As summarized in our previous advisories, the Patient Protection and Affordable Care Act anticipates the creation of accountable care organizations comprised of physicians, hospitals, and other health care suppliers.

ACOs must be willing to enter into a three-year Shared Savings Program agreement with the Centers for Medicare and Medicaid Services and be accountable for the care of at least 5,000 Medicare beneficiaries. If quality performance standards are met, the ACO is eligible to receive shared savings bonus payments in addition to fee-for-service payments. The details are contained in the proposed ACO rule published by CMS on April 7, 2011.

This eighth advisory in our series on ACOs focuses on how the shared savings will be calculated. This article does not address shared risks, which will be examined in a future advisory. CMS refers to the shared savings methodology as the “one-sided model,” and the combination of shared savings and shared risks as the “two-sided model.”

CMS’ proposed methodology for calculating shared savings is neither simple nor particularly precise, making it challenging for providers to estimate their potential bonus payments before deciding whether to form an ACO.

Essentially, CMS proposes to share with the ACO a portion of the savings that are calculated by comparing the ACO’s future Medicare payments against a “benchmark” of what CMS would have paid for services to the same patient population absent the ACO’s efforts to achieve cost savings. To an unusual degree, CMS discusses the various options it considered and adopted or rejected, and invites public comment on all aspects of its methodology.