2010 HEALTHCARE STRATEGY GROUP

Transcription

1 2010 HEALTHCARE STRATEGY GROUP

2 Contents Foreword 3 CH. 1 Executive Summary 5 CH. 2 Contracting with CMS 8 Contract Terms 8 Application Notes 8 Contract Termination Causes 10 CH. 3 ACO Structure, Providers and Requirements 11 Formation of an ACO 11 Legal Entity Requirements 11 Physician Requirements 12 Governance Structure Requirements 13 Operations Guidelines 13 CH. 4 Patient Attribution Model 15 CH. 5 Payment Mechanisms & Shared Savings Tracks 17 Sources of Payment 17 Establishing a Benchmark 17 Shared Savings/Loss Model 18 Payment of Shared Savings 22 Repayment of Losses 23 CH. 6 ACO Quality Performance Standard 24 Performance Measures 24 Timeframe for Measurement 27 Impact of Quality Performance on Shared Savings Rate 27 CH. 7 Legal Issues 30 About the Author 32 2

3 Foreword On March 31 st, after four months of delays, the Centers for Medicare and Medicaid Services (CMS) released the first draft of its regulations for the Shared Savings Model, providing the framework for how the Accountable Care Organization model will be regulated and reimbursed for Medicare. Healthcare Strategy Group consultants have spent the week since the regulations were released breaking down all 427 pages and turning them into this short document that captures everything we believe is relevant to providers and provider organizations who are interested in the model. Whether or not the Accountable Care model ends up being the model that provides longterm success in reigning in growing healthcare costs is certainly up for debate. What is not up for debate is that CMS, through its pay-for-performance and value-based purchasing initiatives amongst others, is making a continued effort to shift provider reimbursement towards rewarding quality and efficiency, rather than volume. Whether or not your organization should pursue developing a Medicare ACO is a multi-faceted decision that is not to be made without careful consideration. The timeframe for pursuing this model is another decision. However, all organizations should be taking the release of the regulations as an opportunity to start engaging physicians about the long-term changes coming in Medicare reimbursement. While your organization may or may not jump into a Medicare ACO, beginning to take the steps towards the type of clinical integration that will allow your organization to succeed long-term under payment reform is the best thing you can do to ensure long-term success. As a first step, education about payment reform in general and the ACO model is an important step to begin building towards clinical integration. Healthcare Strategy Group, a leader in hospital/physician alignment, is currently working with a number of hospitals, managed care organizations, and physician groups to develop and implement strategies related to clinical integration and Accountable Care. You can find a library of additional information by visiting our website, and searching the term ACOs. In addition, you can register for a complimentary webinar, Developing a Strategic Approach to Addressing the Medicare ACO Regulations. To register, contact Kelsey Hamblen at or via at khamblen@healthcarestrategygroup.com. 3

4 Overall, while daunting, the challenges brought about by the release of the Medicare ACO Regulations present organizations with an opportunity to discuss in detail the long-term future of payment reform, and what steps hospitals, physicians and other provider organizations need to take, together, to be successful into the future. Sincerely, Travis Ansel Manager, Growth and Infrastructure Development 4

5 Chapter 1: Executive Summary Date Regulations Released: March 31, 2011 Comment Period on Regulations: 60 days, meaning Final Rule regulations will likely be out sometime this summer or early fall. Contracting with CMS 3 year commitment Once contracted with CMS, ACO cannot add any providers with different taxpayer identification numbers (TINs) (e.g. other hospitals or independent physician groups) for entire term of agreement, but is allowed to expand providers under its existing TINs (e.g. a hospital adding employed physicians) Annual application period based on January 1 calendar year; 2012 may have an additional application period on July 1 because of late release of ACO regulations No due date for application has been released No model for application has been published, only vague requirements ACO Structure, Providers & Requirements Physician practices in network or group practice settings, hospitals with employed physicians, hospitals with independent medical staffs or a combination of the three can form an ACO Must be separate legal entity with own Tax Identification Number (TIN), e.g. an LLC, Corp, Partnership or Foundation, etc. Must have enough primary care physicians in ACO to cover at least 5,000 Medicare lives after patient attribution Only primary care physicians will have patients attributed to them Other provider organizations can join an ACO, but won t be attributed patients ACO must include PCPs (who will be locked in to one ACO); other physicians are optional (and can join multiple ACOs) Must have a governance structure composed of at least 75% provider participants 50% of PCPs in the ACO must be meaningful users of EHR Attribution Model For purposes of calculating whether the ACO reduced costs, patients will be attributed retrospectively, based on which primary care physician had the highest amount of charges for each patient during calendar year, thus a physician in an ACO will not know which patients are assigned to him/her during the course of treatment through the calendar year 5

6 CMS will estimate a per capita cost benchmark each year based on patients likely to be assigned to each ACO, but this will simply be an estimate to guide ACO decision making Patients will be notified before being attributed, and will have the opportunity to opt out of having their data shared by CMS with the ACO. Payment Mechanisms & Shared Savings Tracks ACO participants will still bill Fee-for-Service (FFS) Medicare Parts A & B In addition, an ACO can receive a bonus for managing patient cost against a historical benchmark, projected forward, with any savings being distributed between CMS and the ACO A minimum savings rate (MSR) must be attained before shared savings can be distributed. The MSR is determined by the ACO s number of beneficiaries and ranges from 2.0% (60,000+ beneficiaries) to 3.9% (5000 beneficiaries) for Track 1, and is a constant 2% for Track 2. This requirement is waived for smaller ACOs that are physician-only or have a rural focus. ACOs will have the choice of two tracks Track 1 providers will receive up to 50% of the shared savings - no downside risk for first two years, then moving to downside risk model in 3 rd year Track 2 providers will receive up to 60% of the shared savings - downside risk all 3 years Bonus of up to an additional 2.5% (Track 1) or 5% (Track 2) to shared savings rate for incorporation of FQHC/RHCs into ACO 25% of all realized shared savings will be withheld by CMS for the entirety of the 3- year agreement, and disbursed upon completion this is to protect CMS from potential losses sustained by the ACO in a downside risk year on Track 1 or 2 In order to not overly penalize ACOs for catastrophic events, CMS will truncate an assigned beneficiary's total annual Parts A and B FFS per capita expenditures at the 99th percentile as determined for each benchmark year. (approx. $100,000 in 2008) ACOs will have to demonstrate an ability to repay any losses caused by going over their spending benchmark through obtaining reinsurance, placing funds in escrow, obtaining surety bonds, establishing a line of credit, as evidenced by a letter of credit that the Medicare program can draw upon, or establishing another repayment mechanism equal to 1% of their estimated cost benchmark Must meet Quality Performance Standard to receive any shared savings payments ACO Quality Performance Standard CMS has defined 5 domains containing 65 quality and performance measures, approximately 50% of which are primary-care focused. See Appendix 1 for full list of measures. Percentile score on measures will increase shared savings percentage for an ACO 6

7 Failing to hit a minimum attainment level will result in the ACO not being able to share savings CMS is creating the ACO Group Practice Reporting Option (GPRO) which will lessen burden of data collection and reporting by individual ACOs on quality measures Legal Issues Notices related to waivers from the OIG related to civil monetary penalties (CMP) law, anti-kickback statutes, and physician self-referral law are expected to come out with final ACO regulations this summer or early fall IRS is still yet to comment on tax-exempt organizations participating in the Shared Savings Program FTC and DOJ have proposed an anti-trust Safety Zone based on market share an ACO whose providers have less than 30% market share will not be challenged on anti-trust; above 50% will require a letter from FTC/DOJ saying the ACO arrangement will not be challenged; 30-50% is recommended to seek FTC/DOJ guidance, but this is not required for participation in ACO program 7

8 Chapter 2: Contracting with CMS Contract Terms All contracts for all ACOs will require a three-year commitment. Annual application period based on January 1 calendar year. Program will go into effect on January 1, There may be an additional application period that will allow ACOs to start on July 1, Programs enrolling in this manner will have their contract last 3.5 years, with the first year lasting 18 months (July 1, 2012 through December 31, 2013). All ACO agreements with CMS can be terminated by the ACO by giving notice 60 days in advance. If an ACO does terminate its agreement before the end of the three-year contract, no undisbursed shared savings will be distributed. ACOs will be subject to all regulatory changes regarding ACOs during this period. There will be three exceptions to this rule: Eligibility requirements concerning ACO structure and governance Calculation of shared savings rate Beneficiary assignment methodology These items will remain at the initial terms presented when the ACO signs the contract. Application Notes No due date for application has been released. In addition, no template or form for the application has been published; the current batch of regulations only lists vague requirements. We ve broken down these requirements into Administrative Documents and Clinical and Patient-Centered Care Criteria. Administrative Documents Needed for Application The tax identification number (TIN) of ACO List of NPIs (National Provider Identifiers) associated with all providers/suppliers in ACO; this must be updated on a yearly basis Documents providing proof that the ACO legal entity can legally operate in state(s) in which it will conduct business ACO documents (for example, participation agreements, employment contracts, and operating policies) that describe the ACO participants' and ACO providers/suppliers' rights and obligations in the ACO, the shared savings model that will encourage ACO participants and ACO providers /suppliers to adhere to the quality assurance and improvement program and the evidenced-based clinical guidelines Supporting materials documenting the ACO's organization and management structure, including an organizational chart, a list of committees (including names of 8

9 committee members) and their structures, and job descriptions for senior administrative and clinical leaders Evidence that the ACO has a board-certified physician as its medical director who is licensed in the State in which the ACO resides and that a principal CMS liaison is identified in its leadership structure Evidence that the governing body includes persons who represent the ACO participants, and that these ACO participants hold at least 75 percent control of the governing body A description of how the ACO will partner with community stakeholders. Having a community stakeholder organization as part of governance will satisfy this requirement. Provide a description in their application of the criteria they plan to employ for distributing shared savings among ACO participants and ACO providers/suppliers, and how any shared savings will be used to align with the aims of better care for individuals, better health for populations, and lower growth in expenditures. Clinical and Patient Centered-Care Criteria for Application Describe the patient engagement processes it intends to establish, implement, and periodically update: Measures for promoting patient engagement may include, but are not limited to, the use of decision support tools and shared decision making methods with which the patient can assess the merits of various treatment options in the context of his or her values and convictions. Patient engagement also includes methods for fostering what might be termed "health literacy" in patients and their families Describe its process to report internally on quality and cost measures, and how it intends to use that process to respond to the needs of its Medicare population and to make modifications in its care delivery Describe the ability of the ACO to promote coordination of care: Compliance with this requirement may involve a range of strategies which may include the following examples: A capability to use predictive modeling to anticipate likely care needs Utilization of case managers in primary care offices Having a specific transition of care program that includes clear guidance and instructions for patients, their families, and their caregivers Telehealth The establishment and use of health information technology, including electronic health records and an electronic health information exchange to enable the provision of a beneficiary's summary of care record during transitions of care both within and outside of the ACO Describe the evidence-based guidelines the ACO intends to establish, implement, and periodically update Describe how the ACO will deliver patient-centered care. This may include, but not be limited to, the following: 9

10 o A beneficiary experience of care survey in place and a description in the ACO application how the ACO will use the results to improve care over time o Patient involvement in ACO governance o A process for evaluating the health needs of the ACO's assigned population, including consideration of diversity in their patient populations, and a plan to address the needs of their population o Systems in place to identify high-risk individuals and processes to develop individualized care plans for targeted patient populations, including integration of community resources to address individual needs o A mechanism in place for the coordination of care (for example, via use of enabling technologies or care coordinators) o A process in place for communicating clinical knowledge/evidence-based medicine to beneficiaries in a way that is understandable to them o Written standards in place for beneficiary access and communication and a process in place for beneficiaries to access their medical record. Contract Termination Causes CMS will retain the ability to terminate an agreement with an ACO before the end of the 3- year agreement period. There is quite a lengthy list of applicable reasons that CMS will move to terminate an agreement, but based on our review, the relevant list of these reasons can be distilled down to a handful of key issues. Key Issues Resulting in Termination of Contract by CMS Material Changes in Eligibility Requirements Primary care providers leaving the ACO to the extent that the number of beneficiaries in the ACO drops below 5,000 The ACO adding providers to gain market share to the extent that the FTC/DOJ is likely to challenge or recommend challenging the ACO on anti-trust grounds Failure of an ACO to demonstrate that it has adequate resources in place to repay losses and to maintain those resources for the agreement period Failure to submit payment due to CMS in a timely manner 10

11 Chapter 3: ACO Structure, Providers & Requirements This section outlines the requirements of an ACO to be eligible to join the Medicare ACO program. It will cover the requirements of developing an ACO entity, requirements on physician participation, governance structure requirements, and the vague guidelines provided by CMS on the operations of a Medicare ACO. Formation of an ACO CMS has issued guidance on how ACOs can be put together, and which provider entities can or cannot form an ACO. Who can form an ACO? Physician practices in network or group practice settings, hospitals with employed physicians, hospitals with independent medical staffs or a combination of the three. Critical Access Hospitals billing under Method II may form an ACO as well. Only primary care physicians in these settings will have patients attributed to them. Hospitals may join multiple ACOs. Who cannot form an ACO? Federally Qualified Health Centers (FQHC), Rural Health Centers (RHC), Skilled Nursing Facilities (SNF), Long-Term Care facilities (LTCs), and Critical Access Hospitals (CAH) not billing under Method II. Providers in these settings will not be eligible for patient attribution. All are able to join ACOs created by any entity listed under who can form an ACO. Legal Entity Requirements An ACO does not have to be a new legal entity with a new tax identification number (TIN). However, for an existing entity to function as an ACO, it must be capable of distributing payments from the shared savings model to its provider members. The distinction, in our view, will be the number of TINs involved in the entity. If more than one provider entity is participating in an ACO, and those entities have separate tax ID numbers, development of a new legal entity for the ACO will likely be required. A new entity would likely be formed as an LLC, Corporation, or Foundation, but would not be limited to just these models. Below are some examples of entities that can either operate as an ACO or will have to develop a separate legal entity: Can Operate as an ACO A hospital with a closed, employed medical staff (hospital and physicians all on same TIN) 11

12 An Independent Practice Association (IPA) Will Require a New Legal Entity A hospital working with their entire medical staff both employed and independent (hospital and independent physicians have different TINs) Multiple hospitals working together (hospitals have different TINs) A hospital and/or physician group working with other provider entities such a skilled nursing facility, federally qualified health center, etc. In either case, the ACO entity and its tax identification number do NOT have to be enrolled in the Medicare program, just its provider participants. Physician Requirements An ACO must have enough primary care physicians to have at least 5,000 covered Medicare lives attributed to the ACO (see Chapter 4 - Attribution Model). There are no requirements for how many primary care physicians must be in an ACO; only enough to satisfy the 5,000 covered lives after attribution requirement. Primary care physicians can only join one ACO. This is due to the attribution of patients through primary care. Medical/Surgical specialties are allowed to join multiple ACOs. By the start of the 2 nd year of operations, an ACO must have 50% of its primary care physicians be meaningful users of EHR as defined in the HITECH Act and subsequent Medicare regulations in that area. The EHR Incentive regulations, including the definition of meaningful EHR user and certified EHR technology can be found at 42 CFR Part 495, as published on July 28, 2010 (75 FR 44314). Overall, this is essentially a requirement to get physicians to participate in the EHR Incentive Program. Adding or Removing Providers During the three-year term of the contract with CMS, an ACO will not be allowed to add any providers or provider organizations that have a different tax ID number from the entities that were part of the ACO at the time the agreement with CMS was signed. ACOs will be allowed to remove providers, however. Hospitals will still be able to employ physicians and add them to an existing ACO, and physician groups will still be able to recruit physicians and add them to an existing ACO. This limitation will functionally prevent ACOs from greatly increasing their market power through acquisitions or consolidations during the term of the ACO agreement. This means that most ACOs will need to be broad in scale at the time they join the Medicare ACO program if they wish to ensure flexibility in their future growth. CMS requires it be notified of any changes (additions or removals) to the provider makeup of the ACO within 30 days of the event. If there are changes to the makeup of the providers in the ACO, there are several potential outcomes depending on the materiality of the change: 12

13 Continue on status quo - The ACO may continue to operate under the new structure with savings calculations for the performance year based upon the updated list of ACO participants and ACO providers/suppliers. Requires new ACO contract - The remaining ACO structure qualifies as an ACO but is so different from the initially approved ACO structure that the ACO must start over as a new ACO with a new 3-year agreement, including an antitrust review, if warranted. Requires new anti-trust review - The remaining ACO structure qualifies as an ACO but is materially different from the initially approved ACO structure because of the inclusion of additional ACO providers/suppliers that the ACO must obtain approval from a reviewing Antitrust Agency before it can continue in the program. Expelled from program - The remaining ACO structure no longer meets the eligibility criteria for the program, and the ACO would no longer be able to participate in the program, for example, if the ACO's assigned population falls below 5,000 during an agreement year. Mutual termination of agreement - CMS and the ACO may mutually decide to terminate the agreement. Governance Structure Requirements Consistent with their goal to allow providers to figure out how to best address the ACO model for themselves, CMS has defined only four requirements regarding the governance structure of an ACO that we were able to find in the regulations: 1. The ACO governance structure must be composed of at least 75% provider participants. This is being done to limit health plan or management company involvement, while still allowing for access to non-provider capital. CMS appears to be sensitive to having too much non-provider investment in ACOs, and the impact that would potentially have on patient care. 2. The ACO governance structure must have a community stakeholder representative. 3. The ACO governance structure must have a Medicare beneficiary representative. 4. Representation in the ACO governance structure should be approximately proportional to the provider makeup within the ACO. This can easily be addressed by giving each provider organization participating at least one seat on the ACO board, and allocating the remaining seats amongst the larger provider entities as management determines is appropriate and is able to negotiate. Operations Guidelines Within the regulations, CMS provides the following guidelines for how an ACO would operate. These are not firm requirements, although documentation addressing these areas will likely be required in the application process once the application is defined. The ACO's operations would be managed by an executive, officer, manager, or general partner, whose appointment and removal are under control of the 13

14 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 would 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 would have a meaningful commitment to the ACO's clinical integration program to ensure its likely success. Meaningful commitment may include, for example, a meaningful financial investment in the ACO, or a meaningful human investment (for example, time and effort) in the ongoing operations of the ACO such that the potential loss or recoupment of the investment is likely to motivate the participant to make the clinical integration program succeed The ACO would have a physician-directed quality assurance and process improvement committee that would oversee an ongoing quality assurance and improvement program. The quality assurance program would establish internal performance standards for quality of care and services, cost effectiveness, and process and outcome improvements, and hold ACO providers/suppliers accountable for meeting the performance standards. The program would also have processes and procedures in place to identify and correct poor compliance with such standards and to promote continuous quality improvement The ACO would 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 guidelines and care delivery processes would cover diagnoses with significant potential for the ACO to achieve quality and cost improvements, taking into account the circumstances of the individual beneficiary, and could be accomplished, for example, through an integrated electronic health record with clinical decision support. ACO participants and ACO providers/suppliers would have to agree to comply with these guidelines and processes and to be subject to performance evaluations and potential remedial actions The ACO would 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 via, for example, shared clinical decision support, feedback from patient experience of care surveys or other internal or external quality and utilization assessments 14

15 Chapter 4: Patient Attribution Model Attribution (also called assignment, and used interchangeably) of beneficiaries is how ACOs will ultimately be given responsibility for managing a population of Medicare patients cost and quality of care. Attribution does not mean that the patient can only use providers within the ACO to which they are assigned. The CMS ACO model does not provide any additional leverage over patient choice from the provider prospective. Attribution Model Providers to which patients will be assigned Medicare patients will be assigned to ACOs based on primary care physicians ONLY. Primary care is defined by CMS to be general practice, internal medicine, family medicine, or geriatrics. For this reason, primary care physicians will only be eligible to join one ACO. Size of assigned patient base Each ACO must have at least 5,000 Medicare enrolled lives assigned to it each year through the above attribution model. ACOs will not be required to have a specific number of primary care physicians; only to have enough of these physicians to generate a patient base of 5,000 patients. If an ACO does not have at least 5,000 patient lives after attribution, a warning will be given by CMS. If at the end of the following year the total volume was still below 5,000 patient lives, the ACO s contract with CMS would be terminated. Basis for assignment Patients will be assigned to a primary care physician based on a plurality of charges methodology. That is, whichever PCP the patient has seen in the past year that has charged the patient the most within that year will be the physician, and therefore the ACO, to which the patient is attributed. Allowed charges are a reasonable proxy for the resource use of the underlying primary care services. The method of using a plurality of allowed charges assigns beneficiaries to ACOs according to the intensity of their primary care interactions, not merely the frequency of such services. Timing of assignment For purposes of calculating whether the ACO succeeded in managing patient cost below the shared savings benchmark (see chapter 5, Establishing a Benchmark), patients will be attributed retrospectively. This retrospective allocation will take place at the end of the calendar year, and the ACO will be held accountable for the cost of the care provided to the patients that were assigned in this manner. 15

16 To provide guidance on what an ACO s potential cost benchmark may be, at the outset of the agreement CMS will estimate a per capita cost benchmark each year based on patients likely to be assigned to each ACO. This estimate will be done by looking back at three years worth of Medicare claims data specific to the patient, and applying a weighting methodology, meaning the previous year s claims will get 60% of the weight, two years previous 30%, and three years previous 10%. This will simply be an estimate, however. At the end of the calendar year, patients will be assigned by the above plurality of charges methodology, and then the new, actual benchmark will be created based on patients ACTUALLY assigned to the ACO. The actual cost of those patients treatments will then be applied against the benchmark to determine if the ACO was successful in generating cost savings. Implications of retrospective assignment A physician in an ACO will not know which patients are assigned to him/her during the course of treatment. The intent is to generate a meaningful change in the way that providers in an ACO treat all Medicare patients, and not a subset of those patients. Patient notification CMS will update the annual Medicare handbook to contain information about the Shared Savings Program, ACOs, and what receiving care from an ACO means for the Medicare FFS beneficiary. Because attribution will be retrospective, which will severely limit the ability of CMS to notify patients which ACO, if any, they are assigned to, facilities and providers participating in an ACO will be required to post signs indicating they are participating in the CMS Medicare program. ACOs will be responsible for supplying patients with a form giving the patient the ability to opt-out of the data sharing portion of the ACO program as well. 16

17 Chapter 5: Payment Mechanisms & Shared Savings Tracks The ACO model, at its highest level, is a business model that attempts to change provider incentives. It rewards patient care that provides quality in an efficient, cost-effective manner, by reducing overutilization and improving patient handoffs and transitioning between providers. The Shared Savings model is the payment model for rewarding these types of behaviors. In this section, we will describe the shared savings model: how a benchmark for the ACO to be measured against will be set, how ACOs will be rewarded for producing quality care and reducing cost, and how ACOs will eventually be required to take on risk for patient cost. Sources of Payment Under an ACO, all provider participants will still bill Fee-for-Service (FFS) Medicare Parts A & B as they have done historically. In addition, an ACO will be eligible to earn a shared savings payment for managing the cost of care provided to its attributed patients, and having that total cost be less than a projected cost benchmark for the group in aggregate. The shared portion of shared savings means that any cost savings generated by the ACO will be shared with CMS in a predetermined formula that is outlined in this section. All ACOs will either initially or eventually move into a shared risk model, where the ACO will not only share in the savings generated by more efficient patient care, but will share in losses if costs exceed the cost benchmark for its assigned beneficiaries. Establishing a Benchmark After retrospective patient attribution, (see chapter 4, Attribution Model) CMS will set the benchmark for a patient s expected cost based on most recent 3 years of beneficiary expenditures for Parts A and B for Medicare FFS for the patients attributed to that ACO. A useful way to view the benchmark is as a surrogate measure of what the Medicare FFS Parts A and B expenditures would otherwise have been in the absence of the ACO. The benchmark will be developed by weighting the most recent year s claims at 60 percent, two years previous at 30 percent and three year s previous at 10 percent to ensure the benchmark reflects more accurately the latest expenditure and health status of the ACO's assigned beneficiary population. The difference between actual expenditures of the ACO's assigned beneficiaries during each year of the agreement period and its per capita benchmark should reflect how well the ACO 17

18 is coordinating care for these beneficiaries and improving the overall efficiency of their care. The benchmark cost for each patient will be adjusted by national per capita growth figures (growth index) during the agreement period. Thus, although a patient s initial benchmark for expected cost is based off of three-years of claims data, future benchmarks will only be adjusted by the growth index. Shared Savings/Loss Model An ACO entering into its initial agreement with CMS will have the choice of two tracks. These tracks will determine the amount of shared savings an ACO can receive in a given year, as well as how quickly the ACO will have risk for exceeding its cost benchmark. The table below is a summarization of the major provisions of the shared savings model. Definitions of each provision are provided on the following pages. 18

19 Comparison of Shared Savings Model Tracks Design Element Track 1 - One-Sided Model Track 2 - Two-Sided Model Maximum Sharing Rate 52.50% 65% Shared Savings Rate (based on Quality Up to 50% Up to 60% Scoring) FQHC/RHC Participation Incentives Up to 2.5% Up to 5% Minimum Savings Rate (MSR) Minimum Loss Rate (MLR) Maximum Sharing Cap Shared Savings Payout Shared Losses Varies based on # of patients attributed up to 3.9% Flat 2% n/a Flat 2% Payment capped at 7.5% of ACO's spending benchmark Savings shared once MSR is exceeded, savings are distributed up to Max Share Rate None Payment capped at 10% of ACO's spending benchmark Savings shared once MSR is exceeded, savings are distributed up to Max Share Rate First dollar shared losses once the MLR is exceeded. Cap on the amount of losses to be shared phased in over three years starting at 5 percent in year 1; 7.5 percent in year 2; and 10 percent in year 3. Losses in excess of the annual cap would not be shared. Actual amount of shared losses would be based on final sharing rate that reflects ACO quality performance and any additional incentives for including FQHCs and/or RHCs using the following methodology (100% minus final sharing rate). 19

20 Summary of Tracks Track 1 start with up to 50% shared savings rate and no downside risk participants in Track 1 will be moved to Track 2 in the 3 rd year of their agreement Track 2 start with up to 60% shared savings rate but have downside risk for all years of agreement Shared Savings Rate The up to portion of each shared savings rate will be determined by the ACOs performance against 65 quality measures (see chapter 6, quality performance standard). FQHC/RHC Participation Incentives There will be an additional bonus of up to 2.5% (Track 1) or 5% (Track 2) for incorporation of FQHC/RHCs into ACO. How this will be calculated is shown below: Impact of Use of FQHC/RHC on Shared Savings Rate % Point Increase in Shared Savings Rate (One-Sided Model) % of ACO Assigned Beneficiaries with 1 or more Visits to an ACO Participant FQHC/RHC During the Performance Year % Point Increase in Shared Savings Rate (Two-Sided Model) 1-10% % % % % Minimum Savings Rate The minimum savings rate (MSR) is the % of savings that an ACO will have to generate before it can start to share in the cost savings generated by the ACO. This rate is based on the number of beneficiaries the ACO has, and is an attempt to account for statistical variation in patient cost, e.g. CMS wants to be sure that cost savings generated are the result of efficient care processes, not statistical variation. How the MSR will be calculated is show below: 20

21 Minimum Savings Rate # of Beneficiaries MSR (low end) MSR (high end) % 3.6% % 3.4% % 3.2% % 3.1% % 3.0% % 2.7% % 2.5% % 2.2% % 2.0% % To encourage smaller physician-driven ACOs that care for underserved populations, CMS will remove the MSR for ACOs with 10,000 beneficiaries or less that meet at least one the following criteria: The ACO is comprised only of ACO professionals in group practice arrangements or networks of individual practices of ACO professionals 75 percent or more of the ACO's assigned beneficiaries reside in counties outside a Metropolitan Statistical Area (MSA) in the most recent year for which we have complete claims data 50 percent or more of the ACO's assigned beneficiaries were assigned to the ACO on the basis of primary care services received from a Method II Critical Access Hospital (CAH) 50 percent or more of the beneficiaries assigned to the ACO had at least one encounter with an ACO participant FQHC and/or RHC in the most recent year for which we have complete claims data, that is, the ACO has met criteria for receiving full potential additional payment as described later in this proposed rule Minimum Loss Rate For all ACOs in Track 2 (whether initially or after transitioning from Track 1), regardless of size, the minimum loss rate will be 2%, e.g. an ACO can exceed its cost benchmark by 2% before being responsible for shared losses. Maximum Sharing Cap Payments to an ACO for shared savings will be capped at 7.5% (Track 1) or 10% (Track2) of the ACO s benchmark; e.g. if a track 1 ACO had a benchmark of $1,000,000 for its 5,000 beneficiaries, its shared savings cap would be $75,000 ($1M *.075), meaning the largest possible payment that could be received by the ACO from CMS for successfully reducing patient cost would be $75,

22 Shared Losses Once the minimum loss rate (MLR) for the cost benchmark is exceeded, the ACO will be responsible for reimbursing CMS for the losses incurred. The percentage of losses that the ACO will be responsible is an inverse of the ACO s shared savings rate, e.g. if the ACO s shared savings rate is 60%, the shared losses rate would be 40%, e.g. every for every dollar of loss above the cost benchmark and MLR, the ACO would reimburse CMS $0.40. In addition, there will be a cap on the amount of losses to be shared. This cap will be phased in over three years starting at 5 percent in year 1; 7.5 percent in year 2; and 10 percent in year 3. ACO s starting in Track 1 and switching to Track 2 in the third year of the agreement would come in at the 10% cap level. Losses in excess of the annual cap would not be shared by the ACO, and would be covered by CMS. Benchmark Loss Estimates Cap First Year (Track 2 Only) First Year Actual Final Shared Total Cap (5% of Cost Savings Rate Loss* Benchmark) Payment Due CMS $8000k $8800k 40% $480k $400 $400 $8000k $8800k 50% $400k $400 $400 $8000k $8800k 60% $320k $400 $320 *(Actual Benchmark) * (1- savings rate) or ( )*(1-40%) = 800*.6 = 480k One question that Healthcare Strategy Group has received from a number of physicians is what happens when someone assigned to our ACO has a catastrophic event that is an outlier from what their previous three years of claims data would show? (e.g. an obese, diabetic patient with no major health events in the previous three years going into renal failure in the first year in ACO, etc.). CMS is addressing this by truncating an assigned beneficiary's total annual Parts A and B FFS per capita expenditures at the 99th percentile as determined for each benchmark year. In 2008, this amount would have been roughly $100,000. Payment of Shared Savings Shared savings payments will be paid directly to the ACO s tax identification number. Each ACO will have to develop a methodology for disbursing payments amongst its members. Shared savings will be paid on 6 month claims run out period, in order to make sure all claims are processed before shared savings are calculated. This will result in shared savings payments being paid 6 months after the end of calendar year, creating a greater cash flow lag for the ACO, especially in the first year. 22

23 Repayment of Losses 25% Withhold on Shared Savings CMS will withhold 25% of all shared savings payments in years one and two of all agreements. This withhold will be applied against any losses (during year 3 of Track 1, or any year in Track 2) incurred during the term of the agreement with CMS. 1% Guarantee In addition to this 25% withholding on all shared savings payments, CMS will require as part of the application process that an ACO: Establish a self-executing method for repaying losses to the Medicare program by indicating that funds may be recouped from Medicare payments to the ACO's participants, obtaining reinsurance, placing funds in escrow, obtaining surety bonds, establishing a line of credit, as evidenced by a letter of credit that the Medicare program can draw upon, or establishing another repayment mechanism, such as those previously discussed. This repayment mechanism is deemed sufficient if it can ensure repayment of at least 1 percent of all per capita expenditures based on the most recent year s data. ACOs will have to address this repayment mechanism on a yearly basis; adding additional capacity for repayment as necessary to demonstrate sufficient ability to repay any losses incurred. If the combination of the 25% withhold on shared savings and the 1% guarantee are not sufficient to cover losses incurred by the ACO in a given year, unpaid losses will be carried forward into the next year, and be recouped either through the next year s 1% guarantee, or by increased withholding of shared savings payments earned in future years. 23

24 Chapter 6: ACO Quality Performance Standard As referenced in the previous chapter, the ability of an ACO to share in the saving generated by managing patient cost is limited by its performance against a set of quality and performance measures generated by CMS. The obvious reasoning for this is CMS wants to ensure that cost savings generated by the ACO will be a direct cause of making the care process more efficient, rather than the withholding of care. Performance Measures As such, CMS has defined 5 domains containing 65 quality and performance measures, approximately 50% of which are primary-care focused. A high-level view of each is listed in the chart on the following page. 24

25 A more in-depth version of this table that includes a description of the measure and how it will be submitted to CMS can be found on our website, This particular list of measures is what will be used in the first year of the CMS ACO program. The list of measures will be updated each year and communicated to all Medicare ACOs. 25

26 CMS plans to refine and expand the ACO measures to include those that are directly EHRbased. In addition to ambulatory measures, CMS can be expected to add measures of hospital-based care and quality measures for care furnished in other settings, such as home health services and nursing homes. The current measures fall into five domains : Better Care for Individuals 1. Patient/Caregiver Experience 2. Care Coordination 3. Patient Safety Better Health for Populations 4. Preventative Health 5. At-Risk Population/Frail Elderly Health Most of the measures are consistent with those reported for the Physician Quality Reporting System, others will rely on eprescribing and HITECH program data, and some may rely on Hospital Compare or the Centers for Disease Control and Prevention National Healthcare Safety Network data. Information on Physician Quality Reporting System measures are available at: Information on EHR Incentive Program measures are available at: Information on quality measures used by the Hospital Inpatient Quality Reporting Program is available at: Group Practice Reporting Option For measures that cannot be captured from the above alternatives, CMS will make available a CMS-specified data collection tool and a survey tool for certain proposed measures, known as the Group Practice Reporting Option (GPRO ), which is based on the data collection tool currently being used in the PQRS. This tool would be supplied to each ACO and would interact with the current IT tools that are used by each hospital to support patient data collection. The ACO would then be required to populate the fields within the tool with the relevant data. For measures calculated by using the GPRO tool, ACOs would be required to submit a random sample of 411 beneficiaries per measure. If there are not a total of 411, all beneficiary data must be submitted. 26

27 Some of these GPRO measures will simply be an attestation by the ACO provider. CMS will attempt to validate these attestations through CMS data for the EHR Incentive Program and e-prescribing initiatives. Timeframe for Measurement Each of these performance measures will have a metric that must be reported to CMS on a yearly basis. In Year 1 of the agreement, ACOs will be expected to simply collect and report accurate data on these measures. CMS believes this will allow ACOs to focus on building infrastructure and engaging physicians, rather than scrambling to meet each of these quality standards in the first year. Setting the quality performance standard at the reporting level is also consistent with other value-based purchasing programs that have started out initially as pay for reporting programs. In Year 2 and in future years, a minimum attainment level will be defined for each of these measures, as well as any other measures added. If in any year the quality standard is not met, the ACO will not be eligible for shared savings in that year, and will be given a warning that will result in contract termination if not corrected by the following year. Impact of Quality on Shared Savings Rate Two types of performance measures will be used. Those that contrast ACO performance against existing Medicare performance, and those that are measured based on a predefined standard. For each of the 65 measures reported, an ACO can earn up to 2.00 points based upon: How the ACO s performance on each measure ranks versus current performance under fee-for-service or Medicare Advantage on a national level Whether a threshold percentage was attained ACO Performance Level Quality Points Performance Points 90+ percentile FFS/MA Rate or 90+ percent percentile FFS/MA Rate or 80+ percent percentile FFS/MA Rate or 70+ percent percentile FFS/MA Rate or 60+ percent percentile FFS/MA Rate or 50+ percent percentile FFS/MA Rate or 40+ percent percentile FFS/MA Rate or 30+ percent 1.10 Below 30 percentile FFS/MA or 30 percent

28 Thus, an ACO in the 90+ th percentile or at 90+percent for all 65 measures would score 130 (65*2) points. An ACO in the th percentile or at percent for all 65 measures would receive (65*1.7) points. Any ACO scoring below the 30 th percentile or 30+ percent would receive zero points. A handful of measures will have all or nothing scoring, in which an ACO will receive 2 points for completing all of the required tasks for that measure, or 0 for not completing all of them. This number of points will then be divided by a total of 130 to achieve a percentage score. This percentage score will then be multiplied by either 50% (for Track 1 ACOs) or 60% (for Track 2 ACOs) to determine the ACO s shared savings rate. The table below summarizes how the achieving the benchmark for each of the quality measures impacts the ACO s Shared Savings Rate: Total Points for Each Domain within the Quality Performance Standard Track 1 Track 2 1 Domain Patient/Caregiver Experience 2 Care Coordination 3 Patient Safety 4 Preventive Health 5 At-Risk Population/Frail Elderly Health Total Quality Points Earned Total Quality Points Available Total Potential Shared Savings Final Shared Savings Rate # of Measures 1-7 (7 measures) 8-23 (16 measures) (2 measures) (9 measures (31 Measures) Total Potential Points Per Domain Total Potential Points per Domain X X % 60% X/130 * 50% X/130 * 60% 28

29 Minimum Attainment Rate ACOs falling below the 30 th percentile or 30 percent (in the ACO Performance Level Quality Points) will be given a warning, and will potentially be terminated from the program if improvement is not seen at the end of the next calendar year. 29

30 Chapter 7: Legal Issues NOTE: Healthcare Strategy Group is not a law firm, and its employees are not lawyers. What is produced below is a summarization of legal and regulatory issues from the CMS Medicare ACO regulations. Consult your own counsel on these issues. Anti-trust seems to be the biggest area of concern amongst providers and their counsel in terms of ACO development. How the DOJ and FTC are expected to handle anti-trust is outlined below. Notices related to waivers from the OIG related to civil monetary penalties (CMP) law, anti-kickback statutes, and physician self-referral law are expected to come out with final ACO regulations this summer or early fall. Anti-Trust Regulations The Federal Trade Commission (FTC) and Department of Justice (DOJ) have proposed an anti-trust Safety Zone based on market share. Anti-Trust Guidelines ACO PSA Share Review Process < 30% Safety Zone - No antitrust review necessary by the FTC/DOJ >30 to < 50% ACO may request an expedited review of Antitrust Issues > 50% ACO is required to have an expedited review Except for extraordinary circumstances the FTC/DOJ will not challenge an ACO that otherwise meets the CMS criteria to participate in the Shared Savings Program if ACO participants have a combined share of 30 percent or less of each service line (or common service as defined in the regulations) in each ACO participant's Primary Service Area (PSA), wherever two or more ACO participants provide that service to patients from that PSA. An ACO with a PSA share above 50 percent for any service line that two or more ACO participants provide to patients from the same PSA must request an expedited review from the FTC/DOJ and get a letter confirming that there will not be a challenge on anti-trust grounds. If an ACO is not able to obtain this letter and present it to CMS as part of the application process, the proposed ACO will not be eligible to participate in the Shared Savings Program. IRS The IRS is still yet to comment on tax-exempt organizations participating in the Shared Savings Program Defining a Compliance Plan Each ACO must have a compliance plan that addresses how it will comply will applicable legal requirements; to include: 30