On March 31, 2011 the Centers for Medicare & Medicaid Services (“CMS”) released the much-anticipated proposed regulations for the creation of Accountable Care Organizations (“ACOs”), which were published in the Federal Register on April 7. ACOs are a key component of the Patient Protection and Affordable Care Act (“PPACA”) and are referenced in PPACA as part of the Medicare Shared Savings Program. Section 3022 of the Patient Protection and Affordable Care Act, Pub. L. 111-148 (Mar. 23, 2010), codified at 42 U.S.C. 1395jjj. Following the launch of the ACO program on January 1, 2012, CMS expects 5 million Medicare beneficiaries to eventually receive care through an ACO.
ACOs are coordinated healthcare delivery systems in which provider reimbursements are tied to quality measures and overall reductions in the cost of healthcare. In theory, ACOs will be able to maximize value by using a patient-centered team approach to care. In the ACO model, providers regularly communicate and collaborate on various aspects of patient care, ensuring continuity and consistency in care delivery. This approach stands in stark contrast to many current delivery models in which providers operate in silos, often creating disjointed or uncoordinated patient care.
Structurally, an ACO will consist of a group of healthcare providers – physicians, physician groups, hospitals, and other suppliers of health services or provisions – contracting with each other and with CMS to provide comprehensive care for patients. While providers will still receive Medicare fee-for-service payments, the ACO will share in any savings it achieves for the Medicare program. At the same time, however, ACOs would be liable for any losses to Medicare. This “blended” reimbursement model eliminates incentives for overutilization inherent in a traditional fee-for-service system, yet also disincentivizes underutilization because some fee-for-service reimbursement remains.
What did the proposed regulations establish?
Broadly, the proposed regulations establish the ground rules for ACOs, although there are still many unknowns. Once formed, ACOs are subject to CMS approval and will be required to enter into a three-year contract. Among the many threshold requirements set forth are the following: each ACO must have at least 5,000 Medicare beneficiaries; ACOs must agree to datasharing provisions with CMS; and ACOs must have 50 percent of their primary care physicians using Electronic Health Records in compliance with the HITECH Act. ACOs must also have systems in place to track 65 quality metrics across five domains: patient care experience, care coordination, patient safety, preventative health, and at-risk population health.
In exchange for an ACO’s commitment to these provisions, the ACO can select one of two reimbursement “tracks.” In Track 1, the ACO will share in savings only for the first and second year of their CMS contract; in the third year, the ACO will share in both savings and losses. In Track 2, the ACO will share in savings and losses for the duration of the contract. For ACOs in either track, in order for savings to accrue, the ACO must achieve between 2.0 and 3.9 percent savings below the CMS-established benchmark. Each ACO’s precise savings target will be established by CMS on a sliding scale related to ACO size.
What is still to-be-determined?
Although the proposed regulations answer many questions regarding ACOs, there is still a significant amount of uncertainty regarding their functionality. In particular, stakeholders are anxious about how ACO provisions will work in the context of tax law, anti-trust law, Stark Law, the Anti-Kickback Statute (“AKS”), and other fraud and abuse law.
Thus far, CMS has proposed several waivers, exceptions, and safe harbors to deal with the panoply of healthcare laws implicated by ACO formation, financial arrangements, and reimbursement schemes. Although CMS acknowledges that to-date “no clear consensus has emerged on the scope of the waivers necessary to carry out the Medicare Shared Savings Program,” CMS has proposed to waive application of Stark and AKS insofar as the law applies to disbursements and distribution of shared savings within the ACO membership and the arrangement is otherwise compliant with the law or falls within an existing exception. CMS is actively seeking comment in regarding other types of waivers not yet contemplated in the proposed regulations. Specifically, CMS is interested in public perspectives on waivers that may be necessary to achieve compliance in the formation of an ACO, in pursuit of the ongoing goals of the ACO, in contracting with outside entities, and in distributing payments received from private payers.
To further inform public comment and the final regulations, CMS has engaged the Department of Justice (“DOJ”), the Federal Trade Commission (“FTC”), and the Internal Revenue Service (“IRS”) to issue guidance regarding their respective areas of enforcement. Although additional information is forthcoming, the DOJ and FTC have issued a joint statement addressing proposed anti-trust enforcement measures, and the IRS has released a notice regarding implications of the tax code for ACOs.
ACOs have the potential to transform healthcare delivery, and they are a key component in the federal government’s renewed focus on quality of care. However, in order for ACOs to achieve their potential, CMS must ensure ACO implementation is consistent with the policies and objectives of other laws targeting the healthcare industry. Absent increased predictability and certainty regarding application of these laws in the ACO context, healthcare providers and entities will be reluctant to engage in ACO transactions.