The Health Care Investor : Healthcare Lawyers & Attorneys for Life Science Companies & Investors

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.

In a recent publication, our McGuireWoods colleagues Jim Riley, Jason Greis and Scott Downing, describe the ESCO and the new CMS pilot program to test the renal coordinated care concept.   

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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.

 

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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. 

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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.
 

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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.

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 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.

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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.  

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On Wednesday, March 12^th, McGuireWoods hosted our 8^th 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.

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