Search the Site

Subscriber
Services

Teleconferences

Home

About Us

Upcoming
Speeches


Latest Issues

Available
Speeches
and
Presentations


AGG
Notes


Publications

For Sale

Links

Privacy Policy

Contact Us

AGG AGG
AGG Latest Issues in The Industry

 

We have added this guide to Latest Issues to enhance its utility. We now group developments by topic area and link to the relevant place in the Latest Issues discussions. Topics include (1) Quality (61 entries); (2) HIPAA and Data Issues (8 entries); (3) Compliance, Stark and Fraud and Abuse (56 entries); (4) Reimbursement (29 entries); (5) Medical Staff Issues (25 entries); (6) Contracts, Antitrust and Other Issues (22 entries); and (7) PROMETHEUS Payment® Model (7 entries). Developments still appear in reverse chronological order with the most recent listed first. Some developments may appear under multiple topics because they have multiple implications.


1. Quality

2. HIPAA and Data Issues

3. Compliance, Stark and Fraud and Abuse

4. Reimbursement

5. Medical Staff Issues

6. Contracts, Antitrust and Other Issues

7. PROMETHEUS Payment® Model


The fraud and abuse liabilities which lurk in inadequate quality performance have been highlighted on this website since 2003 with an AGG Note and later her article in The Journal of Health Care Compliance, “Doing What Matters.” From Jim Sheehan’s first public statements on his priorities regarding quality enforcement, to the first OIG settlement based on quality failures, to Sheehan’s 2006 PowerPoint enumerating the many ways in which quality will be the foundation for fraud enforcement, the weight of punitive attention is increasing. Now, with the OIG's published statements regarding Board responsibility for quality in hospital, and a major initiative on nursing home quality performance beginning with a joint publication with the Health Care Compliance Association the pace of the inexorable moves in this direction has quickened considerably. Those who ignore the risks do so at their own peril.

Recognizing the need for a far better appreciation of these risks in the hospital community, Jim Reinertsen and Jamie Orlikoff invited Alice to provide the core content for a webinar to elucidate the context for quality fraud and, more importantly, to provide practical guidance on coping with this new compliance imperative. She identifies specific implications for physician groups. A recording of that program is now available. Click here.


First convened in December 2004 as a disparate group of experts intending to design a new payment model, PROMETHEUS Payment® Inc., has now been awarded a $6.4 million grant from the Robert Wood Johnson Foundation, to develop a scorecard, refine the concepts and most importantly test the program in four pilot sites across the country. Having modeled its first Evidence-informed Case Rates™ for actual implementation beginning in 2009, the results are quite stunning. In her plain language article, “Making PROMETHEUS Payment® Rates Real: Ya’Gotta’ Start Somewhere” Alice explains the methodology of constructing the rates. First, she elucidates how the Design Team took into account its clear understanding that physicians would be suspicious of rates built on claims data. There are five specific financial cushions built into the rates. The result is that the care for a controlled non-insulin dependent diabetic, whose care comes primarily from a physician office, would be paid based just on the claims data at $311 a year; but, under the PROMETHEUS system, the same patient’s care would be eligible for $2329 to the physician!!! At the same time, what is most remarkable, is that this approach to the broad problem of delivering science based diabetes care would save the system represented in just the database we are using and this one condition, more than $340 million. This is a very powerful reason to move to the PROMETHEUS Payment® model. Similar results are emerging for the other conditions we will address initially as well. The more important hidden message in the article, though, is whether our specific program is implemented is not the issue. Throughout the American healthcare system, we are spending extraordinary amounts of money on potentially avoidable complications, while we are not paying providers enough to do what needs to be done to prevent those complications in the first place. Exploring which services the PROMETHEUS model considers to be potentially avoidable, and then analyzing how to avoid them, is a good way to think about how to organize clinical service delivery for better results with greater efficiency.


With her study of the current identified effects of P4P, traditional compensation models within physician groups, survey of groups which do compensate on quality and consideration of the legal issues in doing so, Alice opened the door to focusing on this aspect of motivating quality improvement. In her article, “Compensation for Quality: The Next Inevitable Step”, she not only makes the point that quality will never reach optimal levels if physicians do not have consistent payment incentives within their groups, but she affirmatively calls for more information about organizations which do pay their physicians for quality. It is hard to believe that only 14 groups around the country, and most of them very large multi-specialty organizations, are experimenting with these efforts. If your group pays your physicians in any measure for their quality performance or based on their quality performance, please contact us at agosfield@gosfield.com with your story.


The regulations now referred to as “Stark III” have added to the complexities of Stark compliance, but do not require major reorganization of business or delivery relationships. There are many opportunities for hospitals to help physicians with their business case, including paying for quality performance, which is particularly intriguing in light of the widespread emphasis on measured hospital quality improvement. In her two part article “Stark III: Refinement Not Revolution”, Alice first identifies issues associated with Stark as applied within physician groups and in the second part identifies opportunities and pitfalls that the new regulations raise, with regard to hospital-physician interactions.


The challenge of engaging physicians in quality initiatives at the hospital often falls most heavily on the shoulders of the medical leadership in the C-suite, whether the chief medical officer or the VPMA or the chief of staff. In their article directed to these folks, “Finding Common Cause in Quality: Confronting The Physician Engagement Challenge”, Jim Reinertsen and Alice Gosfield dispute the metaphor offered by Jeff Goldsmith of the hospital-physician engagement continuum as a coral reef of predators and prey. From their continuing work with IHI and medical staffs and hospitals around the country, they continue to hold the firm belief that enormous strides can be made for better patient care and more activated physicians, when physicians are seen as the hospitals true partners and not mere customers.


A case recently decided in the Commonwealth Court of Pennsylvania has taken the quality-payment nexus further without any “never event”, or a finding of fraud, or even a bad outcome to the patients involved. In Pinnacle Health System v. Department of Public Welfare (2008 WL 140985) the hospital appealed from payment denials affirmed by the Bureau of Hearings and Appeals. The Medicaid agency denied payment for psychiatric hospitalizations where the patients were not seen by a psychiatrist on a daily basis. The hospital argued there was no regulation requiring it. The agency argued that this failure caused care to fall below the regulatory requirement that care be rendered in accordance with "accepted medical treatment standards." Both sides had experts -- the hospital's testifying to the fact that daily visits were not medically necessary, the agency's that daily visits were the standard of care. While the standard of judicial review for administrative purposes was whether the determination by the agency was supported by substantial evidence, the court held that even though the standard of ‘accepted medical treatment standards’ was general, it was not improperly vague and did put providers on notice of what was expected of them.

Considering (1) standard managed care contract language regarding treatment in accordance with accepted standards of care, (2) the burgeoning expectations that American health care should be provided at higher levels than it is, (3) increasing fraud and abuse liability for quality failures and (4) that malpractice caselaw which addresses the standard of care has imposed as the standard of care treatment regimens not widely applied, the Pinnacle case offers a tightening view of the quality imperative. Without a finding of malpractice, fraud, or a “never event” payment denial for failure to deliver services properly is a new reason to do the right thing at the right time in the right way.


Pay for performance is sweeping the country. Despite equivocal data as to success and impact, most payors regard it as inevitable, and most physicians are resigned to its arrival soon at a theater near them, if they are not already confronting it. Medicare’s ‘pay for quality reporting’ initiative really is “pay for whatever I did” because it is the completion of the form, not the quality of the care, which gets the payment bonus. CMS was met with a tepid enrollment of 17% of potential participants. And that program is not limited to physicians, but includes other non-physician practitioners as well. While these initiatives continue to be touted as ‘payment reform,’ on the other side of the ledger, both CMS and many health insurance programs are adopting no pay for no performance programs by denying payment for never events -- mishaps of such an egregious nature that they never should have occurred in the first place. Hospital associations have stepped forward to say their members will not bill for such events including wrong site surgeries, retention of foreign objects after surgery, death or disability associated with wrong type blood transfusions. First promulgated by the National Quality Forum in 2002, the list of the initial 27 “never events” is not without controversy, since a range of the conditions cited include matters which may have been present on admission (decubitus ulcers). Medicare has proposed to add conditions to those it already requires to be reported and on which it will not pay for the care devoted to treatment of the event or complication. There is some question as to whether this approach will be applied to physicians. In the PROMETHEUS Payment® model, a readmission for something related to myocardial infarction within thirty days of discharge is considered a potentially avoidable complication for both the physician and hospital.


The antikickback statute has been enforced for the most part in settlements between the government and those alleged to have violated the rules. Most of the cases brought to date have entailed fact patterns where there have been actual payments for referrals or clear in-kind benefits flowing between one provider and another. Now in a novel whistleblower case out of Ohio, the government has intervened in a case which turns on the alleged preferential allocation of heart station service slots to one large cardiology group over others. The issue of interpretations of diagnostic studies performed on unassigned patients, most of whom come through the emergency department, is one which has been at a slow boil on many hospital campuses for years. Because cardiology is one of the most important specialties to most hospitals, finding ways to keep peace in the cardiology valley is always a challenge. Where one very large group dominates the staff, tensions can arise. Here, a retired cardiologist is the whistleblower. The real implications, though, are that if assignment of unassigned patients on a heart station rotation schedule is a potential benefit susceptible to fraud enforcement, then so are the clinical privileges which hospitals seek to restrict through their loyalty oaths and economic credentialing exclusions.


In a very different spin on ‘quality’, this year marks the 20th anniversary edition of the Health Law Handbook. The book was identified as unique, even in the annals of Thomson Publishing Company, the parent of WestGroup, which now publishes the book – having been the purchaser of the big fish that ate Clark Boardman which first put it out in 1989. WestGroup noted the longevity of the book, and the challenge of having one author for all 20 editions. The book is written primarily for practicing lawyers, but it has over all of its time, offered the insights and opinions of well intentioned expert volunteers who share their intellectual capital with their colleagues – and the non-lawyers who read it, too – simply because they are asked to. Over the years it has become available on Westlaw. The book is available online.


Under the auspices of the Office of the Governor, North Carolina has launched a statewide program to implement evidence-based care guidelines for five chronic conditions. Health plans and providers have agreed to provide consistent services to patients regardless of their health insurance coverage. The initiative was apparently a year in its development. Involving collaborative efforts among physicians, quality experts and insurers, it is part of an effort “to fundamentally restructure the delivery of health care in North Carolina” in accordance with best practices. Interestingly, none of the press stories reveal the chronic, traditional anxiety-driven provider arguments with respect to potential malpractice liability which could emerge from the adoption of these guidelines. Perhaps we are finally getting to the enlightened understanding that doing the right thing will actually potentially prevent both malpractice claims and exacerbated illnesses --- the point of standardizing care in the first place.


When the privacy regulations were first adopted back in 2003, there was considerable anxiety among the provider community, and particularly physicians, with regard to the administrative burden of compliance and intrusion in the doctor-patient relationship that would come from the empowerment of patients to complain to the Office of Civil Rights regarding violation of their right to privacy. The OCR has now published data regarding enforcement of HIPAA privacy complaints and there can be no doubt that the number of complaints has indeed gone up substantially. In 2004, the first full year of the program, there were 6500 complaints filed. By 2007, that number had increased to more than 8100. But this is the grand total of all complaints received from all sources throughout the United States of America! Hardly a tsunami of privacy violations. The data on the website reports complaints filed by state and their resolutions. Although the ratios have changed slightly, more cases are determined to have no violation today, than four years ago. By far, most of the complaints are resolved on investigation and review and do not proceed further (69%). Of the cases that proceeded to investigation, last year produced almost 1500 ‘corrective actions’ (type unspecified) and a larger number (750) than before were found to have no violations.


Medicare has paid for services ‘incident-to’ physician services since the advent of the program in 1966. As the complexity of medical office practice has increased, there are many more types of clinicians who might interact with a patient in the office setting. The application of ‘incident-to’ principles has proven ambiguous, confusing and daunting to many physician practices. Now, similar to their purchased services debacle, a 23 page Transmittal that would have been effective June 2, 2008 has been rescinded. It imposed new documentation requirements and many aspects of the delivery of care left to carrier discretion in accordance with unarticulated standards. “Incident-to” remains in effect. The ‘incident-to’ rules offer an additional topic to be carefully incorporated into all physician practice compliance programs.


The ability to get proper on call coverage for the hospital emergency department is a growing challenge for community hospitals as documented by the Center for Health System Change. Specialist physicians have become increasingly fearful of serving on the on-call rotation given increased liability and larger numbers of indigent and uninsured patients. Medical staffs around the country have reduced the requirements for physicians on the medical staff to perform this function, which long was seen as the physician’s professional responsibility, which in earlier times they fulfilled without much complaint. To cope with this problem, hospitals have developed a range of strategies which the center identifies in their report. Now, for the first time, the OIG has issued an advisory opinion explicitly approving an on-call and indigent coverage program to pay members of the medical staff for performing these services. Some have declaimed the safeguards this hospital established as unwieldy and impractical, but the good news is that the OIG has acknowledged this critical dilemma. They are still confused, I think, over the role of the medical staff and that most bylaws no longer require most categories of the staff to provide coverage. And, the EMTALA liabilities to make sure coverage is available are the hospital’s and not the medical staff members’ unless they are on the on call schedule. This is one of many ways in which hospitals can pay physicians to do work on their behalf to the ultimate benefit of their patients.


Clinical integration is a technique by which independent physicians and group practices can relate to one another for quality and still bargain collectively over price with managed care plans. Cited by the FTC in virtually every settlement with IPAs and combinations that bargained collusively over fees, the indicia of proper clinical integration have not been well defined. Some settlements and one Advisory Opinion, now almost six years old, have staked out some of the turf, but most of what the government has reviewed, it has always seemed, were activities that have been motivated more by price than quality improvement. The lack of clear guidance has led the American Hospital Association to call on the FTC and DOJ for greater specificity in describing what would qualify as good clinical integration. Now, in their advisory opinion to the Greater Rochester IPA, the FTC has described a program which seems far more to emanate from a quality impetus. Because GRIPA was well integrated clinically for the work it did in connection with HMO products, it had a relatively easier time orienting its activities to the PPO, fee for service, business where the antitrust risks are far greater. The opinion is a useful statement of one modern model of clinical integration.


The recent change in the JCAHO Medical Staff Standard 1.20 to require that the medical staff bylaws be an integrated document has created a firestorm of controversy that should be less than a tempest in a teapot. Prediction of expensive disasters in redrafting bylaws, and arguing over what is process versus what is procedure, is absurd and fomented by a cadre of law firms who have made significant income from advising medical staffs and hospitals that the bylaws should be divided up into five different sections so that they may be more easily amended. The Medical Staff Bylaws are the Constitution of the Medical Staff and should be amended about as easily as the US Constitution is amended. We have written and advised on medical staff bylaws for more than 100 medical staffs all around the country over the last 30 years, and this is not all we do, as it is for some firms. We have never advised a medical staff to disaggregate their bylaws.

The other noteworthy change adopted by the JCAHO for 2009 is that the medical staff should have the right to propose medical staff bylaws changes directly to the board. This should be non-threatening unless you have a renegade medical staff or a renegade medical executive committee where the representative function of the MEC has broken down. It would be the board’s responsibility to sort this out if the medical staff asked for changes, not recommended by the MEC, that were not in the best interests of the hospital. Everyone should calm down about these feared power struggles and focus on the real purpose of the medical staff, which is to be responsible for quality in the institution. When organizations do that effectively the medical staff can become more galvanized for a far better purpose than internal turf and power struggles.


In October 2007, the US Attorney in New Jersey entered into deferred prosecution as well as settlement agreements with six device manufacturers who had paid physicians purportedly to advise them regarding the development of new devices. Unfortunately, many of these were apparently no show jobs. But in reading the settlements and corporate integrity agreements, while the manufacturers agreed to cease what the government found to be illegitimate relationships with physicians, the government did recognize that paying no more than $500 an hour to physicians to perform real services advising these companies would be permitted. This specifically acknowledges that device manufacturers do have a legitimate need for input from practicing physicians who might use their products. There are many myths about how device manufacturers and physicians may relate to each other. In “Physician Investment in Start-Up Device Companies: Debunking The Myths”, Alice presents the boundaries of safety and a continuum of arrangements between physicians and device manufacturers.


The last five years have heard a relentless call for information technology dissemination to improve quality and lower costs in health care. Electronic health records (EHR) have been touted as the first and most important step to a real technology revolution. For physicians, though, the cost of EHR implementation has often proven prohibitive. The Stark and anti-kickback protections for donated medical records was expected to jumpstart this effort. Not so fast. In his consideration of downstreamed EHR licenses Dan Shay takes his primer on EHR license agreements a step further in explicating the special complications of tri-partite license agreements. What happens on termination is at least as important as what is entailed in implementation.


Alice Gosfield and James Reinertsen MD have been working on techniques to help physicians and hospitals work better together to improve quality. In their white paper for IHI and their two day programs for IHI as well as other offerings, they describe a six step plan to accomplish improved engagement around quality. Now, in “Sharing the Quality Agenda with Physicians”, they focus explicitly on the unique responsibility of lay trustees to create more effective physician engagement with hospitals. They explain how the board can ask the right questions and seek the right data to make engagement and quality strides effective and real. They emphasize the importance of meeting the varying needs of different segments of the medical staff and describe Stark compliant initiatives that should be considered.


Pay for performance programs show no signs of abating in popularity, yet their impact remains equivocal. Whether quality would be better if physicians within groups also paid themselves based on quality performance is unknown. If the incentives of P4P are to have impact, how are those monies distributed to the individual physicians once the group gets paid? There is virtually nothing in the literature on point. In “Physician Compensation for Quality: Behind The Group’s Green Door,” Alice looks at the data on P4P programs, the basics of traditional compensation within groups and then presents the findings from a unique survey which was sent out on her behalf by the AMGA producing responses from 14 groups around the country who are variably paying for quality as part of physician compensation. Some report significant improvement in quality performance too. Alice then looks at the payment reform models on the horizon and concludes that traditional notions of productivity, on which most current group compensation models turn, will not reward what the new systems, and most particularly the PROMETHEUS Payment® model (www.prometheuspayment.org) is designed to generate. She examines whether the Stark rules on compensation will be a barrier to changed, creative approaches, concludes that it will not, and then looks at what employment contracts will have to accommodate to make physician compensation for quality within groups real and of value to both patients and physicians.


The most astonishing reimbursement development of 2007 was a major change in the rules regarding the prohibition on the markup of diagnostic testing. The provision was originally to be effective January 1, 2008, but on January 3, 2008 CMS forestalled its effect except for anatomic pathology services and the old version of purchased technical components which had been in effect for 19 years. A statutory prohibition on testing markup was first enacted by Congress in 1988(!). HCFA and now CMS have never really defined what a purchased service is. Most sophisticated lawyers assumed that ‘a girl and a gizmo per click’ was the essential definition of a purchased technical component. The penalty for marking up is $2000 per improper claim!! Until these final rules, the only discussion of a ‘purchased’ professional component was in the reassignment rules which have long provided that only an imaging center was really in a position to ‘purchase’ an interpretation. If the components were purchased, the interpreting physician did not have to complete an 855R and join the reassignment account because the center would purchase study by study. The Stark rules say that an independent contractor physician is only ‘in the group’ for purposes of referring for studies, supervising them and rendering designated health services (DHS), when they are on the premises of the group. Still, under Stark, groups could share facilities on block time leases, as long as they met the rules on co-location of offices where they rendered non-designated health services [See our AGG Notes, May 2004], or they could maintain their designated health services in stand alone facilities which they owned or controlled 24/7. If they proceed with the rules as drafted, those Stark rules would be applicable to whether services can be provided in those settings, but the new rules would affect price.

CMS has defined whether a service is subject to the prohibition on markup by reference to the location where it is provided. It doesn’t matter who owns the equipment, who employs the personnel, whether they are full-time, part-time, W-2 or independent contractors or even if they have reassigned on an 855R! To avoid the markup prohibition the service must be provided in office space of the billing physician organization where the group or the physician provides substantially the full range of services offered by the organization. Unless the service is ‘purchased’ (still undefined) the claim must show the lower of the fee schedule amount or the actual acquisition charge, whichever is less. Where there is no per click charge, the billing practice must determine the ‘net charge’ to submit to Medicare. CMS has steadfastly refused to give any guidance on how to calculate it, saying the burden is entirely on the billing entity. CMS suggests, though, that one might want to consider figuring out the net charge by dividing up the technician’s pro rata salary or hourly rate across the number of studies done. Of course, since these rules pertain to all diagnostic testing including Stark DHS, this approach would vitiate the centralized building opportunity under the Stark statute. Unless the group has co-located offices where they do substantially the full range of services they do, the services are subject to the prohibition on markup even if they own the building, the equipment, the tech and/or the physicians! CMS first proposed exactly the same standard under Stark and then ended up using the hourly co-location for shared facilities. Until January 1, 2009., pending their 12 months to study the issue, the current Stark rules will work just fine.

Many mobile arrangements where specialists lease their equipment and technicians to primary care practices can work well under both sets of rules. Many other arrangements where specialists lease space in the same building as referring physicians would have to be changed under the pending rules because those transactions create a study subject to anti-markup unless the group provides substantially the full range of services at the off-site location. Although they are now delayed, the rules would not prohibit arrangements. They simply take the fee schedule based reimbursement system that Congress created in 1992 and turn it into a cost-based system. The rules are only about pricing and not about anything else.


The Social Security Act has long had on the books a provision which states that an entity may be excluded for charging Medicare ‘substantially in excess’ of its usual charge. Many people think this is a provision which requires that all charges to all payors be the same as Medicare charges, which is not true. The statutory provision made some sense in the old reasonable charge reimbursement days when the Medicare allowable amount was calculated on the basis of reference to the ‘usual, customary and reasonable’ charge. With the advent of RBRVS and the Fee Schedule, Medicare no longer calculates ‘usual charges’. Almost four years ago in September, 2003, the OIG proposed regulations which attempted to interpret the statute. They had major problems, and the only thing good in them was that they took the position the provision did not apply to charges for physician services. The OIG has now withdrawn the proposed regulations with no plans to reissue them. Even so, they state an intention to continue to monitor “individuals and entities” for violations, impliedly recasting the specter of evaluating physicians against this standard. The statutory provision remains on the books, available for interpretation by the government with no guidance to the industry. As a practical matter, the provision comes into play when physicians and other providers enter into discounted relationships which become a significant portion of their revenue stream. When that happens, the statutory exclusion could be triggered. So, while we have no standard for what constitutes a ‘usual’ charge, but by definition it entails something relatively frequent. Our standard advice has been that when your discounted business (by comparison with what you charge Medicare) rises to 45% of your payor mix, your discounted charge is approaching something ‘usual’. As to “substantially in excess”, the proposed rules used 120% of the Medicare charge, but that has now been withdrawn.


Beginning in 1999 and completed by 2006, CMS has gradually transferred the responsibility for detecting and deterring fraud and abuse in Medicare from carriers and fiscal intermediary fraud units to Program Safeguard Contractors (PSCs). If you get a letter from one of these entities, look carefully at the bottom. It will appear to come from CMS but it will not have the name of your usual carrier or fiscal intermediary. The OIG has recently evaluated the performance of these entities in the primary activities of investigations, case referrals to law enforcement and proactive data analysis. The PSCs are expected “to be innovative and effective in data analysis, moving beyond the capabilities of carrier and fiscal intermediary fraud units.” The PSCs proved wildly variable in the intensity of their activities. For 2005, on the Part A side, each one reviewed produced between 5 and 449 investigations, while on the Part B side they initiated between 18 and a whopping 3707 investigations, with a median of 196. While the Program Integrity Manual emphasizes data analysis as the primary technique to identify targets for fraud and abuse investigation, the OIG found that only 18% of the PSCs were doing so. What does this mean? The OIG has recommended better reporting of PSC activities to CMS. This means they will increase their level of activity because they will be measured on it. CMS has said it will allocate budgets based on activity levels. These contractors are in business to make money, so increased activity means they can make more money, so they will increase their activity. Post-payment audits which produce overpayments are a primary focus of the PSCs for Part B. You should expect more of them. In addition to sounding the bell to review and evaluate documentation and billing, because analysis of data will drive much of what they do, a practical step is for every physician practice to make sure that each physician within it is carried under the right specialty for his or her practice. If an internist is really doing cardiology, the likelihood of data aberrancies by comparison to internal medicine peers will increase. There are about 55 specialties recognized by Medicare. Being listed in the wrong way can produce far closer scrutiny.


Virtually undiscussed in the literature is a recent (April 2007) GAO report on how a focus by Medicare on physician practice patterns could lead to greater “program efficiency”. That phrase is redolent of the commercial payor movement to tiered networks, episode treatment groups (ETGs) and other ways to determine which providers are the cheapest at rendering appropriate care. The GAO focused on outlier generalist physicians who treat a disproportionate share of overly expensive patients. These physicians saw similar numbers of patients as others but, by comparison with their peers, were more likely to admit to the hospital, more likely to generate multiple admissions per patient and were more likely to have used home health services but less likely to have been admitted to a skilled nursing facility. The GAO explicitly looked at how ten private health care purchasers are tracking efficiency, reporting that all compared actual spending for physicians’ patients to expected spending for the same patients, given their clinical and demographic characteristics. The GAO called for legislation to give Medicare the ability to deploy incentives used by other purchasers --- from steering patients to more efficient physicians, to excluding inefficient physicians. As Medicare is now implementing a widely criticized and administratively burdensome ‘pay for reporting’ (not even pay for performance) program, it can be expected that efficiency measurement will make its way into the Medicare toolkit as well. This current expectation should translate into an even greater motivation to pro-actively prepare for better clinical collaboration such as that motivated by the PROMETHEUS Payment model®.


With the announcement of an initiative to launch September 2007, CMS will seek information from 500 hospitals nationwide about physician investment in them. Of broader significance, however, they will also be asking hospitals for disclosure of hospital-physician compensation relationships under Stark. Half of the hospitals are those who did not respond to a voluntary request for data. The others will be chosen at random. In the announcement of the now mandatory reporting, the government makes it clear that the information can be used by them for any legitimate purposes including enforcement. While this announcement is a good reason for hospitals and physicians throughout the country to review all such relationships for compliance, it is not well understood that the Stark regulations offer both flexibility and some opportunities for hospitals to pay physicians directly for work they do for the hospital’s benefit. The Phase II regulations made it clear that compensation for physician personal services provided to the hospital has safe harbors which are specified in the definition of ‘fair market value’. At the same time, the preface to the regulations explicitly states that paying outside of the 50th percentile of MGMA does not necessarily violate the law, although safety is not guaranteed there.

Paying physicians for their time in helping the institution improve its quality performance is increasingly important, as physicians struggle against lowering reimbursement and higher overhead expenses. Increasingly, hospitals are already paying for medical staff leadership and committee service. As the activities for which physicians are paid expand, the fundamental problem is that they can primarily be paid for their time --- the one dear commodity they have little to spare. There are, however, a host of things hospitals can provide which benefit physicians and enhance both of their business cases, while improving quality --- all without making cash payments to the physicians. These are issues we have addressed in our articles in Hospitals and Health Networks Online (Part 1, Part 2), the Journal of Oncology Practice, the IHI White paper and more. Some of our clients are also looking more closely at rewarding the “good citizenship” of their active medical staff members --- the ones who attend meetings, and work on quality initiatives and help the organization meet quality targets. Without paying for achievement of good results (which patients expect of their hospitals and physicians anyway), some hospitals are considering more innovative approaches: when departments are working hard and achieving good quality scores, they get departmental perks from flat screen TVs and free internet access in the departmental doctors’ lounge, to a preferred line for transcription or lab results, to concierge-type support for their offices in the admission process. Some hospitals are offering these ‘rewards’ to individual physicians whose services contribute to high quality scores. None of these implicate the Stark statute because they are not about providing physicians with a financial benefit or service they would otherwise pay for themselves. These are services specifically valuable to the hospital, but they give the physicians back time. Using the compliance education regulatory exception under Stark has become even more popular as the legal issues associated with quality, including antitrust, PQRI and P4P, have multiplied, along with more traditional concerns of false claims liability and appropriate referral relationships. Hospitals can offer (read ‘pay for’) educational programs to help physicians learn to help themselves, as long as they physicians don’t get CME for the program.


On December 5, 2006, Health Affairs published a web exclusive series of articles offering some fascinating perspectives on hospital-physician relationships which are particularly relevant to physician engagement with hospitals around quality. Berenson, Ginsburg and May observe that physicians have increasingly become competitors of the hospitals which were formerly their most valued “significant others”. Fischer, et al. argue that hospital quality results should be measured to include the “extended hospital medical staff” which would take in physicians who refer to the facility but never set foot in it. Wilensky, Wolter, and Fischer present a new spin on gainsharing as a way to meet the ever elusive goal of “aligned incentives”. Smithson and Baker contend that the medical staff organization itself is a moribund anomaly and not worth accommodating at all. Goldsmith offers a view of the medical staff as a Darwinian coral reef with predators and prey; while Cortese and Smoldt claim that legally integrated hospital-physician entities are the only hope for the future.

The provocative juxtaposition of these articles reflects the intensity of interest in the intersection of physicians’ economic behavior with the hospital’s status as an institution where most of the activities are driven by physician orders. All acknowledge that improved medical staff-hospital relationships are indispensable in today’s world.

Our work takes the position that the structure of these relationships is not the issue at all. Too much time of lawyers and accountants is spent constructing financial transactions that will bond the physicians to the hospital by generating revenue for them. There is no question that paying them for some activities is useful. Rebuilding trust where it has broken can sometimes begin with a good business deal. But, from the IHI program and white paper, to “Doing Well By Doing Good” going back through a host of other publications including the AMA White Paper from 1998, our view is that most physicians have a profound interest in quality, particularly in terms of outcomes for their patients and efficiency in the use of their time. The holy grail of “aligned incentives” and structure-driven solutions can only offer short-lived hope unless these efforts recognize that physicians themselves are increasingly reported on for their quality results, risk fraud and abuse enforcement for quality failures, and have a strong cultural concern for excellence and professionalism. All combine to define their business case for quality which must be the fulcrum to better relationships with hospitals if they are to be sustainable.


The increasing emphasis on quality as a basis for fraud and abuse enforcement is now clear. Yet many compliance officers are not integrated into the quality activities of the organizations they serve. In her viewpoint on “Doing What Really Matters: The Compliance Connection to Quality” in the Journal of Health Care Compliance, Alice presents three activities through which compliance officers can work more effectively on quality issues in addition to the fundamental challenge of raising the consciousness of the board and administration of any healthcare entity to these new quality mandates.


Among the many strategies for closer alignment between hospitals and their physicians are the proliferating joint ventures and financially driven exercises, including gainsharing, that are intended to capture with more revenues the loyalty of the medical staff members who are involved. In an editorial in a recent issue of the Journal of Oncology, “Physician-Hospital Partnerships: What Really Counts?”, Alice argues that unless the quality implications of hospital-physician ventures are their driving purpose, these transactions may generate short-term revenues, but they will not feed the core needs of their participants. Still, they may have an important role within the context of a well-thought out physician engagement strategy.


The PROMETHEUS Payment® model is designed explicitly to reward clinical collaboration among otherwise independent providers. Since 30% of any provider’s scores will turn on the performance of all the other providers treating the patient for that condition, and scores determine the totality of the payment a provider can receive, there is a real reason to pay attention to the web of referral relationships – from whom you take referrals, to whom and where you refer. Even when the optimal moment for referral occurs would be an important point for agreement among clinicians – whether primary care to specialty, vice versa or among specialists. In fact, much of what PROMETHEUS Payment® would reward, providers should be doing anyway. In her article “A New Payment Model for Quality: Why Care Now?” Alice articulates some of the steps providers should be taking anyway to improve their care and their efficiency.


The interest of federal prosecutors in quality has never been as intense as it is today. As a dramatic manifestation of prosecutorial focus on board responsibility for hospital quality generally and “the quality we are paying for,” attached is a PowerPoint presentation created by James G. Sheehan, Associate Attorney in the U.S. Attorney’s Office of Philadelphia. You will note that, as in many prior instances, he is identifying both specific cases that will be models for future prosecutions as well as upcoming new approaches to prosecution. He has always followed through on such public statements. All hospitals should take heed.


In the late 1970’s, the concept of independent physiology laboratories (IPLs) was created by an Attorney General opinion to permit otherwise unrecognized providers to bill Medicare for the delivery of non-invasive diagnostic services that did not qualify as clinical laboratory services. Over the years, IPLs proliferated with virtually no quality controls over them. In 1997, HCFA published regulations creating independent diagnostic testing facilities (IDTFs) with quality controls to make sure Medicare beneficiaries would not be harmed. From 2000-2006, in California alone there was a forty percent (40%) increase in the number of IDTFs and a four hundred percent (400%) increase in the provider numbers billing for these services. As a result, the government has now established almost a dozen performance standards for IDTFs. Since physician practices may hold numbers both to submit as physicians and as IDTFs all should evaluate the new requirements. Interestingly, in addition to relatively standard types of controls such as maintaining liability insurance, assuring that equipment is at a physical location, answering beneficiary complaints, posting regulatory standards for patients to see, testing and calibrating equipment, and disclosing with regard to ownership, the standards now say that physicians supervising may not supervise more than three IDTF sites and the IDTFs may only provide services upon an authorized practitioner’s request. Patient Self-referred services are not covered. This change represents an increasing attention by the government to the appropriateness of care both in terms of efficiency and quality.


With the crisis regarding the Sustainable Growth Rate (SGR) creating a significant reduction in physician reimbursement under Medicare for 2007, Congress enacted the Tax Relief and Healthcare Act of 2006. While Congress froze payment rates to 2006 levels, they also created a program to provide bonuses for physicians to report on consensus based quality measures. The first measures would be those used in the Physician Voluntary Reporting Program until the end of 2007. After that the measures will be specialty focused and consensus based, meaning endorsed by a national organization such as the Ambulatory Quality Alliance or the National Quality Forum. The standards apply to physicians, non-physician practitioners, and physical and occupational therapists. The bonus of 1.5% of allowed charges for satisfactory professional service reporting will give physicians more of a reason to pay attention to what their specialty acknowledges as legitimate measures of quality. There are no appeals of the determinations that the Secretary makes on this payment and there will be sampling to validate the program. The system need not be implemented by regulation but may be implemented through program memoranda. These are easily accessed through the CMS website (when it is working).


When Congress appropriates $1.35 billion dollars for physician quality improvement initiatives, the federal government is getting serious about quality. Section 204 of the Medicare Improvements and Expansion Act of 2006 created a demonstration project to evaluate the viability of the “medical home” concept sponsored by the American College of Physicians and the American Academy of Family Physicians for primary care physicians to coordinate care on quality issues. At the same time, under Section 203, the OIG was called on to report in two years on “never events” (e.g. amputating the wrong leg, operating on the wrong patient) which the National Quality Forum has identified as errors that should never happen. The issue for the government is how to avoid paying for these events and to what extent payment is denied. For example, if the wrong leg is amputated, should only the hospital not be paid or also the anesthesiologist and the surgeon who participated? These questions have no answers yet, but the Congressional focus on these issues brings Medicare far more in line with the direction private industry has been moving, and much faster than has typically been the case.


Implementation of the PROMETHEUS Payment® model is progressing. With sponsorship from the Commonwealth Fund to model Evidence-informed Case Rates™, the program expects to launch in the latter part of 2007. To make it real, there are contractual issues that must be addressed including what is appealable and what is not. In her 2007 Health Law Handbook chapter Alice provides “The PROMETHEUS Payment® Program: A Legal Blueprint which outlines not only contractual terms but also potential liability and data issues associated with PROMETHEUS Payment® implementation.


Quality is increasingly becoming part of the basis on which providers compete. While advertising about quality really began with managed care organizations, it has now spread to many hospitals and increasingly will be of interest to physicians. The issues associated with physician advertising, including trademark, liability and branding concerns, are addressed by Daniel Shay in his 2007 Health Law Handbook chapter “Four Out of Five Doctors Need to Know: Legalities of Physician Advertising.” These matters are of increasing concern to our clients, beginning with the plethora of generic names which they use to describe themselves. Diagnostic testing services all over the country call themselves “Cardiac Diagnostic Services”, “Diagnostic Cardiology Services”, and the like. Similarly “Cardiovascular Associates”, “Cardiovascular Consultants” and “Cardiology Consultants” can be found in every state. This is not smart marketing. There is no question that consumers get confused and contact the wrong providers. Savvy physician groups will look at Daniel’s article.


One of the critical challenges for hospitals and physicians looking to successful futures is their ability to work together to meet their patients’ needs. The internationally renowned Institute for Healthcare Improvement has, under the leadership of James L. Reinertsen, M.D., launched its first ever program oriented around physicians. “Engaging With Physicians In A Shared Quality Agenda” is a two day in-person program first offered September 8-9, 2008 in which Alice Gosfield is part of the four person faculty. It sold out six weeks before its scheduled presentation. A new program has been added to the agenda July 13th and 14th in San Francisco. The program establishes a framework to plan and execute successful physician engagement around quality. Jim and Alice are also available to present their parts of this program outside of the IHI context. The core principle here is that hospitals will fare far better if they organize more around engaging effectively in the physicians’ quality agenda.


The Ventura County California hospital-medical staff case generated a firestorm of controversy regarding board involvement in medical staff governance before it was eventually settled. The parties had very intense views regarding the matters at hand. (See the views expressed by the the attorneys representing the physicians). Subject to significant physician advocacy, the California legislature enacted a law establishing the medical staff’s right of self-governance in the most explicit terms ever . Specific topics statutorily reserved to the medical staff include selection of clinical criteria and standards to oversee and manage quality assurance and other medical staff activities, selection and removal of medical staff officers, and the right to retain and be represented by independent legal counsel. In case of any dispute on these issues, the medical staff and hospital governing board are obligated to meet and confer in good faith to resolve the dispute. Astonishingly, though, the statute says that when any person or entity is even about to engage in acts or practices that hinder, restrict or obstruct the ability of the medical staff to exercise its rights, the superior court “on application of the medical staff” may issue an injunction. (West’s Ann. Cal. Bus. & Prof Code §2282.5). While acknowledging the ultimate authority of the hospital board to protect the quality of medical care and competency of its medical staff, the legislature explicitly stated that their final authority may only be exercised with a reasonable and good faith belief that the medical staff has failed to fulfill a substantive duty pertaining to quality of patient care.

Many commentators have characterized this legislation as establishing that the medical staff must be considered an independent legal entity. For many reasons this would be a disaster, although there are physician advocates that have long called for this approach in the form of incorporating the medical staff. Certainly the medical staff counsel in the Ventura case makes that argument. We do not read the statute as requiring that the medical staff be seen as an independent entity and will be keenly interested in how it is interpreted by the courts. The new possibilities for liability where a medical staff is separately incorporated are significant: If it will then be able to conspire with the hospital board under antitrust principles pertaining to credentialing. It will have its own separate malpractice liability for negligent credentialing. It would not be protected under the hospital’s own director and officer’s liability insurance but rather would have to obtain its own. The full interpretation of the statutory provision is not yet known; but for medical staffs which act responsibly to surveil the quality of care in the organizations to which they direct their attention, the decision to incorporate should not be lightly taken. While ‘bad cases make bad law’, the essence of this law is not bad. It’s interpretation in already difficult circumstances could create serious consequences. In the last analysis, the extremely critical role of the organized medical staff for quality assurance and particularly among their peers, is strongly supported here. How to change the way medical staffs and hospitals interact around quality is the key challenge for hospitals of the future and a substantial theme in our work. (See “In Common Cause for Quality”, “Engaging Physicians in a Shared Quality Agenda”, “W(h)ither Medical Staffs? and more throughout Latest Issues and in Publications


The issue of how physicians can collaborate effectively when two specialties seek to perform the same services has presented increasing challenges in many contexts. A classic problem area with regard to this is the advent of coronary computerized tomographic angiography (CTAs) performed by cardiologists who generally do not read the full chest cavity. In contrast, radiologists frequently hold exclusive privileges at the hospitals at which they practice and are not as intensely focused on cardiac organs. The American College of Radiology asked us to provide them with a white paper elucidating potential reimbursement liabilities associated with splitting these interpretations. That white paper is now available addressing these issues, all of which would be obviated with the advent of PROMETHEUS Payment®.


Hospitals and physicians have tried to collaborate more effectively through bonding, purchasing, owning and managing. Virtually none of these initiatives has improved quality of care. In addition, the rise in economic credentialing, conflicts of interest policies and disclosure of ‘competing investments’ further entrenches the parties as disparate stakeholders. In her work with hospitals and physicians in common cause for quality, Alice Gosfield has focused on the negative effect of these initiatives. Frequently, overly conservative attorneys contribute to mythologies pertaining to the impact of Stark and the anti-kickback statute on these issues. In an article jointly written with Jim Reinertsen, M.D., for Hospitals & Health Networks Online, they debunk these myths and offer strategies for more collaborative, quality-enhancing relationships. The second part of the presentation describes how PROMETHEUS Payment® can further these relationships by supporting with a different payment system efforts that hospitals and physicians ought to be involved in any way.


In the 2007 Medicare Fee Schedule, the interrelationship between the Stark in-office ancillary services exception and the Medicare reassignment rule has been elucidated where the government has emphasized and focused attention on fragmented joint ventures (e.g. “pod” clinical laboratories) structured by attorneys who have not understood that the Stark rules trump the reassignment liberalizations. For any Stark designated health service, no matter what the other reimbursement rules, the Stark rules are the first hurdle for compliance. Consequently, independent contractor relationships that are generally allowed under the liberalized reassignment rules will not meet the definition of in-office ancillary services since an independent contractor is only in the group that is billing when he uses their premises (e.g. radiologists reading off-site from the group providing the technical component). We were not surprised by this position since we believe that is what the rules have said all along. However, the attention to these arrangements in the preface to the Fee Schedule means that the government is becoming increasingly aware of non-compliant creative solutions. Sometimes the answer is “you just can’t do that”.


In its Work Plan for 2007, the Office of the Inspector General has indicated a far more refined understanding of problematic areas in claims submission in the Medicare program. Ranging from (a) medical necessity issues associated