Can Accountable Care Organizations Cure Our Ailing Healthcare System in America?

March 12, 2012

Published in the Portsmouth Herald

Since the passage in 2010 of the Obama Administration’s Patient and Affordable Care Act, better known as “Obama Care”, much attention has been given to the availability and cost of insurance for individuals. However, what may prove to be the most profound effect of the Act is how it promises to change the fundamental structure of the business of providing heath care services in America. 

The Act created the Medicare Shared Savings Program, which requires healthcare providers that want to receive “fee for services” Medicare payments to organize into “Accountable Care Organizations” or “ACOs”. The objective is to change the existing financial model of the healthcare industry –the providing of more rather than better medical services – by establishing high standards of quality in the care that each ACO must provide to its patients, and then rewarding ACOs that are able to reduce the cost of patient care by allowing them to share in those savings, particularly in the areas of preventative care and chronic disease management.  On the other hand, ACOs that are unsuccessful in holding down costs will have no savings in which to share, will need to invest additional money to improve their business operations, and risk losing their right to operate as an ACO.

What will an ACO look like?  Unfortunately, given the novelty of the concept, no one really knows for sure. In fact, the process of answering that question has been downright laborious. The Act called for the Secretary of Health and Human Services to draft a proposed rule for the creation, management and regulation of ACOs, including financial models for shared savings and risk, the establishment of medical standards of quality in treatment, the adoption of technology for the sharing amongst providers of patient medical records by 2015, and even the marketing of ACOs.  After opening the proposed rule to a year of scrutiny and vigorous commentary by the healthcare industry, the final rule was released in October of 2011 and became effective on January 1, 2012.

The typical ACO is almost certain to be a network of individual healthcare providers and practices, combinations of hospitals, physicians, nurses and nurse practitioners, or partnerships between hospitals, Federally Qualified Healthcare Centers and Rural Health Clinics.  In terms of size, each ACO must provide managed care for a minimum of 5,000 “beneficiaries”, or patients.

In order to qualify as an ACO, eligible organizations need to undergo an application process governed by the Center for Medicare and Medicaid Services (“CMS”).  If accepted, each ACO enters into a 3-year agreement with CMS, and opts for one of two financial models, or tracks. One track is geared towards smaller and less experienced ACOs, and the other is aimed at the larger, more experienced and sophisticated organizations.  There are also obvious regulatory implications in the creation of ACOs, particularly in the area of Anti-Trust Law.  However, in its rush to implement the Act, the Obama Administration has placed such issues on the backburner, presumably in order to speed up the process of implementing ACOs and to give all concerned an opportunity to see exactly how ACOs work.

What is the next step for healthcare providers that want to become ACOs?  While this is uncharted territory for most providers, some of the larger hospitals and healthcare networks have already formed ACOs. Others are now scurrying to determine precisely what steps will be required in order to pay heed to the rule, in all likelihood seeking to join forces with other hospitals, healthcare networks and providers that will in sum be capable of efficiently providing the breadth and scope of services, and to the volume of patients, required by the Act.  Those organizations unable or unwilling to do so will go out of business.

According to Earl Rugg, CEO of Rural Health IT, a New Hampshire-based consulting firm that specializes in the funding and management of healthcare organizations, “what we are witnessing is the evolution of our present healthcare delivery system from a quantitative to a quality-based system.” But Rugg does not believe ACOs to be the final solution.  “You can’t turn a system on its ear without creating problems”, says Rugg.  “As sound as the concept is, ACOs are likely to be only an interim step, enabling us to evolve, within the ACO organizational structure, from the current fee for services system to one where you’re paid for keeping people well, where compensation is based on results rather than the quantum of services provided.  Only time and experience will tell where we go from here.”

Larry Plavnick is a member of the Corporate Department and Healthcare Practice of the McLane Law Firm. He can be reached at (781)904-2693 or at  The McLane Law Firm is one of New England’s premier full-service law firms with more than 90 attorneys in four offices spread throughout Massachusetts and New Hampshire.