The Basics of Accountable Care Organizations

June 11, 2014

The Basics of Accountable Care Organizations

By: Ward and Smith, P.A. Health Care Practice Group

Recently, accountable care organizations ("ACOs") and the Medicare Shared Savings Program ("MSSP") have become hot topics and generated many discussions with few clear answers.  This article highlights the frequently asked questions we encounter and provides some clarification regarding ACOs.

What is an ACO?

An ACO is a group of doctors, hospitals, and other health care providers that voluntarily come together to coordinate care for the Medicare patients they serve.  The goal of the ACO is to increase the quality of care while simultaneously decreasing the overall costs.  A successful ACO, one that delivers high quality care by spending less Medicare dollars, is eligible to share in the savings it achieves for Medicare.  

Who is eligible to participate in an ACO?

Participation in an ACO is completely voluntary, and all Medicare providers are eligible to participate.  Once formed, the ACO must then apply to participate in the MSSP.  Not all ACOs that apply are accepted, and all ACOs that are accepted meet all eligibility requirements.  

The ACO eligibility requirements include (i) establishing a governing body comprised of health care providers and Medicare beneficiaries, (ii) serving at least 5,000 Medicare fee-for-service ("FFS") beneficiaries, (iii) agreeing to participate in the MSSP for at least 3 years, and (iv) written affirmation from all ACO participants to comply with the MSSP regulations.  

A participant may only be in one ACO during the term of any applicable participation agreement.

What about patients?

Medicare patients maintain the choice to see preferred providers.  Moreover, a Medicare patient is not required to utilize the ACO services.  When a health care provider participates in an ACO, the provider is required to inform the patient about the ACO.  The patient has the right to choose another provider and not have their information shared with the ACO.  

How do I get paid?

Participants in the ACO will continue to be paid under the FFS system for services and items provided to Medicare beneficiaries.  If the ACO meets or exceeds the annual benchmarks set by the Centers for Medicare and Medicaid Services ("CMS"), then the ACO is eligible for shared savings.  The ACO receives a global payment from CMS, and the payment is then divided among the applicable participants.  The division of the payment is based on agreements between the ACO participants entered into before the ACO applied for participation in the MSSP.

What are the drawbacks of an ACO?

Mainly, this article discusses the potential for shared savings.  It is possible that an ACO may not reach a benchmark and thus be responsible for penalties for not reaching the benchmark, plus any costs associated with improving care.  This will depend on a number of factors, including whether the ACO elects to participate in shared savings only during the initial three-year commitment, whether the ACO elects to share in savings and losses during the initial three-year commitment, or whether the ACO continues in the MSSP after its initial three-year commitment.

Another potential drawback of an ACO is the significant upfront costs required to set up an ACO.  In the final regulations issued by CMS, it is estimated that it will cost $580,000 to $1,270,000 to establish a new ACO.  

It is important to keep in mind that health care regulatory laws such as Stark, the federal anti-kickback statute and anti-trust matters may be implicated.  The final rules implementing ACOs include limited waivers regarding federal fraud and abuse laws, but these waivers will not cover state fraud and abuse laws.  A health care provider should understand the federal and state health care regulatory issues before entering into any arrangement.

In conclusion, there is no one-size fits all concept for ACOs, and joining an ACO may not be right for all types of health care providers.  Health care providers should weigh the expense, time and potential financial risk of joining an ACO versus the potential annual reward and higher performance initiatives before making the three-year commitment to the ACO.   

© 2014 Ward and Smith, P.A.

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