The Stark physician self-referral law and accountable care organizations: collision course or opportunity to reconcile federal anti-abuse and cost-saving legislation?

AuthorAble, Benjamin Holland
  1. INTRODUCTION II. Overview of Accountable Care Organizations A. What is an Accountable Care Organization? B. Structure and Operations C. Preliminary Cost and Quality Findings III. CONFLICT WITH FEDERAL STARK PHYSICIAN SELF-REFERRAL LAW A. Potential Implication of Stark B. Purpose of Stark C. Stark and ACO Approaches to Achieving Shared Goals IV. CMS' WAIVER APPROACH AND ALTERNATIVES A. Current Waiver B. Public Comments Received on CMS' Interim Final Waiver Rule C. Alternative Approaches V. RECOMMENDATION VI. CONCLUSION I. INTRODUCTION

    Scholars and legal practitioners have long debated the virtues and vices of integrated models of health care delivery and financing. Few such models have been as promising or as rapidly adopted as Accountable Care Organizations ("ACOs"), the latest concept in delivering cost-effective, high-quality health care. Implementation of pre-ACO models, however, never required extensive grants of immunity to providers and suppliers from the federal Stark physician self-referral law ("Stark") and other fraud and abuse laws. (1) The broad waivers issued by the Centers for Medicare & Medicaid Services ("CMS") for implementing ACOs raise unprecedented legal questions concerning Stark's application to these hospital/physician arrangements designed to decrease costs. Furthermore, the waivers represent new opportunities to reconcile, through rulemaking, the cost savings of ACOs with their attendant risks of physician abuse or patient harm accomplished through Stark-proscribed self-referral.

    This Article discusses: the ACO model and how it works (Part I); the specific areas of conflict between Stark regulations and ACOs and their respective approaches to regulating health care cost and quality (Part II); CMS' current interim waiver of Stark for ACO arrangements, including stakeholder reactions through public comment and alternative approaches to resolving ACO-Stark conflict (Part III). Part IV analyzes the costs and benefits of addressing ACO-Stark conflict through a temporary waiver versus ex ante reconciliation of the two regimes. It recommends that CMS maintain the current waiver with additional safeguards to mitigate Stark risks, and consult findings from the 2012 empirical data collected before taking further action.


    This section provides a general survey of Accountable Care Organizations ("ACOs"). It discusses what an ACO is, how it is structured and operated, and current empirical results regarding ACOs' effects on cost and quality of health care services delivered.

    1. What is an Accountable Care Organization?

      An Accountable Care Organization ("ACO") is a group of medical providers and suppliers that work together to manage and coordinate care for a patient population. (2) The Medicare Shared Savings Program ("MSSP"), authorized under the Affordable Care Act ("ACA"), gives providers and suppliers the option to create such a structure for Medicare fee-for-service beneficiaries. (3) In exchange for reducing medical costs and maintaining quality of care at or beyond a level specified by CMS, the ACO providers and suppliers receive a share of cost savings realized through voluntarily implementing various service delivery reforms. (4) These include processes to promote evidence-based medicine, sharing of electronic health records ("EHR"), joint decision-making and governance, and care coordination processes. (5) More generally, the ACA statute outlines ACO objectives, which are to: promote accountability, encourage investment in infrastructure, coordinate provision of Medicare services, and redesign care processes for high quality and efficient service delivery. (6)

      ACOs have adopted a variety of innovative methods for integrating care and reducing costs for specific patient populations. Studies based on ACO pilot demonstrations present a plethora of qualitative findings of provider-specific approaches to accomplishing ACO goals. (7) These include registries reminding providers to follow-up with at-risk patients, telephone monitoring to check-up on at-risk patients, care management to individualize and coordinate services for specific at-risk individuals, EHR implementation and utilization, and reviewing clinical dashboards to track and measure quality and cost performance. (8)

      There are a number of legal requirements for ACOs, including that they have an established mechanism for shared governance providing all ACO participants with proportionate control over decision-making. (9) Additionally, prospective ACOs must apply to CMS to receive approval for operation, and must operate at least three years following approval with the option for renewal. (10) ACO performance in the areas of cost reduction and quality of care is reported and evaluated on an annual basis. (11)

      Within an ACO, individual Medicare beneficiaries are "attributed" to the primary care physician from whom they receive most of their primary care services. (12) CMS creates a list of patients likely to receive care from the ACO based on recent utilization patterns. (13) Beneficiaries do not receive advance notice of their attribution to an ACO but providers must provide signage in their facilities to notify these patients. (14) However, ACO beneficiaries may always choose to receive health benefits from providers outside the ACO to which they are attributed. (15) These costs are nonetheless considered in calculating the ACO's total cost savings and quality performance. (16)

    2. Structure and Operations

      ACOs may be legally formed under a myriad of state law entities, including: limited liability corporations ("LLCs"), professional corporations, and not-for-profit 501(c)(3) organizations. (17) Regulations make it clear that any state authorized entity is sufficient so long as it can perform ACO functions and incorporate all participants in decision-making. (18) The legal choice is closely related to the practical structure of the organization. For example, an LLC, with its more flexible rules on allocating members' liabilities and income and pass-through tax benefits, might make more sense for a loose confederation of physicians, whereas a 501(c)(3) might be best for a large, centralized hospital system. (19)

      In an attempt to avoid unnecessary costly restructuring, many ACOs choose to retain an existing legal status adopted prior to its formation rather than to create a new entity. (20) Notably, CMS regulations indicate that an ACO formed between two or more otherwise independent participants, such as a hospital and independent physician groups, must nonetheless establish a separate legal entity and obtain a Tax Identification Number ("TIN") to qualify as an ACO. (21) This provides a mechanism by which to distribute savings to all participants and ensure that all participants have access to the organization's governance. Such entities would not, however, be required to obtain or bill through a Medicare provider number. (22)

      Distinct from the legal choice of entity, ACOs may be organized and structured in a number of different ways. An ACO may be a single independent medical practice association of physicians with no owned hospitals. For example, Monarch HealthCare in Irvine, CA operates as an independent practice association ACO. (23) It is incorporated as a professional corporation and serves 172,000 patients annually. (24) Less than 2% of the physicians are employed by the ACO; the remaining physicians, roughly 98%, are affiliated with the organization. (25) All the physicians participating in the ACO are primary care practitioners. (26) All the organization's revenues are derived from outcomes-based contracts. (27)

      Alternately, an ACO may consist of an affiliated group of medical providers working together such as a multi-specialty group practice. For example, HealthCare Partners in Torrance, CA operates as a medical group practice ACO. (28) It is incorporated as a limited liability company and is physician-owned and governed. (29) The ACO serves 675,000 patients annually. (30) Nearly one quarter, 23%, of the physicians practicing there are employed by the ACO; the remaining 77% are affiliated with the organization. (31) Of the physicians in the ACO, 37% are primary care physicians and 63% are specialty practitioners. (32) Nearly all the organization's revenues, 94%, are derived from outcomes-based contracts. (33)

      An ACO might also be an entire regional hospital system that itself owns all participating hospitals and physician practices. For example, Tucson Medical Center in Tucson, AZ operates as a community hospital system ACO. (34) It was initially incorporated as a 501(c)(3) not-for-profit organization governed through a board of trustees, of which 25% were physicians. (35) However, to partner with physicians in the ACO, it created a separate limited liability company (LLC). (36) The LLC's board of directors is composed of 20% hospital representation and 80% physician practice group representation. (37) The ACO serves 210,000 patients annually. (38) Fewer than 2% of the physicians practicing there are employed by the ACO; the remaining 98% are affiliated with the ACO. (39) Of the physicians, 61% are primary care physicians and 39% are specialty practitioners. (40) The ACO owns two hospitals and has no prior experience with risk-sharing contracts. (41) Only 8% of the ACO's revenues are derived from outcomes-based contracts due to the high level of integration and service delivery taking place internally. (42)

      An ACO may consist of an integrated delivery network ("IDN") that owns not only hospitals and physician practices but also health plans. For example, Norton Healthcare in Louisville, KY operates as an integrated delivery network ACO. (43) It serves 444,261 patients annually and is incorporated as a 501(c)(3) not-for-profit organization governed by a board of trustees, of which 18% are physicians. (44) 100% of its physicians are employed by the ACO, which owns a...

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