April 26, 2011 If you have any questions regarding the matters discussed in this memorandum, please contact the following attorneys or call your regular Skadden contact. John T. Bentivoglio 202.371.7560 john.bentivoglio@skadden.com Jennifer L. Bragg 202.371.7980 jennifer.bragg@skadden.com Michael K. Loucks Boston 617.573.4840 michael.loucks@skadden.com Gregory M. Luce 202.371.7310 greg.luce@skadden.com * * * This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws. Accountable Care Organizations Fraud/Abuse Waiver Proposals May Have Major Impact on Providers, Suppliers and Others Stakeholders Need to Engage to Protect Innovative and Beneficial Arrangements In early April, the Center for Medicare and Medicaid Services (CMS) issued proposed implementing regulations as required by Section 3022 of the Affordable Care Act (ACA), 1 concerning so-called Accountable Care Organizations. At the same time, CMS and the Office of Inspector General (OIG), Department of Health and Human Services (HHS), issued a notice with comment period that describes and solicits comment on possible waivers of the application of the Physician Self-Referral Law (the Stark or Stark law ), the federal anti-kickback statute (AKS), and certain civil monetary penalties (CMP) law provisions to specified financial arrangements involving accountable care organizations (ACOs) under the Medicare Shared Savings Program. 2 Comments must be submitted by 5 p.m. EDT on Monday, June 6, 2011. Top Line Summary The Shared Savings Program creates powerful financial incentives for ACO participants to change care delivery models and financial relationships among ACO participants and between the ACOs and non-aco members (e.g., pharmaceutical and device makers). The substance and tone of the CMS-OIG notice appear to reflect a cautious approach (similar to the approach the OIG has taken with respect to AKS regulatory safe harbors) that may lead to waiver rules that provide only limited protection to ACOs and non-aco members that impede some beneficial new arrangements, particularly innovative models with which the agencies have limited experience. The incentive to shift costs from the ACOs to non-aco members will be substantial, putting pressure on non-aco members to develop innovative models that may not fit narrow waiver safeguards. One waiver proposal includes an element involving the parties knowledge and intent, which is likely to create substantial compliance issues. Because the scope of the waivers will depend on the scope of the final ACO regulations, CMS expects to issue such waivers concurrently with CMS s publication of final regulations for the program. Four Times Square, New York, NY 10036 Telephone: 212.735.3000 WWW.SKADDEN.COM 1 On March 23, 2010, the Patient Protection and Affordable Care Act (Pub. L. 111 148) was enacted. Following the enactment of Public Law 111 148, the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111 152) (enacted on March 30, 2010), amended certain provisions of Public Law 111 148. These public laws are collectively known as the Affordable Care Act. 2 76 Fed. Reg. 19655-60 (April 7, 2011).
2 Overview Section 3022 of ACA establishes a Medicare shared savings program through which a group of providers of services and suppliers can organize into a legal entity that establishes processes that seek to provide high quality of care through the promotion of evidence-based medicine and patient engagement to at least 5,000 program beneficiaries at a lower cost achieved through more effective management of the patient s overall health care needs. Then, the Medicare program will share some portion of the savings with the ACO members. Section 3022 provides few details on how to achieve this goal; the new proposed regulations are CMS s initial effort to structure the ACO program. 3 Key Terms in Shared Savings Program Proposed Rules Accountable care organization (ACO) means a legal entity that is recognized and authorized under applicable state law, as identified by a Taxpayer Identification Number (TIN), and comprised of an eligible group (as discussed in Section II.B. of the proposed rule) of ACO participants that work together to manage and coordinate care for Medicare Fee-for-Service (FFS) beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an appropriate proportionate control over the ACO s decision-making process. ACO participant means a Medicare-enrolled provider of services and/or a supplier (as discussed in Section II.B. of the proposed rule, as identified by a TIN). ACO provider/supplier means a provider of services and/or a supplier (as discussed in Section II.B. of the proposed rule) that bills for items and services it furnishes to Medicare beneficiaries under a Medicare billing number assigned to the TIN of an ACO participant in accordance with applicable Medicare rules and regulations. Why Waivers Are Necessary The Stark law, CMP provisions addressing hospital payments to physicians to reduce or limit services, and AKS are intended to protect the federal health care programs and beneficiaries from fraud, improper referral payments, unnecessary utilization, underutilization and other harms. 4 However, stakeholders have expressed concern that the restrictions these laws place on financial arrangements between physicians, hospitals, and other individuals and entities may impede development of some of the innovative integrated-care models envisioned by the Medicare Shared Savings Program. Section 1899(f) of the Social Security Act (42 U.S.C. 1395 et seq.) (the Act) authorizes the secretary to waive these and certain other laws as necessary to carry out the Medicare Shared Savings Program. 3 For an analysis of how the proposed ACO rules will impact pharmaceutical and medical device makers specifically, see The Potential Impact of the New Accountable Care Organization Regulations on the Pharmaceutical and Medical Device Industries at http://www.skadden.com/newsletters/the_potential_impact_of_the_new_accountable_care_organization_regulations.pdf. 4 The Stark law, Section 1877 of the Social Security Act (42 U.S.C. 1395nn), is a civil statute that prohibits a physician from making certain referrals for Medicare designated health services to entities in which the physician or immediate family member has a financial interest. Section 1128B(b) of the Social Security Act (42 U.S.C. 1320a-7b(b), the Anti- Kickback Statute, provides criminal penalties for individuals or entities that knowingly and willfully offer, pay, solicit, or receive remuneration to induce or reward the referral of business reimbursable under federal health care programs. Sections 1128A(b)(1) and (2) of the Social Security Act (the Gainsharing CMP ) authorize HHS to impose civil money penalties against individuals or entities involved in certain payment arrangements between hospitals and physicians, including arrangements commonly referred to as gainsharing arrangements.
3 CMS/OIG Notice and Comment Paper Stark Waivers CMS and OIG are considering waiver of the Stark law for distributions of shared savings received by an ACO from CMS under the Medicare Shared Savings Program: (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 ACOs participation in and operations under the Medicare Shared Savings Program. CMS s intent is to protect financial relationships created by the distribution of shared savings within the ACO, as well as financial relationships created by a distribution of shared savings outside the ACO, but only if the distribution outside the ACO relates closely to the requirements for an ACO under Section 1899 of the Act, including achieving the quality and savings goals of the Medicare Shared Savings Program. CMS emphasized that it does intend to protect distributions of shared savings dollars to referring physicians outside the ACO, unless those referring physicians are being compensated (using shared savings) for activities necessary for and directly related to the ACO. According to the agencies, other financial relationships with referring physicians outside the ACO would need to meet an existing exception under the Stark law (for example, the fair market value, personal services or indirect compensation exceptions). This proposed waiver would be limited to distributions of shared savings; all other financial relationships involving physicians (or their immediate family members) or entities participating in the Medicare Shared Savings Program that implicate the Stark law would still need to satisfy an existing exception. Waivers of Anti-Kickback Statute Provisions Under this proposal, the secretary would waive application of the two provisions of the AKS 1128B(b)(1) and (2) of the Act (42 U.S.C. 1320a 7b(b)(1) (2)) in the following scenarios: Distributions of shared savings received by an ACO from CMS under the Medicare Shared Savings Program: (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 Medicare Shared Savings Program. 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 Medicare Shared Savings Program that implicates the Stark law and fully complies with an exception at 42 C.F.R. 411.355 through 411.357. As with the proposed Stark law waiver, CMS intends the first waiver scenario to protect financial arrangements created by the distribution of shared savings within the ACO, as well as financial arrangements created by a distribution of shared savings outside the ACO. CMS stated, however, that the AKS waiver is intended to protect distributions of shared savings dollars to referral sources outside the ACO only where those referral sources are being compensated (using shared savings) for activities necessary for and directly related to the ACO s participation in and operations under the
4 Medicare Shared Savings Program. Other financial arrangements outside the ACO would need to fit in a safe harbor or otherwise comply with the anti-kickback statute. Similarly, CMS is proposing waivers in the second scenario to protect financial relationships between and among the ACO, its ACO participants and its ACO providers/suppliers that relate closely to the ACO s operations under the Shared Savings Program, but only if the relationship implicates the Stark law and fits squarely in an exception. Ordinarily, compliance with the Stark law does not immunize conduct under the anti-kickback statute, and arrangements that comply with the Stark law are still subject to scrutiny under the AKS. CMS describes this waiver as a limited exception to the foregoing rule. Failure to qualify for one of the proposed waivers under the AKS would not mean an arrangement is in violation of the AKS. To the extent that the anti-kickback statute is implicated by a financial arrangement that is not subject to a waiver, the financial arrangement would need to comply with the AKS or one of the statutory exceptions or regulatory safe harbors under the statute. Gainsharing CMP Waiver Since the Gainsharing CMP closely parallels the two provisions of the AKS discussed above, CMS is proposing to waive these provision in the following two scenarios: Distributions of shared savings received by an ACO from CMS under the Medicare Shared Savings Program in circumstances where (1) the distributions are made from a hospital to a physician, provided that the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services; and (2) the hospital and physician are ACO participants or ACO providers/suppliers, or were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned by the ACO. 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 Medicare Shared Savings Program that implicates the Stark law and fully complies with an exception at 42 C.F.R. 411.355 through 411.357. Scope and Application of Waivers CMS is proposing that waivers related to the distribution of shared savings would apply to the distributions of shared savings earned by the ACO during the term of agreement with CMS to participate in the Medicare Shared Savings Program, even if the actual distributions occur after the expiration of the agreement. AKS and Gainsharing CMP waivers would apply during the term of the ACO s agreement with CMS to participate in the Medicare Shared Savings Program. Preliminary Analysis of Waiver Proposals The CMS-OIG notice and request for comment document represents the agencies preliminary thoughts on how to structure waivers for the Shared Savings Program and, therefore, provides limited detail and specific guidance. Nevertheless, our preliminary analysis of the notice includes the following: The Shared Savings Program creates powerful financial incentives for ACO participants to change their care delivery models and financial relationships among ACO participants and between the ACOs and non-aco members (e.g., pharmaceutical and medical device makers).
5 The substance and tone of the CMS-OIG notice appear to reflect a cautious approach (similar to the approach the OIG has taken with respect to AKS regulatory safe harbors) that may lead to waiver rules that provide only limited protection to ACOs and non- ACO members that impede some beneficial new arrangements, particularly innovative models with which the agencies have limited experience. Conclusion The incentive to shift costs from the ACOs to non-aco members will be substantial, putting pressure on non-aco members to develop innovative financial models that may not fit narrow waiver safeguards. At least one of the waiver proposals includes an element involving the parties knowledge and intent. Since the very purpose of the Shared Savings Program is to create financial incentives that literally (though beneficially) induce ACO members to change their practice behaviors, this approach could be highly problematic. The waiver proposals outlined by CMS and OIG will be critical to the effective implementation of the Shared Savings Program. Innovative new financial arrangements will be needed to change practice behaviors to improve patient care and lower costs. Because arrangements following outside the scope of waivers will subject the parties to criminal, civil and administrative penalties, however, an approach that seeks to provide only narrow safeguards due to fraud/abuse concerns will impede the effectiveness of the program. Stakeholders should carefully analyze the CMS and OIG waiver proposals and engage these agencies and encourage them to adopt a flexible approach that encourages innovation through beneficial new financial arrangements.