Fraud and Abuse Waivers for ACOs Under the Medicare Shared Savings Program

          On October 20, 2011, the Centers for Medicare and Medicaid Services (“CMS”) and the Health and Human Services (“HHS”) Office of the Inspector General (“OIG”) (collectively “the Agencies”) jointly issued an interim final rule with comment period (“IFC”), which established waivers of the application of certain fraud and abuse statutes to certain arrangements involving Accountable Care Organizations (ACOs) participating in the Medicare Shared Savings Program.[1]  The waivers become effective on November 2, 2011, the day on which the IFC will be published in the Federal Register.  Comments to the IFC are due 60 days after the date of publication.

          The waivers in the IFC only apply to the Shared Savings Program and to ACOs participating in the Advance Payment Initiative; they do not cover other demonstration or pilot programs.  They are intended to be self-implementing; accordingly, no special action is required in order to be covered by any of the waivers, nor do the affected parties need to apply for a waiver.  In addition, failure to fit within a waiver does not, in itself, constitute a violation of the applicable laws; but such arrangements will be evaluated on a case-by-case basis.  CMS and the OIG are not codifying the waivers, and seek comments on this approach.

          There are five waivers in the IFC:

1. ACO Pre-Participation Waiver;
2. ACO Participation Waiver;
3. Shared Savings Distribution Waiver;
4. Compliance with the Physician Self-Referral Law Waiver; and
5. Waiver for Patient Incentives.

            The waivers are applicable to the following statutes:

• The Physician Self-Referral Law, which prohibits: (1) referrals for Medicare “designated health services,” including hospital services, by physicians to an entity with which the physician and/or a member of his/her immediate family has a financial relationship, unless an exception applies; and (2) an entity from billing Medicare for services rendered pursuant to a prohibited referral;
• The Federal anti-kickback statute, which makes it a criminal offense to knowingly and willingly offer, pay, solicit or receive remuneration intended to induce or influence the referral of business reimbursed by any federal health program, unless a safe harbor applies.  The prohibition applies to both giving and receiving remuneration;
• The civil monetary penalties (“CMP”) law regarding inappropriate hospital payments to physicians to reduce or limit services (the “Gainsharing CMP”), which prohibits hospitals from making payments, directly or indirectly, to a physician to induce him/her to reduce or limit services to Medicare or Medicaid beneficiaries under the physician’s direct care; and
• The CMP prohibiting certain inducements to beneficiaries (the “Beneficiary Inducements CMP”), which prohibits individuals and entities from offering or transferring remuneration to Medicare or Medicaid beneficiaries that the individual or entity knows or should know is likely to influence the beneficiary’s decision to order or receive any Medicare or Medicaid item or service from a particular provider or supplier, unless an exception applies.

Analysis:

          In contrast to the proposed rule, published on April 7, 2011, which proposed to apply waivers separately to three fraud and abuse statutes (the Physician Self-Referral Law, the Federal anti-kickback statute and the Gainsharing CMP), the waivers in the IFC are categorized into time frames and subject matter.  Under the IFC approach, the Agencies acknowledge that more than one waiver could apply to the same arrangement.  According to the Agencies, however, such arrangement need only meet the requirements of one waiver pertaining to a particular law.

          The Agencies are not codifying the waivers, which makes it unclear as to how the waivers will be enforced.  The enforcement issue is compounded by the Agencies’ intention that no special action or application for the waivers would be required in order to be covered by a particular waiver; they are self-implementing.

          As discussed more fully below, under certain circumstances, the expiration of the ACO Pre-Participation Waiver is dependent on whether an arrangement qualified for this waiver before the ACO received a denial of its application.  As a self-implementing waiver, and in the absence of further guidance, the expiration of this waiver protection could be miscalculated if the HHS Secretary later determines that the arrangement did not qualify for the ACO Pre-Participation Waiver.  Furthermore, it is unclear what procedures would be followed if an ACO erroneously self-determines that it meets the requirements of a particular waiver.

          Compliance with the ACO Pre-Participation and ACO Participation waivers, which are intended to address ACO-related start-up and operating arrangements, may prove to be somewhat onerous for some ACOs.  Three of the four above fraud and abuse statutes are waived under these waivers, but the documentation and public disclosure requirements are vague and could be burdensome, especially since these requirements would have to be met for every arrangement in which the ACO enters.  For example, under both the ACO Pre-Participation Waiver and ACO Participation Waiver, the governing body must make and duly authorize a bona fide determination that the arrangement is “reasonably related to the purposes of the Shared Savings Program” (see infra for the Agencies’ interpretation of this phrase).  The Agencies, however, do not specify how the governing body should make such bona fide determination, but are seeking comments on whether to specify the method(s) by which such determination and authorization is made.  Nonetheless, the Agencies advise  governing bodies to exercise due diligence in ensuring that the arrangements are reasonably related to at least one purpose of the Shared Savings Program, and to clearly articulate the bases for their determinations and authorizations.

          Moreover, the Agencies have provided little guidance on the manner of public disclosure required by some of these waivers, apart from advising parties seeking protection under the ACO Pre-participation Waiver or the ACO Participation Waiver to disclose the required information on its Web site (including the parties to the arrangement, and the type of item, service, good, or facility provided under the arrangement, and that the arrangement is seeking waiver protection).  Disclosures must be made within 60 days of the date of the arrangement.  The Agencies also advise that such parties include sufficient information on their Web sites such that the postings could be easily located by an internet search using a widely available search engine.  Practically speaking, however, easily locating a Web site on Google for example is not necessarily within the control of the Web site’s owner, as the success of such searches often relies on factors such as the length of time the site has existed and the number of times the site has been visited, or “hit”.  The Agencies seek comments on whether the disclosure requirements should be specified in the waiver text.

          In addition to the lack of guidance for the public disclosure requirements, there remain gaps in the procedural requirements of some waivers.  For example, parties seeking protection under the ACO Pre-Participation Waiver that are unable to submit a timely application for participation in the Shared Savings Program, but can nonetheless demonstrate the likelihood of developing an eligible ACO by the next application due date, may file for an extension of this waiver.  Approval or denial of any extension request will be in the sole discretion of the HHS Secretary.  The Agencies, however, have not yet provided the procedures for applying for such an extension.

          The Shared Savings Distribution Waiver is limited to distributions of shared savings; all other arrangements would have to qualify for one of the other waivers, fit an existing exception or safe harbor, or comply with the applicable laws.  In addition, this waiver only protects distributions to referring physicians outside the ACO if they are being compensated for activities that are reasonably related to the purposes of the shared savings program, or were ACO participants or ACO providers/suppliers during the year in which the shared savings were earned.

          Furthermore, the waiver of the Gainsharing CMP under the Shared Savings Distribution Waiver is fairly narrow, and limited to direct or indirect payments made by a hospital to a physician to induce a physician to limit or reduce medically unnecessary items or services.  The Gainsharing CMP prohibits any payments made directly or indirectly to a physician for medically necessary or unnecessary items or services.  Accordingly, under the Shared Savings Distribution Waiver, the Agencies are waiving the Gainsharing CMP only with respect to medically unnecessary items or services.

          The Compliance with the Physician Self-Referral Law Waiver, which waives compliance with the Federal anti-kickback statute and the Gainsharing CMP, is likewise fairly narrow.  In order to gain protection under this waiver, the financial relationship at issue must implicate the Physician Self-Referral Law and fully comply with an exception under the Physician Self-Referral Law regulations governing ownership/investment interests and compensation arrangements.

          The intent of this waiver is to ease the burden of complying with existing Physician Self-Referral Law exceptions for an ACO arrangement, and to assure those with existing arrangements which already fit within such an exception that they do not need to undergo a separate review for compliance with the Federal anti-kickback statute or the Gainsharing CMP.  But since the Physician Self-Referral Law regulations at issue largely require compliance with the Federal anti-kickback statute, and in some cases compliance with the Gainsharing CMP, existing arrangements which already fit within an exception under the regulations appear to gain no advantage under this waiver.  New arrangements, however, would be protected under this waiver from application of the Federal anti-kickback statute and Gainsharing CMP if they otherwise comply with the waiver requirements.

          Finally, in the IFC the Agencies added the Waiver for Patient Incentives, which waives the Beneficiary Inducements CMP and the Federal anti-kickback statute under certain conditions.  Its application, however, is rather confusing, and appears to render the waiver virtually ineffectual.  The waiver is not applicable to free or below market value items or services furnished by manufacturers to beneficiaries, an ACO, ACO participants, or ACO providers/suppliers, or to discount arrangements between a manufacturer and an ACO, ACO participants, or ACO providers/suppliers.  It would, however, protect ACOs, ACO participants and ACO providers/suppliers that give beneficiaries items or services that they received from manufacturers at a discounted rate.  It appears, therefore, that this waiver would protect the provision of items or services from an ACO, ACO participant and/or ACO provider/supplier to a beneficiary, which the ACO, ACO participant and/or ACO provider/supplier received at a discount from a manufacturer, but would not protect the receipt of such discounted items or services from the manufacturer to the ACO, ACO participant and/or ACO provider/supplier.

          What follows is a description of each of the waivers in the IFC, as well as a summary of the Agencies’ additional guidance and policy considerations regarding the IFC waivers.

ACO Pre-Participation Waiver:

          Under the ACO Pre-Participation Waiver, the Physician Self-Referral Law, the Gainsharing CMP, and the Federal anti-kickback statute are waived with regard to start-up arrangements prior to an ACO’s participation agreement,[2] provided certain conditions are met.  For purposes of this waiver, start-up arrangements mean any medical or nonmedical items, services, facilities, or goods provided by an ACO, ACO participants, or ACO providers/suppliers that are used to create or develop an ACO.  The Agencies are not providing a specific list of what constitutes start-up arrangements, but they do provide a rather extensive list of examples of such arrangements, including infrastructure creation, network development, IT support, contracting, clinical management systems, creation of incentives for performance-based systems, transition from the fee-for-service payment system to a shared risk system, care coordinators, care utilization management, and umbrella organization management. 

          To qualify for this waiver, all of the following conditions must be met.

1. A party or parties must make a good faith attempt to develop an ACO that will participate in the Shared Savings Program in a particular year, referred to as the “target year”, and submit an application to participate in the Shared Savings Program for that year.  The parties to the arrangement must include at least one ACO participant that is eligible to form an ACO, and may not include drug and device manufacturers, distributors, durable medical equipment suppliers, or home heath suppliers;
2. The parties must take diligent steps to develop an eligible ACO for the target year, including steps for meeting an ACO’s governance, leadership, and management the requirements under the shared savings program;
3. The ACO’s governing body must make and duly authorize a bona fide determination that the arrangement is “reasonably related to the purposes of the Shared Savings Program”;
4. The arrangement, its authorization, and the diligent steps to develop the ACO must be documented contemporaneously with the establishment of the arrangement, the authorization and diligent steps taken.[3]  Documentation of the arrangement and its authorization must be retained for at least 10 years after the arrangement is completed, and be made available to the HHS Secretary upon request.  Documentation of the diligent steps must be retained for at least 10 years from the date the ACO submits its application or its statement of reasons for failing to submit an application.  The documentation must identify at least the following:

a.       A description of the arrangement, including all parties to the arrangement, the date, purpose(s), items, services, facilities, and/or goods covered by the arrangement, and the financial or economic terms of the arrangement;
b.      The date and manner of the governing body’s authorization of the arrangement, including the basis for the determination that the arrangement is “reasonably related to the purposes of the Shared Savings Program”; and
c.        A description of the diligent steps taken to develop an ACO;
d.       The description of the arrangement, excluding its financial or economic terms, must be publicly disclosed in accordance with guidance to be issued by the HHS Secretary;[4] and
e.        If an application is not timely submitted, the ACO must submit a statement on or before the application due date for the target year describing the reasons it was unable to submit an application.

          If all of the above conditions are met, the ACO pre-participation waiver will start on November 2, 2011 for target year 2012, or one year prior to the application due date for a later target year, and, for ACOs that enter into a participation agreement, the waiver period would end when the agreement begins.  For ACOs whose application is denied, the waiver period would end on the date of the denial notice.  If, however, the arrangement qualified for the waiver before the denial notice, the waiver period would end six months after the date of the denial notice.  If an ACO fails to meet the application deadline, the waiver period would end on the application due date, or the date the ACO submits its reasons for failing to submit an application.  An ACO that is unable to submit an application, but can nonetheless demonstrate a likelihood of developing an eligible ACO by the next application due date, may apply for an extension of the waiver in accordance with guidance to be established by the HHS Secretary.  The determination whether to grant a waiver will be in the sole discretion of the HHS Secretary and will not be reviewable.  The ACO pre-participation waiver (including any extensions thereof) may only be used once.

ACO Participation Waiver:

            Under the ACO Participation Waiver, the Physician Self-Referral Law, the Gainsharing CMP, and the Federal anti-kickback statute are waived with regard to any arrangements by an ACO, its ACO participants, and/or its ACO providers/suppliers provided that all of the following conditions are met.

1. The ACO has entered into and remains in good standing under a participation agreement;
2. The ACO’s governance, leadership and management requirements have been met;
3. The ACO’s governing body has made and authorized a determination that the arrangement is “reasonably related to the purposes of the Shared Savings Program”; and
4. The agreement and its authorization are documented contemporaneously with the corresponding events.  Such documentation must be retained for 10 years from the completion of the arrangement, be made available to the HHS Secretary upon request, and include the same information required for the ACO Pre-Participation Waiver, except that documentation of the diligent steps taken to develop an ACO is not required.

          If all of the above requirements are met, the waiver period will begin on the date the participation arrangement begins, and would end 6 months after the expiration of the participation agreement, including any renewals thereof, or the date on which the ACO voluntarily terminates the participation agreement, whichever is earlier.  If CMS terminates the participation agreement, however, the waiver period would end on the date of the termination notice.

Shared Savings Distribution Waiver:

            Under the Shared Savings Distribution Waiver, the Physician Self-Referral Law, the Gainsharing CMP, and the Federal anti-kickback statute are waived with regard to the distribution or use of shared savings, provided that all of the following conditions are met.[5]

1. The ACO has entered into and remains in good standing under a participation agreement;
2. The ACO earns the shared savings pursuant to the Shared Savings Program;
3. The ACO earns the shared savings during the term of its participation agreement, regardless of when the actual distribution or use of the shared savings occurs;
4. The shared savings are used for activities which are “reasonably related to the purposes of the Shared Savings Program,” or are distributed to or among the ACO’s current or former ACO participants and ACO providers/suppliers; and
5. With regard to the waiver of the Gainsharing CMP, shared savings distributions made from a hospital to a physician are not knowingly made to induce the physician to reduce or limit medically necessary items or services to patients under his/her direct care.

Compliance with the Physician Self-Referral Law Waiver:

            Under the Compliance with the Physician Self-Referral Law Waiver, the Gainsharing CMP and the Federal anti-kickback statute are waived with regard to financial relationships between or among the ACO, its ACO participants, and its ACO providers/suppliers, which implicate the Physician Self-Referral Law, provided that all of the following conditions are met.

1. The ACO has entered into and remains in good standing under a participation agreement;
2. The financial agreement is reasonably “related to the purposes of the Shared Savings Program”; and
3. The financial relationship fully complies with an exception under the Physician Self-Referral Law regulations governing ownership/investment interests and compensation arrangements.

          If all of the above conditions are met, the waiver period will begin on the start date of the participation agreement, and would end at the expiration of the participation agreement, including any renewals thereof, or when the participation agreement is terminated, whichever occurs first.[6]

Waiver for Patient Incentives:

            Under the Waiver for Patient Incentives, the Beneficiary Inducements CMP and the Federal anti-kickback statute are waived with regard to items or services that an ACO, its ACO participants or its ACO providers/suppliers furnish to beneficiaries for free or below fair-market-value, provided that all of the following conditions are met.

1. The ACO has entered into and remains in good standing under a participation agreement;
2. The items or services are reasonably related to the medical care of the beneficiary;
3. The items or services are in-kind and not financial incentives such as waiver of cost sharing; and
4. The items or services are preventive care;[7] or advance adherence to a treatment or drug regime or to a follow-up care plan, and/or advance the management of a chronic disease or condition.

          If all of the above conditions are met, the waiver period will begin when the participation agreement starts, and will end at the expiration of the participation agreement, including any renewals thereof, or when the participation agreement is terminated, whichever occurs first.  In any event, the beneficiary is entitled to keep items received during the participation agreement, and receive the remainder of any service initiated during the participation agreement.  In addition, the Waiver for Patient Incentives is not limited to beneficiaries assigned to the ACO; however, the Agencies are seeking comments on whether it should be so limited.

Interpretation of “Purposes Related to the Shared Savings Program”:

            CMS and the OIG have provided the following guidance for interpreting waiver requirements related to the purposes of the Shared Savings Program.

• “Purposes of the Shared Savings Program” consist of purposes that are consonant with the concept behind the Shared Savings Program; that is promoting accountability for and managing the cost and care of a Medicare population, and promoting investment in infrastructure and care processes for “efficient service delivery” for all patients.  The Agencies interpret “efficient service delivery” as including methods to reduce costs to the Medicare program while consistently furnishing quality services.  The Agencies did not adopt the more restrictive proposed language that activities be “necessary for and directly related to” the ACO’s participation in and operation under the Medicare Shared Savings Program.
• “Reasonably related to the purposes of the Shared Savings Program,” as used in the above waivers, requires only that the arrangement be reasonably related to one of the Shared Savings Program’s purposes, although CMS and the OIG expect that the arrangement will be reasonably related to more than one purpose.  The Agencies have provided no further explanation of arrangements that would be reasonably related to the purposes of the Shared Savings Program.

          The agencies expect parties involved with ACOs to interpret the terms of the waivers reasonably, but seek comments on whether to further define the standard for “reasonably related to the purposes of the Shared Savings Program”.

Considerations and Solicitation of Comments on Future Waiver Protection:

          The Agencies intend to closely monitor ACOs that begin participation in 2012 and 2013, and it intends to narrow the above waivers unless the HHS Secretary determines that the waivers are not used to shield abusive arrangements.  Any modifications to the waivers would apply to ACOs applying after July 2013, as well as to ACOs that renew their participation agreements.  This would have the effect of obviating some of the above waiver end dates, such as the end date for the ACO participation waiver, which purports to end six months after the expiration of the participation agreement, including any renewals thereof.

          The Agencies state that if they identify instances of fraud and abuse resulting from these waiver protections, it could modify the waivers to address specific fraudulent conduct.  They could also exclude individuals or entities outside the ACO from any waiver protection, or require ACOs to submit reports to the HHS Secretary regarding such arrangements.

          The Agencies seek comments on their proposal to narrow the waivers, as well as comments on other types of arrangements that would require waiver protection.