April 2011 ACO Special Edition

Proposed Waivers for Application of Fraud and Abuse Laws

By Conrad Meyer, Chaffe McCall, L.L.P., New Orleans, LA

AuthorOn April 7, 2011, the Department of Health and Human Services (“HHS”) and the Centers for Medicare & Medicaid Services (“CMS”) released a notice outlining proposed waivers addressing what an Accountable Care Organization (“ACO”) must do to participate in the Medicare Shared Savings Program created in the Patient Protection and Affordable Care Act. (PPACA”),1 including: ACO structure, eligibility, information technology (“IT”) requirements, antitrust issues, marketing, and tax implications. One glaring issue affecting all ACOs intending to participate in the Medicare Sharing Savings Program (“MSSP”) include application of the current Fraud and Abuse laws that prohibit the fundamental purpose of the MSSP – distribution of shared savings among hospitals, physicians, and other individuals and/or entities. To address that concern, CMS and HHS’ Office of Inspector General detailed proposed guidance to ACOs in applying to CMS/HHS for waivers under the Physician Self Referral Law (“Stark law”), the Anti-Kickback Statutes (“AKS”) and certain provisions under the Civil Monetary Penalties (“CMP”) provisions on gainsharing arrangements, (collectively referred to as the “Fraud and Abuse laws”).2

This article will focus on the issues ACOs will face with respect to obtaining waivers of the Fraud and Abuse laws from the Secretary of HHS (“Secretary”) to allow ACOs to participate in the MSSP.

Background on Fraud and Abuse Laws
In order to understand the necessity for an ACO to obtain a waiver from the Secretary, it is important to review some background on the Fraud and Abuse laws. Currently, the Stark law, AKS and CMP provisions prohibit hospital payments to physicians to reduce or limit services in order to protect patients as well as Medicare/Medicaid from fraud, abuse, improper referrals, overutilization, underutilization, and other potential issues.

The Stark law (a civil statute) prohibits physicians from making referrals for Medicare “designated health services (“DHS”)” including hospital services, to entities with which they or their immediate family members have a financial relationship (“prohibited referral”), unless an exception applies.3 Not only does the Stark law prohibit physicians from referring patients for Medicare DHS as stated above, the law also prohibits entities from billing Medicare for services rendered for a prohibited referral.4 If an entity bills Medicare for a prohibited referral it may be liable under the CMP for billing for services which the entity should know are prohibited.5

In contrast to the Stark law, the AKS provides criminal penalties for individuals or entities that knowingly or willfully offer to pay, solicit, or receive remuneration to induce or reward referrals of business under a federal healthcare program.6 Of note, violations of the AKS could implicate CMP liability as well.

Lastly, the CMP provides a prohibition for hospitals to pay physicians to induce a reduction or limitation of services, sometimes called “gainsharing” arrangements.7 The CMP prevents hospitals from paying physicians to limit or reduce care provided to Medicare/Medicaid patients, and any violation of this prohibition can trigger the penalty provision of the CMP requiring either the hospital, physician or both to pay up to $2,000 per patient covered by any payments.8

The reason to review the Fraud and Abuse laws goes to the very purpose for the proposed waiver regulations for ACOs: all of the Fraud and Abuse laws prohibit the activities related to ACOs which allow distributions of shared savings received from CMS in relation to the delivery of healthcare to ACO participants, ACO providers and ACO suppliers. As such, CMS’ intent for issuing the notice of proposed waivers is to protect these financial relationships created by distributions of shared savings both within and outside an ACO.9

Qualification for Waivers
According to the notice, qualification for the waivers requires an ACO to enter into an agreement with CMS to participate in the MSSP as well as ensure compliance of all ACO participants, providers, and suppliers with the final provisions of the MSSP. At this time, the final rules for the MSSP have not been published.10

Scope and details of the Waivers
Once qualified, the ACO can request the Secretary issue a waiver for the Fraud and Abuse laws. The notice provides guidance on specifically what the Secretary would waive for the applicable Stark law, AKS and CMP provisions.

Under the Stark law, the Secretary would waive application of provisions specifically related to the prohibition of distributions of shared savings received by an ACO from CMS under the MSSP11 to the following:

  • To or among ACO participants, ACO providers, ACO suppliers, and individuals or entities that were ACO participants or ACO providers and/or ACO suppliers during the year in which the shared savings were earned by the ACO; or
  • For activities necessary for and directly related to the ACO’s participation in and operations under the MSSP.12

Of note, CMS/OIG are very clear that the waiver provisions for the Stark law shall not apply to distributions of shared savings outside the ACO, unless the referring physicians are being compensated (using shared savings) for activities necessary for and directly related to the ACO’s participation in the MSSP.13 Any other financial relationship not pertaining to the ACO’s participation in the MSSP must meet an existing exception to the Stark law.

Under the AKS, the Secretary would waive application of 42 U.S.C. 1320a-7b(b)(1)-(2)14, for the following two scenarios:

  • Distributions of shared savings received by an ACO from CMS under the MSSP:
    • 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
    • For activities necessary for and directly related to the ACO’s participation in and operations under the MSSP.
  • 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 MSSP that implicates the Stark law and fully complies with an exception at 42 CFR 411.355 through 411.357.15

As with the Stark law waiver conditions, CMS/OIG are very clear that the waiver provisions for the AKS shall not apply to distributions of shared savings outside the ACO, unless the referring physicians are being compensated (using shared savings) for activities necessary for and directly related to the ACO’s participation in the MSSP16. Any other financial relationship not pertaining to the ACO’s participation in the MSSP must meet an existing safe harbor to the AKS. The goal for issuing a waiver under the AKS was to create efficiency for the MSSP because, under other situations not related to the MSSP, an arrangement that might comply with an exception under Stark law would still be scrutinized under the AKS. By issuing a waiver for the AKS, the Secretary can ease burdens on ACOs who are participating in the MSSP.

As to the CMP, the Secretary would waive application of 42 U.S.C. 1320a-7a(b)(1) and (2)17, for the following two scenarios:

  • Distributions of shared savings received by an ACO from CMS under the MSSP in circumstances where 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 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 CFR 411.355 through 411.357.

Waiver Duration
According to the notice, the waiver of the Stark law 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 MSSP, even if the actual distributions occur after the expiration of the agreement.18

On the other hand, the waivers relating to the AKS and CMP for arrangements in compliance with a Stark law exception would only apply during the term of the ACO’s agreement with CMS to participate in the MSSP.19 According to CMS, the issues relating to waivers of the Fraud and Abuse laws requires a significant balancing act because, under the MSSP, providers and suppliers are continued to be paid under Medicare’s fee-for-service program. As such, CMS/OIG are concerned and seek comment as to whether or not the waiver provisions are enough to protect ACOs during their formation, including addressing whether the waiver provisions provide protection regarding:

  • ACO formation, including application of waivers to startup expenses and initial investments to cover startup expenses
  • ACO governance requirements
  • ACO administrative requirements
  • ACO IT requirements
  • ACO Participants, Providers and Suppliers (Inside ACO)
  • ACO Participants, Providers and Suppliers (Outside ACO)
  • Distributions from Private Payors

In addition, CMS is reviewing comments directly related to other provisions of the notice of proposed waivers including the duration of the waiver, the scope of the waiver and whether or not additional safeguards might be necessary to protect ACOs under the MSSP.

Lastly, CMS is reviewing how the proposed waivers would affect an ACO’s participation in the two-sided risk model under the MSSP. As background, the proposed ACO regulations require an ACO to participate in a two-sided risk model. The two-sided risk model requires ACOs to assume financial risk if costs for its beneficiaries exceed specified thresholds. At this time, CMS does not require an ACO to put its participants, providers or suppliers at risk for cost overages; however, the two-sided risk model does permit an ACO the choice to place all or some of its participants, providers and suppliers at risk. Under the two-sided risk model, an ACO would have to share in the losses (cost overages) with a cap on the amount of losses to be shared phased in and incrementally increasing over a period of three (3) years. CMS is concerned whether the current proposed waivers would be appropriate for ACOs participating in this model and specifically whether or not risks associated with overutilization (increasing costs) or underutilization (decreasing costs) related to the risks associated with ACO participation in the two-sided risk model impact the waiver provisions.

Analysis of Scope of Waiver provision
CMS/OIG’s proposed waivers for the MSSP are vital to ensure that ACOs participating in the MSSP do not run afoul of the Fraud and Abuse laws. Nothing in the notice indicates that CMS would cherry pick what Fraud and Abuse laws to waive while reviewing various ACO agreements. Conversely, CMS proposes to uniformly waive the Fraud and Abuse laws to all qualifying ACOs including providers, participants and suppliers that participate in the MSSP.20 Since the proposed ACO regulations are not finalized, an analysis of the proposed waivers might be premature at this point. However, both CMS/HHS/OIG and the Secretary are going to enforce their power to issue these waivers to qualifying ACOs because the Medicare Shared Savings Program is here to stay.

You can find a copy of the notice of proposed waivers of the fraud and abuse laws at this link http://edocket.access.gpo.gov/2011/pdf/2011-7884.pdf. The comment period ends on June 6, 2011.


1 See 76 Fed. Reg. 19528
2 See 76 Fed. Reg. 19655
3 See 42 U.S.C. 1395nn
4 Id.
5 42 U.S.C 1320a-7a
6 See 42 U.S.C. 1320a-7b(b)
7 See 42 U.S.C. 1320a-7a
8 Id.
9 The only distribution of shared savings that can be made outside of an ACO is if the distribution outside the ACO relates closely to the requirements for an ACO as outlined in the MSSP. See 76 Fed. Reg. 19657
10 See 76 Fed. Reg. 19657
11 See 42 U.S.C. 1395nn
12 See 76 Fed. Reg. 19657
13 See 76 Fed. Reg. 19658
14

42 U.S.C. 1320a-7b(b)(1) and (2) titled – “Illegal remunerations” which provide:

(1) whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind

(A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or

(B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

(2) whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person

(A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or

(B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program,

shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

15 Id.
16 76 Fed. Reg. 19658
17

42 U.S.C. 1320a-7a(b)(1) and (2) titled – Payments to induce reduction or limitation of services

(1) If a hospital or a critical access hospital knowingly makes a payment, directly or indirectly, to a physician as an inducement to reduce or limit services provided with respect to individuals who--

(A) are entitled to benefits under part A or part B of subchapter XVIII of this chapter or to medical assistance under a State plan approved under subchapter XIX of this chapter, and

(B) are under the direct care of the physician,

the hospital or a critical access hospital shall be subject, in addition to any other penalties that may be prescribed by law, to a civil money penalty of not more than $2,000 for each such individual with respect to whom the payment is made.

(2) Any physician who knowingly accepts receipt of a payment described in paragraph (1) shall be subject, in addition to any other penalties that may be prescribed by law, to a civil money penalty of not more than $2,000 for each individual described in such paragraph with respect to whom the payment is made.

18 See 76 Fed. Reg. 19658
19 Id.
20 76 Fed. Reg. 19659

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