iProtean—More ACOs Approved by CMS

U.S. Department of Health and Human Services Secretary Kathleen Sebelius last week announced the approval of 89 new Accountable Care Organizations (ACOs) for participation in the Medicare Shared Savings Program (MSSP). The 89 ACOs will serve Medicare beneficiaries in forty states and Washington, DC.  This brings the total number of ACOs to 154, including the 32 ACOs participating in the Center for Medicare & Medicaid Innovation’s Pioneer ACO model announced last December, and six Physician Group Practice Transition Demonstration organizations that began operations in January 2011.


Nearly half of the organizations approved in this second wave of the MSSP serve fewer than 10,000 beneficiaries. Like the first ACOs approved in April, many of the new ACOs are physician-driven organizations.


Beginning this year, new ACO applications will be accepted annually. The application period for organizations that desire to participate in the MSSP beginning in January 2013 runs from August 1 through September 6.  CMS has noted that 400 organizations have submitted a notice of intent to apply next month.

(Scott Lenz, Jr., “HHS Approves Eighty-Nine New Accountable Care Organizations,” AHLA Practice Group Email Alert, Regulation, Accreditation, and Payment Practice Group Members, July 10, 2012.)


One of the key structural features of an ACO is its governance, and CMS wants to ensure that ACOs are provider-driven rather than entrepreneur controlled.  It requires that an ACO must have at least 75% control of its governing body composed of ACO participants, reserving the remaining for non-provider, non-Medicare enrolled entities and small provider groups.  To illustrate the 75% control requirement, if a hospital, two physician groups and a health plan formed an ACO, the hospital and two physician groups must control at least 75% of the ACO governing body. However, CMS does not prescribe how voting control of the hospital and two physician groups is allocated—CMS has said it wants to ensure flexibility among participants.  (John R. Washlick, Esq., “Governance and Management,” The ACO Handbook. American Health Lawyers Association. 2012.)


CMS has additional governance requirements for ACOs:  an ACO must include a representative from the Medicare beneficiary population it serves; and, the ACO governing body must have a conflict of interest policy and certain safeguards that apply to all members of the governing body, including any Medicare beneficiaries who serve on that body.  (John R. Washlick, Esq., “Governance and Management,” The ACO Handbook. American Health Lawyers Association. 2012.)


Look for the new iProtean course, Governance of ACOs, in the next quarter.


ACO participation remains voluntary for providers. “The reform law does not change the way hospitals and physicians will get paid for the day-to-day care they provide.  So even within an ACO, hospitals will continue to bill and get paid under part A and physicians will continue to bill and get paid under part B.  What the ACO model does at this point is if they work in a coordinated fashion, then they are each eligible to receive a bonus payment, a single payment that’s made to the ACO and then the ACO participants split up that payment within the group.” (Anjana Patel , Esq., The New Healthcare Business Model, iProtean)


Participating providers can share in savings if certain quality metrics are achieved and if the ACO’s expenditures are less than a predetermined threshold established by CMS based on historical cost data related to the ACO’s Medicare beneficiary population.


Each ACO may choose between two payment models during their first agreement period: (1) a one-sided model, in which providers share only in savings (and not losses); or (2) a two-sided model, in which providers share in both savings and losses. CMS Deputy Administrator Jonathan Blum announced Monday that the majority of the eighty-nine organizations chose to participate in the one-sided model, while only five of the newly approved ACOs applied for the two-sided model.  (Scott Lenz, Jr., “HHS Approves Eighty-Nine New Accountable Care Organizations,” AHLA Practice Group Email Alert, Regulation, Accreditation, and Payment Practice Group Members, July 10, 2012.)


More detailed information on ACOs appears in the iProtean courses New Delivery/Payment Systems and The New Healthcare Business Model  featuring Robin Nagele, Esq., Todd Sagin M.D., J.D., Anjana Patel, Esq., Dan Grauman, Lisa Goldstein, Kenneth Kaufman and Jeffrey Bauer, Ph.D.


Robin Nagele, Esq.

An accountable care organization is formed when a group of providers from across the healthcare spectrum come together and become accountable for the overall care of particular patients.


For example, hospitals and physician groups will come together and agree to form an ACO.  They need to cover at least 5,000 lives between them.  For those lives that they agree to cover, they will take full responsibility for managing those lives, at least for the particular disease processes that are covered by the Shared Savings program . . . The concept is that by working together, they will develop savings for the Medicare program because of more efficient and safer care.  Ultimately, there is a mechanism for Medicare to share the savings with the ACO and then the ACO will distribute those savings to all the providers that participate in the network . . .


Anjana Patel, Esq., Sills Cummis& Gross

Under the reform law, the statute provides that an ACO can be set up by physicians, by networks of physicians, by joint ventures of hospital with physicians, by hospitals that employ physicians and by any other provider or supplier that CMS decides should participate.  With respect to the hospital, it seems to me that a hospital would want to be proactive and take the lead so to speak in setting these up.  The reason for this is if the ACO is successful, it will result in a decline in inpatient volume, and that’s something that is a big concern for many hospitals, especially the ones who have invested a lot in acute care services.  So I think taking control of the situation is probably a good thing for a hospital . . .


The other thing that the board needs to be aware of is this potential that if an ACO, for example, is successful, there is a potential for decline in inpatient revenues because by the nature of the ACO we want to prevent inpatient admissions.  We want to have better outcomes on an outpatient basis and in the home setting.  So the board needs to keep in mind that while substantial investment has to made in order to implement reform, and this could be financially a huge outlet of cash, there is also this balance of trying to decide what to do with inpatient services, how to phase out certain things and prepare or convert beds and services to others, whether it’s on an outpatient setting or another type of service.  From a strategic perspective, what may look like an acute care hospital today may look very different five years from now if it’s been successful implementing an ACO.  So I think that as the board prepares a readiness assessment plan, it should keep in mind this potential for declining inpatient revenues, as well as substantial cost to implement reform.


For a complete list of iProtean courses, click here.


iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.


For more information about iProtean, click here.