On March 31, 2011 the Centers for Medicare and Medicaid Services ("CMS") issued online its proposed rule regarding Accountable Care Organizations ("ACO"), the concept first introduced in last year's health reform legislation, the Affordable Care Act of 2010 ("ACA"). The proposed rule, which will be published in the April 7, 2011 Federal Register, outlines the federal government's plan to save up to $960 million over a three year period through the implementation of the ACO program. The proposed rule calls for a 60 day public comment period.

Two Proposed ACO Risk Models

The proposed rule allows for two risk models. First, there is a "one-sided risk model" where there would be shared savings amongst participants in the first two years of the pilot program and shared savings and losses in the third year. Second, CMS proposes a "two-sided risk model" where participants benefit from shared savings and losses for all three years of the pilot program thus providing a possibly greater economic benefit to the participants. By allowing these two different models, CMS encourages the development of ACOs including those that are not yet prepared to take on shared risk for all three years but would be able to share savings immediately. CMS proposes a flat 2% minimum sharing rate in all cases. However, ACOs in a one-sided model with a smaller population would have a larger sharing rate and ACOs with a larger population would have a smaller rate.