ACO rules could create variety of new burdens

Expert says problems can be corrected

The Department of Health and Human Services'(HHS) recently published proposed rule (42 CFR 425) for Accountable Care Organizations (ACOs) could result in some positive changes for the health care industry, but there are a few problems that should be corrected, an expert says.

The proposed rules for the ACOs greatly expand quality domains and measures to be reported to the Centers for Medicare & Medicaid Services (CMS), and this reporting likely will be onerous for hospitals, says Lisa Graberg, MPH, senior associate director for policy at the American Hospital Association in Washington, DC. One issue is that the proposed rule will have ACOs meet 65 quality standards in these five areas:

  • patients' care experience;
  • extent of care continuum;
  • patient safety;
  • emphasis on preventive health;
  • success in treating Medicare beneficiaries who are sick and frail.

"CMS did a physician group practice demonstration project that is a precursor to ACOs, and these sites are required to report on only 32 measures," Graberg says. "To more than double the measures is concerning to us because our members are already reporting 60 measures for hospitals, and they'll have to report on 65 more without a whole lot of overlap."

Of course, hospitals don't have to establish ACOs, but starting an ACO will require extensive funding and infrastructure, so hospital systems are the best positioned to take on this task, she says. The proposed rule includes a downside risk without providing front-end funding. CMS estimates the ACO start-up costs would be nearly $2 million, Graberg notes.

The ACO program is based on the fee-for-service payments and system, but provides incentives to cut costs through shared cost savings. ACOs that do well will receive an incentive payment reflecting part of that savings. They also can be penalized financially for exceeding their spending targets.

"When exposed to downside risk in the private sector, you typically receive some upside capital in a capitated budget, and then you stay within that budget," Graberg says. "But they're not getting any upside capital at all in this program, and the ACOs make the full investment themselves."

CMS could change this imbalance in the final rule. "We'd rather see CMS come out with a partial capitation option that holds them accountable for risk and also gives them some capital," Graberg says.

Also, CMS could have done more to emphasize care coordination by providing upfront capital, she adds. "Even if you do qualify for a savings bonus, it's likely you won't see any money for maybe 20 full months after you start the program," Graberg says. That's a long time to receive money that could be used to improve care coordination, she adds. "I do think for the most part our hospitals are already doing things like tackling readmissions, reducing infections, and so forth, but they're paying for all of those themselves," Graberg says.

The ACOs shift incentives slightly in the direction of capitated care, but hospitals still will operate in a fee-for-service environment in which they are paid when patients are admitted and reducing readmissions actually reduces revenue, Graberg says. "So when you don't receive additional upfront capital for the savings you are generating for the program, it becomes a tricky financial dance to continue," she explains. "The more successful you become, the less revenue you receive."

Hospitals increasingly are bridging the care transition process, and the creation of ACOs drives home the importance of this trend continuing, Graberg says. "Whether or not a hospital elects to do an ACO, our members are fully on board and understand that we are responsible and give accountable care to all patients who come into the hospital," she adds.


  • Beverly Cunningham, MS, RN, Vice President of Clinical Performance Improvement, Medical City Dallas Hospital, 7777 Forest Lane, Dallas, TX 75230. Telephone: (972) 566-6824. E-mail:
  • Lisa Graberg, MPH, Senior Associate Director for Policy, American Hospital Association, 325 Seventh St. NW, Suite 700, Washington, DC 20004. Telephone: (202) 626-2351. Twitter:@ahahospitals.
  • Donna Zazworsky, RN, MS, CCM, FAAN, Vice President for Community Health and Continuum Care, Carondelet Health Network, 1601 W. St. Mary's Road, Tucson, AZ. E-mail:
  • To access proposed rule, visit and search for 42 CFR 425.