Public Policy Supply of Medical Services

Legal Barriers to ACO implementation

Accountable Care Organizations (ACOs) are the latest rage in health policy circles.  Health reform legislation will allow for federal health agencies to create waiver programs to allow for the creation of ACOs.  For ACOs to actually come to fruition, the waivers must take into account existing laws which currently greatly limit the scope under which ACOs could operate.  These statutes include restrictions on:

  • Incentives to Reduce Care: The statute 42 U.S.C. 1320a–7a(b) states that a hospital or critical access hospital may not knowingly make a payment, directly or indirectly to a physician as an inducement to reduce or limit services provided to a Medicare or Medicaid beneficiary under the direct care of the physician.
  • Beneficiary Compensation:  Persons may not provide remuneration to a Medicare or Medicaid beneficiary where the person knows or should know that the remuneration is likely to influence the beneficiary to order or receive a service from a particular provider, practitioner or supplier where the item may be covered in whole or in part under the Medicare or Medicaid program See 42 U.S.C. 1320a–7a(a)(5).
  • Certain Referrals.  According to the Stark Law, a physician may not refer Medicare patients for certain designated health services to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies. An entity receiving a prohibited referral may not bill the Medicare program for the resulting items and services.  See 42 U.S.C. 1395nn.
  • Physician Kickbacks.  According to the Anti-Kickback Statute, 42 U.S.C. 1320a–7b(b)(1) and (2). Persons may not knowingly offer or receive, directly or indirectly, overtly or covertly, in cash or in kind, any remuneration to induce or influence the furnishing, arrangement, purchase, leasing, or ordering of items or services for which payment may be made in whole or in part under a federal healthcare program.
  • Balance Billing.  As outlined in 42 U.S.C.1320a-7a(a)(2), Medicare will directly pay the fee schedule amount for the services, and the beneficiary will be responsible for paying the coinsurance and any remaining deductible. Collectively, the fee schedule payment and coinsurance/deductible are referred to as the “allowed amount.” By accepting assignment, the provider agrees to accept the “allowed amount” as “payment in full” for the services.

How would Medicare get around these legal restrictions?  An article by the American Health Lawyers Association outlines some waiver options which would be useful to get around these restrictions to create a viable system of ACOs.  Eliminating all these restrictions, however, may not be desirable.  I generally support allowing Medicare providers to balance bill patients.  Allowing for physician “kickbacks,” can also be useful to incentivize physicians to select the best and/or most cost effective treatment option.   The incentive structure, if not properly constructive, can increase the amount of bias in physician diagnosis and treatment decisions.

Source: Douglas A. Hastings, Robert G. Homchick, Peter M. Leibold, Arthur N. Lerner, Beth Schermer, Lisa D. Vandecaveye. Waivers Under the Medicare Shared Savings Program: An Outline of the Options. American Health Lawyers Association, October 28, 2010.


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