Publications: Federal Agencies Release Proposed Rules for Accountable Care Organizations

This Client Update is part of a continuing series that Ungaretti & Harris will be releasing as additional guidance on Accountable Care Organizations becomes available.

On March 31, 2011, several federal agencies jointly issued a coordinated release of proposed rules and guidance for providers seeking to organize and operate accountable care organizations (“ACOs”) that will be able to receive payments under the Medicare Shared Savings Program (“SSP”). The three stated goals of the SSP are:

• Promoting accountability for the care of a patient population;
• Requiring coordinated care for all services provided under Medicare Fee-For- Service; and
• Encouraging investment in infrastructure and redesigned care processes.

The proposed rules, which occupy some 130 pages of the Federal Register, cover many topics. A few of the most relevant provisions are summarized here.

Eligible Participants
Under the Patient Protection and Affordable Care Act (“PPACA”), not every healthcare entity is able to participate in an ACO. Under the proposed rule, the list of eligible ACO participants has been expanded and now includes:

• ACO professionals in group practice arrangements;
• Networks of individual practices of ACO professionals;
• Partnerships or joint venture arrangements between hospitals and ACO professionals;
• Hospitals employing ACO professionals, and
• Some critical access hospitals.

The Centers for Medicare and Medicaid Services (“CMS”) explained that the expanded list is intended to allow for innovation in creating ACOs. The term “ACO professional” is defined in the proposed rules to include physicians, physician assistants, nurse practitioners, and clinical nurse specialists.

Legal Requirements and Governance
ACOs must be formal legal entities authorized to conduct business under applicable state laws, such as non-profit or for-profit corporations, limited liability companies, and general or limited partnerships. Additionally, ACOs must have governing bodies that are comprised of an eligible group of ACO participants. Although already existing legal entities may serve as ACOs the proposed rules indicate that for some providers the formation of new, separate legal entities that are created with the express purpose of meeting the goals of the SSP may be necessary. However, CMS recognizes that an already existing entity may become an ACO, if it is both financially and clinically integrated and meets the other requirements of the proposed rules.

Due to the emphasis on quality enhancement, ACOs must have a governing body with broad responsibility for administrative and clinical operations. ACO participants or their representatives must make up not less than 75 percent of the governing body. The remaining portion of the board may be reserved for other non-ACO participants who may have made some significant infrastructure or capital contribution to the ACO. The governing body must include at least one Medicare beneficiary served by the ACO, provided that the individual does not have a conflict of interest with the ACO.

Alignment v. Assignment of Beneficiaries
Due to the fact that Medicare beneficiaries retain complete freedom of choice in choosing their provider, CMS opted to use the term “alignment” instead of “assignment” of beneficiaries. Beneficiaries are aligned with specific ACOs based on their use of primary care services. Beneficiaries whose primary care physicians participate in an ACO are included in the calculation of the shared savings of that ACO. Although beneficiaries are not ever technically “enrolled” in the ACO, they can opt out only by establishing a relationship with a non-participating primary care physician. Primary care physicians may participate in only one ACO so that beneficiaries are appropriately aligned. Specialists, however, may participate in more than one ACO.

Reimbursement
When participating in the SSP, ACO participants will continue to receive reimbursement under the Medicare fee-for-service payment system. ACO participants will be eligible to receive payments for shared savings from the Medicare program, provided that an ACO meets quality performance standards and achieves benchmark cost savings. The proposed rule offers two payment models. The first is an upside-only risk model, in which during the three year term of an agreement to participate in the SSP, an ACO is not responsible for any portion of the losses incurred during the first two years of participation. After two years, the arrangement changes to a two-sided risk model in which the ACO shares in potential losses as well as savings. This option provides an entry point for organizations that have less experience with risk models, such as rural organizations and smaller ACOs. The second payment model is a two-sided risk model that requires an ACO to share in losses and savings throughout the entire three-year agreement. The two-sided risk model offers ACOs a higher percentage of the shared savings to incentivize more experienced organizations to bear additional risk.

Fraud and Abuse Waivers
Under current law, the SSP raises fraud and abuse concerns. Therefore, the final rule is expected to waive a number of the existing regulatory hurdles. PPACA authorizes the Secretary of the Department of Health and Human Services to waive fraud and abuse laws as necessary to carry out the provisions of the SSP. To this end, the Office of the Inspector General (“OIG”) simultaneously issued a notice regarding potential fraud and abuse waivers for ACOs. The notice specifies that the Physician Self-Referral Law (“Stark”) could be waived with respect to the distribution of shared savings to or among ACO providers. The anti-kickback waiver for distribution of shared savings contains the same language as the Stark waiver and also includes a waiver for any financial relationship between the ACO, ACO participants, and ACO providers and suppliers that is “necessary for and directly related to” the ACO’s participation in the SSP. Finally, the Civil Monetary Penalty (“CMP”) waiver allows for distribution of savings from a hospital to a physician provided that the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services, as long as both the hospital and physician were ACO providers when they earned the shared savings.

While the agencies have started to chart out the waivers that would be applicable to the savings that are distributed within the organization, there is an open question as to whether the initial investment and/or capital contributions in an ACO’s infrastructure could cause a potential violation of the Stark law, the fraud and abuse laws, or the CMP law. CMS has requested comments for guidance on this matter.

Antitrust Implications
The creation of ACOs incentivizes otherwise competing providers to align their operations to achieve the goals of the SSP. This type of coordination, however, raises potential collusive and otherwise anti-competitive concerns that may potentially harm consumers.

The Department of Justice and the Federal Trade Commission (collectively the “Agencies”) simultaneously issued an additional Proposed Statement of Antitrust Enforcement Policy (“Proposed Statement”) that was specifically tailored to ACOs. Recognizing the potential pro-consumer benefits of ACO formation, the Proposed Statement sought to “clarify the antitrust analysis of newly formed collaborations among independent providers that seek to become ACOs in the Shared Savings Program and to coordinate the antitrust analysis with the CMS review of those ACO applications.” These two goals will be discussed in turn below.

The Agencies have determined that these same indicia of clinical integration discussed in Healthcare Enforcement Statements 8 and 9 are broadly consistent with the statutory and proposed regulatory definitions for ACOs, and therefore, reinforce the importance of achieving compliance with clinical integration program criteria. Accordingly, under the Proposed Statement, the Agencies have agreed to apply “rule of reason” analysis to an ACO in the commercial market if it uses the “(1) same governance and leadership structure and (2) the same clinical and administrative processes” that it uses to participate in the SSP.

In order to facilitate the development of ACOs, the Agencies have committed to offering an expedited review process for ACOs formed after March 23, 2010, that raise anti-competitive concerns. An ACO’s share of the market in its Primary Service Area (“PSA”) determines the appropriate path for agency review. The two relevant PSA market share thresholds are 30 and 50 percent. The filing requirements can be summarized as follows. If ACO participants that provide a common service constitute a combined market share of the common service that is:

• < 30% - Agencies will not challenge the ACO, absent extraordinary circumstances. There is no filing requirement.
• 30% < X < 50% - Agencies may challenge the ACO. Expedited review filing is not required, but is permitted.
• > 50% - ACO participants must file with Agencies for an expedited review to participate in the SSP.

Not surprisingly, the area of least certainty for providers seeking to establish an ACO are those whose market share will fall above the 30 percent safety zone and below the 50 percent mandatory filing threshold. In order to quell some of the anxiety for these providers, the Agencies have listed five types of conduct that an ACO should avoid to significantly reduce the likelihood of an antitrust investigation:

1. Preventing or discouraging commercial payers from directing or incentivizing patients to choose certain providers.
2. Tying sale of the ACO’s services to the purchase of other services from providers outside the ACO.
3. Contracting with ACO providers on an exclusive basis (with the exception of primary care physicians).
4. Restricting a commercial payer’s ability to access cost, quality, efficiency, and performance information if that information is used in the SSP.
5. Sharing competitively sensitive price information with ACO participants that could be used to collusively set prices outside the ACO.

Despite the issuance of the proposed rules and guidance, many questions remain regarding the ultimate development of ACOs and the SSP, including some issues that are certain to be controversial. While many provisions in the proposed rules may be modified through the rule making process, it is clear that the development of a clinically integrated delivery system is important for all providers as it provides the infrastructure to capture necessary clinical data for physician performance reporting and enhances alignment of financial incentives for physicians and hospitals. CMS is requesting comment on these proposed rules by no later than June 6, 2011. Final rules will then be issued following consideration of submitted comments.

For more information on Accountable Care Organizations or this update, please contact Steven F. Banghart or any member of the Ungaretti & Harris LLP Healthcare Group.