The five parts to an accountable care organization

A key part of the recently passed Patient Protection and Affordable Care Act (PPACA) is Section 3022 which, effective January 2012, creates the Medicare Shared Savings program. The program’s purpose is to promote “accountability” for a patient population through the creation of accountable care organizations (ACOs) that will lead to higher quality of care at a lower cost by redesigning how care is designed and provided to patients.

Last week, the federal government released the proposed rules for ACOs just nine months before this part of the PPACA is scheduled to go into effect. These rules will enable physicians, physician practices, hospitals, and other healthcare organizations to decide whether they wish to create an ACO with a minimum three-year commitment.

The requirements for an ACO are the following:

An ACO must be a distinct legal entity with a governing board

An ACO can be made up of physicians, dentists, nurse practitioners, physician assistants, and other healthcare practitioners in affiliation with healthcare organizations through existing or newly created individual practices, partnerships, joint ventures, hospital group practices, and partnerships. The ACO must either organize as or already be a legal entity authorized to conduct business with a tax identification number, and each ACO participant must be enrolled in the Medicare program. The ACO must be overseen by a governing body made up of at least 75% ACO practitioners; an executive manager is accountable to the board. A physician-directed quality assurance process must implement and oversee a quality improvement program that not only focuses on defined quality metrics, but on the cost and effectiveness of care. The legal entity must be able to receive and distribute shared savings, repay shared losses, and accurately report all required quality and cost metrics to the Centers for Medicare & Medicaid Services (CMS).

An ACO must include the infrastructure necessary to provide comprehensive care for at least 5,000 Medicare beneficiaries

Medicare fee-for-service beneficiaries are assigned to an ACO if they receive at least 50% of their primary care services from an ACO provider. That percentage is determined by evaluating the total allowed charges data for the previous year. However, assignment to an ACO does not preclude beneficiaries from seeking care from other practitioners who do not participate in the ACO. 

An ACO will be accountable for both the quality and cost of care

An ACO will be required to enter into a three-year commitment with CMS to be accountable for both the quality and cost of care to Medicare beneficiaries enrolled in the ACO. The proposed federal rules includes 65 quality measures divided into five domains including the following: patient/caregiver experience (seven measures), care coordination (16 measures), patient safety (two measures), preventative health (nine measures), and at-risk frail/elderly health (31 measures relating to diabetes, heart failure, coronary artery disease, hypertension, chronic obstructive pulmonary disorder, and frail elderly). An ACO will be accountable to measure, report, track, and meet performance expectations within all of the domains or it will be disqualified from further participation.

There will be two options for participating in the Medicare Shared Savings program

An organization may participate in the Medicare Shared Savings program through one of two tracks. The first track (one-sided model) is for organizations that have less experience in “at-risk” payment models and would like a more conservative approach initially. This enables them to participate without being responsible for losses beyond the defined expenditure targets but would limit the potential reimbursement they would receive if they the expenditure targets and generate cost savings. An organization would be permitted to participate in the one-sided model for two years and then would transition automatically into the two-sided model after that.

The two-sided model enables an organization with more “at-risk” experience to reap a greater reimbursement if cost savings are achieved (60% of shared savings) but will also put that organization at risk for reimbursing Medicare if the cost of care exceeds the defined expenditure targets.

An ACO must meet certain legal and regulatory requirements

The ACO must have a corporate compliance plan overseen by a compliance officer who may not be the in-house general counsel and who ensures that the ACO is in compliance with all federal regulations.

In order to be immune from federal anti-trust violations and to be in a proposed anti-trust “safety zone,” ACO practitioners who practice in the same clinical specialty (rural areas exempted) may not make up more than 30% of the market share of an organization’s primary service area (PSA). A PSA is defined as the “lowest number of contiguous ZIP codes from which the ACO practitioners draws at least 75% of their patients for that service.” Furthermore, the relationship between the ACO and hospital or surgi-centers must be nonexclusive so that these organizations may have the option to collaborate with other ACOs and third-party payers.

Jonathan H. Burroughs, MD, MBA, FACPE, CMSL, is a senior consultant at The Greeley Company, a division of HCPro, Inc., in Danvers, MA.