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Accounting for Accountable Care Organizations


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Accountable Care Organizations (ACOs) are organizations of health care providers who provide care to a group of patients. Created in an attempt to decrease the cost of service delivery and increase efficiency, value and profit, these organizations are new territory for the CPA professional. This presentation was given to the Michigan Association of Certified Public Accountants at their Healthcare Conference on April 23, 2013.

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Accounting for Accountable Care Organizations

  1. 1. ACCOUNTING FORACCOUNTABLE CAREORGANIZATIONSMichael H. James, JD - President & CEO, GenesysPHO, LLC, FlintMichael P. James, JD, MBA, CSSGB - SeniorAttorney, Fraser Trebilcock, Detroit & LansingModerator: David S. Nathan, CPA - ExecutiveDirector, Assurance, Ernst & Young, LLP, Detroit
  2. 2. The Patient Protection &Affordable Care Act (ACA) Became law in March 2010. Supreme Court upholds constitutionality of ACAJune 2012. Authorized creation of Medicare Shared SavingsProgram (MSSP).
  3. 3. Medicare SharedSavings Program (MSSP) MSSP designed to improve beneficiary outcomesand increase value of care by promoting: Accountability for patient population; Coordination of care for services; Investment in infrastructure; and Redesign of care processes.
  4. 4. What are ACOs? ACOs are the vehicles through whichproviders/suppliers participate in the MSSP. A legal entity designed to manage and coordinate carefor Medicare fee-for-service beneficiaries under theMSSP.
  5. 5. Fundamental Principles of ACOsImproveCare forBeneficiariesEnhance Healthin itsPopulationReduceGrowth ofBeneficiaryExpendituresWhat are ACOs?
  6. 6. ACO Providers Providers: Hospital; Critical Access Hospital ("CAH"); Skilled Nursing Facility; Comprehensive Outpatient Rehabilitation Facility("CORF"); Home Health Agency; Hospice participating in Medicare; Clinic; Rehabilitation Agency; Public Health Agency (limited); or Community Mental Health Center (limited).
  7. 7. ACO Suppliers and Professionals Suppliers: Physician or other practitioner, or an entity other than aprovider, that furnishes health care services underMedicare. ACO Professionals: An ACO provider/supplier who is either: 1) a physician; or 2) a practitioner (a physician assistant, a nursepractitioner, or a clinical nurse specialist).
  8. 8. ACO Participants ACOs are a collaboration ofParticipants, Providers, Suppliers and Professionals. Participants: Individual or group of ACOproviders/suppliers that alone or together with oneor more other ACO Participants comprises an ACO.
  9. 9. ACO Formation and Participation There is a distinction between individuals andentities that are permitted to form an ACO and thosethat are merely allowed to participate in an ACOthat has already been created.
  10. 10. There are seven groups of ACO Participants eligible to form anACO: ACO professionals in group practice arrangements; Networks of individual practices of ACO professionals; Partnerships or joint venture arrangements between hospitalsand ACO professionals; Hospitals employing ACO professionals; CAHs that bill under Method II; Rural Health Clinics ("RHC"); and Federally Qualified Health Centers ("FQHC").Who Can Form an ACO?
  11. 11. Other Medicare-enrolled Providers and Suppliers are eligible toparticipate in an ACO:Who Can Participate in an ACO?• Skilled NursingFacilities• Pharmacies• CORFs• Home HealthAgencies• Nursing Homes• Medicare-EnrolledHospices• Outpatient Clinics(limited)• Rehabilitation Agenciesor Public HealthAgencies• Long-Term CareHospitals• Community MentalHealth Centers (limited)
  12. 12. ACO Legal Structures The Structure of an ACO must allow for: Receipt and distribution of MSSP payments toparticipating providers and suppliers; Repayment of shared losses to CMS; Mechanisms for compliance with quality care andperformance standards; and Fulfillment of the governance, leadership andmanagement and patient-centeredness criteria of theMSSP.
  13. 13. ACO Legal Structures The ACO must be a legal entity formed underapplicable State, Federal or Tribal Law. Partnership; Corporation; Limited Liability Company; Foundation; or Other Legal Entity.
  14. 14. ACO Legal Structures Do you form a new entity or can you use an existingentity for your ACO?
  15. 15. Types of ACOsIntegrated Delivery System Model ACOCMSHealth System ACOHospital PhysiciansSkilledNursingFacilityEtc.
  16. 16. Types of ACOsPHO Model ACOPHOACOHospitalIndependentPracticeAssn.CMS
  17. 17. Types of ACOsIndependent Practice Association Model ACOIPAACOCMSPhysicianPhysicianPhysicianPhysician
  18. 18. Types of ACOsGroup Practice Model ACOGroupPracticeACOCMSSpecialistsHospital
  19. 19. ACO Governance and Governing Body An ACO must establish a mechanism for sharedgovernance. An ACO must maintain an identifiable governingbody with appropriate authority. ACO Participants must have meaningfulparticipation in both the composition and control ofthe ACOs governing body.
  20. 20. ACO Governance and Governing Body ACOs are designed to be provider-ledorganizations. At least 75% of the control of the ACOs governingbody must be held by ACO participants.
  21. 21. ACO Governance and Governing Body The ACO governing body must include at least oneMedicare beneficiary representative. Goal: Ensure that patients interests are properlyrepresented as the ACO seeks to improve care forbeneficiaries and enhance health in the population. The governing body of a Pioneer ACOs must alsoinclude a Consumer Advocate.
  22. 22. ACO Governance and Governing Body The type of governing body used by an ACO willhave will depend on its corporate structure. Corporation – Board of Directors Limited Liability Company – Board of Managers Foundation – Board of Trustees
  23. 23. Legal Risks to ACOs Fiduciary Duties and Ethical Conflicts Corporate Practice of Medicine Stark Laws, Anti-Kickback Statute and CivilMonetary Penalties
  24. 24. ACO Operations: Leadership / Management An ACOs leadership and management structure isdesigned to be a dual system: Administrative; and Clinical.
  25. 25. ImproveCare forBeneficiariesEnhance Healthin itsPopulationReduceGrowth ofBeneficiaryExpendituresAdministrative v. Clinical Operations
  26. 26. ACO Operations: Clinical Systems Clinical management and oversight of the ACOmust be managed by a senior-level medical directorwho is a physician and one of the ACOsproviders/suppliers. Board-certified physician; Licensed in a State in which the ACO operates; and Physically present on a regular basis at a locationparticipating in the ACO.
  27. 27. ACO Operations: Administrative Systems The appointment and removal of the ACOsoperational leader must be under the control of theACOs governing body. An ACOs operations must be managed by anexecutive, officer, manager, general partner, orsimilar party. Must have the ability to influence or direct clinicalpractice to improve efficiency processes andoutcomes.
  28. 28. Required Processes &Patient-Centered Criteria An ACO must promote: evidence-based medicine; patient and caregiver engagement; reporting on quality and cost measures; and coordinating care. An ACO must also have a patient-centric focus thatis promoted by the governing body and integratedinto practice by leadership and management.
  29. 29.  CMS prefers that an ACO have a certain number ofassigned Medicare beneficiaries to participate in theMSSP: ACO – 5,000 beneficiaries; and Pioneer ACO – 15,000 beneficiaries.ACO Membership
  30. 30.  During the application process, CMS evaluates thenumber of beneficiaries historically assigned to theapplicable ACO participants during each of thethree years preceding the proposed effective date ofthe ACO contract. A beneficiary is assigned to an ACO based on thatbeneficiary’s utilization of primary care services byan ACO physician during an MSSP cycle.ACO Membership
  31. 31. ACO Membership5% of Members= 45% of costs15% of Members= 35% of costs80% of Members= 20% of costs
  32. 32. Physician Networks Need to have enough ACO Professionals so thatmost health care services can be provided throughthe network.
  33. 33. Utilization Management Predictive Modeling for Last 2 Years of Life: Medical homes Home Calls Care Plans Navigators ER / Hospital Hospice Multiple Chronic Diseases: Medical home Care Plans Team Care Navigator ER / Hospital
  34. 34. Utilization Management Chronic Disease: Medical Home Care Plans Team Care ER / Hospital All Others: Medical Contact & Education Care Plans ER / Hospital
  35. 35. Payment Evolution Insurance License. Claims Processing. Alignment of Fee Structures. Incentive to Move from Volume to Value. Quality Monitoring Systems.
  36. 36. Risk SharingCulture of RestructuringMorePatients inSystemReduceCapacity ofSystem
  37. 37. Fraser Trebilcock Davis & Dunlap, P.C.124 W. Allegan Street, Suite 1000Lansing, Michigan 48933www.fraserlawfirm.comPhone: (517) 482-5800Fax: (517) 482-0887Fraser Trebilcock Davis & Dunlap, P.C.One Woodward Avenue, Suite 1550Detroit, Michigan 48226www.fraserlawfirm.comPhone: (313) 237-7300Fax: (313) 961-1651Michael P. James, J.D., M.B.A., CSSGBPhone: (517) 377-0823(313) 965-9038Email: