Regulatory Barriers to Organizing Accountable Care Organizations and Other Clinically Integrated Initiatives

The Patient Protection and Affordable Care Act (the “Act”) seeks to reduce the cost of healthcare and improve quality by incentivizing providers to collaborate with each other to create integrated healthcare delivery systems.  These integrated delivery systems will be paid based on new reimbursement methodologies which are designed to incentivize providers to improve care and reduce costs through collaboration.  One important delivery system reform included in the Act is the Shared Savings Program which contemplates the creation of Accountable Care Organizations (“ACOs”). 

Under the Act, an ACO consists of a group of providers who work together to manage and coordinate care for Medicare beneficiaries and pediatric Medicaid beneficiaries.  An ACO is eligible to receive shared savings bonuses if it meets certain quality performance standards.  In addition, an ACO can be an Independent Practice Association and contract with private payers, as well as with CMS.

Today, most providers are paid on a fee-for-service basis.  Economic success is often based on the degree to which a provider is successful in performing more procedures, performing procedures with higher profit margins, and negotiating higher fees for their procedures.  As part of an ACO, providers will be paid based on their success in achieving value, i.e. better health outcomes at lower total cost.  In response to the shift towards value-based reimbursement, providers are developing new competitive strategies focused on consolidating with other providers or establishing looser contractual linkages with them to develop ACOs and other “patient-centric” care processes to achieve improved health outcomes at lower total costs. 

Many federal and state laws are implicated when providers collaborate on the delivery of care.  These laws include the antitrust laws, the physician self-referral prohibition known as the Stark Law, the Anti-kickback law and the Civil Monetary Penalty law (“CMP”), among others

Integrating healthcare delivery among independent providers is a complex process that requires a substantial commitment of resources and time.  Laws that restrict collaboration coupled with the lack of guidance from the enforcement agencies about how they will implement applicable laws in light of the Act makes collaboration even more difficult.  Many providers are already experimenting with innovative arrangements to coordinate care and are required to abandon strategies that make sense from a clinical integration perspective but which present too much risk from a regulatory perspective. 

The agencies involved in the enforcement of such laws recognize the importance of evaluating how to apply such laws to ACOs.  All of these laws are also relevant to the regulations the Centers for Medicare and Medicaid Services (“CMS”) is developing to implement the Shared Savings Program.

By way of example, the Federal Trade Commission (“FTC”) and the Department of Justice Antitrust Division (“DOJ”) enforce the antitrust laws.  Since 1996, providers have been permitted to contract together as part of clinical integration arrangements.  However, it is not clear whether or not certain arrangements should be considered anticompetitive.  ACOs that participate in shared savings programs will avoid anti-trust issues as long as the government unilaterally sets payments.  However, this is not the case when an ACO enters into agreements with commercial payers.  Current FTC guidance is lacking with respect to the circumstances under which collaboration among independent providers in an ACO permits ACO providers to engage in joint price negotiations with private payers without running the risk of engaging in illegal price fixing.  As providers organize into ACOs, they need to understand the indicia of clinical integration sufficient to establish that an ACO is likely to enable participating providers to improve the quality of their services and whether joint price negotiations are reasonably necessary to achieve these efficiencies.  Such indicia could include the degree in which providers engage in integrated activities, the information used to ensure that providers are coordinating patient care, incentives for providers to adhere to evidence-based clinical protocols such as financial risk-sharing and/or financial and resource investments made by providers.  This is especially important because healthcare providers are more likely to clinically integrate and adopt new clinical protocols for Medicare and Medicaid beneficiaries if they can also use the same systems for patients covered by commercial payers. 

Another example is the Stark law.  This law prohibits referrals for certain designated health services by physicians to entities in which they have a financial interest, unless certain exceptions apply.  CMS has primary enforcement responsibility for the Stark law.  The Stark law does not have a specific exception regarding ACOs.  However, it is often possible to structure ACO relationships to meet other exceptions, such as the employment exception, the personal services exception and/or the fair market value exception. 

Final examples include the Anti-kickback law and the CMP.  The Office of the Inspector General (“OIG”) of the Department of Health and Human Services (“DHHS”) enforces the Anti-kickback law and imposes CMPs for knowing violations of the law.  The Anti-kickback law is a criminal statute that prohibits the accepting of money or any item of value in return for the referral of health services paid for, in whole or in part, by a federal healthcare program.  The Anti-kickback law includes certain exceptions and provides “safe harbors” for certain relationships.  There is no “safe harbor” for ACOs.  If a hospital or group of providers is developing an ACO, one of the most direct ways to ensure a complaint relationship is to employ the physicians since the law exempts remuneration paid by an employer to a bona fide employee from prosecution.  The statute also provides for safe harbors for certain independent contractor arrangements.  Hospitals and other providers must ensure these other non-employment arrangements do not violate Anti-kickback law.

The potential for ACOs to successfully operate in both public and private insurance markets depends, in large part, on support from the FTC, CMS and OIG.  Absent regulatory clarification and modification, the success of ACOs will be frustrated by the same government that is seeking to encourage them.  The various agencies are aware of the challenges faced by providers as they seek to collaborate care.  The FTC is in the process of preparing guidance.  The DHHS Secretary is considering whether to use her authority to waive certain requirements necessary to carry out the intentions of the Act.  An alternative to the use of the Secretary’s waiver authority under the Act would be for the Secretary to use her authority to create a new shared savings/incentive payment exception to the Stark law.  Similarly, the OIG is considering a new safe harbor to the Anti-kickback law.  The various agencies are currently soliciting public comments.