Maintaining Compliance while Compensating Physicians for Quality

and Cost Savings

Alex Higgins, VMG Health Joe Wolfe, Hall Render

Alexandra Higgins – VMG Health Alexandra Higgins is a manager in the Professional Services Agreement Division of VMG Health. She specializes in the valuation of wide variety of agreements and agreement structures for both physician and non-physician service agreements, including: management fees, billing and collection fees, co-management compensation, shared savings arrangements, and other pay-for-performance compensation. Ms. Higgins’ has been involved in consulting and valuation services for hundreds of arrangements related to co-management, pay-for-performance payment models, and shared savings distributions for clinical integration networks. Ms. Higgins received a Bachelor of Science in International Economics, Magna Cum Laude, from Texas Christian University. She has recently been published in HFM Magazine, Health Care Compliance Today, and Becker’s Hospital Review and has recently presented on co-management at a national healthcare conferences. Recent presentations and publications, specific to quality, cost savings, and other pay-for-performance models, include: • Valuation of Clinical Co-Management Arrangements; AICPA Healthcare Industry Conference; November 2015

• Co-Management Models: Trends & Issues; Becker’s 21st Annual Ambulatory Surgery Centers Conference; October 2014

• Evaluating the Fair Market Value of Pay for Performance; Healthcare Finance Management; April 2014

• Is HOPD and Co Management Right for Your Center? Becker’s 20th Annual Ambulatory Surgery Centers Conference; October 2013

• Five Guidelines for a Compliant Shared Savings Arrangement; Compliance Today; January 2013

Alexandra “Alex” Higgins Manager

Contact Information

Phone: +1 972 616 7823

AlexH@VMGHealth.com

Office Address

Chateau Plaza

2515 McKinney Ave., Suite 1500

Dallas, Texas 75201

United States

Joseph N. Wolfe, Esq.– Hall Render Joseph Wolfe is a partner with Hall Render, the largest health care focused law firm in the country, now with offices nationwide. He provides advice and counsel to some of the nation's largest health systems, hospitals and medical groups on a broad range of regulatory, operational and strategic matters. He regularly counsels clients on a national basis regarding compliance-focused physician compensation strategies. He is a frequent speaker on issues related to the physician self-referral statute (Stark Law), hospital-physician transactions, physician compensation and health care valuation issues. Before attending law school at the University of Wisconsin, he served as a combat engineer in the United States Army. Recent and upcoming presentations specific to quality, cost savings, and other pay-for-performance models, include: • Exploring Gainsharing and ACO Compensation Trends: Legal and Operational Issues; AMGA Annual Meeting (March 10,

2016) Orlando, FL.

• Strategies for Developing Compliant Physician Compensation Plans; AMGA Compensation Conference (November 12, 2015) New York, NY.

• Fundamentals of Healthcare Valuation for Health Lawyers and Compliance Officers; AHLA Fraud and Compliance Institute (September 28, 2015) Baltimore, MD.

• Implementing Value-Based Physician Compensation Models; MentorHealth Webinar (September 23, 2015).

• Implementing Value-Based Physician Compensation Models: Tackling the Regulatory Complexities; Clear Law Institute (July 29, 2015).

• The $10,000 Question: Tackling the Complexities of Value-Based Physician Compensation; AHLA Annual Meeting (June 29, 2015) Washington, D.C.

Joseph “Joe” Wolfe Shareholder

Contact Information

Phone: +1 414 721 0482

jwolfe@hallrender.com

Office Address

111 East Kilbourn Avenue

Milwaukee, Wisconsin 53045

United States

Overview

Understand recent trends in P4P arrangements

Overview of regulatory guidance associated with paying physicians for quality and cost savings

Fair market value tips for P4P models

Compliance checklist when paying for quality and cost savings

Pay for Performance (P4P) – Overview

Trends in Compensation Arrangements

• P4P Drivers: Physicians and Hospitals Need to Collaborate More than Ever • Affordable Care Act – 6 sections on P4P

• Security – healthcare reform, changing reimbursement

• Investment requirements for information technology

• Participate in risk-based contracting, ACOs, quality initiatives

• HHS Secretary Burwell Announces P4P Plan – January 26, 2015 • “Our first goal is for 30% of all Medicare provider payments to be in alternative payment

models that are tied to how well providers care for their patients, instead of how much care they provide – and to do it by 2016. Our goal would then be to get to 50% by 2018.”

• “Our second goal is for virtually all Medicare fee-for-service payments to be tied to quality and value; at least 85% in 2016 and 90% in 2018.”

Trends in Compensation Arrangements

Incentive Payments

P4P Background

• Quality payment focus primarily 2003-2010 (sharing savings was a slippery slope)

• Hospital Quality Incentive Demonstration (HQID) for over 250 hospitals: 2003-2009

• Physician Group Practice Demonstration for ten physician groups: 2005-2010

• Third party payors and health systems start incentivizing for quality

• In 2008, the Robert Wood Johnson Foundation and California HealthCare Foundation reported results of a national program that tested the use of financial incentives to improve the quality of health care. Tested seven projects across the nation that adjusted compensation based on performance scores – hospitals and physicians. Notable findings:

• Financial incentives motivate change

• Alignment with physicians is a critical activity for quality outcomes

• Public reporting is a strong catalyst for providers to improve care

P4P Background

• Savings alone (Capitation) no longer in the mix – but ACOs emerge with savings and quality thresholds

• Multiple models and arrangements exist today beyond Commercial and Medicare ACOs

• Medicare Shared Savings Program

• Bundled Payments for Care Improvement

• Commercial payor P4P programs growing exponentially

*Valuation process considers regulatory

guidance, governmental programs and third

party payor models

2014 RAND Report Measuring Success in Health Care: Value Based Purchasing

• Overview • U.S. Department of Health and Human Services requested study

• 129 VBP programs (91 P4P, 27 ACOs, 11 bundled payments)

• Measures: Clinical Quality, Cost, Outcomes, Experience

• Recommendations • Set measurable goals, use national data

• Case-mix adjust outcomes measures, use broad set of measures, identify overtreatment measures, monitor

• Evolve from narrow process measures to broader set emphasizing outcomes

• Sponsor engage providers in design/implementation

• VBP sponsors should collect a common set of factors to find best working program

2014 RAND Report Measuring Success in Health Care: Value Based Purchasing

• Need More Information • HHS should develop a structured research agenda to address gaps in VBP knowledge

base

• CMS should study private-sector programs, program design information not available

• Study changes and investments, experiences and challenges

Evolution of P4P Arrangements What We Do Know…

Regulatory Guidance - Overview

Tackling Value-Based Complexities

• The Enforcement Climate • Ongoing integration and financial relationships with physicians

• Ongoing health care delivery and payment reform

• But, still have a rigid and technical regulatory framework

• And, still faced with enforcement and disproportionate penalties:

Payment prohibition + FCA liability =

Astronomical Damages

Tackling Value-Based Complexities

• Considerations for Managing Risk • Value-based models must be defensible under the Stark and CMP laws

• Focus on demonstrating the 3 Tenets of Defensibility:

Fair market value (“FMV”), commercial reasonableness (“CR”) and not taking into account (“TIA”) referrals

• Documentation and governance processes (e.g., business planning, valuation, etc.) should support defensibility

• Also focus on safeguards that ensure models do not incentivize reductions in medically necessary services

Focus on 3 Tenets of Defensibility

The Toumey Case FMV

CR

TIA

The Halifax Case FMV

CR

TIA

Focus on Defensible Business Planning

Focus on Penalties and Enterprise Risk

Learn from 2014 Enforcement Actions

• Enforcement Actions • New York Heart Center $1.33 million

• Infirmary Health System $24.5 million

• All Children’s Health System $7 million

• Halifax Hospital $85 million

• King’s Daughters Medical Center $40.9 million

• Enforcement Actions • Executive, physician and compliance department whistleblowers

• Allegations based on the Key Tenets of Defensibility: Fair Market Value, Commercial Reasonableness and not TIA DHS Referrals

• Testing of Internal Group Practice Requirements

• Application of Stark to Medicaid

• DHS Pooling Issues

Learn from 2015 Enforcement Actions

• Enforcement Actions • Tuomey Healthcare System $72.4 million • Adventist Health System $115 million • North Broward Hospital District $69.5 million • Columbus Regional Health $35 million • Dr. Andrew Pippas $425 thousand • Westchester Medical Center $18.8 million • Citizens Medical Center $21.8 million

• Enforcement Actions • Executive, physician and compliance department whistleblowers • Allegations based on the Key Tenets of Defensibility: Fair Market Value, Commercial

Reasonableness and not TIA DHS Referrals • Systematic Practice Losses and DHS “Referral Tracking” Processes • Allegations involving up-coding, billing issues and overlapping duties • Enforcement against physicians

Regulatory Standards

• False Claims Act

• Anti-Kickback Statute

• Federal Stark Law

• Civil Monetary Penalties Law

• Other Relevant Laws • State Equivalents

• Tax Exemption Laws • Private Benefit and Private Inurement

• Intermediate Sanctions

Stark Regulatory Framework

• If Physician + Financial Relationship + Entity: • Physician may not make a Referral to that Entity for the furnishing of Designated

Health Services (“DHS”) for which payment may be made under Medicare; and

• The entity may not bill Medicare, an individual or another payor for the DHS performed pursuant to the prohibited Referral…

... unless the arrangement fits squarely within a Stark exception

• Threshold Compliance Statute • Strict liability – no intent required. Civil (non-criminal statute)

• Triggered by “technical” violations, inadvertence and error

• Your regulatory “Litmus Test”

• 11 Categories of DHS (e.g., clinical lab services, radiology and certain other imaging services, radiation therapy and supplies, outpatient prescription drugs, inpatient and outpatient hospital services, etc.)

Common Stark Exceptions

• Common Stark Exceptions: • Rental of Office Space or Equipment

• Physician Recruitment

• Personal Service and FMV Exceptions

• Isolated Transactions

• Common Elements of the Stark Exceptions • The arrangement must be set out in writing and signed by the parties

• The arrangement must be commercially reasonable, and compensation must be consistent with fair market value

• Compensation must be set in advance and not take into account the volume or value of referrals generated between the parties

• Bona Fide Employment

• In-Office Ancillary Services

• Assistance to Compensation an NPP (New ‘16)

• Time Share Arrangements (New ‘16)

CMS Support of Value-Based Comp

• Stark Phase I (915) - Stark does not preclude basing compensation on quality measures unrelated to the volume or value of referrals or other business generated by the physician.

• Stark Phase II (16088)

• Stark does not bar payments based on quality measures as long as the overall compensation is FMV, does not TIA referrals and the other conditions of the exception are satisfied.

• Stark does not prohibit payments based on achieving certain benchmarks related to the provision of appropriate preventative health care services or patient satisfaction.

• Payments to reduce or limit services could violate the CMP.

• 2009 PFS (38551) - Incentive payments and shared savings programs can be structured to fit within existing Stark exceptions.

ACO – Fraud and Abuse Waivers

• Scope of Waivers. The scope of the Accountable Care Organization (“ACO”) waivers is limited to compliance with the Stark Law, Anti-Kickback Statute and Gainsharing CMPs.

• Uniform Application. The ACO waivers apply uniformly to all ACOs, ACO participants and ACO provider/suppliers.

• Automatic Application. The ACO waivers apply automatically if the conditions are satisfied. There is no need (or process) for participants to apply for an individualized waiver.

• Joint Issuance. CMS and the OIG jointly established the ACO waivers and have stated their intent to monitor and limit the scope of the waivers over time.

The CMP Law – Gainsharing Arrangements

• The CMP Law Prohibits:

• A hospital or critical access hospitals from

• knowingly making payments, directly or indirectly,

• to a physician

• as an inducement to reduce medically necessary services

• provided to Medicare (Parts A or B) or Medicaid beneficiaries

• under the direct care of the physician.

• Penalties

• CMP of $2,000 per patient covered by the arrangement.

• Both the hospital and the physician receiving payment are subject to liability.

• Blending of Co-Management / Gainsharing Standards

Regulatory Support for Co-Management

• OIG Statement (10/3/14): OIG would be unlikely to bring a case against a hospital or physician for a gainsharing arrangement that included patient and program safeguards such as those identified in our advisory opinions.”

• Example Safeguards from OIG Advisory Opinion 12-22:

• Cost savings measures based on evidence & clinical outcomes.

• An external valuation regarding the FMV of the fixed and performance based components of compensation.

• An independent third party review of performance fee factors and clinical outcomes.

• Performance fee structures with safeguards that addressed historic concerns: Conditioned on the physician not: (i) stinting on care; (ii) increasing referrals to the hospital; (iii) cherry picking patients or those with desirable insurance; or (iv) accelerating patient discharges.

Overview of MACRA

• Medicare Access and CHIP Reauthorization Act

• Repeal of the SGR

• Gainsharing Reform – An area to watch • Game changer for structuring future gainsharing arrangements.

• 2016 Report: Congress directed HHS and OIG to issue a report that identifies potential exceptions,

safe harbors and/or statutory changes that will further define gainsharing arrangements.

• Positive updates in PFS for 4.5 years

• Implements a new quality reporting system (MIPS) • PQRS, MU, and VBM penalties end in 2018

• $75 Million goes toward Quality Measure Development

• $100 Million for technical assistance to small practices

• Incentives to participate in Alternative Payment Models

Fair Market Value (FMV) Tips

Fair Market Value & P4P - Definition

• Any transaction between hospitals and physicians must be set at Fair Market Value

• The amount at which property would change hands between a willing seller and a willing buyer when the former is not under any compulsion to buy and the latter is not under any compulsion to sell and when both have reasonable knowledge of the relevant facts, absent the consideration of referrals.

• Valuation conclusion should not consider value or volume of referrals • Offer equal P4P opportunities to all providers

• Do not tie P4P compensation to expected referrals

• P4P Comparables • Stick to regulatory guidance when it comes to paying for quality or shared savings

• Governmental programs and third party payors are good market comparables

Regulatory Guidance - Quality

• Considerations for paying for quality: • Quality measures should be clearly and separately identified

• Quality measures should utilize an objective methodology verifiable by credible medical evidence

• Quality measures should be reasonably related to the hospital’s practice and consider patient population

• Do not consider the value or volume of referrals

• Consider an incentive program offered to all applicable providers

• Incentive payments should consider the hospital’s historical baseline data and target levels developed by national benchmarks

• Thresholds should exist where no payment will accrue and should be updated annually based on new baseline data

• Hospitals should monitor the incentive program to protect against the increase in patient fees and the reduction in patient care

• Incentive payments should be set at FMV

Regulatory Guidance - Gainsharing

• Considerations for paying for gainsharing (per favorable OIG opinions on gainsharing):

• 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 the incentive 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.

• Per capita

• 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 - Gainsharing

• More complex factors should be considered for allocating savings associated with patient population and bundled payments

• Responsibility for outcomes and savings

• Risk adjustment for patient population

• Responsibility for infrastructure costs (if applicable)

• Caps are prudent and seen in demonstration projects

Physician Arrangement Types w/ Gainshare

• Co-Management • Fixed and variable fee to physicians for assisting with service line level performance,

stated metrics may include gainsharing

• The arrangement should include objective measures to monitor quality (i.e., CMS Specification Manual for National Hospital Quality Measures).

• Bundled Payments • Actual savings may support gainsharing with physicians

• Inpatient procedure (individual physician reward), ie: lower supply cost

• Post-acute care from beginning to end (case reward), ie: save on lower readmission and lower SNF utilization

• ACO Type Model • Lowering patient population costs through IT, quality care, standardization, patient

management and other factors may support gainsharing with physicians.

P4P FMV – Value Drivers and Guidance

• Co-Management / Service Line • Understand and value each service

• Identify savings or quality metrics

• Suggest benchmarking

• Consider OIG’s gainshare and co-management opinions

• Bundled Payments / Individual • Understand market reimbursement for physician services

and quality

• Identify risk and responsibility of all parties

• Consider caps

• ACO Type Model / Population • Balanced approach for overall model should be

assessed

• Opinion on allocation to parties (physicians, hospital)

• Opinion on distribution among physicians

• Value Drivers:

• Third party funded or from hospital

• Infrastructure cost recovery

• Buy-in or participation Fee

• Time spent/effort – hourly rate paid/existing compensation model

• Split of savings – existence of minimum savings threshold

• Split of quality - benchmarks utilized, targets tough

• Upside and downside risk

• Care coordinator payments – ie: Nurse care manager

• Available data key to determining support for individual performance payments

Note: options for P4P automation are available

based on defined parameters or in the context of

a compensation model

Compliance Checklist – Paying for Quality & Cost Savings

Value-Based Model Governance

• Initial Governance Considerations • Integration of Value-Based Models with Compliance Program

• Engagement of Legal Counsel and Third-Party Valuation Consultant

• Opportunity for Compliance Training and Education

• Update Oversight, Review, Monitoring and Auditing Processes

• Obtain Approval(s) and Update Documentation • Obtain Compensation Committee Approval

• Update Compensation Plan

• Updated Impacted Physician Compensation Policies

• Documenting Regulatory Compliance • Legal Analysis (Stark, AKS, CMP, etc.)

• Valuation Analysis (FMV and CR)

Takeaways on Value-Based Models

• Value-based models must be defensible under the Stark and CMP laws • Value-based compensation must be FMV, CR, and cannot TIA referrals

• Focus on safeguards that ensure that models do not incentivize reductions in medically necessary services

• Documentation and governance should support defensibility: • Adoption of a compensation philosophy, a written compensation plan, parameters for

monitoring compensation, a compensation committee, etc.

• Obtain external third-party valuations of FMV and CR by an FMV consultant who understands payment for quality

• Develop (i) processes to ensure value-based models are based on documented evidence and clinical outcomes; and (ii) safeguards that address compliance with the CMP

• Engage an experienced health law attorney that monitors the enforcement climate

Compliance Checklist - Valuation

• Identify savings metric

• Start small

• Have a written agreement

• Modest set of metrics – perhaps consistent with those found in both commercial ACOs and Medicare ACOs

• Update and rebase metrics annually

• Understand who is driving cost savings and quality

• Have safeguards which prevent cherry picking and lemon dropping

• Identify flow of funds allocation early on in process

• Understand your FMV opinion and underlying assumptions

Good Data

Logic

FMV Guidance

Compliant P4P Payment Formula

Questions & Discussion