Spotting a Unicorn: ACOs Inch Closer to Reality

Almost everyone can describe a unicorn — but has anyone actually seen one?

The mythical beast is an apt analogy for the emerging “accountable care organization” model, according to a cautionary note from Mark Smith, president and CEO of the California HealthCare Foundation. CHCF publishes California Healthline.

Health care providers are rushing to create new structures that could eventually qualify as ACOs, putting them in line for added reimbursements under health reform. But are these actually ACOs? Federal agencies haven’t finished defining the model, and regulators have yet to bless these new alliances.

As a result, there’s another word that could describe some would-be ACOs: illegal. If providers aren’t careful, their new networks may violate current laws restricting provider competition. Essentially, the pace of changes wrought by health reform has outstripped a 14-year-old legal framework.

Providers Likely in Clear for Now, but Face Outstanding Legal Questions

Most providers trying to set up ACOs are probably in the clear, Modern Healthcare notes. Hospitals are generally using existing safe harbors, like direct physician employment and the Federal Trade Commission-sanctioned Clinical Integration model, to craft accountable care alliances.

The government’s open intention to encourage creative structures, in hopes of unearthing new cost-cutting strategies, also could absolve progressive organizations from prosecution. Jon Leibowitz, FTC chair, told the American Medical Association in June that if providers “join together to improve patient care and lower costs, not only will we leave you alone, we’ll applaud you.”

After all, the ACO model was at the heart of the health reform goal of more-coordinated care at lower cost. The concept isn’t new. Encouraging hospital-physician alliances to coordinate care builds off years of research, failed projects by care providers themselves and the government’s own efforts to spark clinical and financial integration.

What is new is that CMS is clearly willing to “reimburs[e] integrated providers for providing a broad base of care to patients,” according to John Liethen, a health law attorney with Dorsey & Whitney.

Through the Shared Savings Program, Medicare will reward ACOs for reducing total cost of care for an assigned population of patients. This reimbursement concept will initially be voluntary, but is meant to eventually encompass the entire Medicare population. Having providers experiment with different models serves CMS’ purposes.

However, that hasn’t stopped health care stakeholders from grappling with significant legal concerns. How will regulators interpret physician payments given anti-kickback statutes? Will these new ACOs violate existing anti-trust rules? And what will ACOs look like in California, given corporate practice of medicine laws that prevent hospitals from directly employing physicians?

Agencies Slowly Move Forward

After months of these questions, some answers may be on the horizon.

FTC, CMS and the HHS Office of Inspector General next week will host an all-day open workshop designed to foster conversation and address potential changes to ease ACO development under current law. The workshop has drawn dozens of key health care stakeholders, and many participants already have filed comments ahead of the session. For example, the American Hospital Association submitted questions asking for federal guidance on anti-trust, Stark and civil monetary penalty laws.

One reason that federal guidance has been slow to come is that regulators “are doing much the same thing as providers: They are scrambling to understand a changing landscape as it morphs around them,” Modern Healthcare reports. Susan DeSanti, a director at FTC, notes that next week’s session will allow the agencies to collaboratively prepare for situations where one regulator — say, CMS — might deem a provider worthy of ACO incentive payments, while FTC submits an anti-trust complaint to the same provider.

Meanwhile, numerous trade groups and pilot projects continue to move the ACO discussion forward. The California Association of Physician Groups will convene a national conference on ACOs in late October. CMS will release guidelines for its flagship ACO demonstration in December. Still, many hospitals and physicians have elected to wait to form or join an ACO until the model is better defined or regulators switch course.

Interim Strategies Rely on Safe Harbors

Barring further guidance, providers that are moving ahead with ACOs essentially have two options to stay on the right side of anti-trust law: Turn to hospital-physician employment or FTC’s Clinical Integration model.

Of course, California hospitals and health systems — governed by strict corporate practice of medicine laws — can’t directly employ physicians. Similarly restrictive laws may also constrain the model’s potential application in states like Texas and Illinois. According to Don Ammon, former CEO of Adventist Health, “for ACOs to work … legislative reform would have to occur” in California.

However, many of California’s independent physician associations might meet the financial risk test that would allow them to joint contract without violating anti-trust law, as they exclusively operate under capitation arrangements, Liethen of Dorsey & Whitney points out. Beyond anti-trust, California’s unique experience with managed care could give state providers a leg up on attempting the model.

More broadly, Liethen notes that “the path to ACOs runs through the FTC.” Notably, the commission’s sanctioned Clinical Integration model relies on organizations engaging in active evaluation and modification of physician practice patterns and cooperating with them to cut costs and boost quality. Charles Wright, a partner with Davis Wright Tremaine, adds that providers “can exist comfortably within the existing antitrust laws even without financial risk sharing, if they are sufficiently integrated clinically.”

Here’s a look at what else is making news in health reform.

Health Reform Rollout

  • Last week, President Obama convened a meeting with more than two dozen people in the backyard of a family’s home outside of Washington, D.C., to discuss the benefits of the federal health reform law (Stolberg, New York Times, 9/22). Obama delivered a brief speech, during which he highlighted new health insurance industry regulations that took effect on Sept. 23. The president also asked guests to share how they hope to benefit from the health reform law (Aizenman/Kornblut, Washington Post, 9/23).
  • Last week, the Government Accountability Office announced the appointment of 19 members to the board of the not-for-profit Patient-Centered Outcomes Research Institute, which was created under the federal health reform law. PCORI is designed to research the best medical treatments for patients. The board members serve staggered six-year terms and can be reappointed once (Pecquet, “Healthwatch,” The Hill, 9/23).
  • CMS officials are not content to wait until Medicaid eligibility significantly expands in 2014 and are trying to boost program enrollment now, according to CMS Director Cindy Mann. Mann said at a public meeting of the new Medicaid and CHIP Payment and Access Commission that the agency is breaking out of the mindset that there will always be an “eligible but unenrolled” population for Medicaid and CHIP. She said the agency’s “new paradigm” suggests that “eligibility equals enrollment” (Reichard, CQ HealthBeat, 9/24).
  • Fewer residents than expected have enrolled in the high-risk health insurance pools created in each state under the federal health reform law. The pools are designed to serve people with pre-existing conditions who have not had health insurance for at least six months. Enrollment began in some states on July 1, but others have just recently begun accepting applications. Officials say that some states have had fewer than 100 applicants for their high-risk pools, despite estimates that hundreds of thousands of residents could qualify for the programs (Adams, CQ HealthBeat, 9/24).
  • The federal health reform law includes a little-noticed provision that allocates $9 million annually for four years, starting in 2010, for programs to increase awareness about the risk of breast cancer in women ages 15 through 44. Under the health reform provision, CDC is charged with creating educational campaigns focusing on breast cancer in younger women and encouraging healthy habits that promote prevention and early detection. Groups that support young women with breast cancer are eligible for grants under the provision. The law also directs NIH to develop new screening and early-detection tests and prevention methods for younger populations (Andrews, Washington Post, 9/27).

Gearing Up for Midterm Elections

  • Last week, Republicans released their “Pledge to America,” a 21-page document detailing how they would limit the size of government — in part by repealing and replacing the federal health reform law — if they win a majority in the midterm elections (Kane/Bacon, Washington Post, 9/23). The pledge states that the GOP would replace the current overhaul with smaller measures, such as ones to limit malpractice lawsuits against physicians and  enroll individuals with chronic health conditions in state-run high-risk insurance pools (Bacon, Washington Post, 9/23).
  • Despite speculation that Democrats are avoiding the subject of the federal health reform law during campaigning for midterm elections, several House Democrats are putting the overhaul at the forefront of their campaigns. Several Democrats, including Reps. Shelly Berkley (D-Nev.) and Dina Titus (D-Nev.), are scheduling speeches alongside HHS Secretary Kathleen Sebelius to address provisions in the so-called “Patient’s Bill of Rights” that took effect last week. In addition, some House Democrats are airing television advertisements and writing opinion pieces in their local newspapers to show their support of the law (Haberkorn, Politico, 9/27).

In Public Opinion

  • More than half of U.S. residents incorrectly believe the federal health reform law will raise their income taxes and about one-quarter think the overhaul includes so-called “death panels,” according to a recent Associated Press survey. Among survey respondents who identified as Republicans, accurate knowledge of the law mattered little in their overall opposition to it. Among Democrats and independents, the poll found that respondents who were more knowledgeable about the overhaul were more likely to be in favor of it (Alonso-Zaldivar/Tompson, AP/Miami Herald, 9/22).
  • Another recent Associated Press poll found that many U.S. residents believe the federal health care reform law did not accomplish enough. The poll — conducted by Stanford University and funded by the Robert Wood Johnson Foundation – found that 30% of Americans favor the overhaul, 40% oppose it and 30% remain neutral. Four in 10 poll respondents said that the health reform did not do enough, regardless of their stance on the law. Meanwhile, one in five said that the government has no place being involved in health care (Alonso-Zaldivar, AP/Atlanta Journal-Constitution, 9/26).

Eye on the Insurance Industry

  • Insurers are scrambling to adjust after the first provisions of the federal health reform law took effect last week. Some companies are reducing administrative staff to lower overhead costs, investing in technology upgrades and training employees to expect a surge in customer inquiries. In addition, some insurers are altering their business models to deal with the new rules. According to some health experts, the adjustments required under the health care overhaul could put some insurers at risk of going out of business (Abelson, New York Times, 9/22).
  • Many insurers are facing the prospect of spending tens of millions of dollars to overhaul their coverage plans and reconfigure their technological systems as they work to comply with newly effective provisions of the health reform law. The reform law now requires insurers to fully cover the cost of any preventive service, waive policyholders’ annual and lifetime spending limits and accept all children, even those with pre-existing conditions. In addition, some insurers likely will cut costs to comply with new medical-loss ratio rules (Sturdevant, Hartford Courant, 9/24).

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