Final Rule for Accountable Care Organizations Addresses Major Provider Concerns: Will Long Term Care Providers Dive In?

Nov 14, 2011

On October 20, 2011, the Federal Centers for Medicare and Medicaid Services (“CMS”) released the final regulations to establish the Shared Savings Program for Accountable Care Organizations (“ACOs”) in accord with Section 3022 of the Patient Protection and Affordable Care Act (the “Final Rule”).  The same day, the Office of Inspector General (“OIG”) within the Department of Health and Human Services (“HHS”), CMS, the Department of Justice (“DOJ”), the Federal Trade Commission (“FTC”), and the Internal Revenue Service (“IRS”) released final regulatory guidance explaining how the federal laws within their respective jurisdictions would be waived or interpreted to promote the formation and operation of ACOs (“Final Regulatory Guidance”).  In response to severe criticism of the proposed regulations released on March 31, 2011, CMS substantially revised the regulations.  Likewise, the Final Regulatory Guidance addressed many of the significant concerns raised by providers and reduced major regulatory barriers to ACO operation and formation.

While ACO formation will still require substantial capital investment and management expertise, the Final Rule and Final Regulatory Guidance are likely to prompt far stronger interest in ACOs in New York State and other markets.  Only certain providers, including hospitals, health care professionals, federally qualified health care centers (“FQHCs”), and rural health centers (“RHCs”), are authorized to form an ACO, but long term care providers can participate in an ACO and play an important role in enabling the ACO to achieve the goals of care coordination and quality improvement for beneficiaries across the continuum of care.

In our November 30, 2010, Clients & Friends Memo, “National Health Care Reform Promotes Accountable Care Organizations,” we discussed the legal requirements and regulatory issues posed by establishing and operating an ACO.  We issued a second Clients & Friends Memo on May 4, 2011, “The Proposed Regulations on Accountable Care Organizations and the Role of Long Term Care, Home Care and Other Providers Across the Continuum,” which reviewed the proposed ACO regulations released by CMS (the “Proposed Regulations”) and the guidance issued by federal regulatory agencies.  This Clients & Friends Memo provides an analysis of the major provisions of the Final Rule and the accompanying Final Regulatory Guidance, focusing on some of the more salient changes made to the Proposed Regulations and the implications for long term care providers.

I.  ACOs Under the Final Rule

The Final Rule addresses a broad array of requirements for ACOs, ranging from formation and governance to operations, shared savings models, and quality goals, among many other areas.  A summary of key requirements covered by the Final Regulations is set forth below.

A.  ACO Formation and Governance

  • As in the Proposed Regulations, ACOs must apply to and be accepted by CMS in order to participate in the Shared Savings Program, and must commit to a three-year agreement with CMS.  The Shared Savings Program is slated to begin April 1, 2012, for a term of three years and nine months, with a second start date on July 1, 2012.
  • The ACO must be constituted as a legal entity authorized to conduct business under applicable state law and must have a taxpayer identification number.  If an ACO is comprised of separate providers, the ACO must be a legally separate entity from the participating providers.
  • Only hospitals, primary care practitioners, FQHCs, and RHCs can form an ACO.  ACO governance must provide for “meaningful participation” by participating providers, a standard that is vaguer than the requirement in the Proposed Regulations which specified that each participating provider must have at least one seat on the ACO governing body.  Hence, under the Final Rule, long term care providers participating in an ACO will have some role in governance as negotiated with the entities forming the ACO or as determined by the ACO’s governance documents.
  • The calculation for shared savings will be based on all Part A and B Medicare expenditures for fee-for-service beneficiaries assigned to the ACO, including skilled nursing facility, home health care, and hospice services.  As such, the Shared Savings Program provides an incentive for ACOs to encompass a full continuum of care in order to achieve the cost and quality targets that determine eligibility for shared savings.
  • All ACO participants must make a “meaningful commitment” to the success of clinical integration which may include a financial or other commitment such as staff time dedicated to the ACO’s operations.  The Final Rule clarifies that this commitment is satisfied if providers commit to the ACO processes for quality and patient-centered care, and are held accountable for meeting the ACO’s performance standards for each required process.

B.  Assignment of Beneficiaries

  • In a major change from the Proposed Regulations, the Final Rule establishes that CMS will assign Medicare beneficiaries prospectively at the beginning of a performance year on a preliminary basis, with final retrospective adjustment at the end of the year.  This will enable ACOs to manage care for ACO members more effectively in order to meet the goals of improved quality and lower cost. 
  • CMS will assign beneficiaries to an ACO based on either the primary care physician who provided the plurality of primary care services during the preceding 12 months or, if the beneficiary did not receive services from a primary care physician, the plurality of primary care services provided to the beneficiary by health care professionals within an ACO.
  • Long term care providers may participate in more than one ACO; only primary care and other physicians relied upon as the vehicle to assign beneficiaries must be exclusive to one ACO when billing under an ACO tax identification number.

C.  Risk Sharing Models

  • CMS will establish a “benchmark” for shared savings relying on historic costs for Part A and Part B expenditures for ACO beneficiaries.  CMS will compare actual expenditures against the benchmark to determine shared savings and losses.  The benchmark will be risk-adjusted based on beneficiaries’ health status. 
  • The Final Rule sets forth two risk-sharing models that an ACO may adopt.  Under one model, the ACO shares only in the savings (the “one-sided risk model”).  For the second model (the “two-sided risk model”), the ACO shares in both savings and losses in all three years, with greater upside potential on shared savings because of the risk assumed. 
  • Under the one-sided model, ACOs are entitled to receive up to 50% of the savings, if the ACO achieves the quality goals set by CMS in all domains of care.  In accordance with the two-sided model, ACOs are entitled to receive up to 60% of shared savings and will participate in losses at an escalating rate; losses are capped at 5% of the benchmark in year one, 7.5% in year two, and 10% in year three.
  • All ACO participants, including nursing homes, home care agencies, and other providers ineligible to form an ACO, nevertheless may receive shared savings and be responsible for losses, in accordance with regulatory guidance on the distribution of shared savings and losses and the terms of their agreement with the ACO.  Here, too, long term care providers will need to bargain effectively with the entities forming an ACO regarding the criteria for distributing shared savings and losses as well as distribution based on those criteria.

D.  Quality and Technology Requirements and Measures

  • CMS will calculate the ACO’s quality performance and eligibility for shared savings using 33 performance measures (reduced from 65 in the Proposed Regulations) in four domains of care: patient/care giver experience; care coordination/patient safety; preventive health; and measures for at-risk, frail, elderly patients.  An ACO will receive zero points for performance below a minimum standard for certain measures, with points based on a sliding scale above the minimum.
  • During the first performance year, ACOs will be deemed to have met all the quality goals solely by reporting accurately and completely the mandated quality measures to CMS.  ACOs must satisfy minimum quality standards to be eligible to participate in shared savings in the following two years.  Specifically, if an ACO fails to meet the minimum quality performance for at least one quality measure in each domain of care, the ACO will not be eligible to receive shared savings.
  • All ACO participants must comply with the evidence-based clinical guidelines adopted by the ACO and report on quality measures as required by CMS.
  • The ACO must have a senior-level medical director and a quality assurance and improvement program that will: (i) promote evidence-based medicine; (ii) promote beneficiary engagement and shared decision-making; (iii) internally report quality and cost metrics; and (iv) coordinate care with long term care and other providers as beneficiaries move between care settings.

II.  Regulatory Guidance: Fraud and Abuse Laws, Antitrust, and Tax Requirements for Exempt Organizations

The Final Regulatory Guidance issued by the FTC, DOJ, HHS, OIG, CMS and IRS seeks to promote ACOs by providing relief or waivers from the regulatory barriers that have hindered financial incentives and collaboration among providers to reduce cost and improve quality to date. 

Antitrust.  The DOJ and FTC Joint Policy Statement on antitrust enforcement establishes a “safety zone” for ACOs whose participants together provide 30% or less of a common service in an ACO primary service area, and provides the option of expedited voluntary antitrust review for any newly formed ACO that desires further antitrust guidance.  The Joint Policy Statement also identifies practices that providers should avoid such as unnecessary exclusivity or the sharing of price information for services outside the ACO.

Waivers of Fraud and Abuse Laws.  The guidance issued by CMS and OIG (the “Interim Final Rule”) sets forth waivers for ACOs accepted in the Shared Savings Program of certain provisions of the Physician Self-Referral Law (“Stark”), the Anti-Kickback Statute (“AKS”), and the Civil Monetary Penalty Law (“Gainsharing CMP”) that have been serious impediments to aligning financial incentives among providers to reward higher quality and lower cost.  In particular, subject to specified requirements, the Interim Final Rule provides for the following waivers:

  • a pre-participation waiver that applies to investments in ACO start up costs, such as creation of an infrastructure, care coordination, and staff;
  • a participation waiver that applies to arrangements during the ACO’s participation agreement with CMS and a specified time period thereafter;
  • a waiver for distribution and use of shared savings earned by the ACO; and
  • a waiver of the Gainsharing CMP and AKS for conduct that satisfies a Stark exception.  The Interim Final Rule also creates a waiver of the CMP and AKS ban on beneficiary inducements, allowing an ACO to offer medically-related incentives to beneficiaries to encourage preventive and self-care.

IRS Guidance for Exempt Organizations.  The IRS fact sheet, released concurrent with the Final Rule, confirms the guidance provided in the prior IRS Notice on ACOs.  That Notice set forth the requirements that exempt organizations participating in an ACO must satisfy to protect the organization’s exempt status and ensure that participation does not result in prohibited inurement or confer an impermissible benefit to private parties participating in an ACO.  The IRS also advised that, absent private inurement or impermissible benefit, it anticipates that shared savings distributed by the ACO to an exempt organization would not be treated as unrelated business income. 

III.  Issues and Challenges for Long Term Care Providers

Among the key “take always” for sub-acute and long term care providers – nursing homes, home health agencies, and hospices – that can be gleaned from analyzing the Final Rule on ACOs are the following:

  • Long term care providers cannot form an ACO but may participate in one;
  • The Shared Savings Program covers all Part A and Part B services provided to Medicare beneficiaries, giving long term care providers a potentially significant role in care coordination and improvement for beneficiaries in an ACO;
  • Long term care providers will have some role in ACO governance, as determined by their agreement with the ACO or the ACO’s governance structure and documents;
  • Long term care providers may participate in shared savings and losses, in accordance with regulatory requirements and their agreement with the ACO; and
  • Participation in an ACO will require long term care providers to meet the quality standards of the Shared Savings Program and follow the ACO’s guidelines and processes for quality and patient-centered care.

Given these factors, it is important for long term care providers to begin positioning themselves to evaluate and optimize their opportunities to participate in an ACO.  In this process, they must consider the commitment and contribution that they will be asked to make to achieve ACO goals as well as potential financial gains and losses.



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