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The Healthcare Investor Insights on Issues & Trends that Impact Investments in Healthcare & Life Science Businesses

Understanding Accountable Care Organizations (ACOs) and What They Mean to the Healthcare Investor

Posted in Healthcare Services Investing, Life Sciences Investing

 

With the authorization of Accountable Care Organizations (ACOs) in the healthcare reform law (PPACA), there has been a tremendous amount of industry attention on understanding ACOs and the opportunities and challenges they present. With ACOs as such a hot topic and the variety of forms these organizations can take, healthcare investors can examine not only opportunities in ACOs themselves but in healthcare related businesses that will service or be affiliated with ACOs.   Understanding the role and possibilities of ACOs is highly valuable in order to assess these opportunities.

 

PPACA directs the Secretary of Health & Human Services to establish a Shared Savings Program under both Parts A and B of Medicare to improve quality and efficiency of the healthcare delivery system no later than January 1, 2012.    ACOs may be created by ACO professionals in group practice arrangements, by networks of individual practices of ACO professionals, by partnerships or joint venture arrangements between hospitals and ACO professionals, by hospitals employing ACO professionals, by such other groups of providers of services and supplies as the Secretary determines is appropriate.

An approved ACO will be assigned Medicare beneficiaries, will participate in the Shared Savings Program and will be eligible to receive additional payments from Medicare when certain performance guidelines are met and cost-savings targets are achieved. The amount of the additional payment will be a percentage of the difference between the estimated per capita Medicare expenditures for patients assigned to the ACO and the cost-savings per capita Medicare expenditures threshold.

While ACOs are often heralded as the solution to the current ailing model of healthcare delivery for Medicare, including the need for enhanced quality, improved outcomes, better coordination of care, and greater cost-savings, there are many misconceptions about the Shared Savings Program and a seemingly unending list of questions about what form ACOs will take under the final regulations. CMS is tasked with fleshing out the details of how the organizations will work and be reimbursed. Right now, CMS has issued very little guidance on its vision of ACOs and the Shared Savings Program, but CMS has issued a brief Preliminary Questions & Answers piece on its website. A recent article by our McGuireWoods colleague Tom Stallings and Brent Rawlings addresses some of the common misconceptions about ACOs and the Shared Savings Program.  Additionally, our colleagues Scott Becker and Helen Suh discuss nine observations in their recent article about ACOs, including movements by commercial payors toward this model.

In future posts we will focus on the businesses that we envision will emerge or evolve to service these ACOs and those potential investment opportunities.  

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