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ACO Update: CMS Releases Proposed ACO Rule

April 4, 2011


After months of anticipation, the Centers for Medicare and Medicaid Services (CMS) released its proposed rule for Accountable Care Organizations (ACOs) on March 31, 2011. The rule is slated to be published in the Federal Register on April 7, 2011, and comments will be due 60 days after that.

ACOs are healthcare entities that will create incentives for providers to work together to treat a patient across various care settings such as hospitals, doctors’ offices and long term care facilities. Created by Section 3022 of the Patient Protection and Affordable Care Act (PPACA), the Medicare Shared Savings Program is intended to improve the quality of healthcare while also reducing the growth of healthcare spending.

Under the proposed rule, interested providers would form or join an ACO and then apply to CMS for approval. Once approved, the ACO would agree to participate in the program for three years and serve a minimum of 5,000 Medicare patients, while continuing to receive payment under Medicare fee-for-service rules.

The proposed rule seeks to implement two ACO models – a one-sided risk model with shared savings for the first two years and both shared savings and losses for the third year, and a two-sided risk model with both shared savings and losses for all three years. CMS believes that this system will be advantageous to both experienced and inexperienced organizations – allowing more experienced ACOs the opportunity to realize greater savings at the risk of paying for a portion of losses, while providing less experienced groups an opportunity to grow and manage their ACOs successfully before moving to the riskier model.

Quality performances measures would also be established under the proposed rule, in addition to a system for tying quality of care to financial performance. The rule sets forth 65 quality measures that fall into several key areas, such as coordination of care, patient safety, patient care experiences and preventive health, and would require ACOs to report these measures to CMS. If the ACO meets the quality performance standards it would be eligible to gain a share of the savings that it has generated. On the flip side, the ACO would be held accountable for losses and be required to pay Medicare for a portion of such losses.

The proposed rule also seeks to require each ACO to notify its patients of their participation in the program, including information about how the ACO would improve the quality of their healthcare. Notification would include posted signs in participating healthcare facilities in addition to written information made available to patients.


In conjunction with the issuance of the ACO rule, CMS and the Office of the Inspector General (OIG) released a notice that outlines proposals for health law fraud waivers that will be needed for ACOs – including waivers of the physician self-referral law (the “Stark Law”), the Anti-Kickback Statute and certain provisions of the civil monetary penalty law. In their notice, CMS and OIG noted that a provision in the PPACA authorizes the Department of Health and Human Services (HHS) to waive these laws in order to execute the Medicare Shared Savings Program. A key question for providers who are considering becoming an ACO is whether these waivers are broad enough to cover the compliance risks associated with ACO development. The notice is also slated to be published in the Federal Register on April 7, 2011, and comments will be due 60 days after that.

Also in connection with the proposed rule, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) released a proposed statement of antitrust enforcement policy for ACOs. The two entities discuss their position on how ACOs can become a successful part of the U.S. healthcare delivery system without having a negative impact on consumers and/or competition. In addition, the DOJ-FTC statement sets forth a shared-responsibility framework for the review and assessment of ACOs. Comments will be accepted through May 31, 2011.


The 429-page proposed rule can be found here.

An HHS fact sheet can be found here.


Our team continues to study these substantial publications and will provide more detailed analyses on specific portions of the proposed ACO rule, the Stark Law waiver proposal and the antitrust guidance over the course of the coming days and weeks. We encourage interested parties to weigh in via the comment process, the details of which can be found in the first three pages of the proposed rule (see above link).

Should you have any questions on the content of this Healthcare Update - Focus: Accountable Care Organizations, or wish to discuss any other healthcare related issue, please contact the Edwards Angell Palmer & Dodge LLP attorney responsible for your affairs, or any of the following healthcare attorneys:

David S. Szabo, Partner 


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