Earlier today, the Centers for Medicare & Medicaid Services ("CMS") released the long awaited and much anticipated proposed Accountable Care Organization ("ACO") regulations (the "Proposed Rule"). Underscoring the import of this proposed rule, CMS also announced today the release of three documents developed via an inter- and intra-agency effort to address the potential legal and tax implications raised by ACOs. These are:

Section 3022 of the Patient Protection and Affordable Care Act, codified at 42 U.S.C. § 1395jjj, provides for the establishment of the Medicare Shared Savings Program and ACOs. The Secretary of the Department of Health and Human Services is required to establish the Shared Savings Program by January 1, 2012. The Proposed Rule describes an ACO as a group of providers and suppliers — including professionals in group practice arrangements, networks of individual practices, and as set forth in the Proposed Rule, certain critical access hospitals — that have agreed to work together to coordinate care for their patients enrolled in Medicare Parts A and B. In the Proposed Rule, CMS indicates that ACOs are intended to be patient-centered organizations, driven by the goal of delivering collaborative, efficient, cost-effective care. Patients in ACOs will maintain complete freedom of choice to select their Medicare providers. Moreover, the Proposed Rule includes strong protections for patients to ensure that they continue to enjoy a wide array of choices. ACO providers will be required to notify beneficiaries that they are participating in an ACO. Beneficiaries will have the option of opting out of the ACO entirely or simply opting out of the data sharing elements associated with ACOs.

Under the Shared Savings Program, ACOs that achieve certain specified cost and quality targets will share in the savings to the Medicare program. ACOs will be benchmarked against the average beneficiary expenditures (adjusted for demographic characteristics), and will be held to a minimum sharing rate that will account for normal variations in health care spending. As identified in the Proposed Rule, ACOs will be required to meet quality standards in the following areas to share in the savings:

  • Patient/caregiver experience of care
  • Care coordination
  • Patient safety
  • Preventive health
  • At-risk population/frail elderly health

The Proposed Rule offers two risk-models for ACOs: a one-sided risk model (sharing savings only for the first two years and sharing of savings and losses in the third year), and a two-sided risk model (sharing of savings and losses for all three years). CMS will allow the ACO to choose the model it believes is the best fit. ACOs that opt for the two-sided risk model will be able to share in a greater percentage of the savings. CMS is proposing a maximum sharing percentage for the two-sided risk model of 60 percent, while the one-sided model will be capped at 50 percent. The Proposed Rule also provides for a shared loss cap for ACOs in the two-sided model (or year three of the one-sided model). The shared loss caps are set at 5 percent in the first year, 7.5 percent in the second, and 10 percent in the third.

The display copy of the Proposed Rule is available here. The Proposed Rule is expected to published in the Federal Register on April 7, 2011. Comments on the Proposed Rule are due by June 6, 2011.

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