Accountable Care Organizations: Keys to Legal Structure and Governance

April 13, 2011

On March 31, 2011, the Centers for Medicare and Medicaid Services (CMS), proposed new rules under the Affordable Care Act to help doctors, hospitals, and other healthcare providers better coordinate care for Medicare patients through Accountable Care Organizations (ACOs). These rules provide proposed requirements and recommendations as to how an ACO must be structured and governed in order to participate in the Medicare Shared Savings Program. The proposed rules will be subject to a 60-day public comment period during which providers, suppliers, and Medicare beneficiaries are encouraged to submit comments for CMS to consider as it develops final regulations on the program.

  1. Eligible Entities
    Under the proposed rule, an ACO may include the following types of groups of providers and suppliers of Medicare-covered services: (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 ventures arrangements between hospitals and ACO professionals; (4) Hospitals employing ACO professionals; and (5) critical access hospitals. In addition, the Secretary of Health and Human Services (the Secretary) may, by rule, further expand the eligibility to participate to include additional Medicare enrolled entities such as federally qualified health centers (FQHCs) and rural health clinics (RHCs). In the interim, CMS has proposed to provide an incentive for ACOs to include RHCs and FQHCs by allowing ACOS that include such entities to receive a higher percentage of any shared savings.
  2. 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.
  3. Governance
    The statute also requires each ACO to establish a governing body representing ACO providers of services, suppliers, and Medicare beneficiaries. The proposed rule requires that the ACO’s governing body be comprised of the ACO participants or their designated representatives, and must include Medicare beneficiaries served by the ACO. In addition, the ACO participants must have at least 75% control of the governing body (the remainder may be controlled by entrepreneurial management companies, health plans or other stakeholders who may participate in the ACO) and each participant must be represented on the governing body. The governing body must possess broad responsibility for the ACO’s administrative, fiduciary and clinical operations. If an ACO is already comprised of a self-contained financially and clinically integrated entity that has a pre-existing board of directors or other governing body, the ACO need not form a separate governing body.
  4. Leadership and Management Structure
    The ACO must have a leadership and management structure that includes clinical and administrative systems. To meet this requirement, the ACO must meet the following criteria:
    • The ACO’s operations must be managed by an executive, officer, manager, or general partner, whose appointment and removal are under 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.
    • Clinical management and oversight must be managed by a senior-level medical director who is a board-certified physician, licensed in the state in which the ACO operates, and physically present in that state.
    • ACO participants and ACO providers/suppliers must have a meaningful financial or human investment commitment to the ACO’s clinical integration program to ensure its likely success.
    • The ACO must have a physician-directed quality assurance and process improvement committee that would oversee an ongoing quality assurance and improvement program.
    • The ACO must develop and implement evidence-based medical practice or clinical guidelines and processes for delivering care consistent with the goals of better care for individuals, better health for populations and lower growth in expenditures.
    • The ACO must have an infrastructure, such as information technology, that enables the ACO to collect and evaluate data and provide feedback to the ACO providers/suppliers across the entire organization.
    • The ACO must have a compliance plan in place that addresses how the ACO will comply with all applicable requirements.
  5. Shared Savings Program Application
    To participate in the Shared Savings Program, the proposed rule would require an ACO to complete an application providing the information requested by CMS, including how the ACO plans to deliver high quality care at lower costs for the beneficiaries it serves and documentation which supports the organizational and governance requirements set forth above. As proposed, the ACO must agree to accept responsibility for at least 5,000 beneficiaries. If the application is approved, the ACO must sign an agreement with CMS to participate in the Shared Savings Program for a period of three years. The proposed rule outlines a monitoring and reporting plan that includes analyzing claims and specific financial and quality data, producing quarterly and annual aggregated reports, performing site visits, and conducting beneficiary surveys. An executive who has the ability to legally bind the ACO must certify as to the accuracy, completeness and truthfulness of the information contained in the Shared Savings Program application, 3-year agreement and submissions of quality data and other information.