CMS Releases Improved ACO Rules

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Medical Economics Feature – January 2012


Tex Med. 2012;108(1):45-48.

By Ken Ortolon
Senior Editor

It's an "easier pill to swallow, but it's still difficult to digest."

That is how one Washington, D.C.-based health care consultant assessed the Centers for Medicare & Medicaid Services' (CMS') final rules [PDF] for accountable care organizations (ACOs) under the Medicare Shared Savings Program (MSSP).

Experts say the final rules, which take effect Jan. 3, are much better than the draft rules issued last spring. And they expect physicians and other health care professionals to be more willing to participate in Medicare ACOs as a result.

But Texas Medical Association officials say there are still some flaws in the design of the MSSP even though CMS incorporated several of TMA's suggested changes to the rules.

"Many of our concerns have been addressed. It's certainly a major step forward," said Tyler anesthesiologist Asa Lockhart, MD, chair of TMA's Ad Hoc Committee on Accountable Care Organizations. "I think people will be more willing to look at them, but I don't know that it's a slam dunk, that at the end of the day, after the financial analysis, they will be motivated to participate."

Dr. Lockhart says the new rules make ACOs "more doable" for health care systems or physician practices that already are highly integrated – such as the Mayo Clinic in Minnesota or Scott and White here in Texas – but still present a high hurdle for those that are not.

And, TMA officials warn that physicians need to pay close attention to the governance structure of any ACO they consider joining to ensure that the organization is truly physician-led.

Cutting the Downside

The Affordable Care Act (ACA) created the MSSP to improve quality and reduce costs in Medicare. It pays incentives to doctors, hospitals, nurses, and other health care professionals to coordinate the care they collectively deliver to Medicare patients. They are eligible to share some cost savings with the government.

But TMA and other groups criticized the original draft. In comments to CMS last June, Dr. Lockhart said those rules failed to further CMS' triple aim of better health, better care, and lower cost. He also said they lacked the critical physician governance necessary to ensure the primacy of quality over lower costs, and many requirements were too prescriptive and cumbersome to permit adequate participation by solo physicians and small group practices.

And spokespersons for several large Texas physician groups and hospital systems said the proposed rules were so burdensome that they would not participate in the MSSP.

David Merritt, formerly with the Center for Health Transformation and the Gingrich Group, said in a column written for the Daily Caller that there were many "lowlights" in the draft rules. ACOs would have had to collect, report, and pass 65 detailed benchmarks. And they would not even know which of their patients participated until the end of the program because Medicare would have retrospectively assigned patients to the ACOs.

"The proposed regulations were so unworkable that world-class health systems like Intermountain Healthcare, Mayo Clinic, and Gundersen Lutheran balked – and they were tailor made for this project as they've been doing care coordination for years," Mr. Merritt wrote.

But Dr. Lockhart and others say the revised rules make Medicare ACOs much more palatable for physicians.

"CMS definitely listened very much to what the health care industry was saying and, to their credit, I think they listened intensively to it," said Dallas family physician Carl Couch, MD, president of Baylor Quality Alliance, an ACO created by the Baylor Health System in 2011.

Baylor Quality Alliance decided not to participate in the MSSP after release of the draft rules, but Dr. Couch says the organization is reconsidering in light of the new regulations.

"Now that they have come out, I think it would be safe to say that we are more positively inclined to apply for CMS shared savings designation, but we have not yet reached that decision," Dr. Couch said.

American Medical Association President Peter Carmel, MD, said the organization is pleased the new rules include "many of the important changes recommended by the AMA to allow all interested physicians to lead and participate in these new models of care."

TMA Wins Significant Changes

The final rules include many recommendations TMA made, including eliminating financial risk for some ACOs during their initial three-year contract with CMS.

Under the draft rules, ACOs could choose two payment tracks. The first allowed ACOs to share in any savings during the first year of their contract but also would have exposed them to shared losses in the second and third years if there were no savings. The second track required the ACO to share both savings and losses from the beginning of the contract but would have paid a higher share of the savings to the ACO.

At the urging of TMA and others, CMS eliminated the risk for the entire initial three-year contract period under track one, but all MSSP participants will share in both savings and losses after that.

Dr. Couch says eliminating risk during that initial contract period is important because of the "steep learning curve" in figuring out how to operate an ACO effectively.

TMA, however, had hoped to convince CMS to eliminate downside risk from the shared savings program entirely. In his June comments, Dr. Lockhart said putting physicians at risk for losses was not the primary incentive system Congress envisioned when it passed the ACA.

"Improvement of patient care is always a goal of the medical profession; thus, two-sided risk is not needed to create an incentive to avoid poor medical outcomes," he wrote.

Avoiding Conflict

Other important rule changes CMS made include requiring ACOs to have a governing body chosen by their participating physicians and other health care professionals, as well as requiring them to have a conflict-of-interest policy to make sure their decisions are in the ACO's best interest. TMA recommended both changes.

The final CMS rules also clarify that primary care physicians can be in more than one ACO, and they reduced the number of quality measures used to judge ACO performance from 65 to 33.

And, CMS revised the way patients are attributed to the ACO. The original rules allowed CMS to determine which group of patients to assign to each ACO at the end of each measurement period. That meant physicians in the ACO would not know for which Medicare patients they would be financially responsible. The final rules require CMS to designate which patients the ACO is responsible for at the beginning of each measurement period, so physicians will know upfront which patients are in their ACO. CMS, however, still can make some retrospective changes.

Also, physicians now will be able to share in first-dollar savings their ACOs achieve. Under the draft rules, the first 2 percent of cost savings achieved went to CMS, with the ACOs sharing in any savings over and above that level.

CMS also took a suggestion from TMA to provide advanced payments to help small physician practices and rural hospitals bear the cost of creating ACOs. The final rule provides for advanced payments for ACOs made up primarily of physicians and other health care professionals with no hospital partners and ACOs that include critical access and/or Medicare low-volume hospitals.

Another important provision that found its way into the final rules is language that assures the federal regulations will not trump state insurance laws.

"In our comment letter, we specifically asked CMS not to trample on the efforts that states make in structuring ACO-like entities and to make sure that if an insurance license was required at the state level to undertake certain activities that CMS wasn't preempting those licensure statutes," said Lee Spangler, JD, TMA vice president for medical economics.

Mr. Spangler says that could be important as health care collaboratives authorized by the Texas Legislature in 2011 begin to roll out.

The Internal Revenue Service (IRS), the Department of Justice (DOJ), and the Federal Trade Commission (FTC) also issued final rules on the tax-exempt status of entities participating in ACOs and antitrust issues involving ACOs. The IRS rules, the DOJ rules [PDF], and the FTC rules [PDF] are online.

TMA also won a major victory in the IRS rules with changes to a provision that might have given tax-exempt charitable hospitals participating in an ACO the largest share of any profits.

The IRS draft rules required that a tax-exempt entity's economic benefits from an ACO, including any Medicare shared savings, had to be proportional to its financial contributions. Kelly Walla, JD, TMA associate general counsel, says that original language could have given a charity hospital the ability to keep most of the shared savings for itself if it provided most of the start-up capital for the ACO, ignoring the sweat equity physicians put into the organization.

As finally adopted, the IRS rules said a tax-exempt entity's share of the proceeds do not have to be directly proportionate to its investment and that distribution of shared savings should take into account all contributions by all participants including capital, property, or services provided.

Finding Flaws

While TMA applauds those changes, Dr. Lockhart says there are still some "fundamental flaws" in how Medicare ACOs will operate. One is that the rules allow a hospital that hires physicians to set up its governing board with no physician membership. And, in ACOs where a hospital partners with independent physicians, the bylaws can give the hospital a larger voting share on the governing board than physicians.

And, although the new rules address patient attribution, Dr. Lockhart says there still is a major problem because patients can seek care outside the ACO; thus, the ACO can be held responsible for the cost of a patient's care even though it did not provide that care.

While the final rules drew much applause, Dr. Lockhart says there still is plenty of uncertainty over how successful ACOs will be under the shared savings program.

"The fundamental question that still has to be answered is, despite the liberalized rules, is the product in a particularly community going to yield a return on investment? For people who already are at the high end of integration, these rules certainly lower the threshold and improve their chances of success," Dr. Lockhart said. "But for the average physician practice that is not integrated in any way, I think the jury is probably still out."

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.

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