1 Accountable Care Organizations: Can they live up to the hype? Presentation for WMGMA Thursday, May...

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Accountable Care Organizations:Accountable Care Organizations:Can they live up to the hype?Can they live up to the hype?

Presentation for WMGMAPresentation for WMGMA

Thursday, May 12, 2011Thursday, May 12, 2011

By By Attorney Barbara J. ZabawaAttorney Barbara J. Zabawa

Whyte Hirschboeck Dudek S.C.Whyte Hirschboeck Dudek S.C.

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AgendaAgenda

ACO BackgroundACO Background– Current “System”Current “System”– The “Perfect Storm” for changeThe “Perfect Storm” for change

ACO ModelsACO Models ACO Proposed RegulationsACO Proposed Regulations

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Current “System”Current “System”

US health care is an “Ecosystem,” not US health care is an “Ecosystem,” not “system.” “system.”

Unlike “system,” where each part works Unlike “system,” where each part works together with the other to achieve the together with the other to achieve the same end goal, each player in ecosystem same end goal, each player in ecosystem is only concerned about its own survival.is only concerned about its own survival.

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Current SystemCurrent System

Atul Gwande’s 2009 article in the Atul Gwande’s 2009 article in the New Yorker New Yorker about McAllen, Texas:about McAllen, Texas:– ““The lesson of the high-quality, low The lesson of the high-quality, low

cost communities is that someone cost communities is that someone has to be accountable for the has to be accountable for the totality of care. Otherwise you get a totality of care. Otherwise you get a system that has no brakes. You get system that has no brakes. You get McAllen.”McAllen.”

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In our current fee for service system, In our current fee for service system, it’s all about:it’s all about:– Making the appointment;Making the appointment;– Getting patient in the door;Getting patient in the door;– Getting the charge out;Getting the charge out;– Getting the money back.Getting the money back.

We as a “system” are still paid “per We as a “system” are still paid “per click.”click.”– i.e., an “transactional environment”i.e., an “transactional environment”

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We are laboring under perverse We are laboring under perverse incentives that deny needed care incentives that deny needed care and encourage care that isn’t and encourage care that isn’t needed.needed.

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Current provider economic model:Current provider economic model:– 4-6% operating margin built on 4-6% operating margin built on

remarkable 7-8% annual revenue growthremarkable 7-8% annual revenue growth– Expense increases have mirrored Expense increases have mirrored

revenue increasesrevenue increasesGrew more than 7%/yr for past 25 yrs.Grew more than 7%/yr for past 25 yrs.

– Providers have passed on the 7+%/yr Providers have passed on the 7+%/yr cost increases to purchases and patientscost increases to purchases and patients

– Reform will put pressure on providers to Reform will put pressure on providers to reduce 7+%/yr growthreduce 7+%/yr growth

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Payers and providers, playing Payers and providers, playing hardball and seeking their own self-hardball and seeking their own self-interest, are caught in a “prisoner’s interest, are caught in a “prisoner’s dilemma,” in which one tries to get dilemma,” in which one tries to get the best deal for themselves no the best deal for themselves no matter what the other does. matter what the other does.

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PP

aa

yy

ee

rr

ProviderProvider

Stands FirmStands Firm CollaboratesCollaborates

Stands Stands FirmFirm

Scenario 1:Scenario 1: Stalemate – Stalemate – cat & mouse games cat & mouse games continue to reduce continue to reduce customer value rather customer value rather than create it; odds of than create it; odds of rate regulation increaserate regulation increase

Scenario 2Scenario 2: Provider : Provider develops programs to develops programs to reduce excessive reduce excessive readmissions, ED visits, readmissions, ED visits, etc. – and loses margins etc. – and loses margins that fund other services in that fund other services in the processthe process

CollaborateCollaboratess

Scenario 3:Scenario 3: payer loses payer loses because its investments because its investments (IT, new programs, etc.) (IT, new programs, etc.) may not go to initiatives may not go to initiatives that ultimately improve that ultimately improve quality or save its quality or save its customers money.customers money.

Scenario 4Scenario 4: Each : Each coordinates deliver and coordinates deliver and payment over a multiyear payment over a multiyear transition period (e.g., transition period (e.g., 2011-15) using reform & 2011-15) using reform & CMS “value based CMS “value based purchasing” policies as purchasing” policies as guidepostsguideposts

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Current SystemCurrent System CFO will need to oversee transition from CFO will need to oversee transition from

unit reimbursement maximizers to unit reimbursement maximizers to strategic negotiators strategic negotiators – Find new ways to maximize revenueFind new ways to maximize revenue– Maintain quality and access.Maintain quality and access.– Need to benchmark commercial contract’s Need to benchmark commercial contract’s

margins, rates and administrative costs margins, rates and administrative costs – Need credible business case to justify Need credible business case to justify

increases increases – Providers who make their case early more Providers who make their case early more

likely to get funds.likely to get funds.

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Providers and payers will need to Providers and payers will need to collaborate and move beyond “cat collaborate and move beyond “cat and mouse” games.and mouse” games.– Provider: optimize revenueProvider: optimize revenue– Payer: Take back revenuePayer: Take back revenue– Not “patient-centric”Not “patient-centric”

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Current SystemCurrent System PPACA Insurance Regulation restricts insurers’ PPACA Insurance Regulation restricts insurers’

ability to accept increases.ability to accept increases.

– Guarantee issue. Guarantee issue. – Bans recissionBans recission– Requires insurers to keep administrative costs Requires insurers to keep administrative costs

down to 20% of premium incomedown to 20% of premium income– Restricts premium rating by insurers so that Restricts premium rating by insurers so that

premium cost is based less on health risk than premium cost is based less on health risk than currently.currently.

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Accountable Care Organizations Accountable Care Organizations – An opportunity to create an organized system An opportunity to create an organized system

of care that can, over time, evolve to provide a of care that can, over time, evolve to provide a high level of care to every American as a right high level of care to every American as a right rather than as a privilege.rather than as a privilege.

– Those who approach this as an experiment in Those who approach this as an experiment in service delivery and reimbursement will derive service delivery and reimbursement will derive the most benefit from the model. the most benefit from the model.

Innovation, experimentation and trial & error is the Innovation, experimentation and trial & error is the “American way.”“American way.”

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ACOsACOs

What are they?What are they?– According to 42 CFR s. 425.4:According to 42 CFR s. 425.4:

ACO means a ACO means a legal entitylegal entity that is recognized and that is recognized and authorized under applicable State law, as identified authorized under applicable State law, as identified by a Taxpayer Identification Number (TIN), and by a Taxpayer Identification Number (TIN), and comprised of an eligible group (as defined at s. comprised of an eligible group (as defined at s. 425.5(b)) of 425.5(b)) of ACO participantsACO participants that work together to that work together to manage and coordinate caremanage and coordinate care for for Medicare fee-Medicare fee-for-service beneficiariesfor-service beneficiaries and have established a and have established a mechanism for mechanism for shared governanceshared governance that provides all that provides all ACO participants with an appropriate proportionate ACO participants with an appropriate proportionate control over the ACO’s decision-making process. control over the ACO’s decision-making process. (Emphasis added.)(Emphasis added.)

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ACOsACOs

ACO is really an umbrella financial ACO is really an umbrella financial and clinical care delivery redesign and clinical care delivery redesign strategy that uses fee-for-service, strategy that uses fee-for-service, pay-for-performance, bundled pay-for-performance, bundled payments and partial or full-risk payments and partial or full-risk capitation tactics to improve quality capitation tactics to improve quality and efficiency.and efficiency.

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ACOsACOs

In an ACO, hospital(s) and its physician In an ACO, hospital(s) and its physician organization are analogous to anchor organization are analogous to anchor tenants in a shopping mall.tenants in a shopping mall.– Other “tenants” might includeOther “tenants” might include

SNFSNF long-term acute care hospitallong-term acute care hospital rehabilitation hospitalrehabilitation hospital Health planHealth plan

– While all occupants can benefit from While all occupants can benefit from participation in the ACO (mall), ACO cannot participation in the ACO (mall), ACO cannot function without a hospital and physician function without a hospital and physician organization as anchor tenants.organization as anchor tenants.

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ACOsACOs

PPACA does not require inclusion of PPACA does not require inclusion of acute care hospitals in Medicare acute care hospitals in Medicare ACO.ACO.– However, ACO unlikely to succeed However, ACO unlikely to succeed

without hospital as full partner.without hospital as full partner.

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ACOsACOs

ACO

System Physician

OrganizationHospital

Other facilities and services

Hospital physiciansOther facilities

Clinic

Employed physiciansCaptive Group PracticeJoint Venture Practice

Foundation model

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ACOsACOs

Legal Structure (42 CFR s. 425.5(d)Legal Structure (42 CFR s. 425.5(d)(7))(7))– ACO must be constituted as “legal ACO must be constituted as “legal

entity” for purposes of all the following:entity” for purposes of all the following:Receiving and distributing shared savings;Receiving and distributing shared savings;Repaying shared losses;Repaying shared losses;Establishing, reporting, and ensuring Establishing, reporting, and ensuring

provider compliance with health care quality provider compliance with health care quality criteria, including quality performance criteria, including quality performance standards;standards;

Other ACO functions identified in this part.Other ACO functions identified in this part.

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ACOsACOs

3 options for organizing ACO:3 options for organizing ACO:– Particular component of ACO owned or Particular component of ACO owned or

controlled by ACO or system that operates controlled by ACO or system that operates ACO;ACO;

– ACO components tied together through ACO components tied together through common ownership in ACO (joint venture); orcommon ownership in ACO (joint venture); or

– ACO components tied together through ACO components tied together through contractual arrangementscontractual arrangements

E.g., comprehensive affiliation agreement or E.g., comprehensive affiliation agreement or purchase or lease agreement with vendorpurchase or lease agreement with vendor

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ACOsACOs

Most loosely coupled options:Most loosely coupled options:

– JV partnershipJV partnership

– Series of contractual arrangementsSeries of contractual arrangements

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ACOsACOs

More tightly coupled models:More tightly coupled models:– Parent corporation model Parent corporation model

Not very flexible for partnersNot very flexible for partners

– Subsidiary corporation modelSubsidiary corporation modelHappy medium?Happy medium?

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ACOsACOs

Overarching management strategy is Overarching management strategy is to continually transform a loosely to continually transform a loosely coupled system into a more tightly coupled system into a more tightly coupled system.coupled system.

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ACOsACOs Who are “ACO Participants” eligible for Shared Who are “ACO Participants” eligible for Shared

Savings Program?Savings Program?– ACO professionals in group practicesACO professionals in group practices

MD, DO, PA, NP, Clinical Nurse SpecialistMD, DO, PA, NP, Clinical Nurse Specialist– Networks of individual practices of ACO ProfessionalsNetworks of individual practices of ACO Professionals– Partnerships or JV arrangements between hospitals and Partnerships or JV arrangements between hospitals and

ACO professionalsACO professionals– Hospitals employing ACO professionalsHospitals employing ACO professionals– Providers or suppliers otherwise recognized under the Providers or suppliers otherwise recognized under the

Act that are not ACO.Act that are not ACO.– CAHs that bill under Method II (s. 413.70(b)(3))CAHs that bill under Method II (s. 413.70(b)(3))

42 CFR s. 425.5(b).42 CFR s. 425.5(b).

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ACOsACOs

Shared savings eligible participants Shared savings eligible participants may participate in ACO separately or may participate in ACO separately or in combination. s. 425.5(b).in combination. s. 425.5(b).

Other Medicare enrolled providers Other Medicare enrolled providers and suppliers can participate in ACOs and suppliers can participate in ACOs as well, as long as they collaborate as well, as long as they collaborate with one of the 5 entities that are with one of the 5 entities that are eligible to independently form an eligible to independently form an ACO.ACO.

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ACOsACOs

ACOs must manage and coordinate ACOs must manage and coordinate care:care:– ACO participants and ACO ACO participants and ACO

providers/suppliers must have a providers/suppliers must have a meaningful commitment to ACO’s meaningful commitment to ACO’s clinical integration program.clinical integration program.Financial investmentFinancial investmentHuman investmentHuman investment

– 42 CFR s. 425.5(d)(9).42 CFR s. 425.5(d)(9).

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ACOsACOs

As part of 3-year agreement, ACO As part of 3-year agreement, ACO must certify that ACO providers and must certify that ACO providers and suppliers forming ACO have agreed suppliers forming ACO have agreed to become accountable for and to become accountable for and report to CMS on quality, cost and report to CMS on quality, cost and overall care of the Medicare FFS overall care of the Medicare FFS beneficiaries assigned to the ACO.beneficiaries assigned to the ACO.– 42 CFR s. 425.5(d)(1).42 CFR s. 425.5(d)(1).

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ACOsACOs

ACO must have infrastructure, such ACO must have infrastructure, such as IT, that enables ACO to collect and as IT, that enables ACO to collect and evaluate data and provide feedback evaluate data and provide feedback to ACO participants and to ACO participants and providers/suppliers across ACO, providers/suppliers across ACO, including information to influence including information to influence care at point of care.care at point of care.– May include meaningful use EHRMay include meaningful use EHR

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ACOsACOs ACO must implement evidence-based medical ACO must implement evidence-based medical

practice or clinical guidelines and processes for practice or clinical guidelines and processes for delivering care consistent with aims of delivering care consistent with aims of better care better care for individualsfor individuals, , better health for populationsbetter health for populations and and lower growth in health care expenditureslower growth in health care expenditures. 42 CFR . 42 CFR s. 425.5(d)(9). s. 425.5(d)(9).

ACOs must establish partnerships with ACOs must establish partnerships with community stakeholders to advance 3-part aim of community stakeholders to advance 3-part aim of better care for individualsbetter care for individuals, , better health for better health for populationspopulations, and , and lower growth in health care lower growth in health care expendituresexpenditures. 42 CFR s. 425.5(3)(v).. 42 CFR s. 425.5(3)(v).

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ACOsACOs

ACOs must cater to Medicare FFS ACOs must cater to Medicare FFS beneficiaries.beneficiaries.– Must have at least 5,000 beneficiaries/yrMust have at least 5,000 beneficiaries/yr– It is through these beneficiaries that It is through these beneficiaries that

ACO can achieve shared savings (or ACO can achieve shared savings (or losses)losses)

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ACOsACOs

ACO must have sufficient number of ACO must have sufficient number of primary care professionals for the primary care professionals for the Medicare beneficiary populationMedicare beneficiary population

Medicare beneficiaries assigned to ACO Medicare beneficiaries assigned to ACO based on their utilization of primary care based on their utilization of primary care services provided by primary care services provided by primary care physician who is ACO provider/supplier physician who is ACO provider/supplier during performance year for which shared during performance year for which shared savings are to be determined. 42 CFR s. savings are to be determined. 42 CFR s. 425.6(a).425.6(a).

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ACOsACOs

Beneficiaries assigned to ACO not confined Beneficiaries assigned to ACO not confined to ACOto ACO– Have free choice in determining where to Have free choice in determining where to

receive care. 42 CFR s. 425.6(a)(2).receive care. 42 CFR s. 425.6(a)(2).– Clear reaction to managed care restrictions Clear reaction to managed care restrictions

from 1990s.from 1990s.– It will be up to ACO to create “stickiness” for It will be up to ACO to create “stickiness” for

patients so they voluntarily choose to stay patients so they voluntarily choose to stay within system of carewithin system of care

And ACO can realize savings.And ACO can realize savings.

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ACOsACOs

If ACO’s assigned population falls below If ACO’s assigned population falls below 5,000, CMS would issue warning and place 5,000, CMS would issue warning and place ACO on CAP, which could include plan to ACO on CAP, which could include plan to add primary care providers to ACO.add primary care providers to ACO.

If ACO’s assigned population has not If ACO’s assigned population has not returned to at least 5,000 by end of next returned to at least 5,000 by end of next performance year, then ACO’s agreement performance year, then ACO’s agreement will be terminated and ACO will not be will be terminated and ACO will not be eligible for shared savings that year.eligible for shared savings that year.– 42 CFR s. 425.5(13)(ii)(B).42 CFR s. 425.5(13)(ii)(B).

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ACOsACOs

Patient-centeredness criteria will helpPatient-centeredness criteria will help– ACO must demonstrate patient-ACO must demonstrate patient-

centeredness by:centeredness by:Having beneficiary experience care survey Having beneficiary experience care survey

and describe how ACO will use results to and describe how ACO will use results to improve careimprove care

Patient involvement in ACO governancePatient involvement in ACO governanceEvaluating health needs of ACO population, Evaluating health needs of ACO population,

including consideration of diversityincluding consideration of diversity Identifying high-risk individuals and Identifying high-risk individuals and

developing individualized care plansdeveloping individualized care plans

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ACOsACOs

Patient-centeredness, cont.Patient-centeredness, cont. Coordinating care (through technology)Coordinating care (through technology)

– For providers enrolled in electronic exchange of For providers enrolled in electronic exchange of information, this process must be consistent with information, this process must be consistent with meaningful use requirements under EHR Incentive meaningful use requirements under EHR Incentive program.program.

Communicating evidence-based medicine to Communicating evidence-based medicine to beneficiariesbeneficiaries

Engaging beneficiaries in shared decision-makingEngaging beneficiaries in shared decision-making Creating written standards for beneficiary access and Creating written standards for beneficiary access and

communicationcommunication Measuring clinical or service performance by Measuring clinical or service performance by

physicians across practices.physicians across practices.– 42 CFR s. 425.5(15)(ii).42 CFR s. 425.5(15)(ii).

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ACOsACOs

Shared governance requirement will Shared governance requirement will helphelp– ACO must establish and maintain ACO must establish and maintain

governing body with adequate authority governing body with adequate authority to execute functions of ACO, including, to execute functions of ACO, including, promotion of evidence-based medicine promotion of evidence-based medicine and patient engagement, report on and patient engagement, report on quality and cost measures, and quality and cost measures, and coordinating care.coordinating care.42 CFR s. 425.5(8).42 CFR s. 425.5(8).

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ACOsACOs

Shared governance, cont…Shared governance, cont…– Governing body must be comprised of:Governing body must be comprised of:

ACO participants (or representatives)ACO participants (or representatives)– Must hold at least 75% controlMust hold at least 75% control

Medicare beneficiary representativesMedicare beneficiary representatives– No conflict of interest with ACONo conflict of interest with ACO

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ACOsACOs

Other noteworthy itemsOther noteworthy items– ACOs can operate in 1 of 2 tracks:ACOs can operate in 1 of 2 tracks:

Track 1: One-sided modelTrack 1: One-sided model– No risk Years 1 and 2 (only shared savings)No risk Years 1 and 2 (only shared savings)– Year 3: ad risk (loss) and higher reimbursementYear 3: ad risk (loss) and higher reimbursement

Track 2: Two-sided modelTrack 2: Two-sided model– Shared savings or loss starting in Year 1Shared savings or loss starting in Year 1– Higher reimbursement starting Year 1Higher reimbursement starting Year 1

For subsequent agreement periods, ACO For subsequent agreement periods, ACO may operate only under two-sided model.may operate only under two-sided model.

– 42 CFR s. 425.5(6).42 CFR s. 425.5(6).

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ACOsACOs

In both Tracks, ACO’s share in In both Tracks, ACO’s share in savings will be subject to 25% savings will be subject to 25% withholding to help ensure withholding to help ensure repayment of any losses to Medicare repayment of any losses to Medicare program.program.– Withheld amount will be applied towards Withheld amount will be applied towards

repayment of ACO’s losses.repayment of ACO’s losses.

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ACOsACOs

Shared savings paymentsShared savings payments– As part of application to participate in Shared As part of application to participate in Shared

Savings Program, ACO must describe:Savings Program, ACO must describe: How it plans to use shared savings payments, How it plans to use shared savings payments,

including criteria it plans to employ for distributing including criteria it plans to employ for distributing savings among participants;savings among participants;

How the proposed plan will achieve specific goals of How the proposed plan will achieve specific goals of program;program;

How plan will achieve general aims of How plan will achieve general aims of better care for better care for individuals, better health for populations and lower individuals, better health for populations and lower growth in expendituresgrowth in expenditures..

– 42 CFR s. 425.5(11).42 CFR s. 425.5(11).

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ACOsACOs Shared savings paymentsShared savings payments

– An ACO is eligible to receive payment for An ACO is eligible to receive payment for shared savings if:shared savings if:

It meets requirements of ACO agreement;It meets requirements of ACO agreement; It realizes savings compared to expenditure It realizes savings compared to expenditure

benchmark that exceeds the minimum savings rate; benchmark that exceeds the minimum savings rate; and and

It meets quality performance standards established It meets quality performance standards established under 42 CFR s. 425.10under 42 CFR s. 425.10

– Quality standards placed into 5 domains:Quality standards placed into 5 domains: Patient/care giver experiencePatient/care giver experience Care coordinationCare coordination Patient safetyPatient safety Preventative healthPreventative health At-risk population/frail elderly healthAt-risk population/frail elderly health

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ACOsACOs

Shared savingsShared savings– CMS proposes to make any shared CMS proposes to make any shared

savings payments directly to the ACO savings payments directly to the ACO TIN.TIN.

– ACO will then make shared savings ACO will then make shared savings payments, as outlined on its application payments, as outlined on its application to the program, to ACO participants.to the program, to ACO participants.

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ACOsACOs

TimelineTimeline– PPACA provided January 1, 2012 as date PPACA provided January 1, 2012 as date

by when ACO program must be by when ACO program must be establishedestablished

– CMS requirements/timeline may not CMS requirements/timeline may not allow sufficient time for ACO’s to allow sufficient time for ACO’s to complete application process by complete application process by 1/1/20121/1/2012CMS requesting comments on alternatives CMS requesting comments on alternatives

(e.g., July 1)(e.g., July 1)

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Questions?Questions? For more information, contact:For more information, contact:

Barbara J. Zabawa, JD, MPH, FACHEBarbara J. Zabawa, JD, MPH, FACHE

Attorney at: Attorney at:

Whyte Hirschboeck Dudek, S.C.Whyte Hirschboeck Dudek, S.C.

33 East Main Street, Suite 30033 East Main Street, Suite 300

Madison, WI 53703-4655Madison, WI 53703-4655

Phone: 608-234-6075Phone: 608-234-6075

Email: Email: [email protected]@whdlaw.com

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