Topics covered in this week’s edition of the Health Law Update include:
With the release of the final rule governing Accountable Care Organizations (ACOs) under the Medicare Shared Savings Program (MSSP) (hereafter Final Rule), the Centers for Medicare and Medicaid Services (CMS) sought to address healthcare industry concerns reflected in over 1320 public comments to the April 7, 2011, proposed rule. (Please see Baker Hostetler’s detailed analysis of the proposed rule.)
Implementing Section 3022 of the Patient Protection and Affordable Care Act (PPACA), the Final Rule includes “significant modifications” aimed at reducing “the burden and cost for participating ACOs” by CMS. Widely heralded as a step in the right direction by the healthcare community, the Final Rule is scheduled for publication in the November 2 Federal Register.
The October 20 prepublication release of the CMS Final Rule was accompanied by an array of related issuances that highlight the Administration’s multi-agency approach to the MSSP:
Underscoring the Administration’s commitment to achieving the triple aim of “better health, better healthcare and reduced expenditures through continuous improvement,” the modifications outlined in the 695-page Final Rule clearly signal CMS’s steadfast support of ACOs as vehicles for transforming the delivery of healthcare in the U.S.
The following report by the Baker Hostetler National Healthcare Team provides a “Baker’s Dozen” overview of key changes from the Final Rule and related issuances.
In a welcome change for the healthcare industry, ACOs now will receive quarterly prospective assignment of beneficiaries from the Medicare program with final membership reconciliation to occur based on each beneficiary’s utilization of primary care services from ACO providers during the performance year.
Many potential participants had expressed concern over the original structure of ACOs because the transition to bearing financial risk for many was too quick, coupled with the significant investment and uncertainties of return. The proposed rule provided for two shared savings models known as Track 1 and Track 2: Under the one-sided risk model (Track 1), ACOs would share savings only for the first two years and thereafter share savings and losses. Under the two-sided risk model (Track 2), ACOs would share in the savings and losses for all years. Under the Final Rule, the two-sided risk provision for year three under Track 1 is eliminated. This, CMS believes, will provide a “gentler on-ramp” for organizations seeking to participate, while organizations that are better equipped to accept risk have a distinct track. As a result, the one-sided risk model has become a shared “savings-only” track without financial risk to the ACO for the initial contract period.
To further encourage participation, ACOs in both the one-sided and two-sided models will receive shared savings for the first dollar after the minimum savings percentage is exceeded (minimum savings rate or MSR). This is in contrast to the proposed rule, where sharing only occurred above a two percent threshold once the MSR was achieved. CMS, however, chose not to increase the basic sharing ratios (50 percent allocated for providers in Track 1 ACOs and 60 percent allocated for providers in Track 2 ACOs).
In another change from the proposed rule, CMS eliminated the annual 25 percent withhold of earned bonuses.
In the proposed rule, CMS required ACOs to repay any shared losses to the agency within 30 days of receipt of notification of the shared losses. The Final Rule has extended the repayment period to 90 days, which should assist with the cash flow of ACOs.
Another major criticism of the proposed rules was the complexity surrounding the quality performance standards, which acted as a disincentive for many potential participants. The proposed rule contained 65 different measures across five domains. CMS, in the Final Rule, sought to streamline the measures to remove “certain redundant, operationally complex, or burdensome measures.” The Final Rule greatly simplifies the quality performance standards, reducing them to 33 measures across four domains. For instance, the Final Rule combined the care coordination and patient safety domains to better align with other CMS value-based purchasing initiatives and the National Quality Strategy and to emphasize the importance of ambulatory patient safety and care coordination. The Final Rule also adjusts the phase-in period, beginning with a primarily pay-for-reporting and moving, over the participation period, to pay-for-performance. As a result, to earn shared savings in the first performance year, providers will be required to report across all four quality domains. In the second and third performance years, ACOs will share savings based on reporting and performance in the 33 quality measures.
While acknowledging multiple comments seeking permission for ACO participants to form a new entity by contract, CMS remained steadfast in its position that each ACO must be an entity that is capable of:
While CMS did emphasize that a new entity may not be needed, it made clear that there must be an entity, with a taxpayer identification number, that otherwise meets program requirements.
Governance flexibility was a big winner in the Final Rule. While PPACA requires a mechanism for shared governance it does not proscribe how this occurs. The proposed rule outlining the initial governance requirements contained rigid, and often cumbersome, governance structures and were considered governance micromanagement by many. CMS recognized this and created a much more flexible approach to governance. For instance, CMS altered its requirement that each ACO participant be a member of the ACO’s governing body and that there be proportionate control among participants. Instead, CMS acknowledged that the governing body provides oversight and strategic direction for the ACO, holding management accountable for meeting the goals of the ACO and that members of the governing body shall have a fiduciary duty to put the ACO’s interests before that of any one ACO participant or ACO provider/supplier. CMS reiterated its belief that the governing body be provider-driven, maintaining the requirement that 75 percent control of the ACO’s governing body be held by ACO participants, with an exception for existing entities that qualify under the MSSP, so long as they can demonstrate how they will involve ACO participation in innovative ways and provide for meaningful participation in ACO governance by Medicare beneficiaries.
CMS proposed using a six-month claims run-out period to calculate the benchmark and actual per-capita beneficiary expenditures for each performance year. However, CMS concluded in the Final Rule that the minimal increased accuracy associated with six months of claims run-out data, as compared to three months of data coupled with an appropriate adjustment for claims anticipated to be received during the period after the third month, did not justify delaying the provision of quality metrics and shared savings reconciliation data to the ACOs. The shorter run-out of claims data, especially in the first year, will significantly aid the cash flow of ACOs. CMS, however, indicated that it will monitor claim submission patterns to avoid gaming through the deliberate delay in submission of claims that would result in an unusual increase. No mechanism was established to reduce the completion adjustment for providers that submit bills on a timely basis. Hence, some argument may be made that prompt submission of invoices could harm a provider.
In the Final Rule, CMS has decided not to finalize the requirement that at least 50 percent of an ACO’s primary care physicians be “meaningful EHR users” as that term is defined in the federal electronic health record (EHR) financial incentive program regulations, 42 C.F.R. § 495.4, by the start of the second performance year in order to continue participation in the MSSP. This is partly in response to commenters who expressed concern that the 50 percent meaningful EHR use requirement was set too high, given the current lack of experience with the EHR incentive program, especially in the areas of smaller, less integrated or rural physician practices. Instead, EHR participation will remain a key quality measure under the MSSP. Under the Final Rule, the quality measure, “Percent of PCPs who Successfully Qualify for an EHR Incentive Program Payment” will be given double the weight proposed initially by CMS to stress the importance of EHR adoption among ACOs.
In response to comments requesting additional flexibility in the start date of the MSSP, the Final Rule establishes two application periods for the first year—April 1, 2012, or July 1, 2012. All ACOs that start in 2012 will have agreement periods that terminate at the end of 2015 as follows:
The Final Rule provides that ACOs will be eligible to receive Physician Quality Reporting System (PQRS) incentive payments for each calendar year in which they fully and completely report the Group Practice Reporting Option (GPRO) measures, regardless of their start date. According to the agency, “this will provide ACOs that join the program in April or July 2012 with some working capital in advance of the completion of the first ACO performance year, regardless of their ability to generate shared savings.”
CMS has created an eligibility pathway for federally qualified health centers (FQHCs) and rural health clinics (RHCs) to both form and participate in ACOs under the Final Rule. These organizations will be required to provide a list of practitioners to CMS who directly render primary care services in their facilities so that beneficiaries may be assigned on the basis of utilization of their services.
With the release of the Final Rule, CMS also issued a notice announcing the Advance Payment Model initiative aimed at encouraging participation by physician-owned organizations, critical access and rural providers in the MSSP. Designed to assist in defraying upfront infrastructure costs and “to smooth cash flow concerns,” selected participants will receive a prepaid advance on future shared savings earned by the ACO. Only ACOs that make application for and enter the MSSP in 2012 will be eligible for the advance payments.
Concurrent with the promulgation of the Final Rule, the FTC and the Antitrust Division of the DOJ (Agencies) revised their approach to antitrust guidance for ACOs. Notably, the Agencies jettisoned the burdensome mandatory antitrust review originally proposed as a prerequisite to entry into the MSSP for ACOs with large market shares. Antitrust review is now voluntary, and the Agencies provided guidance for how ACOs can, if they choose, obtain expedited review. The final policy statement of the Agencies, “Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program,” differs from its proposed policy statement in another significant way: the policy statement now applies to all collaborations among otherwise independent providers, not only those formed prior to March 23, 2010.
In the final statement, the Agencies retain from the proposed statement the explicit recognition that CMS’s eligibility criteria for ACOs are sufficiently consistent with the indicia of clinical integration that such arrangements are presumptively bona fide and will not be considered anticompetitive shams subject to automatic (or “per se”) illegality under the antitrust laws. Thus, the Agencies agree to afford ACOs that meet CMS’s criteria the more flexible and forgiving “rule of reason” treatment. The Statement explicitly recognizes that the Agencies have not identified specific criteria required to establish clinical integration, but rather have avoided prescribing how integration should take place.
The Statement also provides a safety zone for certain ACOs unlikely to raise significant competitive concerns, and describes conduct ACOs generally should avoid.
In conjunction with the Final Rule, CMS and the OIG have published an interim final rule (IFR) that establishes waivers of the application of the physician self-referral law (Stark Law), federal anti-kickback statute (AKS), and certain civil monetary penalties (CMP) law provisions to ACOs. The IFR expands the three waivers set forth in the proposed rules to the following five waivers:
Finally, the IFR solicits comments on various issues, including whether to impose commercial reasonableness or fair market value requirements on the arrangements in the ACO pre-participation and participation waivers.
In conjunction with the issuance of the Final Rule, the IRS released Fact Sheet 2011-11, confirming that although CMS’s final regulations differed from the proposed regulations, the IRS discussion in Notice 2011-20 continues to reflect the IRS position with respect to participation in ACOs by tax-exempt organizations. The IRS clarified that it is sufficient for the written agreement to set forth the methodology for determining an ACO’s allocation of shared savings payments, rather than specifying a precise share or exact amount. Also, whether an ACO’s termination from the MSSP would jeopardize the tax-exempt status of a participant will depend on all facts and circumstances. Similarly, ownership interests in an ACO need not be directly proportional to capital contributions, nor is an ACO required to always distribute shared savings payments in proportion to such ownership interests. Finally, the IRS confirmed that its 2007 memorandum relating to EHR applies to a charitable organization participating in the MSSP through an ACO.
Additional articles and alerts to supplement the information contained herein will be forthcoming in future issues of the Health Law Update. Should you have any questions regarding the ACO Final Rule and/or any of the related issuances, please do not hesitate to contact any member of the Baker Hostetler National Healthcare Team.
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On October 19, CMS released two proposed rules and one final rule with the aim of implementing President Obama’s January 18, 2011, Executive Order to reduce regulatory burdens and expenses. The final rule changes the condition for coverage (CfC) regarding patient rights in ambulatory surgical centers (ASCs). The CfC previously had prohibited ASCs from scheduling patients for surgery on the same day they received required patient rights notifications except in emergency situations. The CfC now will permit ASCs to provide the written notice any time before the start of the surgical procedure. The final rule, which is expected to save ASCs $50 million in the first year, will become effective December 23, 2011.
The first of two proposed rules would simplify and eliminate some existing Medicare conditions of participation (CoPs) that CMS believes are unnecessarily burdensome for hospitals and critical access hospitals (CAHs). Notably, CMS proposes to eliminate the longstanding requirement that health systems maintain a separate governing board for each hospital facility. Other changes include allowing a hospital to appoint more than one director of outpatient services, clarifying that certain nonphysician practitioners may be granted privileges even if they are not members of the medical staff (within the bounds of state law) and allowing hospitals to integrate a patient’s nursing plan into his or her interdisciplinary care plan. The proposed rule also would allow CAHs to secure laboratory and radiology services under arrangement rather than requiring these services to be provided in house. CMS estimates that the changes to the CoPs could save hospitals $900 million in the first year and “many billions” in future years.
The second proposed rule would modify and delete a variety of existing regulations that CMS has determined are excessively burdensome and costly for providers. CMS proposes to eliminate the CfC for certain end stage renal disease providers that requires compliance with life safety code standards, including structural measures for fire safety. CMS reasons that low-risk dialysis centers are very unlikely to experience a fire, and the changes could save providers $108.7 million. The proposed rule also would allow ASCs to determine what emergency equipment is appropriate for its particular patient population, a change from the outdated list of equipment in the current CfCs that has not been modified since 1982. Also of note, the proposed rule would eliminate the regulation that automatically deactivates physician and nonphysician practitioners’ billing privileges after 12 months without a claim submission.
For more information, please contact Darby C. Allen,
Arguably one of the most fundamental tasks remaining under PPACA is to define the package of “essential health benefits” that certain health insurance plans will be required to offer beginning in 2014. PPACA requires that private health insurance plans be offered to individuals and small employers through state-created health insurance exchanges in 2014. These plans are required to offer essential health benefits. Although the specific benefit package that will constitute essential health benefits has not yet been determined by HHS, the Institute of Medicine (IOM) recently released its report recommending to HHS a set of methods and criteria to use to define essential health benefits.
The IOM’s report most notably recommends a cost-conscious approach to determining essential health benefits. Cost concerns are addressed repeatedly throughout the report, and the report acknowledges that the IOM’s recommendations started with the premise that the package of benefits must be affordable. Specifically, the report states that the package of benefits should target the premium “small employers would have paid, on average, in 2014.”
Of course, the report also acknowledges that cost must strike a balance with the need for essential health benefits to include a comprehensive set of health products and services. PPACA itself requires that essential health benefits include medical care from ten categories:
Mindful of these competing goals, the IOM recommends a three-tiered set of criteria for evaluating employee health benefits:
Criteria to evaluate the aggregate package of benefits offered:
Criteria to evaluate the individual component benefits offered:
Criteria to evaluate the methods for defining and updating benefits offered:
Ultimately, HHS must define the package of essential health benefits to be offered in 2014 by plans of health insurance exchanges, but the IOM’s recommendations are a significant step in that direction. While the report strongly encourages HHS to construct the package of benefits with cost sustainability in mind, whether this goal can or will be effectively balanced against the need to offer a comprehensive set of health benefits has yet to be determined.
For further information regarding HHS’s efforts to define essential health benefits within the healthcare reform context, please contact Jennifer A. Mills,
In the October 6 Federal Register, the HHS OIG published proposed revisions to the agency’s standards for assessing the performance of the state Medicaid Fraud Control Units (MFCUs). The OIG uses such standards when certifying and annually recertifying MFCUs tasked with investigating and prosecuting Medicaid provider fraud and patient abuse and neglect. States administer the MFCUs but they are jointly funded on a matching basis with the federal government reimbursing certified MFCUs 75 percent of their operating costs. The revised performance standards address various operational obligations including:
Additionally, on October 13, the OIG posted an interactive map providing fiscal year 2010 MFCU data. The data includes MFCU staff numbers, investigations, settlements, convictions and recoveries. Of the 1.84 billion Medicaid dollars recovered by MFCUs in 2010, New York recovered $279 million, Texas $180 million, Florida $175 million and Ohio $82 million.
We have represented providers under investigation by MFCUs and can assist providers in handling such cases or in proactively addressing areas frequently targeted by MFCUs.
For more information, please contact B. Scott McBride,
Earlier this month, CMS reminded eligible professionals (EPs), eligible hospitals and eligible CAHs of the upcoming deadlines to take advantage of the federal financial incentives made available under HITECH by registering for and attesting to Meaningful Use of EHR. Note that providers may register for the financial incentive program before they have a certified EHR, and can also register if they do not have an enrollment record in the Provider Enrollment, Chain and Ownership System (PECOS). However, under the final EHR incentive program regulations, in order to receive financial incentive payments for the current year, a provider needs to have registered and attested to meaningful use on or before the following deadlines:
We encourage physicians and hospitals to consult the CMS guidance materials and their Baker Hostetler attorney, with respect to questions concerning their ability to participate in and qualify for EHR meaningful use financial incentives.
For more information, please contact John S. Mulhollan,
New York partner Ted Kobus will speak on “Are You Ready for a Data Breach?” at the Association of Lloyd’s of London Brokers conference in Chicago, Illinois.
Houston counsel Lynn Sessions will speak on “Healthcare Cyber Risks and Privacy Breaches—Emergent Problem or Chronic Condition?” at the Professional Liability Underwriters Society annual conference in San Diego, California.
New York partner Ted Kobus will moderate a panel discussion on “Healthcare Cyber Risks and Privacy Breaches—Emergent Problem or Chronic Condition?” at the Professional Liability Underwriters Society annual conference in San Diego, California.
Cleveland partner Tom Campanella will speak on “Health Care Policy Update” at the meeting of the Healthcare Executive Association of Northeast Ohio in Cleveland, Ohio.
Baker & Hostetler LLP publications are intended to inform our clients and other friends of the Firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2011 Baker & Hostetler LLP
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