Accountable Care Organizations: From Basics to the Next Generation

By: Rossanna J. Madrigal, Esq.

The term Accountable Care Organizations (“ACOs”) was formally defined by the Affordable Care Act (“ACA”) in 2010. ACOs are defined as “a legal entity that is recognized and authorized under applicable State, Federal, or Tribal law, is identified by a Taxpayer Identification Number (TIN), and is formed by one or more ACO participants(s).” An ACO participant is an individual or entity that is enrolled in Medicare and has signed an agreement with an ACO to participate in the ACO and be included on the list of ACO participants. Being an ACO participant means that the individual or entity agrees to be responsible for a set population of Medicare patients that is shared by the entire ACO.

Other Definitions Of “ACO”

Not all entities that call themselves an “ACO” have entered into an agreement with CMS. ACO is also a term used broadly by Medicaid programs, private payors, employer-administered insurance plans, and large integrated health care entities to describe a model of care that is intended to be holistic and patient-centered. These entities model the CMS-contracted ACOs in that their aim is to provide high quality, integrated care to patients with an eye on cost-savings. But only CMS-contracted ACOs are afforded certain regulatory protections from federal fraud and abuse laws. For the purpose of this article, the term ACO will be used to describe CMS-contracted ACOs only. At this time, there are two main Medicare programs for which an entity can apply to become an ACO: the Shared Savings Program and the Next Generation ACO Model.

CMS-contracted ACOs

ACO participants collaborate with each other to improve patient outcomes while reducing the costs associated with the care of these patients. If an ACO generates savings for the Medicare program by, for example, reducing the costs associated with caring for their Medicare patients, then the ACO is able to share in a portion of that savings. That shared savings is then distributed among the ACO and its participants. Conversely, if the ACO loses money for the Medicare program by, for example, failing to reduce the ACO participants’ cost associated with caring for their Medicare patients, it may be required to repay Medicare for a percentage of those losses.

Shared Savings Program

The Shared Savings Program consists of three separate “Tracks” that determine, among other things, the amount of shared savings that the ACO is able to share in. While all ACOs in the Shared Savings Program are able to share in savings, not all ACOs in the Shared Savings Program are required to share in losses incurred by the Medicare program. Specifically, Track 1 ACOs are not required to share in losses during the term of their agreement, whereas Track 2 and 3 ACOs are required to share in losses. Track 3 ACOs are liable for a larger percentage of losses than a Track 2 ACO. Most entities in the Shared Savings Program are Track 1 ACOs.

Next Generation ACOs

The Next Generation ACO Model consists of well-established entities that are experienced in providing coordinated care to patients. All Next Generation ACOs are able to share in savings and are required to share in losses with the Medicare program. There are logistical differences between the Shared Savings Program and Next Generation ACOs. For example, Next Generation ACOs share in the largest percentage of savings and losses as compared to the Shared Savings Program ACOs. Also, the way that patients are attributed to the ACO differs by program. Furthermore, the two programs have different fraud and abuse protection requirements, which are discussed below. Functionally, however, ACOs of the two programs should operate similarly.

Waivers for ACOs

Both Shared Savings Program and Next Generation ACOs are afforded certain protections from federal fraud and abuse laws. These protections are generally called “waivers.” Depending on the applicable waiver, compliance with a waiver can protect an arrangement from the federal anti- kickback statute, the physician self-referral (or Stark) law, or the beneficiary inducement civil monetary penalties law. The Next Generation ACO waivers are similar to the Shared Savings Program waivers but have their own requirements. Notably, these waivers apply to federal laws only; these waivers do not impact state law.

A DME supplier that wishes to partner with an ACO should first determine what kind of ACO it is dealing with. ACOs that are contracted with CMS will be able to claim the protections of the applicable waivers. Other private insurance or employer-sponsored models that simply use the moniker “ACO” will not have the same protections. The ability of a DME supplier to help promote the goals of care coordination and savings generation in an ACO will be important in marketing a DME supplier’s services to the ACO. Whether a DME supplier ultimately has a place in the ACO model largely remains to be seen. But, for DME suppliers that can prove that they can promote the goals of the ACO through their services, partnership with an ACO can provide a beneficial relationship with the ACO as well as with the individual participants in the organization.

Rossanna J. Madrigal, JD, MPH is an attorney with the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. She represents pharmacies, HME companies and other health care providers throughout the United States. Ms. Madrigal can be reached at (806) 345-6308 or rmadrigal@bf-law.com.