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New Jersey Approves State’s First Medicaid Accountable Care Organizations

New Jersey Approves State's First Medicaid Accountable Care Organizations

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The State of New Jersey has recently approved its first three Medicaid Accountable Care Organizations (“ACO”). Pilot programs were established under legislation which allows Medicaid providers to collaborate through an ACO to better serve children, families, seniors and the disabled. The three Medicaid ACOs were approved under this legislation and include the Camden Coalition of Healthcare Providers, the Trenton Health Team and the Healthy Greater Newark ACO, each serving one of the state’s largest cities. The three-year demonstration project for these three Medicaid ACOs began July 1, 2015, and the goal is to decrease the State’s Medicaid spending.

Background

As noted in the Federal Register, “The Centers for Medicare and Medicaid Services define an Accountable Care Organization as an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries assigned to it. The ACO payment and delivery reform model is an alternative to traditional fee-for-service programs.” It is a healthcare organization that consists of one or more Medicare-enrolled healthcare service providers that is structured to deliver higher quality care by linking provider reimbursements to the quality of care provided and the cost efficiency of the care. They consist of groups of doctors, hospitals and other healthcare providers that come together on a voluntary basis to provide coordinated high quality care to Medicare patients.

Section 3022 of the Patient Protection and Affordable Care Act (“ACA”) created the Medicare Shared Savings Program (“MSSP”), allowing ACOs to contract with Medicare by January 2012. According to the ACA, the MSSP promotes accountability for a patient population and coordinates items and services under Part A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.” An ACO is similar to a Health Maintenance Organizations in that it is “an entity that will be ‘held accountable’ for providing comprehensive health services to a population.” Under the ACA guidelines, service providers that may form an ACO include:

  • Physicians and other healthcare providers;
  • A network of individual practices;
  • A partnership or joint venture arrangement between hospitals and other ACO professionals; and
  • A hospital employing ACO professionals.

These guidelines also include quality of care performance standards which the ACO must meet. In addition, the ACO must show that it has effectively lowered costs against a criterion of expected average Medicare fee-for-service expenditures. If all the prerequisites are met, the ACO will be eligible to receive payments under the MSSP.

The final regulations governing the MSSP and ACOs do not require an ACO to be structured as any particular type of legal entity; however, it must be an entity separate from its participants. Specifically, an ACO structured as a corporation will be treated as a separate taxable entity, whereas an ACO structured as a partnership will generally have its activities attributed to its partners. Furthermore, an ACO structured as an LLC may choose to be treated as either a corporation or partnership.

Medicare ACOs now exist in all 50 states, the District of Columbia and Puerto Rico. According to CMS, as of January 2015, the MSSP now includes more than 330 ACOs and more than 125,000 Medicare enrolled practitioners. In addition, there are approximately 4.9 million beneficiaries assigned to these ACOs.

Growth of Medicaid ACOs

Medicaid ACOs have expanded over the past year with sixteen states having passed ACO legislation or ACO-like pilot programs. Each state has had a different approach to the program, whether it be payments similar to the MSSP or capitated payments. Because of the large size of these Medicaid Programs and the states’ ability to mandate payment models, it is expected that these Medicaid ACO models will expand across the country over the next few years.

Final regulations regarding the Medicaid ACO program were released in May 2014 and with them came some mandates to the program. Participants in these programs are now required to serve a minimum of 5,000 Medicaid beneficiaries in a given area. Participation is mandated for all hospitals residing in the designated area as well as 75 percent of primary care providers and a minimum of four mental health service providers.

ACOs and Tax-Exempt Organizations

The Internal Revenue Service (“IRS”) addressed charitable organizations’ participation in the MSSP in Notice 2011-20. This Notice states that the IRS expects existing tax rules related to charitable organizations to remain applicable. If a charitable organization qualifies for ACO treatment, it must be sure to continue to meet the requirements for tax-exemption to avoid unfavorable tax consequences. This includes ensuring that its participation is structured so as not to result in its net earnings inuring to the benefit of its insiders or in its being operated for the benefit of private parties participating in the ACO. Please refer to our Weekly Pulse released on April 4, 2012 for a detailed discussion with respect to a tax-exempt organization’s participation in an ACO.

Ask Our Experts

Please contact a member of WS+B’s Healthcare Services Group at healthcare@www.withum.com for further questions or assistance.

The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.

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