Kathleen Sebelius said HHS incorporated providers’ views in its rule. | MICHAEL SCHWARTZ/POLITICO Health reform rule spooks providers

The Obama administration’s signature initiative to control health care costs is in danger of being crushed under its own weight.

In March, the administration released the long-awaited proposed rule on accountable care organizations — networks of hospitals and physicians that are supposed to work together to bring down costs by improving care. They’re the symbol of the Obama administration’s belief that driving providers to deliver better care will also eliminate large amounts of unnecessary spending.


They’re also a centerpiece of President Barack Obama’s health care reform law, which authorizes Medicare to set up ACOs as a permanent program — open to any group of health care providers that can meet the eligibility requirements — rather than just a pilot program.

Before the rule came out, it had been eagerly anticipated for months, with many providers signaling they would enroll as soon as there were details. At the time, Health and Human Services Secretary Kathleen Sebelius said the department had spent months carefully digesting all of the feedback so it could write a rule flexible enough to allow many different kinds of providers to take part.

But now that providers have had time to digest it, even the most likely candidates have rejected it as written.

Their biggest concerns include the provisions that are supposed to keep the ACOs from potentially increasing Medicare spending — costing, rather than saving, money — if savings targets aren’t reached.

This is a necessary caution, given the potential scope of the program, according to experts on health and budget issues. But if this makes it unworkable for providers, the administration will have choked the goose that is supposed to lay the golden savings.

And whether the final version of the rule is stricter or looser than the current version, it’s not clear that the Obama administration can actually get the savings it wants.

Tevi Troy, deputy secretary of HHS under former President George W. Bush, explained that if the rule is too restrictive and “nobody participates, you’re not going to get the savings,” which appears to be very likely. But if projected savings are reduced because they “loosen up the rules, … you won’t get the same amount of budget savings.”

Either way, it will be difficult for the program to live up to the hype.

“The savings they can get out of ACOs and the speed with which they will come was oversold, which puts [the Obama administration] in a bind here,” a former Clinton administration official said.

Don Berwick, head of the Centers for Medicare & Medicaid Services, would not comment for this story, but Richard Sorian, HHS assistant secretary of public affairs, said the department was “100 percent confident that Accountable Care Organizations will be established on schedule, improve the quality of care and lower costs.”

“We’re taking comments on a proposed rule, and those comments will make the rule stronger — that’s how the process works. Dr. Berwick has done incredible work to move this process forward. Anyone who would suggest otherwise is simply wrong,” Sorian said.

The idea is to get different kinds of health care providers to band together to provide coordinated care to a population of patients. The Affordable Care Act says that if they do it efficiently and in a way that gives better care to the patients, they’d be able to keep a share of any savings they create.

But the proposed rule goes a step further than the statute, requiring ACOs to be at risk of losing money if their costs wind up higher than expected. It also imposes a high bar before providers can pocket any savings. The savings have to be big enough that they’re clearly the result of real changes to the delivery of care, not just random variation.

Perhaps the biggest sign of the depth of disappointment among ACOs-in-waiting came May 12, when the 10 medical groups participating in a Medicare pilot program that paved the way for the ACO program declared that none would participate if the rule were not substantially modified.

“As currently proposed, ACOs have a greater potential for incurring losses … than for generating savings. This risk-reward imbalance makes it difficult, if not impossible, for internal decision makers to accept the financial design,” they wrote in a letter to Berwick.

Gail Wilensky, who oversaw Medicare and Medicaid under President George H.W. Bush, told POLITICO that she has an idea how Berwick feels.

“I got to experience two proposed rules blowing up in my face when I was the administrator, so I have some sympathy for Don,” she said, though she has been publicly skeptical of the value of ACOs.

“If you really thought this was going to be the major driver of change in health care — not a major driver of change in health care — [and now] people are saying, ‘are you crazy?’ who would want to play this game?” Wilensky asked.

For his part, Berwick maintains that the process is running just as it is supposed to.

“The criticism [of the proposed rule] is comment. It’s a comment period,” Berwick said during a call with reporters last week. “We will meld all that input into a final rule.”

But Wilensky is not sure that it is up to Berwick.

“I don’t know how much Don and HHS can drive what the final rule looks like because … this has all the sticky fingerprints of a heavy-leaning” Office of Management and Budget, she said.

Multiple sources close to the administration told POLITICO last week that at least two of the provisions most worrisome to providers were included in the proposed rule at OMB’s insistence, and this may make them hard to change.

OMB has the final word on all regulations and is charged with policing their impact on the economy and the federal budget.

OMB and the other agencies with jurisdiction have most of the responsibility for the proposed rule’s shortcomings, according to David Spahlinger of the University of Michigan Medical School, one of the people who signed the May 12 letter to Berwick.

“I think [CMS was] very thoughtful about it, but in the end … it almost looks like two people wrote sections,” Spahlinger said. “[Until] you see the whole thing, you don’t realize how cumbersome it is.”

OMB overrode CMS’s objections on some of the provisions in the proposed rule. If the office plays hardball with CMS in producing the final rule, Berwick’s precarious political situation may make it even harder to fight back.

Obama initially gave Berwick a recess appointment in order to avoid a divisive nomination battle, and the Senate has never taken up his nomination because his defeat would be all but certain. He also does not have the on-the-job political experience that his predecessors, such as Nancy-Ann DeParle under President Bill Clinton or Mark McClellan under George W. Bush, did when they supervised similarly high-profile expansions.

“He is really suffering from both ends of the spectrum. He’s very new, he’s not been in this highly charged political process, he has a very likely end date, and none of that strengthens his hand,” Wilensky said.