Medicare needs fundamental reform to achieve fiscal sustainability, improve value and quality, and preserve beneficiaries’ access to physicians. Physician fees will fall by one-quarter in 2014 under current law, and the dire federal budget outlook virtually precludes increasing Medicare spending. There is a growing consensus among policy makers that reforming fee-for-service payment, which has long served as the backbone of Medicare, is unavoidable. Accountable care organizations (ACOs) provide a new payment alternative but currently have limited tools to control cost growth or engage and reward beneficiaries and providers. To fundamentally reform Medicare, this article proposes an enhanced version of ACOs that would eliminate the scheduled physician fee cuts, allow fees to increase with inflation, and enhance ACOs’ ability to manage care. In exchange, the proposal would require modest reductions in overall Medicare spending and require ACOs to accept increased accountability and financial risk. It would cause per beneficiary Medicare spending by 2023 to fall 4.2 percent below current Congressional Budget Office projections and help the program achieve fiscal sustainability.
