While the Proposed Rule provides important guidance as providers evaluate whether and how to participate in the MSSP, the Proposed Rule is notable in that it actively seeks comments from the provider community on a number of key issues. As such, the Proposed Rule can only be viewed as a starting point in the MSSP effort. It is clear that the ACO model CMS developed is not appropriate for providers that are novices at highly effective clinical integration. The following alert sets forth the Proposed Rule’s key provisions.
Table of Contents
- Participation eligibility
- Governance requirements
- The Medicare Shared Savings Program
- Potential Benefits and Risks of Participating in the MSSP
- The ACO’s agreement with CMS
- Two shared savings options
- Assignment of beneficiaries
- Quality measures/performance
- Monitoring and terminating an ACO’s participation in the MSSP
- The role of HIT in the MSSP
- Quality and other reporting requirements
- FTC/DOJ joint statement regarding antitrust review and scrutiny of ACOs
- Stark, antikickback, and civil monetary penalties waivers for ACOs
- IRS guidance regarding ACOs
I. Participation eligibility
Under the proposed regulations, an ACO must have, among other requirements, the following organizational characteristics:
- The ACO must be a legal entity that is recognized and authorized under state law and that has a Taxpayer Identification Number (TIN);
- The ACO must be comprised of an eligible group of ACO participants, working together to manage and coordinate care for original (i.e., fee-for-service or “FFS”) Medicare patients; and
- The ACO must operate under a mechanism for shared governance that provides all ACO participants with appropriate, proportionate control over the ACO’s decision-making.
To further its desire that ACOs establish partnerships with community stakeholders to advance the ACO initiative’s three-part aim of (i) better caring for individuals, (ii) better health for populations, and (iii) lower growth in expenditures, CMS is also proposing that ACOs be required to describe its plans to partner with a community stakeholder in its application materials. The Proposed Rule suggests that an ACO with a community stakeholder on its governing body would satisfy its proposed community stakeholder requirement.
The following ACO participants, alone or in combination, may form an ACO that is eligible for the MSSP:
- ACO professionals (licensed physicians and other practitioners such as physician assistants, nurse practitioners, or clinical nurse specialists);
- Networks of individual practices of ACO professionals;
- Partnerships or joint venture arrangements between hospitals and ACO professionals;
- Hospitals employing ACO professionals; and/or
- Other providers or suppliers that the Secretary of DHHS determines, in its sole discretion, are appropriate
In the Proposed Rule, CMS proposes use of the Secretary's statutory discretion to expand the list of entities eligible for the MSSP, such as, Critical Access Hospitals, Federally Qualified Health Centers, and Rural Health Centers that bill under “Method II” (i.e., an optional method for billing outpatient services).
Also, participants in other Medicare shared savings programs (such as the Independence at Home medical practice pilot program) may not participate in the MSSP as ACO participants.
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II. Governance requirements
The Proposed Rule suggests a “board of directors, board of managers, or other similar governing bodies” as mechanisms for meeting the shared governance, decision-making, and control requirements of the statute and the regulations. Whatever the governance mechanism is called, it must be able to “define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care” for the ACO and for each ACO participant. Additionally, to ensure that each ACO is provider-driven, the ACO participants must hold at least 75% control of the ACO’s governing body. This limits the participation of an “infrastructure partner” on the board of the ACO. Each ACO participant must have “appropriate proportionate control” over decision-making, but there is no guidance as to what satisfies that requirement.
CMS asks for comments on whether a requirement to create a separate governing body creates a disincentive for the formation of ACOs, what alternatives might work better, and explicitly states that CMS’s intent is to encourage non-profit and community organizations to create ACOs. Currently, a separate governing body is not required in certain circumstances where one already exists, that is capable of meeting the above governance requirements (such as the situation of a hospital employing physicians).
An ACO must have a compliance plan with the following characteristics:
- A compliance official who is not legal counsel and who has the ability to report directly to the ACO’s governing body;
- Mechanisms for identifying and addressing compliance problems related to the ACO’s operations and performance;
- A reporting mechanism for employees or contractors of the ACO, ACO participants, and ACO providers/suppliers;
- Compliance training for the ACO, the ACO participants, and the ACO providers/suppliers; and
- A requirement to report suspected violations of law to law enforcement.
The proposed regulations suggest that an ACO “may consider” coordinating its compliance efforts with the existing compliance plans of the ACO’s providers/suppliers.
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III. The Medicare Shared Savings Program
A. Potential Benefits and Risks of Participating in the MSSP
ACOs participating in the MSSP that (1) exceed a minimum savings rate, (2) meet certain minimum quality performance standards, and (3) maintain their eligibility to participate in the MSSP, will receive payments for a share of the savings they create. As explained below, the ACO may share in savings without sharing in losses when partnership in the so-called 1-sided model. But when participating under the 2-sided model, the ACO must also share losses with the Medicare program. All ACOs will be subject to the 2-sided model for at least a portion of the 3-year commitment required to participate in the MSSP.
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B. The ACO’s agreement with CMS
In order to participate in the MSSP, an ACO must sign a 3-year agreement with CMS that will require the ACO to comply with the Proposed Rule. ACO participants are required to agree to a 3-year commitment to the ACO and to certify that they have agreed to become accountable for and to make information available to CMS and the public on the quality, cost, and overall care of the Medicare FFS beneficiaries assigned to the ACO. Primary care providers are required to be exclusive to one ACO because beneficiary assignment to an ACO is dependent upon them. Other ACO participants are not required to align exclusively with a single ACO.
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C. Two shared savings options
During its initial agreement period, an ACO may choose between two shared savings methodologies:
- Track 1: The ACO shares in savings for the first 2 years (with no downside risk as to program savings) and shares both savings and losses in year 3.
- Track 2: The ACO shares in savings and losses for all 3 years.
During subsequent agreement periods, an ACO must operate under the 2-sided model.
Each ACO is subject to an individualized savings target that is based on its own historic cost performance not a national or regional average. The per capita expenditure benchmark for the ACO’s beneficiaries is computed based upon the prior three years of data for the ACO and the beneficiaries who would have been assigned to it during those years—not the beneficiaries actually assigned to the ACO during the current performance year—adjusted for demographics, health status, and other risk factors. CMS has requested comment on these adjustment factors.
As proposed, the MSSP favors ACOs that have the opportunity to “grow” efficiencies, because performance is based on past history. That is, being efficient is not enough—an ACO must demonstrate that it is providing care more efficiently than in the past. At the same time, high-cost providers are not necessarily at a disadvantage, provided they can reduce costs (relative to their own high cost baseline) during the term of their ACO agreement.
Under both tracks, (i) the ACO’s shared savings and losses are capped (as discussed and shown in the chart below), and (ii) the ACO will be eligible to share in savings only if the ACO meets the quality performance standards (explained in Section III.E. below). The ACO’s performance must exceed a minimum savings rate (or MSR) threshold in order to share in savings. This MSR threshold will vary based upon the number of beneficiaries assigned to the ACO, with a minimum MSR of 2%. In years during which the ACO is liable to share in losses (i.e., year 3 of Track 1 and all years of Track 2), the MSR threshold is set at 2%.
An ACO’s share in savings is capped at 7.5% of the ACO’s benchmark per capita expenditures in years under the 1-sided model (i.e., years 1 and 2 of Track 1) and at 10% of the ACO’s benchmark per capita expenditures in years under the 2-sided model (i.e., year 3 of Track 1 and all years of Track 2).
Shared Savings Program Overview
One-Sided Model (performance years
1 & 2)
Maximum Sharing Rate
Sharing rate up to 50% based on quality performance.
Sharing rate up to 60% based on quality performance
Up to 2.5 percentage points
Up to 5 percentage points
Minimum Savings Rate
Varies by population
Flat 2% regardless of size
Minimum Loss Rate
Flat 2% regardless of size
Maximum Sharing Cap
Payment capped at 7.5% of ACO’s benchmark
Payments capped at 10% of ACO’s benchmark
Savings shared once MSR is exceeded; unless exempted, share in savings net of a 2% threshold; up to 52.5% of net savings up to cap.
Savings shared once MSR is exceeded; up to 65% of gross savings up to cap.
First dollar shared losses once the minimum loss rate is exceeded. Cap on the amount of losses to be shared phased in over three years starting at 5% in year 1; 7.5% in year 2; and 10% in year 3. Losses in excess of the annual cap would not be shared. Actual amount of shared losses would be based on final sharing rate that reflects ACO quality performance and any additional incentives for including FQHCs and/or RHCs using the following methodology (1 minus final sharing rate).
The percentage share an ACO can earn in savings depends mainly on its quality performance scores, which are categorized into five quality domains (quality measures and performance are examined in detail in Section III.E. below). During years in which the ACO participates under the 1-sided model (i.e., years 1 and 2 of Track 1), the ACO can earn up to 10% in shared savings based upon its performance in each domain, for a total of up to 50% of the savings. During years in which the ACO participates under the 2-sided model (i.e., year 3 of Track 1 and all years of Track 2), the ACO can earn up to 12% in shared savings based upon its performance in each of the quality domains, for a total of up to 60% of the savings. In addition, an ACO with significant participation by a Rural Health Clinic or Federally Qualified Health Center can qualify for a bonus percentage share of savings of 2.5% under the 1-sided model and 5% under the 2-sided model.
During years under the 2-sided model, an ACO is liable to share in losses that exceeded a minimum loss threshold of 2%, up to a cap on this exposure. An ACO’s share in losses is capped at 5% of the ACO’s benchmark per capita expenditures in the first year in which there is downside risk exposure under the 2-sided model (i.e., year 3 of Track 1 and year 1 of Track 2). Under Track 2, where all years are subject to the 2-sided model, in the second year with downside risk the cap is 7.5% of the ACO’s benchmark per capita expenditures and in the third year with downside risk the cap is 10% of the ACO’s benchmark per capita expenditures.
Subject to the cap on downside risk, the percentage share of loss for which the ACO would be liable above the 2% loss threshold will also depend upon its performance scores in the five quality domains. Better performing ACOs will be liable for a smaller share of the loss. The percentage of loss in which the ACO will share will be the “opposite” percentage of the shared savings percentage rate for which the ACO would have been eligible. For example, an ACO that would have been eligible for a 60% share of the savings will be responsible for only 40% of the shared loss in excess of the 2% loss threshold. An ACO that would only have qualified for a 45% share of savings based upon its performance under the five quality domains will be responsible for 55% of the shared loss in excess of the 2% threshold.
Under both tracks, an ACO’s share in any savings during years 1 and 2 is subject to a 25% withhold, which will be applied towards repayment of any losses for which the ACO is responsible in subsequent years. Under Track 2, in addition to the 25% withhold, the ACO also needs to show that it has set up a mechanism to assure repayment of losses, such as reinsurance, added withholds or escrow, or surety bond. Shared losses have to be repaid to CMS within 30 days of its notice of the shared loss.
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D. Assignment of beneficiaries
Beneficiaries do not enroll in ACOs. The assignment of beneficiaries will be a retrospective process. CMS will review beneficiaries’ utilization of services, specifically whether beneficiaries have received a plurality of allowed charges for primary care services from physicians aligned with an ACO to determine their assignment to an appropriate ACO. Because assignment is retrospective, as a practical matter, the ACO will not be able to target its cost savings and quality efforts at a subset of the Medicare beneficiaries it treats. Moreover, the proposed regulation affirmatively require ACOs to treat all Medicare patients as prospective ACO beneficiaries.
Participating providers in an ACO must notify beneficiaries before providing services that (i) they are participating in an ACO, (ii) the providers have a financial incentive to participate in the ACO, and (iii) the beneficiaries have the option to seek care elsewhere. But if a beneficiary elects to be treated by the ACO provider, unlike a Medicare Advantage enrollee who is subject to gatekeeping, a beneficiary in an ACO retains full freedom of choice about where to access care within and outside of the ACO. The beneficiary may, or may not ultimately be assigned to the ACO depending upon how much of his or her primary care the beneficiary receives outside the ACO.
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E. Quality measures/performance
CMS proposes 65 measures to determine an ACO’s success in promoting the aims of better care for individuals, better health for populations, and lower growth in expenditures. ACOs must submit data on the measures, which are categorized under 5 domains, according to a method of submission established by CMS.
The 5 measure domains are:
- Patient/care giver experience
- Care coordination
- Patient safety
- Preventative health
- At-risk population/frail elderly health
The methodology for calculating a performance score for each measure is contingent upon data availability and quality measure performance benchmarks that will be defined by CMS based on Medicare FFS, Medicare Advantage, or ACO performance data. CMS will score ACOs on the 65 quality metrics within the 5 domains, in order to determine an overall ACO performance score. In scoring an ACO’s performance, each of the 5 domains will be weighted equally.
An ACO is eligible for savings only if it demonstrates to CMS that it has satisfied applicable quality performance requirements and other requirements of the ACO regulations. CMS retains the right to audit and validate quality data reported by an ACO. If an audit finds a discrepancy between the quality data reported and the medical records provided in the audit, the ACO will not be given credit for meeting the quality target for any measures for which a 10% (or greater) error rate exists.
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F. Monitoring and terminating an ACO’s participation in the MSSP
CMS will monitor ACOs and their participating providers/suppliers, and may terminate an ACO contract for deficiencies. Monitoring will include (i) analysis of data reported by ACOs and aggregated annual and quarterly reports, (ii) site visits, (iii) analysis of beneficiary and provider complaints, and (iv) audits.
Avoidance of at-risk beneficiaries (cherry picking):
If CMS determines that an ACO, its providers/suppliers, or contracted entities are engaging in activities aimed at avoiding at-risk beneficiaries, CMS may require the ACO to submit and implement a corrective action plan. The ACO will not receive any shared savings payments during an ensuing probationary period, will not be eligible to receive shared savings for the performance period attributable to the corrective action plan and the period of the corrective action. An ACO will be re-evaluated during and after the corrective action plan period and its agreement with CMS may be terminated if CMS determines that the ACO has continued to avoid at-risk beneficiaries.
Monitoring ACO compliance with quality performance standards:
CMS will review the ACO’s submission of quality measurement data and may request additional information as it deems appropriate. If an ACO does not meet quality performance standards, or the ACO fails to report on one or more quality measures, the ACO will receive warnings and requests from CMS, which may ultimately result in termination of the ACO’s agreement.
Additional areas of CMS monitoring:
CMS will also monitor:
- Changes to ACO eligibility requirements for participation in the MSSP,
- Beneficiary notification of the provider and supplier’s role in the ACO and the beneficiary’s right to opt-out of sharing claims data, and
- ACO marketing materials and activities (ACO marketing materials are explained in Section III.G. below).
CMS may terminate an agreement with an ACO if the ACO, its participants, providers/suppliers, or contracted entities:
- Avoid at-risk beneficiaries;
- Fail to meet quality performance standards;
- Fail to report information completely and accurately or fail to make timely corrections;
- Fail to comply with eligibility requirements (e.g., less than 50% of an ACO’s primary care physicians achieve “meaningful use” of EHR technology in the ACO’s second year) (the role of EHR and other technology is summarized in Section III.H. below);
- Are unable to effectuate any required regulatory changes after an opportunity for a corrective action plan;
- Fail to comply with beneficiary notice requirements;
- Materially fail to comply with public reporting and other CMS reporting requirements;
- Fail to submit, implement, or demonstrate improvements after implementation of a corrective action plan;
- Violate the physician self-referral prohibition, civil monetary penalties law, anti-kickback statute or other antifraud and antitrust laws or any other applicable Medicare laws, rules, or regulations (FTC and OIG guidance released in coordination with the Proposed Rule is discussed in Sections IV and V below);
- Submit false information to CMS;
- Use marketing materials not approved by CMS;
- Fail to meet an assigned beneficiary population of 5,000;
- Fail to offer beneficiaries the option to opt-out of sharing claims information;
- Limit or restrict the beneficiary summary of care or medical records from other providers/suppliers both within and outside of the MSSP;
- Improperly use or disclose claims information in violation of HIPAA, Medicare Part D Data Rule, the Privacy Act, or the ACO’s data use agreement with CMS; and
- Fail to demonstrate that the ACO has adequate resources in place to repay potential losses.
An ACO that is terminated by CMS forfeits its mandatory 25% withholding of any previous shared savings and may only apply to participate again in the MSSP after the end of the original 3-year agreement period.
An ACO may terminate its agreement upon 60 days notice to CMS, its ACO participants and “other organizations” (i.e., providers and suppliers). The termination notifications must be in accordance with the ACO marketing guidelines.
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Recognizing that beneficiaries could be misled about the services provided by an ACO, CMS proposes regulations regarding marketing materials and activities. In order to remain consistent with the purpose of PPACA, the regulations propose that CMS pre-approval must be obtained for any materials, activities, or communications used to educate, solicit, notify, or contact Medicare beneficiaries, providers, or suppliers regarding an ACO and its participation in the MSSP.
The proposed definition of ACO marketing materials, communications, and activities is broad, and includes:
- Outreach events,
- Letters to beneficiaries,
- Web pages, and
Materials that do not fall under the scope of the proposed definition include:
- Beneficiary communications that are informational materials,
- Beneficiary communications that are customized or limited to a subset of beneficiaries,
- Materials that do not include information about the ACO or providers in the ACO,
- Materials that cover beneficiary-specific billing and claims issues or other specific individual health-related issues,
- Educational information on specific medical conditions or referrals, and
- Exceptions to the definition of “marketing” under the HIPAA Privacy Rule.
The regulations also propose that CMS must pre-approve any revisions to approved materials. Failure to adhere to these requirements could result in an ACO being placed under a corrective action plan or terminated at the discretion of CMS.
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H. The role of HIT in the MSSP
A portion of the regulations focuses on quality and other reporting requirements in the context of the MSSP. One of the goals of the MSSP is to “encourage investment in infrastructure and redesigned care processes to achieve high health care quality and efficient service delivery.” To achieve this goal, the Proposed Rule outlines CMS’s proposal to measure and assess the quality of care furnished by an ACO through data submission, the requirements for data submission, quality performance standards, and public reporting by ACOs throughout the regulations. The strong message is clear in emphasizing the need for uniform data submission through the use of health information technology. In fact, in order to qualify as an ACO, at least 50% of an ACO’s primary care providers must be “meaningful EHR users” by the start of the ACO’s second year.
PPACA and the Proposed Rule require ACOs to submit data in a uniform form and manner in order to evaluate the quality of care delivered by the ACO. The Proposed Rule notes that the collection of information should not be burdensome to providers. Accordingly, the methods and measures for the MSSP will be aligned with those included in the Medicare and Medicaid EHR Incentive Programs so that the collection and reporting of performance information will not be duplicative of the information reported in order for a provider to achieve the meaningful use of certified EHR technology and obtain monetary incentives, and will leverage the infrastructure required of providers in order to obtain the financial incentive. In addition, the Proposed Rule states that the measures should be aligned with financial incentive programs of private payers for the use of EHR technology.
The required reporting measures include 65 measures that will be reported through claims data, surveys, and the Group Practice Reporting Option Data Collection Tool (“GPRO”). The GPRO will be a database assigned to the ACO that will capture quality information for each beneficiary. The GPRO will be subject to audit. CMS noted that its ultimate goal is to develop the capability of the GPRO web-based tool to interface with an ACO’s EHR technology and said that CMS will outline additional requirements reporting through the use of EHRs in additional rulemaking.
What does this mean for those considering formation of an ACO? Clinical integration through the use of EHR is essential to qualify to become an ACO, and to successfully report quality measures and outcomes successfully in order to participate in the MSSP. Investment in health information technology is an absolute prerequisite to every ACO.
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I. Quality and other reporting requirements
Eligible professionals that are ACO participant providers/suppliers would constitute a group practice (and not be treated as individuals) for purposes of qualifying for the Physician Quality Reporting System (“PQRS”) incentive. The proposed incentive equals 0.5% of the ACO’s eligible professionals’ total estimated Medicare Part B physician fee schedule allowed charges for covered professional services furnished during the calendar year. CMS has invited public comment on the PQRS incentive.
CMS will share both aggregate and beneficiary identifiable data with ACOs (in compliance with HIPAA), which will include, when available, aggregated metrics on the assigned beneficiary population and beneficiary utilization data at the start of the agreement period (based on the historical beneficiaries used to calculate quality benchmarks) and the yearly financial and quality performance reports. CMS has requested comments on the kinds of aggregate data and frequency of data reports that would be most helpful.
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IV. FTC/DOJ joint statement regarding antitrust review and scrutiny of ACOs
In coordination with the Proposed Rule, the Federal Trade Commission and the Department of Justice (the “Agencies”) released a joint “Proposed Statement of Antitrust Enforcement Policy” (“Proposed Statement”) regarding ACOs. It clarifies how the Agencies will apply the antitrust laws to ACOs. According to the Agencies, the Proposed Statement is intended to “maximize and foster opportunities for ACO innovation,” while recognizing that ACOs (like any collaboration among potential competitors) have the potential to “reduce competition and harm consumers through higher prices or lower quality of care.” The following are highlights from the Proposed Statement:
The Agencies will evaluate ACOs that meet CMS eligibility criteria under the Rule of Reason: The Proposed Statement provides that the Agencies will evaluate ACOs that meet the CMS criteria for eligibility under the Rule of Reason. It also provides that “if a CMS-approved ACO provides the same or essentially the same services in the commercial market,” the CMS criteria “are sufficiently rigorous that joint-negotiation with private-sector payers” will also be evaluated under the Rule of Reason.
This aspect of the Proposed Statement provides useful confirmation that ACOs that meet the CMS criteria will pass the first (and often most troubling) hurdle in antitrust review and, importantly, will do so with respect to both Medicare and private-sector contracting.
In the past, the Agencies have stated that they will consider organizations of independent providers (such as PHOs and IPAs) who jointly contract with payers to be engaged in per se illegal conduct (i.e., conduct which is illegal as a matter of law and potentially criminal) unless the organization’s members are sufficiently clinically or financially integrated to warrant review under the less stringent Rule of Reason. The Rule of Reason is applied to conduct that is reasonably likely to benefit consumers by reducing costs and improving quality. Under Rule of Reason analysis, the Agencies weigh the potential “pro-competitive effects” of challenged conduct against its “anticompetitive effects” and only challenge the conduct if they conclude its likely effects are, on balance, anticompetitive. The problem for provider organizations in the past has been that, although the Agencies have issued numerous statements and advisory opinions and brought numerous enforcement actions over the past decade or more, some uncertainty remains as to when an organization (especially in the early stages of its activities) is “sufficiently” clinically or financially integrated in the eyes of the Agencies to warrant Rule of Reason review. By clearly stating that ACOs that meet the CMS criteria qualify for Rule of Reason review, the Proposed Statement provides useful clarification in this regard.
- The Agencies create a “Safety Zone” for ACOs with a 30% or less market share: The Proposed Statement also defines a safety zone for ACOs that meet the CMS eligibility criteria and have a combined market share of 30% or less of each common service in each participant’s Primary Service Area (“PSA”). Absent extraordinary circumstances, the Agencies will not challenge ACOs that satisfy this test. If the independent ACO participants do not provide any common services, the ACO falls within the “Safety Zone” regardless of market share, subject to certain rules on exclusivity that are outlined below. (There is a narrowly defined “Rural Exception,” which extends this Safety Zone to rural counties with limited numbers of providers who might otherwise exceed the 30% threshold.)
To some extent, this aspect of the Proposed Statement simply confirms existing law. It is generally agreed in the courts and Agencies, that an entity or joint venture with a market share of 30% or less lacks “market power” and (because an entity that lacks market power lacks the ability to affect the market in an anticompetitive way), accordingly, that its activities will pass Rule of Reason review.
On the other hand, however, the Proposed Statement provides useful clarification of how the Agencies will determine an ACO’s PSA. It states that Agencies will define the PSA for each service as “the lowest number of contiguous postal zip codes from which the ACO participant draws at least 75 percent of its patients.” In the past, defining the “relevant market” has been difficult, subjective, and uncertain. The Proposed Statements’ clear articulation of how the Agencies will define it for ACOs is tremendously helpful.
- The Agencies mandate antitrust review of ACOs with 50% or more market share: The Proposed Statement also provides that, if the ACO’s market share in the PSA of any of its participants exceeds 50% for any common service provided by two or more of the ACO’s participants, the ACO must, in order to obtain CMS approval, provide CMS with a letter from one of the Agencies stating that the Agency “has no present intention to challenge or recommend challenging the ACO under the antitrust laws.”
The Proposed Statement provides that the Agencies will conduct an expedited review of an ACO application for such a letter “within 90 days of receiving” required and detailed documentation (described in the Proposed Statement) regarding the ACO and its proposed activities.
- The Agencies provide guidance for ACOs with market shares of 31–49%: For ACOs that do not fall within the Safety Zone and are not required to undergo a mandatory review, the Agencies have provided additional guidance by identifying anticompetitive conduct, which, if avoided, decreases the likelihood that the ACO will raise anticompetitive concerns. These include preventing or discouraging commercial payers from directing or incentivizing patients to choose certain providers; tying sales of the ACO’s services to commercial payers’ purchase of services from providers outside the ACO; contracting with other ACO physician specialists or hospitals (but not primary care physicians) on an exclusive basis; restricting a commercial payer’s ability to publicize cost, efficiency, and performance information to enrollees and potential enrollees; and sharing competitively sensitive pricing information among ACO providers that they could use to set prices or other terms of competition outside of the ACO.
- The Agencies provide guidance on exclusivity: The Proposed Statement also provides that, in order for an ACO to fall within the Safety Zone, any hospital or ambulatory surgery center participating in the ACO must be non-exclusive to the ACO (i.e., must be allowed to contract with other ACOs or commercial payers) “in fact and not just in name.” In addition, any ACO that includes a “dominant provider” (defined as a participant with a 50% or more share in its PSA of any service that no other ACO participant provides in that PSA) must be non-exclusive to qualify for the Safety Zone. In all likelihood, the Agencies will apply similar standards when evaluating whether ACOs that fall outside the Safety Zone pass Rule of Reason review.
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V. Stark, antikickback, and civil monetary penalties waivers for ACOs
To foster the promotion of ACOs, CMS and the Office of the Inspector General (“OIG”) proposed waivers relating to the federal Stark Law, the federal Antikickback Statute, and the Civil Monetary Penalties Law. According to the proposed regulations, federal Stark Law will not apply to the distribution of shared savings received by an ACO under the MSSP:
- to or among ACO participants, ACO providers/suppliers, and individuals and entities that were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned by the ACO; or
- for activities necessary for and directly related to the ACO’s participation in and operations under the MSSP.
The proposed regulations would also waive the application of the Antikickback Statute in the following scenarios:
- distributions of shared savings received by an ACO from CMS under the MSSP:
any financial relationship between or among the ACO, ACO participants, and ACO providers/suppliers necessary for and directly related to the ACO’s participation in and operations under the MSSP that implicates the federal Stark Law and fully complies with an exception.
- to or among ACO participants, ACO providers/suppliers, and individuals and entities that were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned by the ACO;
- for activities necessary for and directly related to the ACO’s participation in and operations under the MSSP; or
The Civil Monetary Penalties Law will not apply under the proposed regulations in the following scenarios:
- distributions of shared savings received by an ACO under the MSSP in circumstances where the distributions are made from a hospital to a physician, provided that:
any financial relationship between or among the ACO, its ACO participants, and its ACO providers/suppliers necessary for and directly related to the ACO’s participation in and operations under the MSSP that implicates the federal Stark Law fully complies with an exception.
- the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services;
- the hospital and physician are ACO participants or ACO providers/suppliers, or were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned by the ACO; and
While the proposed waivers provide relatively clear guidance, their applicability is limited. Most notably, the waivers only apply to the distributions attributable to the MSSP, and do not apply to an ACO’s services based on contracts with commercial payors.
Recognizing these limitations, the OIG is seeking comments on three proposed waivers. Among other issues, the OIG expressly requests comments with respect to (1) the treatment of an ACOs’ start-up costs, including electronic health records, capital contributions, and other infrastructure cost, and (2) distributions of shared savings from private payors.
Similar to physician recruitment arrangements and other arrangements where a tax-exempt organization, such as a not-for-profit hospital, is providing something of value to referral sources, the OIG guidance will need to be analyzed in light of IRS guidance regarding ACOs.
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VI. IRS guidance regarding ACOs
The IRS also issued its guidance relating to ACOs on March 31, 2011, in the form of Notice 2011-20 (the “Notice”). Designed primarily as guidance for tax-exempt organizations considering participation in ACOs, for the most part the Notice restates existing law. Not surprisingly, the Notice raises the issues of private inurement, private benefit, unrelated business income, and the implications of a tax-exempt organization participating in a joint venture.
The IRS bifurcated its guidance into two sections, discussing (1) the tax implications of participating in the MSSP through an ACO, and (2) activities outside of the MSSP, respectively. The Notice requests comments with respect to both of these issues. This comment period continues until May 31, 2011.
1. Discussion regarding participation in the MSSP.
The Notice states that a tax-exempt organization’s participation in the MSSP through an ACO should not violate the private inurement or public benefit doctrines and, therefore, will not result in revocation of an entity’s tax-exempt status in cases where:
- the terms of the tax-exempt organization’s participation in the MSSP through the ACO (including its share of MSSP payments or losses and expenses) are set forth in advance in a written agreement negotiated at arm’s length;
- CMS has accepted the ACO into, and has not terminated the ACO from, the MSSP;
- the tax-exempt organization’s share of economic benefits derived from the ACO (including its share of MSSP payments) is proportional to the benefits or contributions the tax-exempt organization provides to the ACO. If the tax-exempt organization receives an ownership interest in the ACO, the ownership interest received is proportional and equal in value to its capital contributions to the ACO and all ACO returns of capital, allocations, and distributions are made in proportion to ownership interests;
- the tax-exempt organization’s share of the ACO’s losses (including its share of MSSP losses) does not exceed the share of ACO economic benefits to which the tax-exempt organization is entitled; and
- All contracts and transactions entered into by the tax-exempt organization with the ACO and the ACO’s participants, and by the ACO with the ACO’s participants and any other parties, are at fair market value.
The Notice then focuses on the question of unrelated business income, with respect to the tax-exempt participant’s share of MSSP revenue. The IRS explains that such income will likely qualify as tax-exempt revenue, because the ACO’s activities should lessen the government’s burden associated with providing Medicare benefits.
2. Discussion regarding activities outside of the MSSP.
The IRS anticipates that ACOs will seek to contract with commercial payors. While recognizing that activities outside of the MSSP may further be substantially related to an exempt purpose, the Notice specifically states that “. . . negotiating with private health insurers on behalf of unrelated parties generally is not a charitable activity, regardless of whether the agreement negotiated involves a program aimed at achieving cost savings in the health care industry.”
The Notice asks for comments, about how a tax-exempt organization’s participation in non-MSSP activities through an ACO further, or are substantially related to, an exempt purpose. Specifically, the IRS is interested in how such activities can further an exempt purpose if safeguards built into the MSSP (e.g., quality performance standards and government oversight) are not present.
The Notice references many cases, regulations, and rulings. In particular, we recommend that ACOs including a tax-exempt participant review and consider the case of IHC Health Plans, Inc. v. Commissioner, 325 F.3d 1188 (10 th Cir. 2003). The tax implications of non-MSSP revenues to an ACO’s tax-exempt participant may depend on whether that participant can distinguish its ACO’s activities from the facts and circumstances of this case, unless additional guidance is issued.
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