ABA Health eSource
July 2010 PPACA Special Edition

Accountable Care Organizations II: Questions & More Questions

By Mark S. Hedberg, Partner, Hunton & Williams LLP, Richmond, VA

AuthorOn May 27, 2010, the CMS Office of Legislation posted on its website a series of “Preliminary Questions & Answers” (the “Q&As”) 1 regarding the Medicare Shared Savings Program (“SSP”) established by the Patient Protection and Affordable Care Act (“PPACA”). 2 The Q&As represent the first look into CMS’s thinking regarding accountable care organizations (“ACOs”) and how the SSP will be implemented. To set the context, the core requirement that must be satisfied by an ACO, as stated in the PPACA and the Q&As, is that the ACO must “be willing to become accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it.” 3 Monetary incentives of one type or another will be paid to reward ACOs for quality improvements and cost savings realized by Medicare. But, the Q&As reflect that CMS’s policies on (a) the dynamics of beneficiary “assignment” to an ACO, and (b) what assignment means for the ACO that is accountable for that person’s care 4 may be putting ACOs on a path that undermines the ability of ACOs to achieve desired improvements in quality and cost.

Beneficiary Assignment

PPACA confers significant discretion on the Secretary of HHS in respect of patient assignment to ACOs:

The Secretary shall determine an appropriate method to assign Medicare fee-for-service beneficiaries to an ACO based on their utilization of primary care services provided under this title by an ACO professional described in subsection (h)(1)(A). 5

Regulations will be needed to flesh out the details, such as what will constitute “primary care services” for assignment purposes, but the general framework is set: assignment will be based on a beneficiary’s primary care physician (“PCP”); that is, the patient likely will be assigned to the ACO in which his or her PCP participates.

ACO Assignment Does Not Limit Beneficiary Choice

Based on the plain language of the statute, and in particular the requirement that ACOs become “accountable” for the quality, cost and overall care of the beneficiaries assigned to it, one might think that assignment to an ACO will include with it a requirement, an incentive or at least some level of encouragement for the assigned beneficiary to obtain care from his or her ACO. But this is not the case. Quite to the contrary, the Q&As reflect that Medicare beneficiaries will enjoy unfettered freedom of physician/provider choice. The Q&As state:

For ACO purposes, “assigned” means those beneficiaries for whom the professionals in the ACO provide the bulk of primary care services. Assignment will be invisible to the beneficiary, and will not affect their guaranteed benefits or choice of doctor. A beneficiary may continue to seek services from the physicians and other providers of their choice, whether or not the physician or provider is a part of an ACO.

. . .

Q: Will beneficiaries that receive services from a health care professional or provider that is a part of an ACO be required to receive all his/her services from the ACO?

A: No. Medicare beneficiaries will continue to be able to choose their health care professionals and other providers. 6

This approach -- invisible assignment -- has the following significant implications for ACO design and operation:

  • The lack of constraint on patient choice raises the prospects of patient “leakage.”
  • Leakage undermines the ACO’s ability to manage the care for which the ACO has agreed to be accountable (an “unmanaged care” model?).
  • If the ACO does not implement effective mechanisms to limit leakage, patients receiving care from non-ACO providers (who are outside of the shared savings arrangement) may have a material adverse financial impact on the ACO.
  • If patient assignment is based on PCP, then as a practical matter PCPs can only participate in one ACO. (The alternative rapidly becomes unworkable).

Providers and their counsel will have to keep these issues in mind as they structure ACOs. At the extreme, an ACO paid under the PPACA’s partial capitation model that has significant leakage is going to look much like an HMO or an insurance company.

ACO Structuring Questions

In light of the foregoing, counsel and their ACO clients should consider the following:

  • Which physicians will be permitted to participate in the ACO?
    • Can the ACO take into account historic referral patterns in deciding whether or not to permit a particular physician to participate?
    • Preference might be given to a physician whose patients historically received care from other ACO providers and suppliers vs. a physician whose patients historically received care from providers and suppliers who are not part of the ACO.
    • If the physicians in question are not employed by the ACO or an affiliate of the ACO, do the physicians have the technology infrastructure necessary to capture and report the data the ACO needs to measure performance and qualify for shared savings or other payments?
  • What restrictions will the ACO place on its participating physicians?
    • By necessity, PCPs will only be able to participate with one ACO.
    • Can the ACO impose similar restrictions on specialists? If it can, should it? Will it?
  • Are the monetary incentives provided 7 sufficient to drive transformation in practice patterns purely on the basis of economics?
    • If not, ACOs will want to identify and seek to establish participation relationships with physicians who display ACO-consistent practice attributes as opposed to relying on the economic incentives alone to change practice behavior.
  • How will those incentives be distributed to the participating physicians?

Addressing these issues early in the structuring process will enhance the ACO’s likelihood of success.


1 Medicare “Accountable Care Organizations” Shared Savings Program - New Section 1899 of Title XVIII Preliminary Questions & Answers (CMS Office of Legislation) (hereinafter the “Q&As”) (available at http://www.cms.gov/OfficeofLegislation/Downloads/AccountableCareOrganization.pdf) (last visited May 28, 2010).
2 PPACA §§ 3022, 10307 Pub. L. 111-148 (Mar. 23, 2010) (adding new § 1899 to the Social Security Act).
3 PPACA § 3022 (at new Social Security Act § 1899(b)(2)(A)).
4 See Q&As at 1, 2.
5 PPACA § 3022 (at new Social Security Act § 1899(c)).
6 Q&As at 1, 2 (bold italics emphasis added).
7 As amended by PPACA § 10307, incentive payments to ACOs may take the form of shared savings payments, partial capitation payments, or any other payment model the Secretary determines will improve quality and efficiency of services.

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