While accountable care organizations authorized under the health care reform law hold the promise of lowering costs for Medicare beneficiaries, they could have the opposite effect on employer-sponsored benefit costs, health care experts warn.

Under regulations proposed last month by the Obama administration, doctors and hospitals that band together to form ACOs could earn up to $800 million in bonuses during the next three years if they meet certain quality standards, while spending less on patients than expected by the Centers for Medicare and Medicaid Services.

Conversely, ACOs that provide low-quality care or spend more than CMS anticipates could have to pay up to $40 million in penalties.

Some health care experts are concerned that ACOs may increase prices on services they provide to private-sector patients to meet the cost-savings requirements set by CMS. They also expect health care organizations to pass much of the cost of the investments required to become ACOs onto private payers.

To prevent this cost shift, some health care experts are urging employers and insurers to enter into cost- and risk-sharing arrangements with ACOs similar to those reached with CMS.

“ACOs are one of the major provisions in the Accountable Care Act that, if successful, could revolutionize the way we deliver health care in the United States, if they really are integrated, coordinated and accountable, focusing on primary and preventive care, so they can minimize hospitalization and specialty care,” said Steve Wojcik, vp, public policy at the National Business Group on Health in Washington.

“We're concerned they'll just be a repackaging to secure additional monies from Medicare,” he said. “We also want to make sure that any of the savings are true savings and not just cost-shifting to the private sector.”

“The downside risk is that there can be a lot of cost-shifting,” said Andrew Webber, president of the National Business Coalition on Health in Washington. “If we do a shared-savings arrangement in Medicare, will they make it up by increasing prices for private payers?”

“I think that employers are rightfully concerned about cost-shifting,” said Harlan Levine, North American practice leader for health management at Towers Watson & Co. in Los Angeles. “There need to be investments to create the infrastructure to create ACOs. Those investment costs will be passed on to the private sector.”

Although the proposed regulations contain a provision requiring ACOs with a certain market concentration to undergo an expedited, mandated review by the Federal Trade Commission and the Department of Justice to ensure they don't become monopolies, some health care experts question whether that provision is strong enough.

“We, like a lot of employers, are concerned that ACOs could become geographic monopolies,” said David Lansky, president and CEO of the Pacific Business Group on Health in San Francisco. “To mitigate against that, there has to be meaningful accountability. We would like a commitment to transparency. We want to see how the hospitals, providers and clinical programs perform. I'm not sure the current draft regulations go far enough.”

To prevent potential cost-shifting to the private sector, employers should “negotiate the same kind of incentive payment structure with ACOs that Medicare is going to be getting,” said Francois de Brantes, executive director of the Newtown, Conn.-based Health Care Incentives Improvement Institute Inc., the umbrella organization for Bridges to Excellence and Prometheus Payment Inc.

“If the doctors and hospitals align and assume risk for quality and cost, it could be a contracting vehicle for employers” as well as for Medicare, said Paul Keckley, executive director of the Deloitte Center for Health Solutions based in Washington. “The rules do not preclude commercial health plans or employers from contracting with the ACOs.”

“Those health systems that are posed to be ACOs aren't doing this with the thought that this will be Medicare-only,” said Mark Higdon, a partner at KPMG Healthcare based in Baltimore.

In fact, “most have had preliminary discussions with commercial insurers,” he said.

“As long as you mirror what CMS is doing, and the commercial payers can start to do that, it will be difficult for ACOs to use their market power to extract more than market rates for their services,” said Richard Weil, a Chicago-based partner in Oliver Wyman's health and life sciences consulting practice.

Regardless of their concerns about ACOs, many health care experts remain hopeful their creation, in conjunction with other value-based purchasing provisions in health care reform law, will refocus how government and private payers compensate providers.

“We're all singing from the same song book right now in terms of identifying the problem and solution,” said Mr. Lansky.

“For a long time, employers have said incentives have to be based on results, not volume. Redundancy has to be eliminated, and we're tired of paying the bill for everyone else,” said Mr. Keckley. “What I like about the rule is the balance of quality and savings.”

“This does have the promise of a transformed delivery system, more focus on prevention, chronic care management, lowering costs as an explicit goal,” said Mr. Webber. “Wouldn't that be unique for a provider organization?”

“We've done the insurance reform, and now we're moving forward with what employers have been struggling with: cost and outcomes,” said Shawn Nowicki, director of health policy at the Northeast Business Group on Health in New York. “We're hoping that it achieves better value in the system” and that “the model will spill over to private payers and be beneficial to employers.”

“Private employers are going to be very eager to move to a shared risk scenario as long as there are meaningful quality incentives attached to that, and that there are no unintended consequences like withholding care,” said Suzanne Delbanco, executive director of Catalyst for Payment Reform in San Francisco. “But employers will only view that as sustainable if there is also a sharing of the downside.”