Progress on Medicare Payment Reform

HHS is gearing up to design and implement a revised Medicare payment system.  The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) has designated a merit based incentive payment system (MIPS) as a goal.  CMS is tasked to design a value based payment system based upon quality, resource use, clinical practice improvement, and meaningful use certified EHR technology.

As part of the implementation, HHS and the CMS Innovation Center have established the Health Care Payment Learning and Action Network.

HCP-LAN published a whitepaper “Alternate Payment Model (APM) Framework” on January 12, 2016.

Ironically, the work group believes the person centered care rests upon 3 pillars (quality, cost effectiveness, and patient engagement), instead of a Triple Aim (patient experience, population health, and cost).

The whitepaper states that the new alternative payment model (APM) framework rests on 7 principals:

  1. Changing providers financial incentives is not sufficient to achieve person centered care, so it would be essential to empower patients to be partners in healthcare transformation (this has previously been called patient involvement or consumerism).
  2. The goal for payment reform is to shift US health care spending significantly towards population based and more person focused payments (and fee for service).
  3. Value based incentives should ideally reach the providers that deliver care.  (This was previously called moving the needle or bending the cost curve.)
  4. Payment models that do not take quality into account are not considered APMs and the APM framework, and do not count as progress toward payment reform.  (This is self explanatory.)
  5. Value based incentives should be intense enough to motivate providers to invest in and adopt new approaches to healthcare delivery.  (This is a correlated item 5 is that the incentive must be meaningful enough to actually change care).
  6. APMs will be classified according to the dominate form of payment when more than one type of payment is used.
  7. Centers of Excellence, accountable care organizations, and patient centered medical homes are examples rather than categories in the APM framework.

Sadly, if you read the new goals and the whitepaper, I am sure most of you will agree that this is nothing new.  These goals, these theories, these pillars and these triple aims are, I think, commonly accepted by everybody.  Implementation in a healthcare system that has incentivized volume based payment for both hospitals and individual providers for the last 20 years (actually 50+ years for Medicare physician reimbursement) and what is essentially the largest for profit industry in the country, will be a challenge.

10 Significant Physician Contracting Mistakes

1.          Failure to Begin with the End in Mind. The most important provisions of your employment contract will be the provisions governing your termination rights, for two reasons. First, if the relationship goes well, chances are the contract will never be read again. However, if there is a dispute, both parties will be reading the contract looking for the provisions defining rights and responsibilities arising out of termination, including things such as severance pay and restrictive covenants. Second, if the employed physician has no rights when the contract terminates, such as the right to remain in practice under certain circumstances as an exception to the restrictive covenant, then the physician also has no leverage to resolve the dispute. It is important to preserve some type of leverage throughout the contract.

2.          Restrictive Covenants are Not an Urban Myth. Although there are some states in which restrictive covenants are unenforceable by law, that is a distinctly minority position; restrictive covenants are definitely enforceable in Pennsylvania provided they satisfy some basic conditions. The restrictive covenant must relate to the protectable interests of the practice, it must be reasonable with respect to time and geographic scope, and it must have been voluntarily entered into in exchange for valuable consideration.

Standard restrictive covenants are usually applicable regardless of the reason for termination. You should attempt to protect yourself against termination without cause, termination associated with failure to become an owner, and termination initiated due to a breach of the employment contract by the practice. Furthermore, there may be some exceptions that can be incorporated into the contract.  For example, if it is important to the physician that he or she remains in a particular geographic area because of family or other considerations, perhaps the restrictive covenant can be negotiated to provide some available relief with respect to communities or hospitals. Perhaps the contract can clarify that private practice is prohibited, but academic work, hospitalist work or ER coverage is not. What happens to the medical records of the patients you have been following if you remain in practice in the area? How will the patients know that you remain in practice? Will you simply take the medical records or will a joint neutral letter be sent advising patients of your new location?

3.          Termination without Cause. Most contracts have a provision allowing the practice to terminate a physician’s employment upon 30, 60 or 90 days without cause. Practices always maintain this is just standard procedure for employment contracts. As mentioned above under the restrictive covenant topic, you should attempt to avoid being subject to a restrictive covenant in the event you are terminated without cause. Specifically, termination without cause during the beginning phases of the contract, i.e. a probationary period, during which the physician would not have had sufficient opportunity to establish relationships with patients or referring physicians to the extent that it would damage the practice. Similarly, termination without cause at the end of the contract or after an extended period of employment simply to avoid ownership eligibility should also be excepted from the restrictive covenant. This last point is an example of leverage. If the physician is subject to a restrictive covenant under any circumstances, including termination following the practice’s failure to advance the physician to ownership status, then the physician has no leverage to negotiate a continued relationship with the practice, and is basically compelled to accept the ownership offer under any circumstances.

4.          Contract Term. Contracts are either for a specific term, i.e. they expire in a definite number of years, usually not exceeding 3, or the contracts are “evergreen”; they continue indefinitely until terminated for some reason. This presents two very basic issues. If the contract is for an extended period of time, then there should be a provision for compensation increases, at least in those contracts that do not have incentive compensation clauses. Second, in order to preserve leverage, physicians must anticipate both how a contract can end and what their rights are at that time. If the contract continues until terminated and the restrictive covenant applies if the physician resigns, then the physician cannot resign without conceding the enforcement of the restrictive covenant. This is where the concept of “beginning with the end in mind” comes into play.

5.          Malpractice Coverage. Malpractice insurance coverage is usually available in two forms, i.e. occurrence and claims made. Occurrence is the better coverage, because it covers events that occur during the term of the insurance policy regardless of when the claim is made, i.e. it continues indefinitely. Claims made insurance is usually less expensive, but it also provides less protection because it covers events only if they both (i) occur during the term of the policy, and (ii) relate to a claim that is made during the term of the policy. Therefore, when the policy expires, coverage ends, unless a tail is purchased. You need to know type of malpractice insurance is being provided by the practice and who would bear the responsibility for the tail, if the tail is necessary. A typical resolution of this issue is that the tail is paid by the practice if the practice is responsible for the termination but the tail is paid by the physician if the physician is responsible for the termination. Note that a tail will not be necessary if you continue your malpractice coverage with that carrier at your next position, which may or may not be a possibility.

6.          Know Your Maximum Duties. Employment contracts do not specifically spell out hourly requirements, but, you should have a basic understanding of how many office hours are typically expected, how many hospitals will be covered, the hospitals at which you will be expected to perform rounds, and what your call coverage responsibilities will be. Employment contracts typically state that you will perform the duties as reasonably assigned by the practice, but you need to know what is normally expected. If the practice has multiple offices or hospitals at which it practices, you should know whether you will be expected to work at all locations and in all hospitals. Call coverage is typically handled by a statement that a physician will share equitably in the call, recognizing that senior physicians may take less, but it would be wise to know how much less before you sign the contract.

7.          Fringe Benefits. Most employment contracts typically state simply that the physician will share in the benefits that are provided to the other physicians in the practice. This language is typically satisfactory, but you should know what those benefits are. Most practices have employee benefit handbooks, or schedules identifying the benefits, at least as they exist at the current time. If you do not need health insurance because you are covered by a spouse’s health insurance, perhaps you want to negotiate for some other increased benefit in lieu of health insurance, which can easily cost between $7,000 and $10,000 per year per for family coverage. What business expenses will be covered for transportation, medical staff dues, professional society membership, CME, board travel and expenses? Most contracts state that all business expenses incurred with the approval of the employer will be covered, and they may establish a limit, but you should know that ahead of time.

8.          Ownership. Most private practice physicians intend to become owners of a practice at some point. It is extremely rare for a practice to guarantee a specific ownership purchase package. Typically, practices provide a “letter of intent” which states merely that it is the intention of the practice to make the new physician an owner if all goes well for the initial term of the contract.

You should accept the fact that practices almost never guarantee ownership. However, you should ask how the purchase price is going to be calculated. Will it be calculated according to an established formula that has been used in the past? If so, what has that been in the past? If there was no history of purchased transactions, but the practice nevertheless intends a formula approach to determining the purchase price, you should ask what the purchase price would be if the formula is applied was applied today. You should know whether all of the owners of the practice of equal owners and whether you are intended to also be an equal owner, whether there are two owners or ten owners. There are typically three components of the practice value, i.e. tangible assets such as office equipment, accounts receivable, and good will. Will all of those components be included in the formula?

9.          Compensation. Compensation should be the last item you agree upon, although it is usually the first item you discuss. Obviously, adequate compensation is critical to a successful relationship, but you should know the answers to the other questions before you can say that a compensation proposal is acceptable. For example, if the answers to all the other questions have been ideal, then lower compensation may not be a problem. However, if the benefits are low or you are expected to shoulder a disproportionate amount of call, or there is some other problem with the contract, then perhaps a higher compensation is in order.

There are usually two facets to compensation, i.e. a base compensation and bonus. The base compensation is the minimum compensation you expect to earn and must obviously be adequate. If the bonus is defined as a discretionary bonus to be awarded at the discretion of the practice, then you cannot rely upon additional compensation and need to assure an adequate base salary. Base compensation in contracts without realistic incentive programs should have cost of living protection.

Bonus or incentive or productivity arrangements are typically linked to your productively as measured by collections or WRVUs. You should have an idea of the historical performance of the physicians and the practice so you can project whether you will hit those targets under normal circumstances. You should provide protection against low productivity attributable to the practice’s failure or inability to provide experienced resources, e.g. physician assistants, or time, etc.

10.        Legal Counsel. Hopefully, by the time you have read this article, you will have recognized that experienced legal counsel is necessary to work your way through these agreements. It is a bad idea to try to handle negotiations yourself and then engage legal counsel at the end simply to review a contract that has already been agreed to in principal. By that time, it is almost impossible to fix any mistakes you might have made, without making it appear that you are breaking your word. This would be similar to a patient diagnosing, medicating and even performing procedures on themselves, and then calling you to see if they got it right!

Whether you engage legal counsel and have them conduct the negotiations or simply keep them in a consulting role in the background is usually a question resolved on a case by case basis, depending upon the nature of the discussions between the parties and the involvement of the practice’s counsel. Suffice it to say, you should be taking advice from your own attorney on how to handle those negotiations. It is almost certain that the practice has had legal counsel for the practice for a number of years; your retention of counsel to assist you in this process will not be viewed as an aggressive or adversarial step. In fact, any attempt by the practice to discourage you from consulting counsel should be viewed as a warning sign that the practice prefers that you be under-informed.

Physician Practices Face Anti-Trust Risks, Too

On December 18, 2015, the Federal Trade Commission (FTC) announced a settlement with Keystone Orthopaedic Associates Specialists and Orthopaedic Associates of Reading, LTD, which were two of six orthopedic practices in Berks County, Pennsylvania that merged in 2011.

The FTC initiated the Complaint because they believe the merger of the practices eliminated competition among orthopedists in Berks County.  Following the merger, the new entity (Keystone) employed 76% of the orthopedists practicing in Berks County.

The Complaint stated that the anti-competitive effect eliminated competition between orthopedists, increased the ability of the merge entity to unilaterally raise prices for orthopedic services.

I’ve attached the following:

  1. FTC Case Summary;
  2. Consent Order Agreement;
  3. FTC Commission Decision and Order;
  4. FTC Complaint;
  5. Analysis of Agreement containing Consent Order to aid public comment; and
  6. FTC press release announcing the filing of the Complaint.

FTC and Pennsylvania Challenge Penn State Hershey’s Planned Merger with PinnacleHealth System

BNA has reported the planned merger of Penn State Hershey Medical Center with PinnacleHealth System will be challenged in federal court by federal and state officials.

The Federal Trade Commission and Pennsylvania’s attorney general said they will join together to seek an injunction delaying consummation of the deal. The FTC voted 4-0 to file the complaint.

The FTC said it will file suit in the U.S. District Court for the Middle District of Pennsylvania to preserve the status quo while it pursues an administrative action concerning whether the merger would be anticompetitive and lead to higher prices and diminished services for patients in and around Harrisburg, PA.

According to the Administrative Complaint, the link for which is attached, which has not yet been made available to the public, the merged entity would control approximately 64% of this market, “likely leading to increased healthcare costs and reduces quality of care for more than 500,000 local residents and patients,” the state AG’s office said.

According to the FTC, Hershey is a 551 bed, not-for-profit health-care system in Dauphin County that also owns and operates a cancer institute and a children’s hospital.  Its total revenues in fiscal year 2014 were $1.39 billion, according to the FTC.

Pinnacle is a nonprofit organization that runs three hospitals in Dauphin County with a combined 636 beds, according to its website.  Pinnacle had total revenues from July of 2014 to June of 2015 of almost $1.7 billion, according to its mot recent annual report.

The FTC Press Release was issued December 8, 2015.

Many PA Hospitals Require Indemnification for Medical Staff Access

Ever more frequently, hospitals require physicians to indemnify them as part of the credentialing process. Although the HCQIA may allow for recovery of attorneys fees arising from frivolous litigation, that is different from complete indemnification.  Furthermore, in Pennsylvania, hospital licensing requirements limit hospitals’ rights in this area.  I have attached a copy of the article I recently prepared for the Allegheny County Medical Society on this issue.


Medical Records Fees for EHR

You might have not noticed in the last blog post that there is a provision in the Pennsylvania Notice regarding electronic health records.  The Notice does not establish a fee for electronic health records.  Rather it states that the cost for production of health records in an electronic format shall not exceed the cost of the labor costs associated with the production, and that the provider may not include the cost associated with searching and retrieving the records, which his $21.69 according to the schedule.  The text of that provision is as follows:

a.  Electronic health record.  Under 42 U.S.C.A. § 17935(e), if a health care provider uses or maintains health records in an electronic format with respect to protected health information of an individual, the individual shall have the right to obtain from the health care provider a copy of the information in an electronic format.  The individual also has a choice to direct the health care provider to transmit electronically a copy of the health record directly to an entity or person designated by the individual, provided that any choice is clear, conspicuous and specific.  Any fee that the health care provider may impose for providing this information (or a summary or explanation of this information) in an electronic format shall not be greater than the labor costs in responding to the request.  The Department of Health and Human Services has stated that the labor costs may not include costs associated with searching for and retrieving the requested information.

2016 Pennsylvania Medical Record Fees

Effective January 1, 2016, the following fees may be charged by a health care facility or health care provider in response to a request for production of medical charts or records:

Not to Exceed
Amount charged per page for pages 1-20 $1.46
Amount charged per page for pages 21-60 $1.08
Amount charged per page for pages 61-end $0.36
Amount charged per page for microfilm copies $2.16
Flat fee for production of records to support any claim under Social Security or any Federal or State financial needs based program $27.48
Flat fee for supplying records requested by a district attorney $21.69
Search and retrieval of records $21.69

You can read the full Notice here.


Summary of UPMC/Highmark Resolved Issues

The following issues have been resolved over the last month, at least through June 30, 2019, which is the expiration date of the Consent Decrees entered into with the approval of the Commonwealth Court by the parties in June of 2014.

Continuity of Care.  An arbitration award, a copy of which is attached, provides as follows:

  • The need for a continuing course of treatment shall be determined, in the first instance, by the patient’s treating physician.
  • “In-Network” access to UPMC for Highmark members for a continuing course of treatment shall be available through June 30, 2019.
  • A Highmark member who is in a course of treatment for UPMC for a confirmed pregnancy on or before December 31, 2015 may continue to access UPMC on an in-network basis for maternity care, delivery, and postpartum related to that pregnancy.

Oncology payment issues have been resolved through combination of arbitration and settlement.

  • An arbitrator ruled (opinion attached) that Highmark owed UPMC Shadyside $24 million for oncology treatments provided since 2014.  The parties then agreed on a global resolution of the oncology payment issue equal to $188 million.
  • The parties have agreed upon new oncology payment rates going forward, but those rates have not been disclosed, at least as far as I know.
  • The crux of the issue was whether physician clinics or offices could be converted to and paid as hospital outpatient departments.  Commercial payment issues have been resolved by the parties.  Medicare has proposed to eliminate or reduce that differential in 2017 for federal healthcare programs.

The Pennsylvania Supreme Court (opinion attached) has ruled that Highmark Medicare Advantage members shall be treated as in-network for UPMC through June 30, 2019.

  • The Supreme Court affirmed a prior Commonwealth Court Opinion matter (copy of the Opinion attached).
  • The key issue is the interpretation of the vulnerable populations provision of the Consent Decrees reproduced:

“Vulnerable Populations – Highmark and UPMC mutually agree that vulnerable populations include: (i) consumers age 65 or older who are eligible or covered by Medicare, Medicare Advantage, (ii) Medigap health plans, (iii) Medicaid and (iv) CHIP.  With respect to Highmark covered vulnerable populations, UPMC shall continue to contract with Highmark at In-Network rates for all of its Hospital, physician and appropriate continuity of care services for CHIP, Highmark Signature 65, Medigap and commercial retiree carve out as long as Highmark does not make unilateral material changes to these programs.  UPMC shall treat all Medicare participating consumers as In-Network regardless of whether they have Medicare as their primary or secondary insurance.  Highmark acknowledges that UPMC reserves the right to withdraw from these arrangements if Highmark should take the position that it has the authority to revise the rates and fees payable under those arrangements unilaterally and materially.”

The key issue is sentence 3 which states “UPMC shall treat all Medicare participating consumers as In-Network regardless of whether they have Medicare as their primary or secondary insurance.”  Both the Supreme Court and the Commonwealth Court concluded that section applied to Highmark Medicare Advantage members.

UPMC/Highmark Continuity of Care Settlement

PBGH just recently sent out a client alert regarding UPMC/Highmark Continuity of Care Settlement as follows:  UPMC and Highmark have announced a settlement agreement that addresses the Consent Decrees’ Continuity of Care provision. This settlement will govern continuity of care beginning January 1, 2016 until the end of the Consent Decrees on June 30, 2019.

The settlement agreement provisions include:

  • The need for continuing course of treatment will be determined by the patient’s physician in consultation with the patient
  • In-network access is available for patients who were in a continuing course of treatment for a chronic or persistent condition in 2013, 2014, or 2015
  • All services reasonably related to treatment will be covered at in-network rates
  • UPMC will identify “continuity of care” claims for Highmark and provide appropriate documentation as requested by Highmark. If Highmark does not receive the information received within 10 days, the claim may be deemed out-of-network
  • Clinical review and claims submission to the Department of Health where there is an in-network claims dispute

SGR Fix Already Revised and Hospital Outpatient Department $$ Reduced

The ink was barely dry on the Medicare Physician Sustainable Growth Rate (SGR) fix, and it has already been changed.

One component of the SGR fix, which was just passed in April of this year, was freezing Medicare physician payments from 2019 through 2025, and then allowing a .75% increase for physicians participating in alternative payment programs.

The 2015 Budget Deal extends the payment freeze through 2026.  I have not seen the language of the Bill with respect to the promised .75% increase for participating in payment reform.

In addition, the Budget Deal reduces payments to Hospital Outpatient Departments (HOPD) to the Medicare physician payment rates if the physicians are located more than 250 yards from the hospital campus.