The Affordable Care Act authorizes the Secretary of HHS to waive certain fraud and abuse laws as necessary to carry out the provisions of the law regarding the Medicare Shared Savings Program. In addition, the Affordable Care Act authorizes the Secretary to waive these laws as necessary to carry out the provisions of the law regarding the testing of innovative delivery and payment models by the newly established Center for Medicare and Medicaid Innovation (CMI). With the release of the proposed ACO rule, CMS and OIG published a notice that describes certain proposed waivers that will relate to the ACO and CMI programs and solicits comments relating to additional or different waivers to implement these programs.

Waivers Applicable to the ACO Shared Savings Program.

The Affordable Care Act authorizes a waiver of the provisions of the Stark Law (42 U.S.C. § 1395nn), the Anti-Kickback Statute (42 U.S.C. § 1320a-7b), and the Civil Money Penalties Law (42 U.S.C. § 1320a-7a), including that provision prohibiting a hospital’s payment to a physician to reduce or limit care to a Medicare or Medicaid beneficiary (referred to in the notice as the “Gainsharing CMP”). With respect to the proposed exercise of its waiver authority relating to the ACO shared savings program, CMS/OIG noted the following:

  • Participants in the Shared Savings Program will continue to receive Medicare fee for service payments, as well as be eligible to receive additional shared savings. Therefore, the fraud and abuse laws designed to safeguard the Medicare program and beneficiaries in the fee-for-service context continue to be relevant.
  • No clear consensus emerged from public comments solicited to date regarding the nature and scope of waivers needed to implement the ACO program (the agencies acknowledged this could arise from the fact that the ACO rule had not yet been published when the waiver comments were solicited).
  • No waivers are needed for arrangements that do not violate these laws or that fit within an existing Stark Law exception or Anti-Kickback safe harbor.
  • The contemplated waivers as described in the notice do not pertain to any other federal or state law other than the sections cited in the Affordable Care Act, and “[a]ll financial arrangements not covered by a waiver would be required to comply with existing laws.”

All of the proposed waivers relate to the distribution of shared savings received by an ACO from CMS pursuant to the Shared Savings Program. As a threshold qualification for any of the proposed waivers, ACOs would be required to hold an agreement with CMS to participate in the Shared Savings Program, and the participating ACO, ACO participants, and ACO providers/suppliers would be required to comply with that agreement, as well as the law creating the Shared Savings Program and the regulations implementing the program (including transparency, reporting and monitoring requirements).

The waivers contemplated by CMS and OIG are as follows:

  • The Secretary would waive the application of the Stark Law and the Anti-Kickback Statute to distributions of shared savings received by an ACO from CMS (1) 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 (2) for activities necessary for and directly related to the ACO’s participation in and operations under the Shared Savings Program.
    • The Secretary would waive application of the Anti-Kickback Statute with respect to 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 Shared Savings Program that implicates the Stark Law and fully complies with an exception at 42 C.F.R. §§ 411.355 through 411.357 of the Stark rules (the exceptions for ownership interests and compensation relationships).
    • CMS and OIG do not intend to protect distributions of shared savings dollars to referring physicians outside the ACO unless those physicians are being compensated for activities necessary for and directly related to the ACO’s participation in and operations under the program.
    • All other financial relationships (beyond distributions of shared savings) involving physicians or entities participating in the ACO, as well as other financial relationships outside the ACO, would need to meet an existing exception under the Stark Law, and an existing safe harbor under the Anti-Kickback Statute (or otherwise comply with the Anti-Kickback Statute).
  • The Secretary would waive application of the Gainsharing CMP to –
    • Distributions of shared savings received by an ACO from CMS under the Shared Savings Program to ACO participants or ACO providers/supplier, if the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services; and
    • 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 Shared Savings Program that implicates the Stark Law and fully complies with an exception at 42 C.F.R. §§ 411.355 through 411.357.
  • The waivers would be limited in duration to the term of the ACO’s agreement with CMS (although shared savings distributions earned under the CMS agreement could be distributed consistent with the waiver after the agreement expired).

Solicitation of Comments on Additional or Different Waivers. CMS and OIG note that they received “significant public input” suggesting that their waivers apply more broadly than the proposed waivers outlined in the notice. Therefore, in the notice they seek additional public comments on a number of different topics, urging such comments to address why any additional or different waivers would be necessary to carry out the provisions of the Shared Savings Program and why the financial relationship would not qualify for existing exceptions or safe harbors. In connection with any proposed waivers, the notice solicits public comment on the inclusion of standards relating to fair market value and commercial reasonableness as additional safeguards.

The specific topics outlined in the notice for additional public comment include whether it is necessary to waive the Stark Law, Anti-Kickback Statute or Gainsharing CMP for remuneration relating to –

  • Establishment of the ACO, including investments, start-up expenses, and nonmonetary benefits;
  • Financial relationships other than the distribution of shared savings among ACO participants and/or ACO providers/suppliers necessary, or between the ACO, its participants or ACO providers/suppliers and entities or individuals outside the ACO, for and directly related to operating the ACO and achieving the integrated care or the cost savings and quality goals of the program;
  • Distributions of shared savings and similar payments received from private payers;
  • Other financial relationships for which a waiver would be necessary;
  • Additional or different waivers needed in the context of the “two-sided” risk model to avoid either overutilization or stinting on care, and the need to cover such arrangements as escrow accounts, surety bonds, and letters of credit that may be used in connection with risk models;
  • Whether arrangements that occur after the sunset date of 2013 but otherwise comply with the existing Stark exception and Anti-Kickback safe harbor relating to electronic health records arrangements should be protected; and
  • Whether it will be necessary to extend the waivers to the provisions of the fraud and abuse laws relating to beneficiary inducements.

Observations Regarding CMS/OIG Notice Pertaining to Waiver Designs. As anticipated in the lengthy list of arrangements on which CMS and OIG solicit additional public comments pertaining to its waiver authority for the Shared Savings Program, some providers contemplating the formation of ACOs are likely to be disappointed in the narrow scope of the proposed waivers pertaining only to distributions of shared savings payments:

  • Although specifically mentioned in the solicitation of public comments, CMS and OIG have offered no clear plan as to how they would approach waivers with respect to such major areas of interest as payments and benefits that may be needed to start up an ACO (particularly for small physician groups that will not have significant capital to invest in such a venture) and protection for participation in private payor arrangements similar to the Shared Savings Program ACOs.
  • The proposed Gainsharing CMP waiver does not extend to any party outside the ACO. Payments other than distributions of shared savings need to be paid consistent with an existing Stark exception. No mention is made of finalizing the proposed Stark exception for shared savings and incentive payments, as proposed in 2008.
  • Existing exceptions under the fraud and abuse laws for electronic health records are limited in more respects than the sunset date referenced in the notice (e.g., restrictions on donation of hardware; requirements for cost sharing by physicians). No mention is made in this notice of allowing for some expansion of these exceptions to encourage the development of technology necessary for ACO operations.
  • It is unclear how CMS and OIG would approach requests for advisory opinions involving financial relationships not specifically covered under the ACO waiver rules, and whether any expedited review of such arrangements will be available.

Solicitation of Comments on Waiver Design for CMI. The Affordable Care Act authorizes the creation of the CMI to test innovative payment and service delivery models to reduce program expenditures while enhancing the quality of care. The March 31 notice generally solicits public comments on the exercise of the separate waiver authority applicable to CMI demonstration and pilot projects, noting that such waiver authority applies only to CMI projects and not to other arrangements. No proposed waivers are described in the notice.

IRS Notice 2011-20. On March 31, 2011, the IRS issued Notice 2011-20 soliciting comments as to whether existing guidance relating to tax-exempt organizations is sufficient for those planning to participate in the Medicare Shared Savings Program through an ACO, and what additional guidance may be necessary. The notice provides a brief overview of existing law applicable to tax-exempt organizations, including standards for recognition of exemption under Section 501(c)(3) (including private inurement to “insiders,” service of public—as distinguished from private—purposes and benefits, and the “promotion of health” as a “charitable” purpose); attribution of activities of a wholly-owned LLC to its exempt owner; definitions of unrelated business taxable income; and standards for an exempt organization’s participation in partnerships with private entities.

The notice further sets out certain expectations of the IRS with respect to an exempt entity’s participation in an ACO:

  • A tax-exempt organization’s participation in an ACO with private parties (including “insiders”) would generally not be considered to result in private inurement or impermissible private benefit to the private party participants if certain conditions were met:
    • The terms of the exempt entity’s participation are set out in a written agreement (including its share of savings payments, losses and expenses) negotiated at arm’s length;
    • CMS has accepted the ACO into the Shared Savings Program (and thus, has continuing oversight and regulation of the ACO);
    • The exempt entity’s share of economic benefits from the ACO is proportional to its benefits/contributions to the ACO (including receipt of an ownership interest proportional and equal in value to its capital contributions to the ACO, and receipt of returns of capital, allocations and distributions in proportion to its ownership interest);
    • The exempt entity’s share of ACO losses does not exceed the share of ACO benefits to which the entity is entitled; and
    • All contracts and transactions involving the exempt entity, the ACO and ACO’s participants, including the ACO’s contracts with its participants and other parties, are at fair market value.
  • Absent inurement or impermissible private benefit, shared savings payments received from an ACO would not be considered unrelated business taxable income to the exempt entity so long as the ACO meets all of the eligibility requirements established by CMS for the Shared Savings Program.

The IRS specifically solicits comments on the treatment of activities of an exempt entity through an ACO that are not related to the CMS Shared Savings Program, such as transactions with private plans. The IRS requests comments on how such activities would be substantially related to an exempt purpose, particularly in the absence of regulatory requirements imposing quality standards and oversight by a government agency of such activities outside of the Shared Savings Program.

The IRS commentary on the Shared Savings Program places great emphasis on the charitable activities arising from lessening the burdens of government and the safeguards present in a program that is overseen and monitored by CMS. At the same time, the standards for participating in ACOs would restrict the ability of exempt providers to subsidize other participating providers (such as small physician groups) in contributions to capital and sharing of ACO overhead expenses or losses in order to facilitate their participation. It is unclear from the limited authority cited in this notice how the IRS would apply the various guidance issued over the years with respect to joint ventures to ACO formation and to similar activities outside the context of the Medicare Shared Savings Program. The IRS notice serves as a reminder that organization of ACOs, even with the benefit of fraud and abuse law waivers, will require significant planning when a tax-exempt organization is involved as a participating provider.