CMS Proposed Rule Describes ACO Requirements: Eligibility, Governance, Application, Monitoring, and Termination

25 April 2011 Publication
Author(s): C. Frederick Geilfuss II Maria E. Gonzalez Knavel Chris E. Rossman

Legal News Alert: Health Care

On March 31, 2011, CMS published a Proposed Rule to implement Section 3022 of the Patient Protection and Affordable Care Act (ACA), which requires the Secretary of the Department of Health and Human Services (HHS) to establish a Medicare Shared Savings Program (SSP). Under the Proposed Rule, eligible providers, hospitals, and suppliers that participate in the SSP by creating or joining accountable care organizations (ACOs) can continue to receive traditional Medicare fee-for-service payments under Medicare Parts A and B and be eligible for additional payments based upon specified quality and savings requirements.

On the same day, CMS and the Office of Inspector General (OIG) jointly issued a Proposed Rule describing the waiver of application of various fraud and abuse laws with respect to ACOs; the Federal Trade Commission (FTC) and the Department of Justice (DOJ) jointly issued a Proposed Policy concerning the application of antitrust laws to ACOs; and the Internal Revenue Service (IRS) issued a Notice concerning tax-exempt entity participation in the SSP.

This Legal News Alert is the first in a series of three alerts developed by Foley's Health Care Industry Team to assist you in understanding the newly published guidance. Please see the other alerts in this series, which will be available soon:

  • CMS Proposed Rule Describes ACO Quality Performance Standards, Reporting Obligations, and Determination of Shared Savings Methodology
  • Federal Agencies Propose Waivers and Modifications to Facilitate ACOs

This Legal News Alert provides an overview of the proposed rule provisions that describe ACO eligibility and structure requirements, including the types of entities that may form ACOs, legal structure and governance requirements, application requirements, and the monitoring and termination process.

Eligibility, Governance, and Application Requirements

Eligible Entities. Under the Proposed Rule, to participate in the SSP, an ACO must be a legal entity under applicable state law that comprises a group of “eligible” providers and suppliers. The providers and suppliers must: (i) bill Medicare for items and services provided to Medicare fee-for-service beneficiaries under Medicare billing numbers assigned to their respective tax identification numbers (TINs); (ii) work together to manage and coordinate care for Medicare fee-for-service beneficiaries; and (iii) have established a mechanism for a shared governance that provides all ACO participants with appropriate proportional control over the ACO’s decision-making process. Pursuant to the ACA, the following four categories of provider/supplier participants, separately or in combination, are “eligible” to participate as an ACO:

  • ACO professionals (e.g., doctors of medicine or osteopathy, physician assistants, nurse practitioners, clinical nurse specialists) in group practice arrangements
  • Networks of individual practices of ACO professionals
  • Partnerships or joint venture arrangements between hospitals and ACO professionals
  • Hospitals (that are acute care hospitals paid under an inpatient prospective payment system) employing ACO professionals

In the CMS commentary to the Proposed Rule, CMS discusses the public policy and administrative advantages and disadvantages of several options it considered in connection with including other categories of ACO participants in the list of potentially eligible ACO providers/suppliers. The Proposed Rule calls for adding the following to the list of entities that will be eligible to form an ACO independently:

  • Providers or suppliers otherwise recognized under the Social Security Act (SSA) that are not ACO professionals or hospitals
  • Critical access hospitals that bill under Method II (as described in 42 C.F.R. § 413.70(b)(3))

To encourage ACOs to include Rural Health Centers (RHCs) and Federally Qualified Health Centers (FQHCs) as participants (although these are not eligible to form an ACO on their own), CMS proposes to allow such ACOs to receive a higher percentage of shared savings under the SSP. CMS has requested comments on the kinds of providers/suppliers that should or should not be eligible to form an ACO, including potential concerns or benefits and the administrative, operational, and technological issues that will have to be considered.

Legal Structure. An ACO must be constituted and recognized, in every state in which it operates, as a legal entity for purposes of conducting its business, including for receiving and distributing shared savings payments and repaying shared losses; reporting and ensuring provider compliance with health care quality criteria including quality performance standards; and for performing any of its other obligations. The CMS commentary in the Proposed Rule notes that the ACO entity may be structured in many different ways, provided it has its own TIN. Examples of potential legal entities CMS listed are: corporation, foundation, partnership, and limited liability company. Unlike each ACO participant, the ACO itself does not have to be a Medicare-enrolled provider. An ACO may be a for-profit or a nonprofit entity. An ACO will almost always have to be a separate entity; i.e., have a separate governing body. In those instances where an ACO is a self-contained, financially, and clinically integrated entity with a pre-existing governing body (such as a hospital that employs ACO professionals), the ACO will not need to form a separate governing body, as long as that governing body meets all criteria required for ACO’s governing bodies.

CMS has requested comments on its proposal for the required legal structure and other legal structure considerations that it should consider, including whether there are better alternative requirements that may be used to achieve its aims of shared governance and decision-making.

Governance. The Proposed Rule’s governance provisions seek to promote transparency, accountability, and responsiveness to affected Medicare beneficiaries and the ACO providers and suppliers. The purpose of the governance requirement is to establish a decision-making body that will have authority for administrative, fiduciary, and clinical operations, for taking final action on matters that bind the ACO, and to establish processes promoting evidence-based medicine and patient engagement, reporting on quality and cost measures, and coordinating care. CMS envisions a governing body, such as a board of directors or board of managers, which is representative of constituent participants and interests. The Proposed Rule includes the following (sometimes inconsistent) requirements:

  • The ACO’s governing body must be composed of ACO participants or their representatives and Medicare beneficiary representatives who do not have a conflict of interest with the ACO (and who have no immediate family member who has a conflict of interest with the ACO)
  • At least 75 percent of the governing body must be controlled by ACO participants and each ACO participant must have appropriate proportionate control over governing body decision making
  • The governing body of the ACO must be separate and unique to the ACO when the ACO is composed of multiple, otherwise independent entities
  • Except as otherwise provided, when the ACO is a financially and clinically integrated single entity, a separate governing body must be established
  • If the ACO is a single entity that is financially and clinically integrated, the ACO’s governing body may be the same as the governing body of that entity if at least 75 percent of that entity’s governing body is controlled by representatives of the entity
  • Members of the governing body may serve in a similar or complementary manner for an existing participant in the ACO

CMS is specifically requesting comments on its governance proposal to use 75-percent control as the criterion for not requiring a separate governing body when a single integrated entity is seeking to be an ACO.

Leadership and Management Structure. The Proposed Rule requires an ACO to submit with its SSP application materials demonstrating the ACO has in place leadership and management structure, which includes clinical and administrative systems that should be in alignment to support SSP’s three goals of: (i) better care for individuals, (ii) better care for ACOs’ assigned populations, and (iii) lower growth in expenditures. The Proposed Rule reflects CMS’ belief that integrated financial and clinical leadership and management structures and systems are necessary to achieve the goals of the SSP, just as such integration is necessary to achieve pro-competitive conduct in an ACO warranting a “rule of reason analysis” for antitrust purposes. An ACO must implement evidence-based medical practice or clinical guidelines and processes for delivering care consistent with these goals, and all ACO participants must agree to comply with the ACO’s guidelines and processes and to be subject to performance evaluations and potential remedial actions.

The Proposed Rule requires ACOs to be managed by an executive whose appointment and removal are controlled by the governing body and whose leadership team has demonstrated the ability to direct clinical practice to improve efficiency processes and outcomes. An ACO must have a full-time senior level medical director who is a board-certified physician in the state in which the ACO operates and is physically present on a regular basis at an established ACO location.

ACO participants must have a meaningful commitment to the ACO’s clinical integration program (such as a meaningful financial investment, commitment of human resources, or some other stake in the success of the ACO that is likely to motivate the ACO participants to make the clinical integration program successful). An ACO also is required to have a quality assurance and quality program that is overseen by a physician-directed quality assurance and improvement committee. The quality assurance program must establish internal performance standards of quality of care and services, cost effectiveness, and process and outcome improvements. The quality assurance program must hold the ACO’s providers accountable for meeting performance standards. An ACO also must be able to demonstrate that it has an infrastructure, such as EHR technology or other information technology, that enables the ACO to collect and evaluate data and provide feedback to ACO participants, including providing information to influence care at the point of care. The establishment of such infrastructure presents a significant use of resources that may be a significant challenge for providers and suppliers in the formation of ACOs.

Distribution of Savings. The SSP application requires the ACO to describe how it plans to use any shared savings and the criteria that it will use to distribute shared savings among its participants, and how the plan of distribution achieves the goals of the SSP.

Three-Year Commitment. CMS proposes to have ACOs submit applications to participate in the SSP. Upon the approval of CMS, the ACO must enter into a three-year agreement with CMS requiring the ACO to comply with all SSP regulations and requirements. Each ACO participant also will be required to commit to a three-year agreement. Since under the SSP, a beneficiary will be assigned to an ACO based on the beneficiary’s primary care physician who has provided the most primary care services to the beneficiary, primary care physicians must have an exclusive three-year agreement with a single ACO. All other ACO participants must not be required to be exclusive with an ACO. Each contractual arrangement between or among the ACO, ACO participants, and other entities furnishing services related to ACO activities must require compliance with applicable regulations and with the requirements of the three-year agreement.

Specifically, an annual application period is proposed during which time ACOs will be evaluated for eligibility to participate in the SSP. CMS will review the applications and approve applications from eligible organizations prior to the end of the calendar year. The requisite three-year period will begin on the following January 1st , and the ACO's performance periods will begin on January 1 of each respective year during the agreement period. CMS solicits comments on alternatives to a January 1st start date if a greater number of qualified organizations apply to participate in the first year of the program. Due to the inherent lag between when a service is performed and when a claim is submitted for payment, CMS proposes using a six-month claims run-out to calculate the benchmark and per capita expenditures for the performance year.

Number of PCPs and Assigned Beneficiaries. Initially, CMS will deem an ACO to have a sufficient number of primary care physicians and assigned beneficiaries if at least 5,000 Medicare beneficiaries have been historically assigned to the ACO participants prior to the period of the first performance year (using the methodology in the Proposed Rule discussed below). If the ACO’s population falls below 5,000 at the end of a performance year, the ACO will be issued a warning and placed on a corrective action plan (CAP) but will still be eligible for sharing in savings (and losses, if relevant) for that year. However, if the assigned population has not returned to at least 5,000 by the end of the next performance year, the ACO will be terminated from the SSP and will not be eligible to participate in the shared savings and losses for that year.
The ACA requires CMS to determine an appropriate method to assign Medicare fee-for-service beneficiaries to an ACO based on their utilization of primary care services provided by an ACO professional, which CMS has proposed in this context is a physician only, not a non-physician practitioner.

CMS has proposed to identify an ACO operationally as a set of one or more Medicare enrolled TINs currently practicing as a “group practice arrangement” or in a “network” such as where hospitals are employing ACO professionals. An organization applying to be an ACO will be required to provide the TINs of all its ACO participants. CMS also proposes that ACO professionals within the respective TIN on which beneficiary assignment is based (namely primary care physicians), will be exclusive to one ACO agreement in the SSP, and this exclusivity will only apply to the primary care physicians by whom beneficiary assignment is established. For all other ACO participants (where beneficiary assignment is not dependent), such participants will be required to agree to participate in an ACO for a three-year period, but would not be limited to participation in a single ACO.

CMS proposes to define primary care services for this purpose based on the assignment of beneficiaries to physicians designated as primary care providers (defined as internal medicine, general practice, family practice, and geriatric medicine) who are providing the appropriate primary care services to beneficiaries.

CMS proposes that the assignment of beneficiaries be done retrospectively because this will accurately reflect the population that an ACO is actually serving balanced by the provision of aggregate beneficiary level data for the assigned population of Medicare beneficiaries during the benchmark period.

CMS further proposes to assign beneficiaries for purposes of the SSP retroactively to an ACO based on the primary care physician from whom a beneficiary received the most primary care services during a performance year. CMS believes that this will ensure that beneficiaries will be assigned to an ACO when they receive more primary care from that ACO than from any other provider.

CMS intends to develop a communications plan, including educational materials and other forms of outreach, to provide beneficiaries in a timely manner with accurate, clear, and understandable information about the SSP in general, and about their utilization of services from a provider or supplier participating in an ACO, the possibility of being assigned to an ACO for quality and shared savings purposes, and the potential that their health information may be shared with the ACO, of which they have the ability to opt-out of that data sharing. CMS also requires ACOs to post signs in facilities of participating ACO provider/suppliers indicating their participation in the SSP and to make available standardized written information to beneficiaries describing the SSP. This standardized written information will provide notice to the beneficiaries of both their participation in the SSP and the potential to share beneficiary identifiable data with ACOs when a beneficiary receives services from a physician on whom assignment to the ACO is based.

Required Processes. As required by the ACA, the Proposed Rule requires an ACO to define processes to: (i) promote evidence-based medicine; (ii) promote patient engagement; (iii) report on quality and cost measures; and, (iv) coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies. Rather than identifying specific criteria for meeting each process requirement, CMS proposes to require an ACO to include in its SSP application how it will meet each of these requirements. Evidence-based medicine is defined generally as the application of the best available evidence gained from the scientific method to clinical decision-making. Patient engagement refers to the active participation of patients and their families in the process of making medical decisions. Patient engagement also includes methods for fostering health literacy (i.e., basic knowledge about maintaining good health, avoiding preventable medical conditions, and managing existing conditions). It may involve decision-support tools designed to assess the merits of various treatment options in the context of the values and convictions of a patient. Nevertheless, strategies to optimize care coordination may not restrict a beneficiary’s freedom to seek care from providers/suppliers outside of the ACO.

Patient-Centeredness Criteria. The Proposed Rule requires ACOs to adopt a focus on patient-centeredness that is integrated into practice by the ACO’s leadership and management working with the ACO’s health care teams. The ACO will be required to establish that it is patient-centered by demonstrating it addresses criteria set forth in the Proposed Rule, including: (i) having a beneficiary experience of care survey in place; (ii) patient involvement in ACO governance; (iii) having a process for evaluating and meeting the health needs of its diverse patient populations; (iv) having systems in place to identify and update high-risk individuals and processes to develop individualized care plans for targeted populations; (v) having a mechanism for coordinating care for Medicare beneficiaries, both within and outside of the ACO; (vi) having a process in place for communicating clinical knowledge/evidence-based medicine in an understandable way; (vii) having a process in place for beneficiary engagement and shared decision-making taking into account the individual needs of the beneficiary; (viii) having written standards and processes for beneficiaries to access their medical records; (ix) having internal processes for measuring clinical or service performance by physicians across the practices and using the results to improve care and service over time.

Data Sharing. CMS recognizes the importance of data sharing with ACOs to improve the quality of care provided to Medicare beneficiaries while improving the efficiency and cost-effectiveness of that care. CMS believes that providing aggregated Medicare data reports to ACOs in the beginning of the SSP is especially helpful to ACOs as they identify priority areas of care upon which to focus. These reports will be provided quarterly based upon the most recent 12 months of data from potentially assigned beneficiaries. CMS proposes making available Medicare Part A and Part B data about each patient who has had a visit with a primary care physician participating in the ACO during the performance year at a minimum data necessary standard including the following elements: procedure code, diagnosis code, beneficiary ID, date of birth, gender, date of death (if applicable), claim ID, the from and through dates of services, the provider or supplier ID, and the claim payment type. Additionally, CMS proposes to provide the following minimum Medicare Part D data for drugs: beneficiary ID, prescriber ID, drug service date, drug product service ID, and indication if the drug is on the formulary, as necessary to permit the ACO to improve quality of care furnished to its assigned beneficiaries and enhance care coordination for these beneficiaries.

CMS also proposes to make certain limited beneficiary identifiable data available at the beginning of the first performance year in order to enable ACOs to identify which of their fee-for-service beneficiaries were used to generate the aggregated data reports. CMS proposes to disclose the name, date of birth, gender and Health Insurance Claim Number of the historically assigned beneficiary population. CMS states that these identifiers are useful because ACO providers can use the information to identify the beneficiaries, review their records, and identify care processes that may need to change. Furthermore, CMS believes that a high percentage of historically assigned patients will continue to receive care from the ACO participants and ACO providers/suppliers. Participants in the ACOs will be able to share the beneficiary identifiable claims data so they can better coordinate and target care strategies towards the individual beneficiaries who may be assigned to them. CMS states that the disclosure of these four identifiers is permitted under the HIPAA Privacy Rule, which permits such disclosures for the purpose of carrying out “health care operations.”

CMS will require an ACO that has been accepted to participate in the SSP to enter into a Data Use Agreement (DUA) prior to receipt of any beneficiary identifiable claims data. Under the DUA, the ACO will be prohibited from sharing the Medicare claims data that is provided through the SSP with others. The ACO also is prohibited from using this data in a manner that violates the HIPAA Privacy Rule.

Opt-Out Choice for Beneficiaries. CMS believes that each patient should be entitled to a meaningful opportunity to make a choice as to whether their information may be shared with ACOs by: (i) providing the individual with advance notice and time to make a decision; (ii) providing adequate information about the benefits and risks of sharing their information; (iii) not compelling consent; and, (iv) not using the choice to permit the individual’s information to be shared for discriminatory purposes.

ACOs will only be allowed to request beneficiary identifiable claims data for beneficiaries who have (i) visited a primary care participating provider during the performance year, and (ii) have not chosen to opt-out of claims data sharing.

Marketing. CMS is proposing that all marketing materials, communications, and activities (including mailings, telephone calls, and community events used to educate, solicit, notify, or contact Medicare beneficiaries or providers/suppliers) related to the ACO and its participation in the SSP be approved in advance by CMS to ensure such communications are used only for appropriate purposes (e.g., notification regarding a beneficiary’s provider participating in ACO, issuances of any CMS required notices, or notification of provider or ACO termination).

Compliance. The Proposed Rule requires an ACO to have a compliance plan that addresses how it will comply with applicable legal requirements and provides mechanisms for identifying, reporting, and addressing compliance problems. An ACO must have a compliance officer who is not the legal counsel and who reports directly to the governing body. The compliance plan must include compliance training of the ACO’s employees and contractors. The ACO may, if it chooses, coordinate its compliance efforts with existing compliance programs of the ACO’s participants. The Proposed Rule also requires that an ACO executive with authority to bind the ACO certify the accuracy, completeness, and truthfulness of information contained in its SSP application, the three-year agreement, the quality data, and other information required from the ACO. Likewise, an executive must certify the ACO’s compliance with program requirements, as well as the accuracy, completeness, and truthfulness of any information submitted by the ACO or ACO participants to determine eligibility for shared savings payments or losses.

Changes in SSP Standards. CMS recognizes that the SSP standards and related regulations are subject to change during the course of development and implementation of the SSP. CMS proposes that ACOs be subject to future changes in regulation with the exception of the following program areas: (i) eligibility requirements concerning the structure and governance of ACOs; (ii) calculation of the sharing rate; and (iii) beneficiary assignment. Depending on the nature of the regulatory changes, CMS proposes that an ACO will be required to submit for review and approval an explanation of how it will address the changes, implement them, or incorporate the changes into the agreement with CMS. If an ACO fails to implement the changes, CMS proposes to institute a corrective action plan. If the ACO fails to implement the corrective action plan, the ACO may be terminated from the SSP.

In addition, CMS anticipates that an ACO may experience significant changes within the course of its three-year agreement period due to different circumstances, such as material changes in the ACO’s provider composition or the departure of an ACO primary care physician upon which assignment is based. CMS is concerned that, as a result of such changes, ACOs may no longer be eligible to participate in the SSP. Therefore, CMS proposes that an ACO may not add ACO participants during the course of the three-year agreement, but ACOs may remove ACO participants or add/subtract ACO providers/suppliers. If an ACO reorganizes its structure by excluding ACO participants, adding or excluding ACO providers/suppliers, deviating from its approved application, changing information contained in the approved application, or experiencing other changes that make the ACO unable to complete its three-year agreement, the ACO will be required to notify CMS within 30 days of the event for reevaluation of its eligibility to continue to participate in the SSP. CMS may require the ACO to start over as a new ACO with a new three-year agreement, undergo antitrust review, or decide that the ACO can no longer participate in the SSP.

If an ACO is terminated from the SSP, CMS proposes that such ACO be prohibited from beginning another three-year agreement period until the original agreement period has lapsed. Also, CMS proposes that if an underperforming ACO that experiences a net loss during its first three-year agreement not be given a second chance and be prohibited from reapplying in the future. CMS seeks comments as to whether this requirement will create disincentives for participation among smaller entities.

Monitoring and Termination of an ACO

In the Proposed Rule, CMS proposes the process and procedures CMS will use to monitor ACOs, to terminate ACO agreements, and to allow a reconsideration review process for its determinations. CMS has been given a great deal of discretion in exercising its rule-making authority in this area. The ACA specifically authorizes CMS to “impose an appropriate sanction” on an ACO, including “termination from the program,” if it determines an ACO “has taken steps to avoid patients at risk in order to reduce the likelihood of increasing costs to the ACO” and to terminate an agreement with an ACO that fails to meet the quality performance standards as established by CMS. CMS proposes additional areas to monitor and is requesting comments on additional areas of ACO functions and/or operations it should monitor.

Monitoring Methods. The methods CMS plans to use to monitor ACOs include, but are not limited to, the following: (i) analysis of specific financial and quality measurement data reported by an ACO as well as aggregated ACO data; (ii) site visits; (iii) analysis of an ACO’s assessment and follow up of beneficiary and provider complaints; and, (iv) audits (e.g., analysis of claims, chart reviews, beneficiary surveys, coding audits).

Monitoring Avoidance of At-Risk Beneficiaries. CMS plans to monitor ACOs, their ACO participants, and any contracted entities performing functions or services on behalf of an ACO to determine if any of them avoid providing services to “at-risk beneficiaries.”

CMS defines “at-risk beneficiaries” as “those beneficiaries who have a high risk score on the CMS-HCC risk adjustment model, are considered high cost due to having two or more hospitalizations or emergency room visits each year, are dually eligible for Medicare and Medicaid, have a high utilization pattern, have one or more chronic conditions (such as, for example, diabetes, heart failure, coronary artery disease, chronic obstructive pulmonary disease, depression, dementia, or end stage renal disease) or beneficiaries who have a recent diagnosis (for example, newly diagnosed cancer) that is expected to result in an increased cost.” CMS is seeking comments on this definition of “at-risk beneficiary.”

In the Proposed Rule, CMS proposes providing an ACO with notice after CMS has identified any pattern suggesting avoidance of at-risk beneficiaries and to require the ACO to submit a CAP. CMS also is proposing that an ACO will not receive shared savings payments while it is under a CAP, regardless of the period of performance in question, and will not be eligible to earn any shared savings for the period during which it is under a CAP. If CMS determines an ACO continues the avoidance of at-risk beneficiaries, it will terminate the ACO from the SSP. CMS is requesting comments on possible lesser sanctions for the avoidance of at-risk beneficiaries (e.g., the cessation of, or a reduction in, the assignment of new beneficiaries to the ACO; a reduction in the amount of the shared savings payment; or, a fine for each instance of at-risk beneficiary avoidance).

Monitoring Compliance With Quality Performance Standards. CMS proposes to monitor an ACO’s compliance with CMS established quality performance standards. If an ACO fails to meet quality performance standards or report on one or more quality measures, CMS will issue a warning to the ACO with an opportunity to correct any deficiency prior to any termination. If an ACO continues to fail to meet the quality performance standard(s), CMS proposes immediately terminating the agreement.

In the Proposed Rule, CMS discusses alternative actions it may take if an ACO fails to report one or more quality measures or the report is incomplete and/or inaccurate. CMS plans to request an ACO to either submit the required measure data, correct the data, and/or provide a written explanation for its failure to completely and accurately report its data to CMS prior to CMS taking any adverse action against an ACO. If the ACO fails to respond to CMS within the deadline and/or does not provide a reasonable explanation, CMS will immediately terminate its agreement with the ACO.

Other Monitoring Activities. In addition to monitoring the statutorily mandated areas addressed above, CMS proposes using its discretion to monitor an ACO’s compliance with requirements for eligibility, communications with beneficiaries, providers, and suppliers about opting-out of sharing claims data, marketing materials, and activities.
Actions Prior to Termination. CMS proposes that it may take any or all of the following actions before terminating the ACO’s agreement if it concludes, after monitoring, that an ACO has not performed its obligations:

  • Provide a written warning notice to the ACO identifying the specific deficiencies at issue
  • Request a CAP from the ACO addressing the actions the ACO will take to ensure it will correct any deficiencies and remain in compliance with the SSP requirements
  • Place the ACO on a special monitoring plan

CMS plans on monitoring an ACO’s performance during the CAP process. Any failure to submit, obtain approval for, or implement a CAP also may result in termination of the agreement. An ACO’s failure to demonstrate improved performance upon completion of the CAP also may result in termination of its ACO agreement.

Termination, Suspension, and Repayment of Shared Savings. The Proposed Rule provides that CMS may, at its discretion, terminate an agreement with an ACO for any of the following reasons:

  • Avoidance of at-risk beneficiaries
  • Failure to meet quality performance standards
  • Failure to completely and accurately report required information or make timely corrections to reported information
  • Non-compliance with eligibility requirements during the three-year performance period, or the imposition of sanctions or other actions taken against the ACO by an accrediting organization, state, federal, or local government agencies
  • Failure to effectuate any required regulatory changes during the agreement period after being given the opportunity for a CAP
  • Failure to notify beneficiaries of provider/supplier participation in an ACO
  • Material noncompliance, or demonstrating a pattern of noncompliance, with public reporting and other CMS reporting requirements
  • Failure to submit an approvable CAP, or to implement or demonstrate improved performance after the implementation of a CAP
  • Violation of the Stark Law, Civil Monetary Penalties Law, Anti-Kickback Statute, or other antifraud, antitrust laws (or entry into a final judgment or other final resolution of antitrust charges by an antitrust agency), or any other applicable Medicare laws, rules, or regulations that are relevant to ACO operations
  • Submission to CMS of false, inaccurate, or incomplete data and/or information, including but not limited to, information provided in the SSP application, quality data, financial data, and information regarding the distribution of shared savings
  • Use of marketing materials, activities, or other beneficiary communications that are subject to CMS review and approval, without CMS approval
  • Failure to maintain an assigned beneficiary population of at least 5,000 beneficiaries
  • Failure to offer beneficiaries the option to opt out of sharing claims information
  • Failure to share internally compiled beneficiary summary of care or medical records from other providers/suppliers both within and outside of the ACO to the extent permitted by law
  • Improper use or disclosure of claims information received from CMS in violation of the HIPAA Privacy Rule, Medicare Part D Data Rule, Privacy Act, the data use agreement, or other applicable laws or regulations
  • Failure to demonstrate the ACO has adequate resources in place to repay losses and to maintain those resources for the agreement period

Notice of Termination by ACO. In the Proposed Rule, an ACO must notify CMS, its ACO participants, and other organizations of its decision to terminate its participation in SSP 60 days prior to the effective date of the termination. The ACO participants must notify beneficiaries of the ACO’s decision to terminate in a timely manner. All termination notification materials must meet CMS marketing guidelines.

Ability to Re-Apply Post-Termination. CMS proposes to provide an ACO that has been terminated from the SSP an opportunity to again apply to participate in the SSP after the end of the original three-year agreement period. To be eligible to participate again in the SSP, the ACO must demonstrate in its application that it has corrected the deficiencies that caused its termination from the SSP and has implemented processes to ensure it will remain in compliance with the terms of the new participation agreement. ACOs with corrected deficiencies that wish to reenter the program have the option to do so only under the two-sided model. If the new agreement is terminated for any reason before the three-year agreement period is completed, the ACO would forfeit its mandatory 25 percent withhold of shared savings.

Statutory Reconsideration Review Process. An ACO’s review and appeal opportunities of termination decisions are severely curtailed by statute. The ACA states that there shall be no administrative or judicial review of the following actions:

  • Specification of criteria for meeting quality and performance standards
  • Assessment of quality of care furnished by an ACO and the establishment of quality performance standards
  • Assignment of Medicare fee-for-service beneficiaries to an ACO
  • Determination of whether an ACO is eligible for shared savings, the amount of shared savings, including the determination of the estimated average per capita Medicare expenditures under the ACO for Medicare fee-for-service beneficiaries assigned to the ACO, and the average benchmark for the ACO
  • Percent of shared savings and any limit on the total amount of shared savings
  • Termination of an ACO for failure to meet quality performance standards

Regulatory Additions to Reconsideration Review Process. The Proposed Rule seeks to add to the statutory list of non-reviewable actions a determination made by the reviewing antitrust agency (the FTC or the DOJ) that it is likely to challenge or recommend challenging the ACO.

Regulatory Administrative Review. In the Proposed Rule, CMS proposes that, for actions where review and appeal is not statutorily prohibited, it “believes it is important to establish a fair administrative process by which ACOs may request review of decisions, such as the denial of an ACO application or the termination of an existing ACO agreement for reasons other than those exempted by statute. An administrative reconsideration process provides an opportunity to resolve disputes quickly and efficiently, and creates an administrative record that can serve as the basis for any further review of the agency’s decision.”

CMS proposes allowing an ACO to appeal an initial determination by requesting a reconsideration review by a CMS reconsideration official. The burden of proof will be on the ACO to demonstrate to the CMS reconsideration official with convincing evidence that the initial determination was inconsistent with CMS’ regulatory or statutory authority.

In the event any of the parties disagree with the recommendation of the CMS reconsideration official, CMS proposes that they may request an on-the-record review of the initial determination and recommendation by an independent CMS official who was not involved in the initial determination or the reconsideration review process. CMS proposes that the independent decision reached after the review of the reconsideration official’s recommendation is final and binding. Often “final and binding” means there is no ability to appeal to court. Providers may consider submitting comments to CMS as to whether some independent reviewer, outside of CMS, should conduct such hearings.

In the Proposed Rule, CMS proposes that if CMS’ initial decision to deny an ACO’s application to participate in the SSP is upheld after the provided regulatory administrative review, the application will remain denied based on the effective date of the original notice of denial.

Audits, Access to Data. CMS is proposing that all ACOs and their subcontractors be required to maintain and give to CMS, HHS, the Comptroller General, other representatives of the federal government or their designees, the right to inspect all books, contracts, records, documents, and other evidence (including data related to Medicare utilization and costs, quality performance measures, shared savings distributions, and other financial arrangements related to ACO activities) sufficient to enable the audit, evaluation, and inspection of an ACO’s compliance with SSP requirements and the ACO’s right to any shared savings payment.

The Proposed Rule calls for a 10-year retention period for all ACO documents and other evidence maintained from the end of the agreement period or from the date of completion of any audit, evaluation, or inspection, whichever is later, unless CMS determines there is a special need to retain a particular record or group of records for a longer period. If there has been a termination, dispute, or allegation of fraud or similar fault by the ACO organization or its members, the CMS proposes that the retention may be extended to six years from the date of any resulting final resolution of the termination, dispute, fraud, or similar fault.

In the Proposed Rule, CMS also proposes that when there is a reasonable possibility of fraud or similar fault, the government may inspect, evaluate, and audit the ACO organization at any time. If as a result of any inspection, evaluation, or audit, CMS determines that the amount of shared savings due to the ACO or the amount of shared losses owed by the ACO has been determined in error, CMS reserves the right to reopen the initial determination and issue a revised initial determination. CMS proposes that ACOs include terms in their contractor agreements requiring the contractors to comply with the same record retention requirements and to make such documents or other evidence available to the federal government upon request.

The suggested maximum 16-year retention period (or even 10 years) will be one of the longest record retention requirements imposed by CMS. Medicare’s regular audit functions do not require such long a retention period. The amount of documents required to be retained by ACOs is massive. Providers should consider commenting on the burdensome nature of the proposed retention requirement

Request for Comments

Interested parties desiring to influence the final CMS rule are encouraged to submit comments on the Proposed Rule. Comments must be received by CMS no later than 5:00 p.m. on June 6, 2011 to be considered. Comments may be submitted to CMS by one of the following methods outlined in the Proposed Rule: electronically; by regular mail; by express or overnight mail; or by hand or courier.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

C. Frederick Geilfuss II
Milwaukee, Wisconsin

Maria E. Gonzalez Knavel
Milwaukee, Wisconsin

Maureen F. Kwiecinski
Milwaukee, Wisconsin

Lawrence B. Litwak
Boston, Massachusetts

Shilpa S. Patel
New York, New York

Chris E. Rossman
Detroit, Michigan

R. Michael Scarano, Jr.

San Diego, California


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