On October 20, the Centers for Medicare and Medicaid Services (CMS) released its final rule for accountable care organizations (ACOs), under the Medicare Shared Savings Program created by Section 3022 of the Patient Protection and Affordable Care Act (PPACA).

The proposed rule released in March had generated what CMS Administrator Dr. Donald Berwick described as a “mountain” of comments from provider groups, trade organizations and others, urging extensive revisions. We note that key recommendations made by commentators, including several in our article in the New York Law Journal discussing the proposed rule, have been incorporated into the final rule. In an October 20 commentary in the New England Journal of Medicine, Dr. Berwick stated, “these changes and numerous others create a more feasible and attractive on-ramp for a diverse set of providers and organizations to participate as ACOs."

Surveys of healthcare providers, including many large integrated groups, had indicated that few would be willing to participate in the ACO program as originally conceived. However, the final rule’s relaxed requirements and increased flexibility make it far more likely that a substantial number of providers will agree to participate. Among the major changes in the final rule are:

  • Providers will be able to join an ACO without the risk of financial loss beyond the initial organizational costs. An ACO will be able to choose one of two tracks when it commences operation. During the first three years of operation, Track 1 will be a “one-sided” model, with the possibility of shared savings for participants but no assumption of risk. Track 2 will be a “two-sided” model, with ACO providers agreeing to assume risk in exchange for the right to a higher percentage of potential savings. Track 1 ACOs will be required to shift to Track 2 after the first three years of operation.
  • A pool of Medicare beneficiaries will be assigned to each ACO prospectively based on who their physicians are, rather than retrospectively as contemplated in the original proposed rule. Knowing in advance which beneficiaries an ACO would service was widely believed to be critical in helping to establish the ACO as a “partnership” between providers and patients.
  • The number of quality measures to assess an ACO’s performance has been reduced from 65 to 33. ACOs will have to meet these criteria to qualify for performance bonuses.
  • Use of electronic health records (EHRs) is no longer a requirement for an ACO, although it will be a major factor in performance quality measurement.
  • The final rule relaxes the timetable for ACOs to begin operation, with the first agreements to begin April 1, 2012 or July 1, 2012, and applications to be accepted throughout 2012.

CMS also proposed an advance-payment program for physician-owned and rural hospitals to induce them to form ACOs. Under the program, up to 50 small ACOs will quality for up to $170 million in upfront payments that will be gradually repaid during the ACOs’ operation.

Also on October 20, other federal agencies, including the Department of Health and Human Services Office of Inspector General, Justice Department and Federal Trade Commission released final rules and policy statements intended to reduce or eliminate regulatory hurdles to the formation of ACOs. Federal laws barring certain anti-competitive practices and various provisions of the physician self-referral law, federal anti-kickback statute, and civil monetary penalties law will not apply to ACO participants.