The Centers of Medicare & Medicaid Services (CMS) has consistently stated that it does not anticipate approving specialty accountable care organizations. Thus it is no surprise that CMS has been reluctant to call the new ESRD Seamless Care Organization (ESCO) a "renal ACO" or "renal accountable care organization" and in many ways the new program does differ from the ACO shared savings program. Like many U.S. healthcare sectors, various players within the continuum of care are exploring ways to affiliate to lower costs and enhance quality. The ESCO is surely an option that dialysis companies and nephrologists will investigate, although it remains to be seen how viable the program truly is.
Apparently some early participants in the accountable care organization (ACO) program are experiencing problems accessing crucial CMS (Centers for Medicare and Medicaid Services) data.
The acting administrator of CMS has reported to ACO supervisors and others at a conference last week in D.C. that the agency is attempting to streamline access to Medicare enrollees’ data.
The CMS spokesperson averred that it is too early for any comprehensive evaluation of the first 32 Medicare ACOs, which were just launched at the beginning of the year. These ACOs and those that follow will need to show payment and delivery reforms that will, hopefully, provide the platform for restructuring the Medicare process from an episode-based care model to one of comprehensive care. CMS plans to conduct both quarterly and annual reviews of ACO programs to evaluate ongoing progress in reducing the number of hospitalizations and the cost of care, among other measures.
CMS is also considering extending the advance payment ACO model’s application deadline, the last of which was March 30. This advance payment ACO may prove especially popular with physician-led groups that do not have the financial resources of major health systems, since participating providers would receive payments upfront of the expected savings that the ACO would produce.
We have descrived in prior posts the opportunities available through Accountable Care Organizations. ACOs are intended to provide physicians and medical centers financial incentives to continue offering high-quality medical services to their Medicare patients while keeping costs at an acceptable level through a variety of mechanisms that reward providers for keeping their patient population healthy. It remains to be seen how successful the model will be, and there is much speculation about the most effective long-term structures for ACOs (including the participants to be included in an ACO model).
It is critical that providers considering an ACO understand and adhere to the final Medicare Shared Savings Program regulations released by Centers for Medicare and Medicaid Services (CMS). In the final rule published this November, CMS reconsidered many of its core positions set forth in the proposed regulations issued earlier in March 2011, with the goal of reducing burdens and costs for participating in the Medicare Shared Savings Program.
Several of our McGuireWoods colleagues have jointly authored a series discussing the opportunities and parameters for ACOs. Most recently, the series discussed the final ACO rule changes as they relate to the governance of an ACO. A link to the series is available here.
Accountable Care Organizations (ACOs) have become a catchphrase within today’s healthcare industry. As we have discussed in prior posts, ACOs are intended to be a vehicle for providing physicians and medical centers financial incentives to continue offering high-quality medical services to their Medicare patients while keeping costs at an acceptable level. Currently, Medicare habitually reimburses physicians and hospitals more when patients are on the receiving end of more tests and additional procedures, increasing costs. By emphasizing preventative care and monitoring patients with chronic illnesses, the ACO approach is designed such that doctors and their institutions would receive higher reimbursements for keeping their patient population healthy.
Under the new law, which goes into effect January 2012, an individual ACO would manage the health care needs of at least 5,000 Medicare beneficiaries for a minimum of three years. ACOs will, ideally, systematize such components of patient care as hospitals, primary care and specialty physicians, as well as both in-home and institutional long-term health care, ensuring optimal patient care and physician financial benefits. Medical centers, health care practices and insurers across the country are looking to form ACOs that will include privately-insured patients as well as Medicare recipients.
Multispecialty groups have begun establishing ACOs throughout the country, with several initial efforts appearing in California. Large medical centers are buying up practice groups for a variety of reasons, a consolidation trend that now also has the additional benefit to some systems of formation of ACOs that would employ a majority of their providers. With more access to the necessary start-up capital, these institutions will, conceivably, have at least a monetary advantage over many smaller private practice groups. Some of the largest health care insurance providers in the country, such as Cigna, Humana and United Health Care, have also announced plans to form ACOs; these companies already collect a plethora of information on patients, vital for coordinating and reporting healthcare.
Start-up and first year cash costs will typically come from an ACO’s providers, with a CMS estimate of $1.76 million. As with any venture, particularly innovative ones, careful contractual delineation of the parties’ relative rights and responsibilities is paramount for success. For example, if funding obtained via financing, loan documents should be clear as to the extent to which ACO participants are obligated to guarantee such debt (e.g. dollar and time limits on the guarantees relative to the entire ACO investment, etc.). At the conclusion of each year, an ACO will either receive payment from CMS or, conversely, remit funds to the agency. These profits/losses will then be allocated to the participants. Investors may opt to place finances in escrow or offer bank letters of credit to ensure the availability of funds potentially owing back to CMS should the ACO fail to hit performance targets. Normally, an ACO would issue profits and losses based on a formula that incentivizes providers to meet the organization’s objectives, details of which would be included in negotiations, another aspect of ACO contracts critical in determining investors’ rights as well as risks.
Yesterday, CMS released the much anticipated proposed regulations regarding the Shared Savings Program contemplated in Section 3022 of the healthcare reform law, PPACA. The 429-page set of regulations is expected to provide greater clarity re CMS's implementation of HHS's authority to contract with Accountable Care Organizations (ACOs) under shared savings or other payment arrangements. The proposed rule provides for a 60 day public comment period.
In conjunction with the CMS release, yesterday three other federal agencies issued related guidance. First, the FTC and DOJ jointly issued a Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program. The joint proposed statement seeks public comment until May 31st regarding the two agencies' guidance, including the new proposed antitrust "safety zone" that would be created.
McGuireWoods attorneys will be carefully examining these agency issuances and providing additional detail and analysis shortly on both this blog and on our firm website, www.mcguirewoods.com.
With ACOs as such a hot topic right now, and the variety of forms these organizations can take, healthcare investors can examine not only opportunities in ACOs themselves but in healthcare related businesses that will service or be affiliated with ACOs. A fundamental tenant of the ACO model is investment in infrastructure aimed at both cost-efficient delivery of care and enhancing quality of care. Thus there will very likely be businesses that emerge or expand to focus on such infrastructure and consolidation of certain resources. Such businesses may include the following, most of which exist already today but will have the opportunity to expand their services to meet the needs of ACOs:
1) Billing and coding services, including software manufacturers for internal billing, coding and collection functions, as well as outside third party billing companies, modified to efficiently retrieve all necessary data for the different components from the ACO for consolidated billing;
2) Payor contracting and payor relations professionals, particularly as commercial payors integrate ACO models into their plans;
3) Analytics companies to provide analysis of the various patient intake, record-keeping, data sharing, billing/collection and quality initiative aspects of the ACO;
4) Purchasing organizations and equipment lessors with programs designed for ACOs rather than the individual physician practice, hospitals and other individual components;
5) Health information technology companies. Forward-thinking health IT hardware and software manufacturers in particular can examine the needs of ACOs seeking to roll in different provider types and a myriad of physical sites and their need to efficiently share information in a HIPAA-compliant manner.
One way that CMS seeks to better understand the efficiency opportunities with ACOs is by engaging the 10 healthcare organizations that participated in its five-year Physician Group Practice (PGP) Demonstration. The PGP Demonstration, which began in 2005 and ended in March of 2010, enabled physician groups to share up to 80% of the savings they generated above a minimum threshold by improving quality and reducing costs. CMS hopes engaging these PGP Demonstration participants will help resolve some of the outstanding issues related to quality and cost measurement. CMS has indicated that these PGP Demonstration participants may provide valuable insight into the infrastructure changes that they themselves found effective, and those exemplary changes could provide a template for future ACOs. Healthcare investors can also follow CMS’s analysis with these PGP Demonstration participants to better understand what has worked for other organizations as a way of anticipating what related businesses may be most in demand.
In addition to tracking these CMS inquiries, Sarah Klein’s article for The Commonwealth Fund examines the admissions, medical records, health IT, patient survey and other infrastructure changes made by four of the ten participants and their feedback as to the value of those changes. Executives from St. John’s Health System based in Springfield, Missouri, Everett Clinic based in Everett, Washington, Billings Clinic in Billings, Montana and Carilion Clinic in Roanoke, Virginia all discuss their systems’ PGP Demonstration experience.
Even if the ultimate success of various ACO models is murky, one thing is clear. There will likely be significant focus on how businesses that service the healthcare industry can fill the needs of ACOs, and interested investors will need to examine the viability of these businesses in light of the ultimate potential and staying power of the ACOs they serve.
With the authorization of Accountable Care Organizations (ACOs) in the healthcare reform law (PPACA), there has been a tremendous amount of industry attention on understanding ACOs and the opportunities and challenges they present. With ACOs as such a hot topic and the variety of forms these organizations can take, healthcare investors can examine not only opportunities in ACOs themselves but in healthcare related businesses that will service or be affiliated with ACOs. Understanding the role and possibilities of ACOs is highly valuable in order to assess these opportunities.
PPACA directs the Secretary of Health & Human Services to establish a Shared Savings Program under both Parts A and B of Medicare to improve quality and efficiency of the healthcare delivery system no later than January 1, 2012. ACOs may be created by ACO professionals in group practice arrangements, by networks of individual practices of ACO professionals, by partnerships or joint venture arrangements between hospitals and ACO professionals, by hospitals employing ACO professionals, by such other groups of providers of services and supplies as the Secretary determines is appropriate.
An approved ACO will be assigned Medicare beneficiaries, will participate in the Shared Savings Program and will be eligible to receive additional payments from Medicare when certain performance guidelines are met and cost-savings targets are achieved. The amount of the additional payment will be a percentage of the difference between the estimated per capita Medicare expenditures for patients assigned to the ACO and the cost-savings per capita Medicare expenditures threshold.
While ACOs are often heralded as the solution to the current ailing model of healthcare delivery for Medicare, including the need for enhanced quality, improved outcomes, better coordination of care, and greater cost-savings, there are many misconceptions about the Shared Savings Program and a seemingly unending list of questions about what form ACOs will take under the final regulations. CMS is tasked with fleshing out the details of how the organizations will work and be reimbursed. Right now, CMS has issued very little guidance on its vision of ACOs and the Shared Savings Program, but CMS has issued a brief Preliminary Questions & Answers piece on its website. A recent article by our McGuireWoods colleague Tom Stallings and Brent Rawlings addresses some of the common misconceptions about ACOs and the Shared Savings Program. Additionally, our colleagues Scott Becker and Helen Suh discuss nine observations in their recent article about ACOs, including movements by commercial payors toward this model.
In future posts we will focus on the businesses that we envision will emerge or evolve to service these ACOs and those potential investment opportunities.
On Wednesday, March 12th, McGuireWoods hosted our 8th Annual Business & Legal Issues in Dialysis & Nephrology Symposium. Leaders from various perspectives in the industry provided presentations and lead discussions on a wide array of topics, including the effects of the Patient Protection and Affordable Care Act (the PPACA, commonly referred to as the Health Care Reform Law), key compliance issues and investment scenarios.
Various themes emerged from the day, including the following:
1) Many people continue to view investment in the dialysis industry as a viable option. Even with the uncertainties of the bundling system and the impact of healthcare reform generally, many believe there are still great opportunities for investment in dialysis programs and nephrology/dialysis-related vendors.
2) Not surprisingly, the impending conversion to bundled reimbursement by Medicare for dialysis providers is a focal point for providers. The response from small dialysis organizations (SDOs), large dialysis organizations (LDOs) and others is varied, but most look forward to the results of a General Accounting Office (GAO) study on the impact of the inclusion of oral drugs in the dialysis bundle, which was mandated by the PPACA. The deadline for delivery of the GAO report is a year from passage (i.e., March 23, 2011). Most dialysis companies are encouraged by the mandate for investigation and are hopeful that it will help illustrate whether or not those drugs are being adequately priced and if there are any quality of care concerns. For more detail regarding the bundled payment structure and its potential impact on different dialysis providers, see our prior post entitled twww.thehealthcareinvestor.com/2010/03/articles/healthcare-services-investing/dialysis-industry-prepares-for-new-payment-methodology-how-might-bundling-effect-providers-differently/
3) Nephrology physician practices face a variety of challenges these days, including both from a patient care and daily practice administrative perspective as well as from the perspective of their roles in the delivery of dialysis care as Medical Directors and/or joint venture partners. We discussed opportunities for facing those challenges through practice merger or other consolidation into larger organizations such as a hospital system or Physician Practice Management (PPM) or Management Services Organization (MSO).
4) The industry is closely examining the potential for increased liability of dialysis companies under various state and federal laws aimed at curbing fraud and abuse, including The Fraud Enforcement and Recovery Act (FERA) which was signed into law by President Obama in April of 2009. FERA implemented significant changes tothe federal False Claims Act, including the expansion of prohibited conduct under the False Claims Act to include not justthe improper filing to collect monies, but also the known retention of overpayments by hospitals or other health careproviders. The 2009 amendments also make clear that false claims submission to a state Medicaid program, although not directly submitted to the federal government, does constitute a violation of the False Claims Act. We discussed the impact of these changes and other compliance concerns for the dialysis industry.
5) Accountable care organizations (ACOs) are a hot topic for many healthcare sectors, including dialysis providers. ACOs have been officially endorsed in the PPACA, Section 3302. Under the ACO provisions, groups of providers that work together to manage and coordinate care for Medicare beneficiaries can qualify to receive additional Medicare payments if they achieve specified cost savings and meet a range of criteria, including standards established by CMS relating to quality, reporting, and governing structure. In essence, if they are able to improve outcomes and lower costs then those ACOs can potentially share in the savings. The PPACA provides that the ACO program is to be established no later than January 1, 2012. It leaves much discretion to the Secretary of the Department of Health and Human Services (DHHS) to determine the policies and procedures that will apply to ACOs.
6) Various existing and new laws effect day-to-day clinical care and administration in dialysis facilities such as the revised Conditions for Participation in the Medicare/Medicaid programs. Changes to the National Fire Protection Association's Life Safety Code (commonly called the Life Safety Code) applicable to dialysis providers and other recent changes in the Conditions for Participation must be understood and properly implemented by dialysis providers. In their article entitled Applying the Life Safety Code: Are you Ready?, Bob Bednar and Ron Reynolds discuss the Life Safety Code changes implemented in 2010 in detail.
7) Compliance plans, which were previously highly recommended for the dialysis industry and nephrology providers, are now mandated by the PPACA for certain providers who participate in Medicare/Medicaid. While details of the compliance plan requirements for skilled nursing facilities (SNFs) are set out in detail in the PPACA, the Secretary of DHHS was given the authority to designate the types of providers that will be required to have compliance programs in place and the details of such programs. State Medicaid programs also must require participating providers to have programs in place that meet the federal guidelines to be issued. DHHS has indicated that details of those programs will likely be issued on an industry-by-industry basis, and we generally expect the components of the programs to be similar to the key components of the DHHS Office of Inspector General model compliance plan first published for healthcare providers in 1997 and since updated.
8) Investment opportunities in businesses ancillary to the dialysis industry, including nephrology-specific electronic health records (EHR) systems and vascular access programs remain attractive options for some investors. Vascular access centers provide a particularly critical service to patients suffering from end-stage renal disease (ESRD), who require, prior to beginning dialysis, the surgical creation of a site in which the patient’s vascular system can be accessed during dialysis. The various methodologies for creating the access site are reimbursed by Medicare and other payors. There are a number of regulatory issues governing the investment and referral relationships that need to be examined prior to creating vascular access company.
All of these topics will be addressed in further detail in future posts. For additional details on any of these issues in the interim, please contact the authors.