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Final Rules for Accountable Care Organizations - Impact on Nursing Homes

November 16, 2011

Accountable Care Organizations Jonathan H. Fink, CPA

In March 2011, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule on Medicare Shared Savings Programs for Accountable Care Organizations.  This rule, a product of the changes sought by the Affordable Care Act, proposed certain incentives and penalties to incentivize acute care hospitals and physicians to formally partner their efforts.   The goal of such a partnership is to improve patient care while reducing costs through the formation of an Accountable Care Organization (ACO).  As part of this proposed rule, federally qualified health centers, rural health centers, skilled nursing homes, home health agencies and critical access hospitals were not designated as eligible participants in ACOs.

The response to CMS’ proposed rule was tepid among hospitals and physicians.  Though the concerns were numerous and varied between different constituent groups, the key themes that presented themselves as concerns were as follows:

  • The cost to prepare for participation in an ACO were viewed as significant.
  • The savings vs. risk equation was viewed as undesirable.
  • The number and demographics of Medicare patients to be covered by an ACO would not be known, in many cases, until after the contract period ended.

Participation in an ACO was not indicated as mandatory through the proposed rule.  As a result, many organizations or practices quickly dismissed the ACO concept as “not for me”.

In October 2011, CMS issued its final regulation for ACOs.  This final rule came in response to the significant volume of formal comments submitted to CMS regarding the proposed rule.  The final rule makes the concept of ACOs more attractive for healthcare organizations through the following changes:

  • The number of quality measures that an organization must meet in order to receive productivity bonuses has been reduced from 65 to 33
  • Significant reduction of the downside risk for providers that choose to participate in an ACO
  • Ability for community and rural health centers to lead ACOs
  • Upfront payments to certain qualifying smaller medical entities in order to make necessary technology investments
  • Improved knowledge and understanding of Medicare patients that an ACO will be responsible for covering before the contract ends

We expect that the changes included in the final rule will cause a larger number of hospitals and physician groups to revisit the idea of an ACO and, increasingly, create formal ACOs. 

The question at hand is what do these changes mean for nursing homes?  Though nursing homes still cannot formally partner in an ACO, this does not mean it cannot affect them.

In 2011, many nursing homes and other long-term care facilities find themselves at a crossroads.  For a number of years, Medicaid rates have been held flat or increased only minimally.  The percentage of private pay patients has continued to decrease.  The Medicare rates, which have effectively served to subsidize facilities’ losses on the Medicaid side, were cut 11% on October 1. 

As the business many nursing home operators have known continues to evolve, there is now a new factor in the form of ACOs that should not be disregarded.  With the high percentages of nursing home admissions coming from hospitals in recent years, it is critical that nursing homes evaluate their relationships with local hospitals and physicians.  If a facility’s local hospital joins an ACO, will that ACO continue to look towards the same nursing home as the best option for ensuring the highest reimbursement in an era of better care coordination and quality care incentives?  Is a facility ready, from an IT perspective, to share the necessary patient care information with an ACO?  As ACOs look for lower cost alternatives for certain post-acute care, will a nursing facility be able to demonstrate its ability to effectively partner in this area?

Though these are just a few of the questions that nursing homes and other long-term care facilities should be asking themselves, the key is to start thinking about them now.  Nursing homes should evaluate what the changes in the final ACO regulation could mean to them -- both now and going forward.  They also need to make sure they contact, and stay in contact with local hospitals (that might become an ACO or lead an ACO) to make sure they are discussing ways that they might play a role as the future unfolds.

Another important ingredient to discussions about being a part of an ACO is to have good information about your costs and medical outcomes.  These will be key to future ACO contracting.  

For more information on ACOs and their impact on nursing homes, please contact Jonathan Fink at or 860-561-6849.

Jonathan H. Fink, CPA, is a manager 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 and Shelton, CT and Rockland, MA.  The firm serves as business advisors for today’s leading 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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