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ACOs and Long-Term Care: Don't Get Left Behind

December 28, 2012

ACOs and Long-Term Care: Don't Get Left Behind

December 28, 2012

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Following the Supreme Court decision, nursing homes are slowly turning toward a closer review of accountable care organizations to see how they might fit in with them.

With the U.S. Supreme Court decision ratifying President Obama's Patient Protection and Affordable Care Act (the "Affordable Care Act"), the implementation and development of accountable care organizations (ACOs) continued in full force this past summer. While most are likely to agree that ACOs would have continued with or without the Supreme Court decision, the Court's approval of the healthcare reform insurance mandates appears to have increased the impetus for providers to enter into appropriate ACO alignments.

Following the Supreme Court decision, nursing homes are slowly turning toward a closer review of ACOs to see how they might fit in with them. The failure of long-term care providers to weigh options with ACOs may be detrimental to the future of their business. If nursing homes are left behind in the ACO process, they also may be left out of key referrals from hospitals participating in particular ACOs that could lead to redirecting admissions to nursing homes that are part of that ACO, resulting in lower admissions for the nursing homes that are not part of the ACO. Long-term care providers already appear to be feeling the drastic drop or redirection of admissions from hospitals to competitor nursing homes.

With all the recent healthcare reform activity, healthcare providers have been trying to figure out how to deal ACOs in terms of structure, financial planning and future viability. On March 31, 2011, the Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services (DHHS) issued a proposed rule on Medicare shared saving programs for accountable care organizations. This rule is a product of the Affordable Care Act, which proposed certain incentives and penalties to providers, mainly hospitals and physicians, should they formally partner their efforts through ACOs to help cover the almost 50 million uninsured or underinsured Americans in the United States. The ACO legislation and subsequent rules started a flurry of activity wherein hospitals were acquiring physician practices in an attempt to anticipate final rules for ACO development and to structure themselves accordingly when the rules became effective. As a result, attention strayed from nursing homes in these deliberations over ACOs as hospital CEOs and physician groups focused on their partnerships. After all, ACOs are like an NFL fantasy draft session: Pick the best players to maximize optimal care and reduce costs in the ACO environment.

In October 2011, CMS issued its final regulation for ACOs in response to the comments submitted during the proposed rule stage. The new final rules addressed some of the concerns brought forth by hospitals and physicians. What does all this ACO development mean for nursing homes?

What Is an ACO?

Basically, an ACO is a provider network typically run by hospitals, physicians and possibly nursing homes that share responsibility in payments for providing care to a defined population. Under the new healthcare law, an ACO is responsible for at least 5,000 Medicare beneficiaries for a minimum of three years. The reform concept is that the ACO is a group of providers who are willing to work together to manage and coordinate the care of the Medicare fee-for-service beneficiaries assigned to them, and who are willing to be accountable for the quality, cost and overall care of these beneficiaries. Under the Affordable Care Act, Medicare continues to pay the providers in the group for services they provide on a fee-for-service basis. However, unlike healthcare offered in the past, if the ACO, through the management and coordination of these Medicare beneficiaries' care, is able to provide better quality and accessible care at a significant savings to Medicare, then the providers ultimately share in the savings through the Medicare program. The idea is that the government should no longer purchase health services on a simply fee-for-service basis because it gives providers an incentive to treat, test and perform more procedures on patients to make more money. With ACOs, the focus will be on quality of care and the amount of savings that can be generated from keeping individuals out of healthcare facilities, and on the road to wellness.

Most experts agree that as a result of ACO formation, the number of hospital beds over time will likely decrease as the whole point of ACOs is to reduce the length of stay as much as possible. However, it is important to note that there will also be more insured beneficiaries as a result of the healthcare legislation, which could add to a greater amount of stays, even though they may be shortened. While hospitals and physicians have been working together to create the best "team" they can in forming their ACOs in an effort to avoid overtreatment and gain quality care that would ultimately result in profits and savings to the ACO, it is a mystery why ACOs have not given much attention to nursing homes. Standing back, it is not hard to see how nursing homes should be considered an integral part of the ACO cost savings overall for patients. Indeed, one individual mentioned early on the significance of nursing homes in the ACO game:

It occurs to me that these separate entities need to start talking to each other. Because as hospitals theoretically switch from a sickness to a wellness model and coordinate care throughout the continuum, agency services providers will be in some way part of the hospital's ACO.1

The goal of ACO implementation is to achieve cost savings so that the ACO can participate in the savings over time. That means ACOs not only have to meet certain quality standards in order to trigger the shared savings program, but also, ACOs have to improve quality of care to avoid lengthy procedures and costly facility visits. Therefore, nursing homes are essential to the ACO model by being partners in ACOs to reduce lengthy stays and to potentially avoid hospital readmissions.

History of ACOs and Nursing Homes

The March 2011 proposed rule actually stated that skilled nursing homes could not be designated as eligible participants in ACOs. For many months, skilled nursing facility owners stood by the sidelines as hospitals drafted key physicians and groups to be part of the ACO model. Then, in October 2011, it was determined that while hospitals, healthcare professionals, federally qualified healthcare centers and rural healthcare centers were authorized to form ACOs, DHHS opened the door for long-term care providers to participate in an ACO and to play a key role in ACO model development. Suddenly, long-term care providers who had ignored ACO development now learned that while they could not form an ACO, they could participate in one and have substantial input in the ACO governance as a result. According to recent reports, long-term care providers remain uncertain about what ACOs mean, their role in them, and how or if they would benefit from ACOs directly. A recent survey stated that many nursing facilities do not even know what ACOs are—and even fewer nursing home professionals believe that they will benefit from ACOs.2

Nursing home businesses now face a tipping point. The impetus for the thought that perhaps ACOs are worth looking into more seriously is a result of Medicaid nursing home rates being held flat, or increasing minimally over the years, along with delayed payments; the percentage of private pay patients continuing to decrease; and Medicare rates being cut by 11 percent on October 1, 2011.

Furthermore, a recent CMS study on a pilot program for ACOs from 2005 to 2010 demonstrated that ACO participants reaped millions of dollars in savings and profits because of their participation in the ACO pilot program.3 According to that program, almost all of the participant ACOs achieved a substantial benefit, indicating to nursing home owners for the first time the potential merits of being part of the ACO model that may be worthwhile, especially in light of recent cutbacks.

The Playing Field

With such a focus on quality of care and the shared savings program, it becomes apparent that most hospital CEOs would discuss or contemplate owning nursing homes, just as they have clamored to own physician practices, in preparation for ACO development and rollout. However, the industry is not witnessing the movement of hospitals toward nursing home ownership, perhaps due to the fact that CEOs and physicians are more focused on being a part of the best "ACO team" in order to take advantage of the shared savings through quality of care at the physician level.

The significance of nursing homes in the ACO model and the overall care management of the patient is apparent. For example, ACOs save money by providing beneficiaries the right care promptly. If an ACO provides or improves access to primary care physicians to avoid emergency room visits or lengthy hospital stays, the ACO will make money over time through shared savings. Similarly, if nursing homes can provide quality care and avoid readmission to hospitals, this could save an ACO a considerable amount of money over time.

While most hospital CEOs have not focused on the nursing home component as much as physician practices or home care, hospitals and other participants in large ACOs may want to partner with providers who know how to manage key conditions and who can demonstrate a low readmission hospital rate. Furthermore, long-term care physicians, including medical directors, will be vital to the ACO model because they can control costs in the nursing home by following patients closely and preventing hospital admissions more readily than physicians outside the nursing home.

However, ACOs may not be good news for all nursing homes. There will likely be stiff competition in vying to become part of certain ACOs in a particular marketplace for each nursing home. Furthermore, if the nursing home next door can demonstrate a lower rate of hospital readmissions, then that next-door facility may be better positioned to be part of an ACO and to receive those hospital admissions more frequently. The focus is on quality, and any quality indicators that can be shown to hospitals or ACOs would be beneficial to particular nursing homes in joining that ACO and reaping the benefits.

Furthermore, the role of the medical director in the nursing home as a result of ACO development is also apparent. No longer can medical directors idly care for residents in the nursing home: They also have to be actively communicating with ACOs and hospitals about the quality of care the nursing home provides. Hospitals and physicians outside the nursing home are not accustomed to quality-of-care issues for nursing homes or looking into them in any detail. When it comes time for the ACO "team draft," ACOs will likely want to focus on having nursing homes that can provide quality care and that do not have a history of poor performance. Therefore, poor performing facilities may struggle to compete with better performing facilities in any ACO draft for nursing homes.

What Should Nursing Homes Consider Doing Now to Align Themselves with ACOs?

Up to the present date, ACO formation has been largely a numbers game. Hospitals and other ACO providers have focused on the quality of care provided by physicians when recruiting physicians to join an ACO. The same can be said for nursing homes and quality-of-care indicators. ACOs are likely to look toward hard statistics and solid data, preferably provided by the nursing home’s medical director, to show the meticulousness of the care at the facility and to demonstrate to ACOs that the likelihood of hospital readmission from that nursing home would be less than at other facilities.

Besides the significance of statistics in nursing home care quality, it may also be worthwhile for the nursing home to be able to adopt or utilize the current electronic medical record system (EMR) of the hospital or the particular ACO involved. Better accuracy and efficiency are possible through the use of EMRs, and the most profitable ACOs will most likely require EMR compatibility with nursing home records. While the Health Information Technology for Economic and Clinical Health Act (the "HITECH Act") left out incentives for nursing homes to provide EMRs, focusing only on hospitals and physicians, in the end, the HITECH Act's snubbing of nursing homes probably saved the ones that are now working to align themselves with ACOs and their particular EMR systems. Therefore, nursing homes may want to determine which ACO they wish to join before adopting an EMR on their own; otherwise, they only may find out later that their EMR is incompatible with the ACO EMR they are looking to join.

Nursing homes with a poor survey history from CMS or state departments of public health will likely have to do more work to obtain ACO participation. In those instances, it may be necessary to improve the physical plant of the nursing home, while also touting the medical director to the ACO in an effort to show a focus on patient outcomes and quality of care. ACOs are likely to be wary to enroll a poor performing nursing home, or worse, a nursing home embroiled in healthcare fraud and abuse compliance actions with the government. In the ACO world, one physician, nursing home or hospital participant in the ACO that performs poorly could affect the bottom line by reducing the amount of the shared savings from the government.

Nursing homes may have to apply considerable "make up" to look attractive to hospitals and ACOs with whom they are looking to partner. Yet, their value to ACOs appears vital. Failure of a nursing home to partner with an ACO could result in reduced admissions to the nursing home and the loss of the seeming financial benefit offered by the shared savings through ACO implementation.

For Further Information

If you have any questions about this Alert, please contact Neville M. Bilimoria in the firm's Chicago office, any member of the Health Law Practice Group, any member of the Physician Services Group or the attorney in the firm with whom you are regularly in contact.


  1. Anthony Cirillo, "A Successful ACO Must Have a Strong Long-term Care Component," April 4, 2011.
  2. "Skilled Nursing Facilities Are Pessimistic, Skeptical, About the Benefits of ACOs According to Survey by Patient Placement Systems,", August 16, 2011.
  3. Jessica Zigmond, "Benchmarks Met in ACO Tryout," Modern Healthcare, August 15, 2011.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.