Publication

Accountable Care Organizations Requirements: ACO Final Rule Summary

Strategic Management Services, LLC | April 2012

The Centers for Medicare & Medicaid Services (CMS) released the final rule for Accountable Care Organizations (ACOs) and the Medicare Shared Savings Program (Shared Savings Program). ACOs, an initiative established under the Affordable Care Act, are networks of providers and suppliers that provide coordinated care to patients. Under the Shared Savings Program, ACOs must demonstrate their ability to meet and maintain the eligibility and participation requirements outlined in the final rule. Generally, these organizations must provide care to at least 5,000 beneficiaries, report on quality of care measures, and work to improve health care while reducing costs to the Medicare program. ACOs that meet the program requirements will receive a share of Medicare savings. This brief provides an overview of the ACO eligibility and participation requirements. Further, this brief weighs the costs and benefits of forming and operating an ACO under the Shared Savings Program.

Introduction: Final Rules for Accountable Care Organization

In 2010, with the passage of the Patient Protection and Affordable Care Act (PPACA), the Department of Health and Human Services (HHS) introduced a new concept for health care delivery—Accountable Care Organizations (ACOs). The PPACA required that the Medicare Shared Savings Program (Savings Program) be established to encourage the development of ACOs among a variety of providers who could serve large populations of Medicare beneficiaries. Accordingly, in April 2011, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule for the Savings Program and ACOs’ participation in the program. CMS proposed a three-part aim for ACOs: (1) improve patient care; (2) improve health among various populations; and (3) reduce the cost of care to Medicare Parts A and B.

The proposed rule sets out eligibility and participation requirements for organizations to form ACOs and quality measures to track ACO’s progress in improving health care delivery at reduced costs. According to overwhelming comments, the proposed rule proved to make participation in the Savings Program overly burdensome and complex. CMS later published a final rule in October 2011 that incorporated the comments to the proposed rule and eased the burden placed on participating ACOs. The final rule simplified the quality measures by which ACO performance would be assessed to determine their shared savings. CMS also offered ACOs more flexibility in choosing when their participation terms would begin. Ultimately, ACOs will serve as a practical model of value-based purchasing, which CMS hopes will replace the current Medicare payment system by paying providers according to the quality of care they provide to their patients.

This brief will offer an overview of the final rule for ACOs and the Savings Program. Specifically, it will discuss the eligibility requirements for participation in the Savings Program, the standards for operating ACOs, and the benefits and drawbacks that ACOs are likely to incur from their participation in the program.

ACO Eligibility Requirements

ACOs must meet a number of eligibility requirements to be considered for the Savings Program. The final rule requires ACOs to demonstrate their eligibility in a detailed application. CMS will then approve the ACOs that successfully meet those eligibility requirements at the close of the application period. According to the final rule, ACOs must maintain their eligibility throughout their participation in the Savings Program, or they may face termination from the program. The ACO eligibility requirements for the Savings Program are listed in Tables 1, 2, and 3 below:[1]

Table 1: General Eligibility Requirements

General Eligibility Requirement	Description of Eligibility RequirementACOs must:
Participation Agreement	Enter a three-year participation agreement.Agree to carry out all ACO contracts or arrangements in compliance with the obligations under the participation agreement.
General Eligibility Requirement	Description of Eligibility RequirementACOs must:
Beneficiary Threshold	Be able to provide care to a minimum of 5,000 beneficiaries to be eligible for shared savings.Employ necessary amount of primary care professionals.Implement a corrective action plan if the ACO falls below the threshold. Note: CMS may terminate ACOs that fail to meet the beneficiary threshold for more than one year.
ACO Professionals	Supply CMS with the tax identification numbers (TINs) of all ACO participants and the National Provider Identifier (NPI) data associated with the organization’s providers and suppliers on an annual basis.

Table 2: Management Eligibility Requirements

Management Eligibility Requirement	Description of Eligibility Requirement
ACO Management	ACO governing body must appoint an executive, officer, manager, or general partner to manage the ACO’s operations.The appointee will lead the clinical practice, promote efficiency, and improve health outcomes.ACOs must employ an on-site senior-level medical director, who is an ACO physician, to perform clinical management and oversight.ACOs must provide information on its management structure in compliance with the final rule, or a detailed description of an innovation management structure.
Formal Legal Structure	ACOs must develop a formal legal structure capable of receiving and distributing payments for shared savings to its participants.The legal structure should also have a process for shared governance to oversee the ACO as a single entity.

Table 3: Quality of Care Requirements

Quality of Care Eligibility Requirement	Description of Eligibility RequirementACOs must:
Accountability for Overall Care	Certify that ACO participants report on quality, costs, and overall care delivered to beneficiaries.Provide certification to CMS along with the ACO application.
Coordination of Care	Implement a plan to coordinate care across its primary care physicians, specialists, and acute and post-acute care providers and suppliers.Consider the integration of care among different providers over a patient’s entire episode of care.
Patient Engagement	Provide CMS with detailed plans to:Determine the health needs of the ACO patient population;Educate beneficiaries of their medical conditions in an easy-to-understand format;Promote patient engagement;Establish written guidelines to ensure open communication with the beneficiaries.Create and distribute an experience-of-care survey to patients and use the results to improve patient care.
Evidence-based Care	Describe its plans to promote evidence-based medicine.Establish guidelines requiring ACO professionals to apply the latest scientific findings to their medical care.Establish guidelines to address diagnoses that most affect the ACO’s particular patient population and its plans to address the populations’ medical needs.
Quality and Cost Reporting	Discuss its process to report its quality and cost measures to CMS.Demonstrate its ability to monitor quality and cost internally and use its findings to make the necessary improvements

ACO Participation Requirements

The final rule establishes participation requirements which cover various ACO activities including marketing, distributing shared savings, and qualifying for waivers of health care fraud laws. ACOs must first determine their start dates for their participation agreements with CMS, after which CMS will assign beneficiaries to each ACO. When an ACO begins to operate, the organization must report quality of care measures to CMS, which will be used to determine the ACO’s shared savings. ACOs also must qualify for several waivers to avoid conflicts with Stark Law, the Anti-kickback Statute, and the Civil Monetary Penalties Law. In addition, ACOs must take steps to avoid antitrust risks and preserve market competition. The participation requirements for ACOs in the Savings Program are summarized below.

Participation Timeline

ACOs have some flexibility in establishing their start date for participation in the Savings Program during fiscal year (FY) 2012. ACOs may choose to begin participation on April 1, 2012, which would create an initial performance year of 21 months. Alternatively, ACOs may choose to begin on July 1, 2012, creating an 18-month performance year for the first year. Depending on the start date, ACOs’ participation terms are as follows:

Table 2: ACO Participation Schedule

Start Date	First Performance Year	End Date
April 1, 2012	April 1, 2012 – December 31, 2013	December 31, 2015
July 1, 2012	July 1, 2012 – December 31, 2013	December 31, 2015

Beneficiary Assignment

According to the final rule, CMS will assign Medicare fee-for-service beneficiaries to ACOs through “preliminary prospective assignment.”^[2] Unlike the proposed rule which called for retroactive assignment, the final rule requires CMS to provide ACOs with a list of beneficiaries assigned to that ACO at the beginning of each performance year. ACOs will have an opportunity to review the beneficiary list and establish their plans of coordinated care accordingly.

CMS will assign beneficiaries to ACOs based on the primary care services beneficiaries receive from ACO physicians. Only those beneficiaries who receive a majority of their primary care services from an ACO physician will be assigned to that particular ACO. Beneficiary assignments to an ACO are not permanent. Beneficiaries will maintain their rights to freely change their physicians regardless of whether those physicians participate in an ACO. CMS will update these assignments annually based on the beneficiary’s primary care provider.

The final rule requires ACOs to provide beneficiaries with a written notice of their assignments, informing them that their providers are eligible for increased Medicare payments for their efforts to improve the quality and coordination of care. ACOs must also inform beneficiaries that their claims data may be shared among the ACO participants, and that beneficiaries have the right to opt out of this data sharing process. In addition, ACO participants must display signs at their facilities to notify beneficiaries of their participation in an ACO.

ACO Marketing

CMS recognized the need for specific marketing guidelines for ACO participants because of the potential for beneficiaries to confuse ACOs with managed care organizations, and believe that they must obtain all health care services from the ACO. Thus, ACOs must use marketing materials and activities only when necessary for the ACO’s operations. Examples of appropriate marketing activities include mailings, marketing events, or social media to provide beneficiaries with information related to the Savings Program. ACOs must obtain approval from CMS before distributing any marketing materials or conducting marketing activities. CMS maintains the discretion to require ACOs to implement corrective action plans or terminate an ACO from the Savings Program for failure to comply with the marketing requirements.

ACO Quality Reporting Process

ACOs are required to report certain quality measures to CMS during the performance period to determine the ACO’s shared savings or losses. CMS developed 33 quality of care measures which will be used to score ACO performance across four categories: Patient Experience, Care Coordination, Preventive Health, and At-risk Population.[3] ACOs will be eligible for shared savings if they meet or exceed the performance criteria in the quality of care measures. These measures include but are not limited to:

Timely care, appointments, and information to patients (Patient Experience);
Effective communication among physicians (Patient Experience);
Screens for fall risks (Care Coordination);
Medication reconciliation after a patient is discharged from an inpatient facility (Care Coordination);
Influenza immunizations (Preventive Health);
Weight screening and follow-up (Preventive Health);
Blood pressure control (At Risk Population); and
Heart failure therapy (At Risk Population).

CMS aligned some of the quality of care measures with existing quality programs and initiatives, which providers already track and report. One such reporting initiative is the Physician Quality Reporting System in which qualifying physicians already participate and report their quality measures to CMS for an incentive payment. CMS plans to revise the quality of care measures as needed to reduce the administrative burden on ACOs. Additionally, the use of electronic health records (EHRs) has been established as a quality of care measure under the final rule, rather than a requirement as CMS initially proposed. CMS will give more weight to the EHR quality measure than other measures during the first participation year. By the second year however, ACO physicians will be required to be meaningful users of EHR.

Shared Savings Distribution

ACOs may elect to participate in the Savings Program through one of two models: a one-sided risk model (sharing in savings only) or a two-sided risk model (sharing savings and losses). CMS will create a Minimum Savings Rate (MSR) and a Minimum Loss Rate (MLR) to judge normal variations in ACOs’ health care spending. Under the one-sided risk model, an ACO’s annual savings must meet or exceed the MSR to qualify for shared savings each year. ACOs will receive payments of shared savings and they will not be held accountable for any losses they generate for the first performance term. ACOs that select the one-sided risk model will be eligible for a sharing rate of up to 50 percent.

ACOs under the two-sided risk model will share savings and be held accountable for annual losses. The ACO will be required to repay shared losses to CMS if its annual expenditures meet or exceed the MLR rate. CMS has offered an incentive to ACOs that opt for the two-sided model by offering these organizations a maximum sharing rate of 60 percent. ACOs’ loss sharing will also be capped at 60 percent during their first year in the Savings Program.

CMS will distribute shared savings to ACOs based on their ability to comply with the quality of care measures. An ACO will be eligible to receive shared savings if its per-capita Medicare spending falls below the MSR. Subsequently, CMS will distribute the appropriate payments of shared savings directly to the ACO according to the organization’s level of performance. CMS will not control how savings are distributed among ACO participants. Instead, ACOs must employ an equitable method for distributing savings to its participants that will further the organization’s goals.

Waivers of Health Care Fraud Laws

The plan for shared savings among ACO participants, providers, and suppliers will come in conflict with the Physician Self-Referral Law (Stark Law), the Anti-Kickback Statute and the Civil Monetary Penalty (CMP) Law (collectively referred to as “health care fraud laws”). As such, CMS and HHS Office of Inspector General (OIG) jointly issued an interim final rule outlining the health care fraud waivers available to ACOs. The interim rule establishes five waivers for ACOs that cover a variety of ACO activities during formation, participation, and the distribution of shared savings among ACO participants. A description of each waiver is provided below.

Pre-Participation Waiver: This waives certain provisions of health care fraud laws that conflict with any ACO arrangements entered into during the organization’s start-up process. This waiver can be applied only if the ACO’s arrangements are made in good faith in preparation for its participation in the Savings Program. The waiver would apply to the ACO during the year before its participation term and would end on the first day of the ACO’s participation agreement with CMS.
Participation Waiver: Arrangements made during an ACO’s participation term will fall under this waiver. Qualifying ACOs must be in compliance with CMS’ eligibility requirements and the governing body must determine that all ACO arrangements are reasonably related to the organization’s participation in the Savings Program. The participation waiver would apply to an ACO from its participation start date until six months after the participation term expires. If an ACO voluntarily terminates its participation agreement or CMS terminates the agreement, the participation waiver would expire on the date of the termination notice.
Shared Savings Distribution Waiver: This waives provisions of the health care fraud laws as they relate to an ACO’s distributions of its shared savings. To obtain this waiver, the ACO must be in good standing with its participation agreement and it must distribute the shared savings to the ACO’s participants. However, any distributions of savings from a hospital to a physician may not be distributed to induce the physician to limit medically necessary items or services to patients.
Stark Law Waiver: ACOs can also obtain a waiver of the Stark Law as it relates to the financial relationships between the ACO and its participants that would normally violate the Stark Law. For example, the ACO model creates a financial interest between physicians and the ACO through compensation arrangements or the physicians’ potential ownership interest in the organization. The physicians must refer services to the ACO to provide care to the assigned beneficiaries. These referrals violate Stark Law because the physicians have a financial interest in the ACO that is not covered by a Stark Law safe harbor. To avoid this conflict, Stark Law provisions will be waived for ACO transactions among ACO participants, providers and suppliers. ACOs must be in good standing under their participation agreements and the financial relationship in question must reasonably relate to its participation in the Savings Program. Further, the financial relationship must meet an exception to Stark Law.
Patient Incentive Waiver: ACOs may provide beneficiaries with items or services at no charge or at below fair-market value with the patient incentive waiver. CMS will waive provisions of the health care fraud laws that conflict with patient incentives offered by ACOs. The items or services furnished to the ACO’s beneficiaries must be related to their medical care. This waiver applies to an ACO from the start date of its participation agreement and ends upon the expiration or termination of the participation agreement. CMS intends to limit legal restraints on ACOs’ ability to coordinate patient care among various providers and suppliers, which is essential to the success of the Savings Program.

Antitrust Policy

A major obstacle in developing the final rule was ensuring that the ACO model would not interfere with competition in the health care industry. As ACOs can develop into vast organizations that deliver care to a substantial amount of beneficiaries, maintaining industry competition is vital to driving down the costs of health care and improving the quality of care.

The Federal Trade Commission (FTC) and Department of Justice (DOJ) issued an Antitrust Policy Statement that would apply to all entities approved to participate in the Savings Program.[4] To enforce the antitrust policy, CMS will supply the FTC and DOJ with ACOs’ claims data allowing the agencies to monitor competition among the organizations.

The Antitrust Policy Statement establishes an “antitrust safety zone” for ACOs participating in the Savings Program that are less likely to violate antitrust laws. An ACO within the safety zone will have independent participants who have no more than a 30 percent share in a primary service area (PSA).^[5] Enforcement action will not be taken against ACOs within the safety zone, unless the agencies determine otherwise. The FTC and DOJ recommend that each independent participant including solo physician practices, integrated physician group practices, and inpatient or outpatient facilities have separate PSAs for inpatient, outpatient, and physician services.

Newly-formed ACOs may seek voluntary antitrust guidance from the FTC or DOJ to address their concerns about potential antitrust violations. Upon request by an ACO, either the FTC or DOJ will conduct an expedited 90-day review of the ACO’s financial arrangements. The ACO must submit all information concerning its financial arrangements between the ACO and its participants, along with the ACOs bylaws and policies.

The FTC and DOJ’s Policy Statement also discusses certain behaviors that would raise antitrust concerns:

Improper sharing of competitively sensitive information that might lead to price-fixing and other anti-competitive practices.
Discouraging private payers from directing patients to use certain providers.
Tying sales of ACO services to private payers’ purchases of services outside the ACO.
Entering into exclusive contracts with ACO providers to prevent them from contracting with private payers.
Limiting the ability of private payers to disseminate health plan information to enrollees to prevent them from selecting providers from the health plan.

Preparing for the Savings Program

Organizations considering participation in the Savings Program must first weigh the potential benefits against the costs of forming an ACO and meeting CMS requirements during the participation term. The Savings Program presents an opportunity for ACOs to be at the forefront of a new health care delivery system that compensates providers according to the quality of care they deliver. On the other hand, ACOs will likely incur a high amount of start-up costs to meet eligibility and quality reporting requirements. CMS will offer financial assistance to rural or physician-owned providers through the Advance Payment Model, but this assistance is not available for most providers. Thus, all providers should examine the costs of forming ACOs and determine whether they are adequately prepared to deliver the high quality care necessary to receive shared savings. Below, Chart 1 compares the benefits and challenges of forming an ACO, which providers and suppliers should consider before they apply to CMS.

Chart 1: Benefits and Challenges of ACO Formation

Participation Benefits

Participation Challenges

Improving coordination of services during a patient’s entire episode of care.Providing care to a larger pool of beneficiaries.Combining resources with other providers and suppliers.Generating Medicare savings and sharing in those savings.Improving information flow between providers and patients.Qualifying for waivers of Stark, CMP, and Anti Kick-back laws to make collaboration between ACO participants possible.

Generating sufficient start-up costs to form the ACO.Establishing a central governing body to oversee ACO operations.Employing adequate personnel to allow the ACO to operate seamlessly.Implementing systems for tracking and reporting new quality of care measures.Complying with all eligibility and participation requirements during the participation term.Meeting criteria for quality of care measures to receive shared savings.Repaying losses to CMS under the two-sided risk model (where applicable).

Conclusion

CMS has made an effort to address the concerns of providers and suppliers throughout the health care industry with its final rule for ACOs and the Savings Program. Compared to the proposed rule issued earlier in 2011, the final rule offers future ACO participants greater flexibility in their participation and makes compliance with the quality of care measures more feasible and less burdensome. ACOs now have a better sense of their ability to participate in the Savings Program and to work towards achieving a low-cost, high quality health care delivery system.

The ACO final rule is available at: https://www.federalregister.gov/articles/2011/11/02/2011-27461/medicare-program-medicare-shared-savings-program-accountable-care-organizations

Resources

Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations; Final Rule, 76 Fed. Reg. 212, 67802, 67806-35 (Nov. 2, 2011).
Medicare Program; Final Waivers in Connection With the Shared Savings Program, Interim Final Rule, 76 Fed. Reg. 212, 67992, 67994 (Nov. 2, 2011).
Federal Trade Commission and Antitrust Division of the Department of Justice. “Statement of Antitrust Enforcement Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.” Final Policy Statement. 20 Oct. 2011.
Centers for Medicare & Medicaid Services. “Summary of Final Rule Provisions for Accountable Care Organizations under the Medicare Shared Savings Program.” Fact Sheet. October 2011.

[1] Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations, 76 Fed. Reg. 212, 67802, 67806-67835 (Oct. 20, 2011).

[2] Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations, 76 Fed. Reg. 212, 67802, 67839 (Oct. 20, 2011).

[3] For a full list of the 33 quality of care measures, see Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations, 76 Fed. Reg. 212, 67802, 67870 (Oct. 20, 2011).

[4] Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program, 76 Fed. Reg. 209, 67026, 67026 (Oct. 28, 2011).

[5] A PSA is the “lowest number of postal zip codes from which the ACO participant draws at least 75 percent of its patients, separately for all physician, inpatient, or outpatient services.” Id. at 67028.