Many attorneys, commentators and consultants are recommending swift action for providers interested in participating in the Shared Savings Program through an Accountable Care Organization (“ACO”) because of the following:
Primary care providers must be exclusive to one ACO;

  1. Applications for the first Shared Savings Program year, which starts on January 1, 2012, will likely be due shortly after the final regulations are published this summer;
  2. The applications will require a significant amount of detail;
  3. There is a need to assess antitrust concerns and potentially seek proper clearance from the FTC or DOJ prior to submitting the applications; and
  4. There is a need to seek a waiver from the OIG prior to submitting the applications.

However, before aligning with the best providers, providers must be mindful of the long term implications of potentially rash decisions.  Providers would be well served to prepare themselves for future changes and challenges and to protect against them.
ACO affiliation agreements are likely to set in place the process for distributing the shared savings (and don’t forget the potential shared losses).  Setting up a dispute resolution mechanism within affiliation agreements is of equal importance.  Some portion of the process will eventually be disputed among the ACO members.  Consider too that one or more of the members eventually will want out of the ACO, or to kick out another ACO member, or to dissolve the ACO entirely.  For these reasons, here are some subjects to consider when entering into ACO affiliation agreements:
Dealing with Disputes or Terminations:

  • Potential Terminations.  Participants cannot be added to the ACO after it starts the three-year term of its participation in the Shared Savings Program.  However, participants can be terminated from an ACO during that time.  Consider under what circumstances a member’s participation can be terminated (either by the member or by other members).  Consider under what circumstances the ACO affiliation can be dissolved entirely.  For example, by mutual consent; material breach without cure after written notice; where a member fails to meet certain quality or savings standards; when any court of competent jurisdiction or other governmental authority issues a non-appealable final order, decree or ruling permanently restraining, enjoining or otherwise prohibiting actions contemplated by the affiliation agreement; where performance under the affiliation agreement becomes impossible or impractical with the use of commercially reasonable efforts through no fault of the terminating party; or bankruptcy, liquidation, rehabilitation, conservation or any other fiscal insolvency of a member.
  • Process for Terminations.  Consider what the process should be for terminating a member’s participation or for dissolving the affiliation.  For example, will a proposal be submitted to the board or other governing body followed by an investigation and a vote?  Will there be any “appeal” type rights within the ACO?
  • Distributions After Termination.  When a member’s participation is terminated or the affiliation is dissolved, who gets what?  How is it divided?
  • Disputing Distributions.  Aside from the drastic measure of termination or dissolution, what is the process to dispute the distribution of the shared savings (or losses) or to dispute other outcomes or issues within the ACO?

Formal Dispute Resolution:

  • Notification of Disputes.  Will the ACO require an attempt to resolve disputes amicably before a member can initiate formal proceedings?  Consider requiring delivery of a notice of the nature and cause of a dispute, followed by a period of negotiations among the members.  Consider a specific provision that statements made in connection with the informal dispute resolution efforts are not admissions or statements against interest and will not and cannot be used at any later trial, arbitration or mediation between the parties.
  • Mediation.  Will mediation be required prior to litigation or arbitration?  Consider using a pre-selected mediator.  If not, how will the mediator be selected?
  • Arbitration.  Consider arbitration for resolving disputes.  Arbitration is becoming more commonly used in business disputes for its cost and time efficiencies.  Among other things, ask what arbitration organization to use; how many panel members you would prefer (possibly three); how the panel will be chosen (possibly one by each party and a third by the first two arbitrators, or consider naming particular pre-selected panel members); how the arbitration will be funded (equally or by the losing party); how legal fees and expenses will be funded (each party to bear its own, or losing party to fund it all); and will the arbitration be confidential.  If you choose arbitration, be sure to include a jury trial waiver provision and a provision that the determination by the panel will be final, binding, and enforceable in any court of competent jurisdiction.
  • Governing Law.  If the dispute proceeds, what law governs?
  • Location.  In what jurisdiction/location will any dispute will be tried or arbitrated?
  • Discovery.  Discovery has become an increasingly expensive and time-consuming piece of the litigation process, including the diversion of the efforts and attention of the parties’ own employees.  Whether you choose the courts or arbitration, consider agreeing on a pre-determined scope of discovery.
  • Remedies and Limitations on Remedies.  Consider including provisions concerning the remedies available if there is a dispute.  Will there be a limitation (a “cap”) on the amount of damages available (either by a round number or through some pre-determined calculation); will there be liquidated damages; and will a party be entitled to certain injunctive relief?
  • Fees and Expenses.  Finally, consider including a provision that the prevailing party is entitled to reasonable attorneys’ fees, and perhaps expenses, from the non-prevailing party.  Given the complexity of numerous claims and counterclaims resulting in the possibility of varying outcomes in recent disputes, it may also be advisable to define what will constitute a “prevailing party.”

What other concerns do you see arising from these regulations? We’d like to hear from you.