5 Key Regulatory Concerns for ACOs

Hospitals looking to develop accountable care organizations face the same regulatory concerns and hurdles that hospitals have long grappled with in their physician integration efforts. Specifically, ACOs must ensure that their agreements with physicians do not violate anti-kickback statutes, Stark Law, the Civil Monetary Penalty, tax-exemption laws and/or anti-trust regulations.

Previous and current Medicare demonstration projects involving bundled or incentive payments have granted exceptions to many of these regulations, and it is expected the Medicare ACO demonstration created by the Patient Protection and Affordable Care Act will do the same, although specific guidelines for the project will not be released until December. Given that specific guidelines are forthcoming, hospitals that develop ACOs must consider how their integration efforts will be viewed in light of these regulations.

1. Anti-kickback statues. Federal and state anti-kickback statues prohibit the accepting of cash or any item of value in return for the referral of health services that are later billed, in whole or part, to federal healthcare programs. The cardinal issue under the anti-kickback statutes is whether the relationships being structured are really a means to pay physicians for referrals, says Scott Becker, JD, CPA, partner at McGuireWoods. "Are the physicians being overpaid professional fees to refer cases or are they getting to own a greater part of an ACO due to referrals, or is a management arrangement really a guise to provide payment for referrals?" he says.

The federal statute does, however, provide "safe harbors" for certain relationships. If a hospital is developing an ACO, one of the most direct ways to ensure a complaint relationship is to employ physicians, as direct employment fulfills a safe harbor. The statute also provides for safe harbors for certain independent contractor agreements. 

Lisa Bielamowicz, MD, managing director and national physician practice leader for the Health Care Advisory Board, cautions that hospitals should not use employment as its sole physician alignment vehicle. "Employment does not equal integration," she says. "Integration needs to be implemented through the creation of performance-based incentives that reward physicians for high quality, low cost care."

Rob Lazerow, a consultant with the Health Care Advisory Board, adds employment should only be used as an integration strategy if it fits within the hospital's strategic needs. "In an ACO environment that clearly encourages the management of chronic diseases, an investment in primary care infrastructure is critical, so employment of these providers may be effective," he says. However, other physicians, such as general surgeons, radiologists, etc., may not need to be employed to get them aligned with the ACO. Here, the ACO could structure bundled pricing or gainsharing programs to bring them closer to the ACO without necessarily bringing them under the "risk sharing umbrella," adds Dr. Bielamowicz.

Hospitals must ensure these other non-employment arrangements do not violate anti-kickback laws. Although similar, bundled payment and gainsharing programs differ in one important way — who's footing the bill. In gainsharing programs, a hospital provides some form of compensation to physicians for meeting certain quality and efficiency standards. In a bundled payment program, an insurer provides a lump sum payment for hospital and physician services at a contracted rate, and then the hospital and physicians divide any savings created by delivering care at an amount below that rate, says Mr. Lazerow.

Gainsharing programs that pay a percentage of cost savings are not covered by an explicit safe harbor, but the HHS Office of Inspector General has issued favorable guidance for the programs. Because gainsharing is not covered explicitly by a safe harbor, organizations should take a conservative stance and seek legal counsel when entering into such relationships, cautions Mr. Lazerow. 

Finally, more traditional co-management arrangements are yet another way a hospital-led ACO might try to create alignment. These relationships can be structured to fit under the federal Anti-Kickback Statue's personal services and/or management contracts safe harbors. However, to meet these safe harbors, the compensation must be set wholly and in aggregate in advance. 

2. Stark law. Related to the Anti-Kickback Statute, but a civil rather than a criminal statute, Stark law prohibits referrals for certain designated health services by healthcare providers to entities in which they have a financial interest, unless certain exceptions are met. The "bona fide" employment of physicians is one exception included in the law. This allows systems to employ doctors and pay them as employees while accepting their referrals. Most co-management arrangements can also be structured to meet an exception under the Stark Act, says Mr. Becker. The Stark law does not have a specific exception regarding ACOs or gainsharing programs. (An exception was proposed in 2008 but has yet to be finalized.)  However, it is often possible to structure ACO relationships and gainsharing programs to meet other exceptions, such as the personal services arrangement and/or fair market value exceptions.

3. Civil Monetary Penalty. The Civil Monetary Penalty gives the Department of Health and Human Services Secretary the power to impose civil penalties for various forms of fraud and abuse. The CMP prohibits hospitals or other providers that knowingly make a payment or offer any other form of inducement to reduce or limit items or services to fee-for-service Medicare or Medicaid beneficiaries. Because co-management, bundled payments and gainsharing agreements that may be entered into by ACOs generally intend to improve efficiency, the CMP is another regulatory concern for these groups. As a result, physicians should should be very careful in how they discuss arrangements and the manner in which they aim to improve efficiency and control cost, but not aim to or include incentives to provide less than optimal care, says Mr. Becker.

4. Tax exemption laws. Additionally, non-profit, tax-exempt hospitals are subject to certain additional requirements. Most notably, tax-exempt hospitals who participate in ventures must assure that the venture serves community purposes and that the venture does not provide for private benefit to others.  

5. Anti-Trust Law. Finally, ACOs should be aware that federal and state anti-trust laws may apply to their arrangements. Since 1996, providers have been allowed to contract together as part of clinical integration arrangements. However, there is some controversy today on the extent of some of these arrangements on whether or not they should be considered collusive, says Dr. Bielamowicz. Healthcare reform legislation encourages providers to align more closely and work together, but the development of ACOs will consolidate the market, which brings up questions about whether they may end up with too much leverage in some markets, she says.

Mr. Lazerow adds, "What's helpful for Medicare — a well coordinated, integrated delivery system — is very different than what promotes free market competition. What's good for Medicare versus what's good for commercial payors may not be the same thing."

ACOs that participate in the Medicare pilot will avoid anti-trust issues as long as the government unilaterally sets payments, the Federal Trade Commission has said. However, tensions persist for ACOs that enter into agreements with commercial payors as these relationships have yet to be re-addressed by regulators in the wake of health reform. The FTC plans to solicit public opinion this fall as it works to develop policies on competition and reimbursement in relation to ACOs. As such, providers can expect updated regulations and guidance as the government works out how to best address these issues.

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