Included in the new Patient Protection and Affordable Care Act (the “PPACA”) is Section 3022, the Medicare Shared Savings Program, which provides for the establishment of Accountable Care Organizations (“ACOs”). Under the ACO provisions, groups of providers that work together to manage and coordinate care for Medicare beneficiaries can qualify to receive additional Medicare payments if they achieve specified cost savings and meet a range of criteria, including standards established by CMS relating to quality, reporting, and governing structure.

The PPACA provides that the ACO program is to be established no later than January 1, 2012. It leaves much discretion to the Secretary of the Department of Health and Human Services (the “Secretary”) to determine the policies and procedures that will apply to ACOs. The following is a brief summary of the key provisions in the statute.

Eligibility: An ACO may be formed by a wide range of professionals, including physicians in group practice arrangements, networks of individual physician practices, hospitals, and partnerships or joint ventures between hospitals and physician groups, that are willing to be accountable for the quality, cost and overall care of Medicare beneficiaries. The ACO must:

  • Have a formal legal structure for receiving and distributing shared savings payments from Medicare;
  • Have in place a leadership and management structure that includes clinical and administrative systems;
  • Agree to participate in the program for at least three years;
  • Have the Secretary assign it at least 5,000 Medicare beneficiaries, and include a sufficient number of primary care physicians for serving those patients;
  • Have processes relating to quality and coordination of care, such as through the use of telehealth, remote patient monitoring, and other technologies;
  • Have patient-centered processes that meet criteria specified by the Secretary; and
  • Meet reporting requirements determined by the Secretary.

The PPACA also specifies that the Secretary may give preference to ACOs who are participating in similar arrangements with private payers and other third parties.

How Providers are Compensated: Providers in the ACO will receive compensation from Medicare that is not just for services performed, but for improved clinical performance and increased efficiency.

  • The PPACA details one method for determining the compensation — payments for shared savings. The ACO is eligible for shared savings payments if it meets quality and performance standards and the ACO’s estimated Medicare costs are a certain percentage below a benchmark set by the Secretary. In this way, providers are incentivized to improve clinical performance, while at the same time control costs. The shared savings apply only with respect to Medicare beneficiaries in the traditional Medicare fee-for-service program; incentives are not available with respect to patients in Medicare Advantage (“MA”) Plans, who will not be automatically assigned to the ACO by the Secretary.
  • The PPACA also allows the Secretary to establish other payment models, including making payments on a partial capitated basis. The PPACA specifies that the Secretary can choose to limit the partial capitation model to ACOs that are highly integrated systems of care and to ACOs capable of bearing risk, as determined by the Secretary.

Potential Legal Issues: In addition to the range of business and operational issues that providers must consider as they explore the ACO program, the providers must also take care to consider a number of legal issues, including the Anti-Kickback Statute, the Physician Self-Referral law (commonly known as the “Stark Law”), and federal and state anti-trust prohibitions.