ACO’s – Accountable Care Organizations


Accountable Care Organizations (“ACOs”) were added as part of Section 3022 of the Patient Protection and Affordable Care Act (“ACA”). An ACO refers to a group of physicians and other healthcare providers and suppliers of medical services that work together and are accountable to and report to the Center for Medicare Services (“CMS”) the quality and cost and overall care of Medicare Fee for Service beneficiaries assigned to the ACO. The ACA established the Medicare Shared Savings Programs for ACOs. The objective of the creation of ACO’s was to reduce healthcare costs by allowing the ACO to retain a portion of the savings of projected health care costs while at the same time preserving and improving the quality of patient care in a manner known as “patient centered care” using “evidence based medicine”.

The cost containment measures focus on the primary care professionals (defined as family physicians, internists, geriatric physicians, pediatricians and the nurse practitioners, physician assistants and clinical nurse specialists who work with them) of the ACO under the belief that costs may be held down if patients receive care early before the need for more costly treatment. The underlying rationale is that the primary care physician may have the best opportunity to reduce unnecessary costs by ensuring care coordination for beneficiaries with multiple chronic conditions. The theory is that by coordinating with specialists to whom the beneficiary has been referred, primary care providers can reduce unnecessary repetition of laboratory testing or imaging. By ensuring timely access to the outpatient services, primary care providers can also reduce the number of avoidable admissions.

If the ACO pays less overall for the patients assigned to the ACO relative to a benchmark established by CMS, the ACO will receive a percentage of the savings. If the patient care costs more, the ACO may be responsible for a portion of the losses. ACO’s do not do away with the traditional fee for service model but provide incentives to those organizations that can achieve cost savings while maintaining quality of care. The ACO must agree to participate for a minimum three-year term although the ACO can drop out if regulatory standards are adopted during the term of their agreement that the ACO believes will impact its ability to remain in the shared savings program. It can also be expelled from the program for failing to abide by the rules or due to consistently failing results.

Assignment of Beneficiaries

The focus on primary care physicians means that an ACO must consist of a number of primary care physicians sufficient to treat the number of Medicare beneficiaries assigned to the ACO. The ACO must have a minimum of 5,000 Medicare patients. Medicare beneficiary assignment to an ACO is a function of the utilization of primary care services. Initially, CMS proposed retrospective assignment to the ACO at the end of a performance period, however in its Final Rules this was changed to primarily a prospective assignment with a retrospective conciliation. The justification was that prior patient knowledge that the ACO would be responsible for would be crucial to its ability to effectively coordinate care and implement a care management program.

This means that beneficiaries will preliminarily be assigned to an ACO at the beginning of a performance year based on the beneficiaries’ most recent historical utilization data and updated quarterly based on the most recent 12 month utilization data and finalized after the end of each performance year based on data from that year. In assigning beneficiaries to the ACO, CMS employs a two-step approach.

First, a beneficiary can be assigned to an ACO only if he or she has received at least one primary care service from a primary care physician who is an ACO provider or supplier during the most recent year (for purposes of preliminary prospective assignment), or the performance year (for purposes of final retrospective assignment). If this condition is met, the beneficiary will be assigned to the ACO if the allowed charges for primary care services furnished by primary care physicians who are providers or suppliers of that ACO are greater than the allowed charges for primary care services furnished by primary care physicians who are providers or suppliers of other ACOs, and greater than the allowed charges for primary care services provided by primary care physicians who are unaffiliated with any ACO.

A beneficiary who has not received any primary care services from a primary care physician either inside or outside the ACO will be assigned to an ACO only if he or she has received at least one primary care service from any physician (regardless of specialty) in the ACO during the most recent year (for purposes of preliminary prospective assignment), or the performance year (for purposes of final retrospective assignment). If this condition is met, the beneficiary will be assigned to an ACO if the allowed charges for primary care services furnished by ACO professionals who are ACO providers or suppliers of that ACO (including specialist physicians, NP, PA, or Clinical Nurse Specialist), are greater than the allowed charges for primary care services furnished by ACO professionals who are ACO providers or suppliers of another ACO, and greater than the allowed charges for primary care services furnished by any other physician, NP, PA, or CNS.

What this meant with regard to the knowledge of the ACO as to which beneficiaries for whom it is responsible is this. CMS will preliminarily assign beneficiaries to an ACO prospectively. The ACO will be notified about these patients' identities at the beginning of the performance year. This list will let the ACO know which patients are likely to be assigned to it. CMS will update this list quarterly. At the end of the year, CMS will perform reconciliation, determine which patients meet the criteria for assignment, and officially assign that population to the ACO. This means that the ACO will have a good idea at the beginning of the performance year of its patient census, but the final assignment and the actual patients for whom the ACO will be held accountable—will be determined at the end of the performance year.

Medicare patients must be notified that they are being enrolled in an ACO and have the right to refuse to allow their claims data being shared within the ACO. ACO participants (Medicare providers and suppliers) must post signs in their facilities indicating their participation in the Shared Savings Program and make available CMS printed notices for Medicare patients. Advanced notification is not required. There is no enrollment of beneficiaries, but beneficiaries do not have the right to opt out of the ACO assignment since assignment is solely to determine the population that the ACO is serving and whether it has achieved savings. Importantly, under the Medicare Shared Savings Program, its beneficiaries may receive healthcare services outside the ACO.

ACO Structures and Requirements

Virtually any medical provider can join an ACO. An ACO professional is defined as a physician, physician assistant, nurse practitioner or clinical nurse specialist. ACOs can be composed of ACO professionals including those in: group medical practices; networks of group practices; partnerships or joint ventures between hospitals and physicians, hospitals employing physicians; Federally Qualified Health Centers and Rural Health Clinics; and anything else that accomplishes the objectives of the ACA.

With respect to providers, a provider may participate in multiple ACO’s if it is able to bill under a different tax identification number for each ACO. Accordingly, the primary care services may be provided by a member of a group practice that is an ACO participant through which beneficiaries are assigned to the ACO. In such instance, the ACO participant's TIN, i.e., the group practice, would be exclusive to the ACO for three years, but the individual physician would be free to participate in additional ACOs by billing under different TINs or even leave the group and join another ACO so long as the physician is practicing elsewhere under a different TIN.

Organizationally, the ACO must have the ability to receive and distribute shared savings. The ACO has a separate tax identification number linked on Medicare records to the ACO participants. An ACO must maintain an identifiable governing body with authority to execute the functions of the ACO. The governing body must have responsibility for oversight and strategic direction of the ACO and hold management accountable; a transparent governing process; governing members have a fiduciary duty to the ACO; maintain a conflicts of interest policy for the ACO and the ACO must provide for meaningful participation in the composition and control of the governing body. An ACO must demonstrate a mechanism of shared governance that provides all ACO participants with appropriate “proportionate control” over the ACO’s decision-making process. At least 75% of an ACO’s governing body must be made up of ACO participants. However, at least one Medicare beneficiary in the ACO must also sit on the governing board. An ACO may request a variance from these requirements.

In addition, an ACO’s management structure must have operations managed by an executive, officer, manager or general partner whose employment is controlled by the governing body; clinical management and oversight must be managed by senior-level medical director who is board-certified; ACO participants must have a meaningful commitment to the ACO’s clinical integration, meaning a significant investment of time or money; and a quality assurance and process improvement committee must oversee an ongoing quality assurance and process improvement program. An ACO may also request the approval of different management structures.

Moreover, ACOs must submit plans that promote evidence-based medicine with a three-part aim to provide better care for individuals, better health for populations and lower growth in expenditures. The plans must show how the ACO will promote beneficiary engagement, including communicating information to beneficiaries, shared decision-making and written standards for beneficiary access and communication; report internally on quality and cost metrics – provide processes and infrastructure for ACO participants to report internally on quality and cost metrics; provide coordinate care among different types of physicians and providers and define its methods to manage care throughout an episode of care and transition.

Savings Measurements and Payments

In order to determine whether an ACO is actually saving money, CMS must first establish a benchmark for the ACO. An ACO's initial benchmark is based on the Parts A and B fee-for-service expenditures of beneficiaries who would have been assigned to the ACO in any of the three years prior to the start of an ACO's agreement period using the ACO participants' TINs identified at the start of the agreement period. CMS will calculate benchmark expenditures by categorizing beneficiaries in the following cost categories: End Stage Renal Disease, disabled, aged/dual eligible Medicare and Medicaid beneficiaries, and aged/non-dual eligible Medicare and Medicaid beneficiaries. CMS will cut an assigned beneficiary's total annual Parts A and B fee-for-service per capita expenditures at the 99th percentile of national Medicare fee-for-service expenditures as determined for each benchmark and performance year so that the highest costs for patients in the top 1% are not included in the calculations. CMS will weigh the most recent year of the benchmark at 60 percent, the second at 30 percent and the oldest at 10 percent; and reset the benchmark at the start of each agreement period. Further, CMS will use a 3-month run-out of claims data and a completion factor to calculate benchmark expenditures.

CMS has provided two options referred to as “tracks” an ACO may choose in seeking payment for savings obtained depending on the extent of the risk and reward sought by the ACO. Track 1 called the one-sided model is entirely risk free for the ACO but the potential rewards are lower as well. This model is offered due to the uncertainty over whether savings can be realized and the start-up costs in joining an ACO. Under the one-sided model, the ACO may retain 50% of the cost savings achieved. An ACO under both tracks must achieve a minimum savings requirement (“MSR”) in order to share in the savings. For ACOs under Track 1, the MSR that must be obtained prior to CMS sharing in any program savings will vary based upon the number of beneficiaries an ACO covers. At the low end, the MSR will be 3.9% (for ACOs with 5,000 beneficiaries and above). At the high end, the MSR will be 2% (for ACOs with 59,999 or more beneficiaries). However, the ACO may keep its portion of the savings from the first dollar saved if the MSR is met and not just for money saved beyond the MSR. All ACOs must participate in the two-sided model in agreement periods subsequent to the initial agreement period.

The two-sided model in Track 2 has a risk component in that the ACO may be liable if the actual treatment costs exceed those of the benchmark. Under the two-sided model, the ACO can keep up to 60% of the savings achieved and as in the one-sided model, the ACO can keep savings from the first dollar if the MSR is met. For ACOs under Track 2, the MSR is 2%. Unlike the one-sided model, however, Track 2 ACOs may be responsible for paying losses on a first dollar basis as well by multiplying the loss amount (above the benchmark) by 1 minus their final sharing (maximum shared rate of 60% adjusted by the quality score). Maximum loss sharing limits are 5%, 7% and 10% of the benchmark for the first three years. Also, Track 2 ACOs must provide a loss repayment to CMS in its application that ensures repayment of potential losses to at least 1% of assigned beneficiaries’ expenditures.

CMS has also set a performance payment limit (the maximum amount of shared savings that can be realized by the ACO in any given performance year) for both Track 1 and Track 2 participating ACOs to 10 percent and 15 percent, respectively. The performance payment limit is set at a percentage of the adjusted benchmark (i.e., the historical per capita Part A and Part B expenditures for beneficiaries that would have been assigned to the ACO).

In order to qualify for cost-savings, an ACO must first meet specified quality and performance standards set forth by CMS. There are 33 measures in four separate domains. The domains are patient/caregiver experience; preventive health; care coordination/patient safety; and at-risk populations. The quality measures are phased in over the course of the agreement. In the first year, ACO’s are paid just for accurately reporting the quality measures with the second and third year being a mix of reporting and performance. All quality data has a 12 month reporting period. Data comes from multiple sources including patient surveys, claims information, Electronic Health Record Incentive Program data and CMS GPRO (Group Practice Reporting Option) web interface.

The amount of shared earnings that will be distributed to the ACO or losses returned to CMS is a function of the ACO’s performance on the quality measures. Points on a scale of 0-2 may be earned on each measure based on national benchmarks and CMS will provide scores for each domain and tally an overall quality score. The ACO must reach a minimum for each measure of 30% of national Medicare performance and must achieve minimum quality performance on at least 70% of the measures in each domain each year. If not, the ACO will be placed on a corrective action and re-evaluated the following year. Further failure to meet performance requirements would result in termination of the ACO’s agreement. Any year that an ACO scores a zero for an entire measure domain, it would not be eligible to share in any generated savings.

ACO’s may also be eligible for a bonus from the Physician Quality Reporting System, (“PQRS”). Since 2007, CMS has paid a bonus to physicians who report quality data. Under current rules, CMS pays physicians ½% of allowed charges from 2012 through 2014. However, doctors in an ACO will only be able to participate in the PQRS through the ACO. The ACO will report as if it were a group practice. If the ACO fails to report in compliance with the PQRS rules, its physicians won’t get the PQRS bonus. An ACO does not need to qualify for shared savings to qualify for the PQRS.

In addition, CMS set up an Advanced Payment Model when providers voiced their concerns about the lack of capital to invest in coordinated care. As a result, CMS designed this program to offer additional support to smaller physician-based and rural providers enrolled in the broader Shared Savings Program with upfront investments so that they can implement the necessary health IT systems and, therefore, reap the benefits sooner. The Model is set up so that the anticipated savings to be obtained by the ACOs are paid in advance up front and on a monthly basis with these payments to be recouped by reducing payments of earned savings to the ACO. Eligibility is limited to ACO’s without inpatient facilities and less than $50 million annually in revenue or where the only inpatient facilities are critical access rural hospitals and/or Medicare rural hospitals. Eligibility for Advance Payments Model applications for the next round for ACO’s to start January 1, 2013 are due by September 19, 2012. However, notices of intent to apply to the Medicare Shared Savings Program were due June 29.

Start Up and Continuing Costs

There may be substantial costs in setting up and maintaining an ACO. A primary start-up cost for those wishing to align with an ACO, particularly for smaller providers or practices concerned the implementation of health information technology. For example, the initial rules contained a requirement that 50% of primary care physicians be meaningful users of Electronic Health Records (“EHR”). This strict requirement was eliminated in the Final Rule but the use of EHR is weighted higher than any other measure for quality scoring purposes. CMS weighs double the use of EHR in the quality measure that represents the percentage of primary care physicians that qualify for the EHR Incentive Program. If an ACO fails to report completely and accurately the EHR measure, the ACO would miss the 70 percent cut-off for the care coordination domain.

Additionally, a system must be set up so that records are accessible between providers in different locations in order to achieve efficiency and savings along with the implementation of a computer system for common practice management. Health Information Exchanges are being established to provide the capability to electronically move clinical information among disparate information systems. The goal of HIE is to facilitate access to and retrieval of clinical data to provide safer and more timely, efficient, effective, and equitable patient-centered care. Clearly the cost varies on the arrangement between the participants.

There are other significant costs in operating an ACO. As noted, CMS requires ACOs use certain management structures. Hiring management and staff to oversee the functioning of the ACO along with legal and consulting costs is costly. Physicians overseeing the ACO presumably would receive additional compensation. Organizations must also develop contracting capabilities with Medicare and risk management. Data has to be analyzed both for patient quality care to track how the ACO performs. An important way that savings have been found is by tracking patients after physician visits to ensure that they comply with proscribed treatment with such work ordinarily handled by registered nurses.

Costs are also associated with the development of different plans for patient care and governance in connection with the application to CMS and with keeping records for care actually given in accordance with the law and in complying with quality requirements such as care coordination and quality improvement. Some ACOs have developed disease registries to track patients with chronic conditions. Costs also will vary depending on whether a hospital is included and whether a hospitalist is employed for emergency care. ACOs would also incur costs in patient education and in the costs of collecting data from patients and in analyzing the data. These are just illustrative of some costs in connection with forming or participating in an ACO.

Fraud Waiver

Finally, CMS and the Office of the Inspector General issued rules establishing fraud and abuse waivers for certain provisions of the federal Stark Law, Anti-Kickback Statute, the federal Civil Monetary Penalty Law (“CMP Law”) related to prohibiting hospital payments to physicians to reduce services and the prohibition of inducements to beneficiaries of federal health care programs such as Medicare and Medicaid. The OIG Rule provides for five waivers for ACO participation: ACO shared savings distributions, a Stark Law waiver, a waiver for ACO activity prior to Shared Savings Program participation in order to accommodate start-up arrangements; and a waiver for incentivizing patients to seek preventative care. Of course, a provider must comply with more detailed rules in order for each of the waivers to apply.