to using the "blunt tool" of reduced fee-for-service rates, Glass said. "The motivation [of ACOs] is to find the way to slow the growth in Medicare spending."

What needs further discussion is whether a voluntary or a mandatory model would work. With a volunteer model, providers could be assigned to an ACO, while with a mandatory model, the Centers for Medicare and Medicaid Services could assign providers to a virtual ACO.

In addition, decisions would have to be made on whether CMS assigns particular patients to a network based on claims, whether patients would be locked into a provider network, or what type of rewards (bonuses, withholds, or both) would be considered. Also, combining ACOs with existing models, such as Medicare Select, to promote lower beneficiary premiums (in return for cost savings) could be considered.

Hackbarth, receiving agreement from the other commissioners, noted that ACOs probably should be voluntary and flexible—"coupled with a restraint on traditional Medicare." But in the long term, the private sector would need to consider the impact of using ACOs as well to save costs and promote quality. "I believe that ultimately the success [of using an ACO model] will hinge on private payers moving in the same direction."

Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at

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