The ACO rules--striking the balance between participation and transformative potential.

10.1056/nejmp1106012 nejm.org e6(1) authorized by the Affordable Care Act (ACA). Under this policy, ACOs could participate in one of two types of 3-year arrangements. In the first path, in years 1 and 2 they would be eligible to share any savings they achieved relative to a spending target without accepting “downside” risk. In year 3, the ACOs would be required to repay Medicare for a percentage of any spending over their target level. In the second path, an ACO could accept downside risk beginning in year 1 and thereby be eligible for a higher proportion of any savings (60% vs. 50%). All shared-savings payments would be contingent on meeting established quality goals and minimum savings thresholds (3.9% for the one-sided risk model and 2% for the two-sided risk model). Shared-savings payments to the ACO could not exceed 7.5% of the total target costs; payments by the ACO to Medicare would not exceed 5% of those costs in the first year it accepted downside risk (then 7.5% in year 2 and 10% in year 3.) Since the proposed policy was issued, there has been a f lurry of analysis and criticism, much of which concerns whether the new payment terms offer sufficient financial rewards to attract provider participation. But the regulation is better assessed as a solution to a contracting problem, which requires that it accomplish two goals: saving money for Medicare without causing substantial adverse consequences, and encouraging enough groups to participate. We believe there are ways for CMS to improve participation in ACOs without sacrificing the workhorse provisions of the new policy. The proposed regulations rely on limited risk sharing and the imposition of quality standards in order to attain a balance among incentives for cost control, risk, and maintenance of high-value service delivery. Unlike full capitation, the ACO arrangements limit risk in two ways. First, ACO profits are affected only by changes in MediThe ACO Rules — Striking the Balance between Participation and Transformative Potential