Dallas Bar Association

Legal Obstacles to Care Coordination Remain

by Timothy Martin

CMS recently announced that providers across the country had formed 106 new Accountable Care Organizations (ACOs) under the Affordable Care Act’s (ACA’s) Medicare Shared Savings Program. ACOs allow participating providers to coordinate efforts to improve quality and lower costs. While this may have some beneficial impact on treating non-Medicare patients, many legal obstacles to care coordination in the population at large remain.

These obstacles include structural barriers that prevent providers from forming effective relationships, operational roadblocks that make it difficult for providers to carry out essential tasks, and contractual complexities that impede innovation.

The Institute of Medicine, in its 2001 book Crossing the Quality Chasm, recommended aligning provider incentives by rewarding providers for quality and cost improvements (gainsharing) and by basing payment more on episodes or ranges of care (bundled payment) than on fee-for-service methods.

Both the public and private sectors are experimenting with these payment and incentive systems. The ACA authorized the Bundled Payments for Care Improvement Initiative, the National Pilot Program on Payment Bundling and the Medicaid Bundled Payment Demonstration Project. Some fully integrated delivery systems such as Cox Health System in Missouri, Geisinger Health System in Pennsylvania and Spectrum Health in Michigan have experimented with these ideas.

Structural Issues

Stark prohibitions on physician self-referral, anti-kickback prohibitions on remuneration for patient referral, civil-monetary-penalty prohibitions against reducing medical services, and antitrust law create difficulties for providers who want to form the relationships required to achieve meaningful care coordination. CMS has granted a number of Stark, anti-kickback and civil-monetary-penalty waivers for ACOs, but these waivers apply primarily to treating only Medicare beneficiaries. 76 Fed. Reg. 67,991, Nov. 2, 2011.

In 2011, the Texas Legislature enacted Senate Bill 7, which allows Texas providers to form Health Care Collaboratives (HCCs). The law offers some antitrust protection to HCCs under the Parker doctrine and encourages them to develop ways to collaborate, improve quality, and adopt new payment models. Parker v. Brown, 317 U.S. 341 (1943).

Initially, the Office of the Inspector General (OIG) took a hard stand against gainsharing arrangements. But since then, the OIG has allowed some gainsharing arrangements to go forward so long as they are tied to strict quality standards.

In Texas, the Corporate-Practice-of-Medicine Doctrine prohibits certain transactions between licensed physicians and business entities, although there are some statutory exceptions. Further, risk shifting to providers may trigger state insurance licensure requirements.

Operational Issues

Because the healthcare system has traditionally relied on fee-for-service payment, some laws, such as Texas’s prompt-pay law, rely on a definition of a claim that may be at odds with bundled-payment concepts. For example, the Prometheus bundled-payment system relies on severity adjustments and retrospective reconciliation that may delay payment for an episode of care beyond the limits of the statutory claims-payment period.

Similarly, Texas’s coordination-of-benefits law seems inherently incompatible with bundled payment. That law requires a secondary plan to determine its payment obligation based on the allowable expenses the primary plan did not pay. But if the primary plan is a bundled-payment arrangement, this may be impossible to determine.

Contractual Issues

Bundled-payment arrangements usually involve designating a particular provider, such as a hospital or physician group, as a general contractor in charge of dividing and distributing a lump-sum payment to subcontracting providers. This introduces a number of contractual complexities.

First, the parties must agree on some method that allocates the appropriate payment to subcontractors. This might involve basing payment on the number of visits to each subcontractor, or it may be a more sophisticated methodology based on relative-value units.

Second, any agreement must have dispute-resolution procedures—and payors will usually require that general contractors indemnify them against any disputed payment amounts.

Third, an agreement must define minimum levels of service and quality standards providers must track and meet. That means the agreement should also address any penalties for noncompliance.

Fourth, the providers, and perhaps the payor, must agree on how to adjust payment when beneficiaries receive services from non-participating providers.

And finally, the parties must agree on what happens when a patient changes or loses coverage in the middle of an episode of care.


Legal obstacles to innovation in care coordination persist, but many providers continue to push forward. In this challenging environment, it is imperative that providers carefully consider how they interact with laws based on fee-for-service ideas.

Timothy Martin, Vice President in the B2B and Payor Technologies division of MedAssets, may be reached at tmartin@medassets.com

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