Two Medicare payment reform provisions buried deep within the Patient Protection and Affordable Care Act (“PPACA”) may enhance already-existing market demands and trigger a wave of new legal structures to further integrate physicians and hospitals as well as other post-acute care providers and medical product suppliers. PPACA Section 3022 establishes a shared savings program pursuant to which Medicare will share cost savings for high quality care delivered by an accountable care organization (“ACO”) to Medicare beneficiaries in its traditional fee-for-service program. PPACA Section 3023 establishes a nationwide pilot program on Medicare payment bundling. To take advantage of the financial opportunities resulting from these shared savings and bundled payment programs, providers and suppliers along the full continuum of care must form new legal structures that align interests and reward outcomes over volume. This generation of new legal structures will go beyond precursor organizations such as PHOs or IPAs in terms of both function and scope of activities.

I.    Shared Savings Program / Accountable Care Organizations

The Medicare Shared Savings Program allows groups of providers who voluntarily meet certain statutory criteria, including quality measurements, to be recognized as ACOs and be eligible to share in the cost savings they achieve for the Medicare program. The shared savings program should begin no later than January 1, 2012, and participating ACOs must commit for a minimum of three years.

Medicare’s shared savings program will pay an ACO an annual shared savings payment if it achieves a threshold savings amount for total per-beneficiary spending under traditional Medicare Parts A and B for beneficiaries assigned to the ACO. HHS will reset the benchmark annually for three years based on the estimated average per-beneficiary spending, adjusted for beneficiary characteristics and the ACO must also attain quality performance standards to receive any payment. The Medicare program will retain the remainder of the shared savings amount.

PPACA does not mandate a specific legal structure for an ACO. Rather, an eligible ACO means a group of providers and suppliers who, among other things, have:

1. A formal, legal structure that allows the ACO to receive and distribute payments for shared savings to participating providers of services and suppliers.
2. An established mechanism for joint decision making.
3. A leadership and management structure that includes clinical and administrative systems.
4. Clinical information systems sufficient to satisfy quality and other reporting requirements and to determine payments for shared savings.
5. Established processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.
6. Sufficient primary care physicians for the number of Medicare fee-for-service beneficiaries assigned to it.

Examples of the types of arrangements that may constitute an ACO include private practitioners (physicians, regardless of specialty; nurse practitioners; physician assistants; and clinical nurse specialists) in group practice arrangements; networks of such practices; and employment, partnership or joint-venture arrangements between hospitals and such practitioners.

ACOs move beyond the typical PHO or IPA structure in at least two ways. First, an ACO must include arrangements with (a) suppliers of medical devices, drugs and DME, and (b) post-acute providers, such as long-term acute care hospitals, long-term care facilities and rehabilitation centers. Second, an ACO must have a robust and sophisticated clinical information management systems that can track and report on quality and, ultimately, show that shared savings payments are appropriate: robust enough to support the inclusion of virtually all traditional Medicare beneficiaries and sophisticated enough to focus on patient care coordination, measure service quality and outcomes and promote evidence-based medicine.

Any ACO structure should take into account that PPACA does not create ACO safe harbors under federal antitrust laws, the Anti-kickback Statute, the Stark Law or the Civil Monetary Penalties Law (the latter prohibiting hospitals from knowingly making a payment to a physician to limit or reduce items or services furnished to Medicare or Medicaid beneficiaries). However, PPACA does permit HHS to waive requirements of certain of these regulatory laws. HHS has stated that it expects to promulgate regulations with more details for this program in the fall of 2010. In the absence of such final and, hopefully, more flexible regulatory guidance, ACO payment arrangements with physicians will have to depend on (a) the 2008 proposed shared savings exception under the Stark Law (per capita cash payments by hospitals to physicians participating in specified quality programs) and (b) numerous, prior OIG Advisory Opinions endorsing provider payment arrangements to reduce costs and share the resulting savings.

II.    National Pilot Program on Medicare Payment Bundling

To support the policies of making all providers responsible during an episode of care and rewarding value over volume, HHS will establish, test and evaluate alternative payment methodologies for Medicare services through a five-year, national, voluntary pilot program starting in 2013. This program will provide incentives for providers to coordinate patient care across the continuum and to be jointly accountable for an entire episode of care centered around a hospitalization. For this program, an episode of care means the full period that a patient stays in a hospital, plus the three days prior to admission and the first 30 days following discharge. To participate, Medicare beneficiaries must be enrolled in traditional Medicare Parts A and B and must have one or more of 10 conditions selected by HHS.

HHS will develop qualifying provider payment methods that may include bundled payments and bids from entities for episodes of care. The bundled payment will cover the costs of acute care inpatient services; physicians’ services delivered in and outside of an acute care hospital; outpatient hospital services including emergency department services; post-acute care services, including home health services, skilled nursing services, inpatient rehabilitation services; and inpatient hospital services furnished by a LTACH. The payment methodology will include payment for services, such as care coordination, medication reconciliation, discharge planning and transitional care services, and other patient-centered activities. Payments for items and services cannot result in spending more than would otherwise be expended for such entities if the pilot program were not implemented.

As with Medicare’s shared savings program discussed above, payment arrangements among providers on the backside of the bundled payment must take into account significant hurdles under the Anti-kickback Law, the Stark Law and the Civil Monetary Penalties Law. This pilot program may expand in 2016 if expansion would reduce Medicare spending without also reducing quality of care. If this pilot program expands, it may set off yet another wave of consolidation as acute care providers may attempt to acquire and own post-acute providers, rather than contract with them.

If you want more information on these new Medicare payment reforms, legal options to participate or PPACA more generally, please consult with a Taft attorney.