CMS Wants to Control How ACOs Use Profits
In its proposed regulation on the Medicare Shared Savings Program for Accountable Care Organizations, CMS seems disappointed that it can’t control how the distributions from shared savings will be used. So the proposed regulation does the next worst thing: it regulates the distributions by requiring the ACO to determine ahead of time how the funds will be used. CMS seems to go as far as to expect ACOs to specify “how [the shared savings] might be invested in infrastructure and redesigned care processes for high quality and efficient health care service delivery.”
In its proposed regulation on the Medicare Shared Savings Program for Accountable Care Organizations (ACOs), The Centers for Medicare & Medicaid Services (CMS) seems disappointed that it can’t control how the distributions from shared savings will be used.[1] So the proposed regulation does the next worst thing: it regulates the distributions by requiring the ACO to determine ahead of time how the funds will be used.[2] CMS seems to go as far as to expect ACOs to specify “how [the shared savings] might be invested in infrastructure and redesigned care processes for high quality and efficient health care service delivery.”[3]
Without any explanation or support, CMS alleges that this mandate will “both guard against improper financial incentives as well as ensure appropriate beneficiary protections.”[4]
CMS, without a congressional directive, has taken upon itself to judge what an “improper financial incentive” is.
The purpose of the Shared Savings Program was not to direct health providers on how to spend their earnings, but to correct CMS’s distorted Medicare fee-for-services (FFS) system.
What makes the FFS’s financial incentives improper is not that doctors can spend the fees they earn on anything they choose. FFS creates improper financial incentives because it encourages inefficiency.
What hospitals and providers use the shared savings distributions for is irrelevant to correcting the market failure of the FFS system.
If an ACO chooses to use its shared savings to buy BMWs for each of its providers—because that is what will motivate them to be efficient—then that’s what it should do. Perhaps that’s an unwise use of their earnings, but health organizations need to be free to use income for whatever seems best to them. What seems best when an ACO initially signs its 3-year contract with CMS may not be the best use for such funds when distributions are made.
Binding ACOs into determining ahead of time how future funds will be used reduces the value of those distributions and further distorts the market.
CMS is shooting itself in the foot here. It is trying to get doctors to switch from a FFS system, where the providers choose how their fees are spent, to the Shared Savings Program, where a portion of that money has to be spent according to ideals set out by government bureaucrats. Most people, given the choice, would choose not to have restraints on how they spend their money.
If CMS wants to attract doctors to join ACOs—and in particular if CMS wants to attract small and solo practices to join ACOs—then CMS should remove this requirement. Doing so will make it more likely that health providers will participate in the program.
The comment period for this regulation ends June 6, 2010 at 5pm. Click here now, to tell the Obama Administration what you think of the regulation. To read more about this regulation, go to our ACO regulation page and see our related articles below.
[1] We find it disturbing that CMS would even consider controlling how health providers spend the money they earn.
[2] 76 Fed. Reg. 19,544-45.
[3] 76 Fed. Reg. 19,544-45.
[4] 76 Fed. Reg. 19,545.