Category — Hospitals

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) (together, “the antitrust agencies”) have raised as many antitrust questions as they have answered with their March 31, 2011, Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (“Policy Statement”).  Although the Policy Statement is styled as a mere statement of antitrust enforcement policy for accountable care organizations (ACOs), similar to earlier enforcement statements, in fact it is issued in support of a proposed regulation from the Centers for Medicare & Medicaid Services (CMS), regarding the Medicare Shared Savings Program and ACO provisions of the Patient Protection and Affordable Care Act (PPACA).  As such, the antitrust agencies clearly have taken on a much more significant role in the regulatory review process of a sister agency than previously.  That regulatory entanglement can be seen in provisions of the Policy Statement that attempt to reconcile the contradictory goals of reducing antitrust uncertainty for ACOs in order to facilitate participation in the Medicare Shared Savings Program, while sending a strong enforcement message that the antitrust agencies will not tolerate ACOs that acquire the ability to exercise market power in commercial markets.  The results are highly technical rules intended to allow ease of application, but which, as discussed below, raise many questions as to their meaning and likely application.  Comments on the proposed Policy Statement are due on or before May 31, 2011, which is within 60 days of publication in the Federal Register.

Purpose of Antitrust Review of ACOs

Although the antitrust agencies published their Policy Statement as a separate document for notice and comment, CMS provided its own explanation for the role of antitrust review in the Medicare Shared Savings Program.  In CMS’ proposed rule, it identified three reasons for its incorporation and reliance on the antitrust agencies’ Policy Statement:  (i) ACOs that do not face significant antitrust risk are likely to complete the three-year commitment that CMS requires without disruption of the program due to antitrust challenge, (ii) ACO-versus-ACO competition is likely to improve the clinical quality of care that Medicare beneficiaries receive and (iii) ACOs exercising market power in the private market are likely to prefer private pay patients over Medicare patients and, thus, to limit access by Medicare patients to their services.  The antitrust agencies, in turn, explained that they issued their Policy Statement “to maximize and foster opportunities for ACO innovation” and “both to clarify the antitrust analysis of newly formed collaborations among independent providers  . . . and to coordinate the antitrust analysis with the CMS.”  [Read more →]

On March 31, 2011, the Internal Revenue Service (IRS) issued Notice 2011-20, which considers the federal income tax implications to those hospitals and other health care organizations described in Code Section 501(c)(3) that seek to participate in the Medicare Shared Savings Program through an accountable care organization (ACO).  This update summarizes the most significant conclusions of Notice 2011-20 for tax-exempt organizations and highlights some areas where additional guidance may be most needed.

What We Know From Notice 2011-20

In Notice 2011-20, the IRS provided tax-exempt organizations with initial guidance regarding the circumstances under which their participation in the Medicare Shared Savings Program through an ACO would not put at risk their tax-exempt status and would not cause any income they may receive from the ACO to be treated as unrelated business taxable income (UBTI).  In particular, the IRS provided the following guidance—

• Private Inurement and Private Benefit: The IRS “expects that it will not consider a tax-exempt organization’s participation in the Medicare Shared Savings Program through an ACO to result in inurement or impermissible private benefit” if the following conditions are satisfied: the ACO has been admitted into, and not been terminated from, the Medicare Shared Savings Program; the tax-exempt organization’s ownership interest in the ACO, if any, is proportional to the exempt organization’s capital contributions; allocations, distributions and returns of capital are in proportion to ownership interests; the exempt organization’s share of losses does not exceed its share of income or gain; and contracts and other transactions between an ACO and its tax-exempt and taxable participants are at fair market value.
• Unrelated Business Taxable Income: The IRS expects that any Medicare Shared Savings Program payments received by a tax-exempt organization from an ACO will be deemed to be from activities substantially related to the performance of the charitable purpose of lessening the burdens of government (i.e., relieving the government of its burden of providing Medicare to those in need) and will not be treated as UBTI if the ACO meets all of the eligibility requirements established by CMS. 

While this initial guidance from the IRS provides some assurance that tax-exempt organizations generally will be able to participate in the Medicare Shared Savings Program through an ACO without adverse federal income tax consequences, Notice 2011-20 leaves a number of important questions unanswered. [Read more →]

On March 31, 2011, the Centers for Medicare & Medicaid Services (CMS or the “Agency”), along with several other federal agencies, released a long-awaited proposed rule and other notices that would implement the Medicare Shared Savings Program and Accountable Care Organization (ACO) provisions of the Patient Protection and Affordable Care Act (PPACA). The proposed ACO regulations and policies are contained in four separate documents: (1) a CMS proposed rule establishing ACOs; (2) a Department of Health and Human Services Office of Inspector General/CMS notice with comment period proposing waivers for the Anti-Kickback Statute, the Physician Self-Referral Law (the “Stark Law”) and certain provisions of the Civil Monetary Penalties law; (3) a Federal Trade Commission/Department of Justice proposed statement of antitrust enforcement policy for ACOs; and (4) an Internal Revenue Service request for comments addressing guidance for tax-exempt organizations participating in the program. This health reform update gives a preliminary analysis of CMS’s proposed rule. The other three publications are reviewed in separate updates prepared by members of Akin Gump’s ACO team.

Although the CMS proposed rule has only been issued in draft form, publication in the Federal Register is expected on or around April 7, 2011. Comments on the rulemaking must be submitted to CMS within 60 days of publication.

Health industry stakeholders highly anticipated the release of this rule and early CMS estimates indicate that 1.5 to 4 million beneficiaries would be assigned to ACOs in the first three years of the program (as compared to 45 million beneficiaries who have traditional fee-for-service (FFS) Medicare coverage). This estimate reflects only those enrolled in the Medicare Shared Savings Program; additional individuals are anticipated to be enrolled in commercial and Medicaid ACOs. In press conferences and releases surrounding the announcement of the proposed rule, CMS appears confident that the ACO Shared Savings Program will incent providers to furnish coordinated and efficient care and ultimately lower costs throughout the health care delivery system. Summarized below are some noteworthy takeaways from the ACO proposed rule.

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On March 31, 2011, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule establishing accountable care organizations (ACOs) under the Medicare Shared Savings Program pursuant to provisions of the Patient Protection and Affordable Care Act (PPACA). CMS and the Department of Health and Human Services (HHS) Office of Inspector General (OIG) also jointly released a notice and solicitation of public comments (the Notice) regarding the waiver of certain federal fraud and abuse laws in connection with the Medicare Shared Savings Program.

Anticipating that the Medicare Shared Savings Program would potentially implicate fraud and abuse laws, Congress included a provision in the PPACA that grants the Secretary of HHS the authority to waive the application of certain fraud and abuse laws “as may be necessary” to implement the program. [1]   The fraud and abuse laws addressed by the proposed waivers are the Physician Self-Referral Law (the “Stark Law”),[2] the federal Anti-Kickback Statute,[3] and a provision of the Civil Monetary Penalties law (CMP Law), the so-called Gainsharing CMP, that prohibits a hospital from making a payment directly or indirectly to induce a physician to reduce or limit services to Medicare and Medicaid beneficiaries.[4] Industry stakeholders have expressed concerns that without such waivers the establishment and operation of ACOs would necessarily involve the creation of financial relationships between physicians and hospitals and other individuals and entities that would otherwise be restricted or prohibited by these laws.

The Notice sets forth three proposed waivers and solicits comments on a number of related issues. To be eligible for waivers from the fraud and abuse laws, an ACO must enter into a formal agreement with CMS to participate in the Medicare Shared Savings Program and the ACO, ACO participants and ACO providers/suppliers would be required to comply with the various ACO requirements found in Section 1899 of the Social Security Act[5] (as promulgated by the PPACA) and the ACO implementing regulations, including the requirements regarding transparency, reporting and monitoring.

The requirements for the proposed waivers are set forth below—

The Patient Protection and Affordable Care Act (PPACA) added new requirements that 501(c)(3) hospital organizations must satisfy to maintain their tax-exempt status. Because many of these provisions are effective for tax years beginning after enactment, revision of Form 990, Schedule H (Hospitals) and its instructions has been a priority for the IRS. Learn more about the new requirements for 501(c)(3) hospitals and implementation efforts on IRS.gov.

In order to complete implementation of changes to IRS forms and systems that are required to reflect additional requirements for charitable hospitals, the IRS is delaying the start of the 2010 filing season for certain tax-exempt organizations that operate one or more hospitals (hospital organizations) required to file Form 990, Schedule H (Hospitals). Hospital organizations may not file 2010 Forms 990 with Schedules H attached before July 1, 2011.

Pursuant to Announcement 2011-20, the IRS has granted an automatic three-month extension of time to file the Form 990 to hospital organizations with filing due dates before August 15, 2011. For more information about the delayed filing season for hospital organizations and frequently asked questions, please go to IRS.gov.

Agency officials have signaled that the IRS is currently finalizing guidance for tax-exempt hospitals regarding new section 501(r) that was added by the Patient Protection and Affordable Care Act (PPACA).  Section 501(r) establishes that tax-exempt hospitals will need to conduct community health needs assessments and then document on Form 990 how to address identified community needs.  Further, each tax-exempt hospital must adopt a written financial assistance policy, provide equitable charges for emergency/medically necessary care to individuals under financial assistance policies as to those under normal insurance plans, and abstain from extraordinary collection actions.  Previously, the IRS had solicited public comments on the new requirements in its Notice 2010-39.  The guidance intends to incorporate these comments and address stakeholder questions that were highlighted for the agency.

Recent rulemakings and comments from a Centers for Medicare & Medicaid Services (CMS) official provide clues as to how Medicare and Medicaid providers will be required to implement mandatory compliance programs as required under the Patient Protection and Affordable Care Act (PPACA).

As most in the health industry are aware, PPACA includes two separate provisions mandating compliance programs for Medicare and Medicaid providers, generally, and for nursing facilities, specifically.  PPACA § 6401, which applies to all Medicare and Medicaid providers, requires the secretary of the Department of Health and Human Services (HHS) to promulgate “core elements” and set an effective date for compliance programs, presumably through rulemaking, but does not set a deadline for these actions.  This provision also did not provide detailed guidance on the core elements of a mandatory compliance program.  PPACA Section § 6102 applies to Medicare skilled nursing facilities and Medicaid nursing facilities and sets forth eight core elements of a mandatory compliance program.[1]  In a September 2010 proposed rule, HHS indicated that compliance program core elements under PPACA § 6401 will most likely be similar to the core elements for nursing facilities and to the elements of effective compliance described in the U.S. Federal Sentencing Guidelines Manual.  In that proposed rule, HHS also requested suggestions for compliance program elements and comments on the costs and benefits of compliance programs or operations as well as on a reasonable timeline for establishment of a required program.

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Consistent with its annual regulatory cycle, CMS issued the 2011 final  Medicare Physician Fee Schedule (PFS) and Outpatient Prospective Payment System (OPPS) rules on November 2, 2010.  The rules will be published in the Federal Register on November 29, 2010.  The final rules implement key elements of health care reform legislation, as well as other changes to physician and OPPS payment for the coming year.

Two key issues dominate discussions of the 2011 final PFS: 1) the implementation of certain health care reform provisions; and 2) the impact of the Sustainable Growth Rate (SGR) payment adjustment.  Additionally, the 2011 final PFS rule addresses the following important areas:

• codes and reimbursement rates for all Medicare Part B physician services;
• changes to the Medicare Economic Index (MEI) and Geographic Practice Cost Index (GPCI) methodology;
• Medicare Part B payments for drugs and drug administration services;
• the Physician Quality Reporting System (PQRS), formerly called the Physician Quality Reporting Initiative (PQRI); and
• the Electronic Prescribing (E-Prescribing) Incentive Program.

The final OPPS rule implements the following key health care reform provisions:

• Provides reductions to the OPPS market basket update
• Establishes the following conditions for Medicare reimbursement:
  • Community mental health centers (CMHCs) must have a minimum percentage (40%) of non-Medicare patients, and
  • CMHCs and hospitals cannot provide home care services through partial hospitalization programs
  • Eliminates beneficiary cost-sharing for certain Medicare-covered preventive services
  • Establishes a floor on the wage index adjustment to payments for hospital outpatient services furnished in certain designated states (Montana, Nevada, North Dakota, South Dakota and Wyoming)
  • Authorizes the redistribution of unused medical residency positions for purposes of determining Medicare payment and permits time spent in non-patient activities to count toward the determination of full-time equivalency (FTE) for graduate medical education (GME) and indirect medical education (IME) payment purposes
  • Limits physician referrals to a hospital where the physician has an ownership or investment interest

On November 10, 2010, the Centers for Medicare & Medicaid Services published a Notice in the Federal Register soliciting comments on Accountable Care Organizations.  The Notice specifically requests that interested parties comment on various areas including the following:

• Policies to ensure that solo and small practice providers may participate in ACOs;
• Beneficiary attribution to the ACO;
• Methods to assess beneficiary experience within the ACO;
• Patient-centeredness criteria for assessment of ACOs;
• Quality measures that should be used in the ACO program; and
• Other payment methodologies should be tested through the Centers for Medicare & Medicaid Innovation

Comments must be submitted to the agency by December 3, 2010.

The Congressional Research Service has released another report, dated November 3, 2010, focusing on the Medicare provisions in the health care reform laws.  This new report, which is entitled Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline, outlines the numerous reform provisions impacting the Medicare program and provides a detailed chart listing the effective dates of such provisions.  Notably, the CRS report highlights the growing tension regarding the treatment of any Medicare savings under the reform law – should the savings be considered to be funding sources for the expansion of health care or should such savings be directed towards shoring up the Medicare program’s trust fund.  Finally, the report addresses findings made by both the Congressional Budget Office and the CMS, Office of the Actuary that some of the Medicare payment reductions are likely not sustainable in the long terms and could actually result in reduced quality of care and access to services.  The 143-page report can be found here.