Macranomics III: APMS

I am inserting a link to the third in a series of articles published by the Allegheny County Medical Society regarding Medicare Payment Reform pursuant to the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

This article deals with Advanced Alternative Payment Models, and provides basic information on how provider groups can qualify for a 5% Medicare Part B incentive payment, and be exempt from the potential negative MIPS payment adjustments.  The MACRA 5% bonuses for APM participation will start in 2019, assuming the provider groups meet the participation and reporting requirements in 2017 and 2018.

I think it is safe to assume the Trump efforts to repeal Obama Care will not impact the current MACRA rules in the short term, but it is probably not safe to assume that future changes will not be made.

Use this link to view the article “Macranomics: Advanced Alternative Payment Models” .

For additional information contact Mike Cassidy.

HHS Issues Rules Expanding OIG’s Exclusion Authorities

On January 12, 2017, the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) issued final rules implementing permissive exclusion authorities authorized by the Affordable Care Act expanding exclusion authority under Section 1128 of the Social Security Act.  The changes were first proposed on May 9, 2014 at 79 Federal Registered 26810.

Although there were numerous technical and definitional changes, the major policy changes are as follows:

  1. The rules implement the ACA exclusion and permission exclusion authority regarding all individuals and entities convicted for the interference with oral instruction of both investigations and audits related to the use of funds received from a federal health care program.
  1. The regulations implement expanded permissive exclusion authority for any individual or entity furnishing, ordering, referring or certifying the need for items and services for which payment may be made under a federal health care program that fails to provide certain payment information upon authorized request.
  1. The rules implement the ACA’s expanded permissive exclusion authority for knowingly making or causing to be made any false statement, omission, or misrepresentation of material fact in any application, agreement, bid, or contract to participate or enroll as a provider of services or supplier under a federal health care program.

Read the full text of the announcement and final regulations here.

FDA Issues Guidance on December 28, 2016 for Postmarket Management of Cybersecurity in Medical Devices

I am repeating the Introduction of the FDA Guidance, and attaching a link to the 30 page document.

The Food and Drug Administration (FDA) is issuing this guidance to inform industry and FDA staff of the Agency’s recommendations for managing postmarket cybersecurity vulnerabilities for marketed and distributed medical devices.  In addition to the specific recommendations contained in this guidance, manufacturers are encouraged to address cybersecurity throughout the product lifecycle, including during the design, development, production, distribution, deployment and maintenance of the device[1].  A growing number of medical devices are designed to be networked to facilitate patient care.  Networked medical devices, like other networked computer systems, incorporate software that may be vulnerable to cybersecurity threats.  The exploitation of vulnerabilities may represent a risk to health and typically requires continual maintenance throughout the product life cycle to assure an adequate degree of protection against such exploits.  Proactively addressing cybersecurity risks in medical devices reduces the overall risk to health.

This guidance clarifies FDA’s postmarket recommendations and emphasizes that manufacturers should monitor, identify, and address cybersecurity vulnerabilities and exploits as part of their postmarket management of medical devices.  This guidance establishes a risk-based framework for assessing when changes to medical devices for cybersecurity vulnerabilities require reporting to the Agency and outlines circumstances in which FDA does not intend to enforce reporting requirements under 21 CFR part 806.  21 CFR part 806 requires device manufacturers or importers to report promptly to FDA certain actions concerning device corrections and removals.  However, the majority of actions taken by manufacturers to address cybersecurity vulnerabilities and exploits, referred to as “cybersecurity routine updates and patches,” are generally considered to be a type of device enhancement[2] for which the FDA does not require advance notification or reporting under 21 CFR part 806.  For a small subset of actions taken by manufacturers to correct device cybersecurity vulnerabilities and exploits that may pose a risk to health, the FDA would require medical device manufacturers to notify the Agency.[3]  Risks to health posed by the device may result in patient harm.  This guidance recommends how to assess whether the risk[4] of patient harm is sufficiently controlled or uncontrolled.  This assessment is based on an evaluation of the likelihood of exploit, the impact of exploitation on the device’s safety and essential performance,[5] and the severity of patient harm if exploited.

[1] See FDA Guidance titled “Content of Premarket Submissions for Management of Cybersecurity in Medical Devices” (

[2] See FDA Guidance titled: “distinguishing Medical Device Recalls from Medical Device Enhancements” (

[3] See 21 CFR 806.10.

[4] ANSI/AAMI/ISO 14971: 2007®2010: Medical Devices – Application of Risk Management to Medical Devices, section 2.16 – definition of risk.

[5] ANSI/AAMI ES60601-1:2005/®2012 and A1:2012, C1:2009/®2012 and A2:2010/®2012 (Consolidated Text) Medical electrical equipment – Part 1: General requirements for basic safety and essential performance (IEC 60601-1:12005, MOD), section 3.27 defines “Essential Performance” as performance of a clinical function, other than that related to basic safety, where loss or degradation beyond the limits specified by the manufacturer results in an unacceptable risk.

2017 Medicare Telehealth Changes

The 2017 Medicare Physician Fee Schedule finalizes the CMS changes for Telehealth reimbursement and coverage for 2017.  The CMS fee schedule document also provides a comprehensive explanation of Medicare Telehealth reimbursement and coverage.  I have excerpted those 35 pages and linked them as a PDF to this post: Medicare Telehealth Services.

The essential takeaways are as follows:

Technology:  Generally Medicare will require interactive technology for telehealth services, except for the approved use of asynchronous (store and forward) platforms for the demonstration projects in Alaska and Hawaii.

Location for Billing:  Telehealth services should be billed by the practitioner to the MAC servicing the distant site at which the providing physician is located; the patient is at the originating site, although it is possible that both will be in the same jurisdiction.

Improved Telehealth Services:  CMS explains its process for approving additional telehealth services, and provides the link to the existing list of covered services, i.e.

Annual Covered Service Update:  CMS maintains a process for approving new services by separating services into two categories, i.e.

  • Category 1 has a protocol designed to review services similar to existing consultation, office visit, and office psychiatry services similar to those currently on the list of approved telehealth services.
  • Category 2 is a protocol for services that are not similar to the current list of telehealth services, and require demonstration as to how the service will improve the diagnosis or treatment with evidence of relevant clinical studies.

Additional Covered Services for 2017:

  • ESRD services similar to existing ESRD services
  • Advanced care planning using CPT codes 99497 and 99498
  • Critical care consultations using HCPCS codes G0508 and G0509

New Point of Service Reimbursement:  CMS is adding point of service (POS) codes for the distant site to distinguish reimbursement between facility and non-facility rates.  This change is also explained in MLN matters #MM9726, also linked as a PDF.

Pennsylvania 2017 Medical Record Costs

The Pennsylvania Department of Health published the approved 2017 medical record cost for production of medical charts and records.  The notice is attached in the link below.  It addresses both electronic health records and the production of records in other types of formats.

Independent Medical Staff Denied Title VII Protection

It has not been unusual for employed physicians to seek the protection provided to independent medical staff members through the due process procedures provided by medical staff by-laws. The case of Levitin and Chicago Surgical Clinic v. Northeast Community Hospital is the exact opposite; Dr. Levitin was an independent medical staff member seeking Title VII protection from a hostile work environment usually provided only to employees.

This is the first time I have seen that argument made, and it was rejected on summary judgment by the United States District Court of the Northern District of Illinois. Dr. Levitin alleged that Northeast Community Hospital, and the medical staff officers thereof, had created a hostile work environment through a pattern of allegedly sham and retaliatory peer review activities.

Dr. Levitin was in private practice as the sole shareholder of Chicago Surgical Clinic, and practiced as a general surgeon. Although Dr. Levitin was in private practice, she alleged that she was compensated by the hospital through her participation in a Physician Hospital Organization (PHO) and as of many owners in a cyber knife joint venture. The Court found that financial relationship insufficient to create an employment relationship.

Dr. Levitin alleged a number of other factors in support of her argument that she was controlled by the hospital, i.e.:

• Dr. Levitin was subjected to hospital policies such as mandatory call coverage, credentialing and peer review, and quality assurance;
• The hospital provided the “tools of the trade”, meaning the hospital facilities, the staff, supplies, etc.; and
• Dr. Levitin’s medical staff relationship could be terminated by the hospital and/or the medical staff.

The Court found that none of these factors were persuasive with respect to establishing an employment relationship with the hospital, especially since Dr. Levitin’s relationship with the hospital was not exclusive and she was free to have a similar relationship with as many other hospitals as she liked, and granted the hospital’s Summary Judgment Motion.



When physicians have finally completed the medical education journey, many are confronted with a “physician employment contract,” usually from a hospital or medical practice, which could define the essential terms of their professional relationship for many years to come.  If the parties live happily ever after, neither may ever read the contract again.  However, if a problem arises, the scramble to find and read the contract begins.

New physicians are always at a significant disadvantage in this process.  The “Employer,” whether hospital or medical practice, has invested significant resources into designing a contract which gives emphatic attention to the key terms upon which the physician was focused at signing (money, time, vacation, employee benefits) but is otherwise a fairly one-sided agreement; perhaps it is even presented as the “form contract we give to all the doctors.”  Residents and fellows may be pulled a little deeper into that dilemma if they remain with the teaching institution at which they completed their studies because the new contract may not appear to be that much different from the prior “student” contract.

Since this contract will basically control your professional life, by not only defining how you must work and for how much, but also by controlling where you might practice when the contract ends though “restrictive covenants,” you are well advised to read it carefully and consult an experienced healthcare lawyer before signing any contract.

The following outline is a fundamental review of the basis issues which should appear in most contracts.

I.        COMPENSATION:  The most important item of the contract will be the compensation.  Compensation is typically divided into three categories, i.e., base compensation, productivity or incentive compensation, and other bonuses.

A.      Base compensation is guaranteed annual salary, usually payable in accordance with the employer’s payroll practices.  Base compensation in multi-year contracts should escalate in future years to reflect added value or inflation, unless there is a productivity component in addition to the base compensation.  Experienced advisors should have comparative compensation information by specialty.

B.      Productivity compensation is typically based upon some formula, usually either net collections or some other productivity measure such as WRVUs.  Productivity based upon collections typically requires some collection level in excess of expenses or in excess of a collection target.  Be careful to clearly define the productivity formula, particularly the amount and methodology for allocating expenses.  Productivity based upon work units requires a clear understanding of how those units will be generated, i.e., by the physicians or by other ancillary providers, and whether it will include ancillary revenue, such as imaging, drugs and biologicals, etc.  Furthermore, healthcare reform may eventually create Accountable Care Organizations, medical homes, substantive Pay 4 Performance (P4P) models, and Medicare MIPS models.  Therefore, incentive based arrangements which rely on collections or WRVUs should include a commitment to make a good faith attempt to incorporate new compensation models in an equitable manner.

C.      Other types of bonuses include signing bonuses, retention bonuses that are paid following completion of annual benchmarks, and severance bonuses for premature termination.

II.       TERM:  The contract term is the number of years that the contract will be in force.  The term of physician employment contracts usually reflects some initial probationary period or qualifying period during which the physician will be an employee of the practice prior to an opportunity to become a shareholder.  Employment contracts with hospitals do not have shareholder options in the future.  This probationary period varies by geographic region of the country, but is typically 2 to 3 years.  You should assure that the initial contract continues to exist until replaced by a shareholder employment contract.  Many contracts contain “evergreen” renewal provisions, which automatically renew contract term from year to year without requiring any action by either the employer or the employee.  Be careful with evergreen contracts which contain no provisions for salary escalation.

III.      BENEFITS:  Most contracts simply state that you participate in the benefit plans in accordance with the terms and conditions of the plans; get the details.

A.      Retirement Plan:  Check participation, vesting and contribution rates.  Get a copy of the Summary Plan Description (SPD) mandated by ERISA.

B.      Health Insurance:  Most practices and all hospitals will have an employee benefit description.

IV.     BUSINESS EXPENSES:  Get the business expense policy.  If you have additional specific needs, discuss these before the contract is signed.

A.      Professional Dues:  Hospitals, specialty societies

B.      Pager/Communications/Cell Phone

C.      CME

D.      Travel and Parking

E.      Moving and Relocation

V.      MALPRACTICE INSURANCE:  Malpractice premiums are typically covered as one of the business expenses in the contract.  There are two types of malpractice insurance, i.e., occurrence and claims made.  Occurrence malpractice insurance covers the physician for any event that occurred during the term of the malpractice policy regardless of when the claim is made.  Claims made malpractice insurance, which is the less valuable coverage, covers incidents only if they both occur and are the subject of a claim made during the term of the policy, hence the name “claims made.”  When employment at an entity with claims made insurance ends, the malpractice insurance typically ends also, meaning that any future claims will not be covered unless a reporting endorsement, sometimes known as a “tail,” is purchased.  The tail should be covered as a business expense.  Sometimes, the responsibility for the tail is divided based upon the cause for termination.  If the practice terminates the physician or fails to make the physician a shareholder, then the practice pays the tail.  If the physician resigns without cause to pursue some other opportunity, the physician is responsible for the tail.  The amount of malpractice insurance varies from state to state.  Some states require a minimum level of malpractice insurance.  Some states also have state funds, such as catastrophic loss funds, into which premiums or surcharges are paid by the physician.  The physician should make sure that these additional elements are included in the malpractice coverage.

VI.     CLINICAL DUTIES:  The description of clinical duties is usually a fairly generic provision of the employment contract, but the physician should pay careful attention to the scope of those duties to make sure that the office facilities and hospitals at which the physician is required to practice are identified, that the parties understand how additional offices or hospitals can or cannot be added, how many patient office hours are expected, and how call coverage responsibilities will be divided among the physicians in the practice.  Typical language is “equitable allocation,” which does not quite mean equal.  It is common for senior physicians to take less call than junior physicians, but language stating that the call is simply assigned by the employer is too vague.  The contract should also state whether moonlighting is or is not allowed.

VII.    TERMINATION:  Contracts will typically have a termination clause which defines several different methods for termination.

A.      Expiration:  The contract can simply expire at the end of the term.

B.      Termination for Cause:  The contract can be terminated by either party for cause, which is usually defined as some breach of the contract by the other party, or the occurrence of certain events such as loss of medical license, loss of DEA number, Medicare exclusion, conviction of a crime, etc.

C.      Other Material Breaches:  The contract can also be terminable for more ambiguous breaches, such as the failure to perform duties in accordance with employer standards, and attention to patients, etc.  Ambiguous events such as these should be subject to a “notice and cure provision,” which requires the employer to first give notice of the alleged breach sufficient to describe the problem and give the physician the opportunity to cure that breach over some period of time; the purpose of  this type of provision is to prevent surprise terminations.

D.      Unilateral Termination Without Cause:  Contracts typically give both the employer and the employee the opportunity to terminate the contract without cause upon sufficient advance notice.  Termination of this type raises several questions.

a.       How much notice will the practice require?  Practices typically want time to recruit a replacement physician, but that time is usually too long to permit an employed physician to accept another position, so the parties must negotiate a satisfactory compromise.

b.       How much notice will the physician require?  Will that notice be different for non-renewal of the contract or failure to make shareholder after two or three years of employment compared to “premature” termination during the first year of employment.  It is certainly unfair to expect that employment could be terminated just 90 days after the start of the contract because the employer/practice changes its collective mind.  In such circumstances, early terminations are usually combined with greater notice or severance payments.

c.       Defining the cause for termination is very important with respect to the enforcement or applicability of the restrictive covenant.

VIII.   RESTRICTIVE COVENANTS:  The enforceability of restrictive covenants depends upon the state, i.e., the jurisdiction, in which the practice is located.  Some states prohibit restrictive covenants.  State that do permit the enforcement of restrictive covenants usually require that they be reasonable, so that they are no broader than reasonably necessary to protect the employer.  Just as an example, restrictive covenants that would prohibit the physician from practicing medicine within 200 miles of the office location will not be enforceable simply because it is improbable that a competing practice 200 miles away would do any harm to a practice.  Note that the geographic scope will definitely depend upon the nature of the practice and the population density.  While a 25 mile radius in a rural area might be appropriate, a 25 mile radius in New York City would not be.  Restrictive covenants will have the following components:

1.       Geographic Scope

2.       Time Period

3.       Prohibition of Practice/Resignation of Medical Privileges at Certain Hospitals

4.       Prohibited Activities

A crucial point is whether the restrictive covenant will be enforceable upon unilateral termination or non-renewal of the contract by practice/employer, particularly if that is coupled with the practice’s decision not to make a physician a shareholder or owner of the practice.  Enforcing the restrictive covenant in those situations makes it painless for the practice to withhold shareholder status and simply recruit a new physician.  If the restrictive covenant is designed not to apply in those situations, the practice must balance whether the right step is to proceed with shareholder status.

IX.      CONFIDENTIALITY INTELLECTUAL PROPERTY:  Most contracts provide that the intellectual property you create during employment (inventions, devices, publications, etc.) is the property of the employer.  These clauses state that patient lists and demographic information are property of the practice.  Provide exceptions if necessary.

X.       LOAN FORGIVENESS:  There are a variety of loan forgiveness issues that could come into play.  Federal programs allow forgiveness for service in underserved areas and on an income based repayment plan for 10 years of service at non-profit healthcare institutions.  In addition, hospitals and practices sometime offer additional benefits.  However the cash flow and tax implications of federal forgiveness, which are income tax free, versus private subsidy programs which are typically taxable as compensation, should be diligently evaluated.

XI.      ­­­­­­­­­­­­­­­­PRACTICE BUY-IN:  (A Topic for Another Day)


Although the foregoing discussion may appear to present a thorough analysis of the issues, you should always consult an experienced lawyer, explain to them your expectations about your new position, and let them review your contract in light of those expectations.  It is always preferable to have experienced counsel in this process.  Since the contract will define how much money you will make, what you will be required to do to make it, and how your dream opportunity can be “terminated” while you are to be contractually banished from practicing medicine in that market (which could be your hometown), you are not doing yourself any favors by asking your college roommate who has become a lawyer “to take a quick look” at your contract.

I’ve been practicing in this area for almost 35 years and have helped hundreds of doctors with these contracts.  I would be happy to help you with yours.

Tags:  “Physicians’ Contracts” “Physician Contracts” “Restrictive Covenants” “Healthcare Reform”