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April 15‚ 2011
Understanding the Implications of Proposed Legal
Structure Requirements of Accountable Care Organizations
By Rashi Mittal, M. Daria Niewenhous, and Stephanie D. Willis
On March 31, 2011, a little over a year after the Patient
Protection and Affordable Care Act (PPACA) became law, the Centers for Medicare
& Medicaid Services (CMS) released proposed regulations on the
operation and structure of Accountable Care Organizations (ACOs).1 The proposed
regulations create the Medicare Shared Savings Program (the Program), which
CMS will implement no later than January 1, 2012, in line with section 3022
of PPACA. The deadline for submitting comments on the
proposed rule is June 6, 2011. These proposed regulations have far-reaching
implications for new and existing health care organizations that want to
participate in the Program as ACOs. CMS is seeking comments to determine
which legal entities should qualify as ACOs, what the Program should
require of its participants, and how the final Program should function. Click
here for the full text of the rule.
Overview of Eligibility Criteria to Participate in the Medicare Shared
Savings Program
CMS defines an ACO as a legal entity that is
recognized and authorized under applicable state law, identified by a
Taxpayer Identification Number (TIN), and comprised of an eligible group of
Medicare-enrolled providers and/or suppliers2
(ACO participants) that work together to manage and coordinate care for
Medicare fee-for-service beneficiaries. CMS also proposes that ACOs must
establish a mechanism for shared governance, which will provide all ACO
participants with appropriate "proportionate control"3 over the ACO's
decision-making process.
Under the proposed rule, the following entities are eligible
to participate in the Program:
·
ACO professionals4
in a group practice;
·
Networks of individual practices of ACO professionals;
·
Partnerships or joint venture arrangements between hospitals
and ACO professionals;
·
Hospitals5
that employ ACO professionals;
·
Federally Qualified Health Centers (FQHCs) and Rural Health
Clinics (RHCs) that join as ACO participants in an ACO formed as one of the
above types of eligible entities (FQHCs and RHCs are not eligible to form
their own ACOs to participate in the MSSP); and
·
A critical access hospital (CAH) that utilizes method II to submit bills for the facility
and professional services.
Proposed Legal Structure Requirements for Participation
Under the proposed regulations, an ACO may be structured as a
corporation, partnership, limited liability company, foundation, or other
entity permitted by state law. An ACO is not required to be enrolled
in the Medicare program to receive its shared savings payments from CMS.
The ACO legal entity must be able to perform the following functions:
·
Receive and distribute shared savings payments;
·
Repay shared losses;
·
Establish, report, and ensure ACO participant and ACO
provider/supplier compliance with the Program requirements, including the
quality performance standards; and
·
Perform other ACO functions indentified in the statute,
including having a mechanism for shared governance.
If an existing legal entity meets the above eligibility
requirements and is recognized as a legal entity by the state law
applicable to where it is established, then it may operate as an ACO under
the proposed rule without forming a separate entity for the purpose of
participating in the Program. But if an existing entity wants to include
new ACO participants not already part of its existing legal structure, a
new separate legal entity must be formed to ensure that all ACO
participants share in the ACO's governance and decision making.
The above requirements may change between now and the publication
of the final rule because CMS is soliciting comments on the following
issues relating to the legal structure of ACOs:
·
Whether the proposed legal structure requirements are
sufficient;
·
Whether other suitable legal structures should qualify for
participation in the Program;
·
Whether mandating existing legal entities to create a
separate legal entity to operate an ACO would create disincentives and
whether there is an alternative that will achieve the aim of shared
governance and decision making; and
·
How to encourage not-for-profit, community-based
organizations to participate in the Program, and specifically, whether the
requirements for creating a separate legal entity may deter these
organizations from applying for the Program and if there are other viable
alternatives to requiring a separate legal entity.
Important Implications of Legal Structure
Requirements for Potential ACO Participants
An organization interested in participating in the Program
will need to determine whether its existing legal entity will meet the
statutory and proposed regulatory requirements. For example, if an
organization decides to form a new ACO legal entity, it will need to decide
upon the corporate structure that will best serve the ACO, taking into
account factors such as the financial and tax implications of risk-sharing,
the potential profits and losses, and the considerations germane to newly
forming entities, generally. Even if an existing legal entity does meet the
applicable requirements, it should nonetheless examine whether forming a
new legal entity to participate in the Program would be an opportunity to
realize any additional benefits, such as separation of financial assets,
insulation of participants from legal challenges, or tax advantages.
Also, CMS has noted that not having a separate legal entity
to operate the ACO may make it harder to audit and assess performance of
the ACO. Accordingly, existing legal entities should consider using the
comment process to offer suggestions regarding how CMS could measure
performance of currently existing legal entities that have decided to
participate in the Program.
Note that all Program participants must comply with the
antitrust and program integrity-related requirements proposed by the other
agencies, such as the Federal Trade Commission, the Department of Justice,
and the Office of Inspector General for the Department of Health and Human
Services. Ultimately, health care organizations must determine whether
participation in the Program will result in benefits to the providers and
the community that will outweigh the cost of forming an ACO.
Mintz Levin will be publishing additional advisories on other
relevant portions of the proposed regulations in the coming weeks. Mintz
Levin is ready to assist potential Program participants in drafting and
submitting comments to CMS before the June 6th deadline. Additionally,
Mintz Levin can also assist with a cost-benefit analysis of participating
in the Program, and help potential ACOs to comply with the necessary prerequisites
to participation.
Click here to view Mintz
Levin's Health Care Reform attorneys.
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care reform‚ please visit
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1 76 Fed. Reg. 19537 (April 7,
2011).
2 ACO provider/suppliers are
providers of services and/or suppliers that bill for items and services
they furnish to Medicare beneficiaries under a Medicare billing number
assigned to the TIN of an ACO participant.
3 Although proposed 42 C.F.R. §
425.5(8)(iv) places this requirement for "proportionate control" in a
sentence immediately following the requirement that "[a]t least 75 percent
control of the ACO's governing body must be held by ACO," CMS otherwise
fails to specifically define acceptable methods and governing structures
that achieve proportionate control.
4 ACO Professionals are physicians
(M.D. or D.O.) or practitioners (a physician assistant, a nurse
practitioner, or a clinical nurse specialist).
5 Under the proposed rule, only
acute care hospitals paid under the Inpatient Prospective Payment System
may participate in the MSSP.
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