Economic challenges in patient care are nothing new. But combine them with the rapid remodeling of the healthcare landscape through the passage of the Affordable Care Act (“ACA”), and increased pressure on hospitals to keep up with costs (all while constantly improving quality in an unforeseen public-eye pressure cooker), and creative solutions, ripe for the risk-taker, will inevitably emerge. Two of these—clinically integrated networks (“CINs”) and accountable care organizations (“ACOs”)—streamline care-driven and business-driven processes for the good of the patient and the financial health of the organization. Savvy investors looking to get in on the ground floor of these innovative delivery models should take note now of the opportunities and potential pitfalls.
ACOs and CINs: The ABCs
CINs. A CIN is a coordinated healthcare network that typically includes one or more hospitals and a select group of employed and independent physicians on the hospitals’ medical staffs. A network of providers becomes “clinically integrated” by satisfying certain criteria set forth by the U.S. Department of Justice and Federal Trade Commission—specifically, by “implementing an active and ongoing program to evaluate and modify practice patterns by the network’s physician participants and create a high degree of interdependence and cooperation among the physicians to control costs and ensure quality.”1 Typically, physician-led and managed CINs are structured to improve quality and reduce costs of care by establishing financial, quality, cost-efficiency, and patient satisfaction metrics for physician participants. Participants share the best of their respective resources—technological platforms, care coordination networks, and shared knowledge bases, for example—to target the health needs of whole populations (diabetic, arthritic, and asthmatic patient groups have been successful choices).
All this patient and practitioner interest alignment, if done properly, results in plenty of business upside. Coordinated care mechanisms mimic the payor revolution already under way at the Center for Medicare and Medicaid Services (“CMS”), and with commercial payors including health insurers and employers, where condition-specific bundled payment programs (where payors pay an all-inclusive “package” rate for services related to a particular diagnosis) are hot new offerings.2
ACOs. ACOs may take many forms, but generally, an ACO is a network of providers and suppliers jointly held accountable for improving quality and reducing the cost of care. The ACA authorized the formation of ACOs under two different programs: the Medicare Shared Savings Program (the “MSSP”) and the Pediatric ACO Demonstration Project. As of December 2014, the MSSP includes more than 330 ACOs in 47 states, providing care to more than 4.9 million Medicare beneficiaries.3
As the population ages and the number served by the innovative organizations increases, CMS has taken steps to assist ACOs in their development and to encourage them to take on more risk. In December 2014, the federal government released a proposed rule seeking to modify certain MSSP regulatory requirements and effectively sweeten participation for those willing to be more accountable in their approaches. The changes, if implemented, would allow alternative financial benchmarks to reflect regional and local market considerations, and would “beef up” two-sided participation models, letting participants that take on additional downside risk have the opportunity to share in greater savings.4 In March 2015, the federal government announced a “Next Generation” ACO program model that will further reward providers for taking on additional risk.
The federal government is not the only proponent of ACO growth. ACOs are developing independently of Medicare-endorsed programs, many with the assistance of large health systems and/ or commercial payors.5 The level of risk and opportunity to indulge in shared savings varies across commercial ACOs. However, like the ACOs participating in the MSSP, commercial ACOs strive to improve care coordination and quality, track improvements using carefully chosen metrics, and reduce costs.
New Opportunities for Business Arrangements with CINs and ACOs
Those looking to get in on the evolutionary era of CIN and ACO development have many doors from which to choose. CINs and ACOs take a variety of creative forms, though all share common needs that welcome particular partnerships.
I. Expansion of IT Infrastructure
CINs and ACOs are technology-driven ventures with a human care end product. Quality and efficiency outcomes utilizing the CIN and ACO framework cannot be achieved without ongoing monitoring, collection, and analysis of data from a variety of sources. Moreover, the basics of accountability—care coordination, open communication with patients, and the ability to identify potential gaps in care—all hinge on workable, integrated electronic health record (“EHR”) platforms.6
But high-tech can mean high-risk in a healthcare setting. Without a sound technological infrastructure, patient-centered organizations like CINs and ACOs will struggle with data extraction, management, and integrity.7 As a result, CINs and ACOs may turn to qualified partners to bolster their efforts in these crucial areas:
- Structuring EHR rollouts to CIN and ACO participants
- Structuring EHR subsidy arrangements to comply with applicable healthcare and tax regulatory laws
- Implementing data management processes for achieving clinical and operational performance improvement metrics
- Maximizing meaningful use incentives to offset the cost of EHR technology
- Negotiating favorable license agreements with technology vendors and revenue cycle management companies
- Implementing telehealth, mobile health, and digital health programs to improve access and efficiency in care delivery
- Ensuring that appropriate and regulatory-compliant data privacy and security policies are in place CINs and ACOs will be looking to tech partners to help them advance these goals of accountable care.
II. Expansion of Population Health Management Resources
Healthcare reimbursement is moving from a volume-based to value-based methodology, whereby payors reward providers for meeting quality objectives that improve the health of an entire patient population.8 The concept of population health management highlights three components: “the central care delivery and leadership roles of the primary care physician, the critical importance of patient activation, involvement, and personal responsibility; and the patient focus and capacity expansion of care coordination provided through wellness, disease, and chronic care management program”9 —all of which are hallmarks of integrated and accountable care.
Resources in support of population health management are critical to the success of CINs and ACOs. Providers who see only the patients who walk through their doors will form an incomplete picture of greater population needs and will require clear, accurate analyses of the “big health picture” of the communities they serve. The care redesign at the heart of CIN and ACO development will be driven by this information, and parties on both the clinical and business sides of care delivery will value service partners who can deliver it in a digestible manner, readily applicable in a variety of care settings.
Considerations for Prospective Partners
Organizations involved in the development or support of a CIN or ACO must address structural and implementation issues that impact organizational risk. Some of the major issues and considerations that arise during the development of a CIN or ACO include the following:
- Network Contracting – When multiple hospitals and physician groups are involved in a single ACO or CIN, prospective business partners should analyze relationship interplay (and potential conflict).
- Key Considerations – How are physicians from each hospital made stakeholders in the integration? Will the CIN or ACO have a contract with each physician on an individual basis, or through an affiliated contracting entity? Will physicians be permitted to participate in more than one CIN?
- Governance – A CIN or ACO undertakes a significant balancing act when it determines the amount of desired physician input versus the amount of reserved powers a sponsoring organization will have, especially if an ACO plans to participate in the MSSP, which has stringent governance requirements. The concept of “physician buyin” is crucial, and physicians and other practitioners need to be effectively integrated early on in the organizational and planning processes.
- Considerations – If multiple hospitals are (or will be) involved, will future hospital members have the same ownership interests as the “founding” hospital member(s)? Will each hospital have the right to appoint an equal number of representatives to the governing body? How many physicians serve on the governing body, and is each physician practice specialty represented? How will the organization enforce organization requirements against those who refuse to meet selected performance or quality standards? And for those who do comply, how will they be rewarded? Will they gainshare directly in the organization’s savings (where permitted by law)?
- Infrastructure Development – Often, participating providers in a CIN or ACO (particularly smaller physician practices) lack some of the basic infrastructure and clinical resources required to enable data collection and analysis and effective population health management. Ensuring that such infrastructure and resources are deployed throughout the ACO or CIN is critical to the success of the organization, but can prove to be challenging from a healthcare regulatory perspective.
- Considerations – Will hospitals and other ACO or CIN participants with access to capital and resources provide EHR systems and support to physician organizations and other participants in order to facilitate effective data sharing and management? Can such arrangements be structured to avoid liability under federal and state anti-kickback laws, which prohibit the offer or solicitation of remuneration in exchange for referrals? Can the arrangement be structured to satisfy an exception to federal and state physician-self referral laws (e.g., the federal “Stark Law”), which prohibit hospitals and others from accepting referrals for certain services from physicians with whom they have a “financial relationship”? To what extent may taxexempt participants fund the distribution of enabling technologies to ACO and CIN participating providers?
- Legal and Regulatory – CINs and ACOs are subject to a number of state and federal laws and regulations specific to the healthcare arena. Their structure and operations must comply with the antitrust laws, laws governing tax-exempt organizations, a plethora of healthcare laws and regulations designed to police financial “fraud and abuse” affecting governmentsponsored programs such as Medicare and Medicaid (including the Stark Law, the Anti-Kickback Statute, and the Civil Monetary Penalties Law), and, of course, patient privacy laws such as the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Moreover, if providers reside in different states or are located in “border regions,” there may be certain state-specific challenges to oversight.
- Considerations – Will state laws permit a structure that satisfies federal requirements for ACOs (especially MSSP participants)? If providers reside in different states, how will patient privacy mechanisms be implemented to satisfy state and federal requirements? Are the ACO and CIN data sharing systems compliant with HIPAA’s data privacy and security laws? Are shared savings distribution and other payment arrangements that are intended to incentivize physicians and other participating provider organizations to improve care coordination and clinical outcomes compliant with federal and state laws that restrict financial relationships with patient referral sources? How will the organization’s compliance staff exercise sufficient oversight over the multiple sub-organizations and participants involved?
The current sea change in healthcare gives astute business partners plenty of incentive to form or do business with a CIN or an ACO. When contemplating forming or working with a CIN or ACO, however, all parties should understand the complexities of such arrangements, and the regulatory overlay that may control their operations. Organizations can navigate such complexities through meaningful review and analysis of the structures with legal counsel, educational efforts, physician leadership and input, and demonstration of a clear understanding of and commitment to the goals of the CIN or ACO to all stakeholders.
Contact the authors:
John M. Kirsner – Jones Day – firstname.lastname@example.org
David T. Morris – Jones Day – email@example.com
1 United States, Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care (Washington: DOJ, 1996) 90-91.
2 CMS’ Bundled Payments for Care Improvement (“BPCI”) program allows providers to enter into collaborative payment arrangements that include financial and performance accountability for episodes of care. Participants apply to participate under four different care models, each of which offers a different incentive for streamlined, quality care (for example, a lump sum payment for a patient’s entire episode of care, to be shared among providers). See http://innovation.cms.gov/initiatives/bundled-payments/. One example of bundled payment expansion in the private payor realm is The Cleveland Clinic’s bundled Program for Advanced Medical Care (“PAMC”). The PAMC works with self-insured companies to provide high-quality, cost-efficient care. In 2012, the PAMC partnered with Walmart to allow Walmart associates access to cardiac surgery services at Cleveland Clinic Heart & Vascular Institute. See Press Release, Cleveland Clinic Adds Walmart to Bundled Payment Program for Employees (October 11, 2012), available at: http://my.clevelandclinic.org/about-cleveland-clinic/newsroom/releases-videosnewsletters/2012-10-11-cleveland-clinic-adds-walmart-to-bundled-payment-programfor-employees.
3 CMS Fact Sheets, CMS Releases New Proposal to Improve Accountable Care Organizations. Baltimore: 2014, Web. 1 Dec. 2014, 11 Dec. 2014<http:>MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-12-01.html>.</http:>
4 CMS Fact Sheets, Proposed Changes to the Medicare Shared Savings Program Regulations. Baltimore: 2014, Web. 2 Dec. 2014, 11 Dec. 2014 <http:>MediaReleaseDatabase/Fact-sheets/2014-Fact-sheets-items/2014-12-01.html>.</http:>
5 Point of Care Partners, Health Plans and Health Information Technology: Six Areas of Opportunity Under the Affordable Care Act, Web. Dec. 2014, 20 Nov. 2014.
6 Point of Care Partners, Health Plans and Health Information Technology: Six Areas of Opportunity Under the Affordable Care Act.
7 Raths, David, Maryland ACOs Find Data Integrity Key to Progress, Healthcare Informatics, 21 Oct. 2014, Web. 20 Nov. 2014 <http:>maryland-acos-find-data-integrity-key-progress>.</http:>
8 Press Release, Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value (January 2, 2015);available at: http://www.hhs.gov/news/press/2015pres/01/20150126a.html.
9 DMAA, The Care Continuum Alliance, Successful Strategies and Processes for Population Health Improvement, Web.<http:>.</http:>