An Overview of the Proposed Rule Provisions for Accountable Care Organizations

On March 31, 2011, the Centers for Medicare and Medicaid Services (CMS) proposed new rules under the Affordable Care Act to help doctors, hospitals, and other health care providers better coordinate care for Medicare patients through Accountable Care Organizations (ACOs).

Background and Definition of an ACO

  • Section 3022 of the Affordable Care Act, added a new section 1899 to the Social Security Act (the Act) that requires the Secretary to establish the Medicare Shared Savings Program (MSSP) by January 1, 2012.
  • Under the propose rule, an ACO is defined as a legal entity that is recognized and authorized under applicable State law, as identified by a Taxpayer Identification Number (TIN), and comprised of an eligible group of ACO participants that work together to manage and coordinate care for Medicare FFS beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an appropriate proportionate control over the ACO's decision making process.
  • An ACO participant is a Medicare-enrolled provider of services and/or a supplier.
  • ACO provider/supplier means a provider of services and/or a supplier that bills for items and services it furnishes to Medicare beneficiaries under a Medicare billing number assigned to the TIN of an ACO participant in accordance with applicable Medicare rules and regulations.
  • The ACO would be a patient-centered organization where the patient and providers are partners in care decisions.  

Structure and Governance of an ACO

The proposed rule reiterates flexibility in the ACO structure in that:

  • ACOs can be led by physicians in group practices, networks of individual practices, hospital employed physicians, or partnerships among these entities and other health providers.
  • The governing body should also include Medicare beneficiary representative(s) served by the ACO and community representative(s), and it may include non-providers (e.g., entrepreneurial management companies and health plans) and smaller provider groups.

Eligible Participants for an ACO

The Affordable Care Act specifies that an ACO may include the following types of groups of providers and suppliers of Medicare-covered services:

  • ACO professionals (i.e., physicians, osteopaths, physician assistants, nurse practitioners, and clinical nurse specialists) in group practice arrangements.
  • Networks of individual practices of ACO professionals.
  • Partnerships or joint ventures arrangements between hospitals and ACO professionals
  • Hospitals employing ACO professionals.
  • Other Medicare providers and suppliers, such as Federally Qualified Health Centers ("FQHCs") and Rural Health Centers ("RHCs") that may not form ACOs themselves but that may participate in ACOs formed by others.

ACO Application and Acceptance Process

To participate in the Shared Savings Program, the proposed rule would require an ACO to complete an application providing the information requested by CMS, including:

  • A description of how the ACO will partner with community stakeholders.
  • Submission of ACO documents (i.e. employment contracts, operating policies, etc.) that describe the ACO participants' and ACO providers/suppliers rights and obligations in the ACO.
  • Documents that describe the scope and scale of the quality assurance and clinical integration program.
  • Supporting materials documenting the ACO's organization and management structure.
  • Evidence that the ACO has a board-certified physician as its medical director.
  • Evidence that the governing body includes persons who represent the ACO participants and that these participants hold at least 75% control of the governing body.
  • Agree to accept responsibility for at least 5,000 beneficiaries.
  • A description of the criteria the ACO plans to employ for distributing shared savings among ACO participants and ACO providers/suppliers and how any shared savings will be used to align with the aims of better care for individuals, better health for populations, and lower growth expenditures.
  • Documentation describing its plans to promote evidence-based medicine; promote beneficiary engagement; report internally on quality and cost metrics; and coordinate care.

If the application is approved, the ACO must sign an agreement with CMS to participate in the Shared Savings Program for a period of three years. An ACO will not be automatically accepted into the Shared Savings Program.

ACOs and the Medicare Beneficiary

An ACO is supposed to provide an opportunity for Medicare beneficiaries to receive high quality evidence- based health care that eliminates waste and reduces excessive costs through improved care delivery. However, there would be significant differences between ACOs, as described in the proposed rule and the private managed care plans offered under the Medicare Advantage program.

  • Beneficiaries would not enroll in a specific ACO.
  • The beneficiary's use of services would be looked at retrospectively to determine whether a particular ACO should be credited with improving care and reducing expenditures. This means that an ACO would have an incentive to improve the quality of care for all patients seen by its member providers and suppliers.
  • The proposed rule would require providers participating in an ACO to notify the beneficiary that they are participating in an ACO, and that the provider will be eligible for additional Medicare payments for improving the quality of care the beneficiary receives while reducing overall costs or may be financially responsible to Medicare for failing to provide efficient, cost-effective care.
  • The beneficiary can choose to receive services from the provider or seek care from another provider that is not part of the ACO.
  • The proposed rule would also require each provider in an ACO to notify the beneficiary that the beneficiary's claims data may be shared with the ACO. This data sharing is intended to make it easier to coordinate the beneficiary's care; however, the provider may not require a beneficiary to obtain services from another provider or supplier in the same ACO.
  • The provider must give the beneficiary the opportunity to opt-out of those data sharing arrangements.
  • For Medicare beneficiaries who choose not to opt-out of the data sharing arrangements, the proposed rule would limit data sharing to the purposes of the Shared Savings Program and would require compliance with applicable privacy rules and regulations.

ACO Payment Options

The proposed rules for ACOs include payment options designed to reward providers when they exceed quality standards and lower health care costs:

  • Providers participating in "shared savings" ACOs will continue to be paid under the current FFS system, with a choice of gainsharing approaches.
  • Provider organizations may also seek a "partial capitation" arrangement with the Centers for Medicare and Medicaid Innovation, though little clarity was offered in the proposed rule for this approach.
  • For the first round of ACO contracts with CMS, ACOs may elect:
  • A one-sided model that is risk-free for the first 2 years, with down-side risk in year three. The one-sided model will share up to 50% of savings, but will not have to refund Medicare if costs exceed their target. The actual share of savings will be prorated by quality scores; OR
  • A two-sided model recommended by the Medicare Payment Advisory Commission (MedPAC) where the ACO shares in both savings and losses for 3 years, and keeps 60% of the savings subject to quality scores.

One-sided models will be converted to two-sided models in their third year of operation.

Quality Reporting and Performance Measures

To determine whether an ACO has met the goal of delivering high quality care, the proposed rule includes a 65 quality measures designed to assess the quality of care delivered by an ACO through a mix of patient experience, patient outcome, process of care and utilization measures:

  • The 65 measures span five separate domains: Patient/Caregiver Experience; Care Coordination; Patient Safety; Preventive Health; and At-Risk Population/Frail Elderly Health.
  • Most of the 65 quality measures overlap with at least one of the quality reporting programs (i.e. Physician Quality Reporting System, PQRS).
  • The proposed measures are only for year 1 of the Shared Savings Program. These measures will be used in the calculation of the ACO quality performance standard for year 2.
  • The ACO must meet year 1 reporting level standard to become eligible for share savings regardless of their per capita cost reductions.
  • The quality performance standard will be set by calculating a performance score on each measure as well as each domain.
  • CMS will set benchmarks for each measure along with a minimum attainment level using Medicare Fee for Service (FFS) claims data and Medicare Advantage quality performance rates.

Health Information Technology

Under the proposed regulations, ACOs will be required to demonstrate that at least 50% of their primary care providers meet meaningful use criteria by the second year, in order to continue participation in the Program.

Legal Considerations

ACO proposed regulations includes a separate proposed rule from the HHS Office of Inspector General (OIG) that proposes to waive certain fraud and abuse laws in the context of ACOs and the MSSP.

There are three major fraud and abuse laws that impact ACOs:

  • Federal health care program anti-kickback statute,
  • Physician self-referral (aka "Stark") law,
  • The civil monetary penalty (CMP) law prohibiting payments to physicians that reduce or limit care

    o Is waived for shared savings distributions from a hospital to a physician who both are ACO participants, providers, or suppliers during the year the shared savings were earned, so long as the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services.

The Stark Law and the federal health care program anti-kickback statute both are waived for shared savings paid by CMS to an ACO distributed:

  • To the ACO's participants, providers, and suppliers during the year the shared savings were earned OR
  • For activities necessary for or directly related to the ACO's participation in and operations under the MSSP.

Internal Revenue Services' Guidance

The Internal Revenue Service's guidance states that tax-exempt organizations must ensure that their participation in the MSSP through an ACO is structured so as not to result in their net earnings inuring to the benefit of insiders or in being operated for the benefit of private parties. The IRS expects that it will not consider a tax-exempt organization's participation an ACO to result in impermissible private inurement or private benefit where:

  • Terms of the tax-exempt organization's participation in the ACO are set forth in advance in a written agreement negotiated at arm's length;
  • CMS has accepted the ACO into, and has not terminated the ACO from, the shared savings program;
  • Tax-exempt organization's share of benefits and losses from the ACO (including its share of payments and losses) are proportional to the benefits or contributions it provides to the ACO;
  • If the tax-exempt organization receives an ownership interest in the ACO, the ownership interest is proportional and equal in value to its capital contributions, and all returns of capital, allocations and distributions are made in proportion to ownership interests; and
  • All contracts and transactions entered into by the tax-exempt organization with the ACO and its participants, and by the ACO with its participants and any other parties, are at fair market value.

The IRS further stated that, absent inurement or impermissible private benefit, any shared savings program payments received by a tax-exempt organization from an ACO would be exempt from unrelated business income tax (UBIT).

Some Highlighted Issues for AAOS Members

  • Even though the proposed regulations seem to favor the primary care physician, there is opportunity for surgical specialists to take on a leadership role in the structure and governance of an ACO.
  • There still continues to be limitation in quality measures for specialists, therefore alignment of the Share Savings Program measures with other quality measures that overlap such as Meaningful Use and PQRS will reduce some of the burden for specialists and streamline participation.
  • The AAOS should continue to work with CMS, the National Quality Forum (NQF), the AMA-convened Physician Consortium for Performance Improvement (PCPI), as well other orthopaedic societies to develop and implement comprehensive and patient-centric measures that capture the spectrum of care of musculoskeletal conditions.
  • Since the proposed rule requires at least 50% of the primary care physicians within the ACO must be "meaningful electronic health record (EHR) users" by the start of the second year, it will be important for the specialists to begin the process of to implement EHRs in their practice and clinically integrate with other providers.
  • Since the ACO's benchmark per capita costs will be risk adjusted based on CMS hierarchical condition categories ( CMS-HCC) codes, it is important that providers accurately document and record the specific diagnoses for their patients to assure that the health status of their patient populations are accurately reflected in CMS data.
  • The fraud and abuse waiver protection is broad and there are a number of areas still lacking protection such as financial arrangements involved in forming an ACO.

AAOS Proposed Plan of Action

    1) AAOS staff will develop preliminary comments for review and edit by April 22 nd .

    2) Comments to Kevin J. Bozic, MD, MBA to review, edit, and forward to the Health Care Systems Committee Members by April 29 th .

    3) Feedback due to Dr. Bozic by May 13 th .

    4) Comments will be finalized and sent to the Council on Advocacy, Board of Specialty Societies, Board of Councilors, and Board of Directors and request their feedback by May 27 th .

    5) Final draft will be sent to Presidential Line for review and signature on May 31 st .

    6) Final draft submitted to CMS on June 5 th .

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