The Centers for Medicare & Medicaid Services (CMS) released proposed regulations to clarify and build on current regulatory requirements for Accountable Care Organizations (ACOs) that participate in the Medicare Shared Savings Program (MSSP). Among the changes is one addressing when an ACO must be formed as an independent legal entity, separate from any of its multiple participants. According to CMS, this proposed change is designed to clarify existing regulations and to ensure that ACO decision-making is governed by individuals with fiduciary duties to the ACO alone.

Existing CMS regulations require an ACO formed by two or more “otherwise independent,” prospective ACO participants to be a separate, independent legal entity. According to CMS, in the approximately two years since this requirement went into effect, prospective participants have raised valid questions as to the exact meaning of “otherwise independent” and the specific parameters of when a separate legal entity is required. For example, corporate lawyers debated whether prospective ACO participants with a prior relationship through an integrated health system created just by contract were or were not “otherwise independent” so as to require the formation of a separate legal entity for participation in MSSP, and ACOs were formed without the creation of a new, separate entity.

CMS’ proposed regulations, if they are issued as promulgated, appear to resolve these questions by requiring the formation of ACOs as separate legal entities whenever two or more participants, “each of which is identified by a unique TIN [taxpayer identification number]” is involved. CMS also proposes to delete the phrase “otherwise independent” from the regulations. The proposed regulation thus explicitly requires the creation of a new, separate entity, ending the prior debate as to when and whether a new entity is required.

This proposed change has clear and potentially significant antitrust ramifications given that the formal creation of new legal entities (through joint ventures or other corporate forms) by independent entities is subject to antitrust review by the Federal Trade Commission (FTC) and Department of Justice (DOJ) through Section 7 of the Clayton Act and premerger reporting requirements under the Hart-Scott-Rodino (HSR) Act. Participants interested in ACO formation must determine, for example, whether a HSR filing is required pursuant to C.F.R. § 801.40 governing joint ventures, and, if so, whether the joint venture is otherwise exempt from reporting as a non-profit organization under C.F.R. § 802.40.

The proposed change, as currently written, also appears to impact the FTC and DOJ’s Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (Policy Statement; see http://www.sheppardhealthlaw.com/2011/11/articles/affordable-care-act-aca/no-mandatory-antitrust-review-for-acos/ for more on the Policy Statement). While the Policy Statement was originally formulated to apply to all types of collaborations among otherwise independent providers and provider groups participating in MSSP as ACOs, when now read in conjunction with CMS’ proposed regulation, the only type of collaboration applicable to the Policy Statement would be formal ones establishing the ACO as a separate legal entity.

The proposed CMS regulations are currently in a 60-day comment period ending February 6, 2015. If issued as currently written, the extent of antitrust analysis required at the early stages of ACO formation will have to be reevaluated.