Health law newsletter
June 2011
Not Just Another Article About ACOs
Nearly all of the readers of this Newsletter have heard something about Accountable Care Organizations (ACOs) over the past year, and some of you are probably tired of hearing about them. This is not just another article about ACOs. Rather, it is a brief discussion of how physicians may benefit from the potential advantages of ACOs by organizing themselves into cohesive and powerful organizations capable of monitoring and enforcing cost saving and quality assurance measures. These organizations may provide tangible benefits to physicians even if the ACO initiative ultimately fails.
Physicians need not rely on hospitals or outside consultants to lead them in this process. The American Medical Association (AMA) expressed in a recent letter to the Federal Trade Commission (FTC) that "[h]ospitals are already increasing their acquisitions of physicians and physician group practices, which have, in some markets, given hospitals significant market power over both facility and physician markets" and "[i]t is critical that the FTC/DOJ set forth clear and common sense antitrust rules concerning the formation of ACOs so that physicians can pursue integration options that are not hospital driven. Physicians should not have to become employed by a hospital or sell their practice to a hospital in order to participate in ACOs or other innovative delivery models."
We believe that the organizations most likely to benefit from ACO formation are group practices developed under a single Tax I.D. number and operating as a single entity. If the formation of a single group practice is not achievable, an alternative solution may be to form an alliance of practices under a single entity or joint venture with the ability to monitor and enforce compliance of those standards required of an ACO.
The Regulatory Basis for ACOs
The concept of an ACO was introduced in the recently enacted Patient Protection and Affordable Care Act (the "Act"). Specifically, the Act requires the Secretary of Health and Human Services (the "Secretary") to establish a program no later than January 1, 2012 that enables "groups of providers of services and suppliers meeting criteria specified by the Secretary ... [to] work together to manage and coordinate care for Medicare fee-for-service beneficiaries through an [ACO]." The Act also provides that ACOs that meet certain performance standards established by the Secretary are eligible to receive payments for "shared savings."
Much has been written about ACOs and the role of physicians in them. Many of our clients have been approached by hospitals seeking to form ACOs. Consultants are already making a living helping groups form ACOs. Clearly, the feeding frenzy has begun, despite the fact that, until recently, there was virtually no regulatory guidance about what ACOs will be, what they will look like, and how they will operate. Recently, the Secretary published proposed rules addressing all of these issues, but it is important to note that these rules have not been finalized, and there is no telling what form they will eventually take. The fact is that no one knows if ACOs will be effective or profitable, but no one wants to be left out.
This begs the question: What, if anything, can physicians do in preparation for the implementation of the ACO program?
ACO Basics
In order to answer this question, we need to break down the concept of an ACO into its simplest elements. At its most basic level, an ACO is an organization consisting of primary care physicians with a minimum of 5,000 covered lives organized in a manner that enables them to systematically reduce costs incurred by the Medicare and other governmental programs, while maintaining or improving the quality of care they provide. ACOs may be eligible to retain a percentage of the savings they create. Hospitals are not required participants. Specialist physicians and hospitals may be owners of an ACO, or may simply contract with different ACOs. Primary care physicians may belong to only one ACO, and must be locked into a single ACO for up to three years, so the choice of which ACO to join is a critical one.
In order for an ACO to be worthwhile, it must be able to reduce costs. In order to reduce costs, ACOs need to be sufficiently cohesive to develop clinical pathways and protocols that its members are likely to follow. Only widespread compliance by its members will enable an ACO to generate consistent savings while maintaining quality.
The Act provides that the following groups of providers of services and suppliers are eligible to participate in ACOs:
- ACO professionals in group practice arrangements.
- Networks of individual practices of ACO professionals.
- Partnerships or joint venture arrangements between hospitals and ACO professionals.
- Hospitals employing ACO professionals.
- Such other groups of providers of services and suppliers as the Secretary determines appropriate.
Getting the Most Out of an ACO
Of these groups, we believe that the most cohesive of them, namely group practices (Item 1 above) have the greatest chance at success. Loosely formed organizations that resemble traditional independent practice associations (IPAs) and physician hospital organizations (PHOs) are unlikely to possess the IT infrastructure, central governance and authority to cause their members to consistently follow the clinical pathways and protocols established by the organization, and create long-term cost savings. The limited success of IPAs and PHOs illustrates the need for ACO participants to have closely-aligned incentives, combined with the ACO's ability to assess and manage the performance of its individual participants.
Requirements set forth in the Act further support the notion that the most cohesive ACOs will be the most successful. Specifically, eligible groups of providers of services and suppliers must meet the following nine requirements to participate in the program as ACOs:
- The ACO shall be willing to become accountable for the quality, cost, and overall care of the Medicare fee-for-service (FFS) beneficiaries assigned to it.
- The ACO shall enter into an agreement with the Secretary to participate in the program for not less than a 3-year period.
- The ACO shall have a formal legal structure that would allow the organization to receive and distribute payments for shared savings to participating providers of services and suppliers.
- The ACO shall include primary care ACO professionals that are sufficient for the number of Medicare FFS beneficiaries assigned to the ACO.
- ACO shall have at least 5,000 such beneficiaries assigned to it in order to be eligible to participate in the Shared Savings Program.
- The ACO shall provide the Secretary with such information regarding ACO professionals participating in the ACO as the Secretary determines necessary to support the assignment of Medicare fee-for-service beneficiaries to an ACO, the implementation of quality and other reporting requirements, and the determination of payments for shared savings.
- The ACO shall have in place a leadership and management structure that includes clinical and administrative systems.
- The ACO shall define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.
- The ACO shall demonstrate to the Secretary that it meets patient-centeredness criteria specified by the Secretary, such as the use of patient and caregiver assessments or the use of individualized care plans.
It is difficult to imagine how a loose affiliation of physicians practicing in separate medical groups can possibly meet more than a few of the above requirements. Without centralized practice management and corporate governance, and shared billing and EHR software, we believe it will be extremely difficult for an ACO to monitor and enforce performance, or create consistent standards of care among its members.
Conclusion
Recently, many physicians have looked to hospitals to solve their financial problems either by selling their practices or signing ACO agreements with hospitals. Hospitals have an important role in ACOs, and, in some cases, an ownership role. However, we continue to believe that well-organized, cohesive, large physician groups can and should control ACOs, and then contract with hospital partners from a position of power. For years, we have spoken of the advantages of large group practices in order to enhance managed care contracting, generate ancillary revenues and partner with hospitals. Now, there is another reason for physicians practicing in solo or small group practices to consolidate into larger groups: ACOs. Consolidation may often be accomplished in a way that does not require physicians to sacrifice their autonomy or practice styles. Frier Levitt has organized numerous group practices, and we would welcome the opportunity to discuss a consolidation model that may work for you, and prepare your practice for the regulatory changes that lie ahead.
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The attorneys at Frier Levitt represent a broad range of clients in healthcare law, transactional and regulatory matters, pharmacy law, internet law, matrimonial law, real estate and corporate representation tailored to the needs of business and individual clients.
Frier & Levitt, LLC
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