1. 1 Accountable Care Organizations: Can they live up to the hype? Presentation for WMGMA Thursday, May 12, 2011 By Attorney Barbara J. Zabawa Whyte Hirschboeck Dudek S.C.

2. 2 Agenda ACO Background ACO Background –Current System –The Perfect Storm for change ACO Models ACO Models ACO Proposed Regulations ACO Proposed Regulations

3. 3 Current System US health care is an Ecosystem, not system. US health care is an Ecosystem, not system. Unlike system, where each part works together with the other to achieve the same end goal, each player in ecosystem is only concerned about its own survival. Unlike system, where each part works together with the other to achieve the same end goal, each player in ecosystem is only concerned about its own survival.

4. 4 Current System Atul Gwandes 2009 article in the New Yorker about McAllen, Texas: Atul Gwandes 2009 article in the New Yorker about McAllen, Texas: –The lesson of the high-quality, low cost communities is that someone has to be accountable for the totality of care. Otherwise you get a system that has no brakes. You get McAllen.

5. 5 Current System In our current fee for service system, its all about: In our current fee for service system, its all about: –Making the appointment; –Getting patient in the door; –Getting the charge out; –Getting the money back. We as a system are still paid per click. We as a system are still paid per click. –i.e., an transactional environment

6. 6 Current System We are laboring under perverse incentives that deny needed care and encourage care that isnt needed. We are laboring under perverse incentives that deny needed care and encourage care that isnt needed.

7. 7 Current System Current provider economic model: Current provider economic model: –4-6% operating margin built on remarkable 7-8% annual revenue growth –Expense increases have mirrored revenue increases Grew more than 7%/yr for past 25 yrs. Grew more than 7%/yr for past 25 yrs. –Providers have passed on the 7+%/yr cost increases to purchases and patients –Reform will put pressure on providers to reduce 7+%/yr growth

8. 8 Current System Payers and providers, playing hardball and seeking their own self- interest, are caught in a prisoners dilemma, in which one tries to get the best deal for themselves no matter what the other does. Payers and providers, playing hardball and seeking their own self- interest, are caught in a prisoners dilemma, in which one tries to get the best deal for themselves no matter what the other does.

9. 9 Current System PayerProvider Stands Firm Collaborates Scenario 1: Stalemate – cat & mouse games continue to reduce customer value rather than create it; odds of rate regulation increase Scenario 2: Provider develops programs to reduce excessive readmissions, ED visits, etc. – and loses margins that fund other services in the process Collaborate s Scenario 3: payer loses because its investments (IT, new programs, etc.) may not go to initiatives that ultimately improve quality or save its customers money. Scenario 4: Each coordinates deliver and payment over a multiyear transition period (e.g., 2011-15) using reform & CMS value based purchasing policies as guideposts

10. 10 Current System CFO will need to oversee transition from unit reimbursement maximizers to strategic negotiators CFO will need to oversee transition from unit reimbursement maximizers to strategic negotiators –Find new ways to maximize revenue –Maintain quality and access. –Need to benchmark commercial contracts margins, rates and administrative costs –Need credible business case to justify increases –Providers who make their case early more likely to get funds.

11. 11 Current System Providers and payers will need to collaborate and move beyond cat and mouse games. Providers and payers will need to collaborate and move beyond cat and mouse games. –Provider: optimize revenue –Payer: Take back revenue –Not patient-centric

12. 12 Current System PPACA Insurance Regulation restricts insurers ability to accept increases. PPACA Insurance Regulation restricts insurers ability to accept increases. –Guarantee issue. –Bans recission –Requires insurers to keep administrative costs down to 20% of premium income –Restricts premium rating by insurers so that premium cost is based less on health risk than currently.

13. 13 Current System Accountable Care Organizations Accountable Care Organizations –An opportunity to create an organized system of care that can, over time, evolve to provide a high level of care to every American as a right rather than as a privilege. –Those who approach this as an experiment in service delivery and reimbursement will derive the most benefit from the model. Innovation, experimentation and trial & error is the American way. Innovation, experimentation and trial & error is the American way.

14. 14 ACOs What are they? What are they? –According to 42 CFR s. 425.4: ACO means a legal entity that is recognized and authorized under applicable State law, as identified by a Taxpayer Identification Number (TIN), and comprised of an eligible group (as defined at s. 425.5(b)) of ACO participants that work together to manage and coordinate care for Medicare fee- for-service beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an appropriate proportionate control over the ACOs decision-making process. (Emphasis added.) ACO means a legal entity that is recognized and authorized under applicable State law, as identified by a Taxpayer Identification Number (TIN), and comprised of an eligible group (as defined at s. 425.5(b)) of ACO participants that work together to manage and coordinate care for Medicare fee- for-service beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an appropriate proportionate control over the ACOs decision-making process. (Emphasis added.)

15. 15 ACOs ACO is really an umbrella financial and clinical care delivery redesign strategy that uses fee-for-service, pay-for-performance, bundled payments and partial or full-risk capitation tactics to improve quality and efficiency. ACO is really an umbrella financial and clinical care delivery redesign strategy that uses fee-for-service, pay-for-performance, bundled payments and partial or full-risk capitation tactics to improve quality and efficiency.

16. 16 ACOs In an ACO, hospital(s) and its physician organization are analogous to anchor tenants in a shopping mall. In an ACO, hospital(s) and its physician organization are analogous to anchor tenants in a shopping mall. –Other tenants might include SNF SNF long-term acute care hospital long-term acute care hospital rehabilitation hospital rehabilitation hospital Health plan Health plan –While all occupants can benefit from participation in the ACO (mall), ACO cannot function without a hospital and physician organization as anchor tenants.

17. 17 ACOs PPACA does not require inclusion of acute care hospitals in Medicare ACO. PPACA does not require inclusion of acute care hospitals in Medicare ACO. –However, ACO unlikely to succeed without hospital as full partner.

18. 18 ACOs ACO System Physician Organization Employed physicians Captive Group Practice Joint Venture Practice Foundation model Hospital Hospital physicians Other facilities Clinic Other facilities and services

19. 19 ACOs Legal Structure (42 CFR s. 425.5(d)(7)) Legal Structure (42 CFR s. 425.5(d)(7)) –ACO must be constituted as legal entity for purposes of all the following: Receiving and distributing shared savings; Receiving and distributing shared savings; Repaying shared losses; Repaying shared losses; Establishing, reporting, and ensuring provider compliance with health care quality criteria, including quality performance standards; Establishing, reporting, and ensuring provider compliance with health care quality criteria, including quality performance standards; Other ACO functions identified in this part. Other ACO functions identified in this part.

20. 20 ACOs 3 options for organizing ACO: 3 options for organizing ACO: –Particular component of ACO owned or controlled by ACO or system that operates ACO; –ACO components tied together through common ownership in ACO (joint venture); or –ACO components tied together through contractual arrangements E.g., comprehensive affiliation agreement or purchase or lease agreement with vendor E.g., comprehensive affiliation agreement or purchase or lease agreement with vendor

21. 21 ACOs Most loosely coupled options: Most loosely coupled options: –JV partnership –Series of contractual arrangements

22. 22 ACOs More tightly coupled models: More tightly coupled models: –Parent corporation model Not very flexible for partners Not very flexible for partners –Subsidiary corporation model Happy medium? Happy medium?

23. 23 ACOs Overarching management strategy is to continually transform a loosely coupled system into a more tightly coupled system. Overarching management strategy is to continually transform a loosely coupled system into a more tightly coupled system.

24. 24 ACOs Who are ACO Participants eligible for Shared Savings Program? Who are ACO Participants eligible for Shared Savings Program? –ACO professionals in group practices MD, DO, PA, NP, Clinical Nurse Specialist MD, DO, PA, NP, Clinical Nurse Specialist –Networks of individual practices of ACO Professionals –Partnerships or JV arrangements between hospitals and ACO professionals –Hospitals employing ACO professionals –Providers or suppliers otherwise recognized under the Act that are not ACO. –CAHs that bill under Method II (s. 413.70(b)(3)) 42 CFR s. 425.5(b). 42 CFR s. 425.5(b).

25. 25 ACOs Shared savings eligible participants may participate in ACO separately or in combination. s. 425.5(b). Shared savings eligible participants may participate in ACO separately or in combination. s. 425.5(b). Other Medicare enrolled providers and suppliers can participate in ACOs as well, as long as they collaborate with one of the 5 entities that are eligible to independently form an ACO. Other Medicare enrolled providers and suppliers can participate in ACOs as well, as long as they collaborate with one of the 5 entities that are eligible to independently form an ACO.

26. 26 ACOs ACOs must manage and coordinate care: ACOs must manage and coordinate care: –ACO participants and ACO providers/suppliers must have a meaningful commitment to ACOs clinical integration program. Financial investment Financial investment Human investment Human investment –42 CFR s. 425.5(d)(9).

27. 27 ACOs As part of 3-year agreement, ACO must certify that ACO providers and suppliers forming ACO have agreed to become accountable for and report to CMS on quality, cost and overall care of the Medicare FFS beneficiaries assigned to the ACO. As part of 3-year agreement, ACO must certify that ACO providers and suppliers forming ACO have agreed to become accountable for and report to CMS on quality, cost and overall care of the Medicare FFS beneficiaries assigned to the ACO. –42 CFR s. 425.5(d)(1).

28. 28 ACOs ACO must have infrastructure, such as IT, that enables ACO to collect and evaluate data and provide feedback to ACO participants and providers/suppliers across ACO, including information to influence care at point of care. ACO must have infrastructure, such as IT, that enables ACO to collect and evaluate data and provide feedback to ACO participants and providers/suppliers across ACO, including information to influence care at point of care. –May include meaningful use EHR

29. 29 ACOs ACO must implement evidence-based medical practice or clinical guidelines and processes for delivering care consistent with aims of better care for individuals, better health for populations and lower growth in health care expenditures. 42 CFR s. 425.5(d)(9). ACO must implement evidence-based medical practice or clinical guidelines and processes for delivering care consistent with aims of better care for individuals, better health for populations and lower growth in health care expenditures. 42 CFR s. 425.5(d)(9). ACOs must establish partnerships with community stakeholders to advance 3-part aim of better care for individuals, better health for populations, and lower growth in health care expenditures. 42 CFR s. 425.5(3)(v). ACOs must establish partnerships with community stakeholders to advance 3-part aim of better care for individuals, better health for populations, and lower growth in health care expenditures. 42 CFR s. 425.5(3)(v).

30. 30 ACOs ACOs must cater to Medicare FFS beneficiaries. ACOs must cater to Medicare FFS beneficiaries. –Must have at least 5,000 beneficiaries/yr –It is through these beneficiaries that ACO can achieve shared savings (or losses)

31. 31 ACOs ACO must have sufficient number of primary care professionals for the Medicare beneficiary population ACO must have sufficient number of primary care professionals for the Medicare beneficiary population Medicare beneficiaries assigned to ACO based on their utilization of primary care services provided by primary care physician who is ACO provider/supplier during performance year for which shared savings are to be determined. 42 CFR s. 425.6(a). Medicare beneficiaries assigned to ACO based on their utilization of primary care services provided by primary care physician who is ACO provider/supplier during performance year for which shared savings are to be determined. 42 CFR s. 425.6(a).

32. 32 ACOs Beneficiaries assigned to ACO not confined to ACO Beneficiaries assigned to ACO not confined to ACO –Have free choice in determining where to receive care. 42 CFR s. 425.6(a)(2). –Clear reaction to managed care restrictions from 1990s. –It will be up to ACO to create stickiness for patients so they voluntarily choose to stay within system of care And ACO can realize savings. And ACO can realize savings.

33. 33 ACOs If ACOs assigned population falls below 5,000, CMS would issue warning and place ACO on CAP, which could include plan to add primary care providers to ACO. If ACOs assigned population falls below 5,000, CMS would issue warning and place ACO on CAP, which could include plan to add primary care providers to ACO. If ACOs assigned population has not returned to at least 5,000 by end of next performance year, then ACOs agreement will be terminated and ACO will not be eligible for shared savings that year. If ACOs assigned population has not returned to at least 5,000 by end of next performance year, then ACOs agreement will be terminated and ACO will not be eligible for shared savings that year. –42 CFR s. 425.5(13)(ii)(B).

34. 34 ACOs Patient-centeredness criteria will help Patient-centeredness criteria will help –ACO must demonstrate patient- centeredness by: Having beneficiary experience care survey and describe how ACO will use results to improve care Having beneficiary experience care survey and describe how ACO will use results to improve care Patient involvement in ACO governance Patient involvement in ACO governance Evaluating health needs of ACO population, including consideration of diversity Evaluating health needs of ACO population, including consideration of diversity Identifying high-risk individuals and developing individualized care plans Identifying high-risk individuals and developing individualized care plans

35. 35 ACOs Patient-centeredness, cont. Patient-centeredness, cont. Coordinating care (through technology) Coordinating care (through technology) –For providers enrolled in electronic exchange of information, this process must be consistent with meaningful use requirements under EHR Incentive program. Communicating evidence-based medicine to beneficiaries Communicating evidence-based medicine to beneficiaries Engaging beneficiaries in shared decision-making Engaging beneficiaries in shared decision-making Creating written standards for beneficiary access and communication Creating written standards for beneficiary access and communication Measuring clinical or service performance by physicians across practices. Measuring clinical or service performance by physicians across practices. –42 CFR s. 425.5(15)(ii).

36. 36 ACOs Shared governance requirement will help Shared governance requirement will help –ACO must establish and maintain governing body with adequate authority to execute functions of ACO, including, promotion of evidence-based medicine and patient engagement, report on quality and cost measures, and coordinating care. 42 CFR s. 425.5(8). 42 CFR s. 425.5(8).

37. 37 ACOs Shared governance, cont… Shared governance, cont… –Governing body must be comprised of: ACO participants (or representatives) ACO participants (or representatives) –Must hold at least 75% control Medicare beneficiary representatives Medicare beneficiary representatives –No conflict of interest with ACO

38. 38 ACOs Other noteworthy items Other noteworthy items –ACOs can operate in 1 of 2 tracks: Track 1: One-sided model Track 1: One-sided model –No risk Years 1 and 2 (only shared savings) –Year 3: ad risk (loss) and higher reimbursement Track 2: Two-sided model Track 2: Two-sided model –Shared savings or loss starting in Year 1 –Higher reimbursement starting Year 1 For subsequent agreement periods, ACO may operate only under two-sided model. For subsequent agreement periods, ACO may operate only under two-sided model. –42 CFR s. 425.5(6).

39. 39 ACOs In both Tracks, ACOs share in savings will be subject to 25% withholding to help ensure repayment of any losses to Medicare program. In both Tracks, ACOs share in savings will be subject to 25% withholding to help ensure repayment of any losses to Medicare program. –Withheld amount will be applied towards repayment of ACOs losses.

40. 40 ACOs Shared savings payments Shared savings payments –As part of application to participate in Shared Savings Program, ACO must describe: How it plans to use shared savings payments, including criteria it plans to employ for distributing savings among participants; How it plans to use shared savings payments, including criteria it plans to employ for distributing savings among participants; How the proposed plan will achieve specific goals of program; How the proposed plan will achieve specific goals of program; How plan will achieve general aims of better care for individuals, better health for populations and lower growth in expenditures. How plan will achieve general aims of better care for individuals, better health for populations and lower growth in expenditures. –42 CFR s. 425.5(11).

41. 41 ACOs Shared savings payments Shared savings payments –An ACO is eligible to receive payment for shared savings if: It meets requirements of ACO agreement; It meets requirements of ACO agreement; It realizes savings compared to expenditure benchmark that exceeds the minimum savings rate; and It realizes savings compared to expenditure benchmark that exceeds the minimum savings rate; and It meets quality performance standards established under 42 CFR s. 425.10 It meets quality performance standards established under 42 CFR s. 425.10 –Quality standards placed into 5 domains: Patient/care giver experience Patient/care giver experience Care coordination Care coordination Patient safety Patient safety Preventative health Preventative health At-risk population/frail elderly health At-risk population/frail elderly health

42. 42 ACOs Shared savings Shared savings –CMS proposes to make any shared savings payments directly to the ACO TIN. –ACO will then make shared savings payments, as outlined on its application to the program, to ACO participants.

43. 43 ACOs Timeline Timeline –PPACA provided January 1, 2012 as date by when ACO program must be established –CMS requirements/timeline may not allow sufficient time for ACOs to complete application process by 1/1/2012 CMS requesting comments on alternatives (e.g., July 1) CMS requesting comments on alternatives (e.g., July 1)

44. 44 Questions? For more information, contact: For more information, contact: Barbara J. Zabawa, JD, MPH, FACHE Attorney at: Whyte Hirschboeck Dudek, S.C. 33 East Main Street, Suite 300 Madison, WI 53703-4655 Phone: 608-234-6075 Email: bzabawa@whdlaw.com bzabawa@whdlaw.com