ABA Health eSource
June 2010 Special Edition

Accountable Care Organizations: With So Many (Unanswered) Questions, Providers and Suppliers Should Start Shaping the Answers Now

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

AuthorA recent report indicates that “Medicare officials are preparing to draft regulations for one provision under health reform that policymakers hope will help achieve” a transformation in the method by which hospitals and doctors are paid. 1 The regulations, which will implement the “Medicare Shared Savings Program” created by the Patient Protection and Affordable Care Act (“PPACA”), 2 will be vitally important. As anyone who has attempted to create an accountable care organization (“ACO”) based on PPACA alone well knows, new § 1899 of the Social Security Act (“SSA”) raises many unanswered questions, and until regulations are issued those seeking to structure eligible arrangements are to some extent shooting in the dark.

Structuring ACOs Is Currently a Challenge

That is particularly true when it comes to defining and documenting the ACO’s financial arrangements. Being able to present a clear picture of how the money will flow to the physicians and other participants in an ACO would seem to be a prerequisite to successful recruitment by the ACO. There are two very good reasons for those who wish to establish ACOs to want to fill out their provider panels quickly -- the limitation restricting physicians (and other suppliers or providers) to participation in only one shared savings program 3 and the potential (if not likelihood) that the Secretary’s assignment of patients to an ACO will be based on the primary care physicians the ACO has signed up. 4 One can imagine that such considerations could make for some very competitive negotiations in some markets, but at this point there is little that can be said with certainty about the most important issue: money.

Financial Details Are Lacking

One of the requirements an ACO must satisfy to participate in the shared savings program is to “have a formal legal structure that would allow the organization to receive and distribute payments for shared savings under subsection (d)(2) to participating providers of services and suppliers.” 5 Presumably this requirement carries through to the other payment models permitted by the amendments in Title X of PPACA 6 such that an ACO will need to have a formal legal structure that will permit receipt and distribution of shared savings, partial capitation or any other payment model implemented by the Secretary. But designing such a structure in the absence of regulations will be difficult.

The initial difficulty is that although the statute authorizes virtually any payment method, it says very little about how Subsection i payments will work. The only detail included is a limitation that precludes payments under a Subsection i model from exceeding the payment that would have been made had the ACO been paid under the shared savings model. 7 But the statute does not reveal the basis on which such payments will be made, the scope of “at risk” items and services will be under partial capitation, or whether similar delineations will be made under some other payment model of the Secretary’s choosing. Not knowing how and why payments will come in makes it a real challenge for ACOs to design an appropriate mechanism for their distribution.

The second difficulty is that just about any distribution method an ACO could contemplate has the potential to implicate the prohibition on payments to induce the reduction or limitation of services, 8 the Medicare Antikickback Law, 9 or the Stark Law. 10 To address these limitations, the shared savings program grants the Secretary broad waiver authority:

The Secretary may waive such requirements of sections 1128A and 1128B and title XVIII of this Act as may be necessary to carry out the provisions of this section. 11

Here again, though, in the absence of regulations outlining how this authority will be implemented (by regulation or through an advisory opinion-like process) and establishing the criteria that must be satisfied for waiver to apply, structuring distribution methodologies presents practical difficulties.

Providers and Suppliers Should Begin Shaping CMS’s Thinking Now

According to the Preliminary Q&As, CMS will be holding a “listening session” to hear stakeholder ideas about ACOs in the summer of 2010, 12 and a Notice of Proposed Rulemaking is to be published in the fall. Hospitals, physician groups and others interested in developing ACOs should consider providing input at this session or to the CMS Office of Legislation. Stakeholder views on alternative payment models that might be implemented by the Secretary and on workable distribution mechanisms should be welcomed by the Secretary so that she might take them into account as she considers her payment model and waiver options. It seems obvious that the payment models implemented and distribution mechanisms authorized by the Secretary will need to vary so that differences in the range of health services and the extent of competition at the hospital, physician and non-physician levels in particular markets (among many other things) can be taken into account. Advance input from the providers seeking to form ACOs will help the Secretary flesh these issues out.


1 Evans, M., Being Held Accountable, ModernHealthcare.com (posted May 17, 2010) (www.modernhealthcare.com/article/20100517/MAGAZINE/100519945) (last visited May 19, 2010).
2 PPACA § 3022, Pub. L. 111-148 (Mar. 23, 2010) (adding new § 1899 to the Social Security Act).
3 Id. (at added SSA § 1899(b)(4)). PPACA does not made clear whether such disqualification is permanent or would permit shifts between programs so long as participation is limited to one program at a time.
4 See id. (at added SSA § 1899(c)). ACO accountability for the “quality, cost, and overall care of the Medicare fee-for-service beneficiaries assigned to it” suggests that a beneficiary, once assigned to an ACO, would have to be subject to such assignment and receive care from the ACO to which (s)he is assigned for some defined period of time. Otherwise the ability to manage quality, cost and overall care would be severely limited. Paradoxically, this appears not to be the case. According to “Preliminary Questions & Answers” about ACOs by the CMS Office of Legislation and posted to its website on or about May 28, 2010, “Assignment [to an ACO] 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.” Medicare Accountable Care Organizations” Share Savings Program - New Section 1899 of Title XVIII Preliminary Questions & Answers (CMS Office of Legislation) (hereinafter the “Preliminary Q&As”) (available at http://www.cms.gov/OfficeofLegislation/Downloads/AccountableCareOrganization.pdf) (last visited May 28, 2010).
5 Id. (at added SSA § 1899(b)(2)(C)).
6 PPACA § 10307 (at added SSA § 1899(i)).
7 Id.
8 42 U.S.C. § 1320a-7a(b) (civil monetary penalties).
9 Id. § 1320a-7b(b) (criminal penalties).
10

Id. § 1395nn.

11 PPACA § 3022 (at added SSA § 1899(f)).
12 Details are to be posted at: http://www.cms.gov/OpenDoorForums/05_ODF_SpecialODF.asp#TopOfPage.

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