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HEALTH CARE/FOOD/MEDICAL DEVICES ACOs Continue to Expand in Both Public and Private Heath Care Arenas 2015 marks the third anniversary of the U.S. Medicare Shared Saving Program (MSSP), a large-scale alternative Medicare payment model under the Affordable Care Act encouraging the formation of Accountable Care Organizations (ACOs). This initiative is intended to achieve three aims—reducing health care costs, improving patient satisfaction, and improving health care outcomes. an additional 89 ACOs have enrolled for 2015, meaning that there will be 424 Medicare ACOs in total in 2015, serving over 7.8 million beneficiaries. ACOs are organizations made up of health care providers and suppliers that coordinate to develop and participate in initiatives designed to improve care for health populations while reducing the growth of health care costs. Under the MSSP, the Centers for Medicare and Medicaid Services (CMS) provide incentives, in the form of shared savings payments, to participating ACOs that are able to reduce health care costs below anticipated spending levels while maintaining quality thresholds. However, the program’s long-term viability may depend on providers’ confidence that they can be successful in obtaining continuous cost savings while also meeting program requirements. ACOs must achieve savings measured against cost benchmarks established based on historical spending by Medicare on beneficiaries allocated to the ACO. In addition, ACOs must meet quality standards on 33 different measures established by CMS. Initial results recently released by CMS present a mixed conclusion on the success of ACOs in actually achieving savings and quality outcomes. Over the past three years, significant interest has grown in these new models of care, both to government payors and private payors. Each of these two categories of ACO—public and private— has presented its own set of practical and regulatory challenges. On the Medicare side, a number of stakeholders have raised concerns whether the program is sustainable over the long term, as ACOs are transitioned to downside risk models and must continuously find new cost savings opportunities. On the private side, provider-payer creativity in developing new models of patient care may be outpacing federal guidance on fraud and abuse, antitrust, and other laws that were not designed with these types of payment models in mind. MEDICARE ACOS—SUBSTANTIAL INTEREST, MIXED INITIAL RESULTS Growth in the Medicare ACO program has been strong. CMS reported enrollment of 114 ACOs in 2012, 106 additional ACOs in 2013, and 123 new ACOs in 2014. CMS recently announced that 76 Forty-nine of 220 providers obtained cost savings exceeding minimum requirements in the first year, earning $315 million in shared savings payments. However, more than 100 ACOs had increased costs, above their benchmark, in the first year, including one of four ACOs participating in the “Track 2” downside risk ACO model. This particular ACO was required to repay $3.96 million to CMS due to its increased costs. CMS also released initial quality scores. While quality scores did not affect savings payments in the first year, in future years falling below quality thresholds will reduce an ACO’s savings payments. If these quality scores had been taken into account in the first year, the data shows that every ACO would have had its savings payment reduced by some amount, some substantially. These mixed results call into question the ability of many providers to transition to risk-bearing models in the near term. Under the current rules, an ACO may only participate in the upside-only track during its first three-year agreement term with CMS. If an ACO wishes to renew its agreement at the end of its term, it must transition to a downside risk track. Unless ACOs can show significant improvement under the cost-performance and quality measures, it seems likely that many providers will choose to exit the program at the end of their initial agreement period rather than risk significant losses. ADDITIONAL CONCERNS ABOUT UPDATES TO MEDICARE ACO BENCHMARKS Even among ACOs that obtained cost savings, it is not clear whether an ACO will be able to capture cost savings on a long-term basis. Under the current rules, if a provider introduces successful initiatives that result in cost savings to the government, that provider is at risk of losing its share of those savings in subsequent years once its cost-benchmark is updated. Each agreement period, CMS reviews the ACO’s performance over the prior three years to set a new benchmark. Accordingly, an ACO’s prior savings will be counted against it in future periods, requiring the ACO to find new, additional savings to continue to earn incentives. This concern is acute as an ACO transitions from an upside-only to a risk-bearing model. If an ACO is too successful, too quickly, early savings will lower the Medicare spending target just as the provider begins taking on downside risk and will liable for increases in Medicare costs. Thus, early savings paid by CMS to the ACO would simply be returned as future losses. SOLUTIONS IN PROPOSED RULE UPDATES TO THE ACO PROGRAM? Partially in response to these concerns, CMS issued a proposed rule on 1 December 2014, related to potential K&L Gates Global Government Solutions ® 2015 Annual Outlook