Accountable care organizations were among the key initiatives of the Affordable Care Act, designed to help control soaring Medicare costs. ACOs were expected to save the government nearly $5 billion by 2019, according to the Congressional Budget Office.

On Thursday, the Trump administration proposed an overhaul of the program, which was designed to encourage doctors and hospitals to work together to coordinate care by reducing unnecessary tests, procedures, and hospitalizations. The move could dramatically scale back the number of participating health providers.

The announcement was just the latest in a steady drumbeat of moves by Trump administration officials to unwind health policies set in place by the Obama administration.

Medicare ACOs began in 2012 and today enroll more than 10 million beneficiaries. If they provide care for less than certain cost targets while meeting quality of care standards, then they get to share in any of the savings. Commercial insurers and Medicaid have also adopted ACOs in the past decade.

About 82% of the 561 Medicare ACOs are set up so that they are not at risk of losing money from Medicare. They can share in any savings they achieve. The rest are in a model where they can gain a higher share of savings, but also risk paying back money to Medicare if they do not meet their savings targets.

The Medicare program

Those ACOs have been more successful in saving money, Medicare officials said. The Medicare program said it would phase out its no-risk model beginning in 2020. A recent industry-sponsored survey showed 70% of ACOs would rather quit than assume such financial risk.

Seema Verma, the administrator of the Centers for Medicare & Medicaid Services, said it's wrong to have ACOs that can only make profits but not risk any losses. "We want to put the accountability back into Accountable Care Organizations," she said during a briefing with reporters.

Existing ACOs will have one year to switch to a model accepting financial risk. New ACOs will have two years. Currently, ACOs have up to six years to shift to a model where they share in the financial risk. These and other proposed changes would save Medicare $2.2 billion over the next decade, Verma said.

The proposal drew rare praise from a former Obama administration official. Andy Slavitt, who once headed CMS, tweeted: "CMS is proposing changes to Medicare pay for value (ACO) models. At first look, they look positive to me."

CMS estimated that its new policy would lead to a drop of about 100 ACOs by 2027. Industry observers say that prediction seems modest at best. "That does not seem too realistic," said Ross White, manager of the Center for Health Care Regulatory Insight at KPMG, a large consulting firm.

"This is going to come as quite a shock to a lot of current participants, although the administration has been sending these signals for several months. It seems like they are trying to ratchet down and squeeze the dollar savings out and not have participants in it for the wrong reasons," said White.