An accountable care organization or ACO, is the latest federal attempt to rescue Medicare from financial ruin. ( The “Final Rule” is at 42 C.F.R. Part 425.10, et seq.) According to CMS publications, “An accountable care organization (ACO) is a type of payment and delivery reform model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients.” A group of coordinated health care providers form an ACO, through a Limited Liability Company, which then provides care to a group of at least 5000 patients. (In other words, an ACO is an HMO under a different name.)

As with HMO’s the ACO program provides an option to traditional plans, but does not replace FFS model. The ACO may use a range of payment models (capitation, fee-for-service with asymmetric or symmetric shared savings, etc.). The ACO is accountable to the patients and the third-party payer for the quality, appropriateness, and efficiency of the health care provided. According to the Centers for Medicare and Medicaid Services (CMS), an ACO is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.

The ACO initiative is scheduled to launch in January 2012, but the race to form ACOs has already begun. Hospitals, physician practices and insurers across the country, from New Hampshire to Arizona, are announcing their plans to form ACOs, not only for Medicare beneficiaries but for patients with private insurance as well.

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 ACO’s, if the government now proposes to allow 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, or (2) the available funds under a capitation plan might run out, and lead to treatment without any compensation.

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 physician will not be paid if appropriate care is delivered.] ”

However, because the new ACO Shared Savings Plans are optional and do not replace traditional fee-for-service models, physicians could be in a position 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. What is missing from current Stark Law and Anti-Kickback regulations is express authority for physicians to enter contracts and make referrals, 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.

Martin Merritt is a Stark Law attorney, practicing in Dallas, Texas. He maintains a current knowledge of ACO rules and regulations. If you would like to schedule a free consultation regarding contracting and ethics, please contact us.