ACOs and the Shared Savings Program - Part II: Unanswered Questions

October 12, 2010

In addition to the numerous misconceptions about Accountable Care Organizations (ACOs) and the Shared Savings Program, there are a number of unknowns regarding implementation, including permitted legal structures, payment amounts, and performance measurement. This article identifies and discusses some of the more significant unanswered questions about ACOs and the Shared Savings Program. 

1. What legal structures will be permitted?

The Patient Protection and Accountable Care Act (the Act) requires that the ACO have a legal structure that allows the organization to receive and distribute payments for shared savings. With respect to the Medicare program, this means that ACOs may need to be structured to comply with the Stark physician self-referral law, the federal anti-kickback statute, and civil monetary penalties law. Aside from these federal fraud and abuse laws, compliance with state self-referral laws, anti-kickback laws, and fee-splitting laws will also be necessary. In addition, federal and state antitrust laws could be implicated by ACOs and the Shared Savings Program.

It should be noted that the Act gives the Secretary of Health and Human Services (the Secretary) the authority to waive those requirements of sections 1128A and 1128B, and title XVIII of the Social Security Act (which includes the Stark physician self-referral law, the federal anti-kickback statute, and civil monetary penalties law and other laws applicable to the Medicare program) as the Secretary determines may be necessary to carry out the Shared Savings Program. If the Secretary acts on this authority, new organizational structures or arrangements that might not have otherwise been available under existing laws could be introduced.

On Oct. 5, 2010, the Department of Health and Human Services, CMS, the Office of Inspector General and the Federal Trade Commission conducted a workshop regarding ACOs and implications of Stark physician self-referral law, the federal anti-kickback statute, civil monetary penalties law, and federal antitrust law. Although no definitive guidance was finalized as a part of this workshop, it provided a great deal of insight on how various stakeholders view the implications of these laws for future development of ACOs.

With respect to Stark physician self-referral law, the federal anti-kickback statute, and civil monetary penalties law, there was general discussion in the workshop of how a possible waiver could be applied by the Secretary. Many stakeholders favored a waiver that would be applied uniformly for all types of ACOs without prescribing any specific characteristics for an ACO to qualify for the waiver, so as to create a level playing field and to not create any chilling effect on innovation. Regulators included in the workshop mentioned the possibility that a series of different safe harbors or exceptions that address specific areas of concern or certain activities could be developed without the need of acting on the waiver authority, but no further discussion of the components of any such safe harbors or exceptions was provided.

With respect to federal antitrust law, stakeholders discussed the availability of existing guidance on financial integration and clinical integration for ACOs, including such matters as whether shared savings across otherwise competing healthcare providers creates sufficient financial integration. Stakeholders also discussed the possibility of creating an antitrust safety zone for ACOs that would outline behavior that would not be challenged as a violation of federal antitrust laws similar to that provided for other physician network joint ventures.

Further comment and guidance is expected from the Department of Health and Human Services, CMS, the Office of Inspector General and the Federal Trade Commission on these and other questions regarding the acceptable legal structures of ACOs and the implications of Stark physician self-referral law, the federal anti-kickback statute, civil monetary penalties law, and federal antitrust law for ACOs.

2. What is the possible amount of shared savings that could be achieved by an ACO in proportion to the Medicare per capita expense?

Shared savings payments are based off of the Medicare per capita expense for the population assigned to the ACO. The Act allows CMS to establish a limit of shared savings that could be paid to an ACO. Understanding what these limits might be in terms of a portion of the Medicare per capita expense is a fundamental concern for any current or prospective ACO considering participation in the Shared Savings Program.

This information will be necessary to assess the cost and benefits of developing an ACO or restructuring an existing ACO to participate in the Shared Savings Program. Physicians, hospitals, and other suppliers and providers considering developing an ACO can expect that a significant initial capital investment will be required to implement the legal structure and administrative and technology platform needed to operate a successful ACO.

Another factor to consider is that ACOs could experience an offset in revenues resulting from decreased utilization of healthcare services, such as diagnostic tests and hospital admissions, from pre-ACO levels. Given the legal, administrative, and clinical challenges involved, the costs of developing an ACO could be significant and without having a sound understanding of the potential additional revenues that could be achieved, it would be difficult to predict the return on investment, at least in terms of achieving shared savings.

3. What quality improvement and performance indicators and metrics will be included?

The Act gives the Secretary the authority to determine appropriate measures to assess the quality of care furnished by the ACO, such as measures of clinical processes and outcomes, patient experience, and utilization. This raises questions not only about the types of measures that will be included and the metrics used to evaluate those measures, but also about how quality improvement and performance indicators will be reported. In the Oct. 5, 2010, workshop discussed above, a number of stakeholders expressed the need for uniformity of measures within the Shared Savings Program and across various third-party payors with similar incentive payment programs involving ACOs. Another question that arises is how the baseline for measurement will be established. There could be significant disparity in baselines for certain measures across different markets relating to geographic variations in practice patterns and other factors.

4. Are ACOs compensated for use of enabling technologies?

Under the Act, ACOs are to promote evidence-based medicine and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies. Unless ACOs are separately paid for the significant costs of developing and providing these technologies, they will be placed at risk for any return on their investment through the Shared Savings Program. On the other hand, ACOs may determine that there are other more compelling reasons to adopt enabling technologies, such as reduced admissions, improved outcomes on pay-for-performance measures, and overall improvements in quality of care across which to spread the costs for purposes of assessing the return on investment.

5. How will ACOs impact relationships with Medicare beneficiaries?

Coordination of care for Medicare beneficiaries in ACOs will often require recommending to beneficiaries a course of diagnosis or treatment based on evidence-based guidelines that may be perceived by the beneficiary as a lower standard of care. In the recent past, the role of coordinator of care has been more actively engaged in by Medicare contractors, and in the private sector, managed care plans with significant backlash. Under the Shared Savings Program, this role will be assumed by ACOs. This could impact the dynamics of relationships between caregivers and beneficiaries, and create additional challenges for ACOs.

These are just a few examples of the numerous unanswered questions about ACOs and the Shared Savings Program. It will be necessary to continue to identify and ask questions, and seek additional guidance from CMS and other regulators regarding the implementation of the Shared Savings Program and other similar initiatives to be sure that organizations are fully informed of the potential costs, benefits, and risks involved in pursuing, or choosing not to pursue, a particular course of action in the frenzy of activity around the issue of healthcare reform and the promise of ACOs. If you would like to discuss the development of ACOs, specifics about the Shared Savings Program, or any other matter involved in healthcare reform, please contact one of the authors or another member of McGuireWoods’ Healthcare Department.

Visit the Healthcare Reform section for additional updates and resources.

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