Broad legal waivers enable physician ACO participation

Legally Speaking

Rob Portman

Rob Portman is a health care attorney with Powers Pyles Sutter & Verville in Washington, D.C., and serves as General Counsel for the AAD and AADA.

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Accountable care organizations (ACOs) are a key element of the Patient Protection and Affordable Care Act (PPACA), the broad health system reform law that was passed in 2010. ACOs provide a new structure for delivering integrated health care that is intended to improve access and quality and reduce costs. Previous Dermatology World articles have looked at the financial, organizational, and professional issues for dermatologists in assessing whether to join or work with one or more ACOs. (All of these articles are available in the Academy’s online ACO Resource Center at This article addresses some of the legal risks associated with ACO participation and the legal waivers issued by the federal government to encourage and facilitate such participation. [pagebreak]

Legal risks

The Centers for Medicare and Medicaid Services (CMS) has established two shared savings program initiatives — the Medicare Shared Savings Program and the Advance Payment Model — that involve ACOs. (A similar program called the “Pioneer ACO Model” was also established by CMS under the authority of the ACA. However, that program is separate and the waivers discussed in this article do not apply to such ACOs.) Because ACOs are designed to be accountable for all covered care provided to patients under Medicare Parts A and B, including specialist care such as dermatology services, there are opportunities for dermatologists to be involved in ACOs, along with hospitals and primary care physicians.

The shared savings program raises a number of legal concerns for physicians and other providers interested in participating in an ACO. These concerns stem from the risks and compliance issues raised by entering into financial relationships with hospitals and other physicians that may serve as referral sources or recipients. ACOs, by design, create incentives to encourage beneficiaries to seek care within an ACO’s network, something that is ordinarily prohibited. ACO formation may also involve the sort of integration of competing organizations that normally attracts antitrust scrutiny.

To alleviate concerns about these legal risks, the administration accompanied the Oct. 20, 2011 unveiling of the interim final rule for ACOs with the announcement of broad fraud and abuse and antitrust waivers for organizations forming, or exploring the formation of, ACOs. The details of the waivers are laid out below. [pagebreak]

Fraud and abuse waivers

Combined, CMS and the Office of the Inspector General (OIG) have issued five waivers from the federal physician self-referral, kickback, gainsharing, and beneficiary inducement prohibitions for ACOs engaged in certain activities. The five waivers will not be codified in federal regulations, and they do not protect against any self-referral prohibitions under state law, so it is possible that an ACO fitting under the federal waiver might still present compliance risk under state law. Nonetheless, the five waivers are designed to allow parties to develop and run ACOs relatively unhindered by the federal fraud and abuse laws, and therefore can create a significant competitive advantage for these new entities.

The five different waivers are:

  • the Shared Savings Distribution waiver,
  • the Compliance with the Physician Self-Referral Law waiver,
  • the ACO Pre-Participation waiver,
  • the ACO Participation waiver, and
  • the Patient Incentive waiver. [pagebreak]

The first two waivers — Shared Savings Distribution and Compliance with Physician Self-Referral Law — are relatively narrow in scope and apply only to distributions of the shared savings among ACO participants or to entities outside of the ACO whose work is closely related to achieving the ACO’s quality and savings goals. Under the Shared Savings Distribution waiver, the savings to be distributed must be earned by the ACO during the term of the applicable participation agreement. However, distributions made directly from a hospital to a physician or physician group must not be made in such a way that knowingly causes the physician to reduce or limit the availability of medically necessary items or services to beneficiaries. This means that the formula used to determine the distribution cannot be based on factors such as decreased use of medical supplies.

The Compliance with the Physician Self-Referral Law waiver allows ACO agreements to meet the requirements for a Stark Law exception, which are comparatively lenient, and apply that exception to the stricter anti-kickback and gainsharing prohibitions as well. For example, if an arrangement in support of the ACO between a physician and a designated health services (DHS) entity such as a hospital or a pharmacy for part-time services such as call coverage or periodic consultation meets the Stark law exception for personal service arrangements (i.e., set out in a signed writing covering all the services to be provided with a minimum term of one year and compliant compensation terms), then the arrangement is immunized from potential liability under the anti-kickback statute even though it cannot meet the requirements of the personal services safe harbor without a specific schedule for the part-time services being established in advance.

The second set of waivers, the ACO Pre-Participation and Participation waivers, are designed to provide seamless protection to ACOs during both the application process and after the ACO is up and running. They apply to prospective and actual ACOs, their participants, and their providers/suppliers. [pagebreak]

The ACO Pre-Participation waiver is very important because it applies to start-up arrangements entered into in connection with the formation of an ACO. The exemption permits ACO participants to provide facilities, services, and goods, or to pay for these items, in connection with the formation of an ACO, without risk of violating the anti-kickback statute, the Stark law, or gainsharing prohibitions. For example, because of the waiver, a hospital or health system may now pay the organizational costs of forming an ACO, even though it will result in a financial benefit to physicians that might otherwise trigger the Stark or anti-kickback laws. The waiver comes, however, with a limited window of opportunity. It will protect parties forming an ACO for one year prior to the due date of the ACO’s application to participate.

Both the Pre-Participation and Participation waivers require the governing body of the prospective ACO to carefully document the terms of and reasons for the support arrangement in its minutes or similar records. These documentation requirements should be reviewed carefully by any health care provider contemplating entering into an arrangement with the prospective ACO. The Pre-Participation and Participation waivers also require public disclosure of the arrangement (excluding the financial terms). Entities seeking to form an ACO or an already-formed ACO seeking to use the Participation waiver should post the disclosure within 60 days of the date of the arrangement on a public website belonging to the ACO or an individual or entity forming the ACO, clearly labeled as an arrangement for which waiver protection is sought. [pagebreak]

The last waiver, the Patient Incentive waiver, will allow ACOs to offer incentives to patients to encourage cost-effective care. Absent the waiver, offering a benefit to a Medicare beneficiary that might steer business to a particular provider is prohibited by statute. The waiver will permit ACOs to offer patients preventive care items and services, along with other items or services that promote adherence to patient care plans or chronic care management programs. The incentives may only be “in-kind.” Financial incentives such as cash or coupons are not protected by the waiver.

There is no need to apply for any of these waivers. Furthermore, it is only necessary for an arrangement to qualify for one of them. Though the waivers are somewhat duplicative and tend to overlap one another, if an arrangement meets all the requirements of one of the five waivers, that arrangement is insulated from liability under the specific laws intended to be addressed by the waiver and need not meet the remaining requirements for any other waiver. (One exception is important to note: the Patient Incentive waiver is specifically designed to insulate an arrangement from risk of violating beneficiary inducement rules and may not serve to adequately protect against risk under the Stark or anti-kickback laws or the gainsharing statute.)

OIG and CMS have indicated that they may narrow (or even eliminate) these waivers in the future. For now, though, these waivers significantly reduce fraud and abuse compliance risk as an impediment to ACO participation. [pagebreak]

Antitrust statement

ACOs, by definition and structure, involve the combination of and/or collective action by competitors to jointly provide health care services and negotiate with third-party payers. This would ordinarily create antitrust concerns. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) announced in their Final Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program that they will not consider an ACO that jointly negotiates with private insurers to serve patients in commercial markets as per se illegal if the ACO satisfies certain requirements. Per se antitrust liability applies to certain egregious anticompetitive conduct, including price fixing, market allocations, and group boycotts. To avoid per se antitrust scrutiny, the ACO must meet CMS’s eligibility requirements for, and participate in, the shared savings program and use the same governance and leadership structures and clinical and administrative processes to serve patients in both Medicare and commercial markets.

An ACO that qualifies for per se immunity will still face some antitrust risk. However, in such cases, DOJ/FTC will apply the less stringent “rule of reason” doctrine in determining whether a potential antitrust violation has occurred. This analysis evaluates whether the collaboration between the health care entities is likely to have anti-competitive effects and, if so, whether the potential pro-competitive efficiencies of the collective activity are likely to outweigh those negative effects. [pagebreak]

The DOJ/FTC statement also provides for a new antitrust “safety zone” for ACOs that meet certain additional conditions. The safety zone is intended for ACOs that are highly unlikely to raise significant competitive concerns. Absent extraordinary circumstances, the DOJ and FTC will not challenge an ACO that falls within the safety zone. ACOs fall within the safety zone as long as:

  • independent participants who provide a common service have a combined market share of 30 percent or less of each common service in each participant’s Primary Service Area (PSA), and
  • hospital and ambulatory surgical center participants and any participants with a 50 percent or greater market share are not exclusive to a single ACO.

The DOJ/FTC statement spells out specific circumstances under which an ACO would raise competitive concerns. Examples of improper conduct include improper sharing of competitively sensitive information, regardless of market share; engaging in certain conduct that could prevent private payers from obtaining lower prices and better quality service, such as preventing or discouraging private payers from directing or incentivizing patients to choose non-ACO providers; tying ACO services to the purchase of non-ACO services; contracting with providers on an exclusive basis so that the provider cannot contract outside of the ACO with other payers; and restricting private payers from sharing certain provider information with beneficiaries. DOJ/FTC also noted that all ACOs should refrain from, and implement safeguards against, conduct that may facilitate collusion among ACO participants in the sale of competing services outside the ACO. [pagebreak]

DOJ/FTC will offer voluntary expedited reviews for new ACOs that are seeking additional assurances and antitrust guidance. Under these reviews, within 90 days of receiving all required documents and information, the reviewing agency will advise the ACO if its formation and operation as described in the documents and information raises competitive concerns.

What’s next?

The application process for new ACOs for 2013 is now closed. Therefore, physicians seeking to join an ACO as a participant will have to join an established ACO or seek to join an ACO under consideration for the 2013 performance period. While the fraud and abuse and antitrust waivers described in this article should make you feel much more comfortable with the legal ramifications of ACO participation, sufficient legal risk remains so that you should consult with experienced legal counsel before committing to join an ACO. Moreover, this article does not address the many contractual, professional liability, and other legal issues associated with joining an ACO for which legal counsel is essential. Visit the Academy’s ACO Resource Center at to learn more about those issues.