After the ACO regulations: Accountable care organization answers

by Jeffrey L. Cohen

Patient centeredness, fragmentation and value based purchasing are just a few of the terms that are peppered throughout the newly proposed regulations for accountable care organizations (ACOs).

The healthcare reform law established the Medicare Shared Savings Program for ACOs as a key way to accomplish its two core objectives: (1) reduce healthcare costs, while (2) preserving and improving quality. Like most new legislative ideas, the ACO regs raise lots of questions.

Who can become an ACO?

Answer: Pretty much any legal entity that complies with state law, has a tax ID number, applies sucessfully and which:

  1. Agrees to participate for three years;
  2. Cares for 5,000 Medicare patients;
  3. Is prepared to receive and distribute shared savings;
  4. Is prepared to repay shared losses (if it takes economic risk);
  5. Establishes reporting, and ensures ACO participant and ACO provider/supplier compliance with program requirements, including the quality performance standards;
  6. Has shared governance that provides all ACO participants proportionate control over the ACO’s decision making process and includes Medicare patient representatives;
  7. Is operated and directed by Medicare-enrolled entities that directly provide health care services to Medicare patients. ACO participants (e.g. physicians, hospitals) must have at least 75 percent control of the ACO’s governing body;
  8. Has sufficient primary care physicians to meet the primary care needs of the ACO patients;
  9. Has administrative and clinical organization and leadership;
  10. Is patient-centered though the use of such things as patient assessments and individualized care plans; and
  11. Is subject to substantial monitoring and reporting requirements, including public reporting of quality data to ensure transparency.

Examples in the regs of organizations that might qualify as ACOs include:

  • Group medical practices
  • Networks of group practices (e.g. IPAs)
  • Partnerships of joint ventures between hospitals and physicians (e.g. PHOs)
  • Hospitals employing physicians
  • Anything else that accomplishes the objectives of the Act

Psychiatric hospitals, long term care facilities, rehab hospitals, and children’s and cancer hospitals are not eligible for ACO participation. Additionally, examples in the regs of organizations that are not identified as being able to even participate in the Shared Savings Plan include:

Federally qualified health centers, rural health centers, skilled nursing facilities, nursing homes, long-term care hospitals and critical access hospitals.

Why become an ACO?

Answer: Though an organization may have many motives for becoming an ACO, like protecting market share, the chief incentive seems to be money. If an ACO can deliver high quality care and can reduce the rate of projected cost increase (“value-based purchasing”), it can share in the Medicare savings. ACOs which meet the cost and quality benchmarks to be established by the government (not yet established), will be eligible to participate in shared savings (to a specified amount). ACOs will elect to participate in one of two models: (1) “one-sided risk sharing,” which means the ACO is able to get some savings with no risk of loss for two years, but must accept some risk in the third year; or (2) “two-sided risk sharing,” which means the ACO is eligible to get more savings if they take the risk of loss in the first year. Those which take financial risk right away, there is a proposed 25 percent withhold of shared savings in order to offset any future losses under the two-sided model.

Does an ACO have to enroll in the Medicare program?

Answer: The ACO itself is not required to enroll, but the ACO participants (e.g. physicians and hospitals) must be.

What role do Medicare patients have in the ACO?

Answer: Plenty. Medicare patients have the choice to participate in an ACO or not. they have to be notified that they are participating in an ACO and they have the right to refuse to allow their claims data being shared within the ACO.

What role does primary care play in ACOs?

Answer: A huge one. The regs require assignment of Medicare patients based on their primary care utilization. The regulators are clear in the regs that primary care professionals (defined as family physicians, internists, geriatric physicians, pediatricians and the nurse practitioners, physician assistants and clinical nurse specialists who work with them) have the best opportunity to reduce costs and to improve quality. “Primary care professionals may have the best opportunity to reduce unnecessary costs by ensuring care coordination for beneficiaries with multiple chronic conditions. By coordinating with specialists to whom the beneficiary has been referred, primary care providers can reduce unnecessary repetition of laboratory testing or imaging. By ensuring timely access to the outpatient services, primary care providers can also reduce the number of avoidable admissions.” These are extraordinary statements, which reflect a clear preference for an expanded role of primary care (albeit watered down through the use of non physicians in light of the primary care physician shortage) in the delivery of healthcare. The most telling comment of regulators: “The savings generated by ACOs, in many cases, are expected to result from reduced inpatient admissions.”

What about all the legal hurdles faced by ACOs?

Answer: The government is working across Department lines to facilitate the roll out of ACOs. A joint notice from the OIG and CMS has stated that they will issue waivers from certain laws (like Stark and the Anti Kickback Statute “AKS”) to ACOs participating in the Medicare Shared Savings Program. Their proposal is to waive certain provisions of the AKS in two scenarios—

  1. Distributing shared savings received by an ACO from CMS (a) to or among ACO participants, ACO providers/suppliers and individuals who were during the year in which shared savings was earned, or (b) for activities necessary for an directly related to the ACO participation in and operations under the Medicare Shared Savings Program; and
  2. Any financial relationship between or among the ACO, ACO participants and ACO providers, suppliers, etc. for an directly related to the ACO’s participation in ands operations under the Medicare Shared Savings Program that implicates the Stark Law and which fully complies with the Safe Harbors.

As far as the anti trust issues are concerned, an exception or “Safety Zone” for ACOs has been proposed. First, the Justice Department has stated that they will use the more malleable “rule of reason” analysis when reviewing ACOs. Conceptually speaking, DOJ has publically stated that they will seek to support organizations which accomplish the law’s two core objectives—lower cost and improve quality. More specifically, DOJ has said “[they] will not challenge an ACO that otherwise meets the CMS criteria to participate in the Shared Savings Program if ACO participants that provide the same service (common service) have a combined share of 30 percent or less of each common service in each ACO participant’s Primary Service Area (PSA), wherever two or more ACO participants provide that service to patients from that PSA.” They have even allowed for the possibility of ACOs where the combined PSA share would exceed 30 percent in saying “an ACO outside the Safety Zone may proceed without scrutiny by the Antitrust Agencies if its combined PSA share for each common service, wherever two or more ACO participants provide that service to patients from that PSA, is less than or equal to 50 percent. An ACO in this category is also highly unlikely to present competitive concerns if it avoids certain specified conduct. The Antitrust Policy Statement explains, however, that for ACOs that do not meet the Rural Exception, a combined PSA share for common services of more than 50 percent provides a valuable indication of an ACO’s potential for competitive harm.” DOJ is proposing an expedited review process for ACOs; and we can expect many ACOs to line up for the review process.

What now?

Answer: The proposed regs are proposals at this time. Comment and input is sought and should be provided by May 27, 2011 on a large array of questions posed in the regs, including:

  1. The kinds of providers/suppliers proposed as ACO participants;
  2. The benefits or concerns regarding including certain provider/supplier types;
  3. The administrative measures to implement and monitor certain partnerships;
  4. Operational issues associated with the proposed regs.


The proposed regs are not shocking in any way. In fact, they are completely in line with statements from key government regulators since the healthcare reform law was passed. That said, there are very core issues that need to be worked out, most significantly the quality and financial metrics that will be tied to shared savings. As far as the public “buy in,” that is hard to tell. First, given the enormity of the change being teed up, patients will require loads of information and reassurance. Second, there is the “guinea pig” factor. Will Medicare patients flock to new payment/deliver models or will they wait it out to see how it works out? It is one thing to say there is a need to slow the rate of cost increase. It is another to throw oneself into new healthcare delivery models, even with the stated protections in the proposed regs to, for instance, terminate ACO participation of ACOs that improperly incentivize reduced care.

Where physicians and hospitals are concerned, many of the key challenges remain. Though the proposed regs require collaboration between ACP participants, including at the level of governance, ACOs led by hospital systems will do best when they (1) have a collaborative relationship with their medical staffs, and (2) have a strong primary care base (either as employees or another affiliation model like an IPA). Moreover, the paradigmatic shift necessary to take advantage of the shared savings opportunity is a huge one. Many hospitals have taken a defensive posture in the face of reform by shoring up their in-house services (e.g. open heart) with employed specialists and still link profitability to census. Hospitals that can take advantage of the opportunity will view primary care physicians as a tremendous asset and will view patient admissions with more skepticism.

Physicians who look for the opportunities in the new law will find them everywhere. Though primary care physicians are a particularly empowered lot in the proposed regs, the ACO structure is flexible enough to allow large specialty practices to plug in. The role of IT is locked into the proposed regs, and it seems clear that data is power. Physicians who embrace the cost/quality linkage have the most to gain.

There is a huge question about the impact of the federal moves on the commercial insurance market. The commercial market will likely watch the government spend the time and money on developing the models, then implement the same sorts of structures if they in fact do bring down cost and improve quality.

There are huge questions to tackle, like what the cost/quality metrics will be that entitle an ACO to share savings and how much and also how state insurance regs match up with financial risk sharing. The only serious remaining questions are not the government’s resolve to pushing the healthcare reform agenda forward, but rather (1) how much the public is willing to pay for it and for how long, and (2) whether the outcomes will be worth the investment. Only time will tell, lots of it.

In the midst of the huge shift healthcare is facing, it is easy to see all of the marketplace through the single lens of healthcare reform. Businesses which gain the most will appreciate the complexity of their own local market and will continue to assess where alternate models, like concierge practices, fit. The Medicare patient population relevant to ACOs will likely not be a one size fits all population and neither will the commercial and purely proprietary markets.

Jeffrey L. Cohen provides legal counsel for the Florida Medical Association, and can be reached at The Florida Healthcare Law Firm.

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