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Accountable Care Organizations and their Impact on Skilled Nursing Homes

May 10, 2011

On March 31, 2011, the Center for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services issued their proposed rule on Medicare Shared Saving Programs for Accountable Care Organizations. The 429-page document specifically identifies acute care hospitals and physicians as eligible participants in the shared saving program of an ACO. Federally qualified health centers, rural health centers, skilled nursing homes, home health agencies and critical access hospitals are not specifically designated as eligible participants in the shared savings program of an ACO.

An Accountable Care Organization (ACO) is a group of providers who will work together to coordinate care for patients in the Medicare program that they serve. Under the proposed rule all providers of services to patients will continue to receive Medicare reimbursement payments as they currently do, such as DRGs for hospitals, RUGs for nursing homes and RBRVS for physicians. The change from the current reimbursement system will occur for the eligible participants in the shared savings program. Medical care providers will share with the government in "savings" for taking care of the patient. The savings will be calculated based on the expected cost to take care of a patient with a specific illness in a specific geographic area. If the total cost of taking care of the patient is less than the expected cost, and a good quality outcome is obtained, a percentage of that difference will be shared. The proposed rules also provide that in future years the ACO will also share losses on patient activity.

The hospital or physician's ability to partake in the shared savings or to mitigate shared losses is driven, in many instances, by the type of care the patient receives and the outcomes in a post-acute care setting. This is strongly driven by the skilled nursing home, home health care agency and the activities of the patients once they are discharged from the hospital.

The ACO is not likely going to be willing to risk these payments without having some additional control over the skilled nursing home. This level of control can be at the very direct level of acquiring ownership of skilled nursing facilities. It may be at the moderately direct level of developing more interaction between the hospital, physicians and the nursing home in the overall care management of the patient. One possibility would be having a hospital-employed physician as the medical director of the nursing home or more direct follow-up on a patient's progress by a physician after discharge from the hospital to the nursing home. A very indirect level of control would be limiting placement of patients to facilities with stronger quality performance indicators and lower readmission rates. This would be determined by analyzing performance data of nursing homes such as what will be available through the expanded nursing home compare website or a hospital's own data related to readmissions from nursing homes.

As you can see, the ACO payment system has no direct impact on the reimbursement structure to nursing homes but could have a devastating impact or the overall bottom line of nursing homes if Medicare discharges are steered away from your organization based on poor quality outcome measures or readmission performance.

It is critical for your organization to understand where you stand against these performance measurements and to strengthen your relationships with your key feeder hospitals. This might even include developing joint programs to eliminate some of the post-acute care stay issues that could impact the reimbursement and bottom line of both organizations.

Our recommendation to all nursing facilities is to take a proactive approach to preparing for the advent of ACOs:

  1. Put a diversified team together from all functions in your organization. This team should be charged with monitoring the regulations and analyzing the impact on your organization.
  2. Review your existing relationships with hospitals and/or physician groups that might be forming ACOs. Make sure you "get a seat at the table" and get the opportunity to present your case on how you can add value to the ACO.
  3. Make sure you understand how existing or proposed quality performance measures might be used. Take steps as necessary to make sure your quality performance measures are accurate and are the best that they can be. Develop a process (and identify process owners) to continually monitor and improve performance under the quality measures.
  4. Develop a strategy or enhance your existing strategy for handling post acute care patients. Determine what levels of care you want to offer, and develop a team of professionals with the responsibility of managing the business. This should include all facets such as centralizing costs, measuring results, marketing services and maintaining relationships.

George W. Thomas, CPA, is a Director at BlumShapiro, specializing in hospitals and long-term care.  BlumShapiro is the largest regional accounting, tax and business consulting firm based in  New England, with offices in West Hartford, Shelton and Westport, Connecticut and Rockland, Massachusetts.  The firm serves as business advisors for today's leading middle market companies, non-profit organizations and government entities, working to strategically tailor and consistently deliver tested solutions for unlocking an organization's full potential.  For more information about BlumShapiro, visit 


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