r bays - antitrust implications for healthcare aco’s

Antitrust Implications for

Healthcare ACO’s

Richard Bays JD, MBA, RN, CPHQ

© R Bays 2013

Introduction

The Department of Health and Human Services

(DHHS) proposed the initial set of guidelines for

establishment of Accountable Care Organizations

(ACOs) under the Medicare Shared Savings Program

on March 31, 2011.[1]

These guidelines stipulate the necessary steps that

voluntary groups of physicians, hospitals and other

health care providers must complete in order to

participate in ACOs.

Introduction

The Patient Protection and Affordable Care Act

(PPACA) authorizes Center for Medicare and Medicaid

Services (CMS) to create the Medicare Shared Savings

program (MSSP)[2], which allows for the establishment

of ACO contracts with Medicare.

ACOs are groups of doctors, hospitals, and other

health care providers, who come together voluntarily to

give coordinated high quality care to their Medicare

patients.

Introduction With the advent of ACOs, CMS and the OIG had to address the

application of the three federal laws to ACOs participating in the Shared

Savings Program:

1. The Physician Self-Referral Law (Stark Law) which prohibits physicians from

making referrals for Medicare “designated health services,” to entities with

which they have a financial relationship.

2. The Federal Anti-kickback Statute which provides criminal penalties for

individuals or entities that knowingly and willfully offer, pay, solicit, or receive

remuneration to induce or reward the referral of business reimbursable under

any Federal health care program.

3. The Civil Monetary Penalties law (CMP) that prohibits a hospital from making

a payment, directly or indirectly, to induce a physician to reduce or limit

services to Medicare and Medicaid beneficiaries under the physician’s direct

care.[3]

Introduction These antitrust issues required the Department of Justice (DOJ)

and the Federal Trade Commission (FTC) to address situations

involving ACOs which was published as the Proposed Statement

of Antitrust Enforcement Policy Regarding Accountable Care

Organizations Participating in the Medicare Shared Savings

Program (Policy Statement).

Although the Policy Statement is styled as a mere statement of

antitrust enforcement policy for ACOs, it is issued in support of a

proposed regulation from CMS, regarding the MSSP and ACO

provisions of PPACA. With this, the antitrust agencies (DOJ &

FTC) clearly have taken on a much more significant role in the

regulatory review process of a sister agency than previously.[4]

Introduction Under the new framework of the healthcare system CMS and the OIG outlined

proposals to waive the Stark, Federal Anti-kickback Statute, and CMP laws in

three circumstances:

•The distribution of Program’s shared savings payments received by an ACO to

qualified ACO participants.

•An ACO’s distribution of Program’s shared savings payments to other individuals

or entities for activities necessary for and directly related to the ACO’s

participation in the Shared Savings Program.

•For the anti-kickback statute and CMP only, certain financial relationships that

are necessary for and directly related to the ACO’s participation in the Shared

Savings Program and fully comply with an exception to the physician self-referral

law.

These waivers would cover shared savings earned during the agreement period

with CMS and, as applicable, financial relationships existing during the

agreement period.[5]

Introduction

Antitrust Effects:

The FTC and the Antitrust Division of the DOJ

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.[6]

This presentation examines the Healthcare Industry

Regulatory Framework with Antitrust concerns in light

of the new ACO formations.

Healthcare Industry

Regulatory Framework

Healthcare Industry Regulatory Framework

I. Stark Law

The first federal law that CMS and the OIG had to address is

the application of the Physician Self-Referral Law (Stark Law)

to ACOs participating in the Medicare Shared Savings

Program.

The Stark Law prohibits physicians from making self referrals

for Medicare “designated health services,” (DHS) to entities

with which they have a financial relationship.[7] It addresses

the conflicts of interest that exist when a physician stands to

gain financially from making patient care referrals and is

codified under 42 U.S.C. § 1395nn.[8]


The Stark law applies only to the referral of patients for

statutorily defined “Designated Health Services.”

Currently, Designated Health Services (DHS) are defined as:

• Clinical laboratory services;

• Physical therapy services;

• Occupational therapy services;

• Radiology services, including ultrasound, MRI and CT scans;

• Radiation therapy services;

• Durable medical equipment;

• Parenteral and enteral nutrients,

• Equipment and supplies;

• Prosthetics, orthotics and prosthetic devices and supplies;

• Home health services;

• Outpatient prescription drugs; and

• Inpatient and outpatient hospital services.[9]


The ban on physician self-referrals that is contained in the Stark

law is broad and sweeping. It is, however, subject to numerous

exceptions.[10] The exceptions are subject to significant regulatory

interpretation and qualifying criteria. Some examples of

exceptions are:

• Permitted Ownership and Investment interests: Hospital

ownership exception (commonly the “Whole Hospital

Exception”) 42 C.F.R. Subpart J, § 411.356(c)(3); 69 Fed.

Reg. 16084-85;

• In-office ancillary services 42 U.S.C. § 1395nn(b)(2); 42

C.F.R. Subpart J, § 411.355(b).

• Pre-paid plans 42 U.S.C. § 1395nn(b)(3);


Exceptions examples con’t:

• Academic medical centers 42 C.F.R. Subpart J, §

411.355(e).

• Implants furnished by an ASC 42 C.F.R. Subpart J, §

411.355(f).

• EPO/dialysis-related drugs furnished/ordered ESRD facility

42 C.F.R. Subpart J, § 411.355(g).

• Preventive screening tests, immunizations and vaccines 42

C.F.R. Subpart J, § 411.355(h).

• Eyeglasses and contact lenses following cataract surgery 42

C.F.R. Subpart J, § 411.355(i).



• Permitted Compensation Arrangements: Rental of Office

Space 42 U.S.C. § 1395nn(e)(1)(A); 42 C.F.R. Subpart J,

§411.357(a).

• Rental of Equipment 42 U.S.C. § 1395nn(e)(1)(B); 42 C.F.R.

Subpart J, § 411.357(b).

• Bona fide employment relationships 42 U.S.C. §

1395nn(e)(2); 42 C.F.R. Subpart J, § 411.357(c).

• Personal service arrangements 42 U.S.C. § 1395nn(e)(3);

See also 42 C.F.R. Subpart J, § 411.357(d).



• Physician recruitment 42 U.S.C. § 1395nn(e)(5); 42 C.F.R.

Subpart J, § 411.357(e).

• Retention payments in underserved areas 42 C.F.R. Subpart

J, § 411.357(t).

• Electronic prescribing items and services 42 C.F.R. Subpart

J, § 411.357(v).

• Electronic health records items and services 42 C.F.R.

Subpart J, § 411.357(w).

• Intra-family rural referrals 42 C.F.R. Subpart J, § 411.355(j).


Unless an exception applies, the Stark law prohibitions

disallow claims to Medicare for DHS if the referral originated

from a physician who has a “financial relationship” with the

entity providing the service.

42 U.S.C. § 1395nn(a)(1)


Financial relationship under Stark is defined as:

“A direct or indirect ownership or investment interest”

OR

“A direct or indirect compensation arrangement.”

AND

Includes not only the physician’s personal financial relationships,

BUT ALSO

The financial interests and relationships of the physician’s

immediate family members.[11]


Stark Law Sanctions

Failure to comply with the Stark anti-referral prohibition can include denial of

payment, mandatory refunds, civil monetary penalties and/or exclusion from

participation in the Medicare program.

Additionally, alleged Stark violations are frequently the basis for cases filed

under the False Claims Act, codified at 31 U.S.C. § 3729.

The False Claims Act authorizes private citizens to sue on behalf of the

Federal government, and offers a percentage of the ultimate recovery to

such citizens for their “whistleblower” efforts. Damage awards under the

False Claims Act can be staggering, including up to $11,000 per false claim,

treble damages, and recovery of all attorney fees.[12]


False Claims Act (FCA)

The False Claims Act is broadly written and designed to both seek out and

punish the perpetration of fraud against the U.S. Government. This Act

dates back to the 1800s when President Lincoln and Congress enacted the

statute to address defense procurement fraud that occurred in connection

with defense contractors submitting fraudulent bills to the Union Army.

Although the Act targets many types of fraudulent claims, health care and

procurement fraud cases constitute the vast majority of all actions.

31 U.S.C. § 3729


False Claims Act

The False Claims Act imposes liability on any person who:

“(1)(A) knowingly presents or causes to be presented a false or fraudulent

claim for payment or approval;

(1)(B) knowingly makes, uses or causes to be made or used, a false record

or statement material to a false or fraudulent claim;

(1)(C) conspires to commit a violation of the FCA . . . or

(1)(G) knowingly makes, uses, or causes to be made or used, a false record

or statement material to an obligation to pay or transmit money or property to

the Government, or knowingly conceals or knowingly and improperly avoids

or decreases an obligation to pay or transmit money or property to the

Government.” 31 U.S.C. § 3729(a).


False Claims Act

The False Claims Act liability takes the form of monetary

penalties and the statute authorizes a civil penalty between

$5,000 and $10,000 per claim ($5,500 to $11,000 adjusted for

inflation, as provided in the statute), plus three times the

amount of damages which the Government sustains because

of the false claim. 31 U.S.C. § 3729(a).


False Claims Act

For purposes of the statute, the terms “knowing” and

“knowingly” mean that a person:

(1) has actual knowledge,

(2) acts in deliberate ignorance of the truth or falsity of the

information

or

(3) acts in reckless disregard of the truth or falsity of the

information. 31 U.S.C. § 3729(b).

There is no requirement that the person submitting the claim

have actual knowledge that the claim is false.


False Claims Act

The Deficit Reduction Act of 2005 modified the Social Security

Act to create a financial incentive for States to enact false

claims acts that create State liability for the submission of false

or fraudulent claims to the State’s Medicaid program.

42 U.S.C. § 1396h(b).


False Claims Act

If a State false claims act meets specified requirements, the State is entitled

to an increase in ten percentage points in the State medical assistance

percentage, as determined by Section 1095(b) of the Social Security Act.

More specifically, a State must have in effect a law that:

(1) establishes liability for the false or fraudulent claims described in the FCA

regarding any State Medicaid plan expenditures;

(2) contains provisions that are “at least as effective” in rewarding and

facilitating qui tam actions as those in the FCA;

(3) contains a requirement for filing an action under seal for sixty days

pending review by the State Attorney General; and

(4) contains a civil penalty that is not less than the penalty authorized under

the FCA. 42 U.S.C. § 1396h(b).


II. MEDICARE AND MEDICAID FRAUD AND ABUSE LAW

“Federal Anti-kickback Statute”

The Federal Anti-kickback Statute provides criminal penalties

for individuals or entities that knowingly and willfully offer, pay,

solicit, or receive remuneration to induce or reward the referral

of business reimbursable under any Federal health care

program.[13]

42 U.S.C. § 1320a-7b


Under the Anti-kickback Statute, it is illegal to

knowingly or willfully:

– offer, pay, solicit, or receive remuneration;

– directly or indirectly;

– in cash or in kind;

– in exchange for;

• referring an individual; or

• furnishing or arranging for a good or service; and

– for which payment may be made under Medicare or

Medicaid.[14]


THREE NECESSARY ELEMENTS

1. Intentional Act

2. Direct or Indirect Payment of Remuneration

3. To Induce the Referral of Patients or Business [15]


What is Remuneration?

Extremely Broad Scope, whether in cash or in kind, and whether made

directly or indirectly, including:

• Kickbacks;

• Bribes;

• Rebates;

• Gifts;

• Above or below market rent or lease payments;

• Discounts;

• Furnishing supplies, services or equipment free, above or below market;

• Above or below market credit arrangements; and

• Waivers of payments due. [16]


SAFE HARBOR PROVISIONS

If entity/person satisfies requirements of one or more of the following safe

harbor provisions, otherwise suspect payment practices are NOT subject

to criminal prosecution –

• Investment interests for publicly traded companies and smaller entities;

• Space and equipment rental agreements;

• Personal services and management contracts;

• Sale of a medical practice;

• Employees;

• Group purchasing organizations and Discounts;

• Waiver of beneficiary co-insurance and deductible amounts;

• Warranties; and

• Health Plan/Managed care. [17]


SAFE HARBOR PROVISIONS

• Investments in Ambulatory Surgical Centers (ASCs)

• Joint Ventures in Underserved Areas

• Practitioner Recruitment in Underserved Areas

• Sales of Physician Practices to Hospitals in Underserved Areas

• Subsidies for Obstetrical Malpractice Insurance in Underserved Areas

• Investments in Group Practices

• Specialty Referral Arraignments Between Providers

• Cooperative Hospital Services Organization [18]


The Anti-Kickback Statute is broadly drafted and establishes penalties

for individuals and entities on both sides of the prohibited transaction.

Conviction for a single violation under the Anti-Kickback Statute may

result in:

• A fine of up to $25,000

AND

• Imprisonment for up to five (5) years. 42 U.S.C. § 1320a-7b(b).

In addition, conviction results in mandatory exclusion from participation

in federal health care programs. 42 U.S.C. § 1320a-7(a).


Absent a conviction, individuals who violate the Anti-Kickback Statute may

still face exclusion from federal health care programs at the discretion of

the Secretary of Health and Human Services. 42 U.S.C. § 1320a-7(b).

The government may also assess civil money penalties, which could

result in treble damages plus $50,000 for each violation of the Anti-

Kickback Statute. 42 U.S.C § 1320a-7a(a)(7).

Although the Anti-Kickback Statute does not afford a private right of

action, the False Claims Act provides a vehicle whereby individuals may

bring qui tam actions alleging violations of the Anti-Kickback Statute. 31

U.S.C. §§ 3729–3733.


III. Civil Monetary Penalties

The Civil Monetary Penalties law (CMP) prohibits a hospital

from making a payment, directly or indirectly, to induce a

physician to reduce or limit services to Medicare and Medicaid

beneficiaries under the physician’s direct care.

42 U.S.C. § 1320a-7a


The Civil Monetary Penalties Law authorizes the imposition of

substantial civil money penalties against an entity that engages

in activities including, but not limited to:

(1) knowingly presenting or causing to be presented, a claim for

services not provided as claimed or which is otherwise false or

fraudulent in any way;

(2) knowingly giving or causing to be given false or misleading

information reasonably expected to influence the decision to

discharge a patient;

(3) offering or giving remuneration to any beneficiary of a

federal health care program likely to influence the receipt of

reimbursable items or services;


The Civil Monetary Penalties Law authorizes the imposition of

substantial civil money penalties against an entity that engages

in activities including, but not limited to:

(4) arranging for reimbursable services with an entity which is

excluded from participation from a federal health care program;

(5) knowingly or willfully soliciting or receiving remuneration for

a referral of a federal health care program beneficiary; or

(6) using a payment intended for a federal health care program

beneficiary for another use. 42 U.S.C. § 1320a-7a.


Civil Monetary Penalties

The Secretary of Health and Human Services, acting through

the OIG, has both mandatory and permissive authority to

exclude individuals and entities from participation in federal

health care programs pursuant to this statute. 42 U.S.C. §

1320a-7a.



The OIG is authorized to seek different amounts of CMPs and

assessments based on the type of violation at issue. 42 CFR §

1003.103.

In a case of false or fraudulent claims, the OIG may seek a

penalty of up to $10,000 for each item or service improperly

claimed, and an assessment of up to three times the amount

improperly claimed. 42 U.S.C. § 1320a-7a(a).

In a kickback case, the OIG may seek a penalty of up to

$50,000 for each improper act and damages of up to three

times the amount of remuneration at issue (regardless of

whether some of the remuneration was for a lawful purpose). 42

U.S.C. § 1320a-7a(a).



Prior to initiating formal administrative CMP proceedings, the

OIG seeks to resolve matters through negotiation. Most CMP

cases are resolved through settlement with no decision having

been made on the merits of the OIG's allegations or the

respondent's defenses.

If the OIG and the respondent cannot reach a negotiated

settlement, the case will result in an administrative decision,

and, if appealed, additional administrative and court decisions.

Any administrative or court decision represents a finding on the

OIG's allegations and the respondent's defenses. [19]

Antitrust Issues

Antitrust Issues

With the newly formed Accountable Care

Organizations arriving on the healthcare

industry landscape, we now examine some of

the basic antitrust issues before moving on to

a discussion regarding interfacing the two.

Antitrust Issues

“Free and open markets are the foundation of a vibrant

economy. Aggressive competition among sellers in an

open marketplace gives consumers — both individuals

and businesses — the benefits of lower prices, higher

quality products and services, more choices, and

greater innovation.”

The Federal Trade Commission

January 6, 2010

Antitrust Issues

The Antitrust Laws

Congress passed the first antitrust law, the Sherman Act, in

1890 as a comprehensive charter of economic liberty aimed at

preserving free and unfettered competition as the rule of trade.

In 1914, Congress passed two additional antitrust laws: the

Federal Trade Commission Act, which created the FTC, and the

Clayton Act. With some revisions, these are the three core

federal antitrust laws still in effect today.[20]

Antitrust Issues

I. Monopolization

Sherman Antitrust Act (15 U.S.C. §1)

Senator John Sherman was an expert on the regulation of

commerce and the chief author of the Sherman Antitrust Act

which was the first measure enacted by the U.S. Congress to

prohibit trusts or monopolies of any type.

The Act was based on the constitutional power of Congress to

regulate interstate commerce. It was passed by an

overwhelming vote of 51 to 1 in the Senate and a unanimous

vote of 242 to 0 in the House.[21]

Antitrust Issues

Sherman Antitrust Act

A monopoly is a situation in which there is a single supplier or

seller of a good or service for which there are no close

substitutes. Economists and others have long known that

unregulated monopolies tend to damage the economy by:

(1) charging higher prices,

(2) providing inferior goods and services and

(3) suppressing innovation, as compared with a competitive

situation.[22]

Antitrust Issues


“Every person who shall monopolize, or attempt to monopolize,

or combine or conspire with any other person or persons, to

monopolize any part of the trade or commerce among the

several States, or with foreign nations, shall be deemed guilty

of a felony, and, on conviction thereof, shall be punished by fine

not exceeding $100,000,000 if a corporation, or, if any other

person, $1,000,000, or by imprisonment not exceeding 10

years, or by both said punishments, in the discretion of the

court.”

15 U.S.C. §2

Antitrust Issues


Elements:

1. No Person shall

2. Monopolize, or attempt or conspire to monopolize

3. Any part of trade or commerce

4. Among the several states

Antitrust Issues


Requirements:

1. Monopoly power

2. Willful acquisition or maintenance of monopoly power

Antitrust Issues


The monopoly power would look to the market, specifically:

A. Line of commerce

B. Geography

Other factors would include:

A. Market share - (probably need 75%)

B. Power over price (a price maker)

Antitrust Issues


Potential Anticompetitive Act - Willful acquisition or maintenance of power

A. Is there an exclusionary or anticompetitive act

a. Erecting or maintaining barriers to entry

b. Predatory pricing

i. Below cost pricing

ii. Ability to recoup losses through future higher than competitive pricing

[1] Sherman act – requires a dangerous possibility

[2] Clayton act – requires a reasonable possibility

c. Leveraging monopoly power

d. Refusal to deal – boycotts

e. Essential facilities doctrine

i. Monopoly over essential facility

ii. Facility cannot be reasonably duplicated

iii. Use of facility refused

iv. No business justification for refusal

Antitrust Issues


For Attempted monopolization:

1. Specific intent (often inferred)

2. Anticompetitive act

3. Dangerous possibility of success

a. Market

b. Market share

c. Ability to lessen or destroy competition

Antitrust Issues

II. Violations "per se" and violations of the "rule of reason"

Violations of the Sherman Act fall loosely into two categories:

I. Violations "per se":

These are violations that meet the strict characterization of Section 1

("agreements, conspiracies or trusts in restraint of trade").

A per se violation requires no further inquiry into the practice's actual effect on

the market or the intentions of those individuals who engaged in the practice.

Antitrust Issues


Violations "per se":

Conduct characterized as per se unlawful is that which has been found to

have a "'pernicious effect on competition' or 'lack[s] . . . any redeeming

virtue'“[23] Such conduct "would always or almost always tend to restrict

competition and decrease output.“[24]

When a per se rule is applied, a civil violation of the antitrust laws is found

merely by proving that the conduct occurred and that it fell within a per se

category.[25] (This must be contrasted with rule of reason analysis.) Conduct

considered per se unlawful includes horizontal price-fixing, and horizontal

market division.

Antitrust Issues


Violations of the Sherman Act fall loosely into two categories:

II. Violations of the "rule of reason":

A totality of the circumstances test, asking whether the challenged practice

promotes or suppresses market competition. Unlike with per se violations,

intent and motive are relevant when predicting future consequences. The rule

of reason is said to be the "traditional framework of analysis" to determine

whether Section 1 is violated.[26]

Antitrust Issues


Violations of the "rule of reason":

The court analyzes "facts peculiar to the business, the history of the

restraining, and the reasons why it was imposed,“[27] to determine the effect on

competition in the relevant product market.[28] A restraint violates Section 1 if it

unreasonably restrains trade.[29]

Antitrust Issues

III. Tying - Clayton Act (15 U.S.C. § 12)

The Clayton Act made both substantive and procedural

modifications to federal antitrust law. Substantively, the Act

seeks to capture anticompetitive practices in their incipiency by

prohibiting particular types of conduct not deemed in the best

interest of a competitive market. Sections of the bill proposed

substantive changes in the antitrust laws by way of

supplementing the Sherman Act of 1890.[30]

Antitrust Issues

Tying - Clayton Act

For competitive purposes, a monopolist may use forced buying,

or “tie-in” sales, to gain sales in other markets where it is not

dominant and to make it more difficult for rivals in those markets

to obtain sales. This may limit consumer choice for buyers

wanting to purchase one, “tying” product by forcing them to also

buy a second “tied” product as well.

Typically, the “tied” product may be a less desirable one that the

buyer might not purchase unless required to do so, or may prefer

to get from a different seller. If the seller offering the tied products

has sufficient market power in the “tying” product, these

arrangements can violate the antitrust laws.[31]

Antitrust Issues

Tying - Clayton Act

Elements:

1. Tying and tied goods are two separate products

2. Market power in the tied product

3. No choice but to purchase the tied product

4. Effects substantial volume of commerce in the tied market

Defenses:

1. Technological package

2. No separate demand

Antitrust Issues

Tying - Clayton Act

To avoid issues with tying, one must evaluate if the components

satisfy the following:

1. Tying and tied goods are two separate products

2. Market power in the tied product

3. No choice but to purchase the tied product

4. Effects substantial volume of commerce in the tied market

If these items are true then one may be subject to a tying

problem with his product / components.

Accountable Care

Organizations (ACOs)

Accountable Care Organizations (ACOs)

What is an ACO?

Accountable Care Organizations (ACOs) are groups of

doctors, hospitals, and other health care providers, who come

together voluntarily to give coordinated high quality care to

their Medicare patients.

The goal of coordinated care is to ensure that patients,

especially the chronically ill, get the right care at the right time,

while avoiding unnecessary duplication of services and

preventing medical errors.

When an ACO succeeds both in both delivering high-quality

care and spending health care dollars more wisely, it will share

in the savings it achieves for the Medicare program.[32]


Medicare offers several ACO programs:

1) Medicare Shared Savings Program —a program that helps a

Medicare fee-for-service program providers become an ACO.

Applications are currently being accepted by Medicare.

2) Advance Payment ACO Model —a supplementary incentive

program for selected participants in the Shared Savings

Program.

3) Pioneer ACO Model —a program designed for early adopters

of coordinated care. Medicare is no longer accepting

applications.[33]


Currently as the Centers for Medicare and Medicaid Services

(CMS) are testing several models of care delivery re-design

[See previous slide] that aim to improve the efficiency of

American healthcare systems, improve quality, and contain

costs; private payers are testing models concurrently.

Private commercial payers, such as Cigna, Anthem, and Aetna

are supporting ACO formation, testing the concept either by

aligning incentives with more organized provider groups and

health systems in their marketplaces or by purchasing physician

groups and providers to attempt to improve care delivery.[34]


These types of insurer-directed payment approaches to care delivery remind

many of the HMO movement of the 1990s. Since that time, however, the

term HMO has come to mean different things.

Today, HMOs generally refer to:

1) Fully integrated delivery systems like Kaiser Permanente, where the

insurer, physician groups, and hospitals are part of one integrated

organization, and care is provided to only those who are insured by that

organization; and

2) private health-plan products that call themselves HMOs, but are

fundamentally only payment contracts with a network of mostly

disaggregated physicians and hospitals.

While some HMOs could meet the test of an ACO, not all of them have

currently the capability.[35]


The Shared Savings Program

The three goals stressed under the Shared Savings Program are:

(1) to provide better care to patients with respect to safety, effectiveness,

patient-centeredness, timeliness, efficiency, and equity;

(2) to provide better health for populations through preventive service and

education for issues such an substance abuse and physical inactivity; while

(3) decreasing the cost of healthcare and eliminating waste in the system.

CMS seeks to move the healthcare industry towards this patient-centered

care approach by adding patients to the governance structure of ACOs,

requiring patient satisfaction data, and requiring attention to care

coordination issues. ACOs will receive shared savings only if they can meet

quality standards related to these goals.[36]


COSTS

ACOs were created under the Patient Protection and Affordable Care Act

(PPACA) as a new health care delivery and payment model. However,

judging by estimates provided by CMS and other agencies, it appears that the

aggregate possible pool of savings to be shared with ACOs over the three-

year period may not cover ACO’s expected start-up and first-year operating

costs. Additionally, some ACOs may have to re-pay Medicare for any losses

Medicare experiences as a result of costs associated with an ACO.

CMS estimates average start-up costs and first-year operating expenses of

$1.7 million for an ACO. The large costs are due to the numerous and highly

detailed requirements that organizations must meet in order to be allowed to

participate as an ACO under the Medicare Shared Savings Program (MSSP)

established by PPACA. CMS expects that 1.5 to 4 million Medicare

beneficiaries will align with an ACO in the first three years of the program and

that an estimated 300 to 800 ACOs will participate. The median estimate of

net savings to the Medicare program over the three-year period is $510

million.[37]


Shared Savings and Shared Losses

An ACO will be eligible for shared savings only if it meets predetermined

standards in all 65 different quality measures. ACOs must agree to a three-

year agreement with CMS and can choose one of two models in which it can

be eligible for shared savings.

Under the “one-sided” model, an ACO will share in savings for the first two

years and then be transitioned to a full risk model in the third year, when the

ACO would be responsible for any losses to the Medicare program if costs

exceed certain thresholds.

Under the “two-sided” model, the ACO would be responsible for any losses

beginning in the first year, but in return, would be eligible for a greater

percentage of any savings. One-sided model ACOs may be eligible to share

up to 52.5 percent of savings, while two-sided ACOs may share up to 65

percent.[38]



Savings will be determined based upon a comparison with a benchmark of

expected average per capita Medicare fee-for-service expenditures. It will be

risk adjusted for beneficiary characteristics. The proposed regulations also

contain safeguards against ACO providers who attempt to “game” the system

by coding changes without improved patient care.[39]



Shared savings will be calculated using a 6-month claim run off period. CMS

will withhold 25 percent of any earned performance payment to guard against

losses in future years as well as to provide an incentive to ACOs to stay in the

program for the full three-year period. At the end of the 3-year period, any

positive balances will be returned to the ACO. If the ACO does not complete

the three-year term, it will forfeit any withheld savings. ACOs must also

establish a method by which any losses to the Medicare program are

guaranteed, such as obtaining re-insurance, obtaining a surety bond, placing

funds in escrow, or another method deemed acceptable by CMS. The ACO

must guarantee losses equal to one percent of the per capita expenditures to

its assigned beneficiaries for the most recent year available.[40]


What are the primary characteristics of an ACO?

Many experts believe that ACOs should be formed around strong

primary care, specialty, and hospital physician-led alliances. Payment by

insurers and the government should incentivize cost control and the

improvement of care that is delivered within these organizations. In this

way, ACOs can be formed that serve all patients equally, not just the

people covered by Medicare.[41]



Proponents generally agree that the following characteristics are essential in

an ACO delivery model:

1. An ACO should have the capability to manage both the cost and quality of

health care services under a range of payment systems, including fee-for-

service, episode payments, and full and partial population-based prepayment

(capitation).

2. Possession of sufficient infrastructure and management acumen to support

comprehensive, valid, and reliable performance measurements; to make

internal system improvements in care quality; and to externally report on its

performance with regard to cost and quality of care.[42]



Proponents generally agree that the following characteristics are essential in

an ACO delivery model:

3. A clear organizational mission and commitment to achieve quality and cost

efficiencies; a physician management structure that is supportive of all of the

requirements listed above; and a culture that supports and rewards

continuous quality improvement

4. The use of health information technology to manage patients across the

continuum of care and across different institutional settings, including at least

ambulatory and inpatient hospital care and possibly post-acute care.[43]


Who can participate in an ACO?

Physicians and hospitals are the target, particularly multi-

specialty group practices, independent practice associations

(IPAs), networks of individual physician offices in partnership

with hospitals and hospitals that employ clinicians or have

affiliations with them, and integrated health systems.[44]


What is required to be an ACO?

Eligible organizations must demonstrate that they are capable of doing the

following:

•Defining processes to promote care quality, report on costs, and coordinate care.

•Developing a management and leadership structure for decision-making.

•Developing a formal legal structure that allows the organization to receive and

distribute bonuses to participating providers.

•Including the primary care physicians (PCPs) of at least 5,000 Medicare

beneficiaries

•Providing CMS with a list of participating PCPs and specialists.

•Having contracts in place with a core group of specialist physicians.

•Participating for a minimum of three years.[45]


What are the benefits to a Hospital in participating in an ACO?

•Better and demonstrable clinical outcomes.

•Enhanced reputation for quality.

•Physician loyalty.

•Decreased costs of doing business.

•Increased efficiency.

•Improved affinity with the healthcare community.

•Patient satisfaction.[46]


What are the benefits to Physicians for participating in an ACO?

•Improved office workflow efficiencies.

•Ease of access to key clinical information.

•Increased care coordination and enhanced communication

with all members of the patient’s care team.

•Ability to manage difficult cases that require multiple visits

and involve multiple providers.

•Improved application of evidence-based medicine through

disease management protocols and clinical decision support.

•“Hassle-free” clinical practice and enormous increase in

physician and staff job satisfaction.[47]


What are the benefits to Patients?

•Coordinated care across both physician offices and

hospitals.

•Better health outcomes.

•Availability of full medical history accessible by all

members of the care team and in case of emergency.

•The end to repeatedly filling out forms on medical history.

•The end to repeats of unnecessary tests.[48]

DOJ & FTC

Response to Anticompetitive

Effects of ACOs

DOJ & FTC Response

The Federal Trade Commission and the Antitrust Division of

the Department of Justice (the “Agencies”) recognize that

ACOs may generate opportunities for health care providers to

innovate in both the Medicare and commercial markets and

achieve for many other consumers the benefits Congress

intended for Medicare beneficiaries through the Shared

Savings Program.

Therefore, to maximize and foster opportunities for ACO

innovation and better healthcare for patients, the Agencies

wish to clarify their antitrust enforcement policy regarding

collaborations among independent providers that seek to

become ACOs in the Shared Savings Program.[49]

DOJ & FTC Response

The Agencies recognize that not all such ACOs are likely to

benefit consumers, and under certain conditions ACOs could

reduce competition and harm consumers through higher prices

or lower quality of care.

Thus, the antitrust analysis of ACO applicants to the Shared

Savings Program seeks to protect both Medicare beneficiaries

and commercially insured patients from potential

anticompetitive harm while allowing ACOs the opportunity to

achieve significant efficiencies.[50]

DOJ & FTC Response

The DOJ and FTC have jointly issued a proposed Statement of Antitrust

Enforcement Policy Regarding ACOs.

The Statement sets forth a “safety zone” for ACOs that serve rural areas or

that have a combined share of 30% or less of each common services in the

ACO’s Primary Service Area (PSA).

If an ACO has a PSA share above 50% for any common service that two or

more ACO participants provide, the ACO must obtain a letter from the DOJ

or FTC confirming that it has no present intent to challenge the ACO on

antitrust grounds.

If the ACO’s PSA share is between 30% and 50% for any common service

provided by two or more ACO participants, the ACO may request an

expedited review of its arrangement, or it may proceed without FTC/DOJ

review and remain subject to an antitrust investigation.[51]

DOJ & FTC Response

Tax Considerations

The IRS also issued contemporaneously a solicitation for comments on

what guidance, if any, is necessary for tax-exempt organizations

participating in ACOs.

DOJ & FTC Response

Coordination with The Agencies

In connection with submitting an application to be accepted into

the MSSP, ACOs must also seek a waiver from the OIG. The

OIG has issued separate guidance indicating its proposed

procedure for issuing waivers of the application of certain Civil

Monetary Penalty law provisions, the Federal anti-kickback

statute, and the physician self-referral (Stark) law to specified

financial arrangements involving ACOs.[52]

ACO Waivers and

Potential Issues

ACO Waivers and Potential Issues

The Stark Law, the Federal Antikickback Statute, and

Antitrust 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.

The Agencies accordingly designed a series of self-

implementing waivers for the application of these laws, but

the exemptions can lead to broad interpretations.[53]

We will now examine four key area applications.


I. 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.“[54]


I. Stark Law

The Agencies define the term "reasonably related" with six

characteristics:

1) Promoting accountability for the quality, cost and overall care for a

Medicare population;

2) Managing and coordinating care for Medicare fee-for-service

beneficiaries through an ACO;

3) 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;

4) Evaluating health needs of the ACO's assigned population;

5) Communicating clinical knowledge and evidence-based medicine to

beneficiaries and

6) Developing standards for beneficiary access and communication.[55]


II. 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.

Since this is an intent-based statue, it would potentially

prohibit ACO payment arrangements that induce referrals of

Medicare reimbursable business if not for the regulatory

waiver.[56]


II. Antikickback Statute

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.[57]


III. 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.[58]


III. Non-profit tax exemption

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.[59]


IV. Antitrust Laws

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.[60]


IV. Antitrust Laws

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.[61]


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:

1) Preventing or discouraging private payors from incentivizing

patients to choose certain providers, including providers not

participating in the ACO.

2) 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.[62]


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:

3) Contracting exclusively with ACO physicians, hospitals,

ambulatory surgery centers and other providers to prevent

those providers from contracting with payors outside the ACO.

4) 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.[63]


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 ensure such commercial

arrangements comply with the four federal laws discussed

previously in absence of regulatory waivers. Providers should

also analyze and ensure ACOs abide by their respective state

laws, as over 30 states have their own False Claims Act,

Antikickback statutes and self-referral or "mini-Stark" laws.

Conclusion

Conclusion

What are some of the challenges facing ACOs?

In many other industries, “system-ness” within an organization provides

consistency of quality and outcomes. This is an operational imperative of

any efficient enterprise, but is substantially lacking in the U.S. healthcare

system. Clinical and financial integration will be necessary to achieve the

aims of an ACO, but a successful integration cannot occur without a method

to systematically provide favorable medical outcomes.

Despite the evidence that the more highly integrated and organized health

care systems in this country have proven to be more adept at managing cost

and quality, integrated systems of care are not the norm.[64]

Conclusion

What are some of the challenges facing ACOs?

Specific issues regarding ACO viability include internal and external

organizational factors such as:

• Governance – Establishing an entity that can manage risk and balance the

interests of the various organizations and individuals involved. Creating a shared

vision and commitment to the best methods to provide care.

• Physician participation – Recruiting and retaining primary and specialty MD’s.

• Technology – Adopting health information exchange technology that enables

ACO participants to leverage existing information systems to exchange data

across care locations, facilitate care collaboration, perform quality reporting and

ensure all the data for fulfilling ACO objectives is captured.

• Consumer acceptance – Educating patients on the benefits of coordinated care

and assuring them that the ACO will not reduce the quality of care to save money. [65]

Conclusion

One of the most challenging aspects of operating an ACO lies in the legal

and regulatory issues that must be addressed to allow for ACO collaboration

and integration.

The Healthcare Industry Regulatory Framework requires a detailed

understanding of:

1. Stark Laws [Federal and State]

2. False Claims Act

3. Antikickback Statutes

4. Civil Monetary Penalties

Antitrust Issues must also be factored such as:

1. Monopolization / Potential Anticompetitive Acts [Sherman Act]

2. Per Se Violations

3. Rule of Reason

3. Tying [Clayton Act]

Conclusion

DOJ & FTC Guidance

Fortunately, The Department of Justice (DOJ) and the Federal Trade

Commission (FTC) (together, the antitrust agencies) have answered some of

the pressing antitrust questions with their March 31, 2011, Proposed

Statement of Antitrust Enforcement Policy Regarding Accountable Care

Organizations Participating in the Medicare Shared Savings Program (Policy

Statement).

Although the Policy Statement is styled as a mere statement of antitrust

enforcement policy for accountable care organizations (ACOs), similar to

earlier enforcement statements, in fact it was issued in support of a proposed

regulation from the Centers for Medicare and Medicaid Services (CMS),

regarding the Medicare Shared Savings Program and ACO provisions of the

Patient Protection and Affordable Care Act (PPACA). We are now seeing the

antitrust agencies clearly taking on a much more significant role in the

regulatory review process of a sister agency than previously.[66]

Conclusion

DOJ & FTC Guidance

That regulatory entanglement regarding the Medicare Shared Savings

Program and ACO provisions of the Patient Protection and Affordable Care

Act can be seen in provisions of the Policy Statement that attempt to (1)

reconcile the contradictory goals of reducing antitrust uncertainty for ACOs in

order to facilitate participation in the Medicare Shared Savings Program,

while (2) sending a strong enforcement message that the antitrust agencies

will not tolerate ACOs that acquire the ability to exercise market power in

commercial markets. The results are highly technical rules, such as Primary

Service Area Safety Zones, intended to allow ease of application, but which,

raise many questions as to their meaning and likely application.[67]

Conclusion

CMS Guidance

Although the antitrust agencies published their Policy Statement as a separate

document, CMS provided its own explanation for the role of antitrust review in the

Medicare Shared Savings Program. In CMS’ proposed rule, it identified three reasons

for its incorporation and reliance on the antitrust agencies’ Policy Statement:

(1) ACOs that do not face significant antitrust risk are likely to complete the three-year

commitment that CMS requires without disruption of the program due to antitrust

challenge,

(2) ACO-versus-ACO competition is likely to improve the clinical quality of care that

Medicare beneficiaries receive and

(3) ACOs exercising market power in the private market are likely to prefer private pay

patients over Medicare patients and, thus, to limit access by Medicare patients to their

services. The antitrust agencies, in turn, explained that they issued their Policy

Statement “to maximize and foster opportunities for ACO innovation” and “both to

clarify the antitrust analysis of newly formed collaborations among independent

providers . . . and to coordinate the antitrust analysis with the CMS.”[68]

Conclusion

The Agencies 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. Even

though the Agencies designed a series of self-implementing waivers for the

application of these laws, the exemptions can lead to broad interpretations.

For example 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 which can lead

to broad and diverse interpretations for ACO’s.[69]

Conclusion

Similarly, 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 to overcome the

prohibitions of the Antikickback Statute.

A common thread between all 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.[70]

Conclusion

The IRS guidance regarding non-profit tax exemption also

provides a loose description for operators of ACO’s. The IRS

has stated that MSSP participation can be interpreted as a

charitable purpose but 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 has yet to further

define this exemption and it remains unclear what types of non-

MSSP activities may still further an ACO's charitable mission.[71]

Conclusion

While the traditional framework for antitrust has been “modified’

through the Agencies’ waivers, there remain many pitfalls in

obtaining compliance for operating an ACO in the market.

Providers must continue to examine their operations to achieve

compliance with traditional regulatory requirements such as

False Claims Act, Antikickback statutes and self-referral Stark

laws as well as the Agencies new positions on antitrust issues.

Providers must ensure such commercial arrangements comply

with these federal laws discussed previously in absence of

regulatory waivers. Providers should also analyze and ensure

ACOs abide by their respective state laws, as over 30 states

have their own False Claims Act, Antikickback statutes and self-

referral or "mini-Stark" laws.[72]

Conclusion

Compliance for the ACO may seem daunting but it can be

achieved through diligent planning and obtaining expert legal

advice to guide the organization through the maze of new

regulatory requirements.

As the new health care system is gradually unveiled by the

government, adaptations will be necessary to balance the

mandates and deliver high quality, affordable health care to

beneficiaries.

Antitrust Implications for

Healthcare ACO’s

Presented at MC Law - Summer Session 2013

Richard Bays JD, MBA, RN, CPHQ

[email protected]

mailto:[email protected]