Day Pitney remains committed to providing quality legal counsel, while protecting our clients and employees, and transforming our communities into more just, equal and equitable spaces. For more information, please visit our COVID-19 Resource Center | Racial Justice and Equity Task Force.


Publications Events

Game On: CMS Approves First Group of Accountable Care Organizations

Publisher: Day Pitney Alert
April 18, 2012
Day Pitney Author(s) James E. Bowers

Although the U.S. Supreme Court has yet to determine the constitutionality of the Patient Protection and Affordable Care Act, many of the healthcare reforms legislated by the Act are being implemented at a steady pace. In one notable example, healthcare providers are positioning themselves as Accountable Care Organizations (ACOs) to qualify for lucrative cost savings that can result from implementing effective approaches to coordinated patient care. The Medicare Shared Savings Program encourages physicians, hospitals and other healthcare providers to work together through ACOs to deliver coordinated care to Medicare fee-for-service (FFS) patients in a cost-effective manner while meeting quality standards. As a reward, ACOs that successfully meet quality and cost-savings requirements can share a large percentage of the savings achieved. The first 27 ACOs were recently selected by the Centers for Medicare & Medicaid Services (CMS) to participate in the Shared Savings Program.

Definition of ACO

An ACO is a group of providers and suppliers willing to assume accountability for the quality, cost and overall coordinated care of Medicare FFS beneficiaries assigned to it. ACOs may consist of the following types of providers and suppliers:

  • ACO professionals (i.e., physicians and other healthcare practitioners) in group practice arrangements
  • Networks of individual practices of ACO professionals
  • Partnerships or joint venture arrangements between hospitals and ACO professionals
  • Hospitals employing ACO professionals
  • Other groups of providers and suppliers as the Secretary of Health and Human Services determines appropriate

ACO Qualification Process

An ACO must apply to CMS and be accepted into the Shared Savings Program. To be accepted, the ACO must meet all eligibility and program requirements, must serve at least 5,000 Medicare FFS patients, and must agree to participate in the program for at least three years.

An ACO must establish a governing body representing providers, suppliers and Medicare beneficiaries with the authority to execute all functions of the ACO, including creating processes to promote evidence-based medicine and patient engagement, reporting on quality and cost measures, and coordinating care.

The first start date under the program was April 1, 2012, and 27 ACOs have been accepted to participate. Further, CMS has received more than 150 applications from ACOs seeking to enter the program on the second start date, July 1, 2012. The application deadline for the second start date has passed. The third start date will be January 1, 2013.  

The application process starts with a required Notice of Intent (NOI) to apply, which must be submitted to CMS well before the application is due. The NOI for the January 1, 2013, start date is due by June 15, 2012, and the application must be received by CMS by August 30, 2012.

Shared Savings

Medicare will continue to pay providers and suppliers, as it always has, for services performed under the Medicare FFS system. In addition, CMS will develop a benchmark for each ACO against which its performance will be measured to determine whether it qualifies to receive shared savings.

An ACO has the choice of selecting either the one-sided model (sharing only savings, not losses) or the two-sided model (sharing both savings and losses). ACOs that adopt the one-sided model will be eligible to share at a rate up to 50 percent of the savings, and those adopting the two-sided model will be eligible to share up to 60 percent. CMS feels that during the term of the first agreement, offering the one-sided model provides the advantage of a safe entry point for organizations (such as some physician-driven groups or smaller ACOs) with less experience with risk models. During the first term, those ACOs will gain experience with population management before transitioning to a shared losses model.

To qualify for shared savings, the ACO must meet quality standards in addition to achieving cost savings. CMS will measure quality using nationally recognized measures in four key areas: patient experience, care coordination/patient safety, preventive health, and at-risk populations.

CMS is offering the Advance Payment Model to rural and physician-based ACOs to provide advance capital to meet startup expenses (e.g., staff and information technology systems). Those resources will help build the infrastructure necessary to coordinate care, thereby improving patient outcomes and reducing costs. Five of the 27 ACOs selected to participate in the Shared Savings Program were qualified for advance payments. Further, more than 50 of the applications for the second start date have requested advance payments. CMS intends to recoup the advance payments from the ACO's earned shared savings.

Next Steps

Healthcare providers need to quickly evaluate the pros and cons of forming an ACO and qualifying to participate in the Shared Savings Program. The window is rapidly closing for the next qualification period. If you would like further information on the formation of an ACO and qualifying it to participate in the Shared Savings Program, please contact one of the individuals listed above.