ACO Legal Issues Update

ACO Legal Issues Update Third National Accountable Care Organization Congress October 30 November 1, 2012, Beverly Hilton Hotel, Los Angeles, CA Robert Homchick roberthomchick@dwt.com Robert L. Schuchard robertschuchard @dwt.com Douglas C. Ross douglasross@dwt.com

ACOs: Medicare vs. Commercial Accountable Care Organizations (ACOs) Defined under Medicare Shared Savings Program and Medicare Pioneer ACO Program ACOs can also be structured around a commercial population typically involving a specific payor While shared savings and quality metrics are common to both the rules governing Medicare ACOs are very different from what parties agree upon for commercial ACOs 2

Medicare Shared Savings Program Requirements Legal Structure Very Flexible rules on legal structure Entity recognized under state law Must have a TIN Capable of statutory functions of ACO Does not need to be a Medicare provider 3

Medicare Shared Savings Program Requirements Governance 1) Need an identifiable governing board, which includes: 75% ACO participants (providers/suppliers) enrolled in Medicare and have a TIN One Medicare beneficiary 2) Leadership and Management, including An executive accountable to the governing board Senior level medical director (board certified) 3) Conflict of interest policy, which includes: Disclosure of relevant financial interests Includes a process to address conflict 4) Compliance functions 5) Processes to promote evidence based Medicare, report the necessary dates to evidence quality and cost measures, and coordinate 4

Commercial ACOs Legal structure No requirement of a TIN Can use commercial joint venture (not permitted for MSSP) Governance Shift in orientation from participants to relative financial contributions Tiered management; where are decisions made Owners; participants Role of physicians Committees 5

Application Process Minimum 3 year participation agreement with CMS Submission: Documents sufficient to describe the ACO participants and their respective rights and obligations Description of how the ACO will implement the patient centeredness criteria Documents evidencing the ACO s organization and management structure (incl. evidence of the compliant governing body) Copy of the ACO s compliance plan 6

Application Process Submission: Description of the plan to distribute savings and the use of the shared savings payments How the distribution plan will achieve the specific goals of the Shared Savings Program How the plan will achieve the triple aim Specify whether the ACO plans to participate in Track 1 or 2 (2 sided risk or 1 only) If applying for 2 sided model, evidence of ability to repay losses 7

Tax Exempt Organizations as ACOs Internal Revenue Service issued a Fact Sheet on ACOs "Tax Exempt Organizations Participating in the Medicare Shared Savings Program through Accountable Care Organizations IRS stated that it will review ACO arrangements on a caseby case basis, based on all the facts and circumstances HOWEVER, because of CMS regulation and oversight of the Shared Saving Program, IRS generally "expects" that it will not consider a tax exempt hospital's participation in an ACO to result in inurement or private benefit if certain factors are met 8

ACO: Challenges in Formation Governance Structure MSSP requirements prescriptive Commercial ACO may not need/want the same structure Establishing Appropriate Financial Relationships with Physician participants At the formation stage is there sufficient data to commit to share savings among a range of previously unaffiliated providers Proper assignment of TINs and beneficiaries Predicting/Understanding baseline used to determine shared savings Establishing what is needed for the operation of the ACO before the ACO is operating 9

ACOs: Fraud & Abuse Waivers CMS has established five separate fraud & abuse waivers under the Shared Savings Program In general, these waivers provide considerable flexibility to MSSP participants CAUTION: the waivers have been praised for their breadth but there are limits! 10

ACOs: Fraud & Abuse Waivers 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 patient incentive waiver for in kind incentives offered by ACOs to beneficiaries to encourage preventive care and compliance with treatment regimens A shared savings distribution waiver A compliance with Stark Law waiver 11

ACOs: Fraud & Abuse Waivers The waivers 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 waivers only apply to Stark, anti kickback and CMPs and not to any other provision of State or Federal law, including the Internal Revenue Code The waivers apply uniformly and are self implementing no need to apply to CMS/OIG 12

MSSP: Fraud & Abuse Risks Operating in a manner inconsistent with the ACOs rganizational documents or representations made to CMS Misrepresentations in reports Quality Standards? Other metrics? 13

Fraud & Abuse Risks (cont.) Establishing appropriate parameters for financial relationships with physician participants Formation: allocation of ownership or control? Infrastructure support/services? Shared shavings allocations? Other payments? Improper beneficiary inducements Underestimating importance of operational compliance as opposed to having a compliance program Failure to keep proper records Documentation of Board determinations Records tracking how benefits distributed 14

Commercial ACOs: Regulatory Risks Confusion of MSSP operations and Commercial operations Different rules apply Different populations but potentially some overlap Commercial ACOs do not have the benefit of the MSSP waivers Failure to identify and isolate the ACO patient population The Stark Risk Sharing exception focuses on enrollees of a MCO Spill over effect Commercial ACO payments, inducements or other benefits could affect providers treatment of Medicare/Medicaid beneficiaries 15

Beneficiary Attribution Medicare FFS beneficiaries are assigned to an ACO based on their use of primary care services furnished by an ACO professional Individuals enrolled in a Medicare Advantage plan under part C, or in a PACE program or in a Seniorcare program under Section 1876 of the Act are not eligible for assignment to an ACO under the Shared Savings Program 16

Beneficiary Attribution Beneficiaries assigned based on where they receive their primary care services Beneficiaries are first assigned to the ACO based on the primary care services provided by primary care physicians Beneficiaries who are not receiving services from a primary care physician may be assigned to the ACO on the basis of primary care services provided by other physicians (i.e. specialists) Beneficiaries will be assigned to an ACO if they receive a plurality of their primary care services from it Plurality rule will be applied on the basis of accumulated allowed charges not a service count 17

Beneficiary Attribution Primary care physicians required to be exclusive to an ACO in order for the attribution process to work Specialists who furnish primary care and the primary care services of PAs and NPs also must be exclusive to a single ACO CMS adopted an exclusivity requirement based on the taxpayer identification number (TIN)s under which the services of specialists, PAs and NPs included in the assignment process must be exclusive to one ACO 18

Exclusivity Challenges Difficult to ensure that specialists will be treated as nonexclusive Broadly defined primary care codes Plurality of allowed charges determines attribution No threshold single visit could trigger exclusivity Specialists exclusivity can depend on activities of other physicians Collective determinations at the ACO and TIN level Potential Clash between ACOs Overlap physician/group participation in multiple ACOs Skew patient attribution? Undermine 5000 threshold 19

Antitrust Issues FTC & DOJ Antitrust Statement for ACOs Applies to: All collaborations among otherwise independent providers that are eligible and intend, or have been approved, to participate in the SSP program Does not apply to: Single integrated entities Mergers and acquisitions 20

What are the Antitrust Issues? Is the ACO fixing prices? Price fixing is a per se offense: agreements among competitors on price are unlawful Even if the competitors have no market power Does creation of the ACO increase market power impermissibly? If the ACO is not price fixing there is a second issue: does the ACO have market power its members do not have alone so that it could raise price? 21

Is the ACO price fixing? Agreements among competing providers Naked restraints: per se unlawful Never get to the market power question Integrated networks: rule of reason treatment So long as price setting is reasonably necessary to achieve benefits 23

Is the ACO price fixing? So is the ACO integrated? Financial integration Clinical integration If qualify as a Medicare ACO: deemed integrated 24

Is the ACO price fixing? Financial integration Capitation Fee schedule with risk withhold Bundled payments Network 25

Is the ACO price fixing? Clinical integration the implementation by a network of an active and ongoing program to evaluate and modify practice patterns by the network s physician participants and the creation of a high degree of interdependence and cooperation among the physicians to control costs and ensure quality Network 26

Is the ACO price fixing? Clinical integration the implementation by a network of an active and ongoing program to evaluate and modify practice patterns by the network s physician participants and the creation of a high degree of interdependence and cooperation among the physicians to control costs and ensure quality Network 27

Is the ACO price fixing? Clinical integration Investment of time and $ Common clinical approach Selection and expulsion Less certain Network 28

Is the ACO price fixing? Qualify as a Medicare ACO: deemed integrated CFR 425.112 (required processes and patient centeredness criteria) Provides certainty With respect to agencies, at least Network 29

Is the ACO price fixing? So: qualifying as a Medicare ACO is important Because the ACO may jointly negotiate reimbursement terms with commercial payors without unlawful price fixing But: this is not the only issue 30

Does the ACO increase market power? Does the ACO have market power its members do not have alone so that the ACO could raise price? How measure market power? Define relevant markets 30

Does the ACO increase market power? Service market Identify common services Physician: primary specialty (MSC) Inpatient facilities: MDCs Outpatient facilities: category as defined by CMS Geographic Market PSA Lowest number of zip codes making up 75% Borrowed from Stark 31

Data problems These are not antitrust relevant markets PSA in particular is not a relevant geographic market No Medicare data for obstetrics, pediatrics Shares of providers with unusually high Medicare populations not representative of shares of commercial Hospital outpatient department and ambulatory surgery center reimbursed at different rates 32

Market power: safety zone Agencies will not challenge ACOs within safety zone absent extraordinary circumstances Safety zone Two or more independent ACO participants providing a common service Have a combined share of 30% or less in each participant s PSA 33

Market power: safety zone What does safety zone mean? No agency challenge, absent extraordinary circumstances Does not foreclose private litigants No presumption of illegality outside 30% 34

Market power: safety zone Hospitals and ASCs Must be non exclusive to fall within the safety zone Regardless of number of hospitals/ascs in area Can an ACO qualify for participation in the SSP if a hospital participates on an exclusive basis? Yes it just doesn t fall within the safety zone 35

Market power: safety zone Rural exception: physicians Physicians: ACO in a rural area can include one physician (or group) per specialty in each rural area even if that takes the ACO over 30% So long as: physician is not exclusive to the ACO Rural exception: hospitals ACO can include a Rural Hospital and still qualify even if the resulting share exceeds 30% The hospital cannot be exclusive to the ACO 36

Market power: safety zone Dominant Provider Limitation If a provider with a share > 50% is included, the ACO still qualifies if the provider is: Non exclusive The only provider of the service 37

Safety zone: exclusivity issues 42 CFR 425.306(b) requires Each ACO participant TIN upon which beneficiary assignment is dependent must be exclusive to one MSSP ACO for purposes of Medicare beneficiary assignment ACO participant TINs upon which beneficiary assignment is not dependent are not required to be exclusive to one MSSP ACO But the safety zones rely on non exclusivity How can ACO be exclusive and non exclusive at the same time? 38

Safety zone: exclusivity issues ACO Antitrust Statement (footnote 40): Note that, although CMS requires the physician practice through which physicians bill for primary care services and to which Medicare beneficiaries are assigned to contract exclusively with one ACO for the purposes of beneficiary assignment, CMS does not require either those individual physicians or physician practices to contract exclusively through the same ACO for the purposes of providing services to private health plans enrollees. CMS ACO Rule, supra note 20. 39

Safety zone: exclusivity issues ACO Antitrust Statement (footnote 40): Note that, although CMS requires the physician practice through which physicians bill for primary care services and to which Medicare beneficiaries are assigned to contract exclusively with one ACO for the purposes of beneficiary assignment, CMS does not require either those individual physicians or physician practices to contract exclusively through the same ACO for the purposes of providing services to private health plans enrollees. CMS ACO Rule, supra note 20. 40

Safety zone: exclusivity issues ACO Antitrust Statement (footnote 40): Note that, although CMS requires the physician practice through which physicians bill for primary care services and to which Medicare beneficiaries are assigned to contract exclusively with one ACO for the purposes of beneficiary assignment, CMS does not require either those individual physicians or physician practices to contract exclusively through the same ACO for the purposes of providing services to private health plans enrollees. CMS ACO Rule, supra note 20. 41

Safety zone: exclusivity issues ACO Antitrust Statement (footnote 40): Note that, although CMS requires the physician practice through which physicians bill for primary care services and to which Medicare beneficiaries are assigned to contract exclusively with one ACO for the purposes of beneficiary assignment, CMS does not require either those individual physicians or physician practices to contract exclusively through the same ACO for the purposes of providing services to private health plans enrollees. CMS ACO Rule, supra note 20. 42

Market power: outside the safety zone Not necessarily illegal Conduct to avoid Discouraging steering Tying Exclusive contracting with ACO participants Restricting payor s ability to share cost, quality, efficiency, and performance information with enrollees All ACOs should avoid improper sharing of competitively sensitive information 43

ACO voluntary review process Newly formed ACO may seek antitrust review As of March 23, 2010, had not signed or negotiated contracts with a commercial payor; had not participated in MSSP Notify FTC and DOJ using a form on website www.ftc.gov/os/2011/10/111020acocoversheet.pdf One agency takes review and tells ACO ACO submits required information 44

ACO voluntary review process Within 90 days of receiving all required information, the reviewing agency informs the ACO it: Does not likely raise competitive concerns Potentially raises competitive concerns Likely raises competitive concerns Status of such reviews at agencies? Should an ACO do this? 45

A final word documents Evanston Northwest merger (Chicago suburbs) 46

A final word documents Merger will build negotiating strength with payers Strengthen negotiation capability with managed care companies through merged entities Increase our leverage with the managed care players and help our negotiating posture Highland Park management 47

A final word documents The larger market share created by adding Highland Park Hospital has translated to better managed care contracts 48

A final word documents The larger market share created by adding Highland Park Hospital has translated to better managed care contracts The fighting unit of our three hospitals and 1600 physicians was instrumental in achieving these ends 49

Questions Robert Homchick roberthomchick@dwt.com Robert L. Schuchard robertschuchard @dwt.com Douglas C. Ross douglasross@dwt.com 20514337.1

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