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
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
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
RBaysConsulting@Gmail.com

R Bays - Antitrust implications for Healthcare ACO’s

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