Today, led by Chief Justice John Roberts, the Supreme Court upheld the constitutionality of the Affordable Care Act in almost all respects. While upholding the controversial individual mandate to purchase health insurance, the Court did alter one important aspect of the law, however, in that it limited the government’s ability to withhold all Medicaid funds from a state contingent on the states’ acceptance of the significant Medicaid expansion called for under the Act. Under the Court’s ruling, a state must be allowed to opt out of the Medicaid expansion without threatening the state’s current Medicaid coverage and federal funding. The text of the decision can be found here.
On April 10, 2012, the Centers for Medicare & Medicaid Services (CMS) announced 27 organizations selected to participate in the Medicare Shared Savings Program.
As required by the Affordable Care Act, CMS established the Medicare Shared Savings ACO program. Under this program, ACOs are charged with improving care coordination for Medicare fee-for-service beneficiaries. ACOs that participate in the program have the opportunity to share in Medicare cost savings they achieve. In some circumstances, CMS holds ACOs accountable for failing to achieve cost savings (i.e., by making ACOs partially responsible for costs above established benchmarks).
Additional Medicare Shared Savings Program participants are expected to be announced later this year. For additional information about the program, please refer to the CMS Medicare Shared Savings Program website.
The Centers for Medicare & Medicaid Services (CMS) published the Accountable Care Organization (ACO) final rule in the Federal Register on Wednesday, November 2. CMS also published the notice regarding the ACO “Advance Payment Model” and the interim final rule with comment period regarding fraud and abuse waivers applicable to certain arrangements involving ACOs. The deadline for submitting comments to CMS on the fraud and abuse waiver interim final rule is 5:00 pm on January 3, 2012.
Click here to see Akin Gump’s updated analysis of the ACO final rule, which includes new discussions of the Statement of Antitrust Enforcement Policy jointly issued by the Federal Trade Commission and Antitrust Division of the Department of Justice and the guidance for tax-exempt ACO participants issued by the Internal Revenue Service.
Click here to see Akin Gump’s preliminary analysis of the Medicare Shared Savings Program final rule. We anticipate that the final rule will be published in the Federal Register on November 2nd. In addition, the final rule indicates multiple areas where the Centers for Medicare & Medicaid Services (CMS) anticipates releasing subregulatory guidance. We will provide additional information as it becomes available.
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.”
On March 31, 2011, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule to implement the Medicare Shared Savings Program and Accountable Care Organization (ACO) provisions of the Patient Protection and Affordable Care Act (PPACA). See Medicare Shared Savings Program: Accountable Care Organizations and Medicare Program, 76 Fed. Reg. 19,528 (proposed Apr. 7, 2011) (to be codified at 42 C.F.R. pt. 425). This update provides an overview of how the proposed rule’s data sharing provisions implicate the Health Insurance Portability and Accountability Act (HIPAA) and its implementing regulations. Comments on the rulemaking must be submitted to CMS by June 6, 2011.
Today, April 7, 2011, the Centers for Medicare & Medicaid Services (CMS) published the proposed rule on the Medicare Shared Savings Program/Accountable Care Organizations (ACOs). In addition, CMS and the Office of Inspector General published the notice with comment period regarding waiver designs in connection with the Medicare Shared Savings Program. Both documents are available in today’s Federal Register.
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.