ACO Final Rule: More Flexibility for Structure and Governance

December 13, 2011

In the final Shared Savings Program regulations released by Centers for Medicare and Medicaid Services (CMS) on Oct. 20, 2011, (the “Final Rule”),  CMS reconsidered many of its core positions set forth in the proposed regulations issued March 2011, with the goal of reducing burdens and costs for participating in the Medicare Shared Savings Program (MSSP). Below we focus on these changes as they relate to another key piece: Who must govern Accountable Care Organizations (ACOs), and how must they be structured?

ACO Governance

Generally, CMS retained many of its proposed limitations on how an ACO may structure its governing body, though the changes made in the Final Rule do create added flexibility for a participating ACO. Specifically:

  1. CMS has eliminated the requirement that each ACO participant be a member of the governing body, recognizing that this could become unwieldy and cause ineffectiveness. Rather, CMS is requiring that ACO participants or their designated representatives have a meaningful participation in the composition and control of the governing body.
  2. CMS retained the requirement that at least 75 percent control of the ACO’s governing body must be held by the ACO participants and the requirement that at least one beneficiary serve on the governing body. However, the Final Rule does allow an ACO that doesn’t meet the board composition requirements to describe in its application how the proposed structure of its governing body would involve the ACO participants in innovative ways in ACO governance and provide a meaningful opportunity for beneficiaries to participate in the governance of the ACO. It is not clear when CMS will use its discretion to waive the board composition requirements.
  3. CMS finalized the requirement that the ACO’s operations be managed by an executive, officer, manager or other general partner, whose appointment and removal are under the control of the organization’s governing body and whose leadership team has demonstrated the ability to influence or direct clinical practice to improve efficiency, processes and outcomes. Also, clinical management and oversight must be managed by a senior-level medical director who is one of the ACO’s physicians.

ACO Structure

As with the governance requirements, CMS retained many of its proposed regulations on limitations on how an ACO may be structured and who may participate, with minor clarifications. Specifically:

  1. Legal Structure. To participate in the Shared Savings Program, providers must form or join an ACO and apply to CMS. An ACO must have a formal legal structure that would allow the organization to receive and distribute payments for shared savings to participating providers of services and supplies. The ACO’s legal entity may be structured in a variety of ways, including as a corporation, partnership, limited liability company, foundation or other entity permitted by state law. Regardless of the structure, each ACO must be appropriately recognized and authorized to conduct business under the laws of the states in which it does business, have its own taxpayer identification number and be capable of (1) receiving and distributing shared savings; (2) repaying shared losses; (3) establishing, reporting and ensuring ACO participant and ACO provider/supplier compliance with program requirements, including quality performance standards; and (4) performing other ACO functions identified in the statute. An existing legal entity that meets the eligibility requirements to be an ACO need not form a separate entity to participate in the Shared Savings Program. The Final Rule clarified that an ACO formed among multiple ACO participants must provide evidence in its application that it is a legal entity separate from any of its ACO participants.
  1. Eligible ACO Participants. The Final Rule states that an ACO may include the following types of groups of providers and suppliers of Medicare-covered services, each of which are authorized by statute: (1) ACO professionals (i.e., physicians and hospitals meeting the statutory definition) in group practice arrangements; (2) networks of individual practices of ACO professionals; (3) partnerships or joint venture arrangements between hospitals and ACO professionals; and (4) hospitals employing ACO professionals. Critical-access hospitals billing under method II, federally qualified health centers (FQHCs) and rural health clinics (RHCs) may also form independent ACOs if they meet the eligibility requirements specified in the Final Rule. Furthermore, any other Medicare-enrolled entities may be ACO participants, provided they join an ACO containing one or more of the specified organizations. ACO participants upon which beneficiary assignment is not dependent are not required to be exclusive to a single Medicare Shared Savings Program ACO.

Although the changes included in the Final Rule provide additional flexibility, CMS has by-and-large retained the requirements for ACO governance and legal structure included in the proposed regulations. It remains to be seen whether these and other changes will be sufficient to encourage more providers to participate in the MSSP in the near future or longer term.