Improving Quality Improving Quality through Physician through Physician

Alignment Strategies Alignment Strategies Legal and Valuation IssuesLegal and Valuation Issues

INTRODUCTIONINTRODUCTION

Partner at Davis Wright TremainePartner at Davis Wright TremaineA health law and life sciences attorney Represents hospitals, long-term care facilities, medical groupsCounsels clients on transactional and regulatory matters Lead attorney for providers and affiliated entities in transactions requiring strategic business planning and regulatory complianceExpertise in hospital-physician joint ventures and other physician alignment transactions, accountable care and bundled payment arrangements, RHIO/HIE formation, and long-term care facility sales, acquisitions and leasing arrangements

Jill Gordon, JD, MHAJill Gordon, JD, MHA

Partner at VMG Health, a healthcare valuation and Partner at VMG Health, a healthcare valuation and consulting firmconsulting firmLeads Professional Service Agreements DivisionLeads Professional Service Agreements DivisionPreviously with KPMGPreviously with KPMG’’s litigation departments litigation departmentFormer Finance professor from the University of North Former Finance professor from the University of North TexasTexasPublished and presented multiple times related to Published and presented multiple times related to physician compensation and fair market valuephysician compensation and fair market value

Jen Johnson, CFAJen Johnson, CFA

OVERVIEWOVERVIEW

Presentation OverviewPresentation Overview

PHYSICIAN ALIGNMENT TRENDSPHYSICIAN ALIGNMENT TRENDS

Why the Growth in Physician Alignment?Association of American Medical Colleges work force projections indicate

the U.S. will have a shortage of 91,500 physicians by 2020.

Physician Service AgreementsMay be a result of joint ventures, acquisitions, employment or independent

contractor arrangements

*May have a P4P component

Quality Payments Overview

Late 2003Late 2003CMS and Premier Inc. launched the Hospital Quality CMS and Premier Inc. launched the Hospital Quality

Incentive Demonstration (HQID) for over 250 Incentive Demonstration (HQID) for over 250 hospitalshospitals

Offering financial incentives to improve the quality of Offering financial incentives to improve the quality of health carehealth careIncludes financial incentives for the top 20% of hospitals. Includes financial incentives for the top 20% of hospitals. Raised overall quality by an average of 17% over its first Raised overall quality by an average of 17% over its first four years with total payments in excess of $36.6 million. four years with total payments in excess of $36.6 million. Majority of hospitals improved their quality of care across Majority of hospitals improved their quality of care across the board with respect to reliable use of scientifically the board with respect to reliable use of scientifically based practicesbased practices

Results of Quality IncentivesResults of Quality Incentives

20082008Robert Wood Johnson Foundation and California Robert Wood Johnson Foundation and California

HealthCare Foundation reported results of a national HealthCare Foundation reported results of a national program that tested the use of financial incentives to program that tested the use of financial incentives to improve the quality of health care. Tested seven improve the quality of health care. Tested seven projects across the nation that adjusted compensation projects across the nation that adjusted compensation based on performance scores based on performance scores –– hospitals and hospitals and physicians. Notable findings:physicians. Notable findings:

Financial incentives motivate changeFinancial incentives motivate changeAlignment with physicians is a critical activity for quality Alignment with physicians is a critical activity for quality outcomesoutcomesPublic reporting is a strong catalyst for providers to Public reporting is a strong catalyst for providers to improve careimprove care

Results of Quality IncentivesResults of Quality Incentives

February 2012February 2012Committee on Ways and MeansCommittee on Ways and Means

UnitedHealth Group discusses results of its Premium UnitedHealth Group discusses results of its Premium Designation Program (PD)Designation Program (PD)Results show over 50% decrease in some complication Results show over 50% decrease in some complication rates and 14% in savings for PD physiciansrates and 14% in savings for PD physicians

Less favorable findings and why Less favorable findings and why –– how to prevent later in how to prevent later in presentationpresentation

Results of Quality IncentivesResults of Quality Incentives

Gainsharing Payments Overview

UnitedHealth Group UnitedHealth Group –– largest US health insurer by saleslargest US health insurer by salesCurrently paying 21 different specialties based on qualityCurrently paying 21 different specialties based on qualityExpect to save twice as much than the quality payments due to heExpect to save twice as much than the quality payments due to healthier althier patientspatients

WellPoint WellPoint –– largest US health insurer by membershiplargest US health insurer by membershipWill increase primary care physician pay by 10%Will increase primary care physician pay by 10%Additional cost savings bonus of 20% to 30% of savings achievedAdditional cost savings bonus of 20% to 30% of savings achievedTotal P4P increase could be as much as 50%Total P4P increase could be as much as 50%

Aetna Aetna –– 30% of its primary care physicians are already eligible for 30% of its primary care physicians are already eligible for P4PP4P

New payments expected to increase physician reimbursement by 15New payments expected to increase physician reimbursement by 15%%Program spreading quicklyProgram spreading quickly

Tennessee Surgical Quality Collaborative Tennessee Surgical Quality Collaborative 10 hospitals experienced significant improved surgical outcomes10 hospitals experienced significant improved surgical outcomesMillions in cost savings Millions in cost savings -- $2.2 million per 10,000 surgery cases$2.2 million per 10,000 surgery cases

OhioOhio’’s Medicaid Program s Medicaid Program –– P4P component will be included when it P4P component will be included when it rebids contracts for 2013rebids contracts for 2013ACOs and Bundled PaymentsACOs and Bundled Payments

P4P P4P -- In The NewsIn The News

Compensation component tied to improved quality and/or cost saviCompensation component tied to improved quality and/or cost savingsngs

Portion of compensation may be at risk and/or bonus over base paPortion of compensation may be at risk and/or bonus over base pay y

associated with:associated with:

Clinical Compensation Clinical Compensation

OnOn--Call Payments Call Payments

Administrative Payments Administrative Payments

CoCo--Management ArrangementsManagement Arrangements

Fixed Fee Fixed Fee

Variable FeeVariable Fee

P4P P4P –– Part of Many AgreementsPart of Many Agreements

REGULATORY GUIDANCE & REGULATORY GUIDANCE &

STRUCTURING AGREEMENTSSTRUCTURING AGREEMENTS

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Contractual commitment providing for payment of Contractual commitment providing for payment of financial incentives to physicians who are in a financial incentives to physicians who are in a position to make decisions about ordering hospital position to make decisions about ordering hospital and other clinical servicesand other clinical services

Quick Review: Pay for Performance / GainsharingQuick Review: Pay for Performance / Gainsharing

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Primarily focused on meeting metrics based Primarily focused on meeting metrics based around around quality, patient satisfaction, good quality, patient satisfaction, good citizenship and participationcitizenship and participation

Pay for PerformancePay for Performance

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Hospital pays percentage of resulting savings to Hospital pays percentage of resulting savings to physiciansphysicians

Product substitution Product substitution -- routine use of less costly routine use of less costly agents, medications, etc.agents, medications, etc.Product standardization Product standardization -- routine use of specified routine use of specified devices and supplies, e.g., stents, catheters, devices and supplies, e.g., stents, catheters, diagnostic devices, contrast agents, etc.diagnostic devices, contrast agents, etc.Elimination of routine use of specified products or Elimination of routine use of specified products or services (services (““use as neededuse as needed””))

GainsharingGainsharing

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The federal Civil Money Penalties statute (CMP) The federal Civil Money Penalties statute (CMP) generally prohibits compensation to physicians generally prohibits compensation to physicians from a hospital to induce them to reduce or limit from a hospital to induce them to reduce or limit services to Medicare or Medicaid beneficiariesservices to Medicare or Medicaid beneficiaries

42 U.S.C. 42 U.S.C. §§1320a1320a--7a7a

Civil Money Penalties StatuteCivil Money Penalties Statute

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See OIG letter dated August 18, 1999 See OIG letter dated August 18, 1999 ––Beneficiaries who Beneficiaries who ““share in savings through increased benefits share in savings through increased benefits under a Medicare managed care planunder a Medicare managed care plan””

vs. vs.

FFS beneficiaries who incur FFS beneficiaries who incur ““substantial additional financial substantial additional financial obligations in exchange for unfettered access to physicians of obligations in exchange for unfettered access to physicians of their choicetheir choice””

CMP Law Applies Only to FFS Medicare & CMP Law Applies Only to FFS Medicare & MedicaidMedicaid

((for managed care arrangements, see the PIP rules)for managed care arrangements, see the PIP rules)

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Apply to any financial arrangement between a Apply to any financial arrangement between a physician and a hospital for which no exception physician and a hospital for which no exception appliesapplies

42 U.S.C. 42 U.S.C. §§13951395

Stark and State SelfStark and State Self--Referral LawsReferral Laws

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Stark and State SelfStark and State Self--Referral LawsReferral Laws

•Examples of existing Stark exceptions•employment•personal services•fair market value•academic medical centers•indirect compensation•prepaid plans•risk sharing

(42 C.F.R. §§411.355 and 411.357)

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CMS Action on Gainsharing/P4P CMS Action on Gainsharing/P4P Proposed Stark Law Exception July 7, 2008Proposed Stark Law Exception July 7, 2008

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OIG proceeded to issue a series of Advisory Opinions OIG proceeded to issue a series of Advisory Opinions approving a variety of gainsharing arrangements focused approving a variety of gainsharing arrangements focused on specialty practices (primarily cardiology) on specialty practices (primarily cardiology) –– while each while each arrangement was deemed to technically violate the CMP arrangement was deemed to technically violate the CMP law, they included sufficient safeguards:law, they included sufficient safeguards:TransparencyTransparency. The program mechanics permitted clear identification of . The program mechanics permitted clear identification of specific costspecific cost--saving measures and resulting savings, and in each instance, thesaving measures and resulting savings, and in each instance, the hospital and physicians shared equally in identified savings as hospital and physicians shared equally in identified savings as compared to compared to historical practices.historical practices.

Credible Medical SupportCredible Medical Support. The parties offered credible medical support to . The parties offered credible medical support to demonstrate that the arrangement would not adversely impact clindemonstrate that the arrangement would not adversely impact clinical care. ical care. Promised periodic updates of the review were also important.Promised periodic updates of the review were also important.

Approved Gainsharing ProgramsApproved Gainsharing Programs

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Uniform Application Subject to Federal CapUniform Application Subject to Federal Cap. The measure for savings . The measure for savings included all surgeries, regardless of patientsincluded all surgeries, regardless of patients’’ insurance coverage. In insurance coverage. In addition, the programs excluded shared cost savings to the extenaddition, the programs excluded shared cost savings to the extent that t that procedures payable by the Medicare and Medicaid programs in the procedures payable by the Medicare and Medicaid programs in the measured year exceeded the volume of like procedures performed dmeasured year exceeded the volume of like procedures performed during uring the base year. The measurement of savings was made by referencethe base year. The measurement of savings was made by reference to to actual acquisition costs rather than an abstract accounting formactual acquisition costs rather than an abstract accounting formulation.ulation.

Protection against Inappropriate ReductionsProtection against Inappropriate Reductions. The programs used objective . The programs used objective historic and clinical measures to establish baselines beyond whihistoric and clinical measures to establish baselines beyond which no ch no savings would accrue to the physicians, thereby removing the incsavings would accrue to the physicians, thereby removing the incentive to entive to implement costimplement cost--saving measures where inappropriate.saving measures where inappropriate.

Written DisclosureWritten Disclosure. The hospital and physicians would make written . The hospital and physicians would make written disclosure of the arrangement to patients before their admissiondisclosure of the arrangement to patients before their admission to the to the hospital. Where impracticable prior to admission, the parties whospital. Where impracticable prior to admission, the parties would make ould make disclosure prior to obtaining surgical consent.disclosure prior to obtaining surgical consent.

Gainsharing ArrangementsGainsharing Arrangements

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Reasonableness in AmountReasonableness in Amount. The financial incentives were deemed . The financial incentives were deemed reasonable in amount and duration.reasonable in amount and duration.

Per Capita Distribution of ProfitsPer Capita Distribution of Profits. In each case, the contracting physician . In each case, the contracting physician group agreed to distribute profits from the arrangement on a pergroup agreed to distribute profits from the arrangement on a per capita capita basis. As a result, no single physician was incentivized by perbasis. As a result, no single physician was incentivized by personal sonal productivity to seek excessive remuneration from the Program.productivity to seek excessive remuneration from the Program.

Gainsharing ArrangementsGainsharing Arrangements

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The OIG also described characteristics of inappropriate The OIG also described characteristics of inappropriate limitations on services that would subject parties to limitations on services that would subject parties to prosecution:prosecution:No Demonstrated ConnectionNo Demonstrated Connection. Programs with no demonstrable connection . Programs with no demonstrable connection

between compensable physician conduct and the reduction in hospibetween compensable physician conduct and the reduction in hospital outtal out--ofof--pocket costs.pocket costs.

Lack of Specific RequirementsLack of Specific Requirements. Overly general descriptions of individual . Overly general descriptions of individual physician actions.physician actions.

Insufficient SafeguardsInsufficient Safeguards. Programs containing insufficient safeguards against . Programs containing insufficient safeguards against the probability that other hospital actions, rather than those othe probability that other hospital actions, rather than those of the physicians, f the physicians, would account for savings.would account for savings.

Gainsharing ArrangementsGainsharing Arrangements

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Dubious Quality IndicatorsDubious Quality Indicators. Programs relying on quality of care indicators of . Programs relying on quality of care indicators of dubious validity and significance.dubious validity and significance.

Lack of Independent OversightLack of Independent Oversight. Programs that lack independent verification . Programs that lack independent verification of cost savings, quality of care indicators or other essential aof cost savings, quality of care indicators or other essential aspects of the spects of the arrangement.arrangement.

Gainsharing ArrangementsGainsharing Arrangements

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Payments to physicians and others that are Payments to physicians and others that are intended to induce, or that relate to the volume or intended to induce, or that relate to the volume or value of, patient referrals or generation of value of, patient referrals or generation of business to the hospitalbusiness to the hospital

42 U.S.C. 42 U.S.C. §§1320a1320a--7b(b)7b(b)

AntiAnti--Kickback StatuteKickback Statute

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Failure to meet a safe harbor does not mean that the Failure to meet a safe harbor does not mean that the payment is necessarily illegalpayment is necessarily illegal

Existing federal antiExisting federal anti--kickback safe harborskickback safe harborsmanaged caremanaged careemploymentemploymentpersonal servicespersonal services

42 C.F.R. 42 C.F.R. §§1001.9521001.952

AntiAnti--Kickback Safe HarborsKickback Safe Harbors

VALUATION ISSUES & VALUATION ISSUES &

FAIR MARKET VALUATION GUIDELINESFAIR MARKET VALUATION GUIDELINES

1.1. Agreement terms must be understood and are Agreement terms must be understood and are sometimes unclear at valuation stage, define:sometimes unclear at valuation stage, define:1.1. What services will be provided?What services will be provided?2.2. How parties will be compensated?How parties will be compensated?3.3. Valuation should match the agreement Valuation should match the agreement –– may require may require

several valuations for one agreementseveral valuations for one agreement

2.2. Commercially ReasonableCommercially Reasonable1.1. Facility needs Facility needs –– check for overlap of services (numerous check for overlap of services (numerous

medical directors needed)medical directors needed)2.2. Operational assessment (quality metrics relevant for patient Operational assessment (quality metrics relevant for patient

population)population)

3.3. Understand total hours (reasoUnderstand total hours (reasonable)nable)

Valuation Starting PointValuation Starting Point

3. Understand there are no published standards for 3. Understand there are no published standards for

physician compensation valuationsphysician compensation valuations

Appraisal firm should understandAppraisal firm should understand

Healthcare regulationsHealthcare regulations

Valuation principles Valuation principles

Regulatory GuidanceRegulatory Guidance

Fair Market ValueFair Market Value

Data considerationsData considerations

Valuation Starting PointValuation Starting Point

Tuomey Case Take-Aways

Based on the anti kickback statute, and other healthcare regulatBased on the anti kickback statute, and other healthcare regulations and guidelines, any ions and guidelines, any

transaction between hospitals and physicians must be at Fair Martransaction between hospitals and physicians must be at Fair Market Value.ket Value.

IRS definition IRS definition -- ““the amount at which property would change hands between a willinthe amount at which property would change hands between a willing seller g seller

and a willing buyer when the former is not under any compulsion and a willing buyer when the former is not under any compulsion to buy and the latter is not to buy and the latter is not

under any compulsion to sell and when both have reasonable knowlunder any compulsion to sell and when both have reasonable knowledge of the relevant edge of the relevant

factsfacts..””

Provides a conclusion which should not reflect consideration forProvides a conclusion which should not reflect consideration for value or volume of value or volume of

referrals.referrals.

Offer equal P4P opportunities to all providersOffer equal P4P opportunities to all providers

Do not tie P4P compensation to expected referralsDo not tie P4P compensation to expected referrals

Rely upon generally accepted valuation theory Rely upon generally accepted valuation theory –– consider multiple valuation methodologies consider multiple valuation methodologies

and approaches: cost, market and income approachand approaches: cost, market and income approach

Fair Market Value DefinitionFair Market Value Definition

It is now likely a combination of several valuations will be reqIt is now likely a combination of several valuations will be required for one uired for one

agreement, choose the right data/analysis to reflect each of theagreement, choose the right data/analysis to reflect each of the servicesservices

Multiple, objective surveys suggested Multiple, objective surveys suggested –– thorough approachthorough approach

Data should not reflect referral relationships Data should not reflect referral relationships

Medical Director dataMedical Director data

OnOn--Call dataCall data

Competing Hospitals Competing Hospitals –– Extra CautionExtra Caution

P4P comparables P4P comparables

Stick to regulatory guidance when it comes to paying for qualityStick to regulatory guidance when it comes to paying for quality or gainsharingor gainsharing

Governmental programs and third party payors are good market comGovernmental programs and third party payors are good market comparablesparables

FMV FMV -- Data/Analysis ConsiderationsData/Analysis Considerations

Regulatory Guidance - Quality

Each member of the physician group should have medical staff privileges The arrangement should be administered by a program administrator, whose compensation was not tied in any way to theincentive compensation.

A program administrator should identify cost-savings metrics after reviewing historical practices and understanding its medical appropriateness.The savings targets should be “re-based” at the end of each year in multi-year arrangements.The hospital should calculate the cost savings separately for each group and for each cost savings recommendation.

Engage an independent reviewer or auditor to review the program prior to commencement and at least once per year.The arrangement should include objective measures to monitor quality (i.e., CMS Specification Manual for National Hospital Quality Measures).Incentive payments should be set at FMV

Regulatory Guidance Regulatory Guidance -- GainsharingGainsharing

Clinical Compensation for Personally Performed Services Clinical Compensation for Personally Performed Services

Quality or costs savings measures tracked by physician Quality or costs savings measures tracked by physician

Often a percentage of base compensation is awarded for superior Often a percentage of base compensation is awarded for superior outcomesoutcomes

OnOn--Call Payments Call Payments

Physicians tasked with improving quality for hospital and/or praPhysicians tasked with improving quality for hospital and/or practicectice

Portion of payment at risk based on quality outcomesPortion of payment at risk based on quality outcomes

May utilize low end of FMV stipend for coverage and high end if May utilize low end of FMV stipend for coverage and high end if superior quality is superior quality is

achievedachieved

Administrative Payments Administrative Payments

Physicians tasked with improving quality for hospitalPhysicians tasked with improving quality for hospital

May utilize low end of FMV hourly rate for time and high end if May utilize low end of FMV hourly rate for time and high end if superior quality is superior quality is

achievedachieved

P4P Included in Various AgreementsP4P Included in Various Agreements

Hospital and physicians enter into an agreement where physiciansHospital and physicians enter into an agreement where physicians are are

jointly responsible with hospital for managing a defined servicejointly responsible with hospital for managing a defined service lineline

Various arrangement types exist in the marketVarious arrangement types exist in the market

Joint VenturesJoint Ventures

Contractual arrangementsContractual arrangements

Payments contained in the agreement Payments contained in the agreement

Will vary based on services outlined Will vary based on services outlined

Should be linked to actual services and/or outcomesShould be linked to actual services and/or outcomes

CoCo--Management Management -- The BasicsThe Basics

Fixed Fee + Variable Fee = Co-Management Fee Structure

Physician service related payments are justified by need for cliPhysician service related payments are justified by need for clinical nical

expertiseexpertise

Time dedicated to meetings designed to improve the overall qualiTime dedicated to meetings designed to improve the overall quality of care ty of care

for a specific service line. for a specific service line.

May also includeMay also include

Medical Directorship Medical Directorship

NonNon--physician services physician services

BillingBilling

Management/administrationManagement/administration

Call coverageCall coverage

The duties must not overlap with hospital staffThe duties must not overlap with hospital staff

Fixed Fee OverviewFixed Fee Overview

Quality outcomes drive payments Quality outcomes drive payments -- create payment tiers create payment tiers for incentives based on various outcomes for incentives based on various outcomes Improvement and superior outcomes may warrant Improvement and superior outcomes may warrant incentive paymentincentive paymentObtain industryObtain industry--recognized benchmark data for the quality metrics, recognized benchmark data for the quality metrics, (average or median and top or 90th percentile) (average or median and top or 90th percentile)

Understand historical performance and who is responsible for Understand historical performance and who is responsible for developing and implementing the strategy developing and implementing the strategy

Cost savings metricsCost savings metricsAdministrative oversight to protect quality is essentialAdministrative oversight to protect quality is essential

Measurement must be tied to physicianMeasurement must be tied to physician’’s inputs input

Variable Fee OverviewVariable Fee Overview

Common service lines: orthopedic surgery, cardiology, Common service lines: orthopedic surgery, cardiology, ASC ASC -->HOPD>HOPD

Patient satisfactionPatient satisfactionInfection RatesInfection RatesReadmissionReadmissionMortalityMortalityNew metrics continually being addedNew metrics continually being added

Challenges with certain service lines, less data: Challenges with certain service lines, less data: oncology, imaging, ASCsoncology, imaging, ASCs

Look to current reporting measuresLook to current reporting measuresTrack what credible organizations are measuringTrack what credible organizations are measuringIdentify metrics third party payors are measuringIdentify metrics third party payors are measuringCMS metrics CMS metrics

Quality MetricsQuality Metrics

Must include stringent quality controlsMust include stringent quality controlsCost savings must be linked directly to a specific Cost savings must be linked directly to a specific expense or activityexpense or activityAdministrative oversight critical Administrative oversight critical Lack of strong guidance on determining FMV for these Lack of strong guidance on determining FMV for these paymentspayments

OIG opinions OIG opinions –– 50%50%Demonstration Projects Demonstration Projects –– Capped at 25% of Part B paymentCapped at 25% of Part B paymentss

Valuation and Gainsharing HighlightsValuation and Gainsharing Highlights

ACOS, BUNDLED PAYMENTS & BEYONDACOS, BUNDLED PAYMENTS & BEYOND

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Interim Final Rule (IFC) includes 5 waivers:Interim Final Rule (IFC) includes 5 waivers:An An ““ACO preACO pre--participationparticipation”” waiver that applies to ACOwaiver that applies to ACO--related startrelated start--up arrangementsup arrangementsAn An ““ACO participationACO participation”” waiver that applies during the waiver that applies during the period when the entity is actively participating in the period when the entity is actively participating in the Shared Savings Program and for a limited time thereafterShared Savings Program and for a limited time thereafterA A ““patient incentivepatient incentive”” waiver for in kind incentives offered by waiver for in kind incentives offered by ACOs to beneficiaries to encourage preventive care and ACOs to beneficiaries to encourage preventive care and compliance with treatment regimenscompliance with treatment regimensA A ““shared savings distributionshared savings distribution”” waiver waiver A A ““compliance with Stark Lawcompliance with Stark Law”” waiverwaiver

ACOs: Fraud & Abuse WaiversACOs: Fraud & Abuse Waivers

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Arrangement must relate to Shared Savings Arrangement must relate to Shared Savings Program but arrangements that involve care to both Program but arrangements that involve care to both Medicare and non Medicare patients are eligible for Medicare and non Medicare patients are eligible for waiverwaiver

Arrangements adopted must meet specific Arrangements adopted must meet specific transparency requirementstransparency requirements

Waivers apply to arrangements with outside Waivers apply to arrangements with outside providers if related to the ACOs operationsproviders if related to the ACOs operations

Scope of WaiversScope of Waivers

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The Stark law, antiThe Stark law, anti--kickback statute and gainsharing kickback statute and gainsharing CMP are waived with respect to distributions of shared CMP are waived with respect to distributions of shared savings earned by an ACO, provided:savings earned by an ACO, provided:

The ACO has entered into a participation agreement and The ACO has entered into a participation agreement and remains in good standing under the Shared Savings Programremains in good standing under the Shared Savings Program

The shared savings are earned by the ACO pursuant to the The shared savings are earned by the ACO pursuant to the Shared Savings ProgramShared Savings Program

The shared savings are earned by the ACO during the term of its The shared savings are earned by the ACO during the term of its participation agreement, even if the distribution or use of the participation agreement, even if the distribution or use of the shared savings occurs after expiration of the agreementshared savings occurs after expiration of the agreement

Shared Savings Distribution WaiverShared Savings Distribution Waiver

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The shared savings are either distributed among ACO The shared savings are either distributed among ACO participants, ACO provided/suppliers or used for activities thatparticipants, ACO provided/suppliers or used for activities thatare reasonably related to the purposes of the Shared Savings are reasonably related to the purposes of the Shared Savings ProgramProgram

With respect to the gainsharing CMP waiver, the shared With respect to the gainsharing CMP waiver, the shared savings distributions made directly or indirectly from a hospitasavings distributions made directly or indirectly from a hospital l to a physician may not be knowingly made to reduce or limit to a physician may not be knowingly made to reduce or limit medically necessary care to patients under the direct care of medically necessary care to patients under the direct care of the physician.the physician.

The IFC clarifies that payments to encourage best The IFC clarifies that payments to encourage best practices or compliance with clinical protocols are not practices or compliance with clinical protocols are not prohibited by this provisionprohibited by this provision

Shared Savings Distribution WaiverShared Savings Distribution Waiver

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The gainsharing CMP and the antiThe gainsharing CMP and the anti--kickback statute are kickback statute are waived with respect to any financial relationship among waived with respect to any financial relationship among the ACO, its participants, and its ACO the ACO, its participants, and its ACO providers/suppliers that implicates the Stark law, providers/suppliers that implicates the Stark law, provided:provided:

The ACO has entered into a participation agreement and The ACO has entered into a participation agreement and remains in good standing under the Shared Savings remains in good standing under the Shared Savings ProgramProgram

The financial relationship is reasonably related to the The financial relationship is reasonably related to the purposes of the Shared Savings Programpurposes of the Shared Savings Program

The financial relationship fits within an exception to the The financial relationship fits within an exception to the Stark lawStark law

Compliance With Stark Law WaiverCompliance With Stark Law Waiver

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Historically CMS and OIG have maintained that Historically CMS and OIG have maintained that the Stark law, antithe Stark law, anti--kickback statute and CMP law kickback statute and CMP law were all separate were all separate

Compliance with one did not affect whether the Compliance with one did not affect whether the arrangement complied with anotherarrangement complied with another–– the Stark the Stark ACO Waiver is a significant departure from this ACO Waiver is a significant departure from this historical positionhistorical position

Existing Stark exceptionsExisting Stark exceptions------ employment, FMV employment, FMV arrangements, EHR donations, risk sharing . . .arrangements, EHR donations, risk sharing . . .

ACO Waiver: StarkACO Waiver: Stark

Health PlanHealth Plan

Hospital or Group/IPAHospital or Group/IPA

Optional package services(rehab or other)

Optional package services(rehab or other)

Other MDs, PTOther MDs, PT

New contractNew contract New contractNew contract

New contractNew contract

Contract amendment ‐

outlines terms

Contract amendment ‐

outlines terms

Surgeon 

Group/IPA or 

Hospital

Surgeon 

Group/IPA or 

Hospital

Contract amendment ‐

look to 

hospital for payment

Contract amendment ‐

look to 

hospital for payment

54

Bundled PaymentsBundled Payments

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Program Limited to Commercial EnrolleesProgram Limited to Commercial Enrollees––But can use single structure for all commercial and But can use single structure for all commercial and selfself--paypay

Can be implemented by hospital and physicians without Can be implemented by hospital and physicians without payor cooperationpayor cooperation––Lots of flexibility on incentives, terms, structureLots of flexibility on incentives, terms, structureProblem: Potential spill over effect for Problem: Potential spill over effect for Medicare/Medicaid business?Medicare/Medicaid business?Problem: Medicare Secondary Payor issues?Problem: Medicare Secondary Payor issues?Problem: Swapping?Problem: Swapping?

Commercial Bundled Payment Model: Commercial Bundled Payment Model: A Work Around?A Work Around?

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AntiAnti--kickback Statutekickback StatuteNo Medicare/Medicaid fee for service No Medicare/Medicaid fee for service Theoretically some risk of a Theoretically some risk of a ““pull throughpull through”” claim, but claim, but this is a bad case to try the theorythis is a bad case to try the theoryCan minimize exposure by adopting some of the OIG Can minimize exposure by adopting some of the OIG advisory opinion safeguardsadvisory opinion safeguards

Gainsharing CMPGainsharing CMPInapplicable b/c no Medicare/MedicaidInapplicable b/c no Medicare/MedicaidSpill over effect?Spill over effect?

Stark Stark -- ????

Legal Constraints?Legal Constraints?

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Compensation pursuant to a riskCompensation pursuant to a risk--sharing arrangement sharing arrangement (including, but not limited to, withholds, bonuses, and risk (including, but not limited to, withholds, bonuses, and risk pools) between a managed care organization or an pools) between a managed care organization or an independent physicians' association and a physician (either independent physicians' association and a physician (either directly or indirectly through a subcontractor) for services directly or indirectly through a subcontractor) for services provided to enrollees of a health planprovided to enrollees of a health plan……

Enrollee is an individual who has entered into a contractual Enrollee is an individual who has entered into a contractual relationship with a health plan . . .relationship with a health plan . . .

Health plan means an entity that furnishes or arranges under Health plan means an entity that furnishes or arranges under agreement with contract health care providers for the agreement with contract health care providers for the furnishing of items or services to enrollees . . .furnishing of items or services to enrollees . . .

Stark Risk Sharing ExceptionStark Risk Sharing Exception

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CMS Commentary:CMS Commentary:

The new exception is meant to cover all riskThe new exception is meant to cover all risk--sharing sharing compensation paid to physicians by an entity downstream compensation paid to physicians by an entity downstream of any type of health plan, insurance company, HMO, or of any type of health plan, insurance company, HMO, or Independent Practice Association (IPA), provided the Independent Practice Association (IPA), provided the arrangement relates to enrollees and meets the arrangement relates to enrollees and meets the conditions set forth in the exception. All downstream conditions set forth in the exception. All downstream entities are included. entities are included. We purposefully declined to define We purposefully declined to define the term the term ‘‘‘‘managed care organizationmanaged care organization’’’’ so as to create a so as to create a broad exception with maximum flexibility. broad exception with maximum flexibility.

CMS Broadly Interprets ExceptionCMS Broadly Interprets Exception

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Hospital is at risk for fixed hospital payment from Hospital is at risk for fixed hospital payment from planplanHospital is downstream of plan (downstream Hospital is downstream of plan (downstream contractor)contractor)Hospital is managing hospital care (MCO itself)Hospital is managing hospital care (MCO itself)Hospital is sharing risk of its payment with Hospital is sharing risk of its payment with physician for care to plan enrolleephysician for care to plan enrolleePayment is a covered bonusPayment is a covered bonus

Stark Analysis for Commercial Bundled Stark Analysis for Commercial Bundled Payment ModelPayment Model

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CMMI Bundled Payments for Care Improvement CMMI Bundled Payments for Care Improvement InitiativeInitiativeModel 4:Model 4:

This model contemplates This model contemplates prospectiveprospective payment for an inpatient payment for an inpatient staystayPayment of a single fixed amount for all services by all providePayment of a single fixed amount for all services by all providers rs during the stayduring the stayHospital (or some designee) pays physicians and all other Hospital (or some designee) pays physicians and all other providers out of the bundled payment and providers submit "no providers out of the bundled payment and providers submit "no pay" claims to Medicare for recordpay" claims to Medicare for record--keeping purposeskeeping purposesMinimum discount to CMS Minimum discount to CMS -- 3% of projected total costs for the 3% of projected total costs for the episode of careepisode of care

Gainsharing Waiver Gainsharing Waiver –– to be definedto be defined

Gainsharing Under the CMMI InitiativeGainsharing Under the CMMI Initiative

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Payment by a hospital to a physician?Payment by a hospital to a physician?Possibly (or actually) implicates clinical decisions? Possibly (or actually) implicates clinical decisions? Medicare or Medicaid FFS primary or secondary patients?Medicare or Medicaid FFS primary or secondary patients?Payment could induce a physician to limit or restrict Payment could induce a physician to limit or restrict services?services?

If yes to all of the above, potential CMP issue If yes to all of the above, potential CMP issue –– can can the payment be awarded based only on quality, the payment be awarded based only on quality, patient satisfaction, citizenship, etc. factors? Can patient satisfaction, citizenship, etc. factors? Can the payment or services be structured to carve out the payment or services be structured to carve out the Medicare/Medicaid FFS patients (be mindful of the Medicare/Medicaid FFS patients (be mindful of possible discrimination issues)?possible discrimination issues)?Once that is solved, move on to Stark, and then Once that is solved, move on to Stark, and then AKS. . .AKS. . .

Quick and DirtyQuick and Dirty

Jen Johnson, CFAJen Johnson, CFAjenj@vmghealth.com 214.369.4888

Jill GordonJill Gordonjillgordon@dwt.com213.633.6875

Questions?