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Regulations Regarding Accountable Care Organizations

May 12, 2011 | Comments Off on Regulations Regarding Accountable Care Organizations
Posted by Frank Ciesla

The proposed regulations in regard to Medicare Accountable Care Organizations (ACOs) have been issued by the Centers for Medicare and Medicaid Services (CMS).  The position paper of the Internal Revenue Service (IRS) regarding ACOs, the combined position paper of the Federal Trade Commission and the Justice Department in regard to ACOs, and the combined notice with comment period regarding antikickback waiver designs issued by CMS and the Office of Inspector General (OIG), have now been issued.  It is indisputable that there will be a significant amount of comments submitted to the government in regard to the proposed ACO regulations.  These may or may not result in modifications to the proposed ACO regulations.  The proposed ACO regulations set forth a framework for a proposed Medicare Shared Savings program.

One of the issues clearly not resolved in the proposed CMS regulations is the method of obtaining the funding necessary to set up the ACOs.  As set forth in the CMS preamble to the regulations:

In order to participate in the program we realize that there will be costs borne in building the organizational, financial and legal infrastructure that is required of an ACO as well as performing the tasks required (as discussed throughout the preamble) of an eligible ACO, such as quality reporting, conduct new patient surveys and investment in the infrastructure for effective care coordination.   While provider and supplier participation in the Shared Savings Program will be voluntary, we have examined the potential costs that the program participation will create.

While the preamble goes on to discuss the various costs and various estimates, what is not clear is where is the funding for ACOs and their infrastructure will come from and what the methodology is for a return on that investment to the source from which the funds originate.  As one reads through the proposed obligations imposed upon the ACO under the regulations, it is clear that a significant overhead expense will be created.  It is also clear that payment for direct patient care services to the Medicare beneficiaries, will not be made to the ACOs, but will be made directly to the providers of care, whether or not they are participants in the ACO.  It appears that the source of revenue for the ACO will be the Shared Savings that they will be eligible to earn as a result of the ACO’s participation in the Medicare Shared Savings program.  What is not clear is whether or not, the revenue from the Shared Savings program will be adequate to provide a return on the investment, as well as a return, to the extent necessary, of the initial capital investment and capital infusions for upgrades.

One concern is that investors who will be receiving referrals from the primary care physicians or others who are participants in the ACOs, cannot realistically expect a fair market value return on their investment in the short term.  The question will then arise as to whether or not they made their investment in exchange for referrals.  The potential application of the Court’s analysis in U.S. v. Greber, 760 F.2d 68 (3rd Cir. 1985) cert. den. 474 US 988 (1985) arises under this scenario.  In Greber, the Court of Appeals for the Third Circuit held that the federal antikickback statute was violated where “one purpose” of the remuneration was to induce referrals.  If one of the reasons for making an investment in an ACO is to encourage the referral of patients either to a hospital or a specialist, that motivation subjects the investors to the possibility of criminal liability exposure under Greber.

Another concern for ACOs that intend to do business not only with federal payor programs but also with commercial payors, is the potential exposure under state antikickback laws.  A similar waiver under the state laws may be necessary for each state where the ACO will be doing business.

Going forward, we may or may not see the methodologies for addressing this issue as part of the final ACO regulations in order to encourage investment into an ACO (essential for the success of the program), without exposing the participants to criminal activity.  Frank Ciesla, Sharlene Hunt and Beth Christian have worked together to submit a public comment to the Centers for Medicare and Medicaid Services and the Office of Inspector General as these agencies work to structure the final iteration of the ACO antikickback waiver process.


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