Obama administration revises Medicare rules for coordinated care

By N.C. Aizenman, October 21, 2011

The Obama administration on Thursday substantially revised the rules of a program under the 2010 health-care law aimed at encouraging doctors and hospitals to coordinate care. The final regulations grant medical providers far more flexibility than a draft proposal released in March.

The move was greeted with jubilation by groups representing doctors and hospitals. But organizations for insurers and employers complained that the administration’s concessions increased the likelihood that providers will consolidate, reducing competition and driving up prices.

The program directs Medicare to offer financial incentives for medical providers to band together in “accountable care organizations,” or ACOs, which handle care for patients across a full range of settings, including primary-care and specialist offices, hospitals, and nursing facilities.

Advocates maintain it could set an example that prompts private insurers and employers to enter into similar arrangements, transforming the way care is delivered in the United States.

In the current “fee for service” system, providers are individually compensated for each procedure they order — effectively incentivizing them to pick the costliest approach.

The hope is that by coordinating care, ACOs will improve quality and efficiency — enabling them to charge Medicare less. Medicare would then share the savings with the ACOs. Obama officials estimated the program would reduce Medicare spending by up to $940 million over four years.

To ensure that ACOs do not stint on care, they will have to meet detailed quality standards in four areas: patient experience, care coordination and patient safety, preventive health care, and care for at-risk populations.

Medicare beneficiaries whose doctors join an ACO are not obligated to remain with the doctor. Similarly, providers in an ACO cannot limit patients’ access to other health-care professionals or hospitals that participate in Medicare but do not belong to the ACO.

Among the changes to the rules was the administration’s decision to slash the number of quality measures that ACOs must meet from 65 to 33.

“This was enormously helpful,” said Linda Fishman, a senior vice president at the American Hospital Association. “Even large organizations . . . said that 65 quality measures was far too many.”

Obama officials have also adjusted the formula for calculating the proportion of savings that ACOs can keep in order to give them a greater share.

Perhaps most significantly, the administration scrapped a requirement that ACOs take the hit if their costs exceeded government targets. That would have been a deterrent to providers with little experience working as part of a coordinated team, said George H. Roman, senior director of health policy for the American Medical Group Association.

“Why would they enter into a voluntary arrangement that puts them at financial risk if they can be guaranteed payment by sticking with the conventional system?” he said.

Under the revised rules, ACOs can insulate themselves from that risk in exchange for taking a smaller portion of savings they generate.

Like other representatives of providers, Roman said it was too soon to predict whether the modified rules would spur large numbers of providers to form ACOs.

But he said he was pleasantly surprised at the administration’s responsiveness to the industry’s critiques. “They clearly heeded what people said, and it’s a big step in the right direction.”