The Centers for Medicare and Medicaid Services (CMS) released its proposed rule for Accountable Care Organizations (ACOs) on March 31. The rule will be published in the Federal Register on April 7, 2011, and comments will be due 60 days after that.

ACOs are healthcare entities that will create incentives for providers to work together to treat a patient across various care settings such as hospitals, doctors’ offices and long term care facilities. Created by Section 3022 of the Patient Protection and Affordable Care Act (PPACA), the Medicare Shared Savings Program is intended to improve the quality of healthcare while also reducing the growth of healthcare spending.

Under the proposed rule, interested providers would form or join an ACO and then apply to CMS for approval. Once approved, the ACO would agree to participate in the program for three years and serve a minimum of 5,000 Medicare patients, while continuing to receive payment under Medicare fee-for-service rules.

The proposed rule seeks to implement two ACO models – a one-sided risk model with shared savings for the first two years and both shared savings and losses for the third year, and a two-sided risk model with both shared savings and losses for all three years. CMS believes that this system will be advantageous to both experienced and inexperienced organizations – allowing more experienced ACOs the opportunity to realize greater savings at the risk of paying for a portion of losses, while providing less experienced groups an opportunity to grow and manage their ACOs successfully before moving to the riskier model.

Quality performances measures would also be established under the proposed rule, in addition to a system for tying quality of care to financial performance. The rule sets forth 65 quality measures that fall into several key areas, such as coordination of care, patient safety, patient care experiences and preventive health, and would require ACOs to report these measures to CMS. If the ACO meets the quality performance standards it would be eligible to gain a share of the savings that it has generated. On the flip side, the ACO would be held accountable for losses and be required to pay Medicare for a portion of such losses.