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COVINGTON & BURLING LLP

discourage participation. Therefore, the ACA added Section 1899(f) to the Social Security Act, which authorizes the Secretary to waive the application of the Physician Self-Referral Law, the federal Anti- Kickback Statute, and civil monetary penalties law provisions to certain ACO-related financial arrangements.

In order to qualify for these waivers, ACOs must have an agreement with CMS to participate in the Program and must comply with the agreement and all other applicable laws and regulations (including transparency, reporting and monitoring requirements). Arrangements that do not qualify for a waiver but are otherwise legal will remain legal. The waivers apply to qualifying distributions of payments earned under the Program and to qualifying payments made during the duration of the ACO agreement with CMS.

B. Waiver of Physician Self-Referral Law

The physician self-referral law prevents physicians from referring a patient to receive services reimbursed by Medicare, Medicaid, or another government health program from an entity in which the physician or an immediate family member holds a financial interest. The proposed waiver would permit distributions of shared savings received by the ACO under the Program: (1) to participants/providers/suppliers in the ACO at the time of payment or during the year in which the shared savings were earned; and (2) for activities necessary for and directly related to the Program.

C. Waiver of Federal Anti-Kickback Statute

The federal Anti-Kickback Statute prohibits providing or receiving remuneration in exchange for the purchase of, or referrals relating to, items or services that will be reimbursed by Medicare, Medicaid, or another government health program. The proposed waiver would permit payments under one of two scenarios. First, it would permit an ACO to distribute shared savings received under the Program: (1) to participants/providers/suppliers in the ACO at the time of payment or during the year in which the shared savings were earned; and (2) for activities necessary for and directly related to the Program. Second, it would permit any financial relationship between members of an ACO necessary for and directly related to the ACO’s participation in the Program “only if the relationship implicates the Physician Self-Referral Law and fits squarely in an exception.”

D. Waiver of Prohibition on Hospital Payments to Physicians to Reduce/Limit Services

Under federal law, hospitals generally may not make payments to physicians for the purpose of inducing them to reduce or limit items or services to be paid for by Medicare. The proposed waiver would permit such payments in one of two scenarios. First, a hospital may make a distribution of shared savings under the Program to a physician, so long as: (1) the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services; and (2) the hospital and physician are in the ACO at the time of payment or during the year in which the shared savings were earned. Second, a hospital may make payments to a physician so long as both are members of the ACO and the payments are necessary for and directly related to the ACO’s participation in the Program “that implicates the Physician Self-Referral Law and fully complies with an exception [to the Law].”

E. Solicitation of Public Comments

HHS is accepting public comments on the notice until May 31, 2011. Comments may be submitted online at http://www.regulations.gov, by regular or overnight mail, or by delivery. In addition to comments on the above proposals, HHS invites comments on: payments related to establishing an

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