State Lawmakers Put Their Own Spin on ACOs

  Texas Medicine Logo

Legislative Affairs Feature – September 2011


  Tex Med. 2011;107(9):31-33. 

By Ken Ortolon
Senior Editor

The accountable care organization (ACO) rapidly is becoming the trendy new health care delivery model of the decade.

ACOs are supposed to tie physician and other provider payments to improved patient care and reduced health care costs. While many large physician groups and hospital systems across the country have already begun creating ACOs, many physicians view ACOs with a hefty dose of skepticism.

That is especially true of the Medicare ACO program being set up under President Obama's health system reform law. Some physician groups and hospital networks have indicated they will not participate in the Medicare ACOs.

Physicians complain that draft rules for that program are so prescriptive that rewards for providing high-quality care are virtually unattainable. And, the proposed rules appear to give hospitals too much control over ACO operations.

Now, however, physicians here may have a Texas-style alternative, thanks to legislation passed in the special session of the legislature that ended in late June.

Senate Bill 7, authored by Sen. Jane Nelson (R-Flower Mound), authorized physicians, hospitals, and other health care providers to create health care collaboratives, similar to ACOs, to allow traditional competitors to join forces to improve quality of care and lower overall costs. The measure, sponsored in the Texas House by Rep. John Zerwas, MD (R-Richmond), also has legal protections so these collaboratives don't run afoul of federal antitrust laws.

"This law gives providers flexibility to work together to improve quality of care and reduce costs," Senator Nelson said. "It does so by removing regulatory barriers so physicians and other providers can collaborate to achieve the best outcomes for their patients."

Only time will tell if physicians will be eager to participate in these entities, particularly because many of the details were left up to rulemaking by the Texas Department of Insurance (TDI) and Texas Attorney General Greg Abbott's office.

But Tyler anesthesiologist Asa Lockhart, MD, who testified on the legislation in both the regular and special sessions earlier this year, says he's optimistic physicians will get on board because TMA worked hard to ensure that they will have an equal voice in the governance of these entities.

"I think physicians will want to participate because it is going to provide an alternative for innovation, an alternative that allows really local innovation," said Dr. Lockhart, chair of TMA's Ad Hoc Committee on Accountable Care Organizations. "I think that will be one of the key differences between SB 7 and the federal legislation."


The Texas Vision

SB 7 is a wide-ranging law that includes a number of health care-related issues that failed to pass in the regular session of the 2011 Texas Legislature. Among other provisions are expanding Medicaid managed care to the Lower Rio Grande Valley and rural Texas and authorizing Texas to enter into an interstate compact with one or more other states to petition Congress for block grants to effectively take full control of both Medicaid and Medicare for Texas' poor and elderly. The bill also includes several other Medicaid cost-savings initiatives, provisions to address immunizations for health care workers, and a prohibition on the use of state or local tax dollars for elective abortions.

Senator Nelson filed legislation to create the collaboratives in 2009 and again this year. Lt. Gov. David Dewhurst and other state officials strongly backed it. They were looking for innovative ways to control health care costs.  

In signing the bill into law on July 18, Gov. Rick Perry hailed the measure as a Texas solution to the daunting problems that face our health care system.

"Texas faces unique challenges when it comes to health care delivery, and Washington's one-size-fits-all approach doesn't fit our needs," he said. "SB 7 provides state-based solutions to rising health care costs by providing millions in savings, rewarding innovation, and improving the health care of Texas."

Dr. Lockhart says the lawmakers recognized that "the status quo was not sustainable and we need a different model" for health care delivery. While many feel the federal ACO model contains some good concepts, there has been a loud chorus against the way the U.S. Department of Health and Human Services and Centers for Medicare & Medicaid Services (CMS) are rolling it out under the so-called Medicare Shared Savings Program.

Dr. Lockhart says many Texas physicians do not believe ACOs are workable under the federal rules. "And it's not just Texas. Various foundations and large group practices from across the county are saying the CMS rules will have to change substantially for that to work."

Under SB 7, competing physicians in a community or a group of physicians, hospitals, and other health care professionals could form a health care collaborative. It would have to apply for a certificate of authority from TDI to be able to contract with private health plans or government programs, such as Medicaid and Medicare, to provide medical and health care services to a defined group of patients.

A collaborative also could contract directly with employers to treat their workers so long as it does not assume risk for actuarial losses. To do that, the collaborative also must be licensed as a health plan.

While the proposed Medicare ACOs must meet a very specific and lengthy list of quality measures and use a limited number of payment methods, the Texas collaboratives would have much more flexibility to create their own innovative care delivery systems.

"An ACO could be one type of collaborative under SB 7. However, there is a spectrum of ways that providers may be able to collaborate to achieve healthy outcomes and cost savings," Senator Nelson said. "Rather than limit providers to the ACO model, SB 7 aims to give providers flexibility to develop various types of collaborative models. In contrast to the Accountable Care Act, we are not creating any new mandates, and we are not expanding government."

Lee Spangler, JD, TMA vice president for medical economics, says the collaboratives have complete flexibility on how physicians and other providers get paid. They can use fee for service, capitation, global payments, or bundled payments for episodes of care.

The collaboratives also have flexibility on how they measure quality and outcomes. While the proposed Medicare ACO rules would require those entities to meet quality standards on 64 different specific measures, the collaboratives set their own quality measures. While SB 7 creates a Texas Institute of Health Care Quality and Efficiency that would develop quality measures for potential use by the collaboratives, they would not be obligated to use those measures or they could pick and choose which they want, Mr. Spangler says.


State Action Required

Dr. Lockhart says the antitrust protections are built on the "state action doctrine," which he says requires active attorney general supervision of the activities of the collaboratives.

Mr. Spangler says the intent is for TDI and the attorney general's office to play such an active role in overseeing these entities that federal regulators won't seek antitrust action against them because the state has supplanted traditional competition with its own regulation.

"Because the antitrust exemption revolves around active state oversight, you basically have a continual application process," he said. "You apply for the license; six months later you have to apply for renewal. The department [TDI] is required to review that application for renewal as if it's a brand new application. And then this happens every year. If you're really a sophisticated entity, you will always be in the process of compiling that application. And the attorney general is there to ensure that these collections of competitors don't get too big to enter the market."

Dr. Lockhart says that oversight eliminates a major hurdle for groups that want to form a collaborative, particularly in smaller communities where it may be difficult to put together a collaborative without gaining a dominant share of the market.


TMA Protects the Physician Voice

It is not clear if physicians will embrace the collaboratives. However, TMA worked closely with Senator Nelson to make sure physicians had a voice in governing them and due process rights to protect them from retaliation for advocating for their patients' best interests.

"The whole thrust of our strategy was to provide a structure that would enable the medical model," Dr. Lockhart said. "The way to get physicians integral in the decision-making process is to give them an equal voice in the governance structure, and that includes operations and payments. We feel like the bill achieves that objective."

The proposed federal rules potentially could give hospitals the vast majority of seats on an ACO governing board. Under the Texas law, the governing board membership would be divided among physicians and nonphysicians, plus neutral members chosen by both parties.

Thanks to Representative Zerwas, the bill also prohibits collaboratives from using covenants not to compete.

Dr. Lockhart says the noncompete clause provision is important because it protects a physician who joins a collaborative and later decides to drop out of it from potentially having to close or leave his or her practice and move to another community.

Finally, the bill preserves strong due process protections. "You don't want a manufactured complaint to be used as a mechanism to exclude a physician who is playing an advocacy role for a patient or playing an advocacy role as a physician voice," Dr. Lockhart said.

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email.


September 2011 Texas Medicine Contents
Texas Medicine Main Page