February 9, 2012 Orlando, Florida

American Health Lawyers Association Physician and Physician Organizations Law Institute Regulatory & Payment Issues and the Patient Centered Medical Home February 9, 2012 Orlando, Florida John E. Wyand, JD, FACHE Healthcare Practice Squire, Sanders (US) LLP 1200 19 th Street, N.W., Suite 300 Washington, D.C. 20036 202.626.6676 John.Wyand@squiresanders.com 36 Offices in 17 Countries Agenda Background Overview of the Patient Centered Medical Home Joint Principles of the Patient Centered Medical Home Example Legal and Regulatory Challenges Payment Issues and Hybrid Payment Models 2 1

Today's Care vs. Patient Centered Care TODAY S CARE My patients are those who make appointments to see me. Patients chief complaints or reasons for visit determine care. Care is determined by today s problem and time available today. Care varies by scheduled time and memory or skill of clinician. Patients are responsible for coordinating their own care. I know I deliver high quality care because I am well trained. Acute care needs met through next available visit and walk-ins. It is up to the patient to tell us what happened to them. Clinic operations center on meeting the clinician s needs. MEDICAL HOME CARE Our patients are those who are registered in our medical home. We systematically assess all our patients health needs to plan care. Care is determined by a proactive plan to meet patient needs. Care is standardized according to evidencebased guidelines. A prepared team of professionals coordinates all patients care. We measure our quality and make rapid changes to improve it. Acute care needs met through today s visit or non-visit contact. We track test results and consults and follow up after the emergency department and hospital. A multidisciplinary team works at the top of our licenses to serve patients. 3 Source: Heath Team Works, available at http://www.healthteamworks.org/medical-home/todayvspcc.html. Defining the Medical Home 4 Source: The Patient-Centered Primary Care Collaborative, January 2012 Briefing, available at http://gallery.mailchimp.com/dcfdd33cdd540f634734cf274/files/pcpcc_powerpoint_slides January_2012_Briefing.pdf. 2

The Patient Centered Medical Home Governance and Principles The American Academy of Pediatrics introduced the medical home concept in 1967, initially referring to a central location for archiving a child s medical record. In its 2002 policy statement, the AAP expanded the medical home concept to include these operational characteristics: accessible, continuous, comprehensive, family-centered, coordinated, compassionate, and culturally effective care. The American Academy of Family Physicians and the American College of Physicians have since developed their own models for improving patient care called the medical home (AAFP, 2004) or advanced medical home (ACP, 2006). In 2007, the American Academy of Family Physicians, American Academy of Pediatrics, American College of Physicians and American Osteopathic Association, representing approximately 333,000 physicians, developed the joint principles to describe the characteristics of the Patient Centered Medical Home. 5 Source: Joint Principles of the Patient-centered Medical Home, American Academy of Family Physicians, American Academy of Pediatrics, American College of Physicians and American Osteopathic Association, March 2007, Available at, http://www.pcpcc.net/content/joint-principles-patient-centered-medical-home, last visited January 16, 2012. The Patient Centered Medical Home Governance and Principles Principles Personal Physician Physician-Directed Medical Practice Whole Person Orientation Description Each patient has ongoing relationship for comprehensive care. Team care with collective responsibilities. Health care team is responsible for providing or arranging care for all stages of life, including: preventive, acute, chronic, and end-of-life care. 6 Coordinated Care Quality and Safety Enhanced Access to Care Payment Care is coordinated, integrated across health care system and the patient s community. Aided by health information technology and exchange. Evidence-based medicine, clinical decision-support tools guide decision making; patients actively participate in decision making; information technology is utilized appropriately; patients, families, staff participate in quality improvement activities. Enhanced access to care available through systems such as direct telephone lines to care managers, open scheduling, expanded hours and expanded care delivery capabilities. Payment appropriately recognizes added value provided to patients who have a patient-centered medical home through combination of PMPM payment, FFS visits, P4P incentives, and shared savings payments. Source: Joint Principles of the Patient-Centered Medical Home, Available at, http://www.pcpcc.net/content/joint-principlespatient-centered-medical-home, last visited January 16, 2012. 3

The Patient Centered Medical Home [F]undamental redesign of community practices means new tasks for every member of the team, as well as new relationships between the on-site case management nurse and the primary care physician leader; between the primary care physician and specialists; and between the primary care physician and postacute care facilities and services. The redesign also requires new financial incentives, which can entail the redistribution of some proportion of achieved value in effect, gainsharing from the insurance company to the primary care team. Glenn D. Steele et al., Reengineering The Delivery System: Analysis & Commentary: How Geisinger s Advanced Medical Home Model Argues The Case For Rapid-Cycle Innovation, 29 Health Affairs, 2047, 2051 (2010). 7 Patient Centered Medical Home Innovation Community Physician PCMH Project involves four key independent primary care physician practice groups in the geographic service area of a progressive U.S. health system. Health system to which physicians refer patients to provide clinical pharmacist practitioners as well as transition and case management services (RNs and other professionals) on a shared basis at each of the four practice sites. Hospital will pay for project coordinator, case managers, clinical pharmacist practitioner, practice redesign services and NCQA recognition. Physicians will provide personal services to hospital for PCMH related information technology development, and process and outcome measurement. Shared arrangement and provision of services implicates Federal regulatory scheme. Several exceptions/safe harbors may apply including Personal Services Arrangements, FMV Compensation and Indirect Compensation Arrangements. Establishing regulatory safeguards and FMV analysis key to risk mitigation. 8 Source: Squire Sanders Client. 4

Medical Home Legal Challenges Patient Centered Medical Home Hospital provided resources for care coordination & practice transformation Shared savings payments Joint negotiations by unaffiliated providers Hospital/physicians participating in bundled payment arrangements Accepting full-risk contracts Legal Issues Stark/Anti-kickback Tax exemption (private benefit, inurement) Civil monetary penalties Antitrust State corporate practice of medicine laws, fee splitting State insurance laws 9 Stark and Anti-Kickback Stark Law - Prohibits a physician from referring certain services ( DHS ) to an entity where payment for the DHS is made under Medicare and where the physician (or a family member) has a financial relationship with the entity. 42 U.S.C. 1395nn. - Strict liability with civil penalties. - Exceptions (23), but none specific to the patient centered medical home models. Anti-Kickback Statute ( AKS ) - Prohibits any payment for referrals where payment for services is made under a Federal health care program. 42 U.S.C. 1320a 7b. - Intent based with criminal and civil liabilities. - Safe harbors (25), but none specific to the patient centered medical home models. Patient Centered Medical Home Implications - Arrangements involving hospitals and physicians will implicate Stark and AKS. - Can give rise to False Claims Act liability. 10 10 5

Stark & AKS Exceptions Stark & AKS: Bona Fide Employment - Identifiable services; - Remuneration consistent with FMV & not related to volume or value of referrals; and - Commercially reasonable even if no referrals made to employer. Stark: Personal Service Arrangement - Written, signed agreement; - Covers all of the services to be furnished by the provider; - All contracted services are reasonable and necessary for legitimate business purposes of the arrangement; - Term is at least one year; and - Compensation is set in advance, consistent with FMV and does not vary with volume or value of referrals. AKS: Personal Services and Management Contracts - Aggregate compensation must be set in advance; - Compensation consistent with fair market value; and - Arms length transaction. 11 Tax Exempt Status Internal Revenue Code and Treasury Regulations govern tax-exempt Section 501(c)(3) organizations. Private inurement is a diversion of charitable revenues to an insider. [1] The Treasury Regulations under section 501(c)(3) of the Code require that an exempt organization demonstrate that it is not operated for the benefit of private interests. Treas. Reg. 1.501(c)(3)-1(d)(1)(ii). Private benefit focuses on whether a charity is operated exclusively for charitable purposes rather than for the private benefit of a particular person or persons who need not be insiders. The presence of a single non-charitable purpose, if substantial in nature, will preclude qualification of the charity for exemption. [2] [1] United Cancer Council, Inc. v. Commissioner of Internal Revenue, 165 F.3d 1173 (7th Cir. 1999). [2] Gen. Couns. Mem. 39862 (November 21, 1991), citing Better Business Bureau v. United States, 326 U.S. 279 (1945). 12 6

Tax Exempt Status Inurement The IRS employs a three-prong test for analyzing whether a compensation arrangement may result in prohibited inurement. Generally, the IRS will examine the entire compensation package (including current and deferred amounts) to determine whether: - the payments are merely a device to distribute profits to principals or transform the organization s principal activity into a joint venture; - the package is the result of arm s length bargaining; and - the compensation constitutes reasonable compensation. [1] [1] See Gen. Couns. Mem. 39670 (Oct, 14, 1987). 13 Tax Exempt Status Private Benefit Any private benefit arising from an activity must be incidental in both a qualitative and quantitative sense to the overall public benefit achieved by the activity. [1] To be qualitatively incidental, the private benefit must occur as a necessary by-product of the activity that benefits the public. Such benefits might also be characterized as indirect or unintentional. [2] To be quantitatively incidental, the benefit must be insubstantial when viewed in relation to the public benefit conferred by the activity. The private benefit conferred by an activity or arrangement is balanced only against the public benefit conferred by that activity or arrangement, not the overall good accomplished by the organization. [3] [1] Gen. Couns. Mem. 39862 (November 21, 1991), citing Better Business Bureau v. United States, 326 U.S. 279 (1945), citing Gen. Couns. Mem. 37789 (December 18, 1978). See also Senior Citizens of Missouri, Inc., TC Memo 1988-493 (1988) ( an organization engaging in nonexempt activities can obtain exempt status so long as such activities are only incidental and less than substantial. ) [2] Id. [3] Id. 14 7

Civil Monetary Penalty Statute Civil Monetary Penalty ( CMP ) - Prohibits a hospital from knowingly making a payment (directly or indirectly) to induce a physician to reduce or limit services (items) to Medicare/Medicaid beneficiaries under the provider s direct care. 42 U.S.C. 1320a-7a. - Strict liability with civil penalties. - No safe harbors. CMP Patient Centered Medical Home Implications - Medical home models involving hospitals will implicate CMPs where shared savings are paid. - PPACA 6402(d)(2)(B), as cited in OIG Advisory Opinion 11-01, may signal the intent of Congress to permit shared savings payments that promote access to care pose a low risk of harm to patients and Federal health programs; however, such exception awaits the promulgation of regulations by HHS. 15 OIG s Concerns with Shared Savings Stinting on patient care by limiting the use of quality-improving but more costly devices, tests or treatments; Cherry picking by treating only healthier patients; Steering by avoiding sicker (and more costly) patients and steering those patients to hospitals that do not offer such arrangements; Quicker-sicker discharge of patients; and Unfair competition among hospitals offering cost savings programs to foster physician loyalty and to attract more referrals. Source: 73 Fed. Reg. 38,550 (July 7, 2008). 16 8

Safeguards for Consideration Transparency No adverse impact on patient care No disproportionate impact on Medicare patients or Medicare program Protections against inappropriate reductions in services Product standardization without limiting selection Compensation cap and per capita distribution Participation limited to physicians on staff Minimizing incentive to steer costly patients to other hospitals Source: OIG Gainsharing Opinions; Proposed Shared Savings Exception, 73 Fed. Reg. 38,548 (July 7, 2008). 17 Antitrust The Sherman Act [1] and the Federal Trade Commission Act [2] Prohibits physicians and physician-hospital organizations from agreements that unreasonably restrain trade and promote unfair methods of competition including pricefixing and dividing markets. - Per se violations or rule of reason. Antitrust Medical Home Implications - Substantial financial integration. - Substantial clinical integration. Federal Trade Commission - Proposed an ACO safe harbor, and - An expedited review process. [1] 15 U.S.C. 1-38. [2] 15 U.S.C. 41-48. 18 9

Anti-trust Safeguards Substantial Financial Risk - Capitated rate; - Percentage of premium or revenue; - Significant financial incentives to achieve specific costcontainment goals: Withholding a substantial amount for distribution to the group, or Establishing overall cost or utilization targets with provider participants subject to subsequent substantial financial rewards or penalties based on group performance; and/or - Global fees. Substantial Clinical Integration - Common information technology for exchange of all relevant patient data (EHRs); - Development and adoption of clinical protocols; - Care review based on the implementation of protocols; and - Mechanisms to ensure adherence to protocols. 19 HIPAA Electronic Health Records - One record per patient, or multiple records? Sharing costs of technology - Stark exception (42 CFR 411.357(w)) - Anti-kickback safe harbor (42 CFR 1001.952(y)) 20 20 10

Impact of ACO Waivers ACO Waivers. CMS and the OIG published an interim final rule for waivers in connection with the Shared Savings Program that establishes waivers of the application of the Stark Law, the Anti- Kickback Statute, and certain CMP law provisions to specified arrangements involving ACOs. There are five waivers addressing different circumstances including an ACO Pre-Participation Waiver that applies to ACO-related start-up arrangements in anticipation of participating in the Shared Savings Program and an ACO Participation Waiver that applies broadly to ACO-related arrangements during the term of the ACO participation agreement under the Shared Savings Program. The waivers apply only to the specific provisions of the laws enumerated in the waivers and do not apply to any other provisions of Federal or State law. Medical Home Development inside an ACO could provide further protection against legal implications. 21 Payment Issues If you ve seen one, you ve seen... one. PCMH Hybrid Payment Models Fee for Service + Management Fee + Pay for Performance Model. Evidence-Informed Case Rate Model. Risk-Adjusted Comprehensive Payment and Bonus Model. 22 11

Payment Models Fee for Service + Management Fee + Pay for Performance Model. This three-prong payment model includes traditional fee-for-service payments, a fixed management fee and pay-for-performance payments. Sometimes, a payor will include an initial payment to cover start-up expenses. Evidence-Informed Case Rate Model. The Prometheus Evidence- Informed Rate Model establishes payment or case rates for the treatment of specific conditions based on the cost of all services, pharmaceuticals, tests, equipment, etc., needed to treat the condition following agreed-on evidence-based clinical practice guidelines... or expert opinions. Evidenced-based case rates are complex models that must be frequently updated as costs and best practices evolve. Risk-Adjusted Comprehensive Payment and Bonus Model. This model seeks to align payment with desired outcomes by providing a riskadjusted comprehensive payment in return for provision of comprehensive, coordinated, personalized care. The PCMHs receive a risk adjusted PMPM payment for each enrolled patient. Periodic bonus payments, based on achievement of evidence-based performance metrics for cost, quality and patient-centered care, are added to the PMPM payments. 23 Questions? 24 24 12

Contact Information John E. Wyand, JD, FACHE Healthcare Practice Squire, Sanders (US) LLP 1200 19 th Street, N.W., Suite 300 Washington, D.C. 20036 202.626.6676 John.Wyand@squiresanders.com 25 13