Accountable Care Organizations and Medicare’s Shared Savings Program

July 1, 2011

(Published in the Healthcare Review, July 2011)

With the Center for Medicare and Medicaid Service’s recent release of the proposed rules for the implementation of § 3022 of the Affordable Care Act relating to the formation, compensation  and governance of Accountable Care Organizations (ACO’s), and the requirement that the Secretary of Health and Human Services establishes guidelines for ACO’s by January 1, 2012, healthcare providers are scurrying to understand precisely what an ACO is, and what they will need to do be eligible for Medicare fee-for-service (FFS) payments. 

As a practical matter, it would be a herculean task to attempt to summarize the 429 pages that comprise the proposed rule.  Therefore, this article will limit its focus to an overview of those particular provisions that relate to the legal organizational requirements for ACO’s.  Given the scope of the proposed rule, its preliminary rather than permanent nature, and what many observers believe will be its profound impact on the delivery of affordable healthcare services as presently existing, there will be ample opportunity for commentary in the future.


In 2010, at the urging of the Obama administration, Congress enacted the Patient and Affordable Care Act (the “Act”), its express intention being “to improve the quality of Medicare services, support innovation and the establishment of new payment models in the program, better align Medicare payments with provider costs, strengthen program integrity within Medicare, and put Medicare on a firmer financial footing.”  One of the Act’s core provisions called for the establishment of the Medicare Shared Savings Program (the “Shared Savings Program”), designed to encourage the creation of ACO’s in accordance with the Secretary’s final guidelines.  The object of the Shared Savings Program is to (1) promote the formation of ACO’s by healthcare providers “that seek to achieve a three-part aim of better care for individuals, better health for populations, and lower growth in expenditures; and (2) to financially incent them to do so by establishing a “shared savings”, model that would reward them for achieving a defined level of quality and financial performance.  As stated in the proposed rules, “`u`nder these provisions, providers can continue to receive traditional Medicare fee-for service (“FFS”) payments under Parts A and B, and be eligible for additional payments based on meeting specified quality and savings requirements.”   In short, if an ACO can save money by achieving certain operational and quality care efficiencies, Medicare will share those savings with the ACO.  


The proposed rules generally define ACO’s as “a legal entity…authorized under applicable State law, as identified by a taxpayer identification number…and comprised of an eligible group of ACO participants that work together to manage and coordinate care for Medicare FFS beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an appropriate proportionate control over the ACO’s decision making process.”  At a high level, the proposed rule permits the following groups of healthcare service providers and suppliers to be participants in an ACO: 

ACO professionals (generally defined as physicians, physician’s assistants, nurse practitioners and clinical nurse specialists) in group practice arrangements;
Networks of individual practices of ACO professionals;
Partnerships of joint ventures between hospitals and ACO professionals;
Hospitals employing ACO professionals; and
Such other groups of providers as the Secretary of HHS deems appropriate.

At a more granular level, CMS struggled with the question of what entities should be eligible to participate in the Shared Savings Program as ACO participants, particularly with respect to Federally Qualified Health Centers (FQHC’s), Rural Health Centers (RHC’s), and Critical Access Hospitals (CAH’s).   For the time being – at least until the final set of rules are promulgated – CMS opted for the broadest range of ACO participants “including safety net providers, post acute care facilities, FQHC’s, RHC’s and CAH’s, which we believe will enable ACO’s to offer more comprehensive care and better serve the needs of rural communities…and greater opportunity for innovation for ACO’s in determining the most effective organizational structure to meet the needs of their respective populations.”
The proposed rules place no specific requirement on what type of legal entity an ACO may be structured as.  It may be a corporation, a limited liability company, a foundation, or any other entity permitted by State law, as previously mentioned.  It does, however, place some considerable emphasis on the issue of Governance, allowing for “appropriate proportionate control for ACO participants, giving each ACO participant a voice in the ACO decision making process.”  It calls for the establishment of a “mechanism for shared governance”, such as a board of directors or board of managers, intended as a means for requiring that ACO’s be operated and managed by entities that provide direct health care to beneficiaries, in contrast to entrepreneurial entities, so that ACO’s remain “provider driven”.  Thus, the proposed rule requires, amongst other things, that ACO participants must have no less than a 75% control of the ACO’s governing body, and that each ACO participant must place a representative on the ACO’s governing body.

Finally, at least for the purposes of this summary examination, the Act provides that ACO’s must enter into no less than a 3-year agreement with the Secretary of HHS in order to participate in the Shared Savings Program, with a once-a-year starting date of January 1.  Each ACO will be required to make application with CMS (by a deadline to be established) and, if accepted into the program, will commence its participation in the program on the calendar year following the acceptance of its application.

One further comment is required, involving potential antitrust issues.  The Department of Justice and the Federal Trade Commission have joined together in the issuance of a proposed Antitrust Policy Statement to establish levels of antitrust scrutiny depending upon the specific nature of an ACO’s structure.  This, along with many other issues, will undoubtedly be the topic for future analysis and discussion once the Secretary of Health and Human Services issues the final rule on January 1 of 2012 and we have all had the opportunity to witness and experience the development of ACO’s thereafter.    

Larry Plavnick is a member of the Corporate Department of the McLane Law Firm. He can be reached at (781)904-2693 or at  The McLane Law Firm is one of New England’s premier full-service law firms with more than 90 attorneys in four offices spread throughout Massachusetts and New Hampshire.