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ACOs: Much Ado about Nothing (?). Moderator: Douglass G. Hewitt, Esq., Partner, Kubasiak, Fylstra, Thorpe & Rotunno, P.C. Panelists: Bradford A. Buxton, President, BTB Associates, LLC Ciara Ryan Frost, Esq., Partner, Kerns, Frost & Pearlman, LLC

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ACOs: Much Ado about Nothing (?)

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Acos much ado about nothing


Much Ado about Nothing (?)

Acos much ado about nothing


Douglass G. Hewitt, Esq., Partner, Kubasiak, Fylstra, Thorpe & Rotunno, P.C.


Bradford A. Buxton, President, BTB Associates, LLC

Ciara Ryan Frost, Esq., Partner, Kerns, Frost & Pearlman, LLC

Kristin D. McMahon, Esq., Chief Claims Officer, IronHealth

Acos much ado about nothing

The Patient Protection and Affordable Care Act (“PPACA”)Public Law 111 -148, signed March 23, 2010

Overview of ppaca

Overview of PPACA

  • Sweeping 2,000+ page overhaul of U.S. health care system (not including the implementing regulations, some of which remain to be issued/finalized)

  • Aims to reform health care:

    • delivery

    • financing

    • insurance

Key ppaca objectives

Key PPACA Objectives

  • Access to health care for all Americans

  • Improve quality of health care

  • Lower cost of health care

Ppaca timeline

PPACA Timeline

  • Staggered deadlines for implementation between 2010 and 2018

  • Myriad regulations issued since PPACA passage

  • Judicial challenges to PPACA

Title iii improving the quality and efficiency of health care

Title III – Improving The Quality and Efficiency of Health Care

  • Strives to transform the U.S. health care delivery system:

    • links payment to quality outcomes under Medicare

    • creates Center for Medicare and Medicaid Innovation (CMI)

    • Accountable Care Organization (“ACO”) initiatives

Acos much ado about nothing



Acos much ado about nothing


ACOs Defined

Impetus for acos

Impetus for ACOs


Impetus for acos cont d

Impetus for ACOs (cont’d)

“In the US, we hold no one accountable for our problems. Accountability is as fragmented as care, itself; each separate piece tries to craft excellence, but only within its own walls. Meanwhile, patients and carers wander among the fragments. No one manages their journey, and they are too often lost, forgotten, bewildered.”

- Dr. Donald Berwick, former CMS Administrator

Source: Donald M. Berwick, “A Transatlantic Review of the NHS at 60,”, July 1, 2008.

Acos much ado about nothing

Source: Organization for Economic Co-operation and Development (2010), "OECD Health Data", OECD Health Statistics (database). doi: 10.1787/data-00350-en (Accessed on 14 February 2011).

Notes: Data from Australia and Japan are 2007 data. Figures for Belgium, Canada, Netherlands, Norway and Switzerland, are OECD estimates. Numbers are PPP adjusted.


The purpose of acos


“The creation of ACOs is one of the first delivery-reform initiatives that will be implemented under the ACA. Its purpose is to foster change in patient care so as to accelerate progress towards a three part aim: better care for individuals, better health for populations, and slower growth in costs through improvement in care.”

-Dr. Donald Berwick

Types of acos

Types of ACOs

  • Medicare

    • Medicare Shared Savings Program (MSSP)

    • Advanced Payment Model

  • Commercial (Private Insurers/Payors Health Systems)

  • Pioneer – Hybrid Advanced Model

The shared savings proposed rule

The Shared Savings Proposed Rule

  • Issued March 31, 2011

  • 65 Quality Measures

  • 2 alternative tracks (one-sided, shifting to two-sided in year 3 and two-sided)

  • 2% threshold above minimum savings rate of 2%-3.9%

  • Maximum Shared Savings Cap: 7.5% or 10%

  • 25% withhold by CMS for years 1 and 2

Response to the medicare shared savings proposed rule

Response to the Medicare Shared Savings Proposed Rule

Medicare shared savings program mssp

Medicare Shared Savings Program (MSSP)

  • MSSP ACOs must meet HHS/CMS eligibility criteria, including:

    • assume responsibility for Medicare patient population of 5000 or more beneficiaries for at least three years

    • adequate primary care physician participation

    • a formal legal structure for receipt/distribution of shared savings

    • shared governance over clinical and administrative processes; and

    • processes to promote evidence-based medicine, coordinated care and patient engagement

Medicare shared savings program mssp cont d

Medicare Shared Savings Program (MSSP) (cont’d)

  • If the ACO’s costs are lower than the benchmark set by the MSSP, it receives (in addition to normal fee for service payment amounts) an additional payment that reflects a portion of the savings

    • Track I Model: Shared Savings Only

    • Track II Model: Shared Savings and Shared Losses

  • By the end of 2012, at least 2,000,000 people are expected to be enrolled in MSSP ACOs

The shared program final issued october 20 2011

The Shared Program Final Issued October 20, 2011

  • 33 quality measures

  • 2 alternative tracks (one sided for all 3 years and two sided)

  • No 2% threshold above minimum savings rate of 2 to 3.9% (i.e., First dollars savings)

  • Increase in maximum sharing rate: 50-60%

  • Maximum Shared Savings Cap: 10-15%

  • No 25% withhold by CMS

Advanced payment model

Advanced Payment Model

  • Part of the MSSP

  • Provide additional support to physician-owned and rural providers who would benefit from added start-up capital to establish the needed infrastructure in the form of additional staff or information technology

  • Upfront funding by CMS’ Innovation Center of $170M to support up to 50 ACOs

  • Eligible participants must be:

    • ACOs that do not include any inpatient facilities and have less than $50 million in total annual revenue; or

    • ACOs in which inpatient facilities are critical access hospitals and/or Medicare low-volume rural hospitals and have less than $80 million in total annual revenue

Commercially privately sponsored accountable care collaborations

Commercially/Privately Sponsored Accountable Care Collaborations

  • Private Payors including BCBS Plans, large for profit health insurance carriers (e.g., CIGNA, AETNA) and health care systems launching pilot programs across the country

  • Radical departure from traditional fee for service approach

  • CareFirst Blue Cross Blue Shield, dominant insurer in the Washington DC

  • Advocate Health Care (Chicago based) and BCBS IL formed one of the nations largest ACOs, AdvocateCare

Pioneer aco model

Pioneer ACO Model

CMS Innovation Center initiative

Eligibility-healthcare organizations experienced in providing coordinated, patient centered care to Medicare beneficiaries (a minimum of 15,000 Medicare Part A and B beneficiaries) in an ACO type environment

 Approximately 32 organizations have been designated as Pioneer ACO Models including: Banner Health, Beth Israel Deaconess, Dartmouth Hitchcock, and Presbyterian Healthcare Services.

  • Differences between Pioneer ACO Model and MSSP:

    ♦First two years of Pioneer are shared savings payment with higher levels of savings and risk than Shared Savings Program;

    ♦ By end of second year, Pioneer ACO must enter into similar payment contracts with insurers and health plans constituting 50% of ACO revenue.

Common characteristics of successful acos

Common Characteristics of Successful ACOs

  • Broader patient access to care, including extended evening and weekend hours

  • Case management and Disease management services

  • Electronic Medical Records to better track medical history

  • Embedded Care Coordinators

  • Data Analytics

  • Shared savings and in some cases losses with the Payor of medical services

Aco configurations abound

ACO Configurations Abound

Health System











Acos initial barriers to entry

ACOs—Initial Barriers to Entry

  • Antitrust concerns

  • Start Up Costs—IT Technology

  • Ability of specialists and primary care physicians to work together and accept a reallocation of healthcare dollars therein increasing the reimbursement levels of primary care physicians

Are acos different than hmos

Are ACOs Different Than HMOs?

  • ACOs have quality metrics that were not part of the Managed Care model of the 1990s

  • ACOs do not purport to limit patient choice of providers or act as gate keepers to prevent patients from specialist care

  • Specialist care is encouraged; although will be more closely followed by the primary care physician

Acos much ado about nothing

Sample ACO Organizational Components:

Hospitals, Diagnostic/ Therapeutic Service Centers

ACO Resources

Physician Organizations

Alternate Health Service Organizations

Health Information Communication Connectivity Network

EHRs, Interfaces, Communication Hubs



Health System/Hospital

Employed Groups




Patient Centric CDRs (Beneficiary)

  • Connections

  • PMS

  • EHR

  • Claims clearinghouse

  • Information

  • Results

  • Reports

  • Orders

  • Scripts

  • Referrals

  • Eligibility

  • Claims

  • Appointments

  • CCRs

  • Other

PHO Physicians


Potential Partners

Aligned Physicians – Ind


Population Health Data Warehouse


Physicians - Ind




Call Centers

Potential Partners





Not MS

Care Coordinators


Safety Net





Provider payor challenges

Provider-Payor Challenges

  • Current Market-Place

  • What’s to Come in Reform

  • Payment migration and Provider Accountability

  • What it takes to win

Reform has sparked reform but results won t happen without reduction in costs

Reform has sparked reform. But results won’t happen without reduction in costs.

At its roots, the ACO model is about changing the reimbursement structure of the U.S. healthcare system toward one that pays for the quality of care delivered (and, by derivative, the outcomes achieved) versus the units of service provided.

- Beyond ACOs: The Pending Risk Shift to Providers, William Blair

Hospitals with strong market power and higher private-payor and other revenues have less pressure to constrain their costs. Thus, these hospitals have higher costs per unit of service, which can lead to losses on Medicare patients. Hospitals under more financial pressure—with less market share and less ability to charge higher private rates—often constrain costs and can generate profits on Medicare patients.

- MedPac, Health Affairs, May 2010

Blue Shield of California gives $20M in ACO Help

- Healthcare IT News, October 18, 2011


Market environment health reform

Market Environment | Health Reform

  • 2012 Highlights

  • Encouraging Integrated Health Systems

  • Linking payment to quality outcomes

  • Reducing avoidable hospital readmissions

  • 2013 Highlights

  • Improving preventative health coverage

  • Encouraging provider collaboration

  • Increasing Medicaid for primary care

  • Fee for patient-centered outcomes research

Health care organizations can expect to see impacts to their customers, products, markets, and margins .


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ACOs require a shift in provider accountability and a migration from focus on revenue cycle management to cost management

Revenue Cycle Management

Cost Management/liability


Source: Healthways 2010

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The current system cannot sustain itself without a focus on cost management and lowering the total cost of care

  • Hospitals and Specialists

  • Improved Patient Care Efficiency

  • Use of Lower-Cost Treatments

  • Reduction in Adverse Events

  • Reduction in Preventable Readmissions

  • All Providers

  • Improved Management of Complex Patients

  • Use of Lower Cost Settings & Providers


  • Primary Care Practices

  • Improved Prevention & Early Diagnosis

  • Improved Practice Efficiency

  • Reduction in Unnecessary Testing and Referrals

  • Reduction in Preventable ER Visits and Admissions

Lower Total Health Care Cost


Requirements for success

Requirements for Success

  • As provider risk expands, requirements for risk management become more complex:

  • Reimbursement and Network Management:

    • Multiple risk sharing arrangements from global rates to percent of premium, network contracting and management

  • Care/Population Management:

    • HIS, PCMH, IOP, Data Integration (EMR), Nurse Managers

  • Administration

    • MSO Services (claims, eligibility, etc.)

  • Financial/Risk Management

    • Risk based capital, actuarial, underwriting, financial reporting, compliance and auditing

  • Regulatory/Legal

Requirements for success lessons from the 1980s

Requirements for Success|Lessons from the 1980s

  • In the 1980s when payors shared risk there were multiple provider failures and liability concerns.

  • What level of risk assumed?

  • When moving from fee for service to risk, what is impact on cost delivery structure?

  • Does the Integrated Health System cover all services necessary to assume risk?

  • Do patient coverage policies outline expectations for members re: coverage and delivery expectations?

  • Role of insurance company versus delivery system in risk arrangement (reinsurance/liability/coverage)?

  • Role of Partners (administrative, ownership, risk, etc.)


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The landscape is complex and choosing partners requires understanding oneself and the target partner. Three types of partners meet different sets of needs.

  • Vertical:

    • Knowledge and tools for managing care (administrative services)

  • Horizontal:

    • Partners include other hospital systems, organized physician entities, and community organizations within target service areas or clinical specialties

  • Global:

    • Global Partners are entities who bring attributes of both horizontal and vertical partners

Structure high value efficiencies ability to take risk and increase margin

Structure + High Value Efficiencies = Ability to Take Risk and Increase Margin

Providers and payors require a structure in the new, transformed state

  • Leadership must determine how broad they want to provide their integrated health system services

  • Determine organization (i.e. physician vs. strategic partnership)

    Providers must consider the balance between geography and provider services offered

  • Evaluate services, people, contractual status (risk/no risk) by geographical regions

Structure high value efficiencies ability to take risk and increase margin1

Structure + High Value Efficiencies = Ability to Take Risk and Increase Margin

  • Providers must inventory what tools, skills and capabilities they have today, determine the gaps in current systems and how to fill those gaps

    • Understand what is required and how to fulfill need in technology, people and organization (buy, build, partner)

  • Understand best partnership options in order to build a effective and efficient risk taking network

    • Also define who owns lives today to help access network and partnership options. Is it realistic to have a competitor also be a partner?

Aco liability exposures

ACO Liability Exposures

  • Vary, depending on the:

    ♦ Activities/services of the ACO and its constituentparticipants

    ♦ ACO’s organization/legal structure, and

    ♦ Applicable state law

Aco liability exposures1

ACO Liability Exposures

  • Similar to historical MCO liability exposures in many respects, except:

    • patients may obtain care from providers outside the ACO without any cost or coverage penalty,

    • financial incentives are tied to quality performance metrics

Aco liability exposures2

ACO Liability Exposures

  • Some heightened exposure based upon ACO’s:

    • ‘accountability’ for quality of care

    • increased involvement in coordination of care

    • increased control over ACO participants

Activities services most likely to give rise to claims against acos

Activities/Services Most Likely to Give Rise to Claims Against ACOs

  • Medical treatment

  • Coordination of care/case management

  • Medical necessity or other coverage determinations

  • Utilization review (if applicable)

  • Provider selection / contracting / termination / payment

  • Claims processing/payment (if applicable)

  • Billing

  • Employment practices

  • Compliance with state and federal laws, including HIPAA, HITECH and PPACA

Common sources of aco liability claimants

Common Sources of ACO Liability (Claimants)






(e.g., payor,





Patient claims against acos

Patient Claims Against ACOs

  • Medical negligence (direct or vicarious liability)

  • Negligence or misconduct in:

    • utilization review

    • case management/coordination of care

    • selection/peer review/credentialing of participating providers

    • medical necessity or coverage determination

  • Breach of contract

  • Breach of fiduciary duty (including failure to disclose financial incentives)

  • Breach of privacy

  • Other (including statutory violations)

Provider claims against acos

Provider Claims Against ACOs

  • Breach of provider contract

  • Negligence or other misconduct related to:

    • provider selection/contracting

    • provider deselection/termination

    • provider compensation, including bonus or incentive payments

  • Cross-claims for indemnification

Regulator claims against acos

Regulator Claims Against ACOs

  • Violations of:

    • PPACA (Note PPACA penalty provisions)

    • False Claims Act or other federal fraud and abuse laws

    • Federal or state antitrust laws

    • HIPAA, HITECH or other federal or state privacy laws

    • State licensure, solvency or other laws

Employee claims against acos including claims by employed providers

Employee Claims Against ACOs (including Claims by employed providers)

  • Wrongful termination

  • Discrimination

  • Breach of contract

  • Misrepresentation

  • Whistleblower claims alleging False Claims Act violations

Competitor claims against acos

Competitor Claims Against ACOs

  • Violation of federal or state antitrust laws

    (Note, Final ACO Antitrust Policy Statement provides for an Antitrust Safety Zone)

  • Unfair competition

  • Tortious interference with contractual or business relations

New or heightened exposures apr s ppaca

New or Heightened Exposures Après PPACA

  • Violation of PPACA or implementing regulations:

    • MLR rebate obligations

    • Penalties for non-compliance with claims processing and appeals regulations

    • Other

  • Compliance is key

Erisa preemption in the wake of ppaca

ERISA Preemption in the Wake of PPACA?

ERISA Preemption Defense

Increase in Population

Insured Under Individual

Health Policies


Relationship between ppaca erisa and other federal and state laws

Relationship Between PPACA, ERISA And OtherFederal and State Laws?

  • Interplay between PPACA and other federal and state laws unclear in many respects

  • PPACA preserves ERISA preemption, but ERISA does not apply to individual health insurance markets

  • PPACA preempts state laws that would “prevent the application of” Title I

    • Sets a “floor” for state regulation

    • Does not preempt state licensure, solvency and other ‘health-insurance laws’

  • Full employment for lawyers

Newton s law of motion

Newton’s Law of Motion

For every action, there is an equal and opposition reaction.


Increase in integration of and coordination by providers

Increase in Integration of and Coordination by Providers

Liability for medical and managed care mishaps

Antitrust Exposure


Effects of ppaca on health insurance market

Effects of PPACA on Health Insurance Market

PPACA Litigation

Regulatory Activity


Managed Care



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Litigation Over Historically Controversial Health Insurer Practices Should Decline As PPACA Eliminates Or Regulates Those Practices

  • Lifetime and annual limits

  • Rescission (post claims underwriting)

  • Explanations of coverage, including disclosures of cost-sharing, common benefit scenarios, provider payment methodologies (“usual customary and reasonable rates”)

Insurance coverage acos

Insurance Coverage & ACOs

  • Types of Exposures Presented

    • D&O

    • E&O

    • Professional Liability

    • Third and First Party Privacy Protection

    • General Liability

    • EPL

    • Fiduciary

  • Critical to understand the ACO’s corporate structure

Insurance coverage acos1

Insurance Coverage & ACOs

  • Necessary to perform GAP analysis to determine whether existing healthcare entity’s Insurance Program provides seamless coverage to the ACO activities

  • Policy exclusions could vitiate coverage if an insured provider files suit against the ACO challenging compensation or bonus structure (e.g., Insured v. Insured)

  • Consider purchase of separate stand alone product to expressly cover ACO Services and corresponding liability exposures

Us supreme court to rule on two major ppaca provisions

US Supreme Court to Rule on Two Major PPACA Provisions

  • Individual Mandate

  • The Medicaid Expansion

Acos much ado about nothing

Douglass G. HewittCiara Ryan Frost, Esq.

Kubasiak, Fylstra, Thorpe & Rotund, P.C.Kerns, Frost & Pearlman, LLC

20 S. Clark Street, 29th Floor70 West Madison, Suite 5350

Chicago, IL 60603Chicago, IL 60602

(312) 630-9600(312) 261-4553

[email protected]

Bradford BuxtonKristin D. McMahon, Esq.

BTB Associates, LLCChief Claims Officer

594 North Woodland LaneIronHealth

Northfield, IL 60093175 Powder Forest Drive

(847) 400-7450Simsbury, CT 06089

[email protected](860) 408-7812

[email protected]

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