Top Five Governance Issues to Consider When Forming an ACO

Among the many issues for consideration when forming an Accountable Care Organization are those related to legal structure and governance.  Here are the top five things to consider in forming an ACO.

1.  LEGAL STRUCTURE

What form of legal entity should the ACO take?  Should it be for-profit or not-for-profit?  Should it be formed as a corporation, partnership, limited liability company, foundation, or some other hybrid form?

CMS’s Final Rule on ACOs permits any type of legal entity recognized in the state where an ACO is organized and requires the entity to have its own Taxpayer Identification number (TIN), which CMS uses to process payments.

2.  ELIGIBLE ACO PARTICIPANTS

Who can participate in the ACO?  Under the Final Rule, group practice arrangements, networks of individual practices of ACO professionals, partnerships or joint venture arrangements between hospitals and ACO professionals, hospitals employing ACO professionals, or “other combinations that the Secretary determines appropriate” are eligible to form an ACO.  The Rule defines an “ACO professional” as a physician, physician assistant, nurse practitioner or clinical nurse specialist.  In an important change from the original draft, the Final Rule permits certain critical access hospitals, rural health centers (RHCs), and federally qualified health centers (FQHCs) to participate.  This expansion in the Final Rule was designed to bring the benefits of the ACO model to rural America.  An ACO formed among two or more otherwise independent ACO participants (e.g. between a hospital and two physicians’ group practices) must form a separate legal entity.

Regardless of type of entity the Final Rule requires that each ACO participant “demonstrate a meaningful commitment…to the ACO’s mission to ensure its likely success.’’  This commitment may be expressed through a financial contribution, human investment (e.g. serving on the ACO governing board or committees), and/or demonstrating a willingness to be accountable for the ACO’s performance in some other meaningful manner.  In short, CMS wants to ensure that all participants invested in the ACO’s successful performance.

3.  GOVERNING BOARD

Regardless of the type of entity selected, an ACO must have a Board that oversees the ACO’s activities.  At least 75% of the board members must be elected by the ACO participants, and at least one board member must be a Medicare beneficiary.

The Final Rule states that the governing board “shall provide oversight and strategic direction, holding management accountable for meeting the goals of the ACO.”  The Board is responsible for defining processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care.   Governance must occur through a transparent process.

4.  OPERATIONAL MANAGEMENT

While the governing board is responsible for the overall performance of an ACO, the ACO must have a good management structure in place to run the daily operations.  CMS requires each ACO to have an executive officer who is accountable to the governing board and can be removed by the board.  One of the most important functions of the executive officer is to direct the overall clinical practice within the ACO to demonstrably improve outcomes.  In addition to the chief executive officer, each ACO must have a Medical Director and a Compliance Officer.

5.  COMPLIANCE

CMS’s Final Rule calls for the ACO to adopt a written compliance plan to establish how it will ensure compliance with relevant legal and regulatory requirements.  The plan should provide for:

·         A designated Compliance Officer who reports directly to the governing board and who is not legal counsel for the ACO;

·         Processes to identify and address compliance issues;

·         Methods for employees and contractors to report potential problems;

·         Compliance training program;

·         Reporting of any criminal acts to appropriate authorities; and,

·         Updating the compliance plan to reflect changes in legal requirements.

DUE DILIGENCE QUESTIONS:  When considering whether to participate in any ACO, the prudent health care provider must ask the right questions.  The following questions are examples of due diligence in the area of governance issues.   These questions are for illustrative purposes only; we recommend seeking professional counsel for assistance.

Will I be a member or independent contractor?

·         If a member, what are my rights and responsibilities?

·         Has a formal written document been prepared establishing the AC), and if so, may I have a copy?

·         Has a professional business plan for the ACO been prepared, and if so, may I have a copy?

·         Am I required to make a financial contribution?  If so, how much and when?

·         Am I liable for any of the ACO’s financial losses?

·         Has a financial pro-forma for the ACO been prepared?  If so, who prepared it, and may I have a copy?

·         If an independent contractor, may I have a copy of the contract or a term sheet from which the contract will be drafted?

Will the ACO be a taxable or non-taxable entity?

·         May I review the organizational documents?

·         If not-for-profit, has the entity been incorporated and qualified with the IRS?

·         If the entity has not yet received IRS approval as a not-for-profit, what is the timetable for obtaining approval?

·         If for profit, what type of entity has been formed?

·         Can you provide written assurance that the entity meets all the legal requirements for such an entity in the state where it was formed?

·         Was any type of Offering Memorandum provided to participant investors in accordance with applicable federal or state laws, and if so, may I have a copy?

·         How will profits and losses be shared?

Who will participate in the decision-making process?

·         How will membership on the ACO governing board be determined?

·         Will the entity purchase directors and officers insurance coverage?

·         Will there be a advisory boards or committees?

Will patients be represented in the ACO?

·         How many Medicare beneficiaries will be on the ACO governing board?

·         How will they be selected?

·         What type of training will they receive? 

Will the ACO have its own compliance program?

·         Will my organization need to maintain our existing compliance program?

·         Has the ACO compliance program been drafted, and if so, may I have a copy?

·         Has the compliance Officer been selected, and if so, does that individual have prior experience administering a compliance program?

·         Who will the Compliance Officer report to?

·         In addition to fraud & abuse, what other issues will the compliance program address?

·         Will compliance training be provided?  If so, to whom and when?

Will an ACO combination comply with current antitrust laws?

·         Has an antitrust waiver been sought?  If so, what result?

·         Has a legal opinion about the antitrust implications been received?  If so, may I have a copy ? 

Carson Porter is the Chairman of Accountable Care Law & Policy, and a Partner at Rimon, P.C.