October 2011 Volume 8 Number 2

Physician Participation in the MSSP: The Risks May be Greater than the Rewards

By Mark E. Wilson and Rose Willis, Miller Canfield P.L.C., Troy, MI

AuthorAuthorWhile accountable care organizations (“ACOs”) have been hailed as an opportunity for healthcare providers to improve patient care and efficiencies and share in the resulting cost savings,1 the ACO structure currently set forth in the Medicare Shared Savings Program (the “MSSP”)2 scheduled to start on January 1, 2012, may go forward without significant commitment from independent physician practices. Several risks to physician participation in the MSSP exist which if not addressed in the Final Rule3 could discourage involvement by independent physicians, a major component of the healthcare industry.4 These risks, some of which are highlighted in this article, may be greater than potential rewards such as sharing in the ACO’s cost savings, increased operational and healthcare delivery efficiency, and improving the quality of care to beneficiaries.5

Risk of Losing Independence

Physicians who operate their own practices (“Independent Physician Practices” or “IPPs”) have two principal options when it comes to participation in the MSSP: (1) join a hospital-formed ACO (a “Hospital ACO”) through an employment model or a joint venture/partnership with the hospital or (2) form their own ACO in collaboration with other IPPs (a “Physician ACO”).6

In joining a Hospital ACO the physician may lose a large amount of practice independence, and subject his or her practice to hospital administration control. Loss of independence and control would be considerable if the ACO is structured as an employment model, requiring that the physician become an employee of the hospital, or it could be less considerable if the ACO is structured as a joint venture/partnership model.7 In addition, the Hospital ACO might involve the large organization bureaucracy and red tape that is typical in larger organizations, which the physician participant would have to rely upon in the operations of the ACO such as the determination, allocation and delivery of any share of cost savings under the MSSP.8

A large Physician ACO may be similar to a Hospital ACO in the potential for loss of the physician participant’s practice independence, and small Physician ACOs may not be possible under the structure of the MSSP. As currently proposed, the MSSP would require that each ACO serve at least 5,000 Medicare beneficiaries per year,9 requiring a sufficient number of physician participants to accommodate patients. As the size of the ACO increases, each physician participant may have less control over its operations, resulting in the potential loss of some of the IPP’s patient treatment independence.10

Risk of Considerable Upfront Investment

While participation in a Hospital ACO is not ideal in some respects, it could be the only option for some physicians who desire to participate in an ACO but do not have sufficient capital to form a Physician ACO. A major barrier to participation in the MSSP is the amount of capital that appears to be required to fund an ACO, making it far more difficult for IPPs to participate in small or manageable sized groups than for larger organizations such as hospitals or health systems who typically have access to more capital. The Centers for Medicare & Medicaid Services (“CMS”) has estimated the total average start-up investment and first-year operating expenditures for each ACO participating in the MSSP at $1.7 million,11 but other sources estimate that the costs will be considerably higher - $11.6 to $26.1 million.12 These estimated costs are high for many reasons, including, for example, the requirement that the ACO purchase and maintain electronic health record systems and the costs involved in initiating properly structured management, quality reporting and focused care coordination programs.13

Risk of Exclusivity

Primary care physician participants, unlike specialists, are forced to be exclusive to a single ACO and therefore must make an informed decision on which ACO to join. As currently proposed, the MSSP “assigns” a beneficiary to an ACO based on the primary care physician14 that provided a plurality of the allowed charges for the beneficiary’s primary care services.15 Exclusivity could be problematic for many reasons, most importantly where the ACO increases costs to the program and must share in losses. As noted below, a wrong decision by a primary care physician could cause severe economic consequences to his or her personal assets or practice if there are losses which are allocated across the ACO. This risk of exclusivity makes it impossible for primary care physicians, unlike specialists, to spread their risk between multiple ACOs, and therefore it is even more important for primary care physicians to understand their ACO, including what exit rights they have and to understand the amount of control they will have over the ACO’s operations and savings, if any.16

Risk of Failing to Generate Shared Savings

While the potential to share in the savings that the ACO generates under the MSSP is an exciting prospect, physicians are skeptical because there is no guarantee of shared savings. The MSSP sets forth complex rules relating to the calculation of shared savings payments and the MSSP currently withholds a percentage of any cost savings.17 First, in order to qualify for shared savings payments, the ACO must exceed a performance threshold based on the ACO’s scores in 65 quality measures.18 If the ACO exceeds the performance threshold, CMS would keep the first two percent of the savings, and would limit the ACO’s share of the remaining to at most 50-60 percent of the total savings.19 In addition, CMS would keep 25 percent of the ACO’s shared savings each year as a “withhold” in the event the ACO generates losses the following year.20 The risk in failing to generate shared savings based on these complex rules is a concern, especially to physicians who participate in smaller ACOs not able to absorb such risks due to the upfront investments in forming the ACO.21 Physicians may directly bear this risk if the ACO withholds a share of the physician’s portion of shared savings payments to account for the MSSP withhold requirement.

Risk of Sharing in Losses

Every ACO in the MSSP is at risk for generating losses (rather than savings to the program) and ultimately sharing in those losses at some point in its participation in the MSSP. Currently there are only two tracks for ACO participation in the MSSP,22 both of which require that at some point during participation the ACO share in payment of a portion of any losses generated by the ACO.23 As noted above, particularly for smaller Physician ACOs, sharing in losses may be financially catastrophic due to limited capital reserve and inability to sustain a major loss.24 Such downside risk may discourage physicians from participating in the MSSP as the risk of inadvertent failure is too great.25


The significant risks to physician participants in the MSSP, such as considerable capital investments in ACO formation and operation, potential loss of practice independence, the dilution of shared savings payments and sharing in the increases in costs may exceed the potential rewards for participation. The Final Rule must alleviate these risks to some extent before physicians will commit without skepticism to participating in the MSSP. Before the Final Rule is issued, physicians who desire to form an ACO should be careful in selecting other physician participants, and those who are approached to join an existing ACO, whether hospital or physician led, should review in detail the governing documents of the ACO focusing in particular on the structure, methods for pay-outs/pay-ins and exit strategies.

For more information on this topic, the Health Law Section is hosting a webinar "Accountable Care Organizations: Physician Perspective" on November 3, 2011.


See generally, Accountable Care Organizations: Physician Participation Required, Howard Frederick Hahn and Torri A. Criger, American Health Lawyers Association Connections, January, 2011.

2 This Article discusses physician participation in the Accountable Care Organization concept set forth in the Medicare Shared Savings Program (the “MSSP”), 42 U.S.C.A. § 1395jj (2010). The MSSP was promulgated in Section 3022 of the Patient Protection and Affordable Care Act (“PPACA”), Pub. L. No. 111-148, 124 Stat. 119 (2010), and further guidance was provided approximately one year later in the proposed rules issued by the Department of Health and Human Services, Centers for Medicare & Medicaid Services (the “Proposed Rule”). See MSSP Proposed Rule, 76 Fed. Reg. 19,528 (April 7, 2011).

The MSSP Final Rule has not been issued as of the date of this article, although it is anticipated that it will be issued sometime in Fall, 2011 due to the 60 day comment period in the Proposed Rule and the January 1, 2012 start date for the program.


See e.g., American Medical Group Association letter to Donald Berwick, M.D., Administrator for the Centers for Medicare & Medicaid Services (“CMS”), dated May 11, 2011 (stating that in a survey of its membership, 93% stated that they would not participate in the ACO program under the current framework).


See MSSP Proposed Rule, 76 Fed Reg. at 19,639.


The MSSP as currently proposed would allow various groups of healthcare providers to create ACOs. According to PPACA and the Proposed Rule, an ACO in the MSSP must consist of one of the following groups of entities: (1) ACO professionals in group practice arrangements; (2) networks of individual practices of ACO professionals; (3) partnerships or joint venture arrangements between hospitals and ACO professionals; (4) hospitals employing ACO professionals; or (5) such other groups of providers of services and suppliers as the Secretary of the Department of Health and Human Services determines appropriate.


This depends on the governing documents of the Hospital ACO and whether the physician is able to successfully negotiate some control over the ACO operations including, for example, the method for distribution of shared savings payments, although this is unlikely if the number of physicians is large.


See also Physicians versus Hospitals as Leaders of Accountable Care Organizations, Robert Kocher, M.D., and Nikhil R. Sahni, B.S., N Engl J Med (2010) explaining that hospital-dominated ACOs may result in the decline of physicians as independent professionals.


See MSSP Proposed Rule, 76 Fed. Reg. at 19,545.


See, e.g., MSSP Proposed Rule, 76 Fed. Reg. at 19,639 (explaining that ACOs and their participants will need to refine all processes of caring for their patients and community). These changes will be administered by the ACO itself.


See MSSP Proposed Rule, 76 Fed. Reg. at 19,639.


See American Hospital Association and McManis Consulting, The Work Ahead: Activities and Costs to Develop an Accountable Care Organization, April 2011, available at http://www.aha.org/advocacy-issues/clininteg/casestudies.shtml.


See MSSP Proposed Rule, 76 Fed. Reg. at 19,639.


“Primary Care Physicians” is defined by the Proposed Rule as those physicians with specialization in internal medicine, general practice, family practice and geriatric medicine. See MSSP Proposed Rule, 76 Fed. Reg. 19,565.


The Proposed Rule defines primary care services as a select set of HCPCS codes identified in the Patient Protection and Affordable Care Act, including G-codes associated with the annual wellness visit and Welcome to Medicare visit. See MSSP Proposed Rule, 76 Fed. Reg. 19,565. Further, under the Proposed Rule beneficiaries would be assigned based on receipt of a “plurality” of the allowed charges for primary care services, rather than a majority or other percentage of primary care services. See MSSP Proposed Rule, 76 Fed. Reg. 19,567.


See also American Medical Association (“AMA”) letter to Donald Berwick, M.D., Administrator of CMS, dated June 3, 2011, Page 15 (stating that the exclusivity requirement might discourage primary care physicians).


See generally, AMA letter to Donald Berwick, M.D., Administrator of CMS, dated June 3, 2011, Page 17 (stating that the performance measures are “too many” and may deter physicians from participating in the MSSP).


See MSSP Proposed Rule, 76 Fed. Reg. 19,570.


See MSSP Proposed Rule, 76 Fed. Reg. 19,596.


See MSSP Proposed Rule, 76 Fed. Reg. 19,615.


See generally AMA letter to Donald Berwick, M.D., Administrator of CMS, dated June 3, 2011, Page 5, stating that the minimum savings rate will put participation in an ACO outside the reach of smaller networks and potentially diminish provider competition.


See MSSP Proposed Rule, 76 Fed. Reg. 19,616.


For Track 1, the penalty would not apply until the third year of participation, however for Track 2, the penalty would apply in all years of participation where losses are generated. See MSSP Proposed Rule, 76 Fed. Reg. 19,617.


See, generally MSSP Proposed Rule, 76 Fed. Reg. 19639 (stating that CMS anticipates that not all ACOs will achieve shared savings and some will incur a financial loss due to the requirement to repay a share of actual expenditures in excess of the benchmark).


See also AMA letter to Donald Berwick, M.D., Administrator of CMS, dated June 3, 2011, Page 2 (explaining that for many reasons it is inappropriate to force small and physician-driven ACOs in particular to accept down-side risk).

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