Accountable Care Organizations (ACOs), a relatively new way to provide health care services to patient populations, have grown in numbers since their promotion in the Patient Protection and Affordable Care Act (ACA).

By the end of 2012, there were 326 ACOs covering nearly 15 million public and private payers, based on figures from Leavitt Partners. ACOs now total more than 923 and cover more than 32 million patients in all 50 states. There are several types of ACOs in the market, some that serve Medicare or Medicaid patients, those that serve private payers (Commercial ACOs) or a mixture of both.

Commercial ACOs are gaining in popularity as more health organizations look to comply with the ACA and keep health care costs down for patients. Commercial ACOs must keep in mind fraud and abuse laws, as well as antitrust concerns, when forming and operating.

What Are ACOs?

ACOs began increasing in numbers once the ACA encouraged their creation to emphasize the quality of care over the quantity of care (fee-for-service). Many were set up to provide care to Medicare patients, although the government knew that some would service both Medicare and commercial insurance patients. The idea is that the ACO, made up of physician groups, hospitals, other care providers and/or insurers, is responsible for the overall care of certain patient populations. The setup shifts the financial risk from the payers to providers and takes a holistic approach to providing health care. The ACO has its own governance and leadership. The goal of an ACO’s coordinated care is to ensure patients are getting the proper care at the right time while avoiding duplication of services.

ACOs are typically structured to carry some of the risk of providing health care services, and there are different risk structures. ACOs are attractive to companies looking to control health care costs as they are able to know up front what their employees’ health care costs will likely be for the year. For example, Company A contracts with a Commercial ACO to provide health care services for its employees. The ACO can tell Company A that the care for the year for employees with diabetes will cost $1,500 per patient. If the ACO is able to deliver the health care services for those employees with diabetes for less than $1,500 per patient in that year, then the ACO shares in the cost savings depending on its risk structure. If the costs are higher than the fixed amount, then the ACO will be responsible for the additional costs, again depending on the risk structure of the ACO.

The idea is that the participants in the ACO can provide better care with the incentive to provide it at a lower cost than what was quoted, yielding additional money for the providers. They use shared resources, technology and data metrics to predict and, ideally, lower health care costs.

Commercial ACOs Lack Transparency of Public Payer ACOs

Although Commercial ACOs have similar structures and end goals as ACOs servicing Medicare and Medicaid patients, there are differences between an ACO that covers public payers versus one that services private payers.

Commercial ACOs do not have to provide data on how much money they have spent on patient care or how much money the ACO providers may have made or lost. They also do not have to report on how many people are in their ACO. Insurers or hospitals may choose to release some information. Anthem BlueCross Blue Shield in Indiana and Franciscan Alliance announced in 2016 that its ACO, which at that time had approximately 60,000 Anthem members in it, had produced $22 million in health care savings from July 2014 to June 2015.

Public Payer ACOs do provide cost and patient number information. The Health and Human Services’ Office of Inspector General (OIG) reported in August 2017 that the 428 participating Centers for Medicare and Medicaid’s (CMS) Shared Savings Program ACOs reduced spending by nearly $1 billion in three years. Data from the OIG found the ACOs generally improved the quality of care they provided, based on quality measures.

A recent study in Health Affairs does shine some light on the operations of Commercial ACOs. Researchers from Harvard and other groups looked at national surveys of nearly 400 ACOs (228 Commercial ACOs and 171 Noncommercial ACOs) and found Commercial ACOs were significantly larger, more integrated with hospitals, and had lower benchmark expenditures and “significantly higher” quality scores. The researchers also found Commercial ACOs had higher scores for quality activities based on a model created by the study’s authors. Seventy-nine percent of Commercial ACOs had taken action to improve efficiency in care processes, compared with 73 percent of Noncommercial ACOs. The study found 78 percent of Commercial ACOs had taken steps to reduce unnecessary hospitalizations; 67 percent of Noncommercial ACOs had done the same. The study also determined Commercial ACOs were more likely to create processes to reduce the use of emergency departments for unnecessary care.

Commercial ACOs and Fraud

In order to allow ACOs to service public payers, the government created several waivers so that the ACOs would not be subject to fraud and abuse laws for actions reasonably related to the federal Shared Savings Program. The waivers apply to the physician self-referral law, the federal anti-kickback statute, and the civil monetary penalties law provision relating to beneficiary inducements. For example, typically a physician providing care for a Medicare patient cannot refer the patient to a health services provider in which the physician has a financial stake. Getting the waiver will allow physicians to operate within the ACO framework without violating the physician self-referral law.

Commercial ACOs, on the other hand, are not required to obtain waivers unless they also service public payers. In the Interim Final Rule with comment period (IFC) on the waivers, the CMS, OIG and HHS asked whether the agencies should develop a specific waiver to shared savings derived from programs comparable to the Shared Savings Program that are sponsored by commercial health plans. Some commenters were concerned that extending the waivers by a Commercial ACO may lead to an increase in fraud and abuse concerns.

The agencies noted in the IFC that “shared savings or similar performance-based payments received from a commercial plan do not necessarily implicate the fraud and abuse laws; however, in some circumstances, funds are calculated or used in downstream arrangements in ways that influence the referring of, or ordering of, Medicare or other Federal health care program patients. Moreover, we are mindful of concerns that some private payer arrangements may be sensitive to the volume of business generated for downstream providers or suppliers and that this characteristic may have implications for the application of the Physician Self-Referral Law.”

The final rule says that the agencies believe that many Commercial ACOs are or can be structured to fit within physician self-referral law exceptions for risk-sharing arrangements at 42 CFR 411.357(n). The final rule also says some Commercial ACOs may fit in existing federal anti-kickback statute safe harbors, such as the managed care safe harbors. Also, no waiver or other protection is needed for arrangements that do not implicate the fraud and abuse laws, and this is “equally true for private payer arrangements.”

Since there no waiver requirements, Commercial ACOs should be mindful of these comments from the federal agencies and structure their ACOs to avoid implicating the fraud and abuse laws. Commercial ACOs should state in their mission that the ACO is focused on the patient and providing quality care, just as those serving public payers must do. Commercial ACOs must comply with the physician self-referral law and anti-kickback law. ACOs are health care organizations and so they must comply with the similar regulations that health care organizations have to meet.

A provider or providers looking to create a Commercial ACO should also be mindful of applicable laws in the states where the ACO will operate. Most states have laws prohibiting the corporate practice of medicine (CPOM), which generally prohibits corporations from employing physicians or contracting with physicians to provide medical care. In Indiana, for example, state law allows for employment or a contractual relationship as long as the entity hiring the physician does not direct or control the judgment of the licensed physician. Kentucky does not have regulations or statutes addressing CPOM, but Kentucky case law has adopted the CPOM doctrine. However, note that the Kentucky Board of Medical Licensure has issued an opinion that appears to allow for physicians to be employed by a hospital to provide medical services.

There may also be insurance or managed care licensing laws at play in states where the ACO will operate that could apply to ACOs and other risk-bearing organizations.

Commercial ACOs and Antitrust Concerns

An ACO is a group of organizations, perhaps competitors, working together to provide care, establish costs, and share information. This structure raises concerns of antitrust violations. The Federal Trade Commission and Department of Justice issued a joint policy statement in 2011 detailing how the agencies will enforce U.S. antitrust laws but yet still encourage the establishment of ACOs. The government acknowledged that some ACOs operate in the commercial market as well as in the Medicare Shared Savings Program.

The statement says in part, “the agencies will not challenge as per se illegal a Shared Savings Program ACO that jointly negotiates with private insurers to serve patients in commercial markets if the ACO satisfies certain conditions” – complying with the CMS’ eligibility criteria and using the same governance and leadership structures and clinical and administrative processes to service both Medicare and commercial patients. The agencies will apply a “rule of reason” analysis in looking at any potential antitrust violation if these criteria are met.

CMS noted that ACOs that participate in servicing Medicare patients may have market power that could lead to higher rates charged to private payers in those markets. There were also concerns that ACOs that service both types of patients may begin to reduce the number of Medicare patients they care for in order to increase the number of more-profitable private payers.

There is no guidance from the agencies regarding Commercial-only ACOs, but just as with fraud and abuse laws, Commercial ACOs should structure their organizations in a way that mimics the Medicare Shared Savings Program requirements. Thus, it is important for Commercial ACOs to have an identifiable governing body that determines how the ACO will engage patients and promote evidence-based medicine, coordinate care, and report on cost and quality measures. ACOs should also avoid conduct that include the improper sharing of competitively sensitive information as well as exclusive contracts with providers, tying arrangements, and restrictions on private payers’ ability to share performance data. These types of behaviors may be considered anticompetitive.

The federal government will be examining the structures of these ACOs and watching for potential antitrust violations. There are concerns that as the number of ACOs continue to rise, the result will be consolidation of providers in certain areas. This may lead to reduced competition and higher prices (and possibly lower-quality care) for insurers and self-payers, defeating the patient benefit from the establishment of the ACO. Consolidation may also lead to ACOs being more selective in the patients they service, leaning toward higher-paying commercial insurance patients.

ACOs Will Only Continue to Grow

Commercial ACOs cover nearly 19 million people, more than twice the number covered by Medicare ACOs. As more private payers join ACOs, the number of Commercial ACOs will continue to grow. Physicians groups, hospitals, private insurers and other companies participating in a Commercial ACO should work with their legal team to determine how much risk they want to take on and to ensure they remain in compliance with applicable laws and regulations.