Accountable Care Organization Facts Every Physician Should Know

March 24, 2013

Learn about ACO formation, rules, contract pitfalls, and physician participation from an expert before you commit to joining a new group.

This week, I feel fortunate to interview a colleague, physician and attorney Raymund King. Based in Dallas, King is one of the few attorneys in the country with practical experience setting up physician-owned accountable care organizations (ACOs) on behalf of physicians.  After practicing medicine for 10 years as an otolaryngologist (ear, nose, and throat doctor), he became a healthcare attorney almost 14 years ago.  You will want to hear what he has to say.

Martin Merritt: I can imagine you are very busy, with all the attention focused upon ACOs.

Raymund King: It has been a busy year. What I am discovering is that doctors are being heavily recruited to join hospital-owned or healthcare system-owned ACOs. Unfortunately, not all ACOs are created equally, and many physicians will need to read the fine print before signing the dotted line.

MM: Can you elaborate?

RK: An ACO is a group of doctors, hospitals, and/or other health care providers, who voluntarily participate in a program of at least three years in duration designed to coordinate high quality care to their Medicare patients. Ideally, the goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds, both in delivering high quality care and spending healthcare dollars more wisely, it will share in the savings it achieves for the Medicare program.

Perhaps the most commonly touted program that is currently available is called the Medicare Shared Savings Program (MSSP). There were two other prior programs (the Pioneer ACO Model and the Advance Payment Initiative) that are no longer available. The government sets a national benchmark that represents the amount
of healthcare dollars allocated per patient per year. The regulations require a minimum of 5,000 Medicare patients covered in order to qualify as an ACO. If the national benchmark for your region is, for example, $10,000 per patient, then an ACO with 5,000 patients represents a total of $50 million.

In an MSSP, the government looks at what dollars are spent per patient at the end of the year, and if the amount is less than the national benchmark, that amount is called the "shared savings." In our previous example, if the ACO spends $40 million in one year to treat 5,000 covered lives, then the difference between our example national benchmark and the amount spent is $10 million. The $10 million constitutes the shared savings, which is split 50/50 with the U.S. government. In the third year of participation, however, the government may require the ACO to participate in the losses incurred by the ACO if it spends more than the benchmark for that region.

An ACO is either owned by a hospital/healthcare system, or it is owned by a group of physicians. In the system-owned ACO, the 50 percent portion of shared savings goes to the system. In the physician-owned ACO, however, the 50 percent portion of shared savings goes to the physicians. That is primarily why I have been busy forming physician-owned ACOs.

CMS is not involved in the details of how the money is distributed among the shareholders or members of the ACO, nor does CMS ensure that distribution is fair based upon the work done, or even if the amount paid is distributed in a sustainable way. As a healthcare corporate business lawyer, therein lies a tremendous opportunity to design a sustainable business model for healthcare.

MM: Can a physician participate in more than one ACO?

RK: Primary-care doctors (which include internal medicine, pediatrics, and geriatrics) may join only one ACO. However, specialists may join as many ACOs as they want. An ACO can only participate in one governmental shared-savings program at a time. It is very important to read the fine print in the ACO participation agreement as well as the operating or shareholders agreements, as I have seen many restrictive clauses buried in these documents that create restrictions above and beyond any that are in the regulations.  For example, I have seen ACOs attempt to limit contractually the specialist physician’s ability to participate in more than one ACO.

MM: You say there are also concerns with how the beneficiaries are counted?

RK: Absolutely. The ACO must provide for 5,000 beneficiaries to be recognized. However, CMS only counts the physician with the "plurality of visits" with the patient. A specialist physician with 3,500 patients may find that only 350 are actually recognized by CMS, because the primary-care physician has been credited with the lion’s share of the patients.

MM: What can physicians do to protect themselves?

RK: Physicians need to understand that all ACOs are not created equal. Are they being offered ownership interest, or merely a right to work for the ACO? Is the management agreement structured to fairly compensate the ones doing the work? Large chains, be they insurance or hospital, are known for being top-heavy in administrative costs. As I mentioned, physicians must ensure that they read the entire agreement to ensure they are not limiting their rights beyond what is required in regulations.

MM: Any final thoughts?

Yes. When the Affordable Care Act described the formation and goals behind the ACO, the legislators likely did not contemplate extensively the morass of existing healthcare and non-healthcare regulations that would likely create serious issues in the formation, operation, and administration of an ACO. Some very important laws to consider are the Stark Law, the Anti-Kickback Law, and the Sherman Antitrust Act, which are all very relevant and may easily be violated by an ACO. Indeed, if the ACO is not cognizant of these potential legal landmines, the physician participants may be in for a rude awakening.