An Overview of New York’s ACO Regulations

December 3, 2014 | Health Services

The New York State Department of Health (the “DOH”) released regulations which implement 2012 legislation expanding Accountable Care Organizations (“ACOs”) in New York State. The regulations create a new part of the New York Code of Rules and Regulations (“NYCRR”), Part 1003 under Title 10, which would lay the frame work under which ACOs will operate in New York. Similar to Medicare ACOs created under the Patient Protection and Affordable Care Act, the regulations are designed to promote and protect entities which deliver quality medical care while reducing the cost of care provided. 

While ACOs were first legislatively introduced in the state as a pilot program, the legislation passed in 2012 did away with the limited scope of the ACO program and called for broader applicability. These regulations implement that goal. Under the regulations, all ACOs established in New York will require a “Certificate of Authority” (a “COA”) to operate; ACOs that will continue to only operate with the Medicare Shared Savings Program (“MSSP”), and not engage other payors, will be entitled to an expedited application process. To receive approval from the DOH, an ACO must demonstrate: (i) an ability to provide, manage, and coordinate care for a defined patient population or geographic area, (ii) the participation of healthcare providers that will be accountable for the quality, cost, and delivery of care, (iii) a governance that adequately represents the ACO and its patients, and (iv) that the best interests of the public and patients will be served by the ACO. 

The New York regulations largely fall in line with the federal ACO regulations, though there are relevant differences to note. Both existing ACOs and entities looking to form ACOs in the state, or providers looking to enter an ACO, must consider some of these relevant differences, which they will be subject to. 

One of the most notable and most fundamental differences between the MSSP and the regulations in New York is the role of government payors in the ACO. Medicare ACOs, through the MSSP, enter into an agreement directly with CMS in which the ACO directly receives Medicare payments. CMS sets the payment benchmarks, pays for services, and pays bonuses or collects penalties. New York, as set forth in the regulations, will not be implementing such a system. The regulations are not designed for ACOs to enter into a Medicare-like shared savings program with the state, but rather the regulations lay the groundwork and remove obstacles for ACOs to form within the state, and enter into shared savings agreements with third-party payors. 

With that fundamental distinction between the federal and state regulations in mind, the relevant differences between the two sets of regulations are fairly limited. The New York regulations carve out ACOs that only choose to participate in the Medicare program. These ACOs enjoy a lower level of review for a COA, but have extra requirements for Medicare-only ACOs that have potential shared savings losses of over 10%. Medicare-only ACOs can only enter into shared loss agreements with CMS if the shared losses are either limited to less than 10% of the ACO’s benchmark, or if the ACO satisfies other criteria, including keeping a portion of the shared savings loss in escrow and reserving the right to pay shared losses back to CMS by a reduction in future payments and not in a lump sum payment. A “Medicare-only ACO” is defined as and ACO that only serves Medicare beneficiaries, and at that, only such beneficiaries not otherwise enrolled in managed care plans.

The legal structure of an ACO formed under the New York regulations is not substantially different from the federal regulations. Particularly noteworthy in these new regulations is the requirement that ACOs in New York may be one of many types of business entities (corporation, partnership, etc.), but the business entity must be domestic. An ACO may be formed by one existing group of ACO participants, or it can be formed amongst multiple independent ACO participants (an ACO participant is defined as a health care provider, a health home, an administrative services organization, or a provider/supplier), but if the latter is the case, the ACO must be a separate legal entity apart from the ACO participants. That is to say that an existing physician group can form an ACO using its legal entity, but if multiple independent physician groups wish to form an ACO, they must create a separate legal entity and not use one of the member’s entities (this requirement is also present in the federal regulations). The New York regulations also make clear that an IPA may either be an ACO participant or be certified as an ACO, and may continue to contract with third party payors after doing so, limited only by the terms of its COA. IPAs will, however, be required to clearly distinguish their function as an IPA from their function as an ACO by, for example, keeping separate records and separate accounts. Health homes may also be certified as ACOs under the regulations.

The regulations relating the ACOs governing body are also very similar to federal requirements. For example, the state regulations also require that 75% of the governing body be held by ACO participants, and require that specific members of the community have a designee in the governing body. However, state regulations require a Medicaid beneficiary, an individual with a different form of health insurance, and an individual that does not have health coverage to be members of the governing body.

The regulations allow ACOs to enter into agreements with third-party payors, but explicitly state that an ACO is not permitted to engage in any activity that would be considered “insurance business,” with the exception of entering into a shared savings agreement or capitation agreement (or other assumption of liability for care delivered) with a managed care organization or CMS. However, while ACOs can share risk with payors under the regulations, Department of Financial Service Regulation 164 will govern certain financial requirements before an ACO can do so, as, for example, an IPA entering into a capitation arrangement is currently subject to. ACOs are required to report to DOH, and should they fail the financial requirements or any other relevant requirement, their COA may be terminated.

If an ACO meets the regulations relevant requirements and obtains a COA, it enjoys various legal protections that will likely promote the growth of ACOs in the state. If ACOs in New York meet the standards set forth by the Federal Trade Commission for ACOs participating in MSSP, they will be protected from laws regarding the restriction of trade under Article 22 of the General Business Law (substantially analogous to federal anti-trust laws). Likewise, ACOs will not be subject to fee-splitting restrictions that professionals are normally subject to (in which the sharing of professional fees with non-professionals is prohibited), nor will the ACO providers be subject to laws limiting referrals for referrals made within the ACO. Finally, the regulations explicitly state that an ACO functioning in the manner set forth is not the practice of a profession.   

Those familiar with the existing regulations on ACOs on the federal level will likely see many similarities in the newly-issued New York regulations. However, the criteria set forth in these regulations can be stringent and different in key areas. Already-existing ACOs must be careful to review their structure and operations to ensure their adherence to the New York regulations to ensure that they will enjoy the safe harbors on the state level that ACOs currently do on the national level. For those looking to join or form an ACO, these regulations may provide the assurances from the state necessary to take the next step in the process.

 

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