4 Key Legal Issues for ACOs

Four legal issues carry the most concern around accountable care organizations: Stark Law, the federal Antikickback Statute, tax-exempt status and antitrust law. These laws are structured to prevent fraud and abuse of federal healthcare programs, but could potentially impede ACO development and participation in the Medicare Shared Savings Program. Federal agencies accordingly designed a series of self-implementing waivers for the application of these laws, but the exemptions can lead to broad interpretations.

This article discusses each of these legal concepts relative to ACOs and highlights each of the exemptions established by the HHS Office of Inspector General, Internal Revenue Service, Federal Trade Commission, Department of Justice and CMS.

1. Stark Law. The Stark Law, which governs physician self-referral for Medicare and Medicaid patients, is strict liability and does not factor the intent of the parties. Compensation arrangements between a hospital and a physician group, such as sharing achieved cost savings, would have violated the Stark Law as this type of arrangement did not meet the law's original safe harbors or exceptions. However, CMS and the OIG established the exemption in October 2011 that financial relationships between ACO participants are waived under the Stark Law if "reasonably related to the purposes of the [Medicare] Shared Savings Program."

The agencies define the term "reasonably related" with six characteristics:
• Promoting accountability for the quality, cost and overall care for a Medicare population;
• Managing and coordinating care for Medicare fee-for-service beneficiaries through an ACO;
• Encouraging investment in infrastructure and redesigned care processes for high-quality and efficient service delivery for patients, such as appropriate reduction Medicare costs and expenditures;
• Evaluating health needs of the ACO's assigned population;
• Communicating clinical knowledge and evidence-based medicine to beneficiaries and developing standards for beneficiary access and communication.
• Developing standards for beneficiary access and communication.

2. Antikickback Statute. The Antikickback Statute prohibits the offer or receipt of compensation in exchange for referrals or services that are reimbursable under Medicare or Medicaid. AKS, an intent-based statue, would potentially prohibit ACO payment arrangements that induce referrals of Medicare reimbursable business if not for the regulatory waiver.

CMS and the OIG have made an exception for ACOs to distribute shared savings among ACO participants during the year in which the shared savings were earned. Furthermore, under the OIG and CMS waiver, shared savings payments made directly or indirectly from a hospital to a physician must not be made with the intent to induce the physician to limit medically necessary services to patients.

3. Non-profit tax exemption. The IRS established guidelines in March 2011 for tax-exempt organizations participating in MSSP, noting that a hospital or health system's participation in an ACO can generally be linked to the charitable purpose of "lessening the burdens of government." Under this premise, the IRS has said participation in the MSSP should not prompt unrelated business income taxes for tax-exempt organizations. The agency also established some basic principles for tax-exempt organizations participating in the MSSP. For example, all transactions among participations must be fair market value and the tax-exempt organization's share of economic benefits from the ACO should be proportional to its contributions to the ACO.

While the IRS has said MSSP participation can be interpreted as a charitable purpose, the agency did not provide examples of charitable and non-charitable activities. This is especially significant for ACOs participating in activities unrelated to MSSP, such as negotiations with commercial payors. The IRS is still seeking comment to further define this exemption. Given the relative youth of ACOs, it remains unclear what types of non-MSSP activities may still further an ACO's charitable mission.

4. Antitrust Law. The FTC and the Antitrust Division of the Department of Justice recognize that, in certain markets, ACOs could reduce competition and hurt consumers by raising prices and/or offering lower quality care. The agencies established guidelines in October 2011 for both MSSP participants and commercial ACOs.

The guidelines established a safety zone for participants in the MSSP and indicated other ACO providers would be evaluated under the rule of reason. The rule of reason analysis determines whether the ACO in question is likely to have anticompetitive effects. If so, the rule evaluates whether the ACO's potential pro-competitive effects are likely to outweigh those anti-competitive effects.

The agencies also outlined anticompetitive concerns for ACOs that fall outside of the antitrust safety zone. One of those concerns is if an ACO improperly shares competitively sensitive information. This is problematic regardless of the ACO's primary service area or market power, as it can lead participants to price-fix or otherwise collude in their provision of healthcare services outside the ACO.

Four other circumstances likely to raise concerns of anticompetitive behavior relate to provider-payor relationships. The agencies outline specific instances that ACOs with primary service area shares and market power "may wish to avoid." Those include:

• Preventing or discouraging private payors from incentivizing patients to choose certain providers, including providers not participating in the ACO.
• Linking the sales of ACO services to the private payor's purchase of other services from providers outside the ACO. For example, an ACO should not require a payor to contract with all of the hospitals under the same system of the hospital participating in the ACO.
• Contracting exclusively with ACO physicians, hospitals, ambulatory surgery centers and other providers to prevent those providers from contracting with payors outside the ACO.
• Restricting a private payor's ability to share enrollees information on its health plan cost, quality, efficiency and performance to help enrollee choose providers — if that information is similar to the cost, quality, efficiency and performance measures used in MSSP.

A common thread between all four waivers is the criterion that ACOs must be good-standing participants in the MSSP. The agencies' waivers and exemptions do not provide protection for commercial ACOs or hospitals' participation in other value-based payment arrangements with private payors. It is critical that hospitals consult legal counsel to ensure such commercial arrangements comply with the four federal laws discussed above in absence of regulatory waivers. Providers should also analyze and ensure ACOs abide by their respective state laws, as more than 30 states have their own False Claims Act, antikickback statutes and self-referral or "mini-Stark" laws.

Molly Gamble is an associate editor with Becker's Hospital Review. Barton C. Walker, JD, is an attorney with McGuireWoods in the firm's Charlotte office.

More Articles on ACOs and Federal Regulations:

AHA Asks CMS, OIG to Finalize ACO Fraud & Abuse Waivers
50 Things to Know About the Proposed ACO Regulations
80 Accountable Care Organizations to Know

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