What the final ACO rules could look like

Jeffrey Ruggiero

Jeffrey Ruggiero

The industry is waiting with bated breath for the final accountable care organization (ACO) rules to be issued by the Centers for Medicare & Medicaid Services (CMS). What will the final rules look like? Only time will tell, but industry experts predict the CMS draft rules that were rejected by some of the leading healthcare systems will have to drastically change before making their final debut.

FierceHealthcare caught up with legal expert Jeffrey Ruggiero (pictured), a partner at Arnold & Porter, to hear what he had to say about the final rules and what they mean for hospital-physician relationships, mergers, and goals toward better care. Read on to hear why the ACO rules will come in just a few short weeks and what changes CMS will have to make to gain an ACO following.

FierceHealthcare: When can the public expect the final ACO rules?

Jeffery Ruggiero: Predictions are somewhat like reading tea leaves.

Given the compression of time here under the statute means the Secretary has to get this up and running by January 1. We would expect the final regs to be coming out sometime soon after Labor Day.

Obviously, the final rule is going to have to be digested by the prospective participants, and then there's going to be an application process to demonstrate compliance with the eligibility requirements. Then CMS has to review those applications and offer contracts. That's an awful lot that to has to happen in a relatively short period of time. We don't see how it can go much beyond the Labor Day or so target and still get this up and running.
They're still pretty tight lipped about this. We've talked with them, and they recognize the time compression here, but they're still not giving out any information about a projected publication date.

It's a hurry-up-and-wait syndrome.

FH: There was significant push-back when CMS in March released the proposed ACO rules, especially about the risk model. How close to the final rules resemble the draft rules?

The risk model created quite a bit of consternation. Many providers would argue there is a significant financial risk just by deciding to participate in the program. The start-up costs are significant. CMS has estimated that it will take $1.8 million for operations and start-up costs for the first year, but that was based on the Group Practice demonstration project, which was really a different type of animal than the ACOs. We think the $1.8-million figure is probably underestimating what the true start-up costs would be.

Imposing risk in the third year of the first contract period of all providers, we think, is unduly burdensome. There was quite a bit of push-back from the industry on that.

We think the risk model is contrary to the notion of fostering innovation. If you make it unduly burdensome and make the financial risk too great, then you're not going to get the type of participation that I think the statute contemplates which is really--in addition to the institutional providers--getting the physicians mobilized and involved. They're really on the front lines in terms of cost savings.

FH: Would-be participants also complained about retrospective assignment of beneficiaries. Will CMS adjust that?

JR: If the ACOs don't know which beneficiaries are assigned them until after the fact, then it's very difficult for them to really exert the type of utilization and discipline and track quality benchmarks that CMS requires for successful participation.

We think it needs to be a prospective assignment, and the ACOs should know which beneficiaries are assigned to them so they can better manage those beneficiaries.

[Retrospective assignment] is a burden not only to the ACO, but it doesn't work well, in our view, for the beneficiaries either.

FH: Even though it's a government program, many hospitals are worried they wouldn't pass the legal hurdles attached to the Shared Savings if they don't pass the Federal Trade Commission's and Department of Justice's anti-competitive rules. What advice do you have for them?

JR: The safe harbors are narrow. I think there was a legitimate effort on behalf of the DoJ and OIG to create some safety zones for the development of ACOs. They probably haven't gone far enough, but the indication is that there is some flexibility there to encourage the development of these structures.

These are important first steps. They're not perfect, and they're certainly not where we want them to be ultimately, but it's gotta start somewhere.

This is going to be an evolutionary process. It's still a little bit onerous, and it's complicated, but most of the clients that we're working with are staying the course because they see how this could work and how this could work not only for the benefits of the providers but also the beneficiaries.

FH: How do hospital mergers fit in the ACO world? When we think about care coordination, does that mean corporate alliance?

JR: Hospitals are not eligible by definition to participate in ACOs without a physician component. Out of the eligibility categories and statutes, hospitals can participate either by employing physicians or creating joint ventures with physicians. What's clear from the statute is that physicians can become an ACO without a hospital partner, but hospitals cannot do it without the physician component. I think that was deliberate.

Everyone recognizes the most expensive component of healthcare delivery is hospital stays. The design here was to empower the physicians to either limit or avoid unnecessary hospitalizations or readmissions.

The hospitals have taken the strategy to acquire practices or somehow align with physician practices in contemplation of this change in healthcare.

Sometimes, bigger is better, and sometimes it just makes a bigger mess. It depends on the candidates in terms of who's merging with whom and what the goals and objectives are of the merger. Elimination of redundancy, achievement of economies of scale, expansion of geographic reach--these are all the typical goals these institutions try to achieve in a merger or acquisition.

FH: How are ACOs going to be different that the HMO models of the 1990s that they are so often compared to?

JR: At that time, hospitals were buying up physician practices to prepare for the specter of capitated reimbursement from the commercial carriers. And very often, hospitals overpaid for the practices and neglected to insert productivity-based compensation arrangements with the doctors post-acquisition, and the deals just didn't work. And the hospitals eventual spun off the practices usually at a significant loss.

I think the hospitals have approached this much more intelligently this time around.

FH: Does it make sense for hospitals to own practices or align with physician practices as a joint venture?

In joint ventures, physicians own and govern their own independent structures and then create strategic alignments with the institutions.

In most cases, it makes more sense to create a strategic alliance or some sort of strategic arrangement among equals, if you will.

Some would argue that physicians are unmanageable. There are some notable exceptions, but hospital administrators don't do a good job of managing physician practices. My experience has been that physicians do well to managing each other. In order to do that, you've got to get very strong physician leadership, which is difficult to identify, but it's out there. We're seeing a lot of activity where some of the younger, more lightened physicians are surfacing because they see this as an important opportunity to change the way healthcare delivery takes place in this country.

FH: Any final words on ACOs?

The way we see this is that the Shared Savings program offers an opportunity for collaboration, to come together among the various components of the healthcare delivery system. It encourages these various dispersant components to really come together, collaborate, and work together with a common financial incentive and the goal of delivering quality healthcare on a more effective, efficient basis.

This interview has been condensed and edited for clarity.