Accountable Care Organizations: A Path to Potential Savings and Quality of Care Improvements

October 1, 2010

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “Act”), commonly known as health care reform. The Act, in part, authorized the Medicare Program to contract with a new type of entity called an “Accountable Care Organization” or “ACO”. The goal of ACOs is to encourage physicians and other providers to work together to improve the quality of care for patients at a reduced cost to government programs such as Medicare and Medicaid (and perhaps in the future, private insurers). Currently, most health care programs pay for care on a fee-for-service basis. As such, a patient may see multiple providers who furnish or order services that were previously furnished by other providers. Central to the ACO model is the assumption that coordinated care among providers will reduce duplicative and unnecessary services, and at times conflicting treatments, without compromising the quality of care. The Basic ACO Structure The Act contemplates that an ACO organization will be constituted of two or more healthcare providers and suppliers, meeting criteria specified by the Secretary of the U.S. Department of Health and Human Services, who will join together and be accountable for the quality, cost and overall care of a defined pool of patients. While there is no express requirement under the Act for an ACO to include a hospital, it is generally recognized that an ACO is likely to include at least one hospital. The Act provides for the establishment of an ACO by the following groups of providers and suppliers, which must have a formal legal structure that would allow the organization to receive and distribute payments for shared savings:

  • Physician group practice arrangements;
  • Networks of individual physician practices;
  • Partnerships and joint venture arrangements between hospitals and providers;
  • Hospitals employing providers; and
  • Other groups of providers and suppliers as the Secretary deems appropriate.

Once the group of providers and suppliers has been identified, there are a number of obligations that the ACO will be required to meet. Among these requirements are the following:

  • The ACO must enter into an agreement with the Secretary to participate in the program for a minimum of three years;
  • The ACO must have a minimum of 5,000 beneficiaries (who may not know they have been “assigned” to the ACO), and a sufficient number of primary care professionals to provide services to those beneficiaries;
  • The ACO must have a leadership and management structure that includes both clinical and administrative systems;
  • The ACO must have a defined process to demonstrate and report on quality and cost measures and the coordination of patient care through the use of health information technology, and be able to meet certain patient-centered criteria; and
  • The ACO must submit certain data as shall be determined by the Secretary.

Regulations implementing the Act have not yet been issued and, as such, there is no additional guidance as to how an ACO must be structured. Without that specific guidance, those who form an ACO might consider other types of healthcare provider networks -- such as Integrated Delivery Systems, Physician Hospital Organizations, Independent Practice Associations and Virtual Physician Organizations -- as models for structuring an ACO. Legal Issues Raised by ACO’s Because they are new to the health care scene, there are a number of legal issues involving ACOs that are yet to be resolved. For example, because an ACO contemplates an ownership or other financial relationship between a provider and a referral source, federal and state anti-kickback and anti-physician referral (i.e, Stark) laws are implicated by this model. Neither the Office of Inspector General nor Center for Medicare and Medicaid Services (the agencies charged with enforcing these federal laws) has published proposed safe harbors to the anti-kickback statute or exceptions to the Stark law applicable to an ACO, leaving uncertainty as to how such arrangements will be impacted by these laws. When the “ACO safe harbor” and/or “ACO exception” regulations are published, there will be the usual comment period and likely revisions to the structure of many ACOs that are currently being formed without the benefit of this regulatory guidance. Additionally, the ACO structure could raise antitrust concerns. Under antitrust law, certain levels of financial risk-sharing normally must be present among providers in order to engage in joint negotiations with payors. Without this requisite integration, an ACO structure could be deemed to be per se illegal. Moreover, if a large enough group joins together as an ACO in a small regional area, the ACO could be deemed to be a monopoly in violation of the Sherman Antitrust Act. Finally, there are a number of operational issues that have yet to be determined, such as how patients will be assigned to an ACO; the methodology by which savings will be calculated and shared among the provider participants; how out-of-network health care needs will be met; and specific governance matters regarding the ACO. At least some of these issues may be answered by the OIG and CMS publications of their respective safe harbors and exceptions. In the meantime, providers that join together as an ACO must determine how to resolve these issues in compliance with existing laws. With many hospitals in New Jersey and across the country in financial distress, the ACO may afford an opportunity to attain savings which could have a significant and positive impact upon such hospitals’ financial health. The attorneys at Genova Burns are familiar with the Act as it relates to ACOs and are ready to assist organizations who wish to form an ACO with other providers in order to reduce costs and improve care. For more information, please contact Harry G. Kapralos, Esq. or Matthew I. Kupferberg, Esq. This alert is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. It is recommended that readers not rely on this publication but that professional advice be sought for individual matters.