5 Things to Know About ACOs

Now that the federal government finally has unveiled its proposed regulations about accountable care organizations (ACOs), healthcare providers, hospitals, insurers, and other stakeholders are carefully weighing the framework that has been laid out to implement the new Medicare Shared Savings Program (MSSP).

This article highlights five main points about ACOs and the MSSP as they have been proposed: What is an ACO under the MSSP? Who can participate in an ACO? How is quality measured? How are savings measured and accomplished? And are there other important legal issues?

1. What Is an ACO?

Under the MSSP, an ACO will be a consortium of healthcare providers and suppliers who work together to achieve the “three-part aim” of (1) providing better quality of care for Medicare beneficiaries (2) that results in better health for patient populations and (3) lowers growth in expenditures. Providers and suppliers who wish to form an ACO can apply to CMS, but participation in the MSSP is not mandatory, nor is it likely that most Medicare providers and suppliers will join ACOs.

CMS will accept as many applicants to become ACOs as meet the statutory and regulatory requirements. One statutory requirement, for example, is that the ACO participants enter into a 3-year contract with HHS. An ACO also must have a formal legal structure that would allow it to receive and distribute shared savings to members of the ACO.

An ACO must also have a governing body, which comprises ACO participants, including at least one Medicare beneficiary in the ACO.

Under the proposed rule, ACOs will have the opportunity to share with the savings achieved with the Medicare program, as well as be at risk for any losses as a result of the ACO.

2. Who Can Participate in an ACO?

The governing statute, the Patient Protection and Affordable Care Act, provides that acute care hospitals, ACO professionals (including physicians, NPs and PAs) and other providers of services and suppliers whom the HHS secretary deems appropriate, may participate in ACOs.

Note that hospital participants are limited to acute care hospitals, which means rehabilitation, long-term acute care, and psychiatric hospitals cannot participate in the MSSP. ACO participants may be in a variety of arrangements, including professionals in group practice arrangements, networks of individual practices, partnerships or joint ventures between hospitals and ACO professionals, and hospitals employing ACO professionals. In the regulation, CMS proposes to allow federally qualified health centers (FQHCs) and rural health centers (RHCs) to participate, as well. Each ACO must have a sufficient number of primary care providers for the number of beneficiaries assigned to the ACO.

3. How Is Quality Measured?

A keystone tenet of the MSSP is to improve quality of care for Medicare beneficiaries through the ACOs.

ACOs that first meet the savings requirement will share in savings only if they also meet the minimum quality standards for that year. CMS has proposed to measure ACO performance based on 65 quality standards that span five quality domains listed in the proposed rule. These five domains are patient/caregiver experience, care coordination, patient safety, preventive health, and at-risk population/frail elderly health.

The 65 quality measures in the rule rely heavily on existing quality measures, such as the Physician Quality Reporting System and the Hospital Inpatient Quality Reporting Program.

Another requirement that CMS proposes is that at least 50 percent of an ACO’s primary care providers are meaningful users of electronic health records, as defined under the CMS “meaningful use” regulations.

4. How Are Savings Measured and Shared?

The proposed rule contemplates two “tracks” from which ACOs may choose in modeling their shared savings and risk.

Under the proposed track 1, an ACO would share in savings in years one and two of the contract, and then be at risk for losses in year three. ACOs that choose this track will have the advantage of being under a bonus-only model for the first 2 years, but will be eligible to share in a smaller percentage of the savings, 50 percent, than ACOs under track 2.

The proposed track 2 is designed for more sophisticated entities, and ACOs choosing this track will be eligible for up to 60 percent of the shared savings but will be at risk for losses, in addition to the potential savings, during all three years of the ACO’s contract.

As described in the statute, each ACO will be assigned a benchmark based on expenditures for its beneficiaries. The proposed rule describes in detail the way in which the agency plans to calculate the benchmark and an ACO’s expenditures in order to determine whether the ACO will be eligible for shared savings for that year.

5. Are There Other Legal Issues I Need to Know About?

There are legal issues in three other areas of law that the ACOs participants must be familiar with: antitrust law, the anti-kickback statute/physician self-referral laws, and tax law.

On the same day CMS unveiled the ACO proposed rule, CMS and the HHS Office of Inspector General (OIG) issued a draft notice regarding potential waivers of certain aspects of these federal laws that may be created in relation to the MSSP. In addition, the Department of Justice (DOJ), the Federal Trade Commission (FTC), and the Internal Revenue Service issued draft guidance with respect to the MSSP and how the agencies will enforce the relevant laws under their jurisdictions.

Any time a hospital pays something of value to a healthcare provider who is in a position to refer patients to it it should trigger alarm bells for compliance lawyers. Because the ACO model contemplates exactly such a flow of funds, the CMS and OIG guidance explain that if the distribution of funds is in support of the ACO, and other conditions are met, the transaction will avoid sanctions under the physician self-referral and anti-kickback statutes. In addition, the OIG guidance says that the office will waive the civil monetary penalty statute only if payments are not made by the ACO to a provider to withhold “medically necessary” care from Medicare beneficiaries. Unfortunately, the proposed regulation does not define “medically necessary” care.

Providers and suppliers who will become ACO participants often are competitors in the same market. The ACO statute is not intended to allow anticompetitive behavior, and the DOJ and FTC are tasked with enforcing this. The DOJ and FTC issued a proposed statement of policy to help potential participants understand the relevant aspects of antitrust law and requirements that ACO participants will be expected to meet. In general, this guidance presents a pathway under which proposed collaborations will be analyzed under the “rule of reason.”

With respect to tax law, when a nonprofit tax-exempt organization is paying something of value to “insiders” of the entity, the anti-inurement rules of section 501(c)(3) of the Internal Revenue Code can be triggered. To avoid revocation of tax exemption, some main principles in the guidance include requirements that the tax-exempt organization’s participation in the ACO must be set out in writing in advance and negotiated at arm’s length; that CMS has accepted the organization as part of the ACO; that the organization’s share of the profits is proportional to its capital contributions; that the organization’s share of the losses does not exceed the share of the economic benefits to which it is entitled; and that all transactions are at fair market value.

Risks and Rewards

Payment and delivery system reforms such as the MSSP present tremendous opportunities but also potential risks for providers, hospitals and payers. Many anticipate that as ACOs begin to take form and grow in the Medicare program, they will also expand their presence in the private marketplace. In order to design the program in such a way that it can meet the triple goal of improved quality, improved care and decreased costs, the agencies have looked to stakeholders for meaningful input throughout the process. This is the time for interested parties to consider whether they may be eligible for and interested in participating in an ACO.

Thomas R. Barker is a partner at Foley Hoag LLC, and Maia Larsson is an associate at Foley Hoag LLC in Washington.