The Obama administration has issued revised regulations to encourage doctors, clinics and hospitals to take greater responsibility for improving patients’ care.  The rules will reward healthcare providers who enter into partnerships to cut the cost of caring for Americans while also boosting quality — two goals of the Patient Protection and Affordable Care Act (ACA).  Known as Accountable Care Organizations, or ACOs, these partnerships have been promoted by many experts as the most promising remedy for the high costs that typify the American healthcare system.

Supporters believe that ACOs could save taxpayers billions of dollars by better coordinating patient care and replacing the current fragmented system in which patients bounce between doctors and hospitals with minimal communication between providers.  “ACOs can represent a very big step forward in helping to transform Medicare, Medicaid and the Children’s Health Insurance Programs so they can help assure high quality, seamless and less costly healthcare,” said Dr. Donald Berwick, who runs the Medicare and Medicaid programs and helped to write the new rules.

“We have made changes in response to what we heard,” Berwick said. “I think they make the program more attractive.”  During the early days, between 50 and 270 ACOs may enroll in the program and save the Medicare program as much as $950 million over four years, according to independent estimates.

Among the changes are increased flexibility in eligibility to participate in the Shared Savings Program; a choice of start dates in 2012; a longer agreement period for those starting in 2012; more flexibility in the governance and legal structure; more streamlined quality performance standards; changes to the financial model to enhance financial incentives to participate; increased sharing caps; no downside risk and first-dollar sharing in Track 1; removal of the 25 percent withholding of shared savings; increased flexibility in timing for the evaluation of sharing savings (claims run-out reduced to three months); more flexibility in antitrust review; enhanced flexibility in timing for repayment of losses; and more options for participation of Federally Qualified Health Centers and Rural Health Clinics.

ACOs are a key provision in the ACA to decelerate rising health costs while delivering high-quality care to Medicare patients.  They are designed to change the incentives that influence how doctors and hospitals operate.  Today, most hospitals and doctors get paid more by delivering more, not necessarily better, care.  ACOs will reward healthcare providers for keeping costs down and meeting certain quality measures, including cutting hospital readmissions or emergency room visits.  ACO’s goal is to replicate the highly respected models of care at the Mayo Clinic in Rochester, MN, and the Geisinger Health System in Pennsylvania where hospitals and doctors coordinate their efforts within the same organization.

George Roman, senior director of health policy at the American Medical Group Association, which represents approximately 400 large provider organizations, described the changes as “music to my ears.  We asked for almost all of these things.”

“We are very pleased at the number of significant changes in rules.  They have made the program look more attractive,” said Linda Fishman, senior vice president of the American Hospital Association.  “But it remains to be seen how many hospitals will find these changes to be motivation enough to enter the program.”

The 696-page document includes more generous shared savings incentives, leaves out 32 of the 65 original quality measures, and gives potential ACO participants extra time to formulate their plans.  One vital change is that the rule no longer mandates that 50 percent of participating physicians be approved under meaningful use requirements for electronic health record use. The revisions provide more opportunities for new ACOs to participate without absorbing risk in the earlier years, as well as major changes in at least 10 other critical areas.  Thanks to the revisions, many in the healthcare industry think more providers will be encouraged to sign up.

Writing in the Washington Post, Sarah Kliff notes that “It’s a big moment in health policy wonk land right now: the Obama administration has just published the final Accountable Care Organization rule.  Sound dull?  Let’s rephrase: The Obama administration has just released a regulation that could decide whether the American healthcare system moves past the broken, expensive fee-for-service model.  The idea is to encourage groups of providers to band together into ‘accountable care organizations’ and accept a flat fee for all care related to a particular patient or condition.  If they could deliver high-quality care in a cost-effective way, they could keep the money they saved.  The hope is to do nothing less than change the basic business model of American medicine from making money by getting patients to spend more money to making money by saving patients money.  There.  That’s better.  This is not the administration’s first crack at encouraging ACOs.  A proposed rule in April, which detailed the requirements to become an ACO, was greeted with howls of protest by the provider community.  In hundreds of comment letters, hospital and doctor groups blasted the program as unattractive, with too much risk and not enough reward.  The American Medical Group Association warned CMS that virtually none of its members would participate.  The group called the rule ‘overly prescriptive, operationally burdensome, and the incentives are too difficult to achieve to make this voluntary program attractive.’

“There are two things that really irked healthcare systems here. First, if an ACO ended up spending more money than the target set by Center for Medicare and Medicaid Services (CMS), it would have to pay back some funds. Second, any ACO would have to show savings above two percent before they could reap any of the financial rewards.  The rule eliminates both of those barriers to entry.  It creates an ACO track with no ‘downside risk.’  The two percent gap gets cut, too: under the final rule, ACOs share in any savings from the very first penny.  CMS made a lot of other adjustments too that make the program easier to participate in, like lowering the quality reporting requirements and eliminating requirements that ACOs show significant use of electronic medical records.  As one CMS official put it this morning, the agency wanted to ‘smooth the on-ramp’ into the program.”