ACOs as model for health reform still under review

Chandra N. Branham

The Medicare Payment Advisory Commission, or MedPAC, met in April in Washington, D.C., to discuss Medicare payment policy issues.

MedPAC is an independent federal body that advises the Congress and the secretary of Health and Human Services on issues that affect the Medicare program, including payment policy, quality of care and access to care.

MedPAC has been exploring the concept of accountable care organizations (ACOs) as a potential mechanism for controlling the growth of Medicare spending and improving quality. This concept has been gaining ground in policy circles, and Congress has expressed interest in this type of organization as a potential model for reforming health care delivery and payment.

MedPAC has described an ACO as a group consisting of a hospital, primary care physicians and possibly specialists that would have joint responsibility for the quality and cost of health care delivered to a population of Medicare beneficiaries. Providers in the ACO would share in efficiency gains from improved care coordination and could be subjected to penalties for poor performance, depending upon the structure of the ACO.

Earlier this year, MedPAC discussed two potential paths for ACOs: 1) a voluntary model, under which providers would volunteer to participate in the ACO; and 2) a mandatory model under which the Centers for Medicare and Medicaid Services would assign providers to a “virtual ACO.” A system of bonuses and penalties would create incentives for changing care patterns to achieve gains.

At the April meeting, staff offered variations on the voluntary path: 1) a “bonus only” model (participating providers would not be subjected to payment withholds or penalties), and 2) a second model that would couple the voluntary ACO idea with a Medigap Select plan to reduce cost-sharing for patients who use providers in the ACO.

In both models, providers would volunteer to participate in the ACO, but these pathways differ in terms of the incentives to control costs. The incentive structures would be based on current fee-for-service rates, raising the question of whether current fee-for-service payments could be constrained enough to create meaningful bonuses.

MedPAC Chairman Glenn Hackbarth said the success of any ACO program model would require stronger incentives. Mr. Hackbarth also said that much uncertainty still exists with respect to how this concept should develop.

Several commissioners agreed that the incentives should be strengthened to encourage physicians to participate with ACOs but that flexibility was needed, as well, so that providers do not have to remain in unprofitable partnerships.

In earlier reports, MedPAC has made recommendations to Congress on issue areas that address the goals of rewarding efficient use of limited resources and encourage more effective integration of care. These issue areas include comparative effectiveness, the medical home, improved care coordination and bundling of physician and hospital services provided during an episode of care. A chapter on ACOs will be included in MedPAC’s June report to Congress.

Recommendations on physician payment for 2010

In its March report to Congress on Medicare payment policy, the MedPAC recommended that Congress update physician payments for services furnished in 2010 by 1.1%. MedPAC is an advisory body that makes recommendations to the Congress, and although Congress carefully considers all MedPAC recommendations, it does not always act on them by passing legislation. With respect to physician payments under current law, physicians stand to have their Medicare rates cut by more than 20% on Jan. 1, unless Congress takes action before the end of the year.

Testimony before Congress

In March and April, MedPAC testified before Congress three times on the topic of Medicare payment and health system reform. At each of these hearings, MedPAC’s chairman said a fundamental system change is needed to provide Medicare beneficiaries with access to high quality but efficient care.

Current Medicare payment systems under the traditional fee-for-service model are not designed to reward quality and efficiency, and instead create incentives for providers to furnish more but not necessarily better services. In addition, the rapid growth in Medicare spending is not sustainable and has significant implications for beneficiaries, health care providers and taxpayers.

MedPAC conducts public meetings seven times a year to discuss and develop recommendations for the Congress and for the Centers for Medicare & Medicaid Services. The commission produces two reports to Congress — issued in March and June each year — as well as other reports as mandated by Congress, and regularly testifies before Congress on issues related to Medicare payment, health care delivery and health reform. The April meeting was the last commission meeting in this cycle. The next meeting is scheduled for Sept. 17 and 18.

• Chandra N. Branham, JD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004; 202-942-5659; e-mail: chandra.branham@aporter.com.