Contracts should spell out everyone's role in an ACO

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted May 9, 2011.

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Though accounting for only seven pages of the Obama administration's 900-plus-page health system reform law, accountable care organizations are generating quite the buzz in the health care community.

Many believe ACOs are a win-win for physicians, hospitals, payers and patients alike. Patients are provided evidence-based, coordinated medical care, which reduces reimbursements sought from payers and unnecessary tests and procedures, thus keeping costs down. In turn, payers will provide physicians a portion of the shared savings resulting from evidence-based, coordinated patient care.

ACOs are given great flexibility as to who may participate, but they should include, at a minimum, primary care physicians and specialists. Typically, an ACO includes at least one hospital, although hospital participation is not required.

The Centers for Medicare & Medicaid Services on March 31 released draft rules on ACOs, and comment is being accepted on them through June 6. Also on March 31, the Federal Trade Commission and the Justice Dept. issued a joint statement on how hospitals and physicians can collaborate on ACOs without violating antitrust laws.

The Patient Protection and Affordable Care Act introduced a pilot Medicare shared savings program for ACOs, scheduled to commence in January 2012. Though the pilot program is for Medicare participants and beneficiaries, ACOs are not intended to be just for Medicare. One of the goals for the health reform law's ACO model is to display the functionality and benefits of an ACO structure, thereby inspiring other public and private payers to encourage participation in ACO structures.

Though the health reform law requires ACOs to satisfy certain statutory requirements, ACOs are given flexibility in several areas to promote longevity and success. For example, an ACO must have a formal legal structure that can receive and distribute the shared savings to its members.

However, ACOs are given great discretion in the types of organizations they can be. An ACO can be the result of merging medical practices or the byproduct of individuals collaborating as a single entity. The flexibility inherent in the ACO model provides physicians with options that suit their professional, economic and tax-planning needs. Thus, the ACO should have a well-defined business plan and determine the material relationships, both internal and external, that will compose the ACO.

All the ACO's internal and external relationships should be documented with a contract. Internally, there are a multitude of relationships within the ACO that should be clarified in writing.

First, the ACO should have agreements with its members (such as physicians and hospitals) that detail the clinical, administrative and financial aspects of the relationship.

Second, the ACO's members should have agreements governing the relationships among themselves that detail their expectations and responsibilities.

Under the health reform law, ACOs are required to have a leadership and management structure that includes clinical and administrative systems. Though the law does not dictate how the leadership and management should be structured, a successful ACO will have a governing board.

The board will serve as the collective voice of the ACO, but it should be restricted to the terms of a governing agreement. At a minimum, the agreement should outline what the board can and cannot do, voting requirements for specific actions, who can serve, how and when the governing board will meet, and the involvement of subcommittees, if any. The governing board should be well-diversified and composed of the various members of the ACO: individual physicians from medical specialties, physicians in group practices, hospitals and joint ventures between physicians and hospitals.

The key external relationship an ACO will have is with payers, whether it be Medicare, other public payers and/or private payers. The payers undoubtedly will require the ACO, and probably the individual physicians, to sign participation agreements. Typically, payers do not deviate from their standard contract language, but there is occasionally room to negotiate, depending on the payers' interest in the ACO and its individual members.

Regardless of whether the relationship is internal or external, contracts governing the relationship should be flexible enough to allow the ACO to evolve with changes in federal and state laws and regulations.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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