Are ACOs For You? Things You Should Know If You Are Considering Medicare Shared Savings Programs

Transcription

1 1501 M Street, NW Seventh Floor Washington, DC Phone: (202) Fax: (202) Are ACOs For You? Things You Should Know If You Are Considering Medicare Shared Savings Programs Powers Pyles Sutter & Verville PC 1501 M Street, NW Washington DC

2 Disclaimer This presentation is for informational purposes only and does not provide legal services or advice. Use of this information does not create an attorney-client relationship. You should not act, or refrain from acting, on the basis of information contained herein without seeking additional legal counsel regarding your own situation. The firm does not necessarily endorse, and is not responsible for, any thirdparty content that may be accessed through links or otherwise. If we can assist you or answer any questions you might have, please call us in Washington, DC at , or send us an . Copyright 2011, Powers Pyles Sutter & Verville PC, Washington, DC, USA 2

3 ACO Basics Rebecca L. Burke, Principal Powers Pyles Sutter & Verville PC 1501 M Street, NW 7 th Floor Washington, DC Phone: Fax: Rebecca.Burke@ppsv.com 3

4 Presentation Outline Presentation focused on: Brief Review What is An ACO? What Are Major Changes in Final ACO Rule? Impact of OIG Waivers and Antitrust Enforcement Policy Issues for Non-Profits IRS guidance Opportunities and Risks of Participating 4

5 What is an ACO? An ACO is an entity (usually physicians or physician/hospital network) under common governance that enters into a threeyear (renewable) agreement with CMS to be held accountable for some of the cost and quality of care for Medicare beneficiaries assigned to it. In exchange, the ACO shares in some of the savings and may be accountable for some of the costs (in excess of certain thresholds) of providing Part A and Part B services to the assigned Medicare population, as compared with a benchmark determined by CMS. Amount of shared savings/losses depends on ACO size, the model selected; and performance on quality measures. 5

6 How Does the Final ACO Program Differ from CMS Proposal? One-sided model now provides for no risk sharing during first 3 years Can share in first dollar savings once threshold is met 33 quality measures instead of 65; no mandatory hospital measures; and EHR 50% requirement modified Beneficiaries assigned prospectively with year-end reconciliation Primary care furnished by specialists can count for purposes of beneficiary assignment FQHCs/RHCs eligible to form ACOs 25% withhold in two-sided model eliminated 6

7 ACO Participants Physician Group Practice Networks of Physician Practices Physician/hospital joint ventures Hospitals with employed physicians Certain Community Access Hospitals Rural Health Centers [New] Federally Qualified Health Centers [New] 7

8 Legal Structure Separate legal entity Governing body with fiduciary obligation to ACO 75 percent control by ACO participants Must include Medicare beneficiary CMS may, in its discretion, waive specific governance requirements if ACO shows it will involve ACO participants in meaningful governance of the organization. 8

9 Number of ACO Physicians/Professionals ACO must have at least 5000 beneficiaries. Regulations do not set specific ratio of primary care physicians/practitioners to Medicare beneficiaries. ACO is required to have sufficient primary care physicians to meet needs of its assigned beneficiaries. 9

10 Application Process Start Dates Required 3-year participation agreement For 2012 applicants start dates are April 1, 2012 (3 years 9 months) July 1, 2012 (3 years 6 months) Subsequent years: January 1 (3 years) 10

11 CMS Application Certification regarding accountability for quality, cost and overall care of beneficiaries assigned to ACO Documents demonstrating compliance with CMS criteria including Governance Patient-centeredness criteria Compliance Plan Lists of all ACO participants/tins How it will distribute savings Assurance of ability to repay losses 11

12 Beneficiary Assignment Stepwise process based on beneficiary s utilization of primary care services Primary care services defined by code and include outpatient visit codes and annual wellness visits. Step 1 if beneficiary received primary care services from a primary care practitioner during performance year Step 2 if beneficiary did not receive primary care services from PCP but received them from a specialist 12

13 Beneficiary Assignment Assignment, in both steps, is based on where the beneficiary received the plurality of primary care services. If plurality were from ACO physician, then beneficiary is assigned to that ACO. If from non-aco physician, then beneficiary is not assigned to an ACO. However, any service from a PCP trumps specialist services. Preliminary assignment at the beginning of the year, updated quarterly End of year reconciliation 13

14 Exclusivity Rule Primary care physicians can only participate in one ACO. Specialists can only participate in one ACO if primary care services they provide are the basis for beneficiary assignment. However, because tax identification number (TIN) is basis for assignment, a physician could participate in more than one ACO if services are billed under different TINs. 14

15 Quality Performance Standards/Reporting 33 quality measures reduced from 65 Four domains ACO must score 70 percent in each domain to be eligible for shared savings EHR is now a performance measure double weighted for scoring purposes First year reporting only Second and third year: reporting and performance 15

16 Two Risk Models Track 1 one-sided risk No downside risk but only for first 3 years Shares in up to 50% of savings depending on quality scores Minimum savings threshold between 2% and 3.9% depending on number of assigned beneficiaries 16

17 Two Risk Models Cont d Track 2 two-sided risk ACO responsible for sharing in losses Shares in up to 60% of savings depending on quality scores Minimum savings rate 2% Shared loss for expenditures over benchmark up to 60% Must be repaid within 90 days 17

18 Establishing the Benchmark Savings is calculated based on ACO s fixed historical benchmark adjusted for historical growth and beneficiary characteristics CMS calculates the per capita Part A and Part B costs for beneficiaries that would have been assigned to the ACO for 3 prior years adjusted for changes in severity and case mix. 18

19 Establishing the Benchmark (cont d) The benchmark is updated based on national Medicare per capita expenditures. ACO s actual expenditures are compared to updated annual benchmark. If ACO s expenditures are below benchmark by at least the minimum savings rate, ACO may share in savings (assuming quality scores are adequate). 19

20 New Advance Payment Model Effort to increase participation especially in rural areas. Provides for advance payments to certain ACOs that do not include any inpatient facilities AND have less than $50 million in total annual revenue OR in which only inpatient facilities are critical access hospitals and/or low-volume rural hospitals AND have less than $80 million in total annual revenue $170 million available 20

21 Advance Payment Model Must enter program in April or July of 2012 ACOs that qualify receive Upfront, fixed payment - $250,000 Upfront variable payment based on number of historically assigned beneficiaries ($36 per assigned beneficiary) Monthly variable payment depending on number of assigned beneficiaries ($8 per assigned beneficiary) 21

22 Availability of Interim Payments under Traditional ACO Model For ACOs entering the program on April 1 or July 1 of 2012, first performance year will be 18 or 21 months. These ACOs can receive interim shared savings payments at the end of the first 12 months. Must completely and accurately submit quality performance measures Reconciliation at end of first performance year (i.e., end of CY 2013) and possible obligation to repay 22

23 Anti-Kickback, Stark and Civil Monetary Penalty Waivers for ACOs Mark R. Fitzgerald, Principal Powers Pyles Sutter & Verville PC 1501 M Street, NW 7 th Floor Washington, DC Phone: Fax: Mark.Fitzgerald@ppsv.com 23

24 Interim Final Rule Issued jointly by CMS and OIG Reflects coordination of advice not often seen from these agencies Provides protections under Stark, anti-kickback statute and certain provisions of CMP statute Waivers are self-implementing Compliance with a waiver is not required but you still must comply with the law 24

25 Waivers for ACOs Rule creates the following waivers: Pre-Participation Participation Shared Savings Distribution Compliance with the Self-Referral Law Patient Incentives 25

26 Coordination of Pre-Participation and Participation Waivers Waivers are designed to work together so that one picks up where the other leaves off Pre-participation waiver applies to the year prior to participation Participation waiver applies while ACO s agreement is in effect Both have a six-month tail period if application is denied or participation is terminated 26

27 Coordination of Pre-Participation and Participation Waivers (cont'd) Pre-participation and participation waivers are built upon three safeguards: ACO Board approval (fiduciary duty; no COI; and beneficiary representation) Contemporaneous documentation Transparency (public disclosure) 27

28 Coordination of Pre-Participation and Participation Waivers (cont'd) Both waivers require: Governing body must authorize arrangements as reasonably related to the Shared Savings Program Purposes of the Shared Savings Program: Promoting accountability for the quality, cost, and overall care for a Medicare patient population Managing and coordinating care for Medicare feefor-service beneficiaries through an ACO Encouraging investment in infrastructure and redesigned care processes 28

29 Coordination of Pre-Participation and Participation Waivers (cont'd) ACO must maintain contemporaneous documentation Description of arrangement Date and manner of Board approval Basis for Board approval Ten-year requirement 29

30 Coordination of Pre-Participation and Participation Waivers (cont'd) Arrangements must be publicly disclosed Post the arrangement on a public website Label it as a waiver-protected arrangement Disclose within 60 days and identify parties so that it is searchable 30

31 1. Pre-Participation Waiver Applies to ACOs in year prior to entering into a participation agreement with CMS Designed to cover start-up arrangements necessary to establish an ACO Waiver requires that ACO designate a target date for submission of application to participate 31

32 Pre-Participation Waiver (cont'd) Failure to submit application to participate by target date triggers additional requirements: May request a one-year extension Must submit statement explaining reasons ACO was unable to apply Start-up arrangements include any items, services, facilities, or goods used to create or develop an ACO, regardless of whether medical or non-medical in nature 32

33 Pre-Participation Waiver (cont'd) Examples of start-up arrangements (list of 14) Infrastructure Network development Care coordination Clinical management systems Care utilization management 33

34 Pre-Participation Waiver (cont'd) Hiring new staff IT, including EHR Professional support PCP incentives Capital Start-up arrangements exclude: Drug and device manufacturers Distributors DME and HH suppliers 34

35 2. Participation Waiver Applies to ACOs that have entered a participation agreement with CMS Covers any arrangement authorized by ACO s governing body that is reasonably related to Shared Savings Program No limitation on participants Arrangements involving care for non-medicare patients are also protected 35

36 3. Shared Savings Distribution Waiver One of the originally proposed waivers now largely redundant Only applies to amounts earned under the Shared Savings Program Shared Savings may be used or distributed within ACO in any manner May be used to pay parties outside ACO if reasonably related 36

37 Shared Savings Distribution Waiver (cont'd) May not be used to induce physicians to limit or reduce medically necessary items or services to beneficiaries No Board approval, documentation, or public disclosure requirements No time limit 37

38 4. Compliance with the Self-Referral Law Waiver One of the originally proposed waivers Requires financial relationship to be related to the Shared Savings Program Protects arrangements that comply with a Stark law exception from liability under the antikickback statute or Gainsharing CMP Does not require authorization by governing body or contemporaneous documentation 38

39 5. Patient Incentive Waiver Covers provision of free or reduced rate in-kind items and services to Medicare beneficiaries Must be reasonably related to medical care No financial incentives are permitted (e.g., reduced cost-sharing) May not be used as inducement to receive services from an ACO-related provider/supplier 39

40 Patient Incentive Waiver (cont'd) Items or services must be either: Preventive care-related Tied to at least one of four clinical goals related to compliance with a plan of care Not restricted only to beneficiaries assigned to the ACO 40

41 Future CMS/OIG Action on Waivers May narrow or eliminate waivers in future Requirements for public disclosure will be addressed in future guidance CMS/OIG considering whether to require some form of notification or statement of intent to qualify for the Pre-Participation Waiver 41

42 Other Details for the Interim Final Rule Will not be codified in Code of Federal Regulations Effective immediately Comments due January 3,

43 ACOs and Tax-Exempt Status IRS considers participation in an ACO to serve a charitable purpose of lessening burdens of Government No new rules for ACOs. General rules apply Control requirements for tax-exempt organizations participating in joint ventures are relaxed because of CMS regulation and oversight of ACO governance and management 43

44 ACOs and Tax-Exempt Status (cont'd) Prohibitions on private inurement and private benefit still apply using a facts and circumstances test Shared savings distributions will not be taxable (UBIT) ACO ownership interests and profit distributions need not be directly proportional to capital contributions 44

45 ACOs and Tax-Exempt Status (cont'd) IRS will consider totality of circumstances Economic benefits must be proportionate to contributions, but consider: Cash Property Services Economic benefits received 45

46 Antitrust Rob Portman, Principal Powers Pyles Sutter & Verville PC 1501 M Street, NW 7 th Floor Washington, DC Phone: Fax: Rob.Portman@ppsv.com 46

47 DOJ/FTC Policy Statement DOJ and FTC jointly issued Final Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program ( Policy Statement ) No Requirement for Prior Approval Applies to all ACOs Rule of Reason Analysis Antitrust Safety Zone Expedited Voluntary Review Available 47

48 DOJ/FTC Policy Statement Policy Statement applies to: Otherwise independent providers or provider groups Eligible or approved to participate in Medicare SSP Does not apply to mergers or fully integrated entities Unlike proposed Policy Statement, no mandatory prior approval required 48

49 Rule of Reason Application of Rule of Reason Normally apply per se rule to naked price fixing among independent competitors Apply RoR if financially/clinically integrated plus collaboration necessary to achieve procompetitive benefits 49

50 Rule of Reason Application of Rule of Reason Will apply RoR to ACO s joint negotiations with private payors if ACO: Meets CMS s ACO eligibility requirements and participates in Medicare SSP (i.e., deemed to be clinically integrated) Uses same governance and leadership structures and clinical and administrative processes it uses in SSP to serve patients in commercial markets 50

51 Rule of Reason Application of Rule of Reason Under Rule of Reason, DOJ/FTC will evaluate if ACO has anticompetitive effects and, if so, whether potential pro-competitive efficiencies are likely to outweigh those effects. Facts and circumstances balancing test 51

52 ACO Safety Zone Application of ACO Safety Zone Applies to ACOs that meet CMS eligibility criteria and are eligible or approved to participate in Medicare SSP Defines circumstances under which ACO arrangement will not be challenged, absent extraordinary circumstances b/c highly unlikely to raise anticompetitive concerns ACOs outside the Safety Zone do not necessarily raise anticompetitive concerns, but will be subject to RoR analysis 52

53 ACO Safety Zone ACO Safety Zone Conditions: ACO participants providing common service must have a combined share of 30 percent or less of each common service in each participant s Primary Service Area (PSA), wherever two or more participants provide that service to patients from that PSA. Categories of service divided by physician specialties, inpatient, outpatient PSA is lowest number of zip codes from which ACO participant draws 75% of patients per category of service 53

54 ACO Safety Zone ACO Safety Zone Conditions: Hospitals and ASCs must be non-exclusive regardless of share i.e., must be able to contract separately with private payors outside the ACO Any (dominant) provider with greater than 50% PSA share for a service that no other participant in the ACO provides must be non-exclusive and ACO cannot require payor exclusivity or other similar restrictions ACO may also qualify for a rural exception 54

55 ACOs Outside Safety Zone Policy Statement provides examples of conduct that may raise competitive concerns regarding services provided outside of ACO Improper sharing of competitively sensitive information or other conduct that would facilitate collusion w/r/t non-aco services 4 rules for ACOs with market power 55

56 ACOs Outside Safety Zone ACOs with market power should avoid : preventing or discouraging private payors from directing or incentivizing patients to choose non- ACO providers tying ACO services to the purchase of non-aco services contracting with providers on exclusive basis so they can t contract outside of ACO with other payors restricting private payors from sharing certain provider information with beneficiaries 56

57 Voluntary Review Voluntary expedited 90 day review by the DOJ or FTC for new ACOs that are seeking additional assurances and antitrust guidance Agencies will monitor CMS ACO claims data for anticompetitive conduct and vigilantly respond to complaints about ACO formation and conduct 57

58 ACOs: Balancing the Risks and Benefits Diane Millman, Principal Powers Pyles Sutter & Verville PC 1501 M Street, NW 7 th Floor Washington, DC Phone: Fax: Diane.Millman@ppsv.com 58

59 ACO Experimentation Appears to be Accelerating Across the US 59

60 Factors to Consider in Evaluating the ACO Option What are the opportunities in the commercial market in our area (if any)? How valuable to us is the anti-trust protection afforded under the FTC/DOJ Antitrust Enforcement Statement? Will the anti-kickback/stark Law/Beneficiary inducement waivers allow clinical integration that we could not accomplish without those waivers? Are there state demonstration projects or other opportunities that might provide additional incentives to form an ACO? What are the minimum costs that we would need to incur in order to participate? Would our project qualify under the Advance Payment ACO CMMI demonstration? What is the likelihood that we will achieve shared savings? Are there alternative CMS demonstration projects that we should consider instead? 60

61 Provider-led Commercial ACO Projects 61

62 Commercial Payer ACO Arrangements 62

63 States Considering Legislation Referring to Accountable Care Organizations,

64 State Initiatives Relating to ACOs As of March 16, 2011: There were 34 bills in 19 states that define, study, promote or create a demonstration project for ACOs Two states enacted legislation in 2011 concerning accountable care Washington bill promotes accountable care systems for disabled workers; and Wyoming law creates an advisory study committee 64

65 What is the minimal capital outlay necessary to form and operate an ACO? Organizational and application costs Legal costs (participation agreements, shared savings formula, employment contracts, operating policies) Compliance Plan and costs of implementing compliance plan Costs of identifying ACO providers/ suppliers and obtaining NPIs. For Track 2 ACOs and Track 1 ACOs, documentation of mechanism for repaying losses equal to at least 1 percent of the ACOs total per capita Medicare expenditures for assigned beneficiaries (reinsurance escrow, surety bonds or line of credit). IT costs Marketing materials (including required beneficiary notifications and signs) 65

66 What is the minimal capital outlay necessary to form and operate an ACO? Medical Director salary Costs of complying with quality reporting requirements Beneficiary survey costs (after first two years) Costs of participating in GPRO PQRS reporting Electronic Health Record and other IT costs (Query: How likely is it that the ACO can achieve quality standards after the first year without meeting Electronic Health Record standard, in light of double weighting ) 66

67 What is the minimal capital outlay necessary to form and operate an ACO? Cost of implementing required processes Processes promoting evidence-based medicine Identification of applicable professional guidelines Implementation of professional guidelines Promote patient engagement Experience of care survey (CMS covers cost for first two years) Process for evaluating health needs of the ACO s population, including stakeholder involvement 67

68 What is the minimal capital outlay necessary to form and operate an ACO? Establishing infrastructure for ACO participants to internally report on quality and cost metrics, provide feedback, evaluate provider performance and use results to improve care. What IT expenditures would be necessary to meet this requirement? Coordinate care Define methods and processes to coordinate care throughout an episode of care and during transitions (i.e., discharge, transfers) Describe individualized care program, including sample individual care plan for high risk and multiple chronic condition patients Describe additional target populations that would benefit from individualized care plans 68

69 Would we qualify as an Advance Payment ACO to offset some of these costs? Eligibility criteria: ACOs that do not include any inpatient facilities AND have less than $50 million in total annual revenue. ACOs in which the only inpatient facilities are critical access hospitals and/or Medicare lowvolume rural hospitals AND have less than $80 million in total annual revenue. 69

70 Shared Savings and ROI CMS estimates that in CYs 2012 through 2015 the total median ACO bonus payments of $1.31 billion coupled with the aggregate average start-up investment and ongoing annual operating cost of $451 million, incurred at the mean participation rate of ACOs in the Shared Savings Program, result in an estimated benefitcost ratio of 2.9. Is this realistic in light of your local circumstances? 70

71 Considerations in Determining Likelihood of Shared Savings Patient population Prevalence of high cost patients Stability of participants use of primary care services How efficient is the provision of healthcare services in your area? Are you in a high growth or low growth area? Pros and cons of including a hospital partner 71

72 Considerations in determining likelihood of shared savings: Patient population Likelihood of achieving substantial savings limited by MC cost distribution among beneficiaries. 50% of Medicare beneficiaries account for only 4% of costs while the top 5% account for 43% of the costs It will be difficult for ACOs to achieve significant cost savings on the 50%+ of relatively low cost Medicare beneficiaries. Critical question: How many beneficiaries would it take for an ACO to have sufficient high cost patients continually enrolled to achieve shared savings? 72

73 Considerations in determining likelihood of shared savings: Patient population Good news: CMS to provide preliminary list of Medicare beneficiaries to be assigned to ACO and will provide timely updates. Bad news: Beneficiary assignment rules are even more complex and may result in frequent changes in assigned beneficiaries. Step 1: Beneficiary assignment based on the PCP from whom a Medicare beneficiary receives the plurality of his or her primary care services. Step 2: If patient does not receive primary care services from PCP but does receive them from specialist physician, assignment may be based on non-pcps from whom the patient receives plurality of primary care services (including PAs, NPs, etc). 73

74 Considerations in determining likelihood of shared savings: Patient population A MC patient is assigned to an ACO in Year 1 because he receives all his primary care services from his cardiologist (an ACO physician) but in year 2, the patient goes to a Non-ACO PCP for a cold. The patient is not assigned to the ACO in year 2. A MC patient with multiple chronic conditions sees only non-aco specialists. The patient who is precisely the type of patient for whom care coordination would be most helpful and cost-efficient is not assigned to an ACO. 74

75 Considerations in determining likelihood of shared savings: Impact of healthcare costs in your area ACOs in high and low cost areas face different challenges. Baseline is determined by cost of caring for assigned MC beneficiaries in 3 years prior to contract. ACOs in areas that are already highly efficient may have difficulty significantly beating the baseline. Baseline is updated by $ growth in national per capita expenditures. ACOs in high growth areas will need to bend the growth curve more, in order to achieve needed savings. 75

76 Special Considerations for Hospitals One of the primary ways for an ACO to achieve savings (and improve quality score) is to reduce inpatient admissions. ACO processes of care are likely to be applied by physicians for all their patients not just Medicare patients potentially reducing all hospital admissions. How will hospitals respond to this inherent conflict of interest? Also tax-exempt hospitals must consider potential impact of ACO participation under laws related to tax exemption, which may limit the extent to which the hospital can subsidize ACO start-up and operations, even if antikickback/self-referral waivers are obtained. 76

77 Other Risks Legal risk of ACO CEO who: certifies the ACO s compliance with program requirements as well as the accuracy, completeness and truthfulness of any information submitted by the ACO the ACO participants, or the ACO providers/suppliers to [CMS] Risk of future regulatory change: ACOs will be subject to future changes in regulations during the 3-year term of an agreement, with certain exceptions. 77

78 Other Risks Risk of premature termination of the ACO s agreement with CMS Risk of damaging relations with physician referral base if ACO is unsuccessful. Risk of violating state insurance statutes 78

79 Considering the Alternatives Are there alternatives to ACO participation that entail lower risks? Consider: Bundled payment demo (to be expanded to include ambulatory episodes of care not involving hospitalization More flexible Lower up front investment Independence at Home Comprehensive Primary Care Initiative Various Medicaid medical home initiatives 79

80 Important Considerations in Determining Whether ACOs are for You or Your Organization James C. Pyles, Principal Powers Pyles Sutter & Verville PC 1501 M Street, NW 7 th Floor Washington, DC Phone: Fax: Jim.Pyles@ppsv.com 80

81 The Biggest Source of Financial Failure is Not Insufficient Data but Failure to Calculate the Risk. A First Look at ACO s Risky Business: Quality Is Not Enough, Milliman (April 2011) 81

82 Guiding Principles of Health Reform The single greatest fiscal challenge facing the country today is the high and unsustainable cost of health care The Moment of Truth, Bipartisan Deficit Reduction Com. (Dec. 2010); CBO (Jan. 2010) Nothing else even comes close President Obama (Sept. 9, 2010) So where are the costs? 5%-25% of Medicare beneficiaries account for 43%-85% of costs the bottom 50% account for 4% of costs (CBO 2005) 82

83 Guiding Principles of Health Reform (cont d) ACO proposed regs. (April 2011)--PPS&V determined that the risk could not be determined and managed Accountable Care Organizations: A Risky Business PPS&V Analysis (May 10, 2011) This became the consensus view of ACOs as proposed Health-Care Initiative Draws Fire, Wall Street Journal (June 3, 2011) 83

84 Sound Business and Clinical Decisions May Be Difficult to Make Because: The ACO regulations are lengthy, complex, vague, and still to be written The ACO models in the regs. are new and untested ACOs are CMS most-hyped mechanism Kaiser News (Aug. 30, 2011) Many consultants and lawyers have an interest in promoting ACO s Complex Health-care Law Turns Into Payday for Consultants, Washington Post (April 1, 2011) 84

85 So What Questions About ACO s Should You Consider? Can the risk be identified and managed? Has this ACO model proven successful? Will it show savings? (The overriding issue--cost, not quality) Will the model produce a return on investment? What are the consequences of failure? What are the potential rewards of success? Are there alternative models with better prospects/lower risk? Can you afford to participate/not participate? 85

86 The Theory of ACOs Improved processes and coordination of existing services based on primary care will achieve the triple aim better care for individuals, better health for populations, and lower growth in expenditures Does not require savings Does not focus on 5%-25% of beneficiaries who drive 43%-85% of costs, includes those who account for 4% of costs Provides no new service Does not move care to lower cost settings (EU) 86

87 Does It Work? PGP Demo CMS Only Experience with ACOs 5 years, 10 multispecialty practices with between 232-1,291 practitioners Less than 1% of physician group practices in U.S. have more than 150 physicians 83% of practices have 1-2 physicians 68% of practices are single specialty GAO report (Feb. 2008) 87

88 PGP Demo Results PGP Demo risk/reward 2% savings threshold, 80%/20% savings sharing, no loss sharing (ACO model 2%-3.9% threshold, up to 60%/40% savings sharing with cap, loss sharing with cap) Five year results of PGP Demo 3 out of 10 did not achieve threshold in any year 2 out of 10 achieved threshold in 1 year 1 out of 10 achieved threshold in 2 years 2 out of 10 achieved threshold in 3 years 2 out of 10 achieved threshold in 5 years Less than half of programs were successful less than half of the time 88

89 PGP Demo Results (cont d) Saved Medicare $26.6 million, or $121 per beneficiary over 5 years Independent evaluator savings could have been due to merely raising the spending targets... by more thoroughly recording patient diagnoses None of the programs received a ROI Bottom line... the PGP demo does not seem to have succeeded in meaningfully reducing spending growth ACOs in Medicare and the Private Sector: A Status Update, R. Berenson, R. Burton, RWJ/Urban Inst., (Nov. 2011) 89

90 What Are the Risks/Rewards of ACOs? Upfront and 4-year costs, savings Total start up costs $29-$157 million, annual operating costs over 4 years $63--$342 million (avg. $451 million) PGP Demo (GAO) average startup costs $489,354, average first year operating costs $1,265,897 CMS estimates 4-year savings--$470 million What happened to the $4.9 billion in savings estimated by CBO (March 20, 2010)? Half what CBO projected by 2015 Estimated bonus payments of $1.31 billion, benefit-cost ratio of 2.9, but many ACOs may need more than 3 years for efficiency gains CMS great uncertainty of financial impact, wide range of potential outcomes, quality likely to improve see PGP experience improved quality did not result in savings 90

91 Risks (cont d) CMS cannot project costs or savings beyond 4 years because: Substantial uncertainty in new program with uncertain responses re: number of ACOs, characteristics, response to financial incentives, effectiveness in changes in care Estimates based on assumptions of 50 to 270 ACOs nationwide,1-5 million beneficiaries 91

92 ACO Risks (cont d) Top down standards and processes imposed by contract enforced by threat of termination and expulsion Contract negotiation will be key both sides Standards and processes issued by CMS, binding on ACO governing body, enforced by ACO CEO and ACO medical director, participants subject to remedial action termination of agreement Control will ratchet up with additional standards and processes Could be trapped by investment 92

93 ACO Risks (cont d) All ACO participants must be invested financially and personally What happens to investment on termination or expulsion? ACOs will be subject to additional monitoring and auditing of all records related to ACO and reopening of savings sharing determinations CMS can terminate the ACO agreement for: Not complying with any requirement Avoiding high risk beneficiaries Actions taken by an accrediting organization Having less than 5,000 assigned beneficiaries 93

94 ACO Risks (cont d) Failing to meet leadership and management criteria Failure to notify beneficiaries of participation in ACO Violating anti-fraud and abuse and anti-trust laws Failure to submit a timely corrective action plan (CAP), complying with the CAP, or failing to demonstrate improved performance after a CAP (also no shared savings while under a CAP regardless of performance) Each ACO participant is accountable for the actions of all others futile area for lawsuits What is the cost in dollars and public relations of terminating an ACO agreement? 94

95 ACO Risks (cont d) No administrative or judicial review of Quality and performance standards Assessment of quality Assignment of beneficiaries Eligibility for and amount of savings sharing Reconsideration for other determinations If requested within 15 days Hearing before independent CMS official No further appeals 95

96 So What Is The Reward? Savings Sharing One-sided model up to 50% if hit 2%-3.9% savings threshold most participating ACOs are expected to choose Track 1... to avoid the potential for financial loss Two-sided model up to 60% if hit 2% threshold Waiver of anti-kickback and anti-referral laws Less stringent anti-trust standard 96

97 What Are The Alternatives? Independence At Home (IAH) Demo Savings sharing on highest cost beneficiaries (Jan. 1, 2012) Partnership for Patients stakeholders develop models to reduce hospital acquired conditions and readmissions (April 2011 and ongoing) Bundled Payments - Testing models for bundling payments (First applications due November 18)

98 What Are The Alternatives? (cont d) Comprehensive Primary Care Initiative Multi-payers test delivery and payment model for improved care management (Process started September 18) Pioneer Accountable Care Organizations - populationbased payment initiative for providers already experienced in care coordination across settings (Process started May 2011) Advanced Primary Care Practice demo allowing Medicare to join Medicaid and private insurers in State-based initiatives to improve primary care (3 year demo starting summer 2011) 98

99 The Takeaways on ACOs Understanding the risks is at least as important as understanding the rewards No health delivery reform will survive unless it reduces or controls growth in costs CMS implementation of ACOs begins by increasing risk to Medicare and then shifting risk to providers and practitioners unclear whether it will ever achieve savings 99

100 The Takeaways on ACOs (cont d) CMS wants ACOs to work, but that will not be enough if the model is flawed Make decisions based on fact rather than hype may be difficult to distinguish the two Evaluate the potential consequences of participating or not participating You can check out any time you like, but you can never leave Hotel California, Eagles (1976) 100

101 QUESTIONS? 101