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ACO Bootcamp Webinar Series, Part 6: ACO Bootcamp Webinar Series, Part 6: Commercial Contracting Opportunities for ACOsCommercial Contracting Opportunities for ACOs
Sponsored bySponsored by
American Health Lawyers AssociationAmerican Health Lawyers Association
May 2, 2013 , 2013
1:001:00‐‐2:30 p.m. Eastern2:30 p.m. Eastern
Presenters:
J. Peter Rich, McDermott Will & Emery, LLP,
Los Angeles, California, [email protected]
David Lewis, LifePoint Hospitals,
Brentwood, Tennessee, [email protected]
Moderator:
Paul Van Den Heuvel, Marshfield Clinic,
Marshfield, Wisconsin, [email protected]
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Topics Covered
An overview of commercial accountable care arrangements
currently in place;
An overview of various approaches that payors and providers
have taken relative to commercial accountable care
arrangements;
Discussion of unique Anti‐Kickback Statute and Stark law as
well as state law issues potentially applicable to commercial
accountable care arrangements;
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Topics Covered
Discussion of the key differences and similarities between
commercial accountable care arrangements and Medicare
Shared Savings Program ACOs; and
Discussion of opportunities for ACOs beyond traditional
shared savings arrangements, including a discussion of where
the market is likely to go relative to accountable care
arrangements.
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Health Reform and Accountable Care
The current culture of medicine which has been built into our
health care systems for decades is experiencing a
transformational change
This transformational change will require strong partnerships
between
payors and providers to meet the new demands of
the marketplace
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Accountable Care Trends
In 2012 and through the first three months of 2013, the number of Medicare
ACOs has nearly tripled from 2011 levels.
As of March 12, 2013, there are 428 Medicare ACOs:– 2011: 32 New Pioneer ACOs
150+ New Private Sector ACOs (really “Accountable Care Arrangements”)– 2012: 114 New Medicare Shared Savings Program ACOs
– 2013: 106 New Medicare Shared Savings Program ACOs
“The ACO Surprise”—Oliver Wyman Report (Nov. 2012)– 2.4 million in Medicare Shared Savings Program ACOs
– 15 million in non‐Medicare patients of Medicare Shared Savings Program ACOs
– 8‐14 million in non‐Medicare Accountable Care Arrangements
Feb. 19, 2013 Press Release:– 37‐40 million now covered by accountable care arrangements
– 14% of the population and growing fast. . .
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Various Accountable Care Perspectives
Hospitals
– Need to get in the game to avoid being locked out of market opportunities– Bearing significant costs but already bearing much of EHR/HIT– Physician integration strategy
Physicians:
– Do not want to be locked out of a particular network– Some see more upside in Medical Home models– Many unable/unwilling to finance– Unlike Medicare ACOs, can channel utilization with financial incentives
Payors:
– Must bend cost curve– Better aligned financial incentives– Better quality outcomes– Who controls the product?
Post‐Acute Providers
– Skilled Nursing Facilities– LTCHs– Home Health Providers 6
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Provider Concerns vs. Payor Concerns
Provider Concerns:– Being pushed towards assuming
unmanageable risks
– Insufficient payor support for
care management
– Lack of transparency– Just another payor product– Do not trust quality/cost
measurements by payors
– Concerned about “free rides”– Costly to implement
Payor Concerns:– Adequacy of provider care
management
– Accuracy and validation of actual
savings and quality improvement
– Providers may “game”
the
system by exploiting contract
terms to avoid shared losses or
by using payor subsidies to
compete with payor in the future
– Could backfire by spurring
concentration of provider market
and thus higher costs
– Long‐term marginalization of
payor role
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Commercial Accountable Care Arrangements
May be:
Stand‐alone accountable care arrangement negotiated with
commercial payors, or
A CMS‐contracted ACO also enters into accountable care‐type
arrangement with commercial payors (may include Medicare
Advantage Plans)1
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1
Patient Protection and Affordable Care Act, Pub. L. No. 111‐48, 124 Stat. 119 (2010); and the Health Care and
Education Reconciliation Act of 2010, Pub. L. No. 111‐52, 124 Stat. 1029 (2010) (Health Care Reform, The
Affordable Care Act or “ACA”). The most likely CMS approved entity would be a Medicare Shared Savings
Program Accountable Care Organization (“MSSP ACO”) created under Section 3022 of the ACA (42 U.S.C. §1395jjj)
and whose governing regulations are at 76 Fed. Reg. 67,802‐67,990 (Nov. 2, 2011). See, 42 C.F.R. §425.20 for the
definition of MSSP ACO.
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Commercial Accountable Care Arrangement: What is it?
May be payor‐initiated
Likely to be exclusive network between payor and provider
network or group of providers
Financial rewards penalties for improving quality, cost
efficiency, patient experience and ensuring that care is
delivered in the right setting
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Commercial Accountable Care Arrangement: What is it?
No other widely recognized structure or specific definition2
Common themes of reduction of cost increases, financial
incentives to improve quality and patient experience for
defined group
2
See, National Committee for Quality Assurance, Accountable Care Organizations (ACO) Draft
2011 Criteria, Public Comment – Overview
(http://www.ncqa.org/portals/0/publiccomment/ACO/ACO_%20Overview.pdf).
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A Pioneering Successful Commercial “Virtual ACO”
Collaborative Model
Blue Shield of California, Catholic Healthcare West, Hill
Physicians (2010‐11)– Initially created “virtual ACO”
to manage the care of 40,000 CalPERS
members; no new contracts. Uses payor‐provider committees.
– Goal: Keep plan health care costs flat in 2010– Utilized existing benefit product
• Blue Shield HMO benefit product
• Members with existing primary care physicians affiliated with Hill Physicians
– Parties said biggest challenge centered around data creation, sharing,
and access
– Results: First year resulted in better care and millions of dollars in
savings• Zero percent premium increase for 2011
• Going statewide now13
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California ACO Market
41 ACOs covering approximately 623,700 lives
– 16 MSSP ACOs
– 6 Pioneer ACOs
– 2 Medicare Advanced Payment ACOs
– 17 Commercial ACOs
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California ACO Market –
MSSP
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NAME
COUNTY SERVED
LIVES
Accountable Care Clinical Services/Preferred ACO
Los Angeles
2,500
Accountable Care Clinical Services –
Orange
Orange
500
Affiliated Physicians Medical Group
Los Angeles, Orange
10,000
Akira Health
Santa Clara
5,000
APCN – ACO
Los Angeles
9,800
ApolloMed ACO
Los Angeles
10,000
AppleCare Medical ACO
Los Angeles Orange
8,000
Cedars‐Sinai Accountable Care
Los Angeles
8,000
John Muir Physician Network
Alameda, Contra Costa, Solano
7,000
Meridian Holdings
Los Angeles, Riverside
5,000
Meritage ACO
Marin, Sonoma
8,000
North Coast Medical ACO
San Diego
6,800
Premier ACO Physician Network
Los Angeles, Orange
8,500
San Diego Independent ACO
San Diego
5,000
Torrance Memorial Integrated Physicians
Los Angeles
15,000
UCLA ACO
Los Angeles
19,000
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California ACO Market –
Pioneer Program
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NAME
COUNTIES SERVED
LIVES
Brown & Toland Physicians
Multiple
17,000
HealthCare Partners ACO
Los Angeles, Orange
45,000
Heritage California ACO
Multiple
68,000
Monarch Health Care
Orange
17,300
Premier Choice ACO
Riverside, San Bernardino
13,500
Sharp HealthCare ACO
San Diego
32,000
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California ACO Market – Medicare Advanced Payment
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NAME
COUNTIES SERVED LIVES
■
Golden Life Healthcare Multiple
6,000
■
National ACO
Los Angeles, Orange 5,600
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California ACO Market ‐
Commercial
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Aetna 4,200 lives
Blue Cross 92,000 lives
Blue Shield 157,500 lives
CIGNA 27,000 lives
Health Net 10,500 lives
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California ACO Market ‐
AETNA
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NAME
COUNTY SERVED
LIVES
PrimeCare Medical Network
Riverside,
2,000 San Bernardino
Sharp HealthCare
San Diego
2,200
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California ACO Market – Blue Cross
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NAME
COUNTY SERVED LIVES
Health Care Partners Los Angeles, Orange
44,000
Santa Clara County IPA Santa Clara
26,000
Sharp Health Care
San Diego
22,000
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California ACO Market – Blue Shield
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NAME
COUNTY SERVED
LIVES
Access Medical Group/St. John’s
Los Angeles
7,000
AllCare IPA/Doctors Medical Center
Merced, Stanislaus
8,000
Brown & Toland Physicians
San Francisco
23,000
Greater Newport Physicians/Hoag
Orange
11,000
Hill Physicians/Dignity Health/UCSF
San Francisco
5,000
Hill Physicians/Dignity Health
El Dorado, Placer,
41,000
Sacramento
John Muir Health
Alameda, Contra Costa,
17,500
Solano
Physicians Medical Group of Santa Cruz
Santa Cruz
8,000
St. Joseph Health
Los Angeles, Orange
37,000
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California ACO Market – CIGNA
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NAME
COUNTY SERVED
LIVES
Brown & Toland Physicians San Francisco
6,000
Palo Alto Medical Foundation Multiple
21,000
Starting April 2013,
Los Angeles &
10,000 HealthCare Partners
Orange
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California ACO Market – Health Net
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NAME
COUNTY SERVED
LIVES
Hill Physicians/Dignity Health/UCSF
San Francisco
10,500
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Recent Wisconsin ACO Developments
Early movement to form ACO organizations – no significant
commercial traction yet but activity is beginning to pick up
Aurora has announced ACO and narrow network
collaborations with both Aetna and Anthem Blue Cross.
Aetna has very limited presence in the Milwaukee/Southeast
Wisconsin market; Anthem has signed a major employer
group (note May 20, 2013 ACO Roundtable Webinar)
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Recent Wisconsin ACO Developments (cont’d)
Quality Health Solutions ACO, comprising a number of Aurora
competitors, recently lost 2 large out‐state system
participants but intends to continue plans to clinically
integrate the remaining 6 health system participants
Marshfield Clinic has progressed from its successful
participation in CMS’s Physician Group Practice
Demonstration Program to a single‐participant ACO
Significant merger activity is occurring
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BCBS Massachusetts’s Alternative Quality Contract: Annual global budget, quality incentives for participating providers
BCBS Massachusetts’s Alternative Quality Contract: Annual global budget, quality incentives for participating providers
CIGNA: Medical home contract with Piedmont Physicians Group
CIGNA: Medical home contract with Piedmont Physicians Group
Providence Health & Services: $30 M, two-year contract with public employee benefits board
Providence Health & Services: $30 M, two-year contract with public employee benefits board
Blue Shield California: Two ACOs in Northern California
Blue Shield California: Two ACOs in Northern California
BCBS Minnesota: Shared savings contract with five providers
BCBS Minnesota: Shared savings contract with five providers
UnitedHealth Care: ACO with Tucson Medical Center UnitedHealth Care: ACO with Tucson Medical Center
Maine Health Management Coalition: Multi-stakeholder group supporting ACO pilots
Maine Health Management Coalition: Multi-stakeholder group supporting ACO pilots
Humana: ACO pilot with Norton Healthcare Humana: ACO pilot with Norton Healthcare
Anthem Blue Cross: ACO pilot with Sharp HealthCare medical groups
Anthem Blue Cross: ACO pilot with Sharp HealthCare medical groups Aetna: ACO pilot
with Carilion Clinic Aetna: ACO pilot with Carilion Clinic
Not Just for Medicare – Private Market ACOs are Developing Nationwide
BCBS Illinois: Shared savings contract with Advocate Health Care
BCBS Illinois: Shared savings contract with Advocate Health Care
HMSA (BCBS Hawaii) HPH: ______ Performance on shared savings/losses also affects future payment increases
HMSA (BCBS Hawaii) HPH: ______ Performance on shared savings/losses also affects future payment increases
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Other Commercial Accountable Care Activity
Aetna– Partnership with Baylor ACO (TX)– Partnership with Hunterdon Healthcare Partners (NJ)
Cigna Collaborative Accountable Care Initiative– Goal: 100 Accountable Care initiatives by 2014– Arizona, California, Texas, Tennessee, Maine, New York, Virginia,
North Carolina, New Hampshire, Colorado
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Other Commercial Accountable Care Activity (cont’d)
The Blues– Optimus Healthcare Partners & Horizon BCBS
– Trinity Health & Michigan Blue Cross
– BCBS North Carolina – University of North Carolina Medical Home
Collaborative
– Innovative New Hawaii Accountable Care Arrangement: Pacific Health
and Hawaii Medical Services Association (largest health system and
health insurer in state) ties 50% of future payment rate increases to
cost and quality performance
United– Launches Accountable Care Arrangement with WESTMED Medical
Group & Optum (NY)
– Launches Accountable Care Arrangement with Tucson Medical
Center (AZ) 28
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Trends in Commercial Accountable Care Arrangements
Payor Offers ACO Product– Cigna’s Accountable Care Collaborative– BCBSMA‐Alternative Quality Contract
Provider Forms ACO and Reaches Out to Payor– Advocate Health‐BCBSI– BCBST‐MissionPoint– New Healthcare Partners – CIGNA (SoCal)
ACO‐Payor Joint Endeavor– Norton‐Humana– BCBSCal‐CHW‐Hill Physicians– Blue Shield and St. Joseph Health System (SoCal) or Tenet (Central CA)
Provider‐owned ACO & Payor– Summa Medical
Payor‐Health System Agree to Tie Future Growth in
Reimbursement to Cost and Quality Performance– HMSA (BCBS Hawaii) ‐
HPH 29
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Spectrum of Possible Commercial Payor‐ACO Payment Arrangements
“Risk Light”: simple shared savings based on medical claims
expense with withhold upside
Risk Light Plus: in addition to shared savings based on
medical claims expense, include quality improvement
initiatives –
e.g., readmission rate for members assigned to
ACO physicians
Shared risk: sharing of gains and losses based on either
medical expense target or split overall performance
Full risk: provider organization assumes full risk for members
assigned to ACO‐affiliated based PCPs; ACO assumes all
administrative functions
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An Ideal ACO Physician Payment Model?
Primary Care: Capitation (Risk Adjusted)
Emergency/Urgent Care: FFS with higher copayment, patient
education
Specialist Care: Bundled Payments (Risk/Severity Adjusted)
Source: Goldsmith, J., “Accountable Care Organizations:
The Case for Flexible Partnerships Between Health Plans and
Providers”
Health Affairs (January 2011)
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ACO Financial Model
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Projected Total Costof Medical Care
Actual Cost of Care forthe Defined Population
Surplus(or Deficit)
- Paid to Providerson a FFS Basis
Based onActuarial Analysis of Historical Data
Provider Bonus AvailableONLY if Surplus Existsat Year End
OutpatientAncillary
OutpatientDiagnostics
OtherOutpatient
Hospital, SNF,InpatientRehab
OutpatientRetail
Pharmacy
Different Provider Types May Participate in Pools On Different Basis
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Preliminary Decision Points on Distributions
Will start up costs be recovered and, if so, over what time
period?
Will all participants in the same category be treated the
same?
How much shared savings should be reinvested in the ACO?
What incentives can we build into truly “integrated”
participants’
compensation packages to drive behavior?
Initially, what behaviors do we need to drive for particular
participant categories?
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New Compensation Paradigms
Can we move away from rewarding more procedures?– Reward participants for reducing total health care costs– Reward PCP participants for size of patient network– Reward participants for adopting/using certain technology– Reward participants for dedicating staff to ACO activities– Reward participants for population health changes
Be cognizant of difficulty involved in transitions
Participant success is critical to long‐term survival of ACO
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COMMERCIAL ACO
Limited Liability Company, corporation, or other legal entity
•
Capital
•
ACO ability to repay losses; financial security/guarantee
Require “attribution of patients”
methodology for tracking of
patients and financial calculations
Additional MSSP ACO requirements include: legal status;
shared governance; leadership and management; size of
network; evidence‐based medicine; beneficiary engagement;
internal reporting on quality and cost; care coordination;
patient‐centeredness criteria; and compliance
Basic Legal Structure
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ACO Payor–Provider Contract Terms
1.
Employer Opt‐Out Rights
The insurer will need to consider whether to provide any employer groups an opt‐out right. We have seen this dealt with differently by different insurers.
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ACO Payor–Provider Contract Terms
2.
Benefit Products Included
The agreement will need to describe which benefit products are included in the calculation of shared
savings/shared losses. To the extent Medicare Advantage or Medicaid managed care products are
included, the use of federal funds may raise unique legal issues that could affect the structure of the
arrangement (e.g., antikickback statute).
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ACO Payor–Provider Contract Terms 3.
Member Attribution
Will need to have a detailed process for determining which
members are in and which are out of the arrangement.
Below is sample language:– Attribution Model. Members enrolled in Accountable Benefit Products will be
attributed to Provider based on the member attribution procedure
that
Insurer utilizes across its entire network as described in Schedule [__] (the
“Attribution Model”). Except as otherwise provided in this Agreement, for
any month Members are enrolled in an Accountable Benefit Product
and
attributed to Provider, such members are referred to herein as “Attributed
Members.”
For any month Members are enrolled in an Accountable Benefit
Product and attributed to Network Providers, such Members are referred to
herein as “Network Members.”
Insurer may from time to time modify the
Attribution Model, provided that Insurer shall provide Provider with no fewer
than thirty (30) days prior written notice of such changes.
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ACO Payor–Provider Contract Terms 4.
Compensation Arrangement
The agreement will need to contain a detailed description of how shared savings/shared losses are
determined. There are a number of issues that the parties will need to consider:
– Will the agreement be upside risk only or upside/downside
risk or will it vary by product (e.g., HMO upside/downside
and PPO upside only)?– What will the benchmark be for determining whether
shared savings or losses exist?—Some possible
benchmarks are (i) the medical cost trend for the rest of
the insurer’s network or (ii) a predetermined percentage
increase in the contracted provider’s medical costs. 39
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ACO Payor–Provider Contract Terms
4. Compensation Arrangement (con’t)
How will quality performance affect the shared savings/shared losses calculation?
– Need to have quality as a factor in the compensation
calculation to avoid creating the impression that the
agreement is designed purely as a cost control measure.
This is a liability issue for the insurer and must be included
in any arrangement.– There are, a number of possible ways to calculate quality
performance; parties will need to agree on which
measures are going to be included and how they will be
calculated (e.g., will objective performance benchmarks be
set or will provider only need to improve on previous
years’
performance).
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ACO Payor–Provider Contract Terms 4.
Compensation Arrangement (con’t)
– The relationship between quality performance and the calculation
of
shared savings/shared losses is important. There are a number of
possible ways and quality could affect compensation:
(1) as a “gatekeeper”
function where provider must meet minimum
quality score to be eligible for shared savings;
(2) a higher quality score could mean an increased % of shared savings
and lower % of shared losses that the provider is responsible for; or
(3) a combination of the two approaches described above where a
minimum quality score must be met to be eligible for any shared
savings but then a higher quality score will increase provider’s share of
shared savings or decrease its share of shared losses.
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ACO Payor–Provider Contract Terms
4.
Compensation Arrangement (con’t)
Will shared savings and shared losses be measured from the
first dollar or will there be a threshold applied to the cost
target (1% up or down from target) to account for statistical
“noise”
to increase the odds that any shared savings or losses
are due to provider’s efforts and not random statistical
variation.
Will there be a cap on the total amount of shared savings or
shared losses that can be earned in a particular year?
Will there be a risk adjustment methodology to account for
the disease burden of a provider’s members? This could be
particularly important if the provider’s performance is going
to be measured against the rest of the insurer’s network.42
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ACO Payor–Provider Contract Terms
5.
Patient Management Fees
The parties will need to determine whether the provider will
be separately compensated for providing care coordination
and patient management services. If an insurer chooses to
make these payments, some considerations include:– Make sure the payments are described in a way that enables the
issuer receive positive Medical Loss Ratio (MLR) treatment (45 CFR
Part 158) for the payments to either be considered an incurred claims
expense or a quality improvement activity expense.
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ACO Payor–Provider Contract Terms
5.
Patient Management Fees (cont’d)
The parties will need to determine whether the patient
management fees will need to be paid back in the event the
provider is found to have failed to provide the required
services.
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ACO Payor–Provider Contract Terms
6.
Term and Termination
The parties may want to make it difficult for either party to
unilaterally terminate the agreement. From the insurer’s
perspective, this would prevent a provider from simply
terminating the agreement if it becomes clear that the
provider won’t be able to meet the cost trend benchmarks.
Providers are likely to want to create easier pathways for
early termination (e.g., triggered by changes to a plan’s
benefit products).
One option would be to create an escrow account whereby a
party terminating the agreement prior to the end of the term
would forfeit the amounts in the escrow account.
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ACO Payor–Provider Contract Terms
7.
Post‐termination
The Parties also need to address what effect of early
termination will be on shared savings/shared losses for in‐
progress plan years. One option would be to not calculate
any shared savings or shared losses for the in‐progress
portion of a plan year. Another option would be to calculate
the shared savings/shared losses based on the experience
during the in‐progress plan year, but this could raise
complications (e.g., applying quality data from a partial year
that were designed to be based on a year of data).
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ACO products and software; payor interface and system
requirements• Provider system requirements and associated costs3
ACO and/or provider network eligibility to access and use
payor or ACO IT applications
• Provider use for non‐ACO patients
3 See, 42 C.F.R. 411.357(u) and (v) for Physician Self-Referral (“Stark”) Law exceptions for community-wide health information systems and electronic prescribing items and services.
ACO Payor–Provider Contract Terms
8. Information Technology Provisions
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The commercial payor may request protections against the
provider network or ACO competing against the payor. The
scope of the competition restriction is important for ACO or
providers to consider in relation to other commercial or
governmental payor or ACO applications.
The ACO may seek protection against the payor competing
with the ACO or excluding the ACO provider network from
other products4
Potential for illegal restraints of trade, tying arrangements,
group boycotts, and market divisions exists.
4 See generally, 42 U.S.C. 18042(c)(3)(B) concerning ACA Section 1322 Consumer Operated and Oriented Plans (“CO-OPs”) and the governance requirements in relation to “insurance industry involvement and interference.”
ACO Payor–Provider Contract Terms
9. Competition
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Reasonable efforts to limit the requested information to
the minimum necessary to accomplish the purpose of the
intended use, disclosure or request
Tracing the PHI, analyzing its uses and assuring
appropriate for treatment, payment or health care
operations
State law provisions more restrictive in re mental health,
genetic testing and HIV/AIDs information; see also federal
substance abuse treatment program requirements, 42
C.F.R. Part 2.
ACO Payor–Provider Contract Terms
10. HIPAA privacy and security standards/confidentiality
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Lead‐time issues
Exclusivity
Data Access & Collection
Funding of care management
Lock‐In Period
Independent medical judgment vs. care coordination and
practice standards
Address any state corporate practice of medicine/fee‐splitting
issues
Miscellaneous Contract Provisions
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MSSP “look‐alike”
provisions: MSSP compliance;5 number of
members; quality assurance and improvement; promote
evidence‐based medicine; patient engagement; member
access to information; coordination of care; member choice;
cost shifting;6 required referrals; compliance plan; dispute
resolution; change in law.7
5 See, 42 C.F.R. 425.100 et seq. for MSSP ACO requirements. 6 See, 42 C.F.R. 425.304 for MSSP ACO prohibitions on illegal inducements, certain required referrals and cost-shifting prohibitions. 7 See, 42 C.F.R. 425.300.
Miscellaneous Contract Provisions (cont’d.)
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Key Legal Issues Faced By Non‐MSSP ACOs
Stark Law•
EHR Subsidy Exception
•
Indirect Compensation Exception
•
Risk Sharing Exception (42 CFR 311.357(n))
Anti‐Kickback Statute•
Managed care exceptions may not be available
•
“Pull through”
Federal health care program beneficiaries
•
If legitimate ACO, intent may be hard to establish
•
Recapture costs prior to distribution (conservative
position)
CMP Law and Gainsharing•
Only applies to Medicare/Medicaid fee‐for‐service
beneficiaries
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Documentation of “reasonably related” purposes
•
What are the “reasonably related”
to the purposes of the ACO “look‐alikes”
for commercial
ACOs? How do you document consistencies with the ACA triple‐aim (better care for individuals;
better health for populations; lower growth of health care expenditures)?
COMMERCIAL ACO DEVELOPMENT
Regulatory Analysis:
54
Scope of providers to whom shared savings can be
distributed
•
MSSP rules may restrict to only those ACO participants or
providers/suppliers with whom ACO has a written
agreement
•
Relevant to scope of “waiver”
protection
•
Shared Savings Distribution Waiver language: “or (b) used
for activities that are reasonably related to the purposes
of the Shared Savings Program.”
(76 Fed. Reg. 68,001
(Nov. 2, 2011).
COMMERCIAL ACO DEVELOPMENT
Regulatory Analysis:
55
Physician Self‐Referral (Stark) Law compliance considerations
•
Is a provider involved who bills for “designated health
services”
that are
paid under a government health care program (Medicare
or Medicaid)?
•
Will arrangement meet the risk sharing exception?
•
Is arrangement consistent with Affordable Care Act triple
aim?
•
Might the Waivers apply?
•
Do Stark Anti‐Kickback Laws apply?
COMMERCIAL ACO DEVELOPMENTRegulatory Analysis: If No MSSP /ACO Is Involved
56
IRS Guidance Regarding Commercial ACO Activities
IRS tied charitable purpose to lessening the burdens of
government—i.e., MSSP participation necessary
Implication: Commercial ACO contracting is not a charitable
activity
Result: (1) Non‐charitable activities must be no more than an
insubstantial amount of the ACO’s total activities or could
jeopardize tax‐exempt status of participants (if attributed); (2)
Non‐charitable activity income could generate Unrelated
Business Income for tax‐exempt owners; and (3) May impact
ability of ACO to qualify for tax‐exempt status.
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KEY STATE LAW COMPLIANCE ISSUES
Corporate Practice of Medicine
HMO/Insurance/Managed Care Contracting Laws
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Representative State Law Issues: Corporate Practice of Medicine
Most states still have laws that prohibit, to varying degrees,
the “corporate practice of medicine”
(“CPOM”), which
generally prevent unlicensed lay entities from employing
physicians or otherwise contracting with physicians to furnish
medical care
CPOM laws may limit the flexibility of physicians and non‐
physicians to structure ownership and employment
arrangements of an ACO unless licensed as a managed care
organization or hospital may employ physicians under state
CPOM law.
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Representative State Law Issues: Corporate Practice of Medicine (cont’d)
Some states with strong CPOM laws (e.g., California, Nevada,
and Texas) even prohibit hospitals from employing physicians,
but have laws permitting nonprofit “medical foundations”
to
engage physicians (e.g., in medical group) indirectly to
provide medical care
“Friendly Physician”
or “Management”
models in CPOM
states will require careful regulatory analysis to minimize
regulatory risk
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HMO/Insurance/Managed Care Licensing Laws
National Association of Insurance Commissioners (“NAIC”)
determined in 1990s that a health care provider receiving
capitated‐type payments assumes insurance‐type financial
risk
In most states, capitation is permissible under state
insurance/HMO law for state‐licensed HMO’s “downstream”
providers, within the scope of their medical/health licensure,
for services provided to that HMO’s members
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HMO/Insurance/Managed Care Licensing Laws
Capitated or Other “Downside Risk”
Payments?
– In a number of states (e.g., California, Colorado, Illinois, New
Jersey,
New York, Ohio and Pennsylvania) an ACO may be prohibited from
assuming capitated or other substantial financial risk, unless the ACO
is licensed by the state to assume such financial risk or falls within an
exception.
ACO that direct contracts with self‐funded ERISA plan is not
shielded from state insurance/HMO licensure and regulation
by ERISA preemption, which applies only to plan itself. [See
Hewlett‐Packard Co. v. Barnes, 571 F. 2d 502 (9th Cir 1978)] – Congress could preempt state insurance/HMO laws for Medicare
capitation, but PPACA does not appear to do so.
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HMO/Insurance/Managed Care Licensing Laws (cont’d)
Examples of representative state insurance/managed care laws that may
apply to ACOs and other risk‐bearing organizations include:– California Knox‐Keene Act: ACO requires “Limited”
Knox‐Keene Plan
license to assume global downside risk for physician and hospital
services
– Florida’s Fiscal Intermediary Service Organization Law: Fla Stat §
621.316 (unless owned and controlled by a hospital and/or physicians)
– Massachusetts’
recent positions on risk‐bearing ACOs taken by
Department of Insurance
– New Jersey’s HMO laws: N.J. Stat. §§
26L2J et seq., 17:48H‐1 et. Seq.
and HMO Regulations: N.J. AC 11:24 et seq.
– Ohio Rev. Stat. chapter 1751– Pennsylvania’s HMO Act: 40 P.S. §§
1551‐1567 and Risk‐Assuming
PPO Regulations: 31 Pa Code §§
152.1 et seq, and 301.314(c);
Licensed Organized and Delivery System: 28 Pa Code §§
9.602, 9.723‐
9.728
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HMO/Insurance/Managed Care Licensing Laws (cont’d)
Applicability of state insurance/HMO/managed care laws may
depend on precise payment structure– Global capitation/percentage of premium
– Capitation only for services that capitating provider is licensed to
provide (e.g., California)
– Risk corridors (10‐15% or 50%?)– FFS combined with withholds (10‐15% or 50%+)
– FFS with upside shared savings bonus (not regulated)– ACO contracts with private payor or Medicare Advantage Plan vs. self‐
funded employer
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HMO/Insurance/Managed Care Licensing Laws (cont’d)
– In some states (such as California, Ohio, and New Jersey), providers
that lack state health plan license generally may not capitate or
assume substantial financial risk other than under contract with
a
licensed HMO, and then only for services within scope of provider’s
licensure.
– In those states, ACO may still engage in direct employer fee‐for‐
service contracting as permitted by CPOM (including case rates and
other bundled pricing) but prohibited from being paid on a capitated
basis or otherwise assuming downside financial risk unless ACO holds
the required state HMO, PPO or insurance license or subcontracts
for
its own licensed health care with an HMO services with an HMO.
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HMO/Insurance/Managed Care Licensing Laws (cont’d)
Must review state insurance/HMO managed care law
carefully before structuring ACO
Note: If ACO is not a licensed health plan and is delegated
TPA functions (e.g., claims adjudication), ACO may be
required to obtain a state third party administrator (“TPA”)
license
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A New Federal Tax Law Issue: Internal Revenue Code §162(m)(6)
(Added by the Affordable Care Act)
§162(m)(6) of the Internal Revenue Code significantly limits
deductions that may be taken by a “covered health insurance
provider”
(“CHIP”)
A CHIP may only deduct up to $500,000 of compensation
annually for any employee
Compensation includes salary, bonus, gains from stock
options, vesting of stock options and other forms of incentive
pay– No exception for performance‐based pay
Generally applies for tax years beginning after 2012
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Overview of §162(m)(6) Employer Aggregation Rules
Employer aggregation rules governing tax qualified plans are
applied before determining which entities are part of a CHIP
Examples of groups under employer aggregation rules
include:– parent‐subsidiary groups– brother‐sister groups– affiliated service groups (A‐Org and B‐Org)– management service organizations
Entities that are not themselves in the business of health
insurance can be subject to §162(m)(6) deduction limits due
to these aggregation rules
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Overview of §162(m)(6) Legislative Intent
§162(m)(6) was enacted as part of PPACA
PPACA legislative deliberations demonstrate an intention to
avoid subsidizing (through tax deductions) health insurers
that would receive millions of new customers purchasing
their product for the first time
Statements on the floor alleged that:– Significantly less revenue as a percentage of each premium dollar has
been spent on patient care over time since the early 1990s
– this trend translated into a difference of several billion dollars in favor
of insurance company shareholders and executives at the expense of
health care providers and their patients
Source: 155 CONG. REC. S12,540 (Dec. 6, 2009)
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Risk Factors in Addition to Ambiguity under §9832
Supreme Court has broadly interpreted what is a state law which
“regulates insurance”
for purposes of ERISA preemption
– Kentucky Assn. of Health Plans v. Miller, 538 U.S. 329 (2003)
(any willing provider laws)
States have taken positions that managed care plans are a form of
insurance to avoid ERISA preemption under the savings clause– Hewlett‐Packard v. Barnes, 571 Fed. 2d 502 (9th Cir. 1978) (Knox‐
Keene Plan)
States have different approaches to regulating Risk‐Bearing
Organizations– it is difficult to predict how these laws will change over time
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§162(m)(6) Position
Nothing indicates that §162(m)(6) was intended to apply to
Risk‐Bearing Organizations, including ACOs
Any insurance‐related activity engaged in by Risk‐Bearing
Organizations is incidental to the primary purpose of
providing health care services
Risk‐Bearing Organizations are typically paid capitation
amounts and assigned members by an insurance company or
organization
Tax treatment under §162(m)(6) should not vary depending
upon how states decide to license and regulate Risk‐Bearing
Organizations
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§162(m)(6) Position
Subjecting Risk‐Bearing Organizations to §162(m)(6) tax
deduction limitations will have a chilling impact on the
formation of ACOs– §162(m)(6) should not interfere with efforts to develop more efficient
forms of health care delivery
Aggregation rules were likely added to prevent health
insurers from avoiding §162(m)(6), and not to penalize Risk‐
Bearing Organizations
“Chilling Effect”
on for‐profit companies that might form,
acquire or otherwise affiliate with a Risk‐Bearing Organization
(including ACOs); may be unwilling to do so if there is a
material risk of triggering application of §162(m)(6) and
perhaps millions of dollars of additional tax liability71
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Comment Letter
§162(m)(6) authorizes the Secretary to issue “guidance, rules, or
regulations as are necessary to carry out the purposes of this
paragraph”
Proposal: revenue received by Risk‐Bearing Organizations, whether
or not owned by providers, does not constitute gross premiums
received from minimum essential coverage in determining CHIP
status
Comment Letter analysis was accepted in IRS Proposed Regulations
issued on April 1, 2013, effective April 2, 2013. (63 PBO, 4/2/2013).
But Treasury asked for comments regarding direct contracts
between governmental agencies and RBOs, where there are no
premiums e.g., MSSP and Pioneer ACOs. Comments due by July, 1,
2013.
Proposed Regulations issued on April 1, 2013, effective April 2,
2013. But Treasury asked for comments regarding direct contracts
between governmental agencies and RBO’s, where there are no
premiums e.g., MSSP and Pioneer ACOs.
Comments due by July 1, 2013.
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