The Centers for Medicare & Medicaid Services (CMS) is expected to release a proposed rule relating to Accountable Care Organizations (ACOs) in Medicare in the near future. In order to prepare for the release of this rule, we wanted to provide you with a broad review of the legislative authority and lingering questions surrounding ACOs.

Background

Sections 3022 and 10307 of the Affordable Care Act (P.L. 111-148 and 111-152) (ACA) establish the authority for the development of ACOs. The law provides that, starting January 1, 2012, ACOs that voluntarily agree to quality thresholds may share in the cost savings they achieve for the Medicare program. CMS defines an ACO as a clinically-integrated organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries.

Open Questions

Eligibility and Structure of ACOs

Under the ACA, several different types of provider organizations qualify to participate in an ACO. These include physician group practices, physician networks, physician-hospital joint ventures or hospitals that employ physicians, and others. If an ACO qualifies under the following requirements and meets specified quality performance standards, it will be eligible to receive a share of any savings achieved for the Medicare program. To share in these savings, an ACO’s actual per-capita expenditures on its assigned beneficiaries must be a sufficient percentage below a specified benchmark over a period of time. To participate, an ACO must:

• Have a formal legal structure to receive and distribute shared savings;

• Have a sufficient number of primary care professionals for the number of assigned beneficiaries and a minimum of 5,000 beneficiaries assigned;

• Agree to participate in the program for at least three years;

• Have sufficient information regarding participating ACO health care professionals as the Secretary determines necessary to support beneficiary assignment, to implement quality and other reporting requirements, and for the determination of payments for shared savings;

• Have a leadership and management structure that includes clinical and administrative systems;

• Have defined processes to (a) promote evidenced-based medicine and patient engagement, (b) report the necessary data to evaluate quality and cost measures, and (c) provide coordinated care to its assigned beneficiaries; and

• Demonstrate that it meets patient centeredness criteria, as determined by the Secretary.

All of these requirements will be defined more precisely by the regulations. Additional questions that remain open regarding the eligibility and structure of ACOs include:

• How many primary care physicians, specialists, hospitals, and other types of providers will need to participate in an ACO to make coordination effective to achieve cost savings? What happens if the ACO falls below 5,000 providers? Will CMS set ratios?

• What services must an ACO provide?  What additional types of providers will CMS permit or require an ACO to include? What information regarding providers must ACOs disclose?

• What will the process for qualification or certification consist of? What considerations should providers take into account when drafting contracts and formation documents?  What will the timeline be?

• There will be a 60-day comment period upon the release of the proposed rule. Following release of the final rule, how long will ACOs have to attain qualification/certification?

• Will ACOs interact with hospitals to achieve efficient use of existing EHR infrastructure, or must they invest in their own systems? Will CMS permit different integration models (such as hospital-based, physician-based, etc.)?

• How and when will beneficiaries be assigned to an ACO? Will patients be free to leave an ACO? CMS has indicated that beneficiaries will be attributed to an ACO prospectively not retrospectively. How will beneficiaries be notified and will they be permitted to opt out?

Payments

Some providers have expressed concerns that ACOs represent little more than managed care, and ultimately will lead to reduced reimbursement in the form of capitated or global payments. For now, though, the language of the ACA provides that providers in ACOs will bill Medicare under traditional fee-for-service payment systems and will be reimbursed accordingly. However, CMS may use its demonstration authority under the Center for Medicare and Medicaid Innovation to permit other payment models. Medicare payments to the ACO organization itself will likely be limited to shared savings. The questions that still need to be addressed are:

• How will Medicare shared savings be calculated and paid? What will be the basis for calculating “savings” after the first three-year period?

• How will the “sufficient percentage below a specified benchmark over a period of time” be determined and what percentage will be set by CMS?

Quality Measurements

As noted above, in order to participate in the Medicare program, an ACO must have defined processes to report the necessary data to evaluate quality and cost measures. Some key practical questions that remain unanswered include:

• How will ACOs be measured on quality? What quality measures will be used and will they be tied to shared savings amounts and, is so, how?

• How can ACOs accept accountability for care and cost of services to a patient population if patients are free to see any provider, regardless of whether the provider is a part of the ACO? Will certain ACO providers be required to be exclusive to the ACO or will they be permitted to have patients that are also not participating in the ACO?

Legal Issues

• Antitrust. The formation of ACOs that integrate bargaining power of providers in a geographical area could implicate the Sherman and Clayton Acts if the ACOs use their market power in anti-competitive ways to wrest higher reimbursement from payers. The Federal Trade Commission and the Department of Justice have indicated that the proposed structure of ACOs will not likely be a target for antitrust enforcement, but considering the federal government’s history of scrutiny of other clinically-integrated physician models (such as independent practice associations), any relief from enforcement will need to be addressed more definitively.

• Stark Law. ACOs implicate the physician self-referral prohibition known as the Stark Law, which prohibits certain referrals from physicians to entities with which the physicians have a financial relationship, unless a statutory exception applies. The ACO structure’s distribution of cost savings received from Medicare represents a financial relationship that will need to conform to either an existing or yet-unwritten exception.

• Anti-Kickback. ACOs could also run afoul of the federal anti-kickback statute, which prohibits the payment or receipt of remuneration in return for referrals of Medicare-payable care unless a safe harbor applies. For example, if a large provider like a hospital undertakes the financial cost and risk of forming an ACO and invites physicians to join at little to no cost, a skeptical eye could construe that offer to be a transfer of value - the avoidance of the cost and risk of formation of the ACO - to providers upon whose referrals the hospital depends. Viewed in the dimmest light, this raises anti-kickback risk that cautious providers will want to mitigate by conforming the ACO relationships to the terms of existing safe harbors.

• HIPAA. Providers in an ACO will face new compliance challenges vis-à-vis the Health Insurance Portability and Accountability Act (HIPAA) and its progeny. To achieve the goals of the ACO — enhanced quality, improved efficiency, and lower cost of service — certain medical information will need to be shared between providers, some of whom may not be members of the ACO. This potential conflict between the stated goals of ACO development and federal health information privacy law must be resolved in a way that allows for collaboration between providers but preserves the patient confidentiality that HIPAA was designed to protect.

• Civil Monetary Penalties Law. The Civil Monetary Penalties Law (CMP) prohibits hospitals from inducing physicians to reduce or limit services to Medicare beneficiaries and imposes financial penalties on both the hospital and the physicians involved. Arguably, the financial incentives of the ACO structure create a moral hazard for physician providers in the form of an inducement to reduce certain aspects of treatment to Medicare patients to lower overall per-patient costs and increase payments under the Program. CMS will need to issue further guidance on this issue to protect the clinical judgment of providers involved in ACOs who may decline to recommend a certain treatment or procedure for Medicare beneficiaries in the normal course of practice.

• Peer review/credentialing. State law requirements governing peer review and credentialing will need to be navigated as ACOs implement monitoring and quality assurance systems to ensure participating providers adhere to federal and state quality standards.

These questions and many more will hopefully be addressed in the proposed rule. Notwithstanding certain legal hurdles, ACOs are likely to become an important part of the health care landscape in the coming years. Providers should be aware of these and other open questions, and the challenges they will face in forming and implementing ACOs that qualify for the Medicare program. This will allow providers to take advantage of the opportunity to participate in ACOs, share in Medicare savings, and achieve higher quality of care, improved efficiency, and lower costs.