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The ACO Final Rule: Significant Changes and Opportunities?

The ACO Final Rule: Significant Changes and Opportunities?

Health Care Law Note
(October 2011)

On October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) released its final rule laying out the Accountable Care Organization (ACO), which is the vehicle for the Medicare Shared Savings Program. ACOs will be accountable for the overall cost and quality of health services delivered to Medicare patients through increased integration and coordination of care. Provided that quality benchmarks are met, accountability for cost will be encouraged by shared savings incentive payments.

While most interested parties are still combing through the 696 pages of the final rule, an early consensus is forming that it is significantly less burdensome than the March, 2011 proposed rule. That rule incited a public outcry and CMS Administrator Donald Berwick, MD, has taken notice: "We listened very carefully to the more than 1,300 comments we received on the proposed rule released this spring, and this final rule includes a number of improvements suggested by those comments that will strengthen the program." It seems as though CMS might actually want ACOs to work as it has coordinated with the HHS Office of Inspector General to issue an interim final rule establishing five fraud and abuse waivers including the Stark law, the anti-kickback statute, and provisions of the civil monetary penalty law.

At the moment, the most significant changes in the ACO final rule appear to be:

  • Prospective Patient Identification: Unlike the proposed rule, the assignment methodology allows for preliminary prospective assignment of beneficiaries. The preliminary rule contained retrospective patient identification which left the ACO participants not knowing how many or which patients might be involved. Prospective identification provides a basis for financial and business planning.
  • Reduction of Quality Measurements from 65 to 33: Responding to concerns raised by the public comments, CMS removed measures critiqued as redundant, complex, and burdensome.
  • Removal of Risk from the One-Sided Payment Model: Instead of having to share in losses in the third year, providers can now share in savings while avoiding the risk of incurring losses. A two-sided model (i.e., sharing gains and losses) is still available as an option.
  • Sharing the first dollar: the preliminary rule required ACO participants to achieve a 2% cost reduction before sharing commenced. The final rule provides for sharing of all savings, without the threshold amount.
  • The Advance Payment Model: CMS will provide some up-front funding to 50 ACOs, concluding that "physician-owned and rural providers participating in the Medicare Shared Savings Program . . . would benefit from additional start-up resources." The advanced payments would be recovered from any future shared savings achieved by the ACO.
  • Relaxing of Electronic Health Records Requirement: A proposed rule that 50% of primary physicians would have to be meaningful users of EHR by the beginning of the second performance year has been removed.
  • Flexible Starting Date in 2012.
  • Eliminated mandatory anti-trust clearance by the Federal Trade Commission and Department of Justice. This allows an ACO to avoid a very significant expense (and likely time delay) in situations where anti-trust exposure is low.

In other areas, CMS has inserted more subtle changes, but the general structure of an ACO remains the same: a legal entity governed by providers, which will contract with CMS to assume cost and quality responsibility for a population of Medicare beneficiaries. Hospitals and physicians that may be considering ACO formation can now do so with somewhat reduced up-front expenditure, greater assurance of receiving a share of savings, and reduced operational requirements.

It is important to remember that ACOs are but one piece of health care reform and others are being advanced by CMS, such as the recent bundled payment initiative. ACOs and these other new payment programs do reflect a larger change in philosophy from Washington regarding health care reimbursement, orienting away from fee-for-service and no outcome responsibility, and orienting toward provider responsibility for population costs and outcomes. Providers would be wise to stay informed of developments in this area. Of course, please do not hesitate to contact the health care attorneys at Smith Moore Leatherwood LLP should you have any questions or concerns regarding recent regulations from CMS and OIG.

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