‘Fear and Trembling’ at AHIP?

The impending rise of Accountable Care Organizations (ACOs) as market participants, and their apparent autonomy from an ‘institutional partner’ perspective, whether of the clinical or licensing (i.e., payor) variety, is no doubt raising concerns in certain sectors.

Clearly the guidance to date, which enables ACO anointing absent a hospital partner is causing some hospital CEOs, and/or their parent systems, to lose some sleep. However, lets not forget about the health plan or payor community particularly from the point of view of their trade group voice.

Last month AHIP (America’s Health Insurance Plans), released ‘Accountable Care Organizations and Market Power Issues.’

Chief among AHIP’s concerns is the anti-trust downside of unbridled market power leading to concentrated (monopolistic) market influence in the hands of too few (and perhaps ‘untethered’) players:

ACOs have the potential to improve quality and reduce costs for consumers and payers alike, by providing more patient-centered, coordinated, collaborative care. The ACA provides only the broad outlines of the ACO program, and without proper design, provider aggregation could result in market power, undermining the program’s goals of lower costs and higher quality. To avoid bad marketplace outcomes, the ACO rulemaking should structure the program to minimize antitrust concerns.

Might this be a case of the pot calling the kettle black?

Extracting the ‘H’ from P/H/O: The Anatomy of One Unwinding

Gregg Masters, MPH

Since we now find ourselves at the gateway of resurgent if not soon to be robust exploratory conversations between hospitals, their medical staffs, the broader private medical community and the likely joint venture entities to implement any collaborative vision, this time under the aegis of Accountable Care Organization (ACO)  incentives, I thought it might be useful to recall one unwinding for context and educational purposes.

In the 1990s Presbyterian Healthcare System (PHS) in Dallas, Texas (pre-merger with Harris Methodist Health System and Arlington Memorial Hospital into Texas Health Resources), reading the tea leaves of the wisdom of joint contracting with its medical staff formed ‘System Health Providers’ (SHP) a PHO with it’s primary affiliate IPA (independent practice association) ‘Genesis Physicians Group’ (GPG) and it’s risk contracting derivative, Genesis Physicians Practice Association (GPPA).

PHS had previously formed a first generation PHO doing business as ‘JVE’ which stood for ‘joint venture entity’, a most generic of names which none-the-less represented a culture of commitment by both hospital and medical staff leadership to the idea of collaborating minimally to build provider side leverage in the then fast consolidating managed healthcare industry.

Thus SHP represented a ‘PHO 2.0’ effort – if you will, for at least the PHS side of the JV. All seemed to progress quite nicely, as SHP, a messenger model PPO routinely extracted rather premium pricing when contrasted to other DFW systems including Baylor and the then rapidly consolidating Columbia Healthcare network, and held payor agreements with virtually all major players in DFW.

Yet, somewhere on the road to contracting nirvana, the enterprise stumbled across a ‘trigger event’, initially seen as rather innocuous, but which later began a rather unpleasant and painful unwinding process straining long-standing relationships and testing the goodwill of the partners.

In the fine print of the PHO agreement between the two members (PHS & GPG) was an arcane provision titled ‘mandatory redemption’. Though a rather routine legalese provision, what this language addressed were the conditions under which one member would buy back the share or interest (i.e., redeem) in the JV, and effectively terminate the equity basis for collaboration.

In this case, the ‘offending party’ was PHS, and the trigger event was the merger with Harris Methodist Health System and Arlington Memorial Hospital to form Texas Health Resources (THR).

Following the closing of the merger, the leadership of SHP in consultation with the leadership of GPG and their legal counsel determined that PHS had effectively triggered the mandatory redemption provision, thus forcing the valuation of SHP, and subsequent buy back of PHS’s interest. In other words, the ‘H’ was to be eliminated as this PHO was on the road to becoming a ‘PO’ (physician organization).

One curious little sidebar to the unfolding of events was the CEO of SHP had a financial incentive for the buy back to occur, as the terms of his employment agreement (and perhaps stock ownership) called for a payout under certain circumstances (one of which apparently included mandatory redemption).

Needless to say, hospital and medial staff or affiliate joint ventures even in the best of times, can be a tad tense, but throw into the mix a testy ‘divorce’ and one can definitely challenge even the most skillful managers to maintain the peace.

Much time has passed and the ship apparently has righted itself as both entities continue to work together although I have no direct tie to either.

So what lesson(s) can be extracted from this one experience? One is to choose your partner carefully (do you even need one?), be clear on your intentions, and market upside; then study the fine print of your agreements. Better yet, know your value, understand your goals and make sure you account for likely bumps in the road. While much of the discussion in ACO formation will center around the usual suspects of capital, infrastructure, and core management competencies, a far more important ingredient will be a ‘patients first’ collaborative culture, to endure the rocky road of aligning the partners interests in the JV. Then again, since an ACO does not necessarily need to be a ‘joint venture’ per se, with an institutional partner whether hospital or parent system, do you even want to go down that road? It will no doubt get real interesting, real soon.

Gregg Masters, MPH is an independent heath care consultant in San Diego, California, who served as Vice President for Managed Care and Network Management of System Health Providers, Inc., prior to, during and after the formation of Texas Health Resources.

Creating Accountable Care Organizations: A NEJM Roundtable

Thomas H. Lee, M.D., Lawrence P. Casalino, M.D., Ph.D., Elliott S. Fisher, M.D., M.P.H., and Gail R. Wilensky, Ph.D.

N Engl J Med 2010; 363:e23


Under the Affordable Care Act, Medicare will launch a Shared Savings Program for groups of health care providers that join forces, with or without hospitals or health plans, to form legal entities that agree to take responsibility for the quality, cost, and overall care of a population of patients. What will these accountable care organizations (ACOs) look like? Who will step forward to form them? What are the best pathways and likely hurdles to achieving ACO status? What are the risks of entering the arena, and what are the expected benefits for clinicians and patients? In a roundtable discussion moderated by Dr. Thomas Lee, experts Lawrence Casalino, Elliott Fisher, and Gail Wilensky explored these and other questions.

To watch video clip, click here.

Transcript extract:

1. Introduction to ACOs

DR. THOMAS LEE: Welcome to a video roundtable of the New England Journal of Medicine on accountable careorganizations. I’m Tom Lee, an associate editor of the Journal and network president of Partners Healthcare. In atime of incredible transition in health care, we’re all hoping that where we are headed is a delivery system thatdelivers higher-quality care more efficiently. Are accountable care organizations, or ACOs, the vehicle? Whateveryone says is the devil is in the details.To talk about that today, we’ve got three experts with complementary perspectives. We have Gail Wilensky, aneconomist and senior fellow at Project Hope, who served in a variety of roles with relevance to this topic, includingadministrator of the Health Care Financing Administration and chair of MedPAC. We have Elliott Fisher, who is thedirector of the Center for Health Policy Research and a professor of medicine at Dartmouth Medical School. And wehave Larry Casalino, who is the chief of the Division of Outcomes and Effectiveness Research and a professor atWeill Cornell Medical College.

To download complete transcript, click here.

Integrated Healthcare Association White Paper: Accountable Care Organizations in California – Lessons for the National Debate on Delivery System Reform

The Integrated Healthcare Association has released a timely and insightful White Paper titled ‘Accountable Care Organizations in California: Lessons for the National Debate on Delivery System Reform‘.

California has 285 physician organizations with many of the characteristics described in the national debate, and its experiences with these organizations over the past thirty years, both positive and negative, offer insight into the challenges that Federal policymakers will face with ACO implementation. This paper outlines five overarching aspects of California physician organizations – their organizational structures, payment methods, relationship with health plans, how they promote consumer choice, and the public policy and regulatory constraints they face – and offers ten key lessons for the national ACO debate.

The ten lessons derived from the five key features and described in detail in the report are:

1. A variety of organizational structures are effective at delivering high quality coordinated care; at least as important to success as structure are an organization’s capabilities, culture, and infrastructure, as well as the alignment of goals between the organization and its individual physicians.

2. In California, a range of relationships exist between physician organizations and hospitals. Alignment of incentives between physician organizations and hospitals offer important opportunities for performance improvements across the entire continuum of care.

3. As a method of payment, capitation can be effective at encouraging coordinated care, but payment methods should vary across ACOs depending on an organization’s ability to assume risk. Fee-for-service payment with shared savings has not proven a successful incentive for the efficient delivery of care.

4. Health plans acting in concert on payment methods and performance measurement helped facilitate the growth of California’s provider organizations, and should also play an integral part in fostering ACO development nationally.

5. ACOs are not a panacea for health care spending control. Some large provider organizations have gained bargaining power and raised prices. Capitation payment and consumer cost sharing partially offset tendencies toward raising prices.

6. ACOs must be agnostic to insurance type; most provider organizations in California have focused on commercial, Medicare, and Medicaid HMO plans for their patients, but for ACOs to be viable across the country, mechanisms must be found to encourage PPO and traditional Medicare and Medicaid patients to use their services.

7. Balancing patient choice with the desire to decrease costs and effectively coordinate care is difficult. California’s experience underscores the challenge of promoting care coordination in an environment of unrestricted provider choice.

8. Regulation of the financial solvency of provider organizations is important to ensure market stability.

9. Consumer protections from capitated provider organizations need to be balanced, not overburdening.

10. Special attention must be given to establishing ACOs in geographic areas with identifiable social and economic challenges. Some California ACOs have been very successful at managing care for Medicaid patients, despite low payment rates from the state.

The report was funded by IHA and co-authored by James C. Robinson and Emma L. Dolan, a graduate student in public health and public Policy at UC Berkeley. The complete report is available at www.iha.org.

Doctors: The Sky Is Not Falling

Jeffrey L. Cohen

In the 90s, physicians were told “The sky is falling. You have to find a tree to stand under or you will be crushed.” The “trees” were things like IPAs and PHOs. The future outlook was bleak. All patients were going to be part of some system with which the physician would have no input or control. Decisions would be made on purely business grounds. And the end of fee for service medicine was at hand. NOT.

Here we are today in the face of a national healthcare reform drive. Again, any claim the sky is falling and civilization as we know is will be undone. It is the end days for private practice of medicine. NOT.

The truth is clear: this is a time of serious change in terms of how the United States intends to view and approach the delivery and payment of healthcare. The creation of Accountable Care Organizations (“ACOs”) and the dominant role of insurance companies and Pharma sound
terrifying. terrifying. Clearly, the stated intent is to reduce cost and improve outcomes.

Things like clinical pathways are coming back into focus. Discussions about Physician Hospital Organizations (PHOs), Independent Practice Associations (“IPAs”) and Super LLCs are being renewed and reconsidered against the changing landscape. The market that once existed for sellers of medical practices has withered. Certain specialties, like cardiology, are being hit extremely hard with cuts not only on physician services, but also on diagnostic imaging services that drive a lot of revenue to them. And once again the gong of the death of solo and small practices is being banged once again. Physicians are understandably frightened.

Change is change. It upsets people. And this is not the first time in the past 20 or so years that physicians have been at the butt end of it. That said, they should be wary of the “end of days” salesmen, those which sell products and strategies based on the assumption that life as they know it will end. Physicians should take a hard and long look at the things they are being asked to buy in order to survive the coming tsunami. Does the vendor have an economic stake in the decision? Buyer beware.

So, what are the most popular myths floating around now?

1. You have to spend a lot of money very quickly to comply with the HITECH Act and to get the incentive money for using EMR. Wrong. In fact, physicians that jump quick are likely to get sold stuff that is expensive and doesnt work. Instead, take your time to have an IT expert with no products to sell evaluate your IT needs and see what the most workable options are. Spend more time on the “shoe fitting” and take your time making a decision to buy.

2. Physicians that are in small and solo practices will die off quickly. The simple truth is has always been that small practices are, generally speaking, economically inefficient and limited. Thats not new! What is new is that there are more economic and regulatory pressures and any healthcare reform will be paid, in part, by payment reductions to physicians. Mega groups are an option,
but just one. Look at all forms of alignment and integration, including IPAs, PHOs and others.

3. Mega Practices Rule. Nah. It really depends on the “glue” of the practice. are they together simply to get new revenues from ancillary services? Many are, and that does not create great strategic advantages. The bottom line in terms of market position is (and always has been): a financially efficient business model (low expenses and high income) which accomplishes and demonstrates value.

4. Accountable Care Organizations Will be Physician Led. Though the opportunity certainly exists and think-tankers favor physician led ACOs, the simple truth is that creating ACOs requires huge time availability, business expertise and capital, the very things that physicians are most challenged by. That said, physicians are at the center of any ACO model and their participation and leadership in ACO development and operation is critical.

5. This is the End of Fee-For-Service Medicine. Probably not. Though the legislation clearly identifies FFS compensation as the villain for our country’s healthcare spending, and though risk based compensation will likely play a larger role, some of the Stage 1 cost savings models pay on a fee for service basis. Moreover, it is important not to become entranced entirely with the insured market. There is a First Tier market of proprietary products and models, like VIP and Concierge practices which will likely grow for high patient contact practices (e.g. cardiology, internal medicine, diabetes).

I personally do not see the end of the medical world, though I do see big changes over many years. I do not see the end of the solo or small practice, though I do see more economic stresses. And I do not see a “one size fits all” solution at all. The options require careful and calm analysis. And the old hard-won strategies that have always won will always win:

2. Increase profitability by any legitimate means that is sustainable. For instance, practicing medicine with a bunch of other physicians you do not want to be around or speak with may be profitable but not sustainable;

3. Make your lifestyle more digestible, a particularly challenging request in sunny South Florida; and

4. Ensure that any strategy you enact include (a) increasing reliance on workable EMR, and (b) tracking, improving and communicating clinical outcomes.

Change is here. More change will come. It is not an end, but rather always something new, surprising and never quite as awful as anticipated. Healthcare reform is less a thing than a conversation at this point. That said, we should all be proactive in plotting our futures. Be adaptable. Be smart. And be patient.

Jeffrey L. Cohen, a board certified healthcare attorney with over 25 years of healthcare law experience, we bring experience, knowledge and practical advice to a wide-range of healthcare related entities such as physicians, medical staffs, home health agencies, surgery and imaging centers and many others.

Audio Recording: Workshop Regarding Accountable Care Organizations, and Implications Regarding Antitrust, Physician Self-Referral, Anti-Kickback, and Civil Monetary Penalty (CMP) Laws

On October 5th, 2010 the Federal Trade Commission, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services’ Office of Inspector General co-hosted a workshop on several issues associated with Accountable Care Organizations (ACOs), organizations authorized by the new Affordable Care Act that seek to deliver high-quality and efficient health care services to consumers.  The workshop addressed and solicited public comments on the legal issues raised by various ACO models being considered by health care providers.


October 5, 2010 :: 9:00 a.m. EST

Audio Recording of Morning / Opening Comments and FTC Panels

Morning Transcript

October 5, 2010 :: 1:30 p.m. EST

Audio Recording of Afternoon / HHS Panel and Listening Session

Afternoon Transcript

…..And Now for Something Completely Different?

Mark Browne

Mark Browne is an experienced physician executive working as a healthcare consultant with PYA. He can be found as @consultdoc on twitter.

Last week the healthcare world was all abuzz. The federal government was set to begin the journey that every player in the marketplace has been waiting for, the road to the accountable care organization. Over 300 industry leaders gathered in Baltimore to hear just how this was going to occur, to hear the “new normal.”  Well… that’s not exactly what was heard. Although there were some mentions of changes to safe harbors and inclusion of all players, not a lot of new and different ideas were shared. While following those who were live tweeting the event, comments like “..is an ACO a PHO without the H?” and “Without antitrust legislation, we’ll have only large hospital networks remaining..”  and even “..capitation is on the horizon” were the norm of the conversation.

The closer we get to implementation of this “new” model, the more similar it appears to ideas that have been tried (and failed) before. It seems we have not yet developed the appetite for a model that is new and truly different.

Apple’s iPad has been out for less than a year.   It is anticipated that within the year it will have its own category of electronics, and will outsell netbooks by a large margin within the next two years. The iPad was expected to do well, but not this well. The iPad, like healthcare reform, was promoted as something new and truly different. But the iPad was not only new and different, it was also better for the customer…at least at some things. It made doing things that customers truly wanted to do (get information fast) better and easier, even at the cost of not being as good at others (word processing, gaming, etc.).

In an article in Kaiser Health News this morning, the author outlines how many industry players are lining up to make ACO’s work – not for the patient, our customers, but for them, the providers of services. These industry insiders all seem to be afraid of what they might have to give up under this new model of care, and are looking to make sure they maximize their own gains. There may be a lesson for us to learn from our friends at Apple. If we truly want to improve our model of care, we are going to need to give some things up. Everything cannot stay the same with different titles. Different for the sake of different is not going to cut it either. If healthcare is truly going to be reformed, we need to come up with both “different” and “better” – for the providers AND for the patients. So the question remains, does the highly publicized and government-endorsed accountable care organization meet these standards? Based on those attending the listening sessions this past week, I’m afraid the jury is still out.

Ref. link here.

Free Webinar! ‘The Key Enablers to Building a Sustainable ACO’


Tuesday, November 9th, 2010

1:00 PM to 2:00PM Eastern (10:00AM – 11:00AM Pacific)

  • Five Key Accountable Care Organization Enablers
  • How to put these enablers in place in a range of health care settings
  • Acquire an understanding of new ACO legislation
  • Gain new insight in how to move to an integrated care model
  • Considerations for ongoing performance measurement
  • Understand the value of clinical information across the health ecosystem


Anne McCune
Senior Vice President Strategy and Governance
Ingenix Consulting

FTC to Develop Safe Harbors and Expedited Review Process for ACOs

Ashley McKinney Fischer, Partner, McDermott Emery Will

The FTC, CMS and OIG hosted a public workshop on October 5, 2010, featuring panel discussions on antitrust issues and an announcement from the FTC that it will develop antitrust safe harbors for accountable care organizations (ACOs), as well as an expedited review process for ACOs that do not qualify for those safe harbors.


During a workshop held by the U.S. Federal Trade Commission (FTC), the Centers for Medicare & Medicaid Services (CMS) and the Office of the Inspector General (OIG) on October 5, 2010, FTC Chairman Jon Leibowitz announced the FTC will develop antitrust safe harbors for accountable care organizations (ACOs) and an expedited review process for ACOs that do not qualify for those safe harbors.

For many providers with ACOs in development who have been looking for more definitive antitrust guidance, the announcement may be a welcome relief.   That being said, providers should know that fundamental antitrust principles will continue to apply to the formation and operation of ACOs—namely, that ACOs formed and operated to improve quality and reduce health care costs that do not create undue market concentration are pro-competitive and ACOs formed by independent, competing providers solely to raise prices are not.

This newsletter summarizes the morning sessions of the workshop concerning antitrust issues.   A future newsletter will address other regulatory issues discussed during the afternoon sessions of the workshop.


Section 3022 of the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-148, directs the secretary of the U.S. Department of Health and Human Services (HHS) to establish, no later than January 1, 2012, a shared savings program that promotes accountability for a patient population, coordinates services under Parts A and B of Medicare, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.   Under the shared savings program, ACOs that meet quality performance standards established by the HHS secretary are eligible to receive shared savings payments.  Among other requirements, an ACO must be accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it.

Although popularized by PPACA, the concept of independent providers coming together and being jointly accountable for the cost and quality of care they provide is not new.  In 1996 the U.S. Department of Justice (DOJ) and FTC in the Statements of Antitrust Enforcement Policy in Health Care(Policy Statements) first recognized the concept of clinical integration as a collaborative activity among competing health care providers that may provide a sufficient basis for analyzing joint-pricing negotiations under the rule of reason and not the per se standard of illegality.  Since the passage of PPACA, many providers have wondered how the DOJ and FTC would apply the standards they developed for clinically integrated managed care contracting networks—through the Policy Statements, advisory opinions and other, subsequent guidance—to the formation and operation of ACOs.

Government Officials’ Remarks

CMS Administrator Don Berwick, MD, stated the government wants to help integrated care thrive.   He also noted the government needs to be a proper steward of the antitrust laws.  Said differently, the government wants providers to cooperate and achieve synergies without colluding. 

Leibowitz stated the promise of ACOs—improved quality and reduced costs—offers a real opportunity for health reform and explained that the government’s job is to ensure that regulations encourage ACO development while also protecting consumers.   He then announced the FTC wants to explore the development of safe harbors so providers can know when they can collaborate.  Further, the FTC will explore an expedited review process for ACOs that fall outside the safe harbors.  Leibowitz acknowledged the difficulty of establishing safe harbors—that is, categories of conduct that, absent extraordinary circumstances, the DOJ and FTC will not challenge—that displace traditional facts and circumstances analysis under the antitrust laws.  He then appealed to the provider community, stating that in order to develop effective safe harbors, the FTC needs input from providers.  Specifically, the FTC is interested in the types of activities providers may engage in through ACOs and how providers envision ACOs operating in the marketplace.

FTC Panel Discussions

The FTC conducted two moderated panel discussions.   Provider and payor representatives, as well as policy experts, participated in the sessions.

Sufficient Integration and the Rule of Reason

The first panel addressed the issue of when ACO participants should be deemed sufficiently integrated through the ACO such that their collective price negotiations should be analyzed under the rule of reason and not the per se standard of illegality.  The panel considered whether the FTC should establish a safe harbor for ACOs that satisfy CMS’ criteria for ACO participation in the Medicare program.  Under the proposal, the FTC would view any ACO qualified by CMS to be sufficiently clinically integrated for rule of reason treatment.  The panel also considered how CMS should elaborate on PPACA requirements for ACOs—namely, that an ACO be accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it—to ensure that ACO participants are sufficiently integrated within the meaning of the antitrust laws.

Panelists discussed possible criteria.   Many provider representatives emphasized the importance of providers’ ability to share data and the ability of the organization to capture and analyze data.  A representative from a clinically integrated independent practice association emphasized the importance of electronic tools to improve cost and care coordination.  These tools allow providers to evaluate their performance against their peers. Another representative from a clinically integrated physician-hospital organization expressed the view that the importance of the adoption and implementation of electronic health records systems (EHRS) has been overemphasized, and that his organization has been clinically integrated despite its participants not having universally adopted EHRS.  Among other initiatives, his organization created disease registries to manage patient populations.  Later, it required participants to adopt high-speed internet technology, then e-prescribing.  As a result of federal stimulus money, the provider participants in his organization are now adopting EHRS.

A trade association representative encouraged the FTC to set the criteria at a high level in recognition that there are various care integration models.  Another panelist added that the FTC criteria cannot be too specific, otherwise competition could be stifled.  These comments recognize that one of the purposes of the antitrust laws is to foster innovation such as new care delivery models.   One of the challenges for the FTC as they consider a possible safe harbor will be how to answer the industry’s call for clear standards while also allowing for flexibility in model design.

Market Power, Over-Inclusiveness and Exclusivity

The second panel discussion addressed issues of market power, over-inclusiveness and exclusivity.  The participants considered whether the FTC should adopt an antitrust safety zone pertaining to market share for ACOs.  Statement 8 of the Policy Statements contains an antitrust safety zone that applies solely to physician networks.  Under the safety zone, the DOJ and FTC will not challenge, absent extraordinary circumstances, an exclusive physician network joint venture whose physician participants share substantial financial risk and constitute 20 percent or less of the physicians in each physician specialty who practice in the relevant geographic market, or a non-exclusive physician network whose physician participants share substantial financial risk and constitute 30 percent or less of the physicians in each physician specialty who practice in the relevant geographic market.  The DOJ and FTC did not extend the antitrust safety zone for physician networks to multiprovider networks, which the DOJ and FTC analyze under Statement 9 of the Policy Statements.

The panel first addressed the issue of how large an ACO needs to be in order to deliver care effectively.   Many panelists believed that ACOs need sufficient scale in order to achieve program objectives and properly measure performance.  ACOs also need scale in order to spread out the cost of infrastructure investments, staff and other resources.   Scale also enables an ACO to spread risk effectively.  The payors on the panel addressed the extent to which they are experiencing market power issues with providers and, not surprisingly, stated that they have experienced price increases in markets where certain providers are dominant.  One of the challenges for the FTC as they consider a possible safe harbor will be how to balance the need for scale to achieve program objectives against market power concerns.

Panel participants also discussed the issue of exclusivity.   Under an exclusive ACO, provider participants negotiate with payors only through the ACO and they may not join other ACOs.  A professor expressed the concern that the advisory opinions on clinically-integrated networks the FTC has issued to date unfairly emphasize non-exclusivity.  He doubted whether a high-functioning ACO can have provider participants whose loyalty is split among competing organizations.  Several representatives stated that exclusivity is necessary to achieve the benefits of clinical integration, at least with respect to primary care physicians.  As with other concerns the FTC must balance, it will be challenged to develop ACO guidance that recognizes both the benefits and foreclosure implications of exclusivity.


Workshop Examines Effects of Waiver Authority on Development of ACOs

J. Peter Rich

J. Peter Rich is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Los Angeles office.   He co-chairs the Firm’s Insurance / Payors Affinity Group.

The FTC, CMS and OIG hosted a public workshop on October 5, 2010, featuring panel and listening discussions on regulatory issues surrounding how the development and operation of accountable care organizations would be affected by the use of waivers, safe harbors and other exceptions to various fraud and abuse laws.

The U.S. Federal Trade Commission, the Centers for Medicare & Medicaid Services (CMS) and the Office of the Inspector General (OIG) hosted a public workshop October 5, 2010.  A previous newsletter summarized the morning sessions of the workshop, which concerned antitrust issues. This newsletter focuses on the afternoon sessions of the workshop, which featured a panel discussion and listening session regarding how the secretary of the U.S. Department of Health and Human Services (HHS) may encourage the creation and development of accountable care organizations (ACOs) by using the position’s waiver authority or creating new exceptions and safe harbors related to the Anti-Kickback Law, the Stark Law and the Civil Monetary Penalty Law.


Workshop participants shared a range of viewpoints concerning how the formation and operation of ACOs would be affected by the use of waivers, safe harbors and other exceptions to various fraud and abuse laws.   The OIG and HHS did not provide any details as to precisely what forms such waivers, safe harbors and exceptions might take, instead, they merely received input from participant-stakeholders regarding the range of views and possible approaches that should be considered when structuring the ACO model.

The afternoon workshop session revealed there are many competing concerns among stakeholders.  Providers should note the OIG and CMS still appear to be in the early states of determining what factors and considerations may shape how its waiver authority is implemented, therefore it is imperative that stakeholders stay engaged in the process as the OIG and CMS consider alternatives. Based on comments by workshop participants, the decisions by the OIG and CMS are likely to create relative “winners” and “losers.”


Section 3022 of the Patient Protection and Affordable Care Act directs the secretary of HHS to establish a shared savings program that promotes accountability for a patient population, coordinates services under Parts A and B of Medicare and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.   Section 3022 specifically provides for the creation of ACOs to carry out the shared savings program.  ACOs that meet quality performance standards established by the HHS are eligible to receive shared savings payments. Each ACO must be accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to the ACO.

The Stark Law, the Anti-Kickback Law and the Civil Monetary Penalty Law (collectively, “fraud and abuse laws”) each present potentially significant obstacles to the formation and operation of ACOs.  However, Section 3022 gives the secretary broad authority to create waivers with respect to fraud and abuse laws in order to carry out the shared savings program.  In addition to such waiver authority, the secretary may consider creating new safe harbors or exceptions to the fraud and abuse laws that are applicable to appropriately structured and operated ACOs.

Panel Discussion

The topic of whether and how CMS should use its waiver authority and perhaps promulgate new exceptions and safe harbors was divided into three segments: waivers, safeguards and future actions to encourage innovation.


The initial discussion centered on whether any consensus exists regarding fraud and abuse safe harbors or other waivers.   CMS asked panelists to recommend the necessary elements of such waivers, but the discussion among panelists revealed there are competing core concerns, depending on the point of the view of the stakeholder.

One point of view expressed was that CMS should primarily be concerned with encouraging experimentation and competition among ACOs.   From that perspective, any waivers should be broad, simple and expansive to encourage innovation.  One panelist observed that large, integrated systems already have a head start on ACO development, and that the use of broad waivers would open ACO participation opportunities for new and perhaps smaller groups.  Another panelist noted that waivers should serve to level the playing field and therefore should be applied uniformly to all similarly situated ACOs.

Another core concern was that the “process” itself be emphasized, apart from the outcome, so that the development by CMS of new waivers, exceptions and safe harbors be perceived as methodical, transparent and fair.   One panelist, who expressed the minority view that the fraud and abuse laws as they exist are not an insurmountable impediment to ACO development, stressed that the notice and comment period was of particular importance so that all stakeholders would have a chance to have their concerns vetted.

The panelists also discussed whether waiver protection should be extended to the initial formation of and investment in an ACO.   One panelist emphasized that a waiver only for ACO operations, after the ACO is up and running, would be inadequate to address any fraud and abuse law issues that may arise in connection with the formation and investment stages of ACOs.  For example, a waiver only with regard to ACO gainsharing arrangements would be insufficient to protect the development of the ACO.


Under the Patient Protection and Affordable Care Act, the assignment of a patient to an ACO is to be based on whether the patient’s primary care physician was part of an ACO.   The panelists offered that the patients would want to know the benefits of being within a particular ACO from a quality perspective.  If patients were provided this information, they could respond by staying in or leaving the ACO, making it more truly accountable.  However, another panelist noted, as a practical matter, this is not possible because the ACO itself may not even know which patients are assigned to it until 12 months after a performance year.

(Note:   Section 3022 contemplates that Medicare beneficiaries will never know whether they have been assigned to an ACO or not.  This requirement would appear to entail significant legal liability and political risks.  Moreover, Medicare beneficiaries who are assigned to an ACO may seek care outside the ACO with no financial or other disincentives.  These appear to be fundamental flaws in Section 3022 that will almost certainly need to be addressed by amendment if ACOs are to be successfully implemented.)

Several panelists emphasized that measurements of ACO success centered on quality and not cost savings will constitute important safeguards if the fraud and abuse laws are waived in whole or in part.   They expressed concern that outcome-based quality measurements were not universally appropriate as safeguards because, in a shared-savings context such as an ACO, use of these measures may deter participation by safety net providers or reduce access to care by underserved patients.

Additionally, panelists recommended CMS establish parameters for any mandated compliance plan for ACOs.   It was noted that private accreditation organizations may well play a key role.  In this regard, one panelist advocated that CMS should build in a feedback loop to provide information on whether any compliance plan is promoting quality care or possibly having unintended negative consequences, such as stimulating undesirable levels of over- or under-utilization of health care services by ACO providers.

Future action to encourage innovation

Generally, panel members recognized that a paradigm shift in health care services delivery is reshaping the “old model.”   The current network of fraud and abuse laws may need to be reinvented from the ground up if it proves too stifling to innovation that can successfully bring about both cost savings and increased quality with improved outcomes.  One panelist suggested that fraud and abuse compliance enforcement is simply not working well and needs to be overhauled in light in of the Patient Protection and Affordable Care Act.  Another panelist opined that the current system only works for large, highly integrated systems with employed physicians and no physician ownership.  As a result, the OIG and CMS need to bring exceptions and safe harbors in line with the current thinking on state-of-the-art integrated delivery.

Listening Session

A wide-variety of comments were made during the listening session by various provider, industry and patient advocacy stakeholders.   Although the OIG and CMS provided no significant responses to the issues raised, the range of speakers’ comments demonstrated the challenges ahead in crafting an ACO model that will meet the needs of all interested parties.  In addition to topics covered during the panel discussion, listening-session speakers brought to light several other salient issues including incentive payments or services offered to patients and providers to help foster ACO goals (which currently do not appear to be permitted under Section 3022); tracking of metrics to detect under-utilization; restriction by ACOs of provider opportunities to participate in ACOs; interaction between Medicare ACOs and ACOs receiving payment from other public and private payors; the development of ACOs in rural areas; and the implications of state-managed care laws for ACO development (e.g., though not mentioned specifically, laws such as California’s may require ACOs to obtain prohibitively costly and time-consuming HMO-type licensure).