ACOs: Fraud & Abuse Waivers and Analysis

ACOs: Fraud & Abuse Waivers and Analysis Robert G. Homchick and Sarah Fallows Davis Wright Tremaine, LLP I. Introduction The Patient Protection and Affordable Care Act of 2010 (ACA) fosters the development of new patient care models designed to improve the coordination, quality and efficiency of health care services to Medicare and Medicaid patients. Section 3022 of the ACA mandates the creation of the Medicare Shared Savings Program, which allows qualified groups of providers to earn a share of the savings generated as a result of reducing the overall cost of providing care to an assigned population of Medicare fee-for-service beneficiaries. To participate in the Shared Savings Program, providers band together to form Accountable Care Organizations (ACOs). To facilitate the establishment of ACOs, Section 3022(f) of the ACA grants the Secretary of Health and Human Services the authority to waive certain provisions of the fraud and abuse laws under the Social Security Act or other provisions of the Medicare law (herein ACO waivers ). The Centers for Medicare & Medicaid Services (CMS) published the final ACO regulations on November 2, 2011 (ACO Final Rule). At the same time, CMS and HHS Office of Inspector General (OIG) published an Interim Final Rule with Comment (IFC) establishing waivers of the Stark law, the anti-kickback statute, and certain provisions of the civil money penalty law (CMP), including the so called Gainsharing CMP and the prohibition on inducements to beneficiaries. 1 The IFC establishes five separate waivers that, when considered in the aggregate, permit ACOs significantly more latitude than the waivers as initially proposed by CMS and OIG. 2 As the IFC states: These five waivers provide flexibility for ACOs and their constituent parts to pursue a wide array of activities, including start up and operating activities, that further the purposes of the Shared Savings Program. 3 The design of the ACO waivers is premised on the expectation of both CMS and OIG that the risks of fraud and abuse, such as overutilization, inappropriate utilization and underutilization, will be mitigated in the first instance by the design of the Shared Savings Program. 4 1 The IFC was published in the Federal Register at 76 Fed. Reg. 67992 (November 2, 2011). Because the IFC addresses a range of regulations affecting several statutes, CMS and OIG elected not to publish formal regulation text. The IFC can be located in the Federal Register and on the CMS and OIG websites. 2 On April 7, 2011 CMS and OIG jointly published a notice with comment period describing proposed ACO waivers and other waiver design considerations (ACO Proposed Waiver Notice). 76 Fed. Reg. 19655 (April 7, 2011). 3 76 Fed. Reg. at 67993. 4 76 Fed. Reg. at 68003. 1

The specific waivers set forth in the IFC include: An ACO pre-participation waiver that applies to ACO-related start-up arrangements; An ACO participation waiver that applies during the period of when the entity is actively participating in the Shared Savings Program and for a limited time thereafter; A shared savings distribution waiver; A compliance with Physician Self-Referral Law waiver; and A patient incentive waiver for in kind incentives offered by ACOs to beneficiaries to encourage preventive care and compliance with treatment regimens. The last two waivers were included in the ACO Proposed Waiver Notice released by CMS and OIG in 2011. 5 Under the IFC, the fraud and abuse waivers are contingent on formal approval by the ACO governing body as well as transparency or disclosure requirements. The waivers, however, are self-executing: there is no required government review or approval. The IFC went into effect on November 2, 2011. It is important to note that these waivers apply to ACOs participating or seeking to participate in the Shared Savings Program. ACOs also operate outside of the Shared Savings Program, using the accountable care model for commercially insured patient populations. Fraud and abuse analysis of commercial ACO arrangements are discussed in Section V below. II. Applicable Fraud and Abuse Laws Section 3022(f) of the ACA grants the Secretary the authority to waive those requirements of Sections 1128A and B and Title XVIII of the Social Security Act as may be required to carry out the Shared Savings Program provisions. These provisions include: Gainsharing CMP or the Civil Money Penalty Law Prohibition on Payments to Reduce or Limit Care, 42 U.S.C. 1320a 7a(b). A hospital or critical access hospital may not knowingly make a payment, directly or indirectly to a physician as an inducement to reduce or limit services provided to a Medicare or Medicaid beneficiary under the direct care of the physician. Beneficiary Inducement CMP or the Civil Money Penalty Law Prohibition on Inducements to Beneficiaries, 42 U.S.C. 1320a 7a(a)(5). Persons may not provide remuneration to a Medicare or Medicaid beneficiary where the person knows or should know that the remuneration is likely to influence the beneficiary to order or receive a service from a particular provider, practitioner or supplier where the item may be covered in whole or in part under the Medicare or Medicaid program. 5 76 Fed. Reg. 19655 (April 7, 2011). 2

The Stark Law, 42 U.S.C. 1395nn. A physician may not refer Medicare patients for certain designated health services to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies. An entity receiving a prohibited referral may not bill the Medicare program for the resulting items and services. The Anti-Kickback Statute, 42 U.S.C. 1320a 7b(b)(1) and (2). Persons may not knowingly offer or receive, directly or indirectly, overtly or covertly, in cash or in kind, any remuneration to induce or influence the furnishing, arrangement, purchase, leasing, or ordering of items or services for which payment may be made in whole or in part under a federal health care program. Prohibitions Against Charging or Collecting More Than the Medicare Allowable, 42 U.S.C. 1320a-7a(a)(2). Assignment occurs when a beneficiary asks that a Medicare payment be made directly to the provider. If a provider accepts assignment, Medicare will directly pay the fee schedule amount for the services, and the beneficiary will be responsible for paying the coinsurance and any remaining deductible. Collectively, the fee schedule payment and coinsurance/deductible are referred to as the allowed amount. By accepting assignment, the provider agrees to accept the allowed amount as payment in full for the services. III. The Establishment, Scope and Application of the Waivers Secretary Determination. The IFC reflects the determination by the Secretary, based on public comment and the Department s own analysis, that it is necessary to waive certain provisions of the Stark law, the Federal anti-kickback statute, the Gainsharing CMP and the Beneficiary Inducements CMP to carry out the Shared Savings Program. 6 This finding was the necessary predicate to the establishment of the waivers. Scope of Waivers. The waivers set forth in the IFC are promulgated pursuant to the specific authority granted the Secretary under the ACA and apply only to the Shared Savings Program and participating ACOs. The ACA includes separate authority for Secretary to waive fraud and abuse laws for other demonstration projects and pilot programs. The agencies will issue separate guidance addressing waivers under other programs. In addition, the ACO waivers only apply to the specific laws identified in the IFC (i.e. Stark, anti-kickback and CMPs) and not to any other provision of State or Federal law, including the Internal Revenue Code. 7 Uniform Application. The waivers apply uniformly to all ACOs, ACO participants and ACO provider/suppliers. Arrangements that do not fit within a waiver have no special protection and will be evaluated on a case by case basis. 8 6 76 Fed. Reg. at 67993. 7 Id. 8 76 Fed. Reg. at 67994, 67999. 3

Automatic Application. The waivers apply automatically if the conditions are satisfied. There is no need (or process) for participants in the Shared Savings Program to apply for an individualized waiver. 9 Joint Issuance. In a noteworthy display of interagency cooperation, CMS and OIG jointly established the waivers under the IFC thereby adopting a coordinated approach to the waivers of the fraud and abuse laws under the Shared Savings Program. Because the waivers address several different laws and are subject to modification, the Secretary elected not to publish the waivers in the Code of Federal Regulations to better ensure that the waivers are consistent over time. 10 Coordination with ACO Final Rule. The IFC is drafted to coordinate with the provisions of the ACO Final Rule. For purposes of the IFC, the terms ACO, ACO participants, ACO providers/suppliers and participation agreement have the meanings ascribed to them in the ACO Final Rule. 11 Purposes of the Shared Savings Program. Four of the ACO Waivers include a requirement that the arrangement in question or the use of certain funds be reasonably related to the purposes of the Shared Savings Program. That phase is broadly defined in the IFC to include promoting accountability for the quality and cost of overall care for the Medicare patient population, managing and coordinating such care, promoting evidence based medicine and patient engagement and encouraging investment in infrastructure and redesigned care processes. 12 The arrangement must be related to the Shared Savings Program but they may involve care for both Medicare and non-medicare patients. The arrangement need only be reasonably related to one of the enumerated purposes of the Shared Savings Program. The IFC warns, however, that not every arrangement will pass muster as reasonably related to the purposes of the Shared Savings Program. For example, we do not believe that a per-referral payment (such as, expressly paying a specialist $500 for every referral generated...) would be reasonably related to the purposes of the Shared Savings Program. 13 Governing Body Determinations. Several of the waivers require the governing body of the ACO to make formal determinations most often a determination that the arrangement is reasonably related to the purposes of the Shared Savings Program. The waivers require that the governing body make a contemporaneous written record of the basis for its determination and that the written records be preserved for ten (10) years. These determinations are intended to make the ACO s governing body an intermediary responsible, in the first instance, for ensuring that all protected arrangements are in furtherance of ACO purposes and are not isolated arrangements furthering the individual financial or business interests of ACO participants or ACO providers/suppliers. 14 9 76 Fed. Reg. at 67999. 10 Id. 11 More specifically, 42 CFR 425.20; 42 CFR 425.208. 12 76 Fed. Reg. at 68000 (definition of purposes of Shared Savings Program ); 76 Fed. Reg. at 68002 (related commentary). 13 76 Fed. Reg. at 68004. 14 76 Fed. Reg. at 68003. 4

Documentation of Governing Body Determinations. The documentation of arrangements eligible for waiver protection must include the following: (a) a description of the arrangement, including the parties, the date, the purpose and the financial or economic terms; and (b) the manner of the governing body s authorization of the arrangement and the basis for the determination that the arrangement is reasonably related to the purposes of the Shared Savings Program. The IFC refers to the need for an audit trail of contemporaneous documentation. 15 Transparency. The IFC requires that a description of the arrangements subject to the waiver to be publicly disclosed at a time and in a place and manner established in guidance issued by the Secretary. 16 The goals of this transparency requirement include the deterrence of criminal or fraudulent conduct, making information about the arrangements more available to all parties involved and the government and creating an incentive for the ACO to exercise due diligence to ensure that the arrangements are consistent with the ACO s mission. 17 IV. The Five Waivers The IFC establishes five separate waivers addressing different circumstances or aspects of the formation and operations of an ACO. An arrangement need only fit within one waiver to be protected but in some cases an arrangement may satisfy the criteria of more than one waiver. A. ACO Pre-participation Waiver 18 The Stark law, anti-kickback statute and Gainsharing CMP are waived with respect to start up arrangements that pre-date an ACO s participation agreement, provided: 1. The arrangement is under taken by the parties acting with the good faith intent to develop an ACO that will participate in the Shared Savings Program starting in a particular year (Target Year) and to submit an application to participate in that year. The parties to the arrangement must include at least one ACO participant of the type eligible to form an ACO. 2. The parties must take diligent steps to develop an ACO that would participate in the Shared Savings Program in the Target Year. 3. ACO s governing body must make a bona fide determination that the arrangement is reasonably related to the purposes of the Shared Savings Program. 19 4. Written documentation of the arrangement, the governing body s determination and description of the diligent steps taken to develop the ACO are created contemporaneously and retained by the ACO for at least ten (10) years. 15 76 Fed. Reg. at 68004. 16 76 Fed. Reg. at 68000, 68001. 17 76 Fed. Reg. at 68004. 18 76 Fed. Reg. at 68000. 19 The IFC includes an illustrative, non-exhaustive list of arrangements that constitute start up arrangements for purposes of the Pre-participation Waiver. 76 Fed. Reg. at 68003. 5

5. A description of the arrangement is publicly disclosed at a time and in a manner established in guidance to be issued by the Secretary. The required public disclosure, however, will not include the financial or economic terms of the arrangement. It is noteworthy that under the Pre-participation Waiver, the parties to the arrangement may not include drug and device manufacturers, distributors, durable medical equipment suppliers or home health suppliers. 20 The agencies noted that these entities have historically posed a heightened risk of program abuse. In the context of the Pre-participation Waiver, ACO participant and ACO providers/suppliers should refer to individuals or entities that would qualify under the ACO Final Rule definitions and would be on the ACO s list of providers/suppliers but for the fact that the required list has not yet been submitted to CMS. If the ACO fails to submit an application for participation for the Target Year, it must submit a statement describing the reasons why it was unable to submit the application to the Secretary on or before the last available application due date for the Target Year. For arrangements that meet all the requirements of the Pre-participation Waiver, the waiver period starts on either (a) November 2, 2011 for Target Year 2012; or (b) one (1) year preceding an application due date for a Target Year of 2013 or later. The waiver period ends: For ACOs that submit an application by the application date for the Target Year and enter into a participation agreement, the start date of that agreement; For ACOs that submit an application that is denied, the date of the denial notice, except for arrangement that qualified for the waiver before the date of the denial notice, in which case the waiver period ends six (6) months after the date of the denial notice. For ACOs that fail to submit an application by the due date, on the earlier of the application due date or the date the ACO submits the statement of reasons for failing to submit an application. However, an ACO that is unable to submit an application but can demonstrate a likelihood of successfully developing an ACO that would be eligible to participate in the next available year may apply for an extension of the waiver. The determination whether to grant the extension will be within the sole discretion of the Secretary. An ACO may use the Pre-participation Waiver only one time. 20 76 Fed. Reg. at 68000. 6

B. ACO Participation Waiver 21 The Stark law, anti-kickback statute and Gainsharing CMP are waived with respect to any arrangement of an ACO, one or more of its ACO participants or ACO providers/suppliers, or any combination thereof, provided: 1. The ACO has entered into a participation agreement and remains in good standing under the Shared Savings Program. 2. The ACO meets the governance, leadership and management requirements of an ACO. 22 3. The ACO s governing body has made a bona fide determination that the arrangement is reasonably related to the purposes of the Shared Savings Program. 4. The arrangement, the governing body s determination and related matters are contemporaneously documented and that documentation is retained by the ACO for at least ten (10) years. 5. A description of the arrangement is publicly disclosed at a time and in a manner established in guidance to be issued by the Secretary. For arrangements that meet all the requirements of the Participation Waiver, the waiver period will start on the date of the participation agreement and will end six (6) months following the earlier of the expiration of the participation agreement, including any renewals, or the date on which the ACO has voluntarily terminated the participation agreement. However, if CMS terminates the participation agreement the waiver period will end on the date of the termination notice. C. Shared Savings Distribution Waiver 23 The Stark law, anti-kickback statute and Gainsharing CMP are waived with respect to distributions of shared savings earned by an ACO, provided: 1. The ACO has entered into a participation agreement and remains in good standing under the Shared Savings Program. Program. 2. The shared savings are earned by the ACO pursuant to the Shared Savings 3. The shared savings are earned by the ACO during the term of its participation agreement, even if the distribution or use of the shared savings occurs after expiration of the agreement. 21 76 Fed. Reg. at 68000, 68001. 22 42 CFR 425.106; 42 CFR 425.108. 23 76 Fed. Reg. at 68001. 7

4. The shared savings are either: (1) distributed among ACO participants, ACO providers/suppliers or individuals or entities that were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned; or (2) used for activities that are reasonably related to the purposes of the Shared Savings Program. The Shared Savings Distribution Waiver is very flexible but it is not without limits. For example, the Waiver does not protect distributions of savings to referring physicians who are outside of the ACO, unless those physicians are being compensated for activities reasonably related to the Shared Savings Program. 5. With respect to the Gainsharing CMP waiver, the shared savings distributions made directly or indirectly from a hospital to a physician may not be knowingly made to reduce or limit medically necessary care to patients under the direct care of the physician. The IFC clarifies that payments to encourage best practices or compliance with clinical protocols are not prohibited by this provision. Thus, encouraging a physician to use a particular cost effective therapy in lieu of a more expensive alternative is permissible. It is less than clear, however, whether the waiver would extend to distributions of shared savings designed to encourage a physician to consider not treating certain conditions based on the lack of medical evidence that available treatments are effective. Hopefully, the agencies will give ACOs this latitude. The Shared Savings Distribution Waiver does not protect the distribution of shared savings earned by an ACO under programs sponsored by commercial health plans. The IFC acknowledges that ACOs participating in the Shared Savings Program may receive performance based payments from commercial plans that are tied to activities consistent with the Shared Savings Program. Nonetheless, the agencies were not persuaded that a specific waiver for such payments is necessary. The IFC notes that commercial health plan programs may not implicate the fraud and abuse laws and that the Stark law risk sharing exception 24 may well provide protection for many of the shared savings arrangements. 25 D. Compliance with the Physician Self-Referral (Stark) Law Waiver 26 The Gainsharing CMP and the anti-kickback statute are waived with respect to any financial relationship among the ACO, its ACO participants, and its ACO providers/suppliers that implicates the Stark law, provided: 1. The ACO has entered into a participation agreement and remains in good standing under the Shared Savings Program. 2. The financial relationship is reasonably related to the purposes of the Shared Savings Program. 24 42 CFR 411.357(n). 25 76 Fed. Reg. at 68006. 26 76 Fed. Reg. at 68001. 8

law. 3. The financial relationship fully complies within an exception to the Stark For arrangements that meet all the requirements of the Compliance with Stark Law Waiver, the waiver period will start on the date of the participation agreement and with end on the earlier of the expiration of the participation agreement, including any renewals or the date on which the participation agreement terminates. The willingness of the agencies to use the Stark law exceptions as a basis for waiving anti-kickback and Gainsharing CMP liability is a departure from the usual position of CMS and OIG that the anti-kickback statute, the Stark law, and the civil monetary penalty law are completely different statutes that must be separately analyzed. The IFC explains that the agencies were willing to take this step because of the specific safeguards of the Shared Savings Program and their desire to ease the burdens on entities establishing and operating ACOs. 27 E. Waiver for Patient Incentives 28 The Beneficiary Inducement CMP and the anti-kickback statute are waived with respect to items or services provided by an ACO, its ACO participants, or its ACO providers/suppliers to beneficiaries for free or below fair market value provided: 1. The ACO has entered into a participation agreement and remains in good standing under the Shared Savings Program. 2. There is a reasonable connection between the items or services and the medical care of the beneficiary. This requirement is intended to protect against the risk that ACOs might use extravagant incentives to steer beneficiaries. 29 3. The items or services are in kind (no cash or cash equivalent payments). 4. The items and services (a) are preventive care items or services, or (b) advance one or more of the following goals: (i) adherence to a treatment regime; (ii) adherence to a drug regime; (iii) adherence to a follow-up plan of care; (iv) management of a chronic disease or condition. The Waiver for Patient Incentives will not protect financial incentives, such as the waiving or reducing patient copayments or deductibles. The IFC also notes that the ACO Final Rule prohibits ACOs, ACO participants and ACO providers/suppliers and other individuals performing functions or services related to ACO activities from providing any gifts or other remuneration to beneficiaries to induce the beneficiaries to receive services from providers affiliated with the ACO. 30 27 76 Fed. Reg. at 68006. 28 76 Fed. Reg. at 68001. 29 76 Fed. Reg. at 68007. 30 42 CFR 425.304(a)(1). 9

The Waiver for Patient Incentives does not protect the provision of free or below fair market value items or services by manufacturers or other vendors to beneficiaries, the ACO, ACO participants or ACO providers/suppliers. The Waiver for Patient Incentives does protect ACOs that give beneficiaries items or services obtained from manufacturers at discounted rates, but does not cover the discount arrangement between the ACO and the manufacturer. 31 For arrangements that meet all the requirements of the Waiver for Patient Incentives, the waiver period will start on the date of the participation agreement and will end on the earlier of the expiration of the term of the participation agreement, including any renewals, or the date the participation agreement terminates. Beneficiaries, however, may keep items received before the termination of the participation agreement and may receive the remainder of any service initiated before the termination of the participation agreement. V. Fraud & Abuse Analysis of Commercial ACO Arrangements A. Medicare Shared Savings Program Waivers As noted above in the discussion of the Shared Savings Distribution Waiver, CMS and OIG expressed in the IFC that shared savings or similar performance-based payments received by an ACO from a commercial plan do not necessarily implicate the fraud and abuse laws. 32 The agencies still declined, however, to extend protection under the Shared Savings Distribution Waiver to the distribution of shared savings earned through commercial ACO arrangements. 33 Without waiver protection, commercial ACOs must be mindful of the pitfalls of the Gainsharing CMP, Stark law and anti-kickback statute. The good news for commercial ACOs that also participate in the Medicare Shared Savings Program is that the ACO Participation Waiver may provide some protection for incentives or other arrangements targeting the ACO s commercial patients. 34 CMS and OIG recognize that such arrangements have the potential to be reasonably related to the purposes of the Shared Savings Program 35 and share the aims of promoting accountability for the quality, cost, and overall care for a Medicare patient population, managing and coordinating care for Medicare fee-for-service beneficiaries through an ACO, and encouraging investment in infrastructure and redesigned care processes for high quality and efficient service delivery for patients, including Medicare beneficiaries. 36 B. Stark Regarding the Stark law 37 specifically, the IFC notes that many commercial ACO arrangements are, or can be, structured to fit within the Stark law exception for risk-sharing 31 76 Fed. Reg. at 68007. 32 76 Fed. Reg. at 68006. 33 Id. 34 Id. 35 76 Fed. Reg. at 68001. 36 Id. 37 42 U.S.C. 1395nn. 10

arrangements or other exceptions. 38 The exception for risk-sharing arrangements was designed to protect compensation arrangements between a physician and a managed care organization (MCO) or independent physicians association (IPA), so long as: the compensation is paid pursuant to a risk-sharing arrangement (including, but not limited to, withholds, bonuses, and risk pools); the compensation is for services provided to enrollees of a health plan (as those terms are defined for purposes of the anti-kickback law safe harbors); and the arrangement does not violate the anti-kickback law or any federal or state law or regulation governing billing or claims submission. 39 The exception for risk-sharing arrangements is meant to cover all risk-sharing compensation paid to physicians by an entity downstream of any type of health plan, insurance company, HMO, or IPA, provided the arrangement relates to enrollees and meets the conditions set forth in the exception. All downstream entities are included, and CMS purposefully declined to define the term managed care organization so as to create a broad exception with maximum flexibility. 40 Commercial ACOs may also need to look to other Stark exceptions to address some of the financial relationships involving physician participants or members. Often the Stark analysis of such arrangements will focus on whether an indirect compensation arrangement has been created and, if so, whether the arrangement can be structured to fit within the indirect compensation arrangement exception. C. CMP Laws The Gainsharing CMP 41 and the Beneficiary Inducement CMP 42 specifically target Medicare and Medicaid beneficiaries. Therefore, in the commercial ACO context it is entirely possible that either of these statutes will be implicated because government program patients will not be included in the ACO patient population. The analysis, however, is complicated by a couple of factors. First, if the incentives in the commercial ACO are designed or implemented in a manner such that they have a spillover effect on government program beneficiaries, CMP liability may be possible. The assessment of the risk based on a spillover effect theory will necessarily be fact specific. Second, some of the commercial ACO patients could have Medicare or Medicaid secondary coverage. For better or worse, it is not clear the extent to which Medicare secondary coverage might trigger CMP exposure and there is little case law or other guidance on this issue. To the extent that a health plan is involved in the commercial ACO, both CMP laws are even less likely to be triggered. In the case of the Gainsharing CMP it should be possible for the 38 76 Fed. Reg. at 68006. 39 42 CFR 411.357(n). 40 69 Fed. Reg. at 16114 (March 26, 2004). 41 42 U.S.C. 1320a 7a(b). 42 42 U.S.C. 1320a 7a(a)(5). 11

commercial ACO to structure any payments to physicians that might be construed as having the effect of reducing or limiting care such that these payments would be made by or at the direction of the insurer and not the hospital ACO participants. The commercial ACO should also be able to structure incentives to ACO patients who are enrollees of the commercial health plan affiliated with the ACO in a manner that would not implicate the Beneficiary Inducement CMP. D. Anti-kickback Statute Like the CMP laws, the federal anti-kickback statute 43 is focused on federal health care program patients and payments from the federal programs. The anti-kickback statute also requires that the government must prove that a party s actions are knowing and willful in order to establish a violation. Therefore, under most circumstances, the anti-kickback risks in a commercial ACO context should be low provided the commercial ACO is not being used for nefarious purposes such as intentionally channeling funds to a referral source in exchange for the referral of items of services to be paid for by a federal health care benefit program. E. State Laws In all stages of formation and operation, commercial ACO arrangements must also be analyzed in light of the state fraud and abuse laws. A majority of states have laws regarding false claims, kickbacks and physician self-referral. These state statutes often differ from their federal counterparts and should be separately analyzed by qualified legal counsel. 43 42 U.S.C. 1320a 7b(b)(1) and (2). 12