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Accountable Care Organization ("ACO") Analysis

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Gary J. McRay & Nicole E. Stratton
Foster Swift Health Care Law E-News
April 5, 2011

While the Patient Protection and Affordable Care Act ("PPACA") may be a year old, one of PPACA's provisions that may have the greatest impact on the health care industry has received hardly any attention from the media or lawmakers.  Specifically, Section 3022 of PPACA, which added Social Security Act Section 1899, encourages the formation of Accountable Care Organizations ("ACOs").  This article outlines the general known requirements for ACOs, ACO payment under PPACA, and potential issues with ACOs.  

Requirements for ACOs

Section 3022 of PPACA provides for the creation of a shared savings program by January 1, 2012, to promote provider  accountability, coordination and investment.   Ultimately ACOs are designed to bring about high quality and efficient service.  Under PPACA's shared savings programs, groups of providers and suppliers meeting certain criteria specified by CMS may work together to manage and coordinate care, through ACOs, for Medicare fee-for-service beneficiaries.  ACOs that meet certain quality performance standards are eligible to receive payments for shared savings from the government.  Under PPACA, an ACO must:

  1. Be willing to become accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it;
  2. Enter into an agreement with the Secretary of Health and Human Services ("Secretary") to participate in a program for not less than a three-year period ("agreement period");
  3. Have a formal legal structure that would allow the organization to receive and distribute payments for "shared savings" to participating providers of services and supplies;
  4. Include primary care ACO professionals that are sufficient for the number of Medicare beneficiaries (at least 5,000) assigned to the ACO; 
  5. Provide the Secretary with information regarding the ACO's professionals necessary to support the Medicare beneficiaries assigned to the ACO, to implement the quality and other reporting requirements under the program and for purposes of determining the payments for shared savings;
  6. Have a leadership and management structure that includes both clinical and administrative systems;
  7. Defined processes to promote evidence-based medicine and patient engagement, report on quality and cost measures and coordinate care (such as through the use of telehealth, remote patient monitoring and other enabling technologies);
  8. Demonstrate to the Secretary that it meets patient centeredness criteria specified by the Secretary, such as the use of patient and caregiver assessments or the use of individualized care plans;
  9. Establish a mechanism for shared governance with the providers; and
  10. Not participate in other government-based shared savings programs.


While there will be many changes to health care in the ACO program, each independent provider participating in the ACO will continue to submit its own claims and be paid on a fee-for-service basis for the services it provides.  Subject to performing within certain quality standards, if an ACO meets the PPACA requirements, then a percent of the difference between (i) an estimated average per capita of Medicare expenditures in a year, adjusted for beneficiary characteristics under the ACO, and (ii) the benchmark for the ACO may be paid to the ACO (its "shared savings") and the remainder of the savings shall be kept by the Medicare Program.  The benchmark for each ACO is reset after each 3 year agreement period.

PPACA also gives the Secretary authority to use alternative payment methods.  The Secretary is allowed to use a partial capitation model, in which the ACO is at financial risk for some, but not all, of the items and services provided under the Medicare Program.  In addition, the Secretary has the flexibility to provide other payment models, if it determines the model will approve the quality and efficiency of furnishing services under this program. 


In addition to having many potential payment methods, ACOs can come in many forms.  For instance, ACOs can use partnerships or joint venture arrangements between physician groups and hospitals; hospitals employing providers; networks of ACO professionals in group practice arrangements and other groups of providers and suppliers as the Secretary allows.  Each form of ACO faces various potential problems.  Below is a comparison of some of the issues facing three possible ACO formations.  No organization model is perfect; each has its own advantages and disadvantages.  On March 31, 2011, CMS, the Office of Inspector General, the Federal Trade Commission and Department of Justice, and the IRS all issued proposed rules, notices of certain waivers, proposed policy statements and guidance in a coordinated effort to address certain legal issues regarding ACOs who might participate in the Medicare shared savings program.  These regulations were approximately 500 pages in length and will be part of a new summary in the near future. 

If you need help forming or becoming part of an ACO, call Foster Swift Collins & Smith, P.C.

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