Methodist Health System in Dallas is working with Texas Health Resources in nearby Arlington to form an accountable care organization, a partnership in part inspired by Medicare's effort to reward providers that deliver quality care at lower costs through ACOs.

Then came the proposed rule the CMS issued in March providing a framework, which Methodist President and CEO Stephen Mansfield described as “cold water” on the industry's interest. Mansfield said he fears the disenchantment will sideline a promising opportunity.

“I am so disappointed,” Mansfield said, though Methodist's private-market ACO efforts continue.

Medicare officials have heard little but disappointment since unveiling a long-awaited proposal.

The incentives—delivered through a system of shared savings with the potential for bonuses or penalties—were created by the 2010 healthcare reform law and emerged as one of the law's less politically divisive provisions. But healthcare executives have responded to rules proposed in March with blunt disapproval, outright rejection and an assessment that the government is likely to be sued over its approach to applying antitrust laws to the new organizations (See related story, p. 7).

As the June 6 deadline for formal comment approached, a flood of letters suggested few providers were willing to take part in the experiment as proposed.

Excitement among hospitals once eager for the rules has “dwindled dramatically” since they were published, the American Hospital Association declared in its comment letter. “Substantial changes are needed to make the program operationally viable and attractive to potential participants,” the trade group said.

The Cleveland Clinic, an 11-hospital system, wrote to the CMS that the program's prescriptive rules and uncertain benefits would likely discourage engagement. The 10 physician groups involved in Medicare's early experiment with accountable care payments said in a letter to CMS Administrator Dr. Donald Berwick that none would seek accountable care contracts without significant rule changes.

Dr. Richard Afable, president and CEO of Hoag Memorial Hospital Presbyterian, said the Newport Beach, Calif.-based hospital would need to invest “many millions of dollars” to meet proposed criteria but would see little chance of return under rules for bonus payouts. Afable urged CMS officials to consider starting with “more obtainable” incentives that can later be refined rather than attempt to “get it right right out of the gate,” he said.

Hoag, with 422 beds, was the smallest among 17 hospitals and systems that joined a letter to Berwick warning that the program as proposed can't achieve its goals because it's overly focused on process and regulation and carries too much risk (May 30, p. 10).

Another signatory was Milwaukee-based Aurora Health Care, whose president and CEO, Dr. Nick Turkal, said his hospitals won't participate without significant changes. Turkal suggested the CMS look back at another experiment, its simpler pay-for-performance pilot that included 225 hospitals and 30 quality measures, known as the Premier Hospital Quality Incentive Demonstration. “We know it works,” he said.

Such responses from the industry even managed to draw ACOs into the political fray. Seven Republican senators urged the CMS to start over, citing serious concerns voiced by widely known health systems.

Medicare officials, in public appearances and news conferences, have sought to diffuse the outcry and bolster support for the program. The CMS declined to comment for this story.

Berwick stressed the agency would closely consider comments on the draft as he spoke with reporters last month to announce a separate and better-received avenue for up to 30 organizations to become “pioneer” ACOs through the Center for Medicare and Medicaid Innovation (May 23, p. 8).

Berwick rejected a suggestion the proposed rule was so flawed that the CMS would be forced to start over. “As accountable care organizations are a critical model in the reform of our healthcare delivery system, the proposed rule has of course attracted a lot of attention and a lot of comment,” he said. “That's good news for us.”

The Patient Protection and Affordable Care Act, which increased scrutiny of U.S. health plans and calls for a significant expansion of safety net and subsidized insurance, included accountable care among provisions to test ways to overhaul healthcare financing. Medicare could save up to $960 million over three years under the accountable care program set to begin January 2012, according to the CMS.

Under the rules proposed in March, Medicare would share 50% or 60% of the money saved by the organizations beyond a minimum threshold if hospitals and doctors reach performance targets against 65 quality measures.

Providers can choose between two options for the three-year contract. One requires providers to risk penalties should they fail to achieve savings for all three years; the other does so for the final year alone.

CMS officials have stressed the need to weigh providers' payouts against Medicare's fiscal integrity. “This is a voluntary program, so we know that we have to create incentives and requirements that are attractive to potential participants,” Jonathan Blum, deputy administrator and director of the Center for Medicare, said last month during a news conference. “But as Dr. Berwick laid out, we also have to balance other considerations, beneficiaries and the trust fund.”

Berwick wrote in an exclusive commentary published in Modern Healthcare (May 17) that the CMS is working to incorporate comments into the final rule.

“That's a challenging job, because the ground rules for ACOs have to strike several careful balances,” Berwick wrote. “We want to give providers incentives to achieve savings and tools to help coordinate and improve care, but we also want to make sure they don't stint on care or withhold care when it's needed. We want to make sure patients get far better coordinated care, but we don't want to burden ACOs with rafts of cumbersome regulations.”

Yet doctors and hospitals say proposed incentives are too small and the requirements too onerous. The American Medical Association recommended the CMS issue an interim final rule, rather than a final rule, in order to have the flexibility to modify the program as it's rolled out.

Comment letters called for the CMS to allow one option with no risk for losses if accountable care organizations cannot slow Medicare patients' costs. Investment required to get ready for care management under an ACO add to providers' financial stress, healthcare executives said. Meanwhile, potential bonuses do little to cover capital costs—and Medicare would hold back one-quarter of each year's payouts under the proposal.

Medicare proposed more quality measures and smaller potential bonuses for its ACOs than those included in the 10 physician groups' five-year pilot with the CMS, which ended in 2010. Hospitals and physician groups have criticized the 65 proposed quality measures, bonus criteria and potential financial penalties as too much risk for too little possible return.

Other providers also called for fewer quality measures at the outset. So many quality measures present providers with “a substantial practical constraint,” argued the 17 hospital and health system CEOs in their letter to Berwick.

The Sisters of Mercy Health System—which includes St. John's Clinic, one of the 10 physician groups—said in its own letter to the CMS that potential bonuses do not do enough to offset needed investment. The system declined an interview request.

From the system's experience “we know firsthand the challenges and costs of building the necessary infrastructure, collecting, reporting and acting on the necessary clinical data and changing our clinical culture accordingly,” the Springfield, Mo.-based system told the CMS.

The AHA lobbied in its letter to increase potential bonuses to up to 80% to 90% of eligible savings, based on quality performance.

Many executives said the verdict on Medicare accountable care hinges on the final rule.

At Intermountain Healthcare, executives have been “enthusiastic about the ACO concept since it was first discussed,” Greg Poulsen, Intermountain Healthcare senior vice president, said in a written statement. “However, we feel that the initial ACO regulations fell short of the goals that had been set, especially as it pertains to institutions that already are organized to coordinate care,” he said.

Intermountain, based in Salt Lake City with 20 hospitals in two states, won't decide whether to join one of Medicare's accountable care initiatives until after final rules have been released, he said.

Methodist's Mansfield said the final rule should “rebalance your carrots and sticks in this initial overture.” Methodist officials are working to create a private-payer model but intended to ultimately apply as an ACO under the Medicare shared-savings program after laying the necessary and considerable groundwork. Once the program is established, Mansfield argued, policymakers can adopt more stringent ACO criteria. “You've got the purse,” Mansfield said. “You make the rules.”

Mansfield said he strongly believes the payment model has the potential to achieve savings and quality gains with less disruption than other likely options as lawmakers grapple with distressed budgets.

“Medicare is running out of money,” he said. “America is running out of money. Texas is running out of money. The reality that I see is one way or the other, we're not going to continue to spend the money we spend on healthcare” using taxpayer dollars.

And for that reason, some plan to give ACOs a try no matter what. “I think they are almost hard-wired for failure the way they are written,” said Dr. David Shulkin, president of Morristown (N.J.) Memorial Medical Center and vice president of Atlantic Health System.

But just as dutiful voters turn out when elections offer no attractive options, so do health systems have an obligation to pursue the promising payment model, he said. Atlantic Health System will seek to become an ACO under Medicare, as proposed or otherwise, Shulkin said. “I don't think it's responsible for us to sit this one out,” he said. “The imperative and need for change is so great that we must participate in it.”