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Structuring Clinically Integrated Networks: What’s New in 2018 - Evolving Legal Issues, Tax Reform and Other Potential Game Changers Organization and Governance Issues, Regulatory Requirements, Key Provisions to Position for Success
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WEDNESDAY, FEBRUARY 14, 2018
Presenting a live 90-minute webinar with interactive Q&A
Matthew Fadel, MSM, MBA, Senior Manager, Dixon Hughes Goodman, Cleveland
Andrea M. Ferrari, JD, MPH, Director, HealthCare Appraisers, Boca Raton, Fla.
Mark C. Watson, Director, Hancock Daniel Johnson & Nagle, Richmond, Va.
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Structuring Clinically Integrated Networks: What’s New in 2018 - Evolving Legal Issues, Tax Reform and
Other Potential Game Changers
Matthew Fadel
Andrea M. Ferrari
Mark C. Watson
5
Why Do We Think This Program Is Worth 90 Minutes of Your Time? • The healthcare marketplace continues to evolve.
– The transition to value-based payment continues.
– Consolidation chatter and related consideration of options continues.
• Clinical integration continues and perhaps is increasing in pace and robustness in response to market developments.
– The market now has many newly conceived clinically integrated networks (CINs), but also has CINs that have been operating for multiple years and are looking for new ways to grow.
• AND…
6
• The context and “roadmap” for CIN activity is changing and complex.
– We have ongoing implementation of the ACA, but also ongoing uncertainty about its future as well:
• Repeal of individual mandate
• Scrapping of certain mandatory bundled payment programs
– MACRA – Implementation continues, but some things are still uncertain.
• November 2018 - New Final Rule with Comment Period extended ramp up period, but affirmed that new payment paradigms are coming for physicians, although on an uncertain timeframe.
• Encouragement for gainsharing and other alignment strategies is continuing, but regulatory infrastructure has not yet caught up.
7
Why Do We Think This Program Is Worth 90 Minutes of Your Time?
– Enforcement environment :
• Qui tam actions and related investigations and recoveries pertaining to healthcare arrangements continue, despite speculation about a move toward less aggressive enforcement action.
• CIN activity may implicate many laws and regulations with many moving parts.
– With CINs as with so many things, the Devil can be in the details.
• Understand the details and nuances and you may manage the Devil, but fail to do so and…
8
Why Do We Think This Program Is Worth 90 Minutes of Your Time?
“There are known knowns. There are things that we know that we know.
There are known unknowns. That is to say, there are things that we know
that we don’t know. But there are also unknown unknowns. There are things
that we don’t know we don’t know.” – Donald Rumsfeld
“Trying to predict the future is like trying to drive down a county road at
night with no lights while looking out the back window.” – Peter Drucker
“The Final Rule is the Final Rule until the next Final Rule.” – Andrea
Ferrari
“The Final Rule is the Final Rule until the next Final Rule.” – Andrea
Ferrari
9
The Disclaimers
10
Historical Payment Practices: •Mostly fee-for-service •Volume-driven revenue → revenue directly increases with volume of services/procedures •Revenue not significantly affected by cost, manner or outcome of the associated services - - e.g., as long as services are performed, payment is the same whether patients have a good or bad outcome from the services
Evolving Payment Practices: •More value-driven payment models •Revenue still volume-driven, but not (as) linearly •Revenue is significantly affected by cost, manner and outcome of the associated services
Potentially Important Background: The Ongoing Shift in Healthcare Payment Practices
Potentially Important Background: The Ongoing Shift in Healthcare Payment Practices (from CMS.Gov)
11
12
Potentially Important Background: The Ongoing Shift in Healthcare Payment Practices
13
Potentially Important Background: The Ongoing Shift in Healthcare Payment Practices
14
Potentially Important Background: The Ongoing Shift in Healthcare Payment Practices
15
Navigating the Tipping Point
16
Risk Capability 1.0
17
Risk Capability is Becoming a Prerequisite to Future Success
18
Source: Lean Hospitals, Graban, CRS Press, 2009, p.
10
Defining and Demonstrating “Value”
19
Provider Response to Market Changes
20
IMPROVE QUALITY
- Consistent
Performance
Metrics
- Evidence-based
Protocols
- Defined Provider
Expectations
ENHANCE ACCESS
- Emphasis on
Prevention
- Use of Telehealth and
Virtual Tools
- Expanded Provider
Availability
CREATE EFFICIENCIES
- Utilization Review
- Right Time, Right Place
- Decrease Spend per
Beneficiary
- Care Coordination
CIN GOALS
DELIVER VALUE
- Improve Performance
- Pursue Contracts that Reward Value
CIN OUTCOMES
A Clinically Integrated Network (CIN) is a selective partnership of physicians collaborating with hospital(s) and
other providers to deliver evidence-based care, improve quality and efficiency, manage populations and
demonstrate value to the market. Once these objectives are met, the network may contract on behalf of
participants
MANAGE DEFINED POPULATIONS
Defining Clinical Integration
21
• Address the demands of a changing value-based reimbursement system • Engage physician leadership in determining health system clinical
objectives • Create a legal framework that allows the distribution of shared savings • Establish a mandate to invest in system-wide data and communication
technology • Focus on making care management resources available throughout the
system
Clinically Integrated Network (CIN): Meets the Value Challenge
22
Hospital takeover
Physician employment
Means to reduce physician payments
Limiting services or reducing clinical autonomy
Method to exclude physicians or other healthcare providers
Contracting mechanism to gain leverage over payers
Return to capitation (1980s)
What Clinical Integration is Not!
23
Information
Management
Identify Objectives
Evidence-Based
Practice
Savings
Distribution
Commitment to
technology to improve
patient care and reduce
physician burden
Practicing physicians
focus on academic
mission and clinical care,
not reimbursement
requirements
Physicians establish
performance objectives
using scientifically-
based standards
Physicians are rewarded
for providing high
quality, high value
services, not just volume
Shifts “non-physician”
care management tasks
away from physicians
+ +
+ + +
Shared Resources
Clinically Integrated Network (CIN): Impact for Physicians
24
1. Prepare physician partners for MACRA and other changes occurring within the post-reform healthcare environment
2. Align multiple provider groups (employed practice and independent physicians) with health system goals and objectives
3. Manage existing risk-based contracts and populations (employee health plan, Medicare at-risk $)
4. Prepare health system and partner physicians for potential risk-based contracts in the future
5. Create better coordination of care to demonstrate value in the market
6. Improve market positioning with/against competitors
7. Protect strong fee-for-service contracts at the hospital, as well as strong financial performance, while preparing for risk-based contacting
Clinically Integrated Network (CIN): Contracting Strategies and Infrastructure Needs
25 MATURITY OF CIN
Membership
Fees
LOW HIGH
Hospital
Efficiency
Program
Self Funded
Health Plan Payer Contracts (no
Risk)
Direct to Employer
Contracts
Pay-for-
Performance
The Clinical Enterprise is a separate business entity with a distinct identity, mission, and
vision, dedicated leadership and staff, sustainable sources of revenue to offset operations.
Sources of Revenue
Private Label Health
Plan
Payer Contracts
(Risk) Bundled
Payments
Clinically Integrated Network (CIN): Contracting Strategies and Infrastructure Needs
26
• An agreement between the hospital and a physician group used to improve quality and reduce costs in the hospital
• Payments and targets are defined in advance and if achieved, are distributed to the physician group
Clinically Integrated Network (CIN): Health Systems are Focused on the Hospital Efficiency Programs
27
Contr
acting O
ptions
Infr
astr
uctu
re
Level of Maturity
MA/Commercial Pay-for-Performance
Hospital Quality and Efficiency Program (HQEP)
FTEs
(Director, Analyst,
Provider Relations)
Patient Registry
(Interoperability for Evidence-Based
Guidelines per Patient Populations)
Financial Analytics Capabilities
(Ability to take CMS Claims downloads
and summarize by Provider, Patient,
Site of Care, etc.)
Level 1 Level 2 Level 3
Bundled Payments
Commercial Share Savings Employee Health Plan
Medicare Share Savings Program (MSSP)
FTEs
(Nurse/Case Managers, IT specialists,
Credentialing)
Patient Registry
(Interoperability for Evidence-Based
Guidelines per Patient Populations)
Financial Analytics Capabilities
(Ability to take CMS Claims downloads
and summarize by Provider, Patient,
Site of Care, etc.)
Upside/Downside Share Savings Contracts
Next Generation MSSP
Capitation
FTEs
(Nurse/Case Managers, IT specialists,
Credentialing)
Patient Registry
(Interoperability for Evidence-Based
Guidelines per Patient Populations)
Financial Analytics Capabilities
(Ability to take CMS Claims downloads
and summarize by Provider, Patient,
Site of Care, etc.)
Predicative Modeling Capabilities
Clinically Integrated Network (CIN): Contracting Strategies and Infrastructure Needs
28
Clinically Integrated Network (CIN): Maturity Scale
29
ACCESS TO PATIENTS
• Secure referral markets
• Coordination of patients
• New market growth /
penetration
Geography
• Enhance value with
comprehensive services
• Mitigate reimbursement rate
pressure
• Large “buyers”
Payer Contracts
• Leverage brand & reputation
• Local presence with big
market access
• Strength & expertise through
scale
Marketing
1
SHARE COSTS & CAPABILITIES
• Platform to build population
health analytics
• Expand Data over
continuum of care
Information Technology
• Clinicians (recruitment &
outreach)
• Leadership & oversight
• Care management teams
• Payer & population health
expertise
Skilled / Scarce Resources
2
STANDARDIZE
• Promote best practice
adoption
• Accelerate innovation
• Benchmark & measure
Operational
• Consolidate duplicative services
• Drive patient care coordination
• Enhance quality
Clinical
• Improve each organization’s
cost structure
Finance
3
Clinically Integrated Network (CIN): Contracting and Strategies Large Network Objectives
30
• Antitrust and Competitor Collaborations
• Fraud and Abuse: Stark, Antikickback Statute, CMP
• Issues Specific to Tax Exempt Entities
Overview of Legal Issues
30
• Antitrust law refers to several statutes designed to promote business competition.
– Seeks to protect the process of competition for the benefit of consumers.
– Better prices, better quality, innovation
• Basic Theory: free and open competition will result in the best products and services at the lowest price.
• Application to Healthcare Sector
– Price fixing by competitors (including bid rigging)
– Market divisions/allocations by competitors
– Concerted refusals to deal (boycotts)
31
Antitrust Overview Antitrust Laws
31
• Primary Inquiry: Does the arrangement legitimately create benefits for consumers or is it cartel behavior?
• 2 Types of Analysis
– Rule of Reason: Fact specific analysis that looks at whether there are pro-competitive justifications that outweigh anticompetitive impact of action
– Per Se Illegal: Recognizes some conduct is so inherently anticompetitive that no valid, procompetitive justification can exist or outweigh the anticompetitive effects
32
FTC Review Options Rule of Reason v. Per Se Analysis
32
• Integration should be the impetus for the collaboration (and not collective negotiation)
• A JV is “an efficiency-enhancing integration [in which] participants collaborate to perform…one or more business functions, such as production, distribution, marketing, purchasing, R&D,…thereby benefit[ing] price, or enhancing quality, service, or innovation.” – FTC & DOJ Antitrust Guidelines for Collaboration Among Competitors
(2000)
33
Integration Should Be the Focus
33
• An arrangement in which members share financial risk in such a way as to encourage members to work together to control costs and improve care.
• Financial risk incentivizes cooperation to improve efficiency in care delivery, reduce costs, manage utilization or improve quality.
• Examples
– Capitation, withholds, global fees, percentage of premium or revenue
• No bright-line tests, but should be enough FI to align incentives
34
Financial Integration
34
• An active an ongoing program to evaluate and modify the practice patterns of providers and create a high degree of interdependence and cooperation to control costs and ensure quality.
• Goal: To create reasonable likelihood of:
– Improving efficiency in care delivery
– Better managing utilization
– Controlling costs
– Improving quality of care
• With sufficient integration, price agreements must be “reasonably necessary” to realize the efficiency, cost, and quality goals.
35
Clinical Integration
35
• Physician leadership and program design
• Selectivity in choosing providers who are committed to the program’s goals
• Implementation of array of clinical guidelines touching all providers across continuum
• Method of tracking performance and adherence monitoring
• Electronically sharing data and data analytics
• Ancillary (is the joint contracting subordinate to the primary purposes?)
36
Characteristics of Clinical Integration
36
• Ensuring that sufficient physicians across multiple specialties participate in the venture
• Allowing Physicians’ to delegate to networks "the time and hassle of negotiating contracts with payors“
• Evidence that the payors' overall costs may not necessarily increase, because a clinically integrated network will deliver cost-effective and efficient care
37
Are joint negotiations on price reasonably necessary to achieve CI?
37
• Ability to "offer payers a single, comprehensive and integrated network" and which can "be priced in the aggregate, not through individual contracts with physicians"
• Joint pricing is necessary to ensure the active and ongoing participation of an entire group's members
38
Are joint negotiations on price reasonably necessary to achieve CI? (cont’d)
38
• What do the physicians plan to do together from a clinical standpoint?
• How do the physicians expect actually to accomplish these goals?
• What basis is there to think that the individual physicians will actually attempt to accomplish these goals?
• What results can reasonably be expected from undertaking these goals?
39
Questions Agencies are likely to ask when analyzing competitive implications
39
• How does joint contracting with payors contribute to accomplishing the program's clinical goals?
• To accomplish the group's goals, is it necessary (or desirable) for physicians to affiliate exclusively with one CIN or can they effectively participate in multiple entities and continue to contract outside the group?
40
40
Questions Agencies are likely to ask when analyzing competitive implications
• Norman PHO
– Favorable: Advisory Opinion 2013
– 1 health system and 280 physician members
serving the greater Oklahoma City area
– Network negotiates and contracts on behalf of
all providers
– Identified (expected) benefits for patients,
payors, and providers
– Non-exclusive (providers remain free to contract
with any payor that chooses not to contract with
PHO)
41
41
Antitrust Overview FTC Staff Advisory Opinions
• Norman PHO
– Plan to minimize spillover effects
– Antitrust training
– No sharing of competitively sensitive
information among participants
– Ancillarity
– Joint contracting subordinate to the integration
– Joint contracting necessary to ensure
consistent panel of committed providers
– Enables full deployment of the CI program
42
42
Antitrust Overview FTC Staff Advisory Opinions
MedSouth Suburban GRIPA Tristate Norman
Feb. 2002 & June 2007 Mar. 28, 2006 Sep. 17, 2007 Apr. 13, 2009 Feb. 13, 2013
Network Type IPA Super-PHO IPA PHO PHO
Participants
432 MDs in 216 practices
By 2007, 32.5% of MDs dropped from MedSouth
7 local PHOs employing 192 PCPs
2-hospital system and 575 MDs in 41 specialties
200+ MDs and 1 hospital Norman Reg. Health System
and 280 MDs in 38 specialties
CIN's Market Share
MedSouth MDs "constitute half or more of MDs with
admitting privileges at the three hospitals in south
Denver"
Not Discussed
81% of total physicians in the "Rochester tri-county" area, comprised of 90% of eligible
PCPs and over 75% of specialists/sub-specialists
"a very substantial majority" of MDs in the PHO's primary
service area, where hospital draws > 80% of patients;
16% MDs and 14.5% hosp.
admissions in secondary service area
10% MDs & 10% hospital discharges in the network's
"reported service area";
Also, >50% hospital discharges in 2 counties
Commercial Payor Market
Not Discussed Not Discussed Excellus (local BCBS) has 70%
and Preferred Care has 25% of privately insured
CareFirst BCBS and United Health Care/MAMSI cover total
of 71% of privately insured
Not Discussed
Length of FTC Review 8 months (for 1st letter) 19 months 15 months 21 months 2 years
Per Se Illegal? No, apply "Rule of Reason" Yes No, apply "Rule of Reason" No, apply "Rule of Reason" No, apply "Rule of Reason"
Exclusivity Non-Exclusive Exclusive Non-Exclusive Non-Exclusive Non-Exclusive
Clinically Integrated? Yes No Yes Yes, early stages Yes, incomplete
43
• Statement of Antitrust Enforcement Policy Regarding MSSP
ACOs
– Safe harbor test for ACO composition based primarily on market
share
– Safety zone for ACOs that meet 3 criteria and no “extraordinary
circumstances” are present:
• ACO Participants do not provide greater than 30% of any relevant service in
any single ACO provider’s primary service area.
• No hospital or ASC participating in the ACO is “exclusive” to the ACO either by
contract or in practice.
• If the ACO includes a provider with greater than 50% market share of any
service that no other ACO participant provides, the provider must not have an
exclusive relationship with the ACO and must not restrict any payor’s ability to
contract with other networks/ACOs.
44
44
Antitrust Overview ACO Guidelines
• Statement of Antitrust Enforcement Re MSSP ACOs (cont.)
– Caution against “suspect behavior,” such as:
• Requiring “anti-steering” clauses in payor contracts
• Tying ACO business to a payor’s purchase of other services from
providers outside the ACO (or vice versa)
• Contracting with providers other than PCPs on an exclusive basis
• Restricting a payor’s ability to make provider cost, quality, efficiency, and
performance information available to enrollees
• Sharing competitively-sensitive information among ACO providers (e.g.,
pricing)
45
45
Antitrust Overview ACO Guidelines
46
• Stark Law: Unless an exception applies, prohibits physicians from making DHS referrals to entities with which a physician (or an immediate family member) has a financial relationship.
• Antikickback Statute: Forbids the offer, payment, solicitation or reception of remuneration in exchange for referring or arranging the referrals of governmentally reimbursed healthcare services.
• CMP: Prohibits hospitals from making payments to induce a physician to reduce or limit medically necessary services to Medicare or Medicaid beneficiaries, and prohibits beneficiary inducements
46
Federal Fraud and Abuse Laws
47
Hospital (DHS Entity)
CIN (Non-DHS Entity)
Physicians
100% Capitalization
Participation Agreements
Unaffiliated Third-Party
Payors
Incentive $
Health System Affiliated Employee
Benefit Plan
HQEP $
Incentive $
47
Federal Fraud and Abuse: CIN Financial Relationships
48
OIG “recognizes that hospitals have a legitimate interest in enlisting physicians in their efforts to eliminate unnecessary costs” and has approved 16 gainsharing arrangements that tie remuneration directly to the actual cost savings and included specific safeguards against patient and program abuse.
OIG, Special Advisory Bulletin, Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries, July 1999.
48
OIG Review of Arrangements
OIG Opini
on
Eligible Parties
Source of Savings
Safeguards Distribution OIG Analysis
17-09 Multi-specialty group (neurosurgeons only)
Use of protein only on an “as needed” basis during surgeries. Product standardization to curb inappropriate use or waste of medical supplies
• Monitoring and documentation requirements through an oversight committee to increase transparency.
• Prohibition against neurosurgeons from selecting patients to participate in, or withdrawing patients from, the program (cherry-picking)
• Historical and clinical measures to establish a floor and historically consistent selection of patients
• Annual rebasing reduces concern regarding multi-year arrangement
• Certification that the recommendation will not reduce or limit medically necessary services.
• Incentive tied to the actual. Verifiable cost savings attributed to each recommendation.
• Physician access to full selection of devices and use is based on patient-by-patient determinations
• Participation limited to only one group, reducing likelihood that the arrangement will be used to attract other groups to perform surgeries at the medical center.
• Written disclosures • Potential savings are capped based on
the number of eligible procedures performed during the base year
• Per capita distribution
50% Percentage of 3-year cost savings calculated separately for each recommendation (minus deduction for Program Admin. fee). Neurosurgeons paid on a per capita basis, with the group retaining a portion in accordance with Shareholder Agreement. Cost savings for each year are measured against the most recent 12-month period to establish a base year. Thus, years 2 and 3 of the program will be measured against years 1 and 2 of the program, respectively.
Implicates Gainsharing CMP, but declined to impose sanctions Arrangement could implicate AKS, but OIG would decline to impose sanctions
49
OIG Advisory Opinions
50
• “Shared Savings” Programs
– Control costs by focusing on reducing payments
– Providers receive less payment for reduced delivery of services and payors share a portion of the savings
• “Incentive Payment” Programs
– e.g., pay-for-performance, pay-for-quality
– Control costs by focusing directly on reducing costs
– Hospitals experience lower costs due to efficiency and the reduction of unnecessary services, and share a portion of the cost reductions with Physicians
50
Gainsharing Background
•51
• Payment to physicians must come from the cost savings directly attributable to specific changes utilized by the physicians
– Payments to a surgeon group from savings attributable to the group’s operating room practices to curb the inappropriate use or waste of medical supplies.
• Key cost savings categories to consider:
– “Use as needed” items to prevent waste
– Product substitution for less costly supplies
– Product standardization via evaluation and clinical review of vendors and products
51
Remuneration
52
• Stinting on patient care
• “cherry picking” healthier patients and steering sick patients that do not offer gainsharing arrangements
• Payments in exchange for referrals
• Unfair competition or “race to the bottom”
52
OIG Concerns with Gainsharing Arrangements
• Identify specific actions that would produce savings, e.g. limiting the inappropriate use of supplies;
• Present credible medical support that there will be no adverse effects on patient care;
• Transparent and disclosed to patients;
• Include periodic reviews of quality of care by an independent organization;
• Include protections against inappropriate reductions in services by utilizing objective historical and clinical measures to establish baseline thresholds;
• Limit the physicians eligible to participate to limit the likelihood of the arrangement reducing referrals, e.g. physicians already on staff
• Limit the amount of shared savings and the time during which physicians can share cost savings to prevent hospitals from using these agreements as a mechanism to induce physician referrals;
• Avoid rewarding physicians for increasing referrals to the hospital, such as capping potential savings based on the number of prior year admissions; and
• Monitor changes in the severity, age, and insurance coverage of patients affected by the arrangement. 53
Safeguards
54
• The Final ACO Waivers were issued on October 20, 2011 by CMS and the OIG, and the release of the Final ACO Waivers was concurrent with the release of the final rule for the MSSP.
• The Final ACO Waivers became effective November 12, 2012.
• CMS/OIG has issued five (5) waivers:
1. ACO Pre-Participation Waiver 2. ACO Participation Waiver 3. Shared Savings Distribution Waiver 4. Compliance with the Stark Law Waiver 5. Patient Incentive Waiver
54
ACO Waivers
• “Includes promoting accountability for the quality and cost of overall care for the Medicare patient population, managing and coordinating such care, promoting evidence based medicine and patient engagement and encouraging investment in infrastructure and redesigned care processes.
• Can involve:
• Promoting evidence-based medicine and patient engagement; • Meeting requirements for reporting on quality and cost measures; • Coordinating care, such as through the use of telehealth, remote patient
monitoring, and other enabling technologies; • Establishing clinical and administrative systems for the ACO; • Meeting the clinical integration requirements of the Shared Savings Program; • Meeting the quality performance standards of the Shared Savings Program; • Evaluating health needs of the ACO’s assigned population; • Communicating clinical knowledge and evidence based medicine to
beneficiaries; • Developing standards for beneficiary access and communication, including
beneficiary access to medical records.
55
55
Reasonably Related to MSSP Purposes
56
56
Summary of Financial Incentives and Areas for FMV Validation
57
• IRS 501(c)(3) tax-exempt organizations are prohibited from engaging in inurement and private benefit transactions
• Allowing tax-exempt income to unduly benefit private actors, including physicians
• Conferring excess “private benefit” upon such individuals or other insiders
• ACO Private Letter Ruling 201515022, April 8, 2016: IRS denies tax-exempt status to “non-profit” ACO that did not participate in the MSSP. ACO included health system employed and independent physicians.,
• ACO deemed not operated “exclusively” for charitable purposes. Negotiation of arrangement benefitting independent physicians resulted in substantial impermissible private benefit.
• Other examples:
• Use of tax-exempt hospital assets to fund initiatives that only benefits participating physicians
• Paying excessive compensation for physician services in connection with a program.
57
Federal Tax Exempt Organizations
Care Model / IT Task Team
Organization and Governance Task Team
Year 1 Year 2 Year 3 Year 4 Year 5 Ongoing CIN Operations and Expansion
Hospital-CIN Services FMV
Analyses
• Address compensation from hospital(s) /health system to CIN under (a) HEP or HQEP agreements and/or (b) management services arrangements between hospital or other affiliate and ACO/CIN
• Valuation typically needed every two years, or whenever services or circumstances change materially
CIN/ACO Contributions and Services
Analyses
CIN/ACO Revenue
Distribution Plan Analyses
• Address payments and pass through amounts from: (a) hospital self-funded employee health plan(s) or other payors that are not arm’s length to the CIN/ACO; and/or (b) participating hospitals(s) that support operating expenses or infrastructure of the CIN (e.g. staff, IT, leased space, etc.)
• Valuations may need to occur annually in the first 1 to 5 years of CIN operation, when CIN needs and contributions are uncertain and may fluctuate; thereafter, valuation usually every 2 to 3 years
• Address payment/distribution of CIN revenue to CIN participants and service providers, including participating physicians, participating hospitals, and CIN/ACO manager/operator
• IF there is an annually-changing distribution plan, re-evaluation occurs annually
• Considered important if CIN is substantially or fully funded by a hospital or health system and will experience an operating loss (as is common in initial years of CIN operation)
• Specific valuation considerations for employed v. independent participants (supplemented by aggregate compensation analyses /calculator tools for employed physicians*)
*HAI’s aggregate compensation calculator and related tools are supplements to the HAI employment calculator
and may be issued and charged separately from CIN revenue distribution plan analyses. 58
CIN/ACO Compensation Relationship Valuations: Common Services Needs
Defining What Needs to Be Valued: What (Exactly) Are the Services and/or Contributions for Which FMV Analysis is Needed?
– Common FMV analysis needs for CINs:
• Services/contributions/distributions to/from individual physicians/groups
• Services/contributions/distributions to/from hospital participants
• Operating or management expenses for the CIN, if funded by the hospital or health system
– Will the hospital (or third party contracted) provide and receive compensation for management services to the CIN?
– Does the FMV of compensation for the management services affect the FMV of distributions to physicians and other CIN participants?
– CIN Operating Losses: Are they a concern?
» Answer depends on facts and circumstances?
» Different for more mature networks than new ones?
» Different with a broader scope CIN than a more narrow one?
» (More later…)
59
Anatomy of Analysis
60
HEP/HQEP Initiatives
CIN/ACO Hospital/ Health System
Incentive Payments
$$$
HEP/HQEP Agreement
Hospital Efficiency Program (HEP)/ Hospital Quality and Efficiency Program (HQEP)
Providers Employed & Contracted
Hospital/Health System HEP/HQEP Agreement
61
Health Plan Initiatives
CIN/ACO Hospital/ Health System
Incentive Payments
$$$
Health Plan/CIN Agreement
Employee Health Plan Incentive Agreement May Be: Care Coordination, Quality Improvement, Savings
Providers Employed & Contracted
Hospital/Health System HEP/HQEP Agreement
Sample CIN/ACO Annual Distribution Plan
63
Is FMV Needed?
And if so, why?
Stark LawStark Law
Definition of FMV
Federal Antikickback
501(c)(3) / Not For Profit Status
Other Definition of
FMV
Select Appropriate Valuation
Approach(es)
Market
CostAddress FMV
Pitfalls & "Gray Areas"
Income
State Law Considerations
Other ReasonSTOP
NO
YES
Appropriate
Comparables?
Appropriate
Data?
“Volume or Value”
Concerns?
Employed v Independent Physicians
Commercial Reasonableness
Compensation Stacking
Data Limitation / Reliability
Patient Safety / Medical Ethics Considerations
Stark Law Definition of FMV
ANATOMY OF ANALYSIS
Anatomy of Analysis
Does the Stark Law apply? – If yes, what are the applicable exceptions?
– Do(es) the applicable exception(s) have an FMV compensation requirement?
– Is the FMV compensation requirement modified by additional requirements– e.g., not determined in a manner that takes into account the volume or value of referrals, set in advance, etc.?
– If MSSP waivers apply, but FMV analysis may be needed for another purpose, should the valuator still use the Stark Law definition of FMV?
– For consideration: U.S. ex rel. Moore v. Mercy Health Springfield Communities (settled 2016)
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Anatomy of Analysis
Stark Law: “FMV” means the value in arm’s length transactions, consistent with the general market value…(42 USC § 1395NN(h)(3))
42 CFR §411.351 – “General market value” means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.
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Anatomy of Analysis
Does the Federal Anti-kickback Statute apply? – If yes, will compensation that is set at FMV reduce the risk that the
arrangement will be viewed as prohibited remuneration for referrals? Can the arrangement meet a safe harbor?
– Is the form of compensation (fee for service, percentage, annual stipend, etc.) a factor for valuator consideration?
– Is the risk that the arrangement will be viewed as prohibited remuneration for referrals:
• Based solely on whether the amount is above FMV?
• Based solely on whether the amount is below FMV?
• Equally troublesome if the amount is above or below FMV?
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Anatomy of Analysis
Is one or more of the stakeholders tax-exempt and subject to IRC §501(c)(3)?
– If yes:
– Is there IRS guidance regarding this type of arrangement?
– Does IRS guidance indicate that FMV is:
• Required, to the extent that it establishes that compensation is reasonable compensation for services and not private inurement/operation for private benefit?
• Trumped by other concerns, such as whether return is proportional to contributions?
• Based on a definition of FMV that is different from the Stark Law definition of FMV?
– Are there state tax-exemption issues or requirements that suggest a need for FMV analysis? – e.g., Morristown (NJ)
.
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Anatomy of Analysis
Is one or more of the stakeholders tax-exempt and subject to IRC §501(c)(3)?
Considerations: • ACO Private Letter Ruling 201515022 (April 8, 2016) – Arrangements benefitting
private physicians ruled impermissible private benefit, resulting in finding that ACO does not operate exclusively for charitable purposes and does not quality for tax-exempt status
• AHS Hospitals v. Town of Morristown (June 2015) – Ruling against hospital on state property tax exemption, based on finding that the hospital was profit sharing with for-profit entities based on its support for for-profit ventures
• Tax Reform Bill (December 2017) –
Potential for revenue ↓ for both for-profits and not-for-profits (fewer paid patients + decrease in charitable donations)
On the flip side, lower tax rate for for-profits, potentially
Impacts for CIN funding/FMV/commercial reasonableness questions?
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Anatomy of Analysis
Are there other state law issues that warrant consideration for the form or amount of compensation, including its FMV? Examples-
– State physician self-referral laws
– State anti-kickback and/or anti-fee splitting laws
• Is it enough to establish a percentage split, or does the valuator need to address the service/dollar split to navigate fee splitting concerns?
– State medical practice laws or regulations that restrict who can be paid how much and/or in what form for specific types of services in healthcare settings
– Insurance/risk bearing laws and regulations
– Have material state laws and rules changed recently- e.g. in response to value based payment, opioid crisis, etc.?
• The plan from three years ago may not be the best plan for today
• Involvement of appropriate counsel may be key
.
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Anatomy of Analysis
Selecting an Appropriate Valuation Approach • Potential Considerations and Pitfalls:
– Why FMV analysis is needed
– Selecting AN appropriate FMV definition
– Details of what is to be valued and appropriate understanding of the risks/”services”
– Appropriate valuation approaches for what is to be valued, taking into consideration applicable laws and regulations
• Cost Approach
• Market Approach
• Income Approach
– Challenges related to implementing specific valuation approaches under the typical (or atypical) circumstances
• Availability of appropriate data?
• Necessary assumptions?
• The evolving nature of circumstances and data in 2018? (see intro slides)
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Anatomy of Analysis
Pitfalls and Grey Areas: The View in 2018 Commercial Reasonableness:
– Are opinions of what is “reasonable” changing?
» Possible factors for consideration:
Shift from volume to value based payment
Advent of (and now changes to) value-based purchasing
Developments with MACRA, BPCI, CJR, changes in service demand
– Does commercial reasonableness affect FMV and/or vice versa?
– For consideration: Lexington Medical Center settlement (July 29, 2016) and Citizens Medical Center settlement (April 21, 2015)
» The whys of payments may be scrutinized in the context of the hows, and vice versa, and valuation approach should take this into consideration.
» “Quality” bonuses that do not actually improve quality may raise suspicion, and perhaps have no/ questionable value.
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Anatomy of Analysis
Pitfalls and Grey Areas: The View in 2018 • Patient Safety/Medical Ethics Considerations:
– Do they affect FMV?
– Should the valuator care about the “1%”?
– The Devil is in the details, and sometimes the details are bigger than they first appear:
» Performance to national benchmarks is generally good, but not always
• If 60% of people drive 100 mph on the freeway, but the posted speed limit is 55 mph, should we incentivize the other 40% of people to meet the community standard of 100 mph?
» Poorly planned metrics might literally be the death of people
• “Is it ok to pay to kill people?”
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Anatomy of Analysis
Pitfalls and Grey Areas: The View in 2018 • Necessary assumptions and limiting conditions:
– Garbage in = garbage out
– Keeping up with an evolving market and rules may be vital
» We have known unknowns and unknown unknowns, and these can affect value
• Issue Spot: co-existence of provider alignment arrangements - e.g., service line co-management + bundled payments + hospital gainsharing + CIN distributions:
– Commercial reasonableness questions
» Payments through different arrangements for the same services – sometimes ok, sometimes not
» No $100,000 toilet seat
– Rules of Thumb:
» Incremental pay for incremental work
» Duplicate compensation may doom you
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Anatomy of Analysis
Pitfalls and Grey Areas: The View in 2018 • CIN Operating Losses:
– Do they affect FMV in services relationships?
– Do they need to be explained/accounted for in the FMV analysis?
– What are the thresholds for what is ok – i.e., how much and how long are losses ok?
» 2018: larger and more established networks = more questions, possibly different answers
• Employed v. independent physicians: Is the FMV of CIN contributions and distributions different for employed physicians?
– Answer may be “yes” only with respect to some contributions and distributions
– Answer may depend on the valuation method chosen
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Anatomy of Analysis
Pitfalls and Grey Areas: The View in 2018 • Physician survey data “limits” for employed physicians:
– Do current survey data adequately (or at all) account for and apply to CIN distributions?
» Yes
» No
» Maybe?
– Do CIN distributions need to factor into an aggregate compensation analysis? If so, how?
» Incremental compensation for incremental work?
» Duplicate compensation can doom you?
– Developing: Tests for determining reasonableness of aggregate compensation
» Aggregate work hours
» % of compensation tied to non-measured/non-measurable works
» % of compensation tied to “quality” achievements
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Anatomy of Analysis
Pitfalls and Grey Areas: The View in 2018 • Other limits for employed physicians:
– Proportion of distribution amount that the employer passes to the employed physician
» 100% vs. less than 100%
» If less than 100%, is the exact percentage important?
» When is this an FMV and/or commercial reasonableness issue?
Always, Usually, Sometimes, Never?
– Possible rules of thumb:
» True achievement does not come from thin air.
» It is always best to strive for employer mitigation or explanation for losses.
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Anatomy of Analysis
Pitfalls and Grey Areas: The View in 2018 • Other limits for employed physicians (cont’d):
– Stacking of Compensation
» Is it appropriate/reasonable?
» Does it affect FMV for the subject services?
» Do CIN distributions count toward compensation caps?
• Incremental compensation for incremental work
• Duplicate compensation can doom you
– In 2018 and beyond, what is the impact of the QPP? Can you stack CIN distributions with:
» MIPS bonuses/penalties
» AAPM bonuses/penalties
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Anatomy of Analysis
