Medicare officials sweetened the deal intended to encourage hospitals and doctors to take on risk in exchange for rewards for high quality and efficient care.

The CMS issued a final rule last week establishing a framework for accountable care organizations, and it promises more money and fewer measures of quality in direct response to heavy criticism of draft regulations from providers and policy experts (June 6, p. 6).

The regulations reduced the number of quality measures by about half and increased the financial incentives for providers. The changes won preliminary praise from major trade groups and professional associations, which moved quickly to digest hundreds of pages of rules from multiple federal agencies, including the CMS, the Federal Trade Commission and the Justice Department.

Such significant changes underscored the Obama administration's desire to salvage what many policymakers hope will be a promising model to overhaul healthcare financing and delivery. Under accountable care, providers that meet certain quality and cost-saving targets are eligible for a share of the savings.

“This is very much an attempt to resurrect or rescue an initiative that wasn't doing well,” said Paul Ginsburg, president of the Center for Studying Health System Change. Ginsburg lamented financial incentives in the March proposal as “somewhat stingy,” which he said he believes the final rule attempted to remedy.

Medicare would save up to $940 million over four years under projections for the final rule. The agency's prior proposal would have saved Medicare up to $960 million over three years.

More generous bonuses contributed to the smaller federal gains under the final rule. Bonuses paid to providers could climb as high as $1.9 billion.

Federal officials should worry less about how much Medicare can save during the early years of accountable care, Ginsburg said, and focus more on raising interest with stronger incentives. Officials always understood the trade-off between federal savings and provider incentive to form ACOs, he said, but apparently “guessed wrong” the first time around.

“Realistically, it's an experiment,” Ginsburg said. “You need participants.”

Henry Ford Health System in Detroit will not be among them. The health system withdrew an application through the Center for Medicare and Medicaid Innovation for an advance guard of ACOs, dubbed pioneers. Instead, Henry Ford will concentrate on a federal primary-care coordination incentive program and the federal pilot of bundled payments, said Dr. Mark Kelley, executive vice president and chief medical officer for the health system and CEO of Henry Ford Medical Group.

Kelley called the rule changes a “good start” but said the health system decided even before their release that bundled payments would better serve the system's coordination efforts.

Agreements for Medicare ACOs and a newly unveiled advanced-payment program, which will provide upfront financing for small accountable care networks, will begin next year on April 1 and July 1.

Medicare officials readily acknowledged the industry's outcry over the proposed financial incentives and potential costs prompted the rule's modifications.

“We feel we have struck a better balance between creating a strong business case for providers who want to participate within the ACO framework,” Jonathan Blum, deputy administrator for the CMS, said to reporters soon after rules were released, “but at the same time not taking away a patient protection quality framework that was included in the proposed rule.”

Final plans for the payment model include potential for larger bonuses than first proposed; access to capital for small medical groups and rural hospitals; and an option that buffers providers from risk.

Under the final rules, potential bonuses increase because organizations could qualify to share all savings up to 10% or 15%, depending on which of two possible tracks is chosen. Previously, ACOs eligible for bonuses could not share any of the savings earned before a certain threshold.

The CMS also proposed a financing program for capital-starved, small physician-owned and rural hospitals. As many as 50 small ACOs will qualify for upfront payments that will be paid back as providers reduce Medicare costs. The innovation center will award up to $170 million under the program.

To qualify for upfront payments, ACOs must be networks that do not include a hospital with annual revenue of less than

$50 million or hospitals designated as critical access or low volume with revenue of less than $80 million.

The final rule also gives hospitals and doctors an option to avoid the risk of penalties in exchange for more modest potential bonuses. Previously, rules offered two options that included possible penalties, though one option limited penalties to the final year.

Linda Fishman, senior vice president for policy at the American Hospital Association, described the CMS decision to drop risk from one payment option as “a big step” toward making the program more attractive.

Fishman described many changes as “significant progress,” including an “enormously helpful” drop in the number of quality measures.

Gone are measures of costly, potentially lethal infections acquired by patients during hospital visits. Physician groups objected to the measure as one that would require an ACO to include hospitals. The American Medical Association president praised the CMS for removing the measure from final rules in a written statement last week.

Federal officials also dropped measures of patients' experience moving from the hospital to home or nursing home and other care coordination measures.

Nonetheless, Fishman said it's unclear whether changes would be sufficient to attract hospitals. That calculation will be made as each hospital weighs the risks versus the rewards, she said. And that equation also depends on Medicare reimbursement in the coming years, she said. “All of the things that Congress is going to do in the next three years will apply to the ACO,” she said.

Even as medical associations and consumer groups combed through hundreds of pages for the new regulations last week, many reacted to provisions of the rule. The Campaign for Better Care, an advocacy coalition for the chronically ill, applauded the use of patient experience in performance measures but called new rules for patients' role in governance weaker than first proposed. “In the end, we see this rule as a reasonable compromise,” said the coalition's president, Debra Ness.

Not everyone agreed. Leah Binder, CEO of the Leapfrog Group, an employer coalition for healthcare quality, called the final rules “far too cautionary.” Binder called the transparency requirements “anemic” and said quality measures were too weak, failed to focus on outcomes and did nothing to discourage overuse of healthcare services.

She also cautioned that too little transparency would leave consumers unable to drive competition among providers. Health insurers also expressed concern with changes to antitrust oversight of the ACOs.

The Justice Department and FTC said some organizations would no longer face a mandatory antitrust review and the agencies' guidance would no longer be limited to ACOs created after March 23, 2010. Federal officials also announced waivers for ACOs from the physician self-referral law, federal anti-kickback statute and the civil monetary penalties law.

Several measures of health information technology use, such as the percentage of primary-care providers who electronically prescribe medication or use clinical decision support, were omitted.

One measure of the use of electronic health records remained—but officials relaxed the criteria, which major physician and hospital trade groups praised. Draft rules required at least half of primary-care providers to earn the designation as Stage 1 meaningful users of health information technology by year two of the ACO. Final rules measure the percentage of primary-care doctors who qualify for an electronic health-record incentive payment.

CMS Administrator Dr. Donald Berwick touted the model as an opportunity to change how Medicare pays for medical care, which he again criticized as one culprit behind the nation's fragmented healthcare system.

Medical care that promotes communication among doctors and patients, education and prevention “hasn't always been the kind of care that Medicare has rewarded and encouraged,” Berwick said. “We still use a fee-for-service model largely to pay for pieces of care instead of for episodes of care and as a result that's what patients often get,” Berwick said. “They get pieces. They get fragments.”

The nation's healthcare delivery has stagnated even as biotechnology has delivered new and better treatments, Berwick said. “It's created miracles in its potential to help us to heal and to thrive. We know so much more now. But in the delivery of care, in the ways we make those miracles available to every single one of us, the changes have only been modest ones.”