On March 31, 2011, the Centers for Medicare & Medicaid Services (CMS) issued new proposed rules that govern the framework for establishing Accountable Care Organizations (ACOs) and participating in the Medicare Shared Savings Program (the Program), implementing provisions of the recent health reform act. For providers that elect to participate, the Program will create incentives to coordinate patient treatment across care settings such as physician offices, hospitals and long-term care facilities. The Program will reward ACOs that lower growth in health care costs while meeting certain quality of care standards. Locke Lord Bissell & Liddell LLP and Locke Lord Strategies LP are closely reviewing the proposed rules and corresponding agency notices and will be issuing subsequent Locke Lord’s QuickStudy articles that are focused on a variety of ACO and Program topics. In addition, we plan to host an ACO conference during the month of April that will include web participation options.

Establishing ACOs

An ACO may include the following types of groups of providers and suppliers of Medicare-covered services: (i) physicians and certain other practitioners (ACO Professionals) in group practice arrangements; (ii) networks of individual practices of ACO Professionals; (iii) partnerships or joint venture arrangements between hospitals and ACO Professionals; (iv) hospitals employing ACO Professionals; and (v) other Medicare providers and suppliers as determined by the Secretary of Health and Human Services (HHS), including certain critical access hospitals.

In order to participate in the Program, a prospective ACO would need to complete an application with CMS. The application requires the ACO to describe how it plans to deliver high quality care at lower costs for the beneficiaries it serves. If the application is approved, the ACO would sign an agreement with CMS to participate in the Program for three years. ACOs would only be eligible to contract with CMS as of the first of any calendar year, beginning on January 1, 2012. CMS would continue to pay providers and suppliers as it currently does under the fee-for-service system.

ACOs will be required to satisfy a number of elements in order to be approved and to remain in the Program. ACOs must establish a governing body representing ACO providers of services, suppliers and Medicare beneficiaries. Each ACO must accept responsibility for at least 5,000 Medicare beneficiaries and comply with other measures, such as having at least 50 percent of the primary care physicians in the ACO be meaningful users of electronic health records for their patients. ACOs would be required to implement a monitoring plan to analyze claims and certain financial and quality data, and to perform site visits and beneficiary surveys. Once an ACO is established, CMS can terminate the agreement in certain instances, such as if the ACO avoids “at risk” beneficiaries or fails to meet the quality performance standards.

Shared Savings

CMS will develop a benchmark for savings to be achieved by each ACO for the ACO to receive shared savings, or be held liable for losses. An ACO would be required to meet or exceed the quality performance standards to be eligible to receive any shared savings.

An ACO that meets the Program’s quality performance standards would be eligible to receive a share of the savings it generates below a specific expenditure benchmark set by CMS for each ACO. An ACO would be accountable for downside risk by requiring it to repay Medicare for a portion of losses (expenditures above its benchmark). To provide an entry point for organizations with varied levels of experience with and willingness to take on the repayment risk, ACOs could choose from one of two Program tracks. The first track would allow an ACO to operate on a shared savings-only track for the first two years, but then would require the ACO to assume the risk for shared losses in the third year. The second track would allow an ACO to share in savings and risk liability for losses beginning in their first performance year, in return for a higher share of any savings it generates.

Next Steps

The proposed rules will appear in the April 7, 2011 issue of the Federal Register along with coordinating proposed notices from other affected federal agencies, including notice from CMS and the HHS Office of Inspector General regarding potential waivers of certain referral restrictions and penalties and a proposed Antitrust Policy Statement from the Federal Trade Commission and the Department of Justice. CMS will accept comments on the proposed rules until June 6, 2011. A final rule will be issued later this year. The Program will begin operating on January 1, 2012.

Locke Lord and Locke Lord Strategies LP are available to consult with clients who are considering ACO opportunities and/or submission of comments regarding the proposed rules or related agency notices. For additional information, including a copy of the proposed rule, please click here.