PROPOSED MEDICARE SHARED SAVINGS (ACO) PROGRAM RULES

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1 PROPOSED MEDICARE SHARED SAVINGS (ACO) PROGRAM RULES The Centers for Medicare and Medicaid Services (CMS) and other affected agencies released their notice of proposed rulemaking/request for comment for the Medicare Shared Savings Program (Program) on March 31, Although the program seeks to begin transforming the current fee-forservice delivery system, its initial scope and magnitude may not correspond with the exceedingly high level of attention paid to the concept of ACOs both prior to and since the release of the proposed rule for the reasons indicated below. REGULATORY IMPACT ANALYSIS CMS, in its regulatory impact analysis of the proposed rule, indicates there is substantial uncertainty as to the number of ACOs that will participate in the program, their characteristics, provider and supplier response to the financial incentives offered by the Program, and the ultimate effectiveness of the changes in care delivery that may result as ACOs work to improve the quality and efficiency of patient care. Under the proposed rule, ACOs would be required to commit to a three-year participation agreement with CMS. The median estimate of net savings of the Program for the three year term is $510 million. This projection assumes assignment of roughly 1.5 to 4 million Medicare beneficiaries to participating ACOs during the same period. Bearing on this estimate is that participation by patients (and providers) in ACOs is purely voluntary. Although CMS in its request for information on certain aspects of the program in November 2010 seemed to focus on the inclusion of smaller practices that may have limited access to capital or other resources to fund their ACO efforts, in the proposed rule, CMS estimated that only 75 to 150 ACOs might sign up to participate. As to capitalization, CMS roughly estimates based on Government Accountability Organization (GAO) findings of the Physician Group Practice (PGP) demonstration program start up investment and first year operating expenditures for a participant in the Program at $1.76 million. CMS, assuming ACOs, indicates an aggregate cost for ACO start up investment and first year operating expenditures in the range of $132 to $263 million. Not only on size, but also other factors, CMS has in large part, modeled the Program on the PGP demonstration. The PGP demonstration began in 2005 and was the first pay-for-performance initiative for physician groups in the Medicare program. The 10 groups in that demonstration were considered large as compared to other practices in terms of both annual medical revenue, non-physician and physician staff with each group at 200 or more physicians. Nine of the 10 groups were part of an integrated delivery system, 8 affiliated with a general hospital and 5 affiliated with an entity that marketed a health insurance product giving them greater access to relatively large amounts of financial capital needed to initiate or expand programs. A GAO analysis of the first year total operating expenditures for PGP participants varied greatly from $435,000 to $2.92 million, with the average for a group at $1.2 million. These costs included investments in infrastructure and information technology enhancements, management, quality reporting, and focused care coordination program. GAO also discovered that start up investment expenditures in the PGP demonstration varied between $82,600 and $ with the average group at $489,000. In addition to greater access to capital, the PGP

2 groups, due to their size and affiliations, had an increased probability of having or acquiring electronic health records (EHR) system which were essential to their ability to gather data and track progress in meeting quality of care targets. Eight of 10 groups had an EHR in place before the demonstration began, and the 2 others, out of necessity, developed alternative methods for gathering patient data electronically. A third size related advantage was their experience with other pay-for-performance systems both in public and private sectors prior to their participation in the demonstration. ACO RULE KEY PROVISIONS ACO Defined: An ACO is a legal entity that is recognized and authorized under applicable state law comprised of an eligible group of participants that work together to manage and coordinate care for Medicare fee-forservice beneficiaries and have established a mechanism for shared governance for all ACO participants with an appropriate proportionate control over the ACO s decision making process. Eligibility for Participation: The following groups of providers of services and suppliers are eligible to participate under the Program: ACO professionals (physicians, physician assistants, nurse practitioners, and clinical nurse specialists) in group practice arrangements, networks of individual practices of ACO professionals, partnership or joint venture arrangements between hospitals and ACO professionals, hospitals employing ACO professionals, and certain critical access hospitals. Governance: CMS proposes that (a) ACO participants have at least 75% of the control of the ACO s governing body; (b) clinical management and oversight is managed by a senior level medical director who is a boardcertified physician, licensed in the State in which the ACO operates, and physically present in that State; and (c) the ACO has a physician-directed quality assurance and process improvement committee. In addition, each ACO participant must choose an appropriate representative from within its organization to represent them on the governing body. ACOs must also have a formal legal structure in place for receiving and disbursing shared savings and capacity to accept a minimum of 5,000 assigned Medicare beneficiaries. The proposed rule does not require ACOs to be formed as separate legal entities. It does, though, solicit comment on whether requiring ACOs to be distinct legal entities would create a disincentive to ACO formation. Assignment of Beneficiaries: CMS proposes that beneficiaries be assigned (or aligned as CMS prefers to call it) based on whether they receive a plurality of their primary care services from ACO participating providers. Assignment in no way implies limitation, restriction or diminishment of Medicare beneficiaries under the Program to exercise complete freedom of choice in the physicians and other health care practitioners and suppliers from whom they receive their services. CMS adopted a retrospective approach to assignment meaning that assignment is based on historic claims data rather than prospective selection of the ACO by the beneficiary. Since assignment is College of American Pathologists Page 2

3 retrospective, ACOs would be required to inform beneficiaries of their participation in the shared savings program. ACOs will have an opportunity to request and receive CMS claims data (Medicare Part A, B, and D) on their assigned beneficiary population to facilitate their management of beneficiary care accessed both inside and outside the ACO. Receipt of any beneficiary identifiable claims data is conditioned on the ACO having entered into a Data Use Agreement with CMS. ACOs must inform beneficiaries of their ability to request data and provide them with an opportunity to opt-out of CMS s sharing their information with the ACO. Definition of Primary Care Services: Under the Program, physicians designated as primary care providers (PCPs) are those who practice in internal medicine, general practice, family practice and geriatric medicine. While PCP participation is limited to one ACO, specialists may participate with multiple. Promotion of Evidence-Based Medicine, Patient Engagement, Reporting, and Coordination of Care: Generally: CMS opted to simply require documentation of an ACO s plan to define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care rather than identifying specific criteria the ACO would be required to meet. CMS, though, will provide further guidance on how ACOs can satisfy these elements. ACO s quality performance scores would be subject to public reporting. In the instances where an ACO fails to meet the minimum attainment level for one or more quality domains indicated below, CMS proposes to give the ACO a warning and to reevaluate the following year. If the ACO continues to underperform the next year, CMS proposes to terminate the ACO from the Program. Quality Domains and PQRS/Other Measures: CMS proposes to use 65 quality measures and to publish specifications for the measures some time before the Program start date. These 65 measures span five quality domains: patient experience of care, care coordination, patient safety, preventive health, at-risk population/frail elderly health. Thirty of the measures are CMS Physician Quality Reporting System (PQRS) measures; 28 are new measures either National Quality Forum (NQF) endorsed and/or CMS adopted; 26 are from the EHR Meaningful Use program, and there is one measure incorporating the nine hospital acquired conditions. College of American Pathologists Page 3

4 In the first year of the Program, ACOs are required to report on the 65 measures for purposes of informing quality benchmarks, but reported data will only be used to evaluate performance in years 2 and 3. ACOs that fulfill the reporting requirement in year 1 will be deemed to have met the quality performance standard if they report on the required quality measures. Alignment with Meaningful Use (MU) EHR Requirements: CMS also is working, as mandated by the Affordable Care Act (ACA), to align the measures under the Program with those of the MU EHR incentive program overall. Consistent with this alignment, CMS proposes that as of year 2 of the ACO agreement that at least 50% of an ACO s PCPs would be required to be meaningful users of EHR. Patient Centeredness Criteria: CMS proposed a list of patient-centeredness principles that ACOs should integrate into their models and specific requirements for four elements of the criteria. Amongst the specific elements, CMS offers that ACOs should submit with their applications is an individualized care program for specific populations and description of their processes for evaluating the health needs of their Medicare populations. Shared Savings Models: CMS offers ACOs the option of participating in one of two models: 1. A one-sided shared savings model in which the ACO shares in any savings in years 1 and 2, but in year 3, is responsible for a portion of any losses it generates beyond a benchmark expenditure; and 2. A two-sided risk model in which the ACO is eligible for a larger percentage of shared savings, but in exchange, is also responsible for losses from day 1. ACOs are only eligible for shared savings payments if they first meet quality thresholds for all proposed measures standards in each domain indicated in the Process for Promotion of Evidence-Based Medicine, Patient Engagement, Reporting and Coordination of Care section above. If they do not achieve the quality thresholds requirements, they are not eligible for incentive payments even if they generate savings under the Program. CMS believes that acceptance of downside risk will provide stronger incentives than a shared savings only approach while the shared fee-for-service savings, even with optional liability for a portion of excess expenditures, offers some incentive for efficiency, but far less than other models such as full capitation. To determine shared savings for the ACO, CMS proposed an expenditure benchmark derived from expenditures under the Medicare fee-for-service program for beneficiaries who would have been assigned to the ACO in each of the three years prior to the Program be established and growthadjusted throughout the three year term. The amount of shared savings depends on a minimum savings rate (MSR) and sharing rates based on whether the ACO has selected a one-sided or two-sided approach and its number of assigned beneficiaries. The benchmark also includes adjustments for beneficiary characteristics including health status and demographics to more accurately predict health care expenditures to account for variations in case complexity and severity. In terms of repayment of losses, for track 2 ACOs, losses would need to exceed two percent of the ACO s benchmark before triggering repayment to CMS. For Track 1, repayment is capped at 5% in year 3 as this is the 1 st and only year in which they would face two-sided risk. College of American Pathologists Page 4

5 To protect the Medicare program against losses and ensure an adequate repayment mechanism under either the 1 or 2 sided risk models, CMS proposes a flat 25% withholding rate applied annually to any earned performance payment. For track 2 ACOs, the withhold may be not be adequate to cover shared losses, CMS has proposed repayment mechanisms including, but not limited to the following: recoupment from Medicare funds to ACO participating providers, reinsurance, placing funds in escrow, obtaining surety bonds. Losses that cannot be recouped in a given year would be carried forward until repaid. An ACO which experiences a net loss during the three-year period may not reapply. This is to ensure that under-performing ACOS do not continue to increase Medicare expenditure growth. CMS/OIG WAIVER DESIGNS FRAUD AND ABUSE LAWS CMS and OIG did not develop a proposed rule, but published notice and requested comments on waiver designs. Under ACA, the Health and Human Services Secretary was granted the authority to waive certain fraud and abuse laws (self-referral, anti-kickback, and gain-sharing civil monetary penalty (CMP) laws). The gain-sharing CMP law addresses hospital payments to physicians to reduce or limit services. The intent of the waivers is to avoid inhibiting ACO formation or operation. CMS expects to issue waivers concurrently with publication of the final regulations. Self-Referral/Anti-Kickback: CMS and OIG proposed that the Secretary waive application of the self-referral and anti-kickback laws to distributions of shared savings received by an ACO: (1) to or among those who were ACO participants during the year in which shared savings were earned; or (2) for activities necessary for and directly related to the ACO s participation in and operations under the Medicare shared savings program. The waiver is limited to distributions of shared savings. All other financial relationships or entities participating under the Program that would implicate the physician self-referral law would still need to satisfy an existing exception or safe harbor. Under the anti-kickback waiver, in addition to the above, CMS and OIG protect those financial relationships between and among the ACO and its participants that relate closely to ACO operations, but only if the relationship implicates the physician self-referral law and fits squarely in an exception. Ordinarily, arrangements that comply with the self-referral law are still subject to scrutiny under the antikickback statute. CMS and OIG are also interested in comments whether it should waive the self-referral law and antikickback statute for electronic health records donations scheduled to sunset at the end of Civil Monetary Penalties: Regarding CMPs, the proposal is that they be waived for: 1) distributions of shared savings from a hospital to physicians who were ACO participants during the year in which shared savings were earned provided that the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services and 2) any financial relationship between or among the ACO and its participants necessary for and directly related to the ACO s participation in and operations under the Medicare shared savings program that implicates the physician self-referral law and complies with an exception. College of American Pathologists Page 5

6 ANTITRUST ENFORCEMENT POLICY The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) published their ACO Antitrust Policy Statement applicable to collaborations amongst otherwise independent providers and groups formed after the enactment date of the ACA on 5/23/2010, for notice and comment. The agencies created a safety zone for arrangements that are highly unlikely to raise significant competitive concerns. These arrangements do not need to seek FTC/DOJ approval. For an ACO to be in the safety zone, individual ACO participants that provide the same service (PSA) must have a combined share of 30% or less in their primary service area. To fall within the safety zone, hospitals and ambulatory surgery centers must be non-exclusive to the ACO. A rural exception was also created permitting participants to exceed 30% in their PSAs. Arrangements that exceed a 50% share of their PSA require mandatory review, but the agencies will perform an expedited 90 day review. Those arrangements below 50% and the 30% safety zone may seek review, but it is not required. The policy provides 5 types of conduct an ACO can avoid to significantly reduce the likelihood of an antitrust investigation. Rule of reason analysis rather than per se illegality under current antitrust law will be applied to arrangements that have qualified under the shared savings program to operate in the commercial rather than Medicare market. THE PROGRAM S IMPACT ON PATHOLOGISTS ACO Implementation/Governance: How many organizations that are not already formed as ACOs or integrated delivery systems will participate in the Program due to start up costs and operating expenses is not known. That said, pathologists are clearly eligible to participate in ACOs and have the opportunity to play a role in the leadership and management structure as the proposed governance structure is very provider-driven and local. Although the focus is on primary care, the proposed rule recognizes the ability to impact unnecessary repetition of laboratory testing. CMS permits ACOs to remove participants during the 3 year contract term, but not to add so timing is a significant consideration. Those who are not participants at the outset cannot be added until the end of the three year term if the ACO renews or enters into a new agreement with CMS under the Program. Quality Measurement: While none of the 65 measures proposed apply specifically to pathologists, many are heavily dependent on laboratory data necessitating ACO dependence on laboratories for this data to achieve their performance measures. Reliance on NQF measures is not ideal as to date, there are only 2 pathology measures that do not apply to all pathologists. 5 other measures are in queue, but the NQF process has been slow and overall, not terribly conducive to pathology measures development and approval. As far as alignment with MU measures is concerned, none of the Stage 1 MU measures are within pathologists usual scope of practice limiting pathologists ability to demonstrate their value. The College of American Pathologists Page 6

7 requirement that ACO participants be meaningful users by year 2 of the agreement is limited to primary care which is favorable, but could be problematic for pathologists if further MU alignment occurs in subsequent rulemakings. At the outset, the proposed rule relies on claims based measures linked to individual patients and providers which is not ideal for capturing the value of pathology on population health and care teams. CMS does acknowledge this problem, at least in part indicating that measures dealing with laboratory results are not conducive to claims-based reporting, since claims typically include diagnosis and procedure codes, but not specific test results. Patient-Centeredness: The patient-centeredness criteria, although somewhat vague at this point, may provide an opportunity for pathologists to contribute to assisting the ACO in the development of the required individualized care program for specific populations which could relate directly to personalized medicine. Shared Savings: The underlying reimbursement remains fee-for-service and provider participation is completely voluntary so there is little impact on providers regardless of whether they are ACO participants. If they are not participants, they lose the opportunity to earn potential savings, but on the flip side, are not responsible for any ACO losses. It remains to be seen whether the possible return on investment will be significant enough to motivate organizations to become Medicare ACOs. CMS proposes to require ACOs to report on any shared savings distributions, but does not believe it has the authority to specify how shared savings must be distributed so incentive payments to individual ACO participants will be a matter of local negotiation. CMS/OIG Waiver Designs Fraud and Abuse Laws: The waivers do not speak directly to the in office ancillary exception to the Stark law or specifically to self-referral of anatomic pathology services, but rather they focus on the distribution of shared savings. To the extent laboratories remain protected donors of EHRs, the extension of the scheduled 2013 sunset for EHR donation safe harbor under the anti-kickback statute would be inconsistent with CAP s longstanding position opposing such inclusion and objectionable. Historically, the gainsharing CMPs have looked at payments made to induce the physician to reduce or limit items or services. The proposed rule modifies this in the context of ACO distribution of shared savings from a hospital to physicians made to induce the physician to reduce or limit medically necessary items or services. Antitrust Enforcement Policy: While the policy is not specific to pathology, it provides clarity on certain antitrust specifics in the context of the ACO environment beyond what exists in current DOJ/FTC Statements of Antitrust Enforcement Policy in Health Care that precede the ACO concept. More specialty-specific, it also enlightens on the combined share of individual ACO participants providing the same service that will either fall within a newly proposed safety zone or will necessitate review by the agencies. College of American Pathologists Page 7

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