Stark Law and Accountable Care Organizations

An accountable care organization (ACO) is the latest federal attempt to rescue Medicare from financial ruin. (The “Final Rule” can be found here.) Similar to the failed HMO model of the late 1990s, groups of providers may form relationships which tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. Under the ACO model, physicians and providers are responsible for the care of at least 5,000 patients, and may earn incentive bonuses if costs savings are realized.

Because the formation of “relationships” and the payment of “incentives” implicate Stark Law, the Anti-Kickback Statute, and certain medical rules of ethics, HHS may be required to tweak current rules, prior to full implementation. Stark Law, 42 U.S.C. 1395nn, forbids physician self- referral, if the physician has any financial relationship with a provider to whom the patient is referred. Similarly, the Anti-kickback 42 U.S.C. §1320a-7b prohibits splitting fees between providers, similar to AMA Ethics Code 6.02-6.04.

On the ground, physicians are understandably uneasy. Not only is it expensive to form ACOs, but if the government now proposes allowing physicians and providers to enter contracts with one another, and accept “fee splitting” arrangements, authority must be absolutely clear.

The AMA Code of Medical Ethics does speak to the issue of HMO/ACO plans. (See, Opinions on “Conflicts of Interests Under Capitation,” (Opinion 8.051) and “Financial Incentives and the Practice of Medicine,” (Opinion 8.054)) These were added to the Stark Law Statute, but were more designed to satisfy concerns that a switch from fee-for-service to a capitation/incentive plan would lead to: 1.) under treatment to earn incentives; or 2.) the available funds under a capitation plan might run out, and lead to treatment without any compensation, or unsustainably low reimbursements.

According to AMA Opinion 8.054, for example, while a physician may consider the “availability of affordable care” needs of society as a whole, the “first obligation is to the patient . . .which must override consideration of reimbursement mechanism or specific financial incentives applied to a physician’s clinical practice.” Further, “Physicians …should evaluate financial incentives associated with participation in a health plan before contracting with the plan… to ensure that patient care is not compromised by unrealistic expectations for utilization [how much care is delivered] or by placing that physician’s payment for care at excessive risk [the risk that the money will run out and the physician will not be paid if appropriate care is delivered.].”

Because the new ACO Shared Savings Plans are optional and do not replace traditional fee-for-service models, physicians could be in a position to refer both ACO member/patients as well as those who are covered by traditional plans to the same hospital or clinic with whom the physician has an ACO relationship. The question under Stark Law and the Anti-Kickback Statute isn’t the referral or treatment of patients covered within the ACO. The question is the referral of everyone else. For example, if in a given year, the ACO does not meet its target, and in fact loses money, there may be incentive to refer other non-ACO patients between members. This is termed in government speak, to “capture a stream of referrals.”

What is missing from current Stark Law and Anti-Kickback regulations is express authority for physicians to enter ACO contracts and make referrals of everyone else, without fear of enforcement action. Clearly Congress or HHS will resolve this issue in the near future. Until clearer guidance is in place, however, the potential costs savings to the government under the ACO scheme may be frustrated.

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