New York State Bill Promoting the Formation of Accountable Care Organizations Awaits Governor’s Signature

July 31, 2012 | Corporate | Health Services

On June 22, 2012, the New York State legislature passed A8869-B Gottfried / S6228-B Hannon, an Act to Amend the Public Health Law, in Relation to Accountable Care Organizations.  The bill now only needs the signature of Governor Andrew Cuomo before becoming law.

The bill seeks to promote the formation of accountable care organizations (ACOs) in our State.  ACOs are an important part of efforts underway in the federal, state, and private sectors to promote different models and approaches for providing comprehensive, coordinated, and cost effective healthcare.  An ACO is a new type of healthcare organization comprised of a collection of healthcare providers from across the continuum of care that coordinate their healthcare services to improve the health outcomes and reduce costs of care for defined patient populations.  ACOs were a key part of the federal Affordable Care Act, which provided for the Centers for Medicare and Medicaid Services to establish an ACO program under Medicare known as the Medicare Shared Savings Program and included several other measures to promote the formation of ACOs in every medical community across the United States.  In 2011, New York State enacted legislation supporting the development of ACOs as part of its efforts to implement reforms recommended by the Medicaid Redesign Team (MRT) for improving the Medicaid program and New York’s health care delivery system.  New York State was one of sixteen states which enacted laws promoting the formation of ACOs within their states.  Moreover, significant efforts are underway among commercial payors in New York State and throughout the United States to promote the formation of ACOs in the private sector.

By promoting the formation of ACOs in our State, this bill seeks to reduce healthcare costs, promote effective allocation of healthcare resources, and enhance the quality and accessibility of healthcare in our State.  Moreover, ACOs have the potential to serve as the necessary linchpin for complementary reforms included as part of ongoing efforts to improve the Medicaid program and New York’s health care delivery system, including the development of electronic health records and health information exchange, patient-centered medical homes, health homes, and dual eligible initiatives.

The bill amends Public Health Law Article 29-E, which was enacted in March 2011 (the “2011 NYS ACO Law”).  The 2011 NYS ACO Law provided for the establishment of a demonstration program to test the ability of ACOs to improve the quality and cost-effectiveness of healthcare services.  It authorized the Department of Health (DOH) to issue certificates recognizing qualified organizations as ACOs under the demonstration program.  Among other things, it also required DOH to establish legal “safe harbors” under New York State laws and regulations, including anti-trust laws, insurance laws, and other laws, for organizations certified as ACOs by DOH.  It also authorized third party payers and certified ACOs to participate in novel ACO payment methodologies.

When the 2011 NYS ACO Law was enacted, the federal regulations establishing the Medicare Shared Savings Program had not yet been issued, and there was uncertainty as to what such regulations would provide.  As a result, the 2011 NYS ACO Law was vague regarding the legal structure and other requirements of ACOs and limited the scope of the program.  It ascribed to the ACO program a “demonstration” designation.  It limited participation in the ACO demonstration program to only 7 ACOs.  It also prohibited DOH from issuing any new ACO certificates after December 31, 2015.

In November 2011, approximately six months after the 2011 NYS ACO Law was enacted, the final regulations for the Medicare Shared Savings Program were issued.  Moreover, since then over 150 entities have been approved as ACOs under the Medicare Shared Savings Program and the Medicare Pioneer ACO Program.  16 of these ACOs are located in New York State.  An additional 400 entities have submitted applications to participate in the Medicare Shared Savings Program starting January 2013, including entities located in New York State.

The bill seeks to amend the 2011 NYS ACO Law for the following purposes:

(i)         The bill aligns the 2011 NYS ACO Law with the federal Medicare ACO regulations.  The bill provides for a more complete legal structure for ACOs that is consistent with the legal structure provided for ACOs in the federal Medicare ACO regulations.  This ensures that ACOs can be organized in a manner that is consistent with both federal and state ACO programs.  It also facilitates the drafting of regulations by DOH by enabling it to model its regulations on the federal ACO regulations.

(ii)        Consistent with the federal Medicare ACO regulations, the bill prohibits ACOs from restricting the patient’s use of providers.  Due to such change, the bill makes it unnecessary for ACOs to be subject to existing managed care legislation that regulates “gatekeeping” and adverse utilization review decision-making by HMOs and other managed care organizations. 

(iii)       The bill removes the demonstration designation of the program, so that the ACO program is established as an outright program within DOH instead of as a demonstration program.  Because the federal Medicare ACO regulations have been issued and the bill provides for a more complete legal structure for ACOs, it is no longer necessary for the ACO program to be limited to a “demonstration” status. 

(iv)       The bill removes the cap on the maximum number of ACOs that may be certified under the program.  While the 2011 NYS ACO Law limited participation in the ACO program to only 7 ACOs, there are already 16 ACOs located in New York State that have been approved as ACOs under Medicare. 

(v)        The bill authorizes DOH to establish an expedited review process for the certification of qualifying organizations that have been approved as ACOs under Medicare.  Such organizations may be certified as “Medicare-Only ACOs” on an expedited basis and would be entitled to utilize the legal safe harbors with respect to their activities relating to the Medicare Shared Savings Program.

(vi)       The bill extends the sunset provision from December 31, 2015 to December 31, 2016. 

(vii)      The bill gives DOH flexibility to take action on ACOs under Medicaid.  It authorizes DOH to seek federal grants, approvals, and waivers (including under federal financial participation for Medicaid).

(viii)     The bill will stimulate proposals for the inclusion of ACOs in the Medicaid program.  It authorizes DOH to convene a workgroup to develop a proposal whereby ACOs may serve in the place of a managed care plan in the Medicaid program, Family Health Plus, and CHIP.

(ix)       The bill makes available grant funding to ACOs.  It authorizes DOH to make available HEAL-NY funding for grants to ACOs.

We will continue to monitor developments relating to this bill.  Stay tuned. 

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