Accountable Care Organization: New Risk in ACO Model vs. Prospective Payment System

A Prospective Payment System (PPS) is a method of reimbursement where Medicare payments are made based on a predetermined  amount that is fixed.   It has been in use since October 1, 1983. The initial concern under this system was the management of the cost outlier cases, which could have a profound impact on hospital finances. The government, directed by Congress to pay for the Medicare population, chose to assume this risk through a stop loss program for these outlier cases.

CMS strongly believes that to get   meaningful change in efficiency and care for patients, the Accountable Care Organization (ACO) needs to be exposed to some risk of shared losses.   CMS expects cost savings to be realized over time via this provision.  Therefore, under ACO concept this risk will be assumed by the organization delivering care.

Therefore, to protect against this high risk of significant financial loss, the ACO should plan at its inception for methods of payment and/or protection for these cases, such as secondary coverage (insurance). This is especially important, as the majority of these programs will initially be enrolling the Medicare population rather than the lower risk, “working well”, as seen in the successful Kaiser model.

Michael F. Arrigo

Michael is Managing Partner & CEO of No World Borders, a leading healthcare management and IT consulting firm. He serves as an expert witness in Federal and State Court and was recently ruled as an expert by a 9th Circuit Federal Judge. He serves as a patent expert witness on intellectual property disputes, both as a Technical Expert and a Damages expert. His vision for the firm is to continue acquisition of skills and technology that support the intersection of clinical data and administrative health data where the eligibility for medically necessary care is determined. He leads a team that provides litigation consulting as well as advisory regarding medical coding, medical billing, medical bill review and HIPAA Privacy and Security best practices for healthcare clients, Meaningful Use of Electronic Health Records. He advises legal teams as an expert witness in HIPAA Privacy and Security, medical coding and billing and usual and customary cost of care, the Affordable Care Act and benefits enrollment, white collar crime, False Claims Act, Anti-Kickback, Stark Law, physician compensation, Insurance bad faith, payor-provider disputes, ERISA plan-third-party administrator disputes, third-party liability, and the Medicare Secondary Payer Act (MSPA) MMSEA Section 111 reporting. He uses these skills in disputes regarding the valuation of pharmaceuticals and drug costs and in the review and audit of pain management and opioid prescribers under state Standards and the Controlled Substances Act. He consults to venture capital and private equity firms on mHealth, Cloud Computing in Healthcare, and Software as a Service. He advises ERISA self-insured employers on cost of care and regulations. Arrigo was recently retained by the U.S. Department of Justice (DOJ) regarding a significant false claims act investigation. He has provided opinions on over $1 billion in health care claims and due diligence on over $8 billion in healthcare mergers and acquisitions. Education: UC Irvine - Economics and Computer Science, University of Southern California - Business, studies at Stanford Medical School - Biomedical Informatics, studies at Harvard Medical School - Bioethics. Trained in over 10 medical specialties in medical billing and coding. Trained by U.S. Patent and Trademark Office (USPTO) and PTAB Judges on patent statutes, rules and case law (as a non-attorney to better advise clients on Technical and Damages aspects of patent construction and claims). Mr. Arrigo has been interviewed quoted in the Wall Street Journal, New York Times, and National Public Radio, Fortune, KNX 1070 Radio, Kaiser Health News, NBC Television News, The Capitol Forum and other media outlets. See and for more about the company.

Leave a Reply