After months of delay, federal regulators are expected to issue much-anticipated draft regulations in March for Medicare Accountable Care Organizations (ACOs) as another step in implementing health reform. Yet HRW sources report that “big issues” related to ACO regulation still remained unsettled as of March 1.

And while some lament that the ACO draft rules have gone back and forth repeatedly between CMS and the White House Office of Management and Budget (OMB) for review since late last year, a former head of OMB’s health review tells HRW that the process is a long and complicated one with so many federal agencies involved in ACO regulation.

“What I’m hearing is that this is a regulation that requires a tremendous amount of cross-agency collaboration, and inevitably what happens in those cases is that OMB has to be the arbiter of all issues that come up,” Avalere Health LLC CEO Dan Mendelson, who ran OMB’s health program reviews from 1998 to 2000 in the Clinton administration, told HRW March 1. He said the ACO draft rule has gone back and forth to OMB “many times” since late last year.

Mendelson noted, for example, that CMS wants to ensure that ACOs are part of an efficient health care system, while the Department of Justice wants to ensure the regulation “doesn’t result in any antitrust issues, because as soon as you give providers market power locally, they’ll use it.”

A former senior federal official, speaking on condition of anonymity, put it differently. “I think there are many, many different fingers in the pie here,” he told HRW March 1. “But I heard as of late last week there were many decisions still unmade. I heard the [HHS] Office of General Counsel had proposed a number of revisions. I think, at least as of last week, OMB was probably in the mix, but there are a lot of pieces still unsettled yet.”

Indeed, CMS spokesperson Peter Ashkenaz told HRW Feb. 25: “We don’t expect the reg out any time soon.” Another CMS spokesperson, Ellen Griffith, was even less definite on March 2: “I don’t know when it is coming. I can’t give you any idea,” she said. The proposed ACO regs were received by OMB Feb. 14, according to OMB records.

The HRW source said he spoke recently to a federal official who had seen the draft ACO regulations and who had talked with “the most senior leadership” at CMS. Based on this information, the source said, “They’re still struggling over big issues….It’s a mess. Between you and me, I’m very concerned about whether CMS and HHS are producing a regulation that [may not generate interest]….My optimism is not what it was.” He added, without going into specifics: “I’m concerned that this important piece of health care regulation could suffer from overregulation.”

Regulation by DOJ, FTC Is Big Issue

A second source, when asked to comment on whether there are “big unresolved issues” with the draft ACO regulations, told HRW March 1: “I’m sure there are because they’re still not out yet.” This source said the proposed rule “has been at OMB for some time,” explaining that one apparent reason for the delay is to decide whether various pieces will come out all at once, including how the DOJ and Federal Trade Commission will regulate ACO legal issues.

Aiming to improve quality of care and reduce costs, the health reform law requires the HHS secretary to establish a Medicare Shared Savings Program by Jan. 1, 2012. Under the program, provider groups would set up ACOs, agree to meet quality measures, and share in any savings generated for Medicare by meeting certain cost and quality benchmarks starting Jan. 1, 2012 (HRW 1/31/11 p. 1).

Consultant John Gorman, CEO of Gorman Health Group, LLC, and a former HCFA official, told HRW March 1: “Better that they take the extra time to get it right as this is the most anticipated regulation I can remember in years.” However, he cautioned, “The danger comes from the calendar: ACOs are supposed to launch in January. If the reg is delayed much longer, and then there’s a 60-day comment period, we’re talking early summer before a solicitation from CMS is on the street, and then it’s a footrace to apply and get ready to launch in fourth quarter.”

Gorman said March 3 that since action completed by Congress March 2 means there cannot be a federal government shutdown until at least March 18, his information indicates it’s possible that the ACO regs will be issued just before then to ensure they are not affected by a shutdown. He added, though, that there still are interagency differences about some of the rules’ provisions.

The unidentified former federal official compared the ACO draft rules situation to the draft Part D regulations several years ago, which he noted also had “big pieces unresolved” just prior to release. The source added that CMS Administrator Donald Berwick, M.D., said recently that partial capitation and full capitation will fall under the purview of CMS’s Center for Medicare and Medicaid Innovation Center. Thus, the source said, “This will be a run-of-the-mill ACO regulation: shared savings with upside opportunity…and downside shared risk to the degree you cost more than what the baseline is.”

Mendelson told HRW that he would comment only on the process related to issuing draft ACO regulations, and not on the proposed rule’s substance, although he described himself as being “privy to too much of it[s content].” Initially, CMS “thought that the reg was less controversial than it was” — a common misstep for federal agencies — and is now doing a careful job to ensure a good result, he said. “I ran OMB health, and I moved a lot of difficult regulations through that process, and to take an extra couple of weeks or months [for review] is much better than coming out with a bad regulation. It’s all part of the process.”

According to Mendelson, CMS might have done one thing differently in not continuing to assert that the proposed rule’s release was imminent. That’s especially, he explained, since other agencies with a stake in the regulation, including DOJ and FTC, must go through the proposed rule carefully with their own general counsels: a process that normally takes months. “You can’t box OMB like that because OMB has to do its work,” he said.