Alan K. Parver Darryl Drevna SUBJECT: Accountable Care Organizations DATE: August 24, 2010

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1 TO: FROM: Alan K. Parver Darryl Drevna SUBJECT: Accountable Care Organizations DATE: August 24, 2010 The following is an overview of Accountable Care Organizations (ACOs), a shared savings program used to coordinate items and services under Medicare Parts A and B with a goal of providing high quality and efficient care. ACOs would be composed of a group of providers who would be rewarded with a share of any savings the program achieves compared to a spending benchmark. Patient Protection and Affordable Care Act Creates ACOs PPACA Sec requires HHS to create a shared savings program by January 1, 2012 to promote accountability on the part of providers, coordination of items and services under Medicare Parts A and B, and investment in new processes to bring about high quality and efficient service. To participate as an ACO, groups of providers and suppliers must have shared governance and agree to the following: to be accountable for the quality, cost, and overall care of Medicare fee-forservice beneficiaries; to participate for at least a three-year period; have a formal legal structure allowing them to receive and distribute payments; include enough primary care ACO professionals for at least 5,000 beneficiaries; provide the Secretary with information regarding ACO professionals as deemed appropriate; have leadership and management in place to support clinical and administrative systems; define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care through the use of methods such as telehealth, remote patient monitoring, and other enabling technologies; and show the Secretary that they meet patient-centeredness criteria, such as patient and caregiver assessments and individualized care plans th Street, N.W., Suite 800 Washington, DC Telephone: (202) Fax: (202)

2 Page 2 Providers or suppliers that participate in a program under Sec. 1115A or the independence at home pilot program under SSA Sec. 1866E are ineligible to participate as ACOs. An ACO will report on the quality of care it provides by providing clinical processes and outcomes, patient and caregiver experience of care, and utilization. CMS has indicated the specific quality performance standards will be addressed in rulemaking. The statute indicates that these measures may incorporate physician quality reporting initiative (PQRI) reporting requirements and incentive payments. ACO Payments Payments will be made to ACOs in the same manner they are made under Part A and Part B. If the ACO meets the quality performance standards, the savings requirement and benchmark, it will receive additional payment. The benchmark is determined using the three most recent available years of per-beneficiary expenditures for Parts A and B services assigned to the ACO. This benchmark will be adjusted by beneficiary characteristics and other factors, as determined by the Secretary. If the estimated average per capita Medicare expenditure for the ACO, adjusted for beneficiary characteristics, is at least the percent specified by the benchmark, the ACO will receive a percent of the difference between the estimated average per capita Medicare expenditures and the benchmark amount. The remainder will be retained by Medicare. Other payment models that HHS finds appropriate may be used for the ACOs. For example, a partial capitation model where an ACO is at risk for some, but not all, Part A and B covered items and services may be used. The Secretary may choose to restrict this model to ACOs deemed capable of bearing risk and those that are highly integrated systems of care. Regardless of the ACO model, payments to ACOs must not result in more Medicare spending than would have been expended had the model not been implemented. Sanctions and Terminations The ACO may be sanctioned if it has attempted to avoid patients at risk to keep its costs down. In addition, an ACO agreement may be terminated if an ACO fails to meet quality performance standards. There is no administrative or judicial review of the specification of criteria, assessment of quality of care furnished by the ACO, assignment of beneficiaries to an ACO, determinations of eligibility or shared savings amounts, or termination of an ACO agreement. CMS Implementation and Status CMS is expected to publish details on how it intends to implement the ACO program in a Notice of Proposed Rulemaking. In the meantime, however, CMS has posted a list of Preliminary Questions and Answers regarding ACOs and has solicited comments from interested stakeholders through a special open door forum. Center for Medicare Staffing

3 Page 3 Richard Gilfillan, the former president and CEO of Geisinger Health Plans, will play a key role at CMS in implementing PPACA s value-based purchasing reforms. In an internal CMS , agency staff were told that Gilfillan will be the director of the Performance Based Payment Policy Staff, within the Center for Medicare, and will lead the value based purchasing and performance measurement efforts and brings extensive leadership experience designing and implementing performance-based measurement and reimbursement systems to out efforts implementing a number of critical [PPACA] provisions, including the Medicare Shared Savings Program. Gilfillan consulted with the Premier Accountable Care Organization Collaborative. Premier officials characterized Gilfillan as a valuable member of our ACO Collaborative team. Current Negotiations and Lobbying Efforts The White House recently held the first of a series of private meetings with CMS and other agencies, as well as stakeholders, to discuss topics dealing with ACOs, including eligibility requirements, beneficiary assignment, cost and quality metrics to assess performance, risk adjustment, benchmarking, and legal concerns. A CMS spokesperson said it is anticipated that a proposed rule on ACOs would be on display by the end of the year. CMS will need to balance competing interests, as early adopters of ACOs are expected to be very efficient and will likely be able to recruit hospitals and providers in high-cost, high-use areas. Conversely, a number of Senators and House representatives are advocating for an ACO system that pays for improvements measured against their own past performance to avoid discouraging providers in lower-performing areas from participating. Antitrust Considerations Both doctors and hospital organizations, including the American Hospital Association, have sought guidance from HHS on how to structure ACOs without violating antitrust laws. The HHS Office of Inspector General, however, is resisting calls from stakeholders and some members of Congress to establish safe harbors through rulemaking. Lewis Morris, OIG s Chief Counsel, said, Instead of going through the formalistic safe harbor approach, the suggestion we have made there is that the Secretary has the ability through her demonstration authority to lift those prohibitions on a short-term demonstration basis and then drop them back down when the demonstration is done. This gives a lot more of the fluidity that I think the Congress is looking for. He added that OIG rulemaking in this area is unlikely because it may not be the best approach. If we drew an incredibly broad safe harbor: As long as you have the initials ACO on the letterhead you will not be subject to the kick-back statute. Can you imagine the mischief? We would necessarily craft one of these safe harbors very tightly, because it is a get out of jail free card. He added that the OIG may instead use its advisory opinion authority or review provider questions on a case-by-case basis to determine if an arrangement would result in sanctions. Morris also said it is unlikely there will be a bright line on what an acceptable arrangement would be but that any model that provides incentives to over utilize services would be problematic.

4 Page 4 Assistant Attorney General for Antitrust, Christine A. Varney, recently said that providers should expect the Department of Justice to issue business review letters, which provide the DOJ s general sense of an issue. In addition, the DOJ is in talks with the FTC and Congress about how to structure ACOs so they do not violate antitrust laws. The Federal Trade Commission is planning to hold a meeting this fall to discuss how doctors may form ACOs without violating antitrust laws. During a speech before the American Medical Association, FTC Commission Chair Jon Leibowitz said the meeting will focus on how ACOs could affect competition among commercial payers and provide consumers with access to affordable health care services. While there is currently no risk of ACOs price gouging because Medicare will set their payment rates, ACOs likely will want to negotiate with private payers as well. Leibowitz said, ACOs are in the very early stages of formation and evaluation, but there is already talk of their moving into the private sector. Such as transition could indeed raise competition issues and we want to work with you going forward. Premier Collaborative Premier has launched a collaborative to implement ACOs at its member hospitals and another to prepare members to become ACOs. The 19 participating health systems represent about 1.2 million patients. Premier said participating hospitals will focus on patient-centered care, health care homes for primary care and wellness, reimbursement models that reward value over volume, and health information exchange to coordinate care across provider networks. Premier s ACO Implementation Collaborative consists of members who can pursue accountability for a portion of their population today, evolving from fee for service to valuedriven business models via existing payer partnerships. Members of the ACO Collaborative will work to build the critical components of ACO, including: People-centered foundation that designs the ACO from a patient's perspective to foster better engagement, satisfaction and increased accountability for health. Health homes that deliver primary care and manage health and wellness. New approaches to primary, specialty and hospital care to reward coordination, efficiency and productivity. Tightly integrated relationships with specialists, ancillary providers and hospitals so they are similarly focused and aligned to achieve high-value outcomes. Provider/payer partnerships and reimbursement models that incent improved outcomes, rewarding value over volume. Population health IT infrastructure, including health information exchanges to enable coordination across provider networks.

5 Page 5 "Health systems are committed to helping ensure that reforms enacted in law are successful in improving the quality and value delivered to patients," said Michael Bryant, president and CEO, Methodist Health Services Corporation. "Given the urgent need for quality and results-based healthcare on a national scale, we must start executing now. This collaborative will ensure we can test innovative models in time to share what works with policy makers so that when ACOs spread nationwide, we know they will be effective." Premier also has launched the ACO Readiness Collaborative, which will develop the organization, skills, team, operational capability and tools necessary to become an ACO and ultimately join the Implementation Collaborative. Nineteen health systems with more than 70 hospitals will participate in the ACO Implementation Collaborative. Participating health system members are located in 15 states, covering urban, rural and suburban populations that range in size from 4,000 to 7.5 million residents. Members of the Collaborative include: Aria Health, Philadelphia AtlantiCare, Egg Harbor Township, N.J. Baystate Health, Springfield, Mass. Billings Clinic, Billings, Mont. Bon Secours St. Francis Health System, Inc., Greenville, S.C.; and Bon Secours Richmond Health System, Richmond, Va. - part of Bon Secours Health System Inc. CaroMont Health, Gastonia, N.C. Fairview Health Services, Minneapolis Geisinger Health System, Danville, Pa. Heartland Health, St. Joseph, Mo. Hoag Memorial Hospital Presbyterian/Greater Newport Physicians, Newport Beach, CA Methodist Medical Center of Illinois, Peoria, Ill. North Shore-LIJ Health System, Long Island, N.Y. Presbyterian Healthcare Services, Albuquerque, N.M. Saint Francis Health System, Tulsa, Okla. Southcoast Hospitals Group, Fall River, Mass. SSM Health Care, St. Louis Summa Health System, Akron, Ohio Texas Health Resources, Arlington, Texas University Hospitals, Cleveland It is expected that Premier Collaborative participants may be the early applicants for Medicare ACO contracts. MedPAC ACO Model

6 Page 6 In its June 2009 Report to Congress, MedPAC addresses ACOs and proposed a model that would consist of primary care physicians, specialists and at least one hospital. MedPAC noted that ACOs would have to include at least 5,000 patients to make it possible to distinguish actual improvement from random variation on a reasonably consistent basis. MedPAC s design recommendations include the following: Each ACO should have a spending target set in advance. One approach is to set the ACO s spending target based on its past experience plus a national allowance for spending growth per capita. Savings would result primarily from ACOs incentive to change overall practice patterns and eventually constrain capacity. Therefore, successful ACOs will need to have a formal organization and structure that allows them to make joint decisions on capacity. To overcome incentives in FFS payment systems to expand capacity and volume, a large share of the patients in a physician s practice would need to be in an ACO. To achieve this critical mass, private insurers may have to join Medicare in providing ACO-type incentives to constrain capacity. In a voluntary, bonus-only ACO model, some providers will receive bonuses for shared savings stemming from favorable random variation rather than from the ACO s efforts to reduce spending growth. Currently, in the absence of ACOs, Medicare keeps all the savings from favorable random variation. Unless Medicare s share of true savings from ACOs efforts to reduce spending exceeds the cost of bonuses paid due to random variation, Medicare spending will not be reduced. In part for this reason, under a voluntary, bonus-only model, FFS Medicare payment rates will likely have to be constrained. Under a mandatory, bonus-and-penalty model, the bonuses could be funded by the combination of true shared savings and a penalty assessed on poor performers. Under this model, ACOs with high cost and low quality scores would lose their withhold and in effect receive lower Medicare payment rates. MedPAC also reported that ACOs may restrain spending by limiting the growth in the supply of specialist and expensive capacity, as research has indicated that supply-sensitive services account for much of the difference between high- and low-spending areas of the country. MedPAC Chairman Glenn Hackbarth has said ACO participation should be voluntary for providers. We re talking about forging new relationships among actors, relationships that have evolved this way over decades. He also said that beneficiaries should not be locked into ACOs and that if they prefer such a closed system, Medicare Advantage is available.

Source: Premier healthcare alliance

Source: Premier healthcare alliance Appendix Exhibit 1 Accountable Care Implementation Collaborative Members Aria Health, Philadelphia AtlantiCare, Egg Harbor Township, N.J. Baystate Health, Springfield, Mass. Billings Clinic, Billings,

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