Permissible Joint Ventures and ACOs
6
Permissible Joint Ventures and ACOs
As discussed, one of the main purposes and effects of the Stark law is to prevent physicians (with
very limited exceptions) from having an ownership interest in a free-standing provider of d­ esignated
health services. Nevertheless, opportunities for physician joint ventures continue to exist in a
­post-Stark world. There are some obvious Stark-compliant examples, such as joint ventures that own
rural providers, and joint ventures that do not provide designated health services (e.g., ­ambulatory
surgery centers), or providers that do not serve Medicare beneficiaries.
Less-intuitive examples also exist, however. For instance, joint ventures can be formed to provide
items and/or services in connection with the provision of designated health services—yet, because
the joint venture itself is not a Medicare provider of services (and instead is a lessor, manager or
vendor to the provider), no referrals are made by the physician owners to the joint venture that they
own, for purposes of the Stark law; instead, the physicians are referring to a provider that purchases
items or services from, or leases space and equipment from, the physician-owned joint venture.
In other words, the joint venture is not viewed as an “entity” that provides designated health services,
instead it has a business relationship with the entity providing designated health services. If properly
structured, such joint ventures can comply with the Stark law.
In addition, great care must be taken in structuring such ventures to avoid (or minimize) the
risk of violating a number of other potentially applicable statutes (e.g., the anti-kickback statute),
Medicare billing and coverage requirements (e.g., the “anti-markup rule”),1 general certification and
licensing requirements (including “provider-based” rules, if applicable), and/or state laws that may
also apply to financial relationships among health care providers and/or prohibit certain physician
“self-referrals.”
The proliferation of these types of physician-owned joint ventures (or, more precisely, CMS’
perception of their proliferation) was, in large measure, responsible for triggering CMS’ backlash
against them, through a number of Stark regulatory changes around 2007-2009. For example, the
prohibition on certain percentage-based compensation arrangements and per unit/per “click” lease
payments (see Chapters 4.6 and 3.1, respectively) are intended to limit the economic upside,
and hence the appeal and popularity, of many leasing and management joint ventures, discussed
­below. Also, ­significantly, CMS has changed certain regulations in an effort to prevent many “under
­arrangements” joint ­ventures. See Chapter 6.3.
42 U.S.C. § 1395u(n).
1
The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
71
Permissible Joint Ventures and ACOs
6.1
Leasing Joint Ventures
In this model, a joint venture is formed to own (or possess) space and/or equipment and, p­ otentially
to employ personnel. The joint venture then leases (or subleases) on a full or part-time basis the space,
equipment, and technicians to physicians (including potentially to owners of the joint v­ enture). This
often is referred to as “block leasing” when done part-time. The lessee physicians then can potentially
qualify for the in-office ancillary services exception in Stark. (A variation, discussed below, is for a
hospital or other provider to lease the space, equipment and/or personnel from the joint venture).
One key to complying with this Stark exception is that the physician (or the physician’s “group
practice”) must have a regular office practice in the same building where the space leased from the
joint venture is located (other requirements also apply, but are less likely to be obstacles). These
­lessee physicians then may provide the relevant services to their own Medicare patients by leasing
the space, equipment, and personnel from the joint venture on a part-time, fair market value basis, and
then billing Medicare (or other applicable payer) for the services (i.e., the joint venture is a vendor
to the lessee physicians, who provide service to their patients and bill Medicare for these services).
These arrangements may create indirect compensation arrangements under the Stark definition,
which must then be structured to meet the indirect-compensation arrangement exception. To the extent
space and/or equipment is leased by the joint venture to the physician providers, consideration must
be given to whether a percentage of revenue or “per click” rental payment is permissible. If the lease
must fit into a Stark exception (for example, if the owners of the joint venture include ­physicians who
refer to the physicians providing services through use of the leased or subleased space or equipment),
then it is likely that the parties will need to adopt a flat periodic rental payment. It is also important
to note that the anti-kickback statute and Medicare’s anti-markup prohibition (among other issues),
remain significant potential concerns in this model, and great care must be taken to properly address
them. One cannot necessarily assume that because the arrangement comes within applicable Stark
law exceptions, that it will also withstand scrutiny under other laws and regulations.
A variation on this model involves a hospital, imaging or radiation therapy center, or other
­provider serving as (1) the lessee of the physician-owned joint venture and (2) the Medicare ­provider
of services. The key to Stark law compliance under this model (as with the above-mentioned variation
of the model), is the physicians own a joint venture that is not considered an “entity” that provides
designated health services within the meaning of the Stark law. The physician-owned entity, instead,
is a mere lesson or vendor to the actual entity that provides designated health services, and the physicians do not own that latter entity. Hence, the financial relationship between the physician owners of
the joint venture and the entity providing designated health services, is analyzed under the indirect
compensation arrangement analytical construct, which is easier to satisfy.
In another twist on this model, the physician-owned joint venture could lease equipment to the
hospital using a flat monthly, fair market rent that is fixed for at least one year, and in addition, could
also provide specific management services to the hospital in connection with the services performed
using the leased equipment. In this case, the management fee could, potentially, be a variable ­formula
based on the volume of services performed at the hospital, assuming that the busier the service,
72 The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
Permissible Joint Ventures and ACOs
the greater the demands that are placed on the manager. Alternatively, the management fee could
include a flat monthly base amount, with an incentive bonus amount, based on the physician-owned
joint venture’s ability to reach certain benchmarks involving quality of care, patient satisfactions and
­efficiency in resource utilization (e.g., starting procedures on time). The concept of incentive-based
compensation is explored more fully in Chapter 4.17, which discusses clinical co-management
agreements.
One potentially tricky aspect of this model is that the physician-owned joint venture cannot
becomes so deeply involved in the services that it is considered to be effectively “performing” the
designated health services that are then billed by the entity with whom the physician-owned joint
venture is contracting. This is because, since 2009, CMS expanded the definition of an “entity” that
performs designated health services to not just the entity that bills Medicare for such services, but
also one that “performs” such services, that are then billed by another. This change to the definition
of the term “entity” was intended to kill physician-owned “under arrangements” joint ventures.2
6.2
Physician Owned Distributorships (PODs)
A specific variation on the permissible joint venture theme is the physician owned device company
joint venture, often referred to as “physician-owned distributors” or “PODs,” which sell implantable
medical devices to hospitals and ambulatory surgery centers, which the physician owners of the POD
may then use in surgeries they perform at the hospital or ASC. The analysis of this model is similar to
the physician-owned leasing company or services model, discussed in Chapter 6.1, except that this
model entails selling items instead of leasing space, equipment and/or selling services.
The physician-owned device company model has the potential to eliminate the costs of the
t­ raditional supply chain model, while generating additional savings from standardization. Rather than
relying on traditional distribution systems, which involve an extensive roster of marketing personnel
employed by device manufacturers to sell a particular product, this model utilizes the experience
and expertise of its physician-investors to identify preferred medical devices. The ­physician-owned
­device company engages in arms-length negotiations with the device manufacturer(s) to secure a price
for the product, typically at a lower price than that otherwise available to the hospital. The physicianowned device company is then able to pass on savings to its hospital customers. The ­physician-owned
device company is usually able to secure lower pricing than other p­ urchasers because the device
manufacturer does not need to spend as much time or money marketing the product.
The key to having this model satisfy the Stark law exception is that the arrangement must
meet the indirect compensation arrangement exception. Assuming that the payments made to the
­physician-owned distributor by hospitals and ASCs purchasing devices are made pursuant to ­negotiated
fee schedules, consisting of a separate charge for each device provided, then they would therefore be
In response to questions regarding what it means for an entity to “perform” designated health services, CMS clarified
in the preamble to the Stark regulations, that “[w]e do not consider an entity that leases . . . equipment used for the performance of the service . . . or that provides management, billing services, or personnel to the entity performing the service,
to perform DHS.” 73 Fed. Reg. 48726 (Aug. 19, 2008). It is not entirely clear from this comment, however, whether a
combination of two or more of these services would also be permissible.
2
The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
73
Permissible Joint Ventures and ACOs
considered to result in unit-based compensation. Arrangements involving royalty ­payments and “per
click” rental payments have been approved by CMS under the indirect compensation exemption.3
Accordingly, payments to such distributors should not be considered to impermissibly relate to the
volume or value of referrals so long as the rate of payment to the distributor for each device does not
increase with volume.
Most obviously, of course, the fee schedules used must not provide for higher payments to a physician-owned distributor for each item of devices as more items of devices are purchased. However,
CMS has stated that volume discounts also might implicate the Stark law, and that volume discounts
therefore must be analyzed on a case-by-case basis.4 CMS acknowledged that cost-based equipment
leases at fair market value may permissibly result in charges that decrease with volume, since the
lessor’s costs may decrease with volume. However, CMS did not acknowledge that volume discounts
may be permitted where they are just a function of volume, and not a function of costs.
The relationship between volume and a distributor’s per unit costs may be less direct than in the
case of the equipment lease that was approved by CMS. Nevertheless, spreading a distributor’s fixed
overhead over a larger number of items sold will reduce the per item costs of that distributor, and this
would seem to be substantial justification for a volume discount. In addition, a distributor presumably would only offer volume discounts as necessary to offer market competitive pricing. Under such
­circumstances, the volume discounts presumably should not be considered to be related to the volume
of the physicians’ referrals, but instead to result from market forces. Finally, it is notable that because
a volume discount would result in lower profits for the physician owners than would undiscounted
prices, the volume discount provides no incentive for the physicians to increase their referrals to the
hospitals to order more devices. Accordingly, it seems unlikely that volume based discounts offered
by a physician-owned distributor would be found to violate the Stark law. Interestingly, CMS has
specifically declined to change or interpret the Stark regulations in a way that would effectively kill
physician-owned device companies:
In this final rule, we are not adopting the position that physician-owned implant or
other medical device companies necessarily “perform the DHS” and are therefore an
“entity” on that basis. In the FY 2009 IPPS proposed rule, we solicited comments as
to whether such companies should be considered to be an “entity” within the meaning
of § 411.351. We may decide to issue proposed rulemaking on this issue in the future.5
As with other physician-owned models discussed herein, one must always be mindful of compliance
other laws, not the least of which is the anti-kickback statute.6
See 69 Fed. Reg. 16054, 16060 and 16061 (March 26, 2004).
See 69 Fed. Reg. 16054, 16069 (March 26, 2004).
5
73 Fed. Reg. 48434, 48726-27 (August 19, 2008).
6
Notably, on March 26, 2013, the Office of Inspector General of the U.S. Department of Health & Human Services
(OIG) issued a Special Fraud Alert regarding Physician Owned Entities, which focused on the anti-kickback statute risk
presented by PODs. The fraud alert does not break new ground, but it serves as a reminder of the OIG’s general antipathy
toward physician-owned joint ventures.
3
4
74 The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
Permissible Joint Ventures and ACOs
6.3
“Under Arrangements” Joint Ventures
When a hospital provides services “under arrangements” it is conceptually similar to ­providing
services through a subcontractor, or through an outsourcing arrangement. In other words, the term
“under arrangements” refers to the purchase by a hospital of services from a third party, which
the hospital then provides to the hospital’s patients. The term originally came from the Medicare
program, but has come into common use to describe any arrangement where a hospital purchases
services from an outside contractor, which the hospital then provides to its patients, whether or not
the patients are Medicare beneficiaries.
Under this model, the physicians form a joint venture that would provide certain inpatient and
outpatient services to the hospital “under arrangements,” and the hospital would then pay the joint
venture on a fair market value basis for such services. The physician-owned joint venture would
acquire equipment (through purchase or lease), hire personnel, and possibly lease space, for the
­provision of the services that it provides “under arrangements” to the hospital (e.g., imaging services,
outpatient surgeries, etc.).
Traditionally, this was a popular variation on the leasing joint venture, discussed above in
Chapter 6.1. This is because, originally, under the Stark law, the physician investors in the “under
arrangements” joint venture were not viewed as having an ownership interest in an entity to which
they refer for designated health services, because only the entity that billed Medicare was an entity
providing designated health services (the “under arrangements” joint venture did not bill Medicare,
and hence was not an entity providing designated health services). Instead, for purposes of the Stark
law, the under arrangements joint venture was viewed as potentially creating an indirect compensation arrangement between the physician who owned the joint venture and the hospital that purchased
the joint venture’s services.7
However, the landscape for so-called “under arrangements” joint ventures became quite
d­ ifferent when CMS changed the regulations, effective October 1, 2009. In particular, the definition of the “entity” that is considered to be receiving referrals was expanded to include not only the
entity that is paid by Medicare for the designated health services (DHS), but also an entity that “has
performed services that are billed as DHS.” Because there is typically no Stark law exception to
protect the physician ownership of an “under arrangements” provider, this change in the Stark law
generally prevents physicians who hold ownership interests in companies that perform designated
health ­services for hospitals “under arrangements” from referring Medicare patients to the hospital
for those services.
Nevertheless, depending on the number of non-Medicare patients the physicians have, and the
potential demand from other physicians for the services provided “under arrangements,” the under
arrangements provider could still be a profitable business in its own right, and help to bring new
services to a hospital’s community.
7
See 66 Fed. Reg. 856, 942–43 (Jan. 4, 2001) (“. . . we will treat ‘under arrangements’ financial arrangements between
hospitals and physician-owned entities as compensation arrangements and not ownership relationships.”).
The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
75
Permissible Joint Ventures and ACOs
6.4
Non-Referring Physician Joint Ventures
Yet another option, for certain types of joint ventures, is for the investing physicians to consist
solely of non-referring physicians, such as radiologists or radiation oncologists. In fact, there are
currently many radiology (imaging) and radiation therapy joint ventures in which the only physician
investors respectively, are radiologists, or radiation oncologists, and thus the expansion of the definition of “entity” has no impact on these transactions, and the joint ventures may be paid rent calculated
as a percentage of the revenue generated using the equipment or space leased, or may be paid per unit
of service (per click) rent, because these physicians are not typically considered to “refer” for purposes
of the Stark law, and hence their financial relationships do not need to satisfy any Stark law exceptions.
The most popular joint ventures with non-referring physicians tend to be joint ventures with
radiologists for imaging services, and joint ventures with radiation oncologists for radiation therapy
services. By way of example, under a typical radiation therapy joint venture, a group of radiation
oncologists might lease radiation therapy equipment to a hospital. The hospital, in turn, would use
the equipment to provide radiation therapy services to its inpatients and outpatients, and the hospital
would bill patients and their third party payors for the technical component of these radiation therapy
services. The professional component of the radiation therapy services would typically be billed by
the radiation oncologists performing the services, some of whom may be investors in the radiation
therapy joint venture.
Notably, the rent that the hospital pays to the joint venture does not present the usual issues
under the Stark law, and hence the rent can be based on a percentage of the collections generated
using leased equipment, or “per click” rent. This is because the physician owners of the leasing joint
venture would all be radiation oncologists, who normally are not viewed as “referring” physicians
under the Stark law. This is because the Stark law carves out from the definition of “referral,” any
radiation therapy ordered by a radiation oncologist, pursuant to a “consult” with another physician,
under certain circumstances. (Instead, the other physician, who consults with the radiation therapist,
is viewed as the referring physician.)
In order for the radiation oncologists to qualify for this carve out from the definition of a ­referral,
all of the inpatient and outpatient hospital services performed by the hospital lessee, which are ­ordered
by any of the physician investors in the joint venture, including, but not limited to services using the
leased equipment (i.e., also including service their physicians order that are unrelated to the joint
venture), would have to constitute (a) “radiation therapy” as defined in the Stark regulations, or (b)
ancillary services that are necessary for, and integral to, radiation therapy, and that all such services,
when requested by a radiation oncologist with an ownership interest in the joint venture, must be as a
result of a “consultation” initiated by another physician who is not an owner of leasing joint venture,
and who has no other financial relationship with the leasing joint venture, other than Stark-compliant
relationships.8
The term “consultation” is defined in the Stark regulations to mean a professional service furnished to a patient by a
physician if the following conditions are satisfied: (1) the physician’s opinion or advice regarding evaluation or management or both of a specific medical problem is requested by another physician; (2) the request and need for the consultation
are documented in the patient’s medical record; (3) after the consultation is provided, the physician prepares a written
8
76 The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
Permissible Joint Ventures and ACOs
Furthermore, all these inpatient or outpatient hospital services ordered by the owners of the joint
venture would have to be provided by or under the supervision of (a) the radiation oncologist who
requested the radiation therapy, or (b) a radiation oncologist in the same “group practice” as the radiation oncologist who requested the radiation therapy.
6.5
Accountable Care Organizations (ACOs)
The advent of the Accountable Care Organization (ACO) and other innovative models has been
reshaping how health care services are provided, compensated and organized. This broad transformation also has consequences for Stark law compliance, arising both from the creation of the ACO itself,
as well as from the new reimbursement methodologies fostered by ACOs and their ilk. For those
who are participating in the Medicare ACO model, under the Medicare Shared Savings P
­ rogram,
CMS and OIG have tried to clear a pathway for ACO participants by issuing a broad “waiver” of the
anti-kickback statute, the Stark law and certain civil monetary (CMP) penalty statutes, as applied to
ACOs.9 The waivers are useful, as far as they go, but it is important to recognize that they do not
protect conduct relating to forming, participating in or operating a private, non-Medicare ACO. Thus,
they are more limited than might be desired, given the regulatory challenges facing all ACOs, and the
abundance of non-Medicare ACOs.
The waivers became effective November 2, 2011, and include four individual waivers applicable
to Stark law compliance: (1) the pre-participation, or start-up waiver, (2) the shared savings distribution waiver, (3) the Stark compliance waiver, and (4) the ACO participation waiver.
As a threshold requirement, to qualify for the waivers, the ACO and its participants, providers
and suppliers must comply with the three-year agreement with CMS, the ACO statute, and the implementing ACO regulations. The waivers are self-implementing (i.e., they do not require application to,
or acceptance by, CMS or OIG).
Pre-Participation (Start-Up) Waiver
The ACO pre-participation waiver (i.e., the “start-up waiver”) is the most complicated of the
waivers, and waives the Stark law, the AKS, and the gainsharing CMP with respect to a multitude of financial arrangements, if they pre-date the ACO’s participation agreement with CMS. Many
­examples of arrangements that might qualify for waivers are provided, and the list is not intended to
be exhaustive (e.g., infrastructure creation and provision; network development and management,
care coordination mechanisms, clinical management systems; creation of governance and management structures, hiring staff, information technology, etc.) Assuming an arrangement is a “start-up
arrangement,” it must meet the following six requirements to qualify for the waiver:
report of his or her findings, which is provided to the physician who requested the consultation; and (4) with respect
to radiation therapy services provided by a radiation oncologist, a course of radiation treatments over a period of time
is considered to be pursuant to a consultation, provided that the radiation oncologist communicates with the referring
­physician on a regular basis about the patient’s course of treatment and progress.
9
76 Fed. Reg. 67,992 (Nov. 2, 2011).
The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
77
Permissible Joint Ventures and ACOs
Good-faith intent: the party or parties must be acting with a good-faith intent to develop an
ACO to participate in the Medicare Shared Savings Program (“SSP”) in a particular year, and submit
a completed application to participate in the SSP for that year;
Diligent steps: the parties developing the ACO must take diligent steps to develop the ACO so
that it qualifies for a participation agreement to become effective in the target year, including taking
diligent steps to meet the SSP requirements on governance, leadership, and management;
Reasonably related to SSP purposes: the ACO’s governing must authorize the arrangement
and a bona fide determination that the arrangement is “reasonably related” to the “purposes of
the SSP”;10
Contemporaneous documentation: the party or parties to the arrangement must maintain
contemporaneous documentation of the arrangement, the governing body’s authorization, and the
diligent steps being taken to develop the ACO;
Public disclosure: a description of the arrangement must be publicly disclosed in accordance
with guidance issued by the Secretary (although the disclosure can omit the financial or economic
terms);
Statement of reasons if no application submitted: if the ACO does not submit an ACO
­application for the target year, the ACO must submit an explanation for why it was unable to submit
an application.
The parties to a start-up arrangement must include an ACO or one or more ACO participants
eligible to form an ACO. The parties cannot include drug or device manufacturers (because they are
not Medicare-enrolled providers/suppliers), and cannot include durable medical equipment or home
health suppliers (because CMS and OIG view them as having historically “posed a heightened risk
of program abuse”).
CMS and OIG include a non-exhaustive list of examples of purposes that are “reasonably
­related” to the purposes of the SSP (e.g., promoting evidence-based medicine and patient engagement, meeting requirements for quality and cost reporting, coordinating care, etc.) An arrangement
need only be reasonably related to one enumerated purpose to qualify for the waiver. Arrangements
with similar purposes but unrelated to the SSP (e.g., arrangements solely relating to commercial
ACOs) are ineligible for the waiver, although arrangements involving both non-Medicare patients
and Medicare beneficiaries are eligible.
Documentation of the arrangement must be retained for at least 10 years following completion
of the arrangement, or at least 10 years following the date the ACO submits its application, or the
date the ACO submits its statement of reasons for failing to submit an application. The description
The term “purposes of the SSP” is defined to include promoting accountability for the quality, cost, and overall care
for a Medicare patient population described in the SSP; managing and coordinating care for Medicare fee-for-service
beneficiaries through an ACO; and encouraging investment in infrastructure, redesigned care processes for high quality,
and efficient services delivery for patients, including Medicare beneficiaries.
10
78 The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
Permissible Joint Ventures and ACOs
documenting the arrangement must identify all of the parties to the arrangement; the date of the
­arrangement; the purpose(s) of the arrangement; the items, services, facilities, and/or goods covered
by the arrangement (including non-medical items, services, facilities, or goods); and the financial or
economic terms of the arrangement.
The documentation of the authorization should reflect the date and manner of the governing
body’s authorization, including how the ACO’s governing body determined the arrangement is
­reasonably related to the purposes of the SSP.
The description of the diligent steps taken to develop an ACO should include the timing of a­ ctions
undertaken and the manner in which the actions relate to the development of an ACO that would be
eligible for a participation agreement. The waivers also provides interim guidance regarding the
public disclosure of the arrangement. Pending the Secretary’s official guidance on public disclosure
of start-up arrangements, parties to a start-up arrangement should disclose the arrangement within
60 days of the start of the arrangement by posting the disclosure on the public website belonging to
the ACO or the individual/entity forming the ACO. The disclosure should contain the name of the
ACO or the individual/entity forming the ACO, and other identifying information ­sufficient to allow
individuals conducting an electronic internet search using a widely available search engine to readily
locate the website.
For arrangements that meet all of the preceding conditions, the start-up waiver period starts
November 2, 2011 for target year 2012, and one year preceding the application due date for later
target years. The waiver period ends on either: (1) the ACO’s participation agreement start date
(if the ACO’s application is submitted and accepted); (2) the date of the denial notice from CMS
(if the application is denied), unless the arrangement qualified for the waiver before the denial was
issued, in which case the waiver period would end 6 months after the date of the denial notice; or
(3) the earlier of the application due date for the target year or the date the ACO submits its statement
of reasons for failing to submit an application, although an extension of this period is available if
the ACO can demonstrate a likelihood of successfully developing an SSP-eligible ACO by the next
available application due date.
The Secretary will establish procedures in guidance for the waiver extension process. The determination of whether to grant waiver extension will be in sole discretion of Secretary and will not be
reviewable. An ACO may use the start-up waiver, including any extensions, only once.
Shared Savings Distribution Waiver
The shared savings distribution waiver waives the Stark law, the anti-kickback statute, and the
gainsharing CMP with respect to distributions or use of shared savings the ACO earns, subject to
five conditions: (1) the ACO has a participation agreement with CMS, and is in good standing under
that agreement; (2) the ACO earned the shared savings pursuant to the SSP; (3) the ACO earned the
shared savings during the term of its participation agreement (even if the distribution is received
later); (4) the shared savings are either (A) distributed to or among the ACO’s participants, ­providers/
suppliers, or individuals and entities that were participants or providers/suppliers during the year
The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
79
Permissible Joint Ventures and ACOs
in which the ACO earned the shared savings, or (B) used for activities reasonably related to the
­purposes of the SSP; and (C) any shared savings distributions from a hospital to a physician are not
made knowingly to induce the physician to reduce or limit medically necessary items or services to
patients under the direct care of the physician.
The waiver permits distributions of shared savings within the ACO in any form or manner,
including “downstream” distributions or uses of shared savings funds between or among ACO
­members. The waiver also permits ACOs to use shared savings in arrangements with outside parties,
provided the arrangement meets the “reasonably related” test. The waiver will not protect distributions of shared savings to referring physicians outside the ACO unless it meets the reasonably
related test or the physicians were ACO participants or providers/suppliers when the ACO earned the
shared savings.
With respect to the fifth condition for the shared savings distribution waiver, which prohibits
payments to reduce or limit medically necessary care, the waiver permits the ACO to incentivize
the provision of alternate and appropriate medically necessary care consistent with the purposes of
the SSP. For example, the provision of coordinated outpatient care rather than inpatient s­ ervices,
or the use of evidence-based protocols for medically necessary care. The waivers notes that
“­medically necessary” will be interpreted consistent with Medicare program rules and accepted standards of practice.
Stark Compliance Waiver
The Stark compliance waiver waives the anti-kickback statute and the gainsharing CMP with
respect to any financial relationship between or among the ACO, its participants, and its providers/
suppliers, which implicates the Stark law, subject to three conditions: (1) the ACO has a participation
agreement with CMS and is in good standing under that agreement; (2) the financial relationship is
reasonably related to the purposes of the SSP; and (3) the financial relationship fully complies with
a Stark exception.
Assuming the above conditions are met, the waiver begins on the ACO’s participation agreement start date, and ends on the earlier of the expiration (including any renewals) or voluntary
termination of the participation agreement. This means the Stark compliance waiver would not
­protect distributions or use of shared savings following the expiration or termination of the ACO’s
participation agreement.
Participation Waiver
The ACO participation waiver waives Stark, the anti-kickback statute, and the gainsharing CMP
with respect to any arrangement of an ACO, one or more of its ACO participations or providers/­
suppliers, or a combination thereof, subject to five conditions: (1) the ACO has a participation
agreement with and remains in good standing under that agreement; (2) the ACO meets the SSP
requirements for ACO governance, leadership, and management; (3) the ACO’s governing body has
made and duly authorized a bona fide determination that the arrangement is reasonably related to the
80 The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
Permissible Joint Ventures and ACOs
purposes of the SSP; (4) contemporaneous documentation (same requirements as the start-up waiver,
except no “diligent steps”); and (5) public disclosure (same as the start-up waiver).
Assuming the arrangement qualifies for the participation waiver, the waiver starts on the participation agreement start date and ends 6 months following the expiration (including any renewals) or
voluntary termination of the participation agreement. However, if CMS terminates the participation
agreement, the waiver period will end on the date of the termination notice.
The Stark Law: A Comprehensive Analysis and Practical Guide, Fifth Edition
81