There are other Fraud and Abuse Law issues that may be raised by the structure and operation of ACOs.
a. ACO Legal Structural Issues i. Investment Interests
The legal structure of the ACO may raise issues under the Fraud and Abuse Laws. As noted in Section III above, the ACO may require significant capital to develop its infrastructure and fund its operations, and it may seek equity investors for this purpose. ACOs structured with equity investors, particularly with those who are referring physicians, may raise issues under the AKS and the Stark Law, since the investor’s potential for return on the
investment has the capacity to induce referrals either to the ACO itself or to other participating ACO providers. Where the ACO is itself a hospital or provider, it will likely be a participating
62 Note the inclusion of “medically necessary.” This language is not included in the CMP Law. 63 See, e.g., 42 C.F.R. § 417.479(f).
provider in the Medicare and Medicaid programs. If such an ACO is a provider of DHS (such as a hospital that provides inpatient or outpatient services), then physicians who own equity interests in the ACO will need to qualify for an ownership interest exception under the Stark Law. There is now a Stark Law moratorium on physician ownership of for-profit hospitals, and there are limited exceptions available for ownership interests in ACO provider entities, principally for publicly traded securities and ownership interests in ACOs located in rural areas. However, nonprofit ACO provider entities do not present a Stark Law ownership interest problem, since a membership interest (including a physician membership interest) in a nonprofit generally does not constitute an “ownership or investment interest” for Stark Law purposes. Such membership interests are outside the scope of the Stark Law. Accordingly, while there is broad latitude for structuring physician ownership of nonprofit ACO providers, there are very limited opportunities to have physician ownership of for-profit ACO providers.
It should also be noted that investment interests in ACOs that are providers can implicate the AKS. In this regard, there is an AKS safe harbor for ownership interests in small-business entities and in publicly traded entities. The small-entity safe harbor is
available only if the owners of the ACO meet two 40-percent tests. That is, no more than 40 percent of the value of the investment interests for each class of investment interest can be owned by investors in a position to make or influence referrals to, or otherwise generate business for, the ACO (or its affiliates) and no more than 40 percent of the gross revenue related to the
furnishing of health care items and services of the ACO can be generated by referrals from investors in a position to refer to the ACO (or its affiliates).64 This may limit the ability of an ACO that
is a provider to include a significant number of physician
investors (or other investors that are in a position to refer), even if the ACO is located in a rural area.
ii. IDS
As should be clear from the discussion above, an IDS that
employs physicians will have a far easier time complying with the Stark Law and the AKS. Both statutes have broad exceptions (though not absolute) for payments to employees. Further,
64 42. C.F.R. § 1001.952(a)(2). Other provisions of the safe harbor are that (a) the terms on which investment interests are offered to a passive investor (defined as one not responsible for day-to-day management and not liable for liabilities of the entity as a general partner or through an agreement) must be no different from the terms offered to other investors; (b) the terms on which interests are offered to those in a position to refer business are not related to previous or expected volume of referrals; (c) no passive investor is required to make referrals or be in a position to make referrals; (d) the entity may not market its services to passive investors differently than to non-investors; (e) the entity may not loan funds to an investor for the investor to make any part of an investment in the entity; and (f) the payment to the investor in return for the investment must be directly proportional to the amount of capital investment. 42 C.F.R. § 1001.952(a)(2). If the entity is located in a defined underserved area, the standards are somewhat more accommodating. 42 C.F.R. § 1001.952(a)(3).
payments within or among an IDS and its wholly controlled entities also generally involve a relatively lower degree of health regulatory risk than payments between and among independent network providers. This is another advantage for IDSs that become ACOs. But, as noted above, IDS arrangements do not provide any greater protection from application of the CMP Law.
b. Anticipated New Regulatory Scrutiny
Improper reporting of quality, cost, or risk-adjuster information (e.g., patient health condition) in connection with shared savings, capitation or other ACO payment methodologies raises the risk of false claims act liability. ACOs that are paid based on meeting quality benchmarks and targets can anticipate that regulators will closely scrutinize ACO reported data on meeting these targets. There will be an incentive for providers to present or interpret data to report success in meeting any targets that are set. ACOs will need to adopt methods to ensure accurate reporting of compliance with the benchmarks and targets. Also, as ACOs and providers take more risk for providing quality care efficiently, there will be an incentive for the ACO to avoid taking responsibility for the care of the sickest patients. This can happen on an individual basis or by avoiding groups of patients who actuarially present higher risks. The regulators likely will monitor and regulate, no doubt with significant penalties, any such activities ACOs engage in to avoid certain classes of patients. ACOs that try to game the system by accepting only healthier groups or individuals will likely attract
regulator scrutiny.
5. Possible Regulatory Modifications Under Health Reform to Increase