1. 1 American College of Health Care Administrators Accountable Care Organizations June 23, 2011 Rochelle H. Zapol rzapol@beharkalman.com Behar & Kalman, LLP 6 Beacon Street, Suite 312 Boston, MA 02108 Tel.: (617) 227-7660 Fax: (617) 227-4208 Copyright © 2011 by Behar & Kalman, LLP. ALL RIGHTS RESERVED. No part of this document may be reproduced in any form without prior written permission from Behar & Kalman, LLP.

2. 2 Statutory Authority for Proposed Federal Regulations on Accountable Care Organizations (ACOs) The statutory authority for ACOs is derived from Section 3022 of the Patient Protection and Affordable Care Act of 2010 (“PPACA”) which established a Medicare Shared Savings Program to: promote accountability for a patient population coordinate items and services for Medicare Part A and Medicare Part B encourage investment in infrastructures and redesigned care processes to provide high quality and efficient services The Medicare Shared Savings Program is required to be established by January 1, 2012 Behar & Kalman, LLP

3. 3 Proposed Federal Regulations on ACOs Centers for Medicare and Medicaid Services (CMS) issued proposed regulations on ACOs at 76 Fed. Reg. 19528 et seq. (April 7, 2011) CMS and the Office of the Inspector General (OIG) jointly issued proposed regulations at 76 Fed. Reg. 19655 et seq. (April 7, 2011) Federal Trade Commission (FTC) issued a proposed statement on Antitrust Enforcement on April 7, 2011 at 76 Fed. Reg. 21894 et seq. (April 19, 2011) Internal Revenue Service issued a notice and request for comments related to tax exempt organizations Comment period on the proposed regulations ended on June 6, 2011 Comment period on the proposed statement ended on May 31, 2011 Behar & Kalman, LLP

4. 4 ACO Coverage Proposed federal regulations on ACOs apply to services provided to Medicare beneficiaries only Services provided to Medicaid recipients and private pay patients are excluded Medicare beneficiaries enrolled in Medicare Advantage Plans are also excluded Behar & Kalman, LLP

5. 5 Purpose of ACOs Purpose of ACOs is to create incentives for providers to collaborate to treat patients across health care settings Payment will be made on a fee for service basis Health care providers and suppliers including skilled nursing facilities (SNFs) will be able to participate in shared savings under the Medicare Shared Savings Program CMS’ median estimate of the financial impact of the Medicare Shared Savings Program for calendar years 2012 through 2014 is a net savings of $510 million PricewaterhouseCoopers’ analysis: CMS’ savings estimates are off due to high start-up costs What about cost of implementing electronic records for providers which are not entitled to incentive payments? Behar & Kalman, LLP

6. 6 Eligibility Criteria for Forming ACOs Under PPACA, ACOs may be formed by: ACO professionals (physicians and practitioners) in group practice arrangements Networks of individual practices of ACO professionals Partnerships or joint venture arrangements between acute care hospitals and ACO professionals Acute care hospitals employing ACO professionals CMS roughly estimates that the total average start-up investment and the first year of operating expenses for an entity forming an ACO to participate in the Medicare Shared Savings Program would be approximately $1.7 million Behar & Kalman, LLP

7. 7 Participation in ACOs SNFs, long-term care hospitals, and federally qualified health centers may not form ACOs, but may participate in established ACOs Participation in ACOs is voluntary Behar & Kalman, LLP

8. 8 Legal and Governing Structure of ACOs ACOs are required to have a formal legal structure that allows them to receive and distribute shared savings to participating providers and suppliers ACOs are required to have authority to conduct business under State law Hospitals that employ ACO professionals would be allowed to participate in the Medicare Shared Savings Program under their current legal structure Behar & Kalman, LLP

9. 9 Shared Governance Proposed rule provides for “a mechanism of shared governance that provides all ACO participants with an appropriate proportionate control over the ACO’s decision making process” The governing body, e.g., a board of directors or a board of managers, is required to include representatives from ACO providers and suppliers as well as Medicare beneficiaries ACO participants are required to control at least 75% of the governing body SNFs which participate in ACOs will have the opportunity to share in the governance Behar & Kalman, LLP

10. 10 Beneficiary Assignment to ACOs Beneficiaries are assigned to an ACO based on primary care services rendered by physicians in general practice, internal medicine, and geriatric medicine Under PPACA, an ACO is required to have at least 5,000 beneficiaries assigned to it to qualify to participate in shared savings Assignment is made on a retrospective basis Beneficiaries do not enroll in a specific ACO and ACOs do not know which beneficiaries are assigned to it until the end of the year Two reasons CMS proposed retrospective assignment of beneficiaries: “… the ACO should be evaluated on the quality and cost of care furnished to those beneficiaries who actually chose to receive care from ACO participants during the course of the performance year.” “… to encourage the ACO to redesign its care processes for all Medicare FFS [Fee for Service] beneficiaries, not just for the subset of beneficiaries for whom the ACO is being evaluated.” Behar & Kalman, LLP

11. 11 Medicare Beneficiaries’ Freedom of Choice The assignment of a patient to an ACO in no way restricts a Medicare FFS patient’s freedom of choice in selecting physicians and other health care providers and suppliers from whom he/she wishes to receive services Behar & Kalman, LLP

12. 12 Notice to Medicare Beneficiaries ACO is required to provide written notice to Medicare beneficiaries that: (1) ACO providers/suppliers are participating in an ACO; (2) ACO may request claims data on the beneficiary; (3) the beneficiary may “opt-in” or “opt-out” to sharing his/her claims data information; (4) ACO is no longer participating in the Shared Savings Program if it is terminated from or terminates its Agreement to participate; (5) All beneficiary communications and materials used by ACO or its providers/suppliers to communicate about the ACO require prior CMS approval. It is up to the beneficiary to elect to receive services from the provider/supplier or another provider/supplier that is not part of the ACO. Behar & Kalman, LLP

13. 13 Payment Model – Shared Savings CMS will develop a performance benchmark for ACOs to assess whether they qualify for shared savings ACOs will receive a share of any savings if the actual per capita expenditures of their assigned Medicare beneficiaries are below the benchmark ACOs will select either: A one-sided risk payment model (sharing of savings only for the first two years, and sharing of savings and losses in the third year); or A two-sided risk payment model (sharing of savings and losses for all three years) CMS has no authority to specify how shared savings will be distributed by ACOs Behar & Kalman, LLP

14. 14 Payment Model – Shared Losses Proposed methodology for determining shared losses is based on the ACO’s quality performance score Proposed shared loss cap of 5% of the benchmark in the first year, 7.5% in the second year, and 10% in the third year Behar & Kalman, LLP

15. 15 Quality Measures and Performance Thresholds 65 quality measures are proposed for the first year (January 1, 2012 through December 31, 2012) in the following 5 areas: (1) Patient/Caregiver Experience of Care (2) Care Coordination (3) Patient Safety (4) Preventative Health (5) At-Risk Population/Frail Elderly Health ACOs which do not meet quality performance thresholds for all proposed measures would be ineligible for shared savings Behar & Kalman, LLP

16. 16 ACOs Contract with the Department of Health and Human Services ACOs would enter into agreements with the Department of Health and Human Services for a period of not less than 3 years Behar & Kalman, LLP

17. 17 Fraud and Abuse Waivers CMS and the OIG have jointly proposed waivers of the following fraud and abuse laws: Stark self referral regulations which prohibits physicians from making referrals for Medicare “designated health services” Anti-kickback statute which imposes criminal penalties for inducing or rewarding referrals of business reimbursable under any federal health care program Civil monetary penalties which prohibit hospital payments to physicians to reduce or limit services to Medicare/Medicaid beneficiaries under their care Behar & Kalman, LLP

18. 18 Commonwealth of Massachusetts Proposed Legislation on ACOs Introduced by the Governor on February 17, 2011 Purpose is to improve quality of health care and control costs Establishes integrated care organizations, i.e., ACOs, comprised of integrated or connected groups of health care providers to achieve improved health outcomes and lower health care costs A “health care provider” is defined to include “a provider of medical or health services and any other person or organization, including an ACO, that furnishes, bills, or is paid for health care service delivery within the normal course of business.” Nursing homes are included within the definition of health care provider ACOs cover all public, e.g., Medicare and Medicaid, and private payors Behar & Kalman, LLP

19. 19 Participation in ACOs Primary care clinicians such as physicians are allowed to participate in only one ACO, except if the Division of Health Care Finance and Policy (DHCFP) provides otherwise Other clinicians and health care providers are allowed to participate in more than one ACO Behar & Kalman, LLP

20. 20 Alternative Payment Methodologies Goal is to establish alternative payment methodologies to fee for service payments for all health insurers such as: Global payments with limits on financial risks, partial global payments, and gainsharing with pay for performance Practice expense capitation with gainsharing, care management payments Bundled payments, episode-based payments, pay for performance Shared savings Payors may include additional payments for services provided in addition to integrated services such as: home health chronic/rehabilitation services Behar & Kalman, LLP

21. 21 Role of the Division of Health Care Finance and Policy The DHCFP is charged with monitoring health care expenditures across the Commonwealth and issuing regulations to: Establish benchmarks for expanding the use of alternative payment methods Reduce fee for service methods Lower annual increases in total medical expenditures Complete above 3 tasks by the end of 2015 Behar & Kalman, LLP

22. 22 Role of the Division of Health Care Finance and Policy, cont. Establish standards for alternative payment methods to be used in contracts between payors and ACOs and other providers Establish requirements for disclosure to the DHCFP of ACO costs and payments made to ACOs by payors Require payors to submit documentation to the DHCFP annually to demonstrate rates of payment under contracts with providers and ACOs expect to result in spending within the relative cost containment benchmarks and growth rates established by the DHCFP Monitor ACO provider and payor compliance with regulations governing ACOs, achievement of benchmarks, and cost growth trends Hold hearings to determine appropriate cost growth and other benchmarks Waive requirements to allow/support demonstration or pilot programs for monitoring savings or improvements in delivery and quality of care Behar & Kalman, LLP

23. 23 Basic Requirements for ACOs ACOs are required to: Operate as a single integrated organization that accepts shared responsibility for the cost and quality of care provided to a specific population of patients cared for by the groups’ clinicians Operate consistently with principles of a patient- centered medical home and other requirements of State legislation on ACOs Have a formal legal structure to receive and distribute savings Comply with federal requirements related to ACOs Behar & Kalman, LLP

24. 24 Functional Requirements for ACOs At a minimum, ACOs are required to have or provide through contractual arrangements: Clinical service coordination, management, and delivery functions Population management functions, including Health Information Technology (HIT) Financial management capabilities Contract management capabilities Quality measures to report on performance There is a performance penalty if ACO fails to achieve certain quality measures Patient and provider communication functions Ability to provide behavioral health services within ACO or by contractual arrangements Behar & Kalman, LLP

25. 25 Patient Protections ACOs are required to ensure access by disabled individuals and other individuals with chronic or complex medical conditions to appropriate specialty care ACOs are required to accept all patients regardless of payor or clinical profile The Office of Patient Protection is directed to establish regulations relating to consumer appeals of ACO determinations The DHCFP is required to: Safeguard against underutilization of services and inappropriate denials of services or treatment Safeguard against, and impose penalties for, inappropriate selection of low cost patients and avoidance of high cost patients by ACOs and ACO network providers Behar & Kalman, LLP

26. 26 Federal Waivers The Executive Office of Health and Human Services is charged with obtaining any federal waivers needed to allow Medicare to participate in the Commonwealth’s alternative payment methods By August 6, 2011 federal waivers must be requested for: safe harbors or the expansion of safe harbors to permit risk sharing agreements Stark self referral regulations which prohibits physicians from making referrals for Medicare “designated health services” Behar & Kalman, LLP

27. 27 Potential Issues for SNFs/NFs Waivers Waivers of certain federal and state requirements applicable to SNFs/NFs that go beyond those in the federal and state ACO initiatives would be needed such as: the Medicare requirement set forth in 42 U.S.C. §1395x(i) that an admission to a SNF be preceded by a 3-day hospital stay (or at the very least, a waiver of the requirement that observation days be omitted when counting the 3-day hospital stay) Allows SNFs/NFs more flexibility in admitting residents who would benefit from their programs of care Behar & Kalman, LLP

28. 28 The Attorney General’s requirement set forth in 940 CMR 4.09(4) which limits the ability of a licensed nursing home to transfer a resident to different living quarters, contrary to the resident’s wishes, except to meet the resident’s health care needs which otherwise could not be met Allows SNFs/NFs more flexibility to admit residents to specialized units

29. 29 Potential Issues for SNFs/NFs Electronic Health Records To achieve efficiencies and improve quality of care, it will be essential for ACOs to collect data and integrate data, including data from electronic sources, and to use electronic prescribing The quality measures that ACOs are required to report on are aligned to those in other CMS programs such as the Electronic Health Records and the Physician Quality Reporting System Under the HITECH provisions of the American Recovery and Reinvestment Act of 2009, acute care hospitals, critical access hospitals, and physicians are the only provider types eligible to receive Medicare incentive payments for implementing electronic health records SNFs/NFs also should be eligible to receive Medicare incentive payments for implementing electronic health records to facilitate their participation in ACOs – Is it feasible for SNFs/NFs to participate without incentive payments Behar & Kalman, LLP

30. 30 Potential Issues for SNFs/NFs In Contracting with ACOs What areas of expertise of SNF/NFs will result in cost savings Treatment of short-term rehabilitation patients Treatment of respiratory patients SNFs’/NFs’ competitors in market: Inpatient Rehabilitation Facilities Long-term Care Hospitals Outpatient Clinics Home Health Agencies Medical Homes What can a SNF/NF do better than its competitors? Behar & Kalman, LLP

31. 31 Potential Issues for SNFs/NFs Shared Losses Even if a SNF/NF participating in an ACO is below the benchmark, whether it will be able to share in savings will depend on how other health care providers in the ACO perform Behar & Kalman, LLP

32. 32 What are the SNF’s/NF’s primary hospital referral sources doing about ACOs? Has the SNF/NF met with its referral sources on ACO issues? Is a stand-alone SNF/NF at a disadvantage when it comes to participating in an ACO? Where will volume/admissions come from if a SNF/NF is not participating in an ACO? Will an ACO require a participating SNF/NF to share losses? Any limits on shared losses?