Cost of Establishing ACO Greatly Underestimated by CMS

A recent study commissioned by the American Hospital Association (AHA) found that the Centers for Medicare and Medicaid Services (CMS) significantly underestimated the cost of establishing an accountable care organization (ACO).

The findings were shared in a letter sent to Donald Berwick, Administrator of CMS, and suggested that the CMS should adjust the ACO shared savings rate in accordance with the estimated implementation costs being five or 10 times greater than initially estimated by the CMS.

“The analysis indicates that the per organization investment required to put in place and sustain the elements necessary for success is considerably higher–$11.6 to $26.1 million–than the $1.8 million estimated by CMS in its proposed rule for start-up and one year of operating expenses,” according to the May 13th AHA letter.

The study was prepared for the AHA by McManis Consulting using four case studies to create two hypothetical examples that estimate the start-up and first year costs of establishing an ACO.

The AHA acknowledged the potential of the ACO model, but pointed to flaws in the CMS’s methodology in estimating the initial cost of implementation.

“CMS based its estimates on the experience of the Physician Group Practice Demonstration sites, which already had many of the required elements in place, such as well- developed hospital-physician relationships, electronic health records, and previous experience with pay-for-performance programs,” states the letter from the AHA.

“Drawing only from this experience underestimates what might be required for a more typical provider organization.”

The study from McManis Consulting identified 23 capabilities necessary to establish the ACO care delivery transformation in four categories:

  • Network development and management
  • Care coordination, quality improvement and utilization management
  • Clinical information systems
  • Data analytics

The AHA’s letter requests an adjustment to the shared savings rate to offset costs and “to encourage and enable participation in this important program.”

The question is: Will the CMS listen?

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