While hospitals and medical groups are showing greater interest in creating accountable care organizations to participate in the Medicare Shared Savings Program, there is perhaps even greater enthusiasm for organizing ACOs to contract with private insurers. Commercial ACO arrangements are attractive to providers because insurers are less likely than Medicare to impose extensive governance, reporting and certification requirements on ACOs.

Private insurers also have greater flexibility than Medicare in tailoring the financial risk-sharing model and quality metrics of a value-based reimbursement contract to meet the unique needs and capacities of an individual ACO. But hospital-physician joint ventures pursuing commercial ACO contracts need to tread carefully. Although there may be fewer burdensome contract requirements imposed on commercial ACOs, the regulations under which these organizations operate are less certain.

Antitrust Concerns

Joint price negotiations by multiple health care providers may constitute illegal price fixing under the antitrust laws. To avoid a claim of per se price fixing, a multiprovider organization must be financially or clinically integrated. Financial integration means that the participating providers are sharing significant financial risk for the cost of the health care services they collectively deliver. The clinical integration test is satisfied if providers create joint practice guidelines, peer review systems, care management programs and data sharing arrangements that enable them to improve the coordination and quality of medical care.

An ACO that is accepted into the Medicare Shared Savings Program is deemed clinically integrated. But there is no framework for obtaining such a designation for commercial ACO arrangements, absent a lengthy and costly effort to obtain an advisory opinion from the Federal Trade Commission. Thus, commercial ACOs that are relying on clinical integration to avoid a per se price fixing claim usually operate with some uncertainty about their status.

Moreover, while financial or clinical integration precludes a per se price fixing claim, it does not insulate providers from antitrust scrutiny. An integrated multiprovider network is still subject to a "rule of reason" test under which it must show that the beneficial aspects of the network outweigh any anti-competitive effects. Medicare ACOs face less risk under the rule of reason test because their networks have been approved by the Centers for Medicare and Medicaid Services and network size has no impact on the standardized prices paid by the Medicare program. Commercial ACOs need to evaluate their risk under the rule of reason test more carefully because their market share may affect the prices paid by private insurers.

Fraud and Abuse Issues

Collaborations between hospitals and physicians usually implicate the two primary federal fraud and abuse laws: the Stark Law and the Anti-Kickback Statute. These laws are designed for a fee-for-service world where physicians and hospitals are expected to keep their financial relationships at arm's length.

Recognizing the need for fraud and abuse flexibility in an environment in which physicians and hospitals must create integrated clinical and financial organizations, CMS and the Health & Human Services Office of Inspector General established waivers from the Stark Law and Anti-Kickback Statute covering ACOs that participate in the Medicare Shared Savings Program. The "pre-participation" and "participation" waivers, in particular, provide Medicare ACOs with broad protection for investments by hospitals in an ACO's infrastructure as well as the distribution of shared savings by an ACO to its participating providers.
No similar waiver protection is afforded to financial arrangements between hospitals and physicians participating solely in commercial ACOs. While there may be relevant exceptions or safe harbors to the fraud and abuse laws, they often do not cover all aspects of a commercial ACO arrangement. For example, the Stark Law's risk-sharing exception may be used to protect the shared savings distributed by a commercial ACO to its physicians, but this exception does not cover a contribution of funds or in-kind resources by a hospital to build an ACO's infrastructure. Moreover, this Stark exception does not necessarily protect providers from a claim under the Anti-Kickback Statute.

Structuring Considerations

The uncertain regulatory landscape in which commercial ACOs operate necessitates careful legal structuring to minimize compliance risks. While the territory is somewhat uncharted, there are a few paths that may lead commercial ACOs to safety.

Integrate commercial and Medicare ACO activities. While the Medicare Shared Savings Program waivers do not apply to ACOs that contract solely with private insurers, if a Medicare ACO takes advantage of the waivers to create infrastructure that advances the purposes of the Medicare Shared Savings Program, the protection of the waivers can be extended to commercial ACO arrangements that rely on the same infrastructure.

For example, if a hospital provides an ACO owned jointly by the hospital and community physicians with software or care management staff that will be used by the ACO to participate in the Medicare Shared Savings Program, that software or staff also may be used by the ACO to support value-based contracts with commercial insurers. Thus, participation in the Medicare Shared Savings Program can provide a framework for reducing compliance risks associated with comparable commercial ACO contracts.

Avoid creating "financial relationships" between the hospital and physicians under Stark. The definition of a "financial relationship" that triggers Stark Law restrictions is complex. If a hospital and physicians create a joint venture entity to operate an ACO, typically there will be no direct financial relationships between the parties; instead, each party will have a financial relationship with the ACO entity. Whether the transactions between each of the parties and the ACO create an indirect financial relationship between the hospital and physicians for Stark purposes likely will hinge on the extent to which the physicians receive compensation that takes into account the volume or value of the physicians' referrals to the hospital.

There is substantial uncertainty about when compensation arrangements meet the volume-or-value test. But careful structuring may take commercial ACO arrangements outside of the Stark regulatory scheme. And while such structuring is unlikely to insulate an ACO from the application of the Anti-Kickback Statute, unlike Stark, the Anti-Kickback Statute is violated only if there is improper intent and if compliance with a safe harbor is not mandated. This distinction may create greater flexibility to protect commercial ACO arrangements from fraud and abuse claims.

Refine the way in which fair market value is calculated. If the protection of the Medicare Shared Savings Program waivers is unavailable, to minimize risk under the fraud and abuse laws, commercial ACOs may feel compelled to demonstrate that their financial relationships with physicians are consistent with fair market value.

Traditionally, fair market value has been calculated by evaluating the amount of time it takes to provide a service and applying an hourly rate that is supported by physician compensation surveys. But in a value-based compensation environment, the amount of time a physician spends on a task may be less relevant than the impact of the physician's activity on the ACO's financial success. As a result, hospitals and physicians need to work with their advisers to develop new ways of measuring fair market value that align better with the contributions physicians make to commercial ACO arrangements.

There is no silver bullet for eliminating the compliance challenges raised by hospital-physician commercial ACO initiatives. But with careful planning and creative thinking, compliance risks can be mitigated significantly.

Robert Belfort, Esq., is a partner in the health care practice of Manatt, Phelps & Phillips LLP in New York City.