How State Law Issues May Affect ACOs
13
How State Law Issues May Affect ACOs
Michael F. Schaff
Alyson M. Leone
Grace D. Mack
Wilentz, Goldman & Spitzer, P.A.1
13.1Introduction
With the arrival of federal health care reform, the heatlth care community has been engrossed in
the discussion of accountable care organizations (ACOs) established pursuant to the Patient Protection and Affordable Care Act2, as amended by the Health Care and Education Reconciliation Act of
2010 (the ACA)3 and how ACOs will improve the delivery of health care in the United States. As of
2014, there are ACOs in all fifty states.4 Although there has been significant discussion and guidance
concerning the organization and operation of ACOs at the federal level, an ACO must exist as a legal
entity governed by state law. Accordingly, an ACO must be formed and operated not only in compliance with federal law but also in compliance with the laws of the state or states in which it is formed
and operates. State laws and regulations covering a broad range of areas (such as licensing, corporate
practice of medicine, antitrust, fraud and abuse, provider referrals, securities law and privacy) may
influence how ACOs are formed and operate. It is therefore essential for ACO participants to consider
how their applicable state’s legal framework supports or interferes with the goals of their ACO.
An example of a state law area of concern for ACOs is the treatment of federal fraud and abuse
waivers. Due to the web of regulatory implications affecting the formation and operation of ACOs,
the ACA authorized the Secretary of the Department of Health and Human Services to waive certain
fraud and abuse laws as necessary to carry out the Medicare Shared Savings Program. On April 7,
2011, the Centers for Medicare & Medicaid Services (CMS) and the Office of the Inspector General
(OIG) published a joint notice5 describing and soliciting comments regarding possible waivers of
the application of the Physician Self-Referral Law (the “Stark Law”)6, the Federal anti-kickback
The authors would like to give a special thanks to John P. Murdoch II, Jeffrey M. Kole and Jason Krisza from their
firm for their invaluable assistance with this chapter.
2
Pub. L. 111-152.
3
Pub. L. 111-148.
4
David Muhlestein, Accountable Care Growth in 2014: A Look Ahead, Chart 4 (2014).
5
76 Fed. Reg. 19655.
6
42 U.S.C. § 1395nn (codified at 42 C.F.R. § 411.350 et seq.).
1
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How State Law Issues May Affect ACOs
statute7 and certain civil monetary penalties law provisions8. On October 20, 2011, CMS and the
OIG published a joint Interim Final Rule with Comment Period addressing these waivers.9 These
waivers were established to reduce some of the federal law barriers surrounding the operation of an
ACO. In the midst of all of the discussion regarding the waivers established by CMS and the OIG,
potential ACO participants cannot lose sight of the fact that these waivers only address waivers of
federal law. Most states have established their own fraud and abuse laws prohibiting or restricting
certain kickbacks or provider self-referrals. In the future, states may adopt parallel waivers providing
certainty for ACOs. However, in the absence of state waivers, ACOs need to carefully consider how
to structure arrangements (even those that fit within a federal waiver) to comply with state fraud and
abuse laws. For further discussion of federal waivers see Chapter Five.
In addition to the possible implication of state fraud and abuse laws, ACOs also need to comply
with various other state laws. This chapter addresses some of the types of state laws that may affect
the structure and operation of an ACO. Due to the fact that the ACO arena and the state law response
to ACOs is evolving rapidly, we have only given an overview of some of the various types of state
laws that might apply. Moreover, the laws of each jurisdiction vary greatly and must be reviewed in
detail to determine the effect of state law on the formation and operation of an ACO in any particular
state. Finally, ACOs seeking to operate in more than one state must be structured to comply with the
myriad of laws in each state in which it operates, which may pose logistical problems if the states
have conflicting laws.
13.2
Corporate Practice of Medicine
ACO participants need to consider state “corporate practice of medicine” laws. Operating in an
ACO in a state with corporate practice of medicine laws may limit the types of permissible organizational structures available to the ACO. Some states prohibit general business corporations from
practicing medicine or employing a physician to provide medical services. This doctrine has become
known as the “corporate practice of medicine”. Generally, this doctrine provides that only a licensed
physician may be permitted to provide medical services. The American Medical Association promulgated the initial version of the corporate practice of medicine doctrine to protect the public as well as
the professional status of medical doctors.10 The corporate practice of medicine doctrine essentially
prohibits any person other than a licensed physician from owning, controlling or deriving the profits
from a physician practice. The rationale for the doctrine is that individual physicians, not entities,
should be licensed to practice medicine.11 Often, the corporate practice of medicine doctrine is not
explicitly stated in state laws or regulations. The authority for these state laws ranges from statutes
42 U.S.C. § 1320a-7b(b).
42 U.S.C. § 1320a-7a.
9
76 Fed. Reg. 67992.
10
See Nicole Huberfeld, Be Not Afraid of Change: Time to Eliminate the Corporate Practice of Medicine Doctrine,
14 Health Matrix: Journal of Law-Medicine 243, 245-249 (2004) (citing Am. Med. Ass’n, 1922 Report of The
­Judicial Council (interpreting Section 6 of the Principles of Medical Ethics), abstracted in Principles of Medical
Ethics 40 (1960)).
11
See Painless Parker v. Board of Dental Examiners, 216 Cal. 285, 14 P.2d 67 (Cal. 1932) (California case law).
7
8
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How State Law Issues May Affect ACOs
and rules to case law and state attorney general opinions.12 It is sometimes derived from common law
or public policy.
Certain states have exceptions to the corporate practice of medicine doctrine which may apply to
an ACO. Usually, the corporate practice of medicine doctrine does not apply in cases where there are
rigorous licensure requirements for a health care facility. The underlying theory is that the rigorous
licensure requirements will impose necessary oversight to ensure that the provision of health care
services is properly done and that the patients are protected. In addition, some states permit hospitals
to employ physicians because hospitals are formed to treat patients and provide health care. Further,
many states permit professional service entities to practice medicine, but only if owned by physicians
licensed in that state.13
A violation of the corporate practice of medicine doctrine could result in a physician’s loss of his
or her medical license. Other penalties include repayment of all revenue for billed services to insurance companies and the government, criminal or civil penalties, and/or injunctive relief.
The corporate practice of medicine doctrine is extremely relevant to ACOs because of its potential to inhibit the formation of ACOs among multiple types of providers. In states with corporate
practice of medicine laws, ACOs that render professional services in those states must be formed as
entities permitted under the state’s law and must be carefully structured to avoid control of physicians by any other person or entity who is not a licensed physician. These laws may prevent a true
integration of providers and thus frustrate the purpose of the ACO and the goal of the ACA to encourage collaboration to promote efficiency and better outcomes. In the future, states may elect to
modify their corporate practice of medicine laws to align them with the proliferation of ACOs and
the current or evolving health care delivery models. In support of this position, the American Hospital
Association suggested that Congress and regulatory agencies make changes to laws and regulations
including to “re-evaluate the impact of state laws governing the corporate practice of medicine on
the ability of providers to collaborate”.14 Further, the American Academy of Medical Colleges recently stated that “in states with [corporate practice of medicine] laws, a variety of care models and
structures for hospital-physician relationships have been developed to comply with the various state
statutes—structures that may not fit easily with the structure or goals of an . . . ACO. We urge the
Federal government to work with the states to ensure that state laws and regulations do not undo any
actions that CMS, FTC, HHS, OIG, or other Federal agencies undertake to promote innovation”.15
Until changes are made to state corporate practice of medicine laws to address ACOs, ACO
participants must be cognizant of these restrictions when forming and operating ACOs.
Md. Code Ann., Health Occ. § 14-301, 14-307(a), 14.601, N.Y. Educ. Law § 6522, Mass. Gen. Laws ch. 112(g)(6);
See also Michael Schaff and Glenn Prives, The Corporate Practice of Medicine Doctrine: Is it Applicable to Your C
­ lient?,
AHLA Business Law & Governance Newsletter, Volume 3, Issue 2, May 2010.
13
See Stuart Silverman, AHLA Corporate Practice of Medicine: A Fifty State Survey.
14
American Hospital Association, Statement of the American Hospital Association to the Senate Finance Committee
Roundtable on Health Care Delivery System Reform (Apr. 21, 2009).
15
American Academy of Medical Colleges, Statement of the Association of American Medical Colleges on Legal Issues
Related to Accountable Care Organizations and Healthcare Innovation Zones (Oct. 5, 2010).
12
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13.3
Anti-Kickback Laws
The federal anti-kickback law states:
hoever knowingly and willfully solicits or receives [or offers or pays] any remuneration
W
­(including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash
or in kind—
(A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a
Federal health care program, or
(B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may be made in
whole or in part under a Federal health care program, shall be guilty of a felony and upon
conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than
five years, or both.16
As stated earlier, the OIG has adopted waivers from the federal anti-kickback law for ACOs
under certain circumstances. In addition, even without a waiver, ACOs may be structured to satisfy a
federal anti-kickback safe harbor. However, ACO waivers and the federal anti-kickback safe harbors
only apply to the federal anti-kickback law and do not apply to state anti-kickback laws.
It is important to keep in mind that many states also have laws prohibiting kickback arrangements which may differ significantly from the federal anti-kickback law. Therefore, ACOs must be
carefully structured to comply with both laws. One key difference is that some, or all, of the federal
anti-kickback law’s safe harbors may not be available under the state’s law. As a result, even if an
ACO is structured to conform to a federal anti-kickback safe harbor, the same protection may not be
available to ensure compliance with the state’s law. Another notable state difference may include the
expansion of a state’s kickback prohibition to include the referral of any patients (not just Federal
health care program patients), as well as the absence of the federal law’s intent requirement.
One example of a state kickback prohibition is found in the New Jersey Board of Medical
­Examiners’ regulations which state: “a licensee shall not, directly or indirectly, give to or receive
from any licensed or unlicensed source a gift of more than nominal (negligible) value, or any fee,
commission, rebate or bonus or other compensation however denominated, which a reasonable person would recognize as having been given or received in appreciation for or to promote conduct by a
licensee including: purchasing a medical product, ordering or promoting the sale or lease of a device
or appliance or other prescribed item, prescribing any type of item or product for patient use, or making or receiving a referral to or from another for professional services”.17 New Jersey’s anti-kickback
law is much broader than the federal anti-kickback law, in that it does not limit the prohibition to
federal health care program patients, and does not require intent for a violation. Further, although
42 U.S.C. § 1320a-7b(b).
N.J.A.C. 13:35-6.17(c)(1).
16
17
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How State Law Issues May Affect ACOs
New Jersey’s proscription on kickbacks does have some exceptions, they are not as extensive as the
safe harbors offered by the federal anti-kickback law.
The penalties for violating a state’s anti-kickback law may be severe and cannot be overlooked.
In addition to fines, penalties may include imprisonment and/or exclusion from other programs.
The receipt of a waiver of the federal anti-kickback law under the waiver program established by the OIG or compliance with a federal anti-kickback will not avoid the application of state
­anti-kickback laws. Therefore, all payments or other consideration to and from ACO suppliers and
all distributions to and from ACO participants must be structured to comply with the applicable state
anti-kickback law. For further discussion of the anti-kickback implications of ACOs, see Chapter 5.
13.4
Self-Referral Laws
It is likely that ACO participants will refer their patients within the ACO rather than to unrelated providers and suppliers. Accordingly, a careful self-referral analysis under federal and state
law will have to be done in connection with each potential referral source to and from the ACO.
Generally, the federal Stark Law prohibits physicians (and other licensed health care providers) from
referring a patient for Medicare “designated health services” to a person or entity in which the physician (or an immediate family member of the physician) has a financial relationship (ownership or
compensation).18 Many states have comparable self-referral laws, also known as “Baby Stark” laws.
As with the state anti-kickback laws, some state self-referral laws may be much broader than the
federal Stark Law. Often, state laws prohibiting self-referrals apply to any health care service, not
just the enumerated health services which implicate the Stark Law. In addition, state laws may apply
to all payers and not just federal programs. Also, a state’s self-referral law may not include the same
exceptions as set forth by the Stark Law. An example of a broad state self-referral law is Maryland,
which prohibits any physician or other licensed health care practitioner from referring a patient, or
directing an employee or contractor of the practitioner to refer a patient, to a health care entity (1) in
which the health care practitioner or the practitioner in combination with the practitioner’s immediate
family owns a beneficial interest; (2) in which the practitioner’s immediate family owns a beneficial interest of 3 percent or greater; or (3) with which the health care practitioner, the practitioner’s
immediate family, or the practitioner in combination with the practitioner’s immediate family has
a compensation arrangement, unless the beneficial interest or compensation arrangement meets a
specific exemption in the statute.19
CMS has also established a number of waivers to the Stark Law. These include a pre-participation
waiver related to the establishment of ACOs, a participation waiver that applies during a provider’s
participation in the Shared Saving Program, and a waiver for certain distributions of shared savings
received by an ACO from CMS under the Medicare Shared Savings Program under certain conditions.20 However, these waivers do not automatically apply to state self-referral laws, and thus ACOs
42 U.S.C. § 1395nn.
Maryland Health Occupations Article, §§ 1-301 through 1-306.
20
76 Fed. Reg. 67992.
18
19
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How State Law Issues May Affect ACOs
must be carefully structured to comply any state self-referral laws. For further discussion of the selfreferral implications of ACOs, see Chapter Five.
13.5
Fee Splitting Prohibitions
Many states have stringent fee splitting laws that prohibit the sharing of fees obtained from
providing professional health care services with persons not licensed to provide the same or similar
services. State fee splitting laws may be implicated by payments made to suppliers and providers
who participate in the ACO. Many of the fee splitting prohibitions are contained in the various licensing boards’ rules and regulations or in the definition of unprofessional conduct.
State fee splitting laws and the scope of such laws vary significantly. By way of example, fee
splitting laws may prohibit a physician from sharing his professional fees with any other health care
facility, including a hospital or nursing facility. Some states only prohibit fee splitting when coupled
with patient referrals. In Illinois, licensees may not “directly or indirectly divide, share or split any
professional fee or other form of compensation for professional services with anyone in exchange
for a referral or otherwise, except as specifically provided.”21 In Tennessee, “it is an offense for any
licensed physician or surgeon to divide or to agree to divide any fee or compensation of any sort received or charged in the practice of medicine or surgery with any person, without the knowledge and
consent of the person paying the fee or compensation, or against whom the fee may be charged.”22
Due to the nature of shared savings that will be split among the ACO and other ACO participants
and the potential payments to suppliers, the financial arrangements among the participants must be
analyzed to ensure compliance with any state fee-splitting laws.
13.6
Insurance Laws
The advent of ACOs also raises the question as to whether shared savings from health care services subjects ACOs to state insurance and managed care laws. A shared savings arrangement may
result in the ACO bearing some risk and being accountable for financial losses. In its joint notice on
the proposed regulations, CMS acknowledged that states may subject ACOs to state insurance laws.
CMS stated that “under [CMS’s] proposal for a two-sided model under the Shared Savings Program,
the Medicare program retains the insurance risk and responsibility for paying claims for the services
furnished to Medicare beneficiaries.”23 The notice sought comments on whether “any of [CMS’s]
proposals for the two-sided model in particular, or the Shared Savings Program in general, would
trigger the application of any State insurance laws.”24
In the final regulations, the concern regarding state insurance and managed care laws was mitigated by the ability of an ACO to opt for a model in which they share only in the savings during the
entire term of the first agreement. In the proposed rule, ACOs in this one-sided model were required
23
24
21
22
225 ILCS 60/22.2.
Tenn. Code Ann. § 63-6-225.
76 Fed. Reg. 19623.
76 Fed. Reg. 67944.
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How State Law Issues May Affect ACOs
to share in the losses in the third year of the initial term. Thus, these ACOs would not bear any downside risk of losses and would avoid application of these state laws. However, these ACOs will be
required to participate in the two-sided model upon the expiration of the initial three-year period. In
addition, ACOs can elect to participate in the two-sided model from the beginning, exposing them to
the risk of financial loss, but allowing them to potentially share in greater savings. Thus, state insurance and managed care laws may be impacted. In its comments to the final rule, CMS states:
We disagree with the commenters that participating in the Shared Savings Program
ultimately involves insurance risk. ACO participants will continue to receive [fee-forservice] payments for all services furnished to assigned beneficiaries. It is only shared
savings payments (and shared losses in the two-sided model) that will be contingent
upon ACO performance. As a result, we believe that we will continue to bear the
insurance risk associated with the care furnished to Medicare beneficiaries, but ACOs
desiring to participate in Track 2 should consult their State laws.25
CMS has stated that it did not believe that it would be appropriate to subject ACOs to the same standards as health plans, because ACOs “are very different from health plans.”26 CMS emphasized “that
under the Shared Savings Program, the Medicare program retains the insurance risk and responsibility
for paying claims for the services furnished to Medicare beneficiaries, and that the agreement to share
potential losses against the benchmark would be solely between the Medicare program and the ACO.”27
Of course, even though it is CMS’s view that ACO’s are very different than health plans, this
conclusion is not binding on the states and ACOs must still analyze state insurance and managed care
laws to determine if compliance is necessary.
In the 1990s, the National Association of Insurance Commissioners addressed certain risk-bearing financial arrangements, such as capitation payments, and concluded that they do require the
assumption of risk and thus subject an entity to regulation as a insurance provider or managed care
organization.28 Some states provide an exception for physicians who only accept “downstream” risk,
i.e. to provide medical services to members of an insurer or health maintenance organization and be
paid through a capitation arrangement.29 In other states, physicians who are at financial risk and pay
other physicians who provide services may need a third party administrator’s license.30
Most states have yet to pass any legislation aimed directly at governing ACOs, and the state
insurance departments have not adopted a formal position on whether, or when, an ACO would be
subject to licensure. It is recommended that organizations contemplating forming an ACO should
determine the applicable state’s department of insurance’s current position on this issue.
76 Fed. Reg. 67815-16.
Medicare Program: Medicare Shared Savings Program: Accountable Care Organizations, 76 Fed. Reg. 67,802, 67,944
(Nov. 2, 2011).
27
Id. at 67,945.
28
National Association of Insurance Commissioners. The Regulation of Health Risk Bearing Entities. Washington, DC:
NAIC, 1999 at I-9.
29
Id. at I-26- I-29.
30
See, e.g., N.J.S.A. 17B:27B-1 et seq.
25
26
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How State Law Issues May Affect ACOs
If an ACO is determined to be subject to state insurance laws, it will likely be required to obtain
licensure or certification. Further, the ACO may need to meet, possibly onerous, financial solvency
and capital reserve requirements and reporting obligations. Compliance with insurance laws may
be burdensome and costly for an ACO. These state laws must be carefully reviewed to determine
whether ACOs with capitation or other arrangements will be governed by insurance or managed care
regulations. In addition, if an ACO is not a licensed health plan but is assigned certain functions, such
as claims adjudication or premium collection, it must be determined whether the applicable state
requires the ACO to obtain a third party administrator or other type of license or certification. Prior
to establishing an ACO, participants should ascertain the applicable state’s insurance department’s
position on the managed care and licensing rules applicable to ACOs in that state.
13.7
Antitrust Laws
The majority of states have antitrust prohibitions that would effectively prohibit “competitors”
from jointly negotiating with each other. The main purpose of the antitrust laws is to prevent combinations that restrain competition. Some states’ attorneys general aggressively enforce their state
antitrust laws against participants in the health care industry.31 Violations of these laws may result in
both civil and/or criminal penalties.
Concurrent with the publication of the final ACO regulations and interim final rule by CMS and
OIG on waivers, the Department of Justice ( the DOJ) and the Federal Trade Commission (the FTC)
issued their final Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program on the application of antitrust laws to
ACOs (the Statement).32 The Statement provides for a rule of reason analysis for any ACO that is
eligible and intends or has been approved to participate in the Shared Savings Program. It also provides a safety zone to ACOs with a market share of 30% or less and meet certain criteria. In addition,
the Statement provides guidance for ACOs with a market share of greater than 30%, and identifies
conduct that may raise competitive concerns. This Statement makes a significant departure from the
proposed Statement by no longer requiring ACOs with greater than 50% of market share to request
an antitrust review.
Notwithstanding the guidance provided by the DOJ and the FTC, the Statement does not control
situations when state antitrust laws are implicated. Any exception or waiver adopted by the FTC
would not apply to non-Medicare ACOs and would not protect ACOs from state antitrust issues.
Thus, in forming an ACO, participants must carefully consider state antitrust laws to avoid potential
state antitrust scrutiny. For further discussion of the antitrust implications of ACOs, see Chapter 8.
13.8
Tax Laws
Tax-exempt organizations, such as hospitals, are expected to be significant participants in ACOs.
These organizations must consider whether their involvement in ACOs will result in impermissible
private inurement or private benefit, thereby placing an entity’s tax-exempt status in jeopardy.
In Urology of Central Pennsylvania, No. 11-CV-1625, Final Order (M.D. Pa. Sept. 1, 2011).
76 Fed. Reg. 67026.
31
32
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How State Law Issues May Affect ACOs
The Internal Revenue Service (IRS) issued a notice (the Notice) reviewing its existing guidance that
may apply to a tax-exempt organization’s participation in an ACO.33 The Notice states that the IRS
does not expect a tax-exempt organization’s participation in an ACO to result in impermissible private
inurement or private benefit so long as certain guidelines are met. Further, the IRS does not believe
that such participation will cause any shared savings received from an ACO to be treated as unrelated
business taxable income. The Notice solicited comments on whether the IRS’s existing guidance was
sufficient to allow tax-exempt organizations to participate in the Shared Savings Program through
ACOs. On October 20, 2011, the IRS issued a Fact Sheet, Tax-Exempt Organizations Participating
in the Medicare Shared Savings Program through Accountable Care.34 The Fact Sheet confirmed
that the Notice continues to be an expression of the IRS’s expectations regarding the Shared Savings
Program and ACOs. In addition, the Fact Sheet provided some additional information for charitable
organizations that want to participate in ACOs.
However, the IRS’s position on tax issues related to an ACO is not binding on a state’s taxing
authority. Therefore, in addition to the federal tax consequences, non-profit entities and other ACO
participants will need to consider state tax implications resulting from their participation in ACOs.
For further discussion of the tax implications of ACOs, see Chapter 6.
13.9
Licensure Requirements for Licensed Facilities
Licensed facilities in nearly every state are subject to stringent regulations governing many
aspects of their operation. Such requirements may range from certificate of need laws to general
licensure rules to other administrative requirements. Some states also impose strict requirements on
the governance and ownership of these licensed facilities.
In forming an ACO, a state’s licensure laws must be carefully examined to ensure that any type
of collaboration between a licensed facility and other health care providers does not trigger any type
of approval from the respective licensing agency.
13.10
Privacy Laws
In certain states, the laws protecting the privacy of individually identifiable health information provide greater protections or rights than the Health Insurance Portability and Accountability
Act.35 Since the core value of the ACO model is to coordinate care and share information among
ACO ­participants, state laws governing the sharing of patient data must be considered. For a further
­discussion of ACO privacy issues and information technology, see Chapter Seven.
13.11
State Security laws
An ACO will undoubtedly need to raise capital for its formation and operation. If an ACO intends
to sell ownership interests to raise money, it must consider and comply with both federal and state
security laws and regulations. If an offering is exempt under the federal securities laws, that does
IRS Notice 2011-20.
IRS FS-2001-11.
35
See, e.g., Texas House Bill 300 (HB 300); 2001 Me. Laws 346; 2001 Fla. Sess. Law Serv. 277 §§ 139-142.
33
34
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How State Law Issues May Affect ACOs
not necessarily mean that it is exempt from any of the state security laws. The failure to comply with
securities laws can have significant consequences, including criminal penalties, for those involved.
13.12
Charity Care
If a hospital participates in an ACO, careful attention must be given to the effect such participation may have on the hospital’s eligibility for any charity care payments. This issue is extremely
complex and must be carefully considered before a hospital agrees to partake in an ACO.
13.13
State Action
Many states have already started addressing inconsistent state laws related to ACOs. Some have
proposed “safe harbors” and encouraged waivers if necessary to remove barriers to ACO implementation. An example of one state on the forefront is New York. On June 22, 2012, New York State
passed An Act to Amend the Public Health Law in Relation to Accountable Care Organizations,
which states:
the formation and operation of accountable care organizations under this article can
be consistent with the purposes of federal and state anti-trust, anti-referral, and ­other
statutes, including reducing over-utilization and expenditures . . . To the extent the
­formation or operation of an ACO or its arrangements with third-party health care
payers or health care providers may violate the federal civil monetary payment laws,
or federal or state anti-kickback, patient referral, or fee-splitting laws, the commissioner shall provide reasonable and appropriate regulation, supervision, and waivers
under those statutes and their regulations to enable such formation, operation or
­arrangements to proceed and to make sure that they do so consistently with the
­purposes of this article.36
The New York ACO law provides state action immunity under the state and federal antitrust laws
for certain ACO activity and authorizes regulations related to the creation of safe harbors and exemptions from restraint of trade laws, fees splitting arrangements and health care practitioner referrals. 37
There is also pending legislation in Massachusetts that is intended to encourage the formation of
ACOs to “achieve improved health outcomes and lower the costs of care”.38 The Massachusetts Act
gives the attorney general certain powers related to ACOs, including to:
take appropriate action to prevent excess consolidation or collusion of providers of
ACOs and to remedy these or other related anti-competitive dynamics in the health care
market; [and] provide assistance as needed to support efforts by the commonwealth to
obtain exemptions or waivers from certain provisions of federal law including, from
the federal office of the inspector general, a waiver of the provisions of, or expansion
New York State Assembly Bill No. A6261.
New York Public Health Law §§ 2999-r, 2999-s.
38
The Commonwealth of Massachusetts Bill H.1849, filed February 17, 2011.
36
37
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of the “safe harbors” provided for under 42 U.S.C. section 1320a-7b; and obtaining
from the federal office of the inspector general a waiver of or exemption from the
provisions of 42 U.S.C. section 1395nn(a) to (e).39
As ACOs become operational and more widespread, many states will most likely address the
regulatory issues and conflicts arising from any inconsistencies between federal and state law.
Thus, it is important for ACO participants to keep current on the applicable laws in the jurisdiction
of their ACO.
13.14
Conclusion
ACOs represent an exciting prospect for health care reform, with a focus on high-quality,
­low-cost care to patients. When agreeing to participate in an ACO, a careful federal and state regulatory ­analysis must be conducted to minimize regulatory risk. As stated best by the American Academy
of Medical Colleges, “before healthcare providers . . . invest the considerable resources required to
make long-term and large-scale changes to their care delivery systems, they need confirmation that
their planned innovations will not be viewed as violations of federal laws”.40 ACO participants also
need confirmation that their planned innovations will not be viewed as violations of state laws. The
ACO arena and the state law response is changing rapidly. It remains to be seen which states will
adapt their laws to encourage ACOs and which states will enforce existing laws that may interfere
with the structure and operation of ACOs. It is essential for ACO participants to monitor the state law
in the states in which they operate.
It is likely that ACOs will have a tremendous impact on the delivery of health care in the United
States. For an ACO to succeed, ACO participants must understand and comply not only with federal
law but with the laws of the state or states in which the ACO operates.
Id.
Supra, note 9.
39
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