Who, What, When and How of ACOs. Summary of proposed rule provisions for Accountable Care Organizations under the Medicare Shared Savings Program

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1 Who, What, When and How of ACOs Summary of proposed rule provisions for Accountable Care Organizations under the Medicare Shared Savings Program April 5, 2011 On March 31, 2011, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule implementing the Medicare Shared Savings Program, which Congress established in the Affordable Care Act (ACA). The Medicare Shared Savings Program is a significant Medicare delivery reform initiative that focuses on enhanced coordination of patient care as a means of improving quality and controlling health care costs The Program provides financial incentives to health care providers and suppliers that work together to furnish coordinated, high quality, costeffective care to Medicare fee for service beneficiaries through accountable care organizations (ACOs). This regulation is the first major health delivery reform initiative in the aftermath of the passage of the ACA. An ACO is a separate legal entity with a shared governance structure. Providers and suppliers participating in an ACO will continue to receive traditional Medicare fee for service payments under Medicare Parts A and B, but will also be eligible to receive a portion of the shared savings if they successfully satisfy quality performance standards and reduce health care costs. The ACO must agree to participate for a three year period. The standards used to assess the quality of care provided by ACOs will be grouped into five domains: (1) patient/care giver experience; (2) care coordination; (3) patient safety; (4) preventive health; and (5) at risk population/frail elderly health. CMS proposed that ACOs submit data on a total of 65 measures to calculate the ACO Quality Performance Standard, and anticipates refining and expanding the measures in the future. Beginning in the second program year, performance on the reported measures will be considered when determining whether an ACO is eligible to receive shared savings payments. ACOs will receive larger percentages of shared savings if they demonstrate that they are providing high quality care. 100 Daingerfield Road Alexandria, VA Phone: Fax:

2 To qualify for a shared savings payment, an ACO must achieve a minimum savings. The benchmark used to assess savings will be based on the per capita Medicare Parts A and B expenditures for beneficiaries who would have been assigned to the ACO in any of the prior three most recent available years, adjusted for overall growth and beneficiary characteristics. The amount by which an ACO s average per capita Medicare expenditures must be below the benchmark for a performance year will vary depending on whether the ACO is liable for sharing any losses and the number of beneficiaries assigned to the ACO. The lowest minimum savings rate proposed is 2.0 percent and the highest minimum savings rate proposed is 3.9 percent. The proposed rule includes provisions related to: the eligibility and governance of ACOs, data sharing, assigning beneficiaries to ACOs, quality measures, performance scoring, public reporting responsibilities, the shared savings determination, risk models, and monitoring and terminating ACOs. The unanswered question is how many potential ACO participants will want to participate in this Medicare demonstration? The Program is expected in the early years to attract the mature integrated health systems that have the capital, infrastructure and participants to qualify as ACOs. The participation by other potential participants is that unknown. Less complicated ACO models, for example, a next generation patient centered medical home, may be able to meet the ACO requirements and evolve over time and expand its participant provider/supplier pool and incorporate more sophisticated delivery and payment arrangements to an expanded population. Comments on the proposed rule are due to CMS on June 6, 2011, and the program will be implemented on January 1, This is a summary of the basic design elements of ACOs as set out in the proposed rule. We will be providing additional analyses over the coming weeks that will flesh out the details of this very complex initiative. Eligibility to Form and Participate in ACOs Five types of entities would be permitted to form ACOs and participate in the Medicare Shared Savings Program; however, other Medicare providers and suppliers may participate in ACOs. The five types of entities permitted to form ACOs include: (1) ACO professionals in group practice arrangements; (2) networks of individual Page 2 of 9

3 practices of ACO professionals; (3) partnerships or joint venture arrangements between hospitals and ACO professionals; (4) hospitals employing ACO professionals; and (5) critical access hospitals (CAHs) that submit bills for the facility and the professional services to their fiscal intermediary or their Medicare Part A/B MAC. ACO professionals include physicians, physician assistants, nurse practitioners and clinical nurse specialists. Primary care physicians are an important component of ACOs because beneficiaries will be assigned to ACOs on the basis of primary care services furnished by ACO participating primary care physicians. The Secretary has the discretion to permit other Medicare providers and suppliers who are not eligible to independently form ACOs to become ACO participants. The preamble to the proposed rule indicates that ACOs may be designed to include a broad range health care providers and suppliers, such as safety net providers, post acute care facilities, federally qualified health centers (FQHCs), rural health clinics (RHCs), and CAHs. CMS purposefully proposed a broad interpretation of providers and suppliers that may become ACO participants to encourage innovation, allow ACOs to offer more comprehensive care, and better serve rural communities. ACO participants will be eligible to receive shared savings under the Medicare Shared Savings Program. Shared savings may be distributed to ACO providers/suppliers, defined as providers/suppliers that bill for items and services they furnish to Medicare beneficiaries under the Medicare billing number assigned to an ACO participant in accordance with Medicare rules and regulations. Legal Structure and Governance of ACOs The proposed rule defines an ACO as a legal entity that is recognized and authorized under applicable State law, as identified by a Taxpayer Identification Number (TIN), and comprised of an eligible group of ACO participants that work together to manage and coordinate care for Medicare fee for service beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an appropriate proportionate control over the ACO s decision making process. An ACO may be structured in a variety of ways, such as a corporation, partnership, limited liability company, foundation or other entity permitted under State law. An existing legal entity may qualify as an ACO as long it meets all of the requirements applicable to ACOs, including shared governance. An ACO must be able to perform the following tasks: receive and distribute shared savings; repay shared losses; establish, report and Page 3 of 9

4 ensure provider compliance with health care quality criteria, including quality performance standards; and perform other ACO functions. The governing body of an ACO is responsible for the ACO s administrative, fiduciary and clinical operations. In order to ensure that ACOs remain provider driven the proposed rule requires that ACO participants must hold at least 75 percent control of the ACO s governing body. The ACO must have Medicare beneficiary representation on the Board. A community stakeholder organization may also serve on the ACO s governing body. An ACO is required to promote evidence based medicine; promote beneficiary engagement; internally report quality and cost metrics; and coordinate care for patients (at least 5,000) that CMS assigns retrospectively to the ACO on the basis that they received a plurality of their primary care services from the ACO. The proposed rule delineates several responsibilities for the ACO s leadership and management structure, including clinical and administrative systems designed to achieve better care for individuals, improve health for populations and lower health care costs, as well as the goals of the Medicare Shared Savings Program. Examples of such responsibilities include: Management of Operations: An executive, officer, manager or general partner will manage the ACO s operations. The leadership team of the individual appointed to manage the ACO s operations must have demonstrated the ability to influence or direct clinical practice to improve efficiency processes and outcomes. Clinical Management and Oversight: A board certified physician, licensed in the State in which the ACO operates and physically present in an established ACO location in the State, must serve as a senior level medical director and will be responsible for clinical management and oversight. Meaningful Commitment to the ACO s Clinical Integration Program: ACO participants and ACO providers/suppliers must have a meaningful commitment to the ACO s clinical integration program. This may include a meaningful financial investment in the ACO or a meaningful human investment (i.e. time and effort) in the ongoing operations of the ACO, so that the potential loss or recoupment of the investment is likely to motivate the participant to make the clinical integration program succeed. Quality Assurance and Improvement Program: The ACO will have a physician directed quality assurance and process improvement committee that oversees an ongoing quality assurance and improvement program. The quality assurance program is Page 4 of 9

5 responsible for establishing and holding ACO participants accountable for meeting internal performance standards for quality of care and services, cost effectiveness, and process and outcome improvements. Evidence Based Medical Practice or Clinical Guidelines: The ACO will develop, implement and update evidence based medical practice or clinical guidelines and processes for delivering care. Compliance: The ACO is required to have a compliance plan. ACO participants and providers/suppliers are required to comply with guidelines, processes, procedures and performance standards and may be subject to performance evaluations and potential remedial actions, including expulsion from the ACO, in the event of noncompliance. Infrastructure: The ACO will have an infrastructure, such as information technology, that allows the ACO to collect and evaluate data and provide feedback to the ACO providers/suppliers across the organization. Partnering with Community Stakeholders: An ACO must partner with community stakeholders; this requirement will be deemed satisfied if a community stakeholder organization is represented on the ACO s governing body. Beneficiary Access and Communication: An ACO is required to have written standards for beneficiary access and communication that address how beneficiaries can access their medical records. CMS has the discretion to consider ACOs with different leadership and management structures, but such ACOs would need to establish how they would perform the required functions. Shared Savings Methodology Under the proposed rule, Medicare will continue to pay participating providers under the traditional fee for service program under Parts A and B. However, to the extent participating providers meet certain quality standards and savings benchmarks, such providers shall also be entitled to receive payment for shared Medicare savings that are limited by benchmarks, thresholds and caps. Participating ACOs will have the option to adopt one of two payment models depending on the experience level of the ACO and its willingness to assume a share of the risk for any potential losses. The available models are described as Track 1 and Track 2. Page 5 of 9

6 Track 1 (one sided model): Shared savings are reconciled annually for the first two years of the three year term using a pure shared savings approach whereby the ACO is not responsible for any portion of any losses. In the third year, the ACO is required to share in any losses generated, as well as any savings. Track 2 (two sided model): A risk based model is used for the entire three year term. The ACO is eligible for higher sharing rates and other benefits in return for the increased risk of sharing in any losses for all three years of the agreement. The proposed rule sets forth a process for determining the shared savings amount available to ACOs. The process begins when CMS establishes the Expenditure Benchmark for the ACO that is intended to measure what Medicare expenditures would have been in the absence of the ACO. The Expenditure Benchmark is calculated using the most recent available three years of per beneficiary expenditures for Medicare Parts A and B services for those beneficiaries assigned to the ACO. That data are adjusted for beneficiary characteristics, and updated annually based on the overall growth of national per capita expenditures for services under the traditional Medicare fee for service program. ACOs are not automatically eligible for shared savings. The annual expenditures of the ACO must fall below the Expenditure Benchmark by the applicable Minimum Savings Rate that represents the percentage of savings below the Expenditure Benchmark to account for normal variation in health care spending. For Track 2 ACOs, the Minimum Savings Rate is a flat 2 percent. For Track 1 ACOs, the Minimum Savings Rate ranges from 2 percent for ACOs with over 60,000 beneficiaries to 3.9 percent for ACOs with only 5,000 beneficiaries. Track 1 ACOs are entitled to receive up to 50 percent of the net savings beyond the initial threshold (2 percent of the Benchmark), up to the Maximum Sharing Cap of 7.5 percent of the Expenditure Benchmark. Track 2 ACOs are entitled to up to 60 percent of the gross savings beyond the Minimum Savings Rate and up to the Maximum Sharing Cap of 10 percent of the Expenditure Benchmark. Special rules apply to certain ACOs in rural or underserved communities. For example, these ACOs are entitled to share first dollar savings above the Minimum Savings Rate. An ACO that includes an FQHC and/or RHC will be entitled to an increase in its sharing rate, depending on the percentage of ACO assigned beneficiaries with one or more visits to the FQHC or RHC during the applicable year. Page 6 of 9

7 For Track 2 ACOs (and Track 1 ACOs in year three of the agreement) the ACOs would share a portion of the loss that is 2 percent above the Expenditure Benchmark. The amount of shared losses for which the ACO is liable is partially based on the ACO s quality performance score. In addition, shared losses will be capped at 5 percent of the Expenditure Benchmark in year one, 7.5 percent in year two and 10 percent in year three. The proposed rule includes a chart, reproduced below, that outlines the elements of the shared savings program. To protect Medicare against future losses and to encourage ACOs to participate for the full three years of their agreements, CMS proposes adopting a flat 25 percent withhold rate that would be applied annually to any earned performance payment. The withhold applies to both Track 1 and Track 2 ACOs. At the end of the three year agreement period, any positive balance is returned to the ACO. However, if an ACO does not complete its three year agreement term, the ACO forfeits the entire withhold amount. Page 7 of 9

8 Table 8: Shared Savings Program Overview Design Element One Sided Model (performance years 1 & 2) Two Sided Model Maximum Sharing Rate 52.5 percent 65 percent Quality Scoring FQHC/RHC Participation Incentives Minimum Savings Rate (MSR) Minimum Loss Rate (MLR) Maximum Sharing Cap Shared Savings Shared Losses Sharing rate up to 50 percent based on quality performance Up to 2.5 percentage points Varies by population None Payment capped at 7.5 percent of ACO s benchmark Savings shared once MSR is exceeded; unless exempted, share in savings net of a 2 percent threshold; up to 52.5 percent of net savings up to cap. None Sharing rate up to 60 percent based on quality performance Up to 5 percentage points Flat 2 percent regardless of size Flat 2 percent regardless of size Payments capped at 10 percent of ACO s benchmark. Savings shared once MSR is exceeded; up to 65 percent of gross savings up to cap First dollar shared losses once the MLR rate is exceeded. Cap on the amount of losses to be shared is phased in over three years starting at 5 percent in year 1; 7.5 percent in year 2; and 10 percent in year 3. Losses in excess of the annual cap would not be shared. Actual amount of shared losses would be based on final sharing rate that reflects ACO quality performance and any additional incentives for including FQHC s and/or RHC s using the following methodology (1 minus final sharing rate). Page 8 of 9

9 The proposed rule was released concurrently with three other related documents including a joint CMS and Office of Inspector General (OIG) notice and solicitation of comments on potential waivers of certain fraud and abuse laws in connection with the Medicare Shared Savings Program; a joint Federal Trade Commission (FTC) and Department of Justice (DOJ) proposed antitrust policy statement; and an Internal Revenue Services (IRS) notice requesting comments on the need for additional tax guidance for tax exempt organizations participating in the Medicare Shared Savings Program. Each of these documents has a separate comment period. The proposed rule as well as the related documents will be described further in subsequent summaries of the Medicare Shared Savings Program. Prepared by NHIA legal counsel Polsinelli Shughart PC. Page 9 of 9

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