Accountable Care Organizations: An Overview of the Concepts and the

Model for Reimbursement ReformPresentation to

South Carolina Hospital AssociationCFO Forum

Charleston Place HotelCharleston, SC

July 20, 2011

Edward K. WhiteNelson Mullins Riley & Scarborough LLP

1320 Main Street, 17th FloorColumbia, SC 29201

803-255-9559

The Future with Health Care Reform

1. Declining Revenue –i) Medicare and Medicaid systems cannot be sustained.

ii) Focus is to reduce costs by decreasing reimbursement and increasing enforcement.

2. Increasing Administrative Costs –i) Information technology – systems and specialized personnel

ii) Clinical quality monitoring – specialized personnel for documentation and reporting quality initiatives

iii) Regulatory compliance – specialized personnel for billing practices, compliance advice, enforcement actions

3. Reimbursement Reform – focuses on:

i) Cost reduction

ii) Quality initiatives – documentation and reporting

iii) Collaboration among providers (to achieve (a) &(b))

2

The ACO Concept

3

HospitalPCP

Groups

Specialist Groups

Multi-Specialty Groups

Other Providers

Medicare & Other Payors

Other Providers Mental Health

Home HealthLong Term

Care / Hospice

$ FFS, Bundled or Capitated

$ Shared Savings

ACO

What is an ACO?

• An ACO is a collaboration of physicians and other health care providers to coordinate patient care.

• Reimbursement vehicle.

• Eligible to receive additional payments for achieving quality and cost savings goals.

4

ACO Reimbursement Reform Transition from Fee-For-Service

Expected changes:

• Medicare Shared Savings Program –starting January 1, 2012

• Bundled Payments / Episodes of Care

• Global Payment / Partial Capitation

5

Health Care Reform Legislation

• Patient Protection and Affordable Care Act passed by Congress 2010

• CMS issues ACO proposed regulations on March 31, 2011, IRS and FTC issue interpretative guidance

• Comment Period ended June 6, 2011

• Waiting on Final Regulations

• First ACO Shared Savings Program commences January 1, 2012

6

Regulatory Overview

• Legal structure

• Mechanism for shared governance

• Operational issues

• Beneficiary assignment

• Shared savings and losses

• Quality measures and performance score

• Patient protection requirements

• Terminating an ACO

7

Criticisms of Proposed Regulations

1. Risk introduced in shared savings program

2. Retrospective allocation of beneficiaries

3. 65 quality measurements – most apply to primary care

4. Not clear if rewards will materialize

8

Capital Investment for an ACO

• CMS has estimated that ACOs, on average, will require an up-front investment of $1.7 million, and the AHA estimates that cost at more at $11 million.

9

Personal Responsibility Missing

• 75% health spending related to chronic disease much of which is preventable

• No effort to shift risk to individuals

– East less, take medications, exercise more, make informed medical decisions, act responsibly

10

Shared Savings ProgramTwo Tracks

• Track 1

–No Downside Years 1 and 2

– Year 3: add Risk (Loss) and higher reimbursement

• Track 2

–Upside and Downside Risk starting Year 1

–Higher reimbursement starting Year 1

11

Basic Rule for Shared Savings

To be eligible for shared savings, ACOsmust:

• Meet all contractual requirements of the ACO Agreement

• Meet the quality performance standards

• Realize savings compared to the Expenditure Benchmark that exceed the Minimum Savings Rate

12

Determining Shared Savings• Establish Expenditure Benchmark

• Determine per capita Medicare expenditures in each performance year of the Agreement period

• Determine applicable Minimum Savings Rate

• Determine applicable Sharing Rate

• Determine applicability of Threshold

• Compare Expenditure Benchmark to Actual Expenditures

• Compare Amount of Shared Savings Payable to ACO to Sharing Cap

13

Withholding Shared Savings

CMS proposes an annual 25% withhold of any earned shared savings• ACO may use the withhold as one option for

demonstrating an adequate repayment mechanism in the event they incur sharable losses

• Returned at the end of the 3-year agreement

• If the ACO does not complete its 3-year agreement, the ACO forfeits any withholds

14

Major Physician Advocacy Groups

Are in full agreement on four major changes CMS must make to the final ACOrule:• Reduce ACO risk• Increase financial incentives• Account for patient population factors• Reduce quality measure reporting

(American College of Physicians, Medical Group Management Association, American Medical Association and American Medical Group Association)

15

Legal Tensions with Clinical IntegrationWith aligning and incentivizing Physicians to manage care to reduce costs

• 501(c)(3) Standards – no payment for referrals

• Anti-Kickback Statute – no payment for referrals

• Stark – no referrals where prohibited financial relationships

• Anti-Trust laws – no market power

• CMP– no payment to limit services in hospital setting– no payment to beneficiaries as inducement to receive

services16

Waiver Authority

The new Center for Medicare and Medicaid Innovation has waiver authority as necessary to implement ACOs with respect to:

17

• Anti-Kickback Statute• Stark Law• Civil Monetary Penalty

Proposed Anti-Kickback and CMPWaivers Too Limited in Scope

• Current proposal only applies to shared savings program

• Need for comprehensive waivers for all aspects of ACO operations and ACOrelationships

18

Tax Exemption for ACOs

• IRS indicated it will apply "lessening the burdens of government" standard which will allow Medicare ACOs to obtain 501(c)(3) status

• IRS has a concern with private payorsadded to the ACO

• "Community benefit" standard should be available to allow Medicare and private payor ACOs achieve 501(c)(3) status

19

Fair Market Value and Compensation Standards

• New standards for compensating physician for achieving quality and cost benchmarks are going to have to evolve

20

Necessary capabilities of ACOs

1. Effective physician leadership.

2. Clinical information technology.

3. Process to manage and enhance the quality of patient care during the course of treatment.

4. Physician and staff culture that supports the new quality initiatives.

5. Critical patient mass to support meaningful performance measurements.

6. Ability to create agreements with physicians for the ACO model.

21

The Future1. Declining Revenue –

i) Medicare and Medicaid systems cannot be sustained.

ii) Focus is to reduce costs by decreasing reimbursement and increasing enforcement.

2. Increasing Administrative Costs –i) Information technology – systems and specialized personnel

ii) Clinical quality monitoring – specialized personnel for documentation and reporting quality initiatives

iii) Regulatory compliance – specialized personnel for billing practices, compliance advice, enforcement actions

3. Reimbursement Reform – focuses on:

i) Cost reduction

ii) Quality initiatives – documentation and reporting

iii) Collaboration among providers (to achieve (a) &(b))

22

Clinical Integration

The interaction and interdependence among providers in their provision of medical services that enables them to jointly achieve cost-effectiveness and quality improvement.

23

Moving Forward

1. Initiate quality processes – ideal to overlap with cost saving processes

2. Continue to integrate with physicians

3. Develop physician leadership to manage quality processes

4. Take steps to improve clinical integration with employed and independent physicians

5. Determine your long-term strategy

24

Provider Alignment Models

1. Cooperative ACO Readiness Assessment2. Pay for Performance3. Co-Management of Service Lines4. PHO or Shared Risk Model5. Hospital Clinic / PSA Model6. Hospital Clinic / MSO Model7. Joint Ventured Physician Organization8. Medical Foundation Model9. Tax-Exempt Affiliated Practice Model10. Hospital Employment Model

25

Minimum Integration

Maximum Integration

1. Cooperative ACO Readiness Assessment

• Assess information technology needs

• What will be needed to:– Coordinate Care

– Measure Clinical Results (Quality and Cost)

– Report to Payors

– Develop Physician Leadership

26

HospitalPhysician Organization

2. Pay for Performance

27

HospitalPhysician Organization

Outpatient Clinics

Pay for Quality

Standards

3. Co-Management of Service Lines

28

Hospital

Outpatient Clinics

Co-Management Agreement

Inpatient & Outpatient Service

Line Co-Management

Physician Organization

Hospital & Physician – Co-owned or Physician Owned Management

Company

4. PHO or Shared Risk Model

29

Payors

HospitalPhysician Organization

Clinically Integrated Independent Physicians

Medical Group

Medical Group

Medical Group Outpatient

Clinics

ACO

5. Hospital Clinic / PSA Model

30

Hospital

Physician Owned MSO

Medical Group

Medical Group

Outpatient Clinics

Professional Services Agreements ("PSA")Medical Group

Management Services

6. Hospital Clinic / MSO Model

31

HospitalHospital Owned MSO

Medical Group

Medical GroupOutpatient

ClinicsProfessional Services Agreements ("PSA")

Medical Group

Management Services

7. Joint Ventured Physician Organization

32

System Parent

Payors ACO Hospital Physicians

Group Practice (For Profit)

8. Medical Foundation Model

33

System Parent

Hospital ACOMedical Foundation

501(c)(3)

Payors

One or more professional service

agreement

One or more Medical Groups

9. Tax-Exempt Affiliated Practice Model

34

System Parent

Hospital ACO 501(c)(3)Medical Group

Payors

10. Hospital Employment Model

35

System Parent

Hospital ACO Payors

Medical Division (Dept. of Hospital)

Outpatient Clinics