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Accountable Care Organizations Under the Medicare Shared Savings Program January 19, 2012 Presented by Fred Geilfuss Partner Foley & Lardner LLP fgeilfuss@foley.com Judy D. Vaccaro Managing Sr. Associate General Counsel WellPoint, Inc. Judy.Vaccaro@WellPoint.com 2

Introduction: Topics Final Rule: Resuscitates Medicare Shared Savings Program Better Economics Greater Flexibility Less Administrative Burdens Compliance Requirements and Issues CMS/OIG Waivers Broader Protection Antitrust Policy No Mandatory Review Remaining Issues and Challenges 3

ACOs Care Transformation/Delivery and Reimbursement Changes Triple Aim - - Population Care, Increase Quality, Reduce Cost Reward Value Not Volume MSSP Pioneer ACO Value Based Purchasing Bundled Payments Comprehensive Primary Care Initiative Others Align Incentives - - Make Providers Accountable 4

MSSP Legislative/Regulatory Framework Voluntary Participation by Providers Not an HMO (Limited Network Model) No Steerage and No Narrow Network Preserve Beneficiary Free Choice of Provider Minimum 5,000 Beneficiaries Generally, Cannot Require Referral to ACO Providers ACO Participating Providers Still Paid FFS Under Medicare with Opportunity for Shared Savings 5

MSSP Legislative/Regulatory Framework (cont.) Assignment of Beneficiaries Beneficiaries Do Not Sign Up Retroactive Assignment - - If Received Plurality of Primary Care Service from ACO Providers Preliminary Prospective Assignment but Year-end Reconciliation TIN of Physicians Providing Primary Care Physicians (on Which Beneficiary Assignment is Determined) Must be Exclusive to an ACO 6

MSSP Legislative/Regulatory Framework (cont.) Benchmark Set for Expected Medicare Part A and Part B Spending for Beneficiaries Based on TINs of ACO Participants Listed in Application for Historic Cost in 3 Years Preceding ACO Contract Benchmark Adjusted Normally for Trend in National Medicare Cost Growth If MSR met, ACO Paid a Portion of Medicare Cost Savings with Portion Determined Based on Quality Standards Met 7

Financial Changes in Final Regulations Better Financial Provisions No Downside Risk in First Agreement for Those Selecting One-Sided Model (but there is on a Voluntary Renewal) First Dollar Sharing if MSR Met (in One-Sided Model) (in Proposed Regs CMS Kept First 2%) Increase in Payment Cap of 10% (Was 7.5%) in One-Sided Model and 15% (Was 10%) in Two-Sided Model 8

Financial Changes in Final Regulations (cont.) Loss Sharing in Two-Sided Model Capped at 60% (Rather Than 1 Minus the Shared Savings Rate) Cap on Loss Sharing 5% of Benchmark in Year 1, 7.5% in Year 2 and 10% in Year 3 Elimination of 25% Withhold to Secure Loss Repayment Repayment of Losses in 90 (Not 30) Days 9

Financial Changes in Final Regulations (cont.) First Year Starts April 1 / July 1, 2012 (18 or 21 Months First Year of Otherwise 3-Year Agreement) LOI by February 17 and Application by March 30 for July 1st Start LOI by January 6 and Application by January 20 for April 1st Start and LOI by February 17 and Application by March 30 for July 1st Start Reflecting Longer First Year, Interim Payments Available Retains Security (Though No 25% Withhold) to Repay Losses (in Two-Sided Model) and Now for Interim Payments Advanced Payment Model for Smaller ACOs (Not Always Recouped) 10

Financial Benefits (Example) Example: Assumes 10,000 Beneficiaries; Assumes Medicare Per Capita Cost of Care $8,000 Proposed Regulation Final Regulation Number of Beneficiaries 10,000 10,000 Average Per Capita Cost $8,000 $8,000 Total Benchmark $80,000,000 $80,000,000 Minimum Savings Rate (MSR) (One-Sided Model) (Two-Sided Model) 3% ($2.4 million) 2% ($1.6 million) No changes Floor/Threshold in (One-Sided Model) (Two-Sided Model) 2% ($1.6 million) 0 0 0 Percent of Share (Based on Quality) (One-Sided) (Two-Sided) Potential 50% Potential 60% Potential 50% Potential 60% Cap (One-Sided) (Two-Sided) $6.0 million $8.0 million $8.0 million $12.0 million Required Cost Savings To Reach $6.0 million (for 10,000 Beneficiaries) (Assuming Max Sharing Percentage) (One-Sided) (50% Rate) (Two-Sided) (60% Rate) $13.6 million (17% Savings off of Benchmark) $10.0 million (12.5%) $12.0 million (15.0%) $10 million (12.5%) Cost Reduction To Reach $6.0 million (for 10,000 Beneficiaries) at Half the Maximum Sharing Rate (One-Sided) (25% Rate) (Two-Sided) (30% Rate) $25.6 million (32%) $20 million (25%) $24.0 million (30%) $20.0 million (25%) Cost Reduction To Reach $8.0 million (One-Sided) 50% Rate (Two-Sided) 60% Rate Cannot Earn $8.0 million (as cap is $6.0 million) $13.3 million (16.6%) $16.0 million (20.0%) $13.3 million (16.6%) 11

Cost Benchmark Start with Most Recent 3-Years of Per Capita Medicare Part A and Part B FFS Expenditures for Attributed Beneficiaries Risk and Growth Trend Adjusted Across 3 Base Years Excludes Incentive Payments for PQRS, Electronic Prescriptions, EHR Meaningful Use Program Update the Benchmark in Dollar Growth of National Per Capita Part A and Part B Spending 12

Cost Benchmark (cont.) 3 Months Claims Run-Out (Rather than 6 Months) Separate Adjustment for ESRD, Disabled Aged Dual Eligible, Aged Non-Dual Eligible No IME/DSH Expenses Included in Benchmark or Shared Savings Calculation No FQHC/RHC Shared Savings Add-On, Now FQHC and RHC Can Form ACOs 13

Other Changes in Final MSSP Regulation Greater Flexibility in Structure and Governance Governance Board - 75% Control by Participants and Beneficiary Participation (No Proportionate Control) If Can t Meet 75% Control or Beneficiary Participation in Governing Board - May Propose Alternative for Meaningful Involvement ACO Medical Director Need Not Be Full-Time Can Add ACO Participants and Providers/Suppliers During Term of Agreement Required Compliance Officer (Can t be Legal Counsel of ACO) with Direct Report to the Governing Board 14

Other Changes in Final MSSP Regulation (cont.) Quality Reporting Reduced Now 33 Measures in 4 Domains (Was 65 Measures in 5 Domains) More Alignment of Reporting with Those Reported in Other Programs Eliminates 50% Meaningful Use Requirements for PCPs (but EHR Double Weighted on Quality) Permits Corrective Action Plan, Warning Letter, Reevaluate New Year and Termination if 2 Successive Years of Poor Quality Performance Years 15

Other Changes in Final MSSP Regulation (cont.) Data Access - - Patient Choice Retained Notice to Beneficiaries Based on Previously Prospective Assignment with Deemed Opt-In If No Opt-Out in 30 Days Additional opportunity to Decline at First Face-to-Face Encounter No Sharing of Drug/Alcohol Treatment Information CMS May Change Program During 3-Year Agreement Except Governance, Beneficiary Assignment and Calculation of Shared Savings Can Terminate Early if CMS Changes Adversely Impact Ability to Participate 16

Other Changes in Final MSSP Regulation (cont.) Beneficiary Protection Disclosure of Participation - - Sign Posted in PCP Offices Annual Certification of Information to CMS Prohibition on Beneficiary Inducement Not Permitted by CMP Waiver (Discussed Below) Prohibition on Conditioning ACO Participation on Referral of Non-ACO Business Limitation on Required Beneficiary Referral to ACO Participants/Providers 17

Required Compliance Plans ACO Must Have a Compliance Plan that Includes: Designated Compliance Official Who is Not Legal Counsel Compliance Official Reports to ACO s Governing Body Mechanism for Identifying and Addressing Compliance Problems in ACO s Performance and Operation Compliance Training for ACO, ACO Participants and Suppliers/Providers Requirement for the ACO, ACO Participants, Providers and Suppliers and Others Performing Services for ACO to Report Suspected Violations to Appropriate Law Enforcement Agency 18

Compliance With Program Requirements Contracts with ACO Must Require Compliance with ACO s Obligations Under its Agreement with CMS ACO Official with Authority to Bind the ACO Must Certify Accuracy, Completeness and Truthfulness of: ACO MSSP Application Agreement with CMS Submission of Quality Data Other Information Certification to Best of Knowledge and Belief Certification Made at Time of Submission 19

Conflict of Interest Policy ACO Must Have a Conflict of Interest Policy That Applies to Governing Body No Example Conflicts Policy - - Suggestion to Use IRS Forms That Are Individualized for ACO 20

Other Requirements Submission to CMS of Material Marketing to Beneficiaries (Like Health Plans) Transparency 21

Antikickback/Stark/CMP Law Today Three Principal Laws Designed To Regulate Fraud and Abuse Largely in Fee-For-Service Health Care Financial Relationships Antikickback Statute (AKS) (42 U.S.C. 1320a-7b(b)) Stark Law (Stark) (42 U.S.C. 1395nn) Civil Monetary Penalty Law -- Limiting Hospital Payments to Reduce or Limit Provision of Medical Care (CMP Law) (42 U.S.C. 1320a-7a(b)(1)) 22

Five MSSP Fraud & Abuse Waivers ACO Pre-Participation Waiver ACO Participation Waiver Shared Savings Distribution Waiver Compliance with Stark Law Waiver Waiver for Patient Incentives 23

ACO Pre-Participation Waiver (Waives AKS, Stark, CMP Law) Start-up Arrangements Entered into with: Good Faith Intent to Develop and Participate in MSSP (no drug or device manufacturers, distributors, DME suppliers or home health suppliers) Take Diligent Steps to Develop ACO During Target Year (including governance, leadership and management) ACO Governing Board Makes Bona Fide Determination that Arrangement is Reasonably Related to Purposes of MSSP Contemporaneous Documentation Maintained for 10 Years Arrangement Publically Disclosed (but not financial aspects) Must File Application by Target Date 24

ACO Pre-Participation Waiver (cont.) What is a Start-Up Arrangement? Examples: Infrastructure Creation Network Development and Management Care Coordination Mechanisms Clinical Management Systems Quality Improvement Mechanisms Creation of Governance and Management Structure Care Utilization Management 25

ACO Pre-Participation Waiver (cont.) Creation of Incentives for Performance-Based Systems Hiring of Staff (Care Coordinators, Umbrella Organization Management, Quality Leadership, Analytical Team, Liaison Team, IT Support, Risk Management, Financial Management) IT (EHR Systems, Electronic Health Information Exchange, Data Reporting Systems, Data Analytics) 26

ACO Pre-Participation Waiver (cont.) Consultant and Professional Support (Market Analysis, Legal, Financial and Accounting) Organization and Staff Training Costs Incentives to Attract Primary Care Physicians Capital Investments 27

ACO Pre-Participation Waiver (cont.) Reasonably Related to Purposes of MSSP Promoting Accountability for the Quality, Cost and Overall Care of Medicare Population Managing and Coordinating Care for Medicare FFS Beneficiaries Through an ACO Encouraging Investment in Infrastructure and Redesigned Care Processes for High Quality and Efficient Service Delivery for Patients (Including Medicare Beneficiaries) Arrangement Only Needs to be Related to One Such Purpose 28

ACO Pre-Participation Waiver (cont.) Applicable Period: One Year Prior to Application Due Date Until Agreement Starts If Denied, Ends on Denial Date (But if Arrangement Qualified Before Denial Then 6 Months After Denial Notice) May Obtain Exception May Only Use Pre-Participation Waiver Once 29

ACO Participation Waiver (Waives AKS, Stark and CMP Law) ACO Participation in MSSP and is in Good Standing Meet ACO Requirements as to Governance and Leadership ACO Governing Board Makes and Authorizes a Determination That Reasonably Related to Purposes of MSSP Contemporaneous Documentation Maintained and Available for 10 Years Arrangement Publically Disclosed (but not financial aspects) 30

ACO Participation Waiver (cont.) Same Definition of Reasonably Related Continues from Start Date of Participation Agreement Ends 6 Months After Earlier of Expiration of Agreement Voluntary Termination If CMS Terminates Agreement, then Ends on Termination Date 31

Shared Savings Distribution Waiver (Waives AKS and Stark with Additional Requirement for CMP Law) Participation in MSSP and in Good Standing Shared Savings Earned by ACO in MSSP Shared Savings Distributed to or among ACO Participants, Providers/Suppliers (or those who were in year savings earned) Used for Activities Reasonably Related to Purposes of MSSP 32

Shared Savings Distribution Waiver (cont.) For CMP Law: Hospital to Physician Distribution Okay So Long as Not Made Knowingly to Reduce or Limit Medically Necessary Services to Patients Under Direct Care of the Physician 33

Compliance with Stark Law Waiver (Waives AKS and CMP Law) ACO Participates in MSSP and Remains in Good Standing Arrangement Reasonably Related to Purposes of MSSP Relationship Complies With a Stark Law Exception at 42 CFR 411.355 to 411.357 34

Waiver for Patient Incentives (Waives AKS and Beneficiary Inducement CMP) Made by ACO, ACO Participants, Providers/Suppliers to Beneficiaries for Free or Below Fair Market Value ACO Participates in MSSP and Remains in Good Standing Reasonable Connection Between Items or Services and Medical Care of Beneficiary Items or Services are In-Kind 35

Waiver for Patient Incentives (cont.) Items or Services are Preventative Care or Advance One of the Following: Adherence to Treatment Regime Adherence to a Drug Regime Adherence to a Follow-Up Care Plan Management of a Chronic Disease or Condition 36

Waiver for Patient Incentives (cont.) Cannot Protect Gifts to Medicare Beneficiaries to Induce them to Receive Services or Items from an ACO or its Participants or to Remain as Part of an ACO Does Not Protect Waiver or Below FMV Items or Services by Manufacturers or other Vendors to Beneficiaries, the ACO, or ACO Participants Can Offer Incentives to Promote Clinical Care Coordination Commences on Start Date of Agreement and Ends Earlier of Expiration of Term of Agreement or Date Agreement Terminated 37

Waivers (cont.) MSSP Regs: Prohibit Conditioning of Participation in ACO of Participants/Providers, etc. on Referrals of Federal Health Programs Businesses Provided to Beneficiaries Not Assigned to ACO Requiring that Beneficiaries be Referred Only to ACO Participants/Providers or Any Other Provider (Except for Certain Employees and Contractors) 38

Waivers: What Is Possible ACO Participant With Capital Purchasing EHR for Other Participants ACO Participant Paying for Quality Improvement Mechanisms, Data Analytics, Network Development, Primary Care Recruitment) ACO Participant Rewarding Reduction in Length of Stay, Product Substitution, Reduction in Readmissions Carryover to Non-MSSP Businesses 39

FTC/DOJ Antitrust Rule of Reason: If Participate in MSSP, ACOs Deemed to be Clinically and Financially Integrated No Mandatory Antitrust Review if ACO Has 50% or More Market Share of Common Service in PSA Optional, Expedited (90 Day) Review for ACOs That Do Not Meet Safety Zone Qualified ACOs Are Clinically Integrated for Antitrust Purposes ACO Participants Can Collectively Bargain ACOs Formed After 3/23/10 Must Agree to Share ACO Application with FTC/DOJ 40

Remaining Participation and Compliance Issues Costs to build and operate ACO with the requisite ACO infrastructure Human resources, including an experienced Executive Director, a Medical Director, and a Compliance Officer Infrastructure that allows the ACO to collect quality/cost data, provide feedback across the entire ACO, and report to CMS (e.g., common IT platform) Policies and procedures clinical guidelines, compliance plan and training, physician directed QA/ process improvement processes, clinical integration program, corrective action process, CMS data use agreement, distribution of shared savings 41

Participation and Compliance Issues (cont.) Patient-centeredness program, including experience of care surveys, ICPs for high-risk patients, coordination of care mechanisms, patient access and communication Application costs and process 42

Participation and Compliance Issues (cont.) Can shared savings be earned to pay costs? Interim Payments Can care be managed? No requirement to use ACO providers Hospital costs already limited by DRG Free choice by beneficiaries (snow birds; use of high cost facilities) Will other payors be willing to contract on a similar shared savings/risk basis? Can ACO be successful with one foot in FFS and one foot in shared savings/risk sharing world? 43

Participation and Compliance Issues (cont.) What happens after 3 years - - Success in first 3 years built in to benchmarks making success later difficult Amortization of costs limited to first 3 years? Beneficiary adjustments - - Aging /sicker population may be more expensive than trend 44

Participation and Compliance Issues (cont.) Substantial downside risk in Track 2 may not justify greater potential upside gain If Track 2, is there an insurance issue requiring license (risk transfer)? Incentive for participating providers to avoid higher cost new (and better) diagnostics and therapeutics (e.g., genetic testing/personalized medicine) Incentive for ACOs to exclude high cost specialists/ providers 45

Participation and Compliance Issues (cont.) Incentive for ACO participants to avoid chronically ill and other high cost patients Incentive for participating providers to stint on care, with adverse impact on quality 46

Questions? 47

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