Following a historical, and often heated national debate, comprehensive health reform became a reality when President Obama signed the Patient Protection and Affordable Care Act into law on March 23, 2010. Affordability of the new legislation is premised on a number of strategies, including an assumption that costs would be reduced through various cost containment strategies that seek to improve quality of care and efficiency through the creation of integrated delivery systems. One such strategy is the development of Accountable Care Organizations (ACOs).

Under ACOs' model, hospitals, physicians and other health providers organize into an integrated multidisciplinary group aimed at providing comprehensive care in a financially conscious manner. ACOs are intended to provide patients with integrated and coordinated care under an umbrella of health care providers that are incentivized to be accountable for the cost, quality and overall care provided to assigned beneficiaries. While opinions vary, proponents believe ACOs have the greatest potential for delivering on the promise of greater efficiency, continuity of care and cost savings in health care.

While there is certainly a buzz in the air, there are basic legal issues which need to be addressed to ensure that ACOs remain compliant with existing laws. While this is not meant to be an exhaustive list of legal issues involved, a general discussion concerning potentially applicable statutes is warranted.

  • Anti-Kickback Statute — The federal Anti-kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce referrals of items or services reimbursable by any federal health care program. The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. Because of the use of broad terms such as “any remuneration,” “directly or indirectly,” and “in cash or in kind,” the Anti-Kickback Statute is susceptible to expansive interpretation. When contemplating ACO formation, provider collaboration and referrals within an integrated system is a hallmark key to ACO success. Allocation of cost savings incentives among various referring ACO participants likely trigger Anti-kickback concerns, which must be at the forefront of operational considerations.
  • Stark Law — The federal Stark Law prevents a physician from referring a federally insured patient for designated health services to an entity, if the physician or an immediate family member of the physician has a financial relationship with the entity, unless an exception applies. Violation of the Stark Law can result in severe financial penalties, exclusion and potential False Claims Act liability. Many of the services contemplated by ACOs will necessarily include “designated health services,” to which current exceptions to the Stark Law were not contemplated, especially when considering allocation of incentive payments between ACO participants.
  • Tax Issues — If a nonprofit facility seeks inclusion in a ACO, tax status must be considered. In order to protect the tax-exempt status of the facility, the arrangement must not result in private inurement or impermissible private benefit. In order to protect ACO participants from imposition of excess benefit tax and penalties under the intermediate sanctions provisions, the arrangement must not result in excess benefit to disqualified persons, such as physicians, who are generally considered taxpaying entities. Careful examination will be required to be certain that the IRS will not assert a profit-making motive to the organization. While there are structures that would likely meet these challenges, it will be necessary to determine if the arrangement undermines the hospital’s nonprofit tax status.