The Supreme Court Rules on Health Reform – Now Operationalize that ACO!


While many providers forged ahead with the development of accountable care organizations ("ACOs") prior to the Supreme Court's ruling in National Federation of Independent Businesses et. al. v. Sebelius, the Court's determination that most of the challenged provisions of the Patient Protection and Affordable Care Act ("PPACA") were not unconstitutional removed lingering doubts about whether providers should continue to implement Medicare Shared Savings Program ("MSSP") ACOs as per Section 3022 of PPACA.

Section 3022 of PPACA authorized the formation of MSSP ACOs to serve as the contracting entities through which health care providers could: (1) link together to drive quality and achieve cost efficiency; and (2) share in a portion of governmental health plan savings realized thereby. ACOs, or ACO-like organizations, have also been formed in connection with employer plans and other types of health plans for similar purposes.

The development and use of MSSP ACOs would have been stymied if the Court had ruled that PPACA was unconstitutional. However, the Court's ruling (that the only provisions of PPACA that were unlawful were those dealing with the removal of all Medicaid funding from states that refuse to expand their Medicaid programs) left no cause for such concern.

Moving forward, MSSP ACOs (and ACO-like counterparts) should prepare with their respective participants for some operational challenges. In particular, ACO hospital participants should:

1. Understand and operationalize their role in minimizing inefficiencies and costs by:

a. Selecting physician and provider partners carefully

b. Utilizing electronic health records effectively

c. Reviewing and analyzing data meaningfully

2. Communicate their role and mission to constituents, medical staffs, employees and advisors clearly by:

a. Establishing and implementing performance standards in a deliberative fashion

b. Executing rewards and sanctions for meeting and failing to meet performance standards consistently

c. Encouraging and implementing continuous improvements via internal feedback

3. Present care options to patients in ways that encourage them to engage in behaviors that support quality and efficiency.

Hospitals participating in ACOs may require amendments to agreements with their employed physicians (and/or separate agreements with other physicians/staff) to:

1. Revise compensation methodologies from work RVUs (which are based on productivity and revenue generation) to other compensation methods to reflect the ACO's focus on cost containment, as well as provide compensation for ACO administrative duties.

2. Adjust the term of these employment agreements to encompass the (three-year, if an MSSP ACO) term of the hospital's duties to provide services as per the ACO's participation agreement (with CMS).

3. Articulate any distribution methodology for shared savings as bonuses or other form(s) of remuneration.

Hospitals participating in ACOs also need to be mindful of antitrust issues that can arise in connection with services that fall outside the ACO. For example, communications/activities between hospital ACO participants may stray into areas that give rise to the following types of antitrust issues: "collusion" for services outside the ACO; "tying" sales of ACO services to private payor purchasers of other services outside the ACO; and, discouraging ACO providers from contracting with private payors outside the ACO.

Hospital participation in an ACO requires acknowledgement that patients play a key role. In other words, hospitals need to move from utilizing technology to monitor the hospital's experience to using such data to monitor the patient's experience. All MSSP ACO participants need to keep in mind that, while the provider participants are tied to ACO participation for the term of the ACO's agreement with CMS, the patients are not tied to the ACO and are free to seek services elsewhere.

Saul Ewing can help hospital ACO participants (i) keep apprised of state and federal health reform developments, (ii) comply with the multitude of regulations that have been issued pursuant in connection with ACOs, (iii) and structure their operations to take advantage of the opportunities presented by health reform.

For more information on the Patient Protection and Affordable Care Act, read our previous Alerts here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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