ACO Regulatory Summary


This is the first in a series of summaries prepared by Armstrong Teasdale attorneys analyzing the proposed rule for Accountable Care Organizations. Our Health Care practice group lawyers will focus on specific sections of the rule in the following weeks and throughout the 60-day comment period. The summaries will examine the potential impact on providers and patients and discuss participation requirements, the development of an ACO, fraud and abuse concerns, the economic impact of the Shared Savings Program, tax implications, quality of care issues, and data submission.


On March 31, 2011, the Centers for Medicare & Medicaid Services (“CMS”) released its proposed rule and guidance for Accountable Care Organizations (“ACOs”), including the implementation of the Shared Savings Program (the “ACO Proposed Rule”). In addition to CMS releasing the ACO Proposed Rule, the OIG and CMS jointly released a notice and request for comments relating to fraud and abuse waiver authorities; the DOJ and FTC issued joint guidance related to anti-trust issues; and the IRS released a notice and request for comments related to tax-exempt organizations. The ACO Proposed Rule will be published in the Federal Register on April 7, 2011 and comments will be accepted through June 6, 2011.


Section 3022 of the Patient Protection and Affordable Care Act (“PPACA”) requires CMS to establish a shared savings program to facilitate coordination and cooperation among providers to improve the quality of care for Medicare fee-for-service beneficiaries and to reduce unnecessary costs (the “Shared Savings Program”). CMS intends for ACOs to be the vehicle for the Shared Savings Program by:

Promoting accountability for the care of Medicare fee-for-service beneficiaries;

Requiring coordinated care for all services provided under Medicare fee-for-service; and

Encouraging investment in infrastructure and redesigned care processes.

Structure and Management

Under the ACO Proposed Rule, CMS defines an ACO as a recognized legal entity under state law compromised of a group of ACO participants (Medicare enrolled providers or suppliers) that have established a mechanism for shared governance and will work to coordinate care for Medicare fee-for-service beneficiaries.

The following is a list of eligible ACO participants:

ACO professionals (physicians and other professionals recognized under the Medicare program) in group practice arrangements;

Networks of individual practices of ACO professionals;

Partnerships or joint venture arrangements between Hospitals and ACO professionals;

Hospitals employing ACO professionals; and

Such other groups of providers of services and suppliers as the Secretary determines appropriate.

Pursuant to the ACO Proposed Rule, an eligible ACO must "have in place a leadership and management structure that includes clinical and administrative systems." CMS proposes that an ACO establish and maintain a governing body authorized to execute statutory functions, which may be in the form of a board of directors, a board of managers, or another decision-making body allowing for shared governance by the ACO participants. As currently drafted, for an ACO to be eligible for the Shared Savings Program, the ACO participants must control 75 percent of the ACO’s governing body. Finally, management of the ACO must satisfy the following criteria:

The ACO’s operations must be managed by an executive, officer, manager, or general partner, whose appointment and removal are under control of the organization’s governing body and whose leadership team has demonstrated the ability to influence or direct clinical practice to improve efficiency processes and outcomes.

Clinical management and oversight must be managed by a senior-level medical director who is a board-certified physician, licensed in the state in which the ACO operates, and physically present in that state.

ACO participants and ACO providers/suppliers must have a meaningful commitment (e.g., financial or human capital) to the ACO's clinical integration program to ensure its likely success.

The ACO must have a physician-directed quality assurance and process improvement committee that would oversee an ongoing quality assurance and improvement program.

The ACO must develop and implement evidence-based medical practice or clinical guidelines and processes for delivering care consistent with the goals of better care for individuals, better health for populations, and lower growth in expenditures.

The ACO must have an infrastructure, such as information technology, that enables the ACO to collect and evaluate data and provide feedback to the ACO providers/suppliers across the entire organization, including providing information to influence care at the point of care.

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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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