Brief Summary of Accountable Care Organizations
and Bundled Payment Models
November 15, 2011
The purpose of this memorandum is to give a quick summary of Accountable Care Organizations (ACOs)
and Bundled Payment Models. The AHCA website contains an enormous amount of information, which
supports this summary.
The reformation of the health care service delivery system is underway. The fee-for-service system is
slowly being replaced by a variety of managed care initiatives. The Patient Protection and Affordable
Care Act (ACA) proposes to further “reform” of health care service delivery system through the
establishment of Accountable Care Organizations (ACO) and the bundling of payments through the
Medicare program.
ACOs and bundled payment both seek to facilitate and encourage coordinated and integrated
care. Medicare ACO initiatives seeks to do this by means of organizational structure reforms, whereas
the Medicare bundled payment initiative seeks to better coordinate and integrate care through payment
reforms. The ACO model involves the measurement of savings and quality over a 3 year period. The
bundled payment model pertains to a “bundle” of services delivered within a given limited episode such
as the days as an acute care patient plus some period of post-acute care.
ACOs and Bundling are options for improving the integration and coordination of care services to
Medicare beneficiaries and reducing the cost of care. AHCA has a dedicated member/staff AHCA ACO
and Bundling workgroup assessing these initiatives and attempting to lay out roadmaps for members.
A. Medicare Shared Savings Program for ACOs:
The Medicare Shared Savings Program will allow a variety of providers across the care spectrum,
including post acute care providers, who voluntarily agree to work together, to coordinate care for patients
and who meet certain quality standards to share in any savings they achieve for the Medicare program.
ACOs which elect to become accountable for shared losses have the opportunity to share in greater
savings. ACOs will coordinate and integrate Medicare services, with success being gauged by roughly
30 quality measures organized in four domains. These domains include patient experience, care
coordination and patient safety, preventive health and at-risk populations. The higher the quality of care
providers deliver, the more shared savings their Accountable Care Organization may earn, provided they
also lower growth in health care expenditures.
B. Bundled Payments for Care Improvement:
The Bundled Payments for Care Improvement initiative seeks to improve patient care by fostering
improved coordination through four broadly-defined, patient-centered approaches. Three models involve
a retrospective bundled payment arrangement, and one model would pay providers prospectively. Models
2 and 3 include post-acute care. Models 1 and 4 pertain solely to acute care hospitals. Through the
Bundled Payments initiative, providers have great flexibility in selecting conditions to bundle, developing
the health care delivery structure, and determining how payments will be allocated among participating
providers.
C. Differences Between ACOs and Bundled Payment Models:
There are several differences between the ACO, and the Bundled Payments for Care Improvement
Initiative, including:
Structure

The structural requirements for ACOs are much more restrictive than for Bundling. ACOs are
required to be set up as a separate legal entity. Under Bundling, the structure is less prescriptive.
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
The participating organizations can determine the structure under Bundling and choose the
bundled services they wish to deal with. An organization will be the applicant and will share gains
(or losses) with other provider entities that provided services during the episode. It is most likely
that large healthcare systems will be ACOs and they will subcontract with long term and post
acute care providers.
Services

The scope of services covered under the ACO model is broader compared to Bundling. Under
the ACO model, Medicare Part A and Part B services over a measurement period (typically a
year) are included in the Shared Savings calculation. In addition, the focus is on an array
services to a population. To qualify as an ACO, the ACO must have a strong primary care base
and a minimum of 5,000 beneficiaries must receive a plurality of their primary care from the ACO.

Under Bundling, inpatient hospital, physician, related post-acute care, and related admissions
services within a specific episode period (30 days or more) are included. Again, there are 4
bundling model options: two pertaining to acute care services and two that include post-acute
care. Compared to the ACO care of a population measured over time, the focus in bundling is
more on a given service to a given patient.
Provider Participants

All Medicare providers can participate in an Accountable Care Organization to coordinate care,
but only certain types of providers are able to sponsor one. Those providers include physicians in
group practice arrangements, networks of individual practitioners, and hospitals that are
partnering with or employ eligible physicians, nurse practitioners, physician assistants, and
specialists. To help providers serving rural and other underserved areas, CMS allows Rural
Health Clinics (RHCs) and Federally Qualified Health Centers to work together to coordinate care
for patients. In addition, in the final rule, certain critical access hospitals are also eligible.

Under Bundling, eligible awardees can include physician group practices, acute care hospitals
paid under the IPPS, health systems, physician-hospital organizations, conveners of participating
health care providers, post-acute providers, long-term care hospitals, inpatient rehabilitation
facilities, skilled nursing facilities, and home health agencies.
Savings Rates

Under the ACO model, savings are shared (Shared Savings) between the ACO and the Medicare
program. When a minimum savings amount is attained, the ACO and Medicare program will
share the savings. This rate is dependent on whether the ACO participates in a model that has
both shared savings and losses. The ACOs that participate in the model that has no risk of
sharing losses will be eligible for lower shared savings.

Under the retrospective Bundling models, applicants will propose a target price for the episode of
care, set by applying a discount to total cost of a similar episode of care as determined from
historical data. Participants in these models would be paid at fee-for-service rates at a negotiated
discount. A reconciliation of those fee-for-service payments to a target price will be made at the
end of the episode period. Participating providers will then be able to retain the savings or will
repay losses. Under the prospective Bundling models, applicants will be a predetermined single
payment for the episode. AHCA is working to define possible bundles.
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D.
Timing:
The final rules for ACOs were released on October 20, 2011. Providers who want to participate do not
have to join right away. They could sign up on a rolling basis in 2012, 2013 or 2014. Separate provisions
affecting anti-trust rules also were issued Oct. 30, 2011.
Instead of establishing by itself a national, voluntary pilot program on payment bundling by January 1,
2013, CMS instead launched a bundled payments initiative that relies on the participants to design the
bundled payments systems/arrangements by themselves.
As outlined on AHCA’s website on Bundling and in Capitol Connection, CMS released the Innovation
Center’s Request for Applications (RFA) which outlined four broad approaches to bundled
payments. Providers could determine which episodes of care and which services will be bundled
together. Applicants for Models that included post-acute care had to submit a nonbinding Letter of Intent
(LOI) by November 4, 2011.
Applicants who wished to receive historical Medicare claims data had to have completed a Research
Request Packet by November 4, 2011 as well. If approved to receive Medicare data, applicants had to
submit a DUA prior to receipt of data. Completed applications for Models 2-4 have to be submitted by no
later than by March 15, 2012, but an application cannot be made without having met the November 4
deadlines.
To our knowledge not many SNFs submitted a LOI. However, AHCA will be asking CMS to prove a
second round of the bundling initiative. In the interim, as outlined below, there are actions that SNFS can
and should be taking to be attractive to Bundlers and ACOs and in general to hospitals and hospital
systems looking for high quality efficient post-acute providers for their patients.
E. AHCA:
AHCA has launched a number of initiatives to support members as we navigate reforms to the Medicare
health care system. In addition to extensive review and comments on health care system reform
regulations, AHCA has prepared resource materials to assist members in understanding ACO and
bundled payment reforms, has research underway to analyze, critique, and develop organizational and
payment system reforms, prepared tools for members to participate in these CMS initiatives, and
continues to advocate for the inclusion and expansion of opportunities for long-term and post-acute care
(LTPAC) providers to thrive under these initiatives.
F. SNFs and Next Steps:
Participation in either ACOs or Bundling Initiatives by SNF is best determined on a market by market
basis. Skilled nursing facilities eventually may play a much larger role under bundled payment initiatives
as compared to ACO initiatives due to the more limited scope of services, and the ability to be the
Applicant either for a model that includes LTPAC services only or both acute care and LTPAC services.
We will not know how many actual bundling pilots or ACO systems will be implemented until some
months from now. Those providers who have met the deadlines for the CMS Bundling Initiative may,
upon further analysis, deicide not to proceed with a pilot. Furthermore, there were many questions asked
of CMS by providers, and all the answers have not yet been provided by CMS.
There are enormous risks involved in participating in either bundling or an ACO. And despite the fact
that AHCA distributed widely information on both the ACO and Bundling Initiative and posted assistance
tools on the AHCA bundling web site, the SNF sector with a few exceptions did not elect to be the first
ones out. However, SNFs are likely to be approached by participating hospitals or groups to be part of
an initiative or as a preferred contractor.
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AHCA will monitor these pilots very closely and provide a continual flow of information. We will also be
asking CMS to prove a second round of the bundling initiative. In the interim, there are actions that SNFS
should be taking to be attractive to Bundlers and ACOs and in general to hospitals and hospitals systems
looking for efficient and effective post-acute care for their patients and a sizable reduction in
rehospitalization. These actions might include efforts:






To study and understand its market area;
o Are there hospitals or hospital systems that are looking closely at ACOs?
o Are they looking for SNFs as partners or as contract providers?
o Are there hospitals that wish to try bundled payments and, if so, for what conditions?
To develop and implement a sound rehospitalization reduction program for as broad an array of
hospital discharges as possible, and to have solid data to show to hospitals. Hospitals are most
likely to contract with SNF with records of success in this area.
To know its costs, especially around certain illnesses.
To provide exemplary quality;
To participate in providing excellent transition care from hospital to SNF and from SNF to home;
and
To demonstrate creativity and willingness to contract in new ways even with the possibility of
assuming some risk and some gain share from cost savings.
If you have any questions, the following constitute your AHCA ACO/Bundled Payment Team:
Peter Gruhn pgruhn@ahca.org
Elise Smith esmith@ahca.org
William Hartung Whartung@ahca.org
Elise Smith, November 15, 2001
emsith@ahca.org
202-898-6305
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