F E A T U R E S T O R YB Y D A N A S W I T Z E R

Dana Switzer, CPCU, ARM, is Senior Vice President, Unit Manager, atLockton Companies.

On October 20,2011, theCenters forMedicare &Medicaid Services

(CMS) released its “Final RuleProvisions for Accountable CareOrganizations” under the MedicareShared Savings Program (MSSP).

The MSSP promotes the formation andoperation of accountable care organizations(ACOs) to serve Medicare fee-for-service benefici-aries. According to CMS, this program is intended toencourage providers of services and suppliers (e.g.,physicians, hospitals, and others involved in patient care)to join together and create a new type of healthcare entity,an ACO. The ACO must agree to be held accountable forimproving the health and experience of care for individuals andimproving the health of populations, while reducing the rate ofgrowth in healthcare spending.

Accountable CareOrganizations—

New Opportunities,New Risks An ACO may include various types

of groups of providers and suppliers ofMedicare-covered services:■ ACO professionals (i.e., practitionersmeeting the statutory definition) ingroup practice arrangements■ ACO professionals in networks ofindividual practices■ Partnerships or joint venturearrangements between hospitals andACO professionals

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■ Hospitals employing ACO professionals■ Other Medicare providers and suppli-ers, as determined by the Secretary ofHealth and Human Services.

In addition, certain critical-access hospi-tals, federally qualified health centers, andrural health clinics may be eligible to partici-pate independently in the MSSP. Theseproviders may become ACOs and be used forpurposes of assigning patients to the ACO. Inrecognition of the fact that these facilities may not have access tothe capital needed to fund an ACO infrastructure, Medicare estab-lished the Advance Payment Model. The model is open to twotypes of organizations only: ACOs that do not include any inpatientfacilities and have less than $50 million in total annual revenue; andACOs in which the only inpatient facilities are critical-access hospi-tals and/or Medicare low-volume rural hospitals and have less than$80 million in total annual revenue.

Organizations such as skilled nursing centers, home healthagencies, and hospices may participate in an ACO, but they maynot be used for purposes of assigning patients to the ACO.

An ACO must agree to accept responsibility for at least 5,000Medicare fee-for-service beneficiaries to be eligible to partici-pate in the MSSP. The ACO must complete an application pro-viding the information requested by CMS, including a fulldescription of how the ACO plans to deliver high-quality careand, at the same time, dampen the increases in expenditures forthe beneficiaries it serves. If the application is approved, theACO must sign an agreement with CMS to participate in theMSSP, for a period of at least three years.

In addition to the MSSP, Medicare offered the opportunity toparticipate in the Pioneer ACO Model, designed for healthcareorganizations and providers that are already experienced incoordinating care for patients across multiple care settings. Itwill allow these provider groups to move more rapidly from ashared-savings payment model to a population-based paymentmodel, e.g., capitation. On December 19, 2011 CMS publishedits list of the 32 organizations selected to participate in thePioneer ACO Model.

Through the CMS regulations, ACOs have an opportunity toprovide high-quality, evidence-based healthcare to Medicareenrollees, while eliminating waste and reducing excessive costs.To the extent that an ACO is successful in capitalizing on thisopportunity, its members will share in the savings achieved.

As is often the case, however, opportunity is accompaniedby challenge: the challenge to “get it right” in order to achievemaximum savings, to change care delivery and improve patientsafety, and to avoid running afoul of regulations that weredesigned to protect the healthcare consumer. An organizationwill be challenged to correctly structure or modify its insurance

and risk-financing programs in responseto the risks presented. This article focuseson several areas of risk considered key toformation and implementation of the ACO model.

Structure and governanceAn ACO must be a legal entity that is capa-ble of receiving and distributing shared sav-ings, repaying shared losses, and reportingquality performance data. It must have its

own governing body, separate from those of its participants. Thismeans that the ACO’s board members cannot be “absorbed” intoan existing directors and officers liability policy.

If an ACO consists of more than one large organization, e.g.,a health plan and a health system or a hospital and large multi-specialty physician group, there may be conflicts with respect towhich organization will control the purchase of insurance. Ifboth organizations retain significant liability risk through a self-insurance trust or captive insurer, will the ACO be able to retainsimilar risk?

As a legal entity, the ACO may own or lease property or officespace in its own name and employ workers under a separateFederal Employer Identification Number, all of which will requirea separate purchase of insurance. Liability insurance will berequired in order to address the indemnification assumed inlease agreements and professional services contracts.

Several government agencies, including the InternalRevenue Service, Federal Trade Commission, and U.S.Department of Justice’s Antitrust Division, have provided guid-ance for ACOs formed under the MSSP. While this guidance willbe helpful in the formation of Medicare ACOs, it may not be asapplicable to commercial ACOs, leaving them with more uncer-tainty regarding regulatory risk.

Many hospitals and health systems have ramped up theiracquisition of physician practices in preparation for providingthe full continuum of care to ACO beneficiaries. These acquisi-tions may result in more intense government scrutiny withrespect to market share. Hospitals frequently find themselvesassuming responsibility for physicians’ prior liability exposures,purchasing an extended reporting endorsement from the physi-cian’s insurer, or absorbing the risk into the hospital’s own risk-financing program. As the hospital’s number of ratable exposureunits increases, its medical professional liability (MPL) premi-um and/or self-insurance funding may increase substantially.

Electronic health records ACOs must meet 33 quality measures established by CMS inorder to receive productivity bonuses under the MSSP.Implementation of electronic health records (EHRs) will be afundamental component of any ACO, enabling the organization

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and its participants to share clinical dataand provide results, quickly and accurately.

Underwriters generally agree thatEHRs will improve quality and patient safe-ty over time. Some liability insurers, how-ever, believe that claims will rise during theadjustment period, as providers work outthe kinks in these new systems. Providersmay be open to more errors and systembreakdowns in the early stages of EHRimplementation. In addition, it may be eas-ier than ever for plaintiff attorneys to obtain the records theyneed for building their case against a provider.

A New York Times article, December 15, 2011, revealed anew phenomenon, a consequence of the explosion of technolo-gy in the healthcare setting: the distracted professional.According to the article, physicians and hospital staff areincreasingly using hospital computers and their own smartphones for personal business—instead of tending to the patient.The article cites an MPL settlement involving a neurosurgeonwho allegedly made at least ten personal phone calls while performing surgery.

Privacy protection and cyber-liabilityThe number of healthcare data breaches continues to outpacethose reported in other vertically integrated business—includingbanking and government. The Second Annual Benchmark Studyon Patient Privacy and Data Security conducted by the PonemonInstitute and sponsored by ID Experts found that, despite gener-ally greater compliance with HIPAA and the Health InformationTechnology for Economic and Clinical Health Act, healthcare databreaches are on the rise—eroding patient privacy, contributingto medical identity theft, and costing billions annually.

Healthcare organizations seem particularly prone to internalproblems, including malicious theft and unintentional loss of stor-age devices containing treasure troves of database information.

Earlier this year, the Department of Health and HumanServices (HHS) imposed its first-ever civil monetary penalty ona covered entity for violating the privacy rule of the HIPAA.HHS ordered Cignet Health of Prince George’s County,Maryland, to pay $4.3 million for violating the rights of 41patients in denying them access to their medical records whenrequested.

It will be critical for the ACO and its participants to haverobust data security and compliance programs, along with prop-erly structured privacy protection and cyber-liability insurance.

Changing delivery modelsThe CMS final rule requires that the ACO have procedures andprocesses that will promote evidence-based medicine, engage-ment of beneficiaries in their care, and coordination of care.

CMS expects that ACOs will invest continu-ally in the workforce and in team-basedcare. To assure program transparency, thefinal rule requires that ACOs issue publicreports on certain aspects of their per-formance and operations, and that CMSpublish public reports on certain quality-related data.

ACOs may find themselves taking onmore financial risk as the concept matures,not unlike the capitation models so preva-

lent in the 1990s. Smaller ACOs may entrust all of their businessoperations to an outside consulting or management firm.Managed care errors and omissions and stop-loss insurancemay be needed to address the financial, credentialing, networkmanagement, and utilization review exposures presented bysuch arrangements.

ACOs are required to have systems for identifying anddeveloping care plans for high-risk individuals. They must pro-mote evidence-based medicine and “medical homes,” i.e., coor-dination of care across all providers. Demonstrating evidence-based medicine will require meticulous documentation, as wellas more sophisticated processes and procedures. In time, it maybecome more difficult to defend lawsuits alleging deviation fromthe standard of care.

The medical home concept will require more collaborationbetween members of the care team, such as case managers andhome health providers. And medical homes will need to includesystems for ensuring the timely and accurate sharing of infor-mation among all participants.

Patient-centered care is encouraged, putting the beneficiaryand family at the center of every aspect of care. Informed con-sent may give way to “informed choice”; providers will need todocument the fact that the patient and his family refused available alternatives of the treatment chosen.

It’s too soon to predict how these changes in care deliverywill impact medical liability litigation. The frequency of law-suits could increase as plaintiff attorneys test new theories in litigation against ACO organizations and professionals

ConclusionThere was a well-worn phrase during the infancy of managedcare: “When you’ve seen one HMO, you’ve seen one HMO.” Thesame phrase could apply to ACOs. Recognizing that each ACOwill be unique in its structure, governance, relationships, anddelivery model is essential when evaluating its risk-financingneeds. ACOs will be well served by involving their insurers and brokers early on in the planningstages, thereby ensuring a risk-financingprogram that is tailored to their uniquerisks.

For related infor-mation, seewww.lockton.com.

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