The approach and implementation of accountable care organization (ACOs) was highly anticipated and buzzed about in the health care industry. Prior to actually forming any such entity, many considering the establishment of potential ACOs awaited with eager anticipation the release by the Centers for Medicare and Medicaid Services (CMS) of its rules for ACOs by and through the Shared Savings Program under Section 3022 of the Patient Protection and Affordable Care Act (PPACA). On April 7, CMS released its proposed rule for the Shared Savings Program.

Health care providers and industry participants have now had an opportunity to review and digest the proposed rule. For such a highly anticipated rule, much of the reaction has not been positive. A common theme that runs through many of the reactions is that the proposed rule offers a lot of risk and investment of capital with a great possibility of little or no return, or even loss, of money.

This article reviews some of the published reactions and comments, highlighting significant concerns about the proposed rule, from major players in the health care industry and potential participants in the Shared Savings Program.

Comments from the AHA

On May 13, 2011, the American Hospital Association wrote a letter to CMS, which submitted an independent study prepared by McManis Consulting titled “The Work Ahead: Activities and Costs to Develop an Accountable Care Organization.”

The study identified 23 different capabilities that case studies indicated must be developed across four categories in order to realize the transformation in health care delivery that is envisioned for ACOs. The four categories are 1) network development and management; 2) care coordination, quality improvement and utilization management; 3) clinical information systems; and 4) data analytics.

Significantly, the study estimates that the per-organization costs for an ACO range from $11.6 million to $26.1 million — significantly higher than the $1.8 million estimated by CMS in the proposed rule. The AHA notes that the possible reason for the great disparity in figures is that CMS based its figures on the Physician Group Practice (PGP) Demonstration sites — which were already well-established and integrated.

In a follow-up letter submitted on June 1, the AHA provided a more detailed critique of the proposed rule.

The letter identified two central themes from AHA members. First, AHA members acknowledge and understand that they will need to provide patient care in a more coordinated and accountable way, regardless of whether they participate in the Shared Savings Program. Second, hospitals and health systems have reacted to incentives from public and private payers. Established processes and policies will need to be changed if they are to meet the goals of ACOs.

The letter notes that the AHA members’ excitement about ACOs “dwindled dramatically” after seeing the proposed rule. The AHA believes that the proposed rule “places too much risk and burden on providers with little opportunity for reward in the form of shared savings, especially in light of the significant start-up and operating costs that providers must bear with little or no assistance.”

The AHA offered many recommendations throughout its letter. They included the following:

• Eliminating the downside risk in the event of losses from year three of the “Track 1″ ACO model, so that there would be a risk-free option for ACOs, as existed with the PGP.

• Allow a minimum sharing rate of 50 percent for Track 1 (and 80 percent maximum sharing rate) ACOs and 60 percent for Track 2 ACOs (and 90 percent maximum sharing rate).

• Assign ACO beneficiaries prospectively, rather than retrospectively, as proposed.

• Allow the use of existing governance processes rather than requiring a separate entity and governing body for the ACO, if the ACO can demonstrate how it achieves shared governance on care delivery policies.

• Allow a flexible start for participation in calendar year 2012.

• Reduce the proposed list of 65 quality measures with a smaller and more manageable number to start, and perhaps increasing the measures over time (by way of comparison, the hospital quality reporting program began with a set of 10 measurers for three clinical topics).

Comments from the AMA

The AMA submitted a letter to CMS dated June 3.

In light of how new the Shared Savings model is for everyone, the AMA encouraged CMS to adopt an interim rule, rather than a final rule, to allow flexibility to modify the ACO regulations by seeing how they were working in actuality.

Like the AHA, the AMA proposed there be at least one ACO option that did not include the downside risk, in order to encourage the participation of physicians and physician groups. The AMA included as part of its rationale that currently there is a lack of data to evaluate risk; the retrospective beneficiary assignment does not allow ACOs to know in advance which beneficiaries will be assigned to it; there is a lack of risk adjustment going forward under the proposed rule; and, for physician-only ACOs, there are increased costs outside of its control (such as by hospitals), which would be attributed to the ACO. The AMA further highlighted that ACOs will already be at risk for substantial loss due to the high start-up costs for an ACO.

Comments from the AMA also included numerous other suggestions on ways to transform the current rules to allow for increased revenue and ability to generate savings for ACOs.

The AMA similarly encouraged CMS to adopt prospective benefit assignment, where a patient may volunteer to be part of the ACO. At a minimum, the AMA urged CMS to utilize a softer approach than the proposed retrospective assignment based upon the rule’s formula. The AMA particularly notes that patients are allowed to opt-out of sharing their data with the ACO, but the ACO may not opt-out of accountability for these patients.

The number of quality measures was also an issue raised by the AMA. The AMA noted that its members were concerned that to meet the measures effectively would require the participation of a hospital in an ACO.

Another issue encouraged by the AMA was for CMS to align the rules and rule-making of the Shared Savings Program with other programs currently in effect, such as the Electronic Health Records incentive program. As set up, data collection and reporting on the same measures must be separately reported for each program.

Unlike the AHA, the AMA did note its satisfaction with the proposed requirement that ACO participants must have at least 75 percent control of the governing body. The AMA noted this requirement showed a “significant role for physicians” in the ACO governance, and urged CMS to keep this requirement.

Reaction from the PGP

One of the more telling reactions to the proposed rule is that from the PGP Demonstration participants. The PGP may, simplistically speaking, be described as a “trial” run to the Shared Savings Program.

For many of the same reasons stated by the AHA and AMA, all of the former PGP participants stated that they would not participate in an ACO under the current proposed rules. Generally speaking, the participants stated: “As currently proposed, ACOs have a greater potential for incurring losses under either track, than for generating savings. This risk-reward imbalance makes it difficult, if not impossible, for internal decision-makers to accept the financial design.” Individual PGP participants were going to respond to CMS with their own comments.

What Course Will CMS Take?

CMS ultimately had a huge task on its plate, under tight time requirements, to issue its proposed rule. Now that it has heard reactions from players in the field, it will be interesting to see what course it takes, and what a final rule on the Shared Savings Program will look like. But there are many knowledgeable people out there wondering: “Will anyone want to play the Shared Savings Program/ACO game?”

Interested readers may find the AHA’s and AMA’s materials on their respective websites: and

Vasilios J. Kalogredis is the president and founder of Kalogredis Sansweet Dearden & Burke, a health care law firm, and Professional Practice Consulting Inc., a health care consulting firm, in Wayne, Pa. Among his areas of expertise are group practice arrangements, practice sales and mergers, doctor contract drafting and negotiation, tax and retirement planning for physicians, joint ventures, fraud and abuse matters, and evaluation of practice options for physicians. He can be contacted at 800-688-8314 or by e-mail at

Karilynn Bayus is an associate at the firm. Her practice involves both litigation of health care related matters, including representation of licensees before the professional boards, and representing clients in health care transactions. Bayus graduated from Temple University’s Beasley School of Law in 2006. She may be reached at