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NOVEMBER 2014
Enforcing Post-Employment Restrictive Covenants Medicare Pay Cut Looms Despite Positive Steps in CMS Rule Patient Centered Medical Home Initiatives Expanded
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C O N T E N T S
Enforcing Post-Employment Restrictive Covenants
6
CONTENTS
8
Medicare Pay Cut Looms Despite Positive Steps in CMS Rule
10
Patient Centered Medical Home Initiatives Expanded in 2009-2013
11
Pioneer ACOs Can Recruit Seniors Under New CMS Test
13
More Price Warnings On Hospital-Led Mergers
14
Hospital Mergers And Acquisitions Leading To Increased Patient Costs
15
Capitated Payments More Acceptable to Providers, Survey Says
17
House GOP Proposal Includes Plan to Kill ‘Two-Midnight Rule”
18
Medicare’s Quality Programs Prove to be a Hurdle, Doc Practices Say
19
5 Recently Announced ACOs
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October 2014 5
Cover Story
Enforcing Post-Employment Restrictive Covenants By Paul H. Schneider, Esq., Giordano, Halleran and Ciesla
In New Jersey, courts will enforce a postemployment restrictive covenant in a physician employment contract “to the extent that it protects a legitimate interest of the employer, imposes no undue hardship on the employee, and is not injurious to the public.” A sharply divided New Jersey Supreme Court issued that directive in the 1978 decision of Karlin v. Weinberg, and as the years passed many lawyers and trial court judges expected the Supreme Court would reverse course when it next considered the issue again. But in a 2005 decision, Community Hospital Group, Inc. v. More, a unanimous Court reiterated that “[a]lthough post-employment restrictive covenants are not viewed with favor, if under the circumstances a factual determination is made that the covenant protects the legitimate interests of the hospital, imposes no undue hardship on the physician and is not injurious to the public, it may be enforced as written or, if appropriate, as reduced in scope.” The Court concluded that such covenants protect not only employers, but physician employees as well, because a blanket prohibition on post-employment restrictive covenants would “tend to make established physicians hesitant to employ younger associates and in turn deprive the younger physician of the opportunity to gain experience and to husband the necessary resources needed to establish a practice of his own.” Karlin v. Weinberg. Courts will enforce restrictions on office locations, and covenants limiting the hospitals at which a physician may practice. So much for the legal theory. How do these cases play out in the real world? First, judicial enforcement of restrictive covenants is not automatic. Rather, courts engage in a case-specific factual inquiry in which the
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employer seeking to enforce the covenant has the burden of persuading the court that enforcement of the covenant satisfies the three-prong test of reasonableness. Second, trial courts may be reluctant to enforce covenants out of concern for potential hardship to the former employee or sympathy for patients who may find it more difficult to see their physician of choice. Regardless of what side you may find yourself on, it is important to keep in mind the factors courts may consider in deciding whether and how to enforce a restrictive covenant. 1. Legitimate interests of the employer. An employer should typically be able to satisfy this criterion. The legitimate interests of the employer may include, among other things: “(1) protecting confidential business information, including patient lists; (2) protecting patient and patient referral bases; and (3) protecting investment in the training of a physician.” Community Hospital Group v. More. With regard to patient lists, the Supreme Court recognized that “by virtue of his efforts, expenditures and reputation” an employer may develop a significant practice, and that only if the restrictive covenant is enforced would he be able to protect in some measure his legitimate interest “in preserving his ongoing relationship with his patients.” Karlin v. Weinberg. Referral sources are a particularly sensitive area. Referrals from hospital referral networks may make up a significant portion of a practice’s business, and may sometimes be the “lifeblood” of the business. Referral networks result from relationships nurtured between referring physicians and protecting relationships with referral sources, and the
investments an employer makes in employees towards the creation of referral sources are legitimate interests of the employer. The fact that the physician subsequently treated patients who had been patients of the hospital or were referred to the physician from one of the hospital’s referral sources also establishes a legitimate protectable interest in enforcement of the restrictive covenant. Community Hospital Group v. More. An employer may also make a “substantial investment” in the physician by “giving him the opportunity to accumulate knowledge and hone his skills” as a physician. Paying for continuing education, certifications or malpractice insurance are also investments in which an employer has legitimate protectable interest. Community Hospital Group v. More. 2 No undue hardship on the physician employee. The second prong of the “reasonableness” test requires that the restriction impose no undue hardship on the employee. An employer may point out that a “showing of personal hardship, without more, will not amount to an ‘undue hardship’ such as would prevent enforcement of the covenant.” Karlin v. Weinberg. The employee may note that “the likelihood of the employee finding other work in his or her field” is a factor courts may consider in Community Hospital Group v. More. The reason for the termination may also be relevant. A case where the employee “by his conduct” contributed to the termination, or where the employer carefully adheres to a notice of termination provision in an employment agreement, are both situations arguably weighing in favor of enforc-
order to avoid harm to the public. 5. Enjoining of violation of the covenant. Faced with an employee who disregards a covenant, an employer wishing to enforce the restriction has little choice but to sue for an injunction. In order to obtain injunctive relief, an applicant must demonstrate (1) immediate, substantial and irreparable harm, (2) a likelihood of success on the merits, and (3) a balancing of the equities favors granting the injunction. Crowe v. DeGioia. In the case of restrictive covenants, items (2) and (3) would largely parallel the analysis as to the enforceability of the covenant discussed above. That leaves the question of irreparable harm.
ing the covenant. On the other hand, where the employer terminates the employee in breach of the employment contract or by actions that are detrimental to the public, then enforcement of the restriction may cause undue hardship on the employee. 3. Harm to the public. The third prong of the “reasonableness” test requires that enforcement of the restriction not harm the public. On this issue, courts may focus on the patient’s interest in maintaining the relationship with her physician of choice without undue inconvenience. Yet in Karlin v. Weinberg, the Court recognized that although the restriction would require some of the physician’s patients to travel a greater distance to the new office (and some conceivably a shorter distance), no patient would, by force of law, be automatically precluded from continuing his or her ongoing relationship with the physician. Also, while the Supreme Court has acknowledged “the importance of patient choice in the initial selection and continuation of the relationship with a physician,” the Court rejected the argument that the personal nature of the physician-patient relationship means restrictive covenants are per se contrary to the public interest. Community Hospital Group v. More. Rather than focusing on preserving the individual physician-patient relationship, the Supreme Court instead took more of a “physician as commodity” approach, looking generically at the demand for the services provided by the employee physician, the likelihood those services could be provided by other physicians practicing in the area,
and whether enforcement of the covenant would result in a shortage of physicians or physician specialists in the area. 4. Duration and geographic scope The duration and geographic scope of a restrictive covenant must also be reasonable. “On its face two years appears to be a reasonable period for [an employer] to replace and train a person to assume [the employed physician’s] prior role.” Community Hospital Group v. More. A companion case, Pierson v. Medical Health Centers, also upheld a two year post-employment restrictive covenant. As for geographic distance, the Supreme Court has upheld geographic limitations of 12 and 13 miles. While these restrictions were upheld on the basis of a case-specific factual analysis, they do provide a useful rule of thumb as to what the courts may consider reasonable. An analysis of the enforceability of a restrictive covenant could lead a court to limit the geographic scope or temporal duration of a covenant to make it reasonable. For example, in Community Hospital Group v. More, the Court enforced the covenant at the employer hospital but also considered the impact of a thirty-mile geographic restriction on patients seeking neurological treatment at the emergency room of another hospital within the thirty-mile radius. Because there were so few available board-certified neurologists that “neurological treatment to an emergency room patient could be compromised” by fully enforcing the covenant, the Court reduced the geographic scope of the covenant to thirteen miles and allowed the physician to practice at the other hospital in
“Irreparable harm” is a substantial injury that cannot be adequately addressed by monetary damages alone. Harm is irreparable when a party’s monetary damages cannot be accurately quantified or otherwise ascertained, such as when there is “no certain pecuniary standard for the measurement of the damage,” Scherman v. Stern TA \l “Scherman v. Stern, 93 N.J. Eq. 626, 631 (E. & A. 1922)” \s “Scherman v. Stern, 93 N.J. Eq. 626, 631 (E. & A. 1922)” \c 1 . In New Jersey, courts have found that violation of an otherwise enforceable restrictive covenant will result in irreparable harm to the employer because while the injury is real and immediate, it is difficult, if not impossible, to quantify in monetary terms. While not dispositive, an employer may wish to include an acknowledgement in the employment agreement that breach of the covenant will result in immediate and substantial harm to the employer that cannot be readily quantified, and that injunctive relief is appropriate. 6. Conclusion. Courts will enforce a post-employment restrictive covenant in a physician employment contract upon finding that it protects a legitimate interest of the employer, imposes no undue hardship on the employee, and is not injurious to the public. Yet, such covenants “are not viewed with favor,” and courts may be reluctant to enforce a covenant or may scale back a covenant as a condition of enforcement. Each case will turn its own facts and the challenge faced by the employer or former employee will be to marshall its facts effectively.
November 2014 7
Medicare pay cut looms despite positive steps in CMS rule, doc groups say By Andis Robeznieks Physicians cheered and jeered parts of a lengthy final rule (PDF) the CMS issued last week that includes Medicare’s 2015 physician fee schedule and also revises the agency’s policies on telehealth and paying different rates for the same service depending on where it was delivered.
outweigh the benefits of the new payment. Shari Erickson, vice president of governmental affairs and medical practice for the American College of Physicians, said the internal medicine specialty society believes the care-coordination fee should be higher “given the level of work involved.”
Looming over all of it, however, was the potential that physician payments will be subject to a 21.2% cut driven by Medicare’s sustainable growth-rate payment formula on April 1 unless Congress intervenes.
Specifically, the rule calls for paying for “clinical staff time directed by a physician or other qualified healthcare professional, per calendar month, with the following required elements: multiple (two or more) chronic conditions expected to last at least 12 months, or until the death of the patient; chronic conditions place the patient at significant risk of death, acute exacerbation/ decompensation, or functional decline; comprehensive-care plan established, implemented, revised, or monitored.”
The rule was released last Friday evening, and Anders Gilberg, the Medical Group Management Association’s senior vice president for government affairs, said he was handing out Halloween candy when he received his first call about the rule. “We’re still looking through it,” Gilberg said this week, but he noted that the creation of a monthly care-management fee for patients with two or more chronic conditions is one of the highlights of the rule. The CMS set the fee at $42.60, according to a fact sheet on the rule, and backed away from a previously proposed requirement that only physicians using 2014 editioncertified software would be able to collect the fee. The final rule allows doctors using 2011 edition EHRs to collect the fee as well. Physician groups are commending the CMS for rewarding care coordination, but they’re also expressing concern that administrative burdens associated with documenting nonface-to-face management services could
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Karen Ferguson, senior director of public policy for the American Medical Group Association, said the organization plans to survey its members in 2015 to see if they are using the new chronic care-management codes or if the requirements for doing so “have proven to be too onerous.”
eligible for the care-management fee because they already receive a per-member, per-month fee for similar service as part the federal government’s mega medical home demonstration. The rule also set a fee of $56.92 for remote monitoring of patients with chronic conditions and issued new payments for annual wellness visits and psychotherapy (including family sessions) delivered via telehealth. “It has been a long time coming, but this rulemaking signals a clear and bold step in the right direction for Medicare,” Jonathan Linkous, CEO of the American Telemedicine Association, said in a news release. To the relief of specialists, the CMS announced maintaining current payments for gastroenterological procedures and for hipand knee-replacement surgeries, which were the subject of sharp price reductions in the recent fee schedules.
The CMS noted that it would be doing some monitoring of its own. “We intend to evaluate this service closely to assess whether the service is targeted to the right population and whether the payment is appropriate for the services being furnished,” the agency stated in the rule.
The MGMA’s Gilberg, however, questioned the CMS plan to phase out bundled 10-day and 90-day global payments for post-surgical services and to have separate billing for different services such as treating complications, managing pain, and removing sutures and staples, lines, wires, tubes, drains, casts, and splints. “It’s a strange step in the opposite direction toward bundled payments that CMS had been taking,” Gilberg said.
The agency also clarified that the 481 practices participating in the CMS Comprehensive Primary Care Initiative would not be
The agency acknowledged this concern in the rule but said that there are “fundamental difficulties” in establishing appropriate
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Medicare pay cuts, continued values for global payments for post-surgical care and a “potential to create unwarranted payment differentials among specialties.” The CMS also took action on the Medicare Payment Advisory Commission’s recommendation for site-neutral reimbursement for similar services delivered in different settings. MedPAC wants to make rates the same whether the patient is seen in a hospital or a physician’s office. The CMS plans to study the issue by creating new codes designating whether services were provided off or on a hospital campus so it can examine the trends in Medicare
payment and beneficiaries’ cost-sharing as hospitals acquire physician practices and bill services they deliver as hospital-based outpatient care. Gilberg noted that the issue has gained some steam because the concept of siteneutrality payments has been floated as a method for paying for the repeal of the sustainable growth-rate formula. While the CMS plan to study the issue has merit, Gilberg said Congress needs to seize the opportunity to repeal the SGR during the upcoming post-election “lame-duck” session that takes place before new members are seated in January.
The MGMA has advocated for putting back in play a bipartisan, bicameral bill to replace the SGR that appeared headed for passage this past spring before disagreements over how to cover the $138 billion cost killed the measure last March. Gilberg said it’s unlikely a new Congress will be able to come up with new legislation before cuts take effect April 1, so he said it would be politically expedient for the Republicans to get something passed this year. If they wait, Gilberg said, Republicans “will own this issue lock, stock and barrel.”
Patient-Centered Medical Home Initiatives Expanded in 2009–13: Providers, Patients, and Payment Incentives Increased Synopsis The patient-centered medical home seeks to expand patients’ access to primary care, promote prevention, and ensure that care is well coordinated. National survey data show that the number of medical home initiatives and the number of patients they serve have grown significantly since 2009. Current initiatives tend to be larger and have no specified end dates, while per-member permonth fees are higher. These findings suggest that stakeholders recognize the importance of investing in primary care and the substantial time and effort required to change practice patterns and provider behavior. The Issue Strengthening primary care is a key thrust of health care delivery reform efforts in the United States and the patient-centered medical home model is often a core component. Medical homes, whether organized by health plans, state Medicaid programs, or other entities, rely on multidisciplinary care teams, care managers, patient registries, and other tools to expand access, promote prevention, and coordinate patient care. To understand the prevalence and nature of these initiatives, Commonwealth Fund–supported research-
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ers fielded a nationwide survey of patient-centered medical homes in 2013 and compared the results with a similar survey fielded in 2009. Key Findings • In 2013, there were 119 medical home initiatives in the U.S. that featured payment reform, 114 of which responded to the survey. In 2009, there were only 26. • Medical home initiatives in 2013 ranged from small pilot programs with only a few participating practices to large programs covering nearly all patients in a region or state, with these larger initiatives dominating. The number of enrolled patients increased from about 5 million in 2009 to about 21 million in 2013. • In 2013, 69 percent of the initiatives required participating practices to achieve official recognition as patient-centered medical homes based on established standards, either set by the National Commission for Quality Assurance or internally developed. • While most medical home initiatives in 2009 had set end dates (77%), in 2013 only 20 percent had designated end dates.
• The dominant payment model for medical home providers has remained fee-for-service, supplemented by per-member per-month payments and pay-for-performance bonuses. The use of shared-savings models (under which both payer and provider typically share the cost savings achieved through better patient care) had become more common, however, and per-member permonth fees were higher in 2013 than in 2009. The Big Picture “The longer-term, more open-ended nature of the current patient-centered medical home initiatives suggests a recognition of the importance of sustained investment in the primary care infrastructure.” Based on substantial growth in the number of medical homes and payers’ commitment to the model over the long term, there appears to be a recognition that reforming primary care will require considerable time and resources. Evaluations of early medical home initiatives have found mixed results regarding their ability to improve care and control costs, but today’s initiatives are learning from past experiences and providing greater incentives to control the total costs of care. About the Study As in the 2009 survey, the researchers surveyed all patient-centered medical homes that featured external payment incentives to participating providers. They identified medical homes through public databases, literature review, web searches, and expert consultation. The survey included questions about the process used to select participating practices, medical home recognition standards, payment methodologies, use of consultants, involvement in learning collaboratives, and planned evaluations. Of the 172 patient-centered medical home initiatives the researchers identified, 119 incorporated payment reform in their model and thus met inclusion criteria. Of these, 114 (96%) responded to the survey. Collectively, the initiatives included 63,011 providers caring for 20,764,676 patients. The Bottom Line Between 2009 and 2013 there was a fourfold increase in both the number of patient-centered medical home initiatives and the number of patients enrolled in them. Current initiatives tend to be large, open-ended, and varied in respect to payment and delivery reform approaches.
Pioneer ACOs can recruit seniors under new CMS test By Melanie Evans Since it began three years ago, Medicare’s test of accountable care hasn’t asked beneficiaries who are not assigned to an accountable care organization whether they want to voluntarily enroll. That will change next year when some Pioneer ACOs will give beneficiaries that option. The CMS Innovation Center is testing whether seniors will elect to enroll in an ACO, a term that means little or nothing to many patients despite an aggressive push to promote accountable care among hospitals and doctors. The Pioneer ACO demonstration also will evaluate whether patients who agree to enroll are more likely to stay
within the ACO’s provider network and seek care from ACOs’ hospitals and doctors.
won’t deliver immediate returns, experts say.
Patients’ track record in staying within the ACO network has been spotty among Medicare ACOs. Unlike Medicare Advantage managed-care plans, which are allowed to use deductibles and other strong financial incentives to steer patients toward network providers, patients in Medicare ACOs can seek treatment anywhere with no financial penalty. And indeed, they often wander outside the network. That undermines ACO efforts to manage quality and costs and weakens incentives for ACOs to make investments in services or programs that
“We have to be creative right now, in the absence of tools that we have in managed care,” to encourage patients to seek care within the ACO network, said Colin LeClair, executive director of Monarch HealthCare, an ACO that is inviting patients to enroll. Until this year, patients were enrolled in— “attributed to” in ACO jargon—a Medicare ACO because their doctor was participating. The CMS Innovation Center has included patients within an ACO based on how much care they got historically from ACO doctors. Patients are informed by letter. Currently,
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Pioneer ACOs can recruit seniors, continued patients can opt out of allowing the ACO to share their medical data but they still are included in the ACO’s cost and quality baselines and in the ACO’s final performance results. But one-third of patients in ACOs turn over each year because they seek too much care outside an ACO. Nonetheless, Pioneer ACOs are rewarded or penalized based on the cost and quality of healthcare services for patients who are identified and attributed at the start of each year. That enrollment strategy will continue to be the case next year. But in 2015, additional patients will be able to choose to be enrolled. The Innovation Center said five Pioneer ACOs will solicit patients to enroll. Invitations will go to Medicare patients not included in an ACO in 2015, based on their primarycare doctor this year, but who were previously included. Signing up for an ACO may make patients more conscious of the quality-of-care benefits of ACO enrollment, and may nudge them to stick with the ACO’s network doctors and hospitals, LeClair said. Patients who elect to join also may be more receptive to attempts to manage their care or their chronic disease condition once they are familiar with accountable care, ACO leaders say. Often seniors feel vulnerable and distrustful about being solicited. But “when we call a high-risk patient or a patient who was just discharged from the hospital, we’re not a foreign entity, we’re a trusted partner,” LeClair said. “We’re here to support them.” Irvine, Calif.-based Monarch HealthCare mailed invitations to nearly 10,000 Medicare patients, and 2,100 responded, LeClair said. Of those, about 100 declined. Monarch used letters drafted by the Innovation Center, which worked with a behavioral economist to draft four letters to see which version gained the highest response from Medicare patients. But it’s uncertain whether seniors will be willing to change doctors or habits that take them outside an ACO simply because they signed up for an ACO. Beneficiaries in the traditional Medicare program who join an ACO can continue to seek care anywhere and from whomever they would like. “It’s not clear that would necessarily change the care patterns,” said Dr. J. Michael McWilliams, an associate professor of health policy at Harvard University who has studied managed care and accountable care. The invitation to voluntarily join an ACO may confuse seniors, say some ACO executives who decided not to participate in the test of voluntary enrollment. They may mistake the ACO for a Medicare Advantage plan, which restricts their choice of provider. In Minneapolis, Park Nicollet Pioneer ACO officials feared that this type of invitation would confuse seniors and require significant time and effort from staff to explain the offer. And they thought it ultimately would do little to change patients’ provider choices, said Donna Zimmerman, senior vice president, government and community relations for HealthPartners, which includes Park Nicollet. Her ACO will wait to see whether invitations by Monarch are effective in getting patients to stay within the ACO network. “It’s absolutely a fair question and a tactic that can be tried out,” she said. In Peoria, Ill., where managed care is not as common as in other geographic areas, older Medicare patients have little experience with limited networks and may find the ACO invitation perplexing, said Dr. Ralph Velazquez, senior vice president of care management for OSF HealthCare, which operates a Pioneer ACO. Older seniors may have little appetite for accountable care, he added. OSF is debating whether to invite seniors to participate. Experts say marketing ACOs to patients could cause risk-selection issues. Recruiting patients creates opportunity for ACOs to pursue those with spending likely to be less than projected and avoid those whose care is likely to exceed projected targets. ACOs earn bonuses when health spending is less than projected, based on patients’ historical use. That potential problem can be minimized, however, to the degree that spending targets account for predictable fluctuations in spending and include adequate risk adjustment for sicker patients, said Michael Chernew, a health policy professor at Harvard University. The better those spending targets adjust for risk, the less worry “about untoward things happening,” he said. For the coming year, the Innovation Center will use a more sophisticated risk-adjustment formula to adjust spending projections for more complicated, expensive patients, ACO executives said. Even so, research suggests seniors with cognitive impairment or limitation may be less likely to enroll in an ACO despite potential improvements in their care, McWilliams said. Such patients were less likely to sign up for low-income subsidies for Medicare Part D prescription drug coverage, according to a study McWilliams and others published in 2013 in JAMA Internal Medicine.
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More Price Warnings On Hospital-Led Mergers As hospitals buy more doctor practices, medical groups and other health facilities, “higher total expenditures per patient,” are often the result, according to new research in this week’s Journal of the American Medical Association. The study showed doctor practices owned by hospitals in California “incurred higher expenditures” for commercially insured HMO patients for myriad medical services from 2009 and 2012 in California. The study was led by James C. Robinson, a professor in the University of California-Berkeley’s School of Public Health. The study comes as the Affordable Care Act increases access to health care for millions of Americans and encourages more coordination of medical care from traditional health systems often led by hospitals. Hospitals, meanwhile, are being pressured by employers and certain parts of the health law to move away from costly feefor-service medicine to a more transparent and accountable approach that emphasizes less costly outpatient care. But while the health law and trends in insurance payment encourage a lower cost approach through care coordination, UC-Berkeley’s Robinson said in a statement that the intent of consolidation when hospitals are involved doesn’t often lead to lower prices. “The problem with all this is that hospitals are very expensive and complex organizations, and they are not known for their efficiency and low prices,” Robinson said in a statement from the UC-Berkley News Center.
In the Robinson-led study, local hospital-owned physician organizations had expenses that were at least 10 percent higher than “did physician-owned organizations.” Researchers encouraged policymakers to support more accountable care approaches to improve the coordination of medical care such as the use of bundled payments for doctors and hospitals. In Chicago, a recent mega merger of two of the area’s largest health systems, which are led by hospitals, has drawn the attention of insurance companies across the country. The deal, announced last month between Advocate Health Care and NorthShore University HealthSystem, would create the 11th largest tax-exempt health system in the nation. Both health systems have a recent history of legal scrapes with federal antitrust regulators. “When the claim of ‘efficiency’ simply results in higher and higher prices, which is certainly the case when large hospitals and providers merge, we move further away from the goal of affordability for consumers,” said Clare Krusing, spokeswoman for America’s Health Insurance Plans (AHIP), the Washington insurance industry trade group and lobby which includes AetnaAET +0.38% (AET), CignaCI +0.86% (CI), HumanaHUM +0.35% (HUM) and UnitedHealth GroupUNH +0.53% (UNH) and several Blue Cross and Blue Shield plans as members. AHIP said the study published in JAMA bolsters health plan concerns about hospital-led consolidation.
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Hospital mergers and acquisitions leading to increased patient costs By Sarah Yang The trend of hospitals consolidating medical groups and physician practices in an effort to improve the coordination of patient care is backfiring and increasing the cost of patient care, according to a new study led by a UC Berkeley health-policy expert. The counterintuitive findings, published Oct. 21 in the Journal of the American Medical Association, come as a growing number of local hospitals and large, multi-hospital systems in this country are acquiring physician groups and medical practices. “This consolidation is meant to better coordinate care and to have a stronger bargaining position with insurance plans,” said study lead author James Robinson, professor and head of health policy and management at UC Berkeley’s School of Public Health. “The movement also aligns with the goals of the Affordable Care Act, since physicians and hospitals working together in ‘accountable care organizations’ can provide care better than the traditional fee-for-service and solo practice models. The intent of consolidation is to reduce costs and improve quality, but the problem with all this is that hospitals are very expensive and complex organizations, and they are not known for their efficiency and low prices.” Robinson teamed up with study co-author Kelly Miller, program analyst at Integrated Healthcare Association, a non-profit organization that promotes healthcare quality improvement, accountability and affordability in California.
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Study methods The researchers analyzed four years of data, from 2009 to 2012, on 158 major medical groups and 4.5 million patients in California. Groups were put into three categories: owned by physicians, owned by a local hospital or hospital system, or owned by a large hospital system that spans multiple geographic markets in the state. The measure of costs included physician visits, inpatient hospital admissions, outpatient surgery and diagnostic procedures, drugs, and all other forms of medical care except for mental health services. (The researchers did not have data on mental health services since they are paid for separately.) After controlling for such factors as the mix of severely ill patients and geographic differences in cost, the researchers found that per patient expenditures were 19.8 percent higher for physician groups in multi-hospital systems compared with physician-owned organizations. Groups owned by local hospitals were better, but per patient costs still ran 10.3 percent higher compared with physician-owned groups. Policy directions Why would consolidation lead to increased costs? It could be that once a medical group has been acquired, physicians in those groups are expected to admit their patients to the high-priced hospital, Robinson said.
“Hospital-owned medical groups usually are expected to conduct ambulatory surgery and diagnostic procedures in the outpatient departments of their parent hospital, but hospital outpatient departments are much more costly and charge much higher prices than freestanding, non-hospital ambulatory centers,” he said. Robinson said that public policy should not encourage mergers and acquisitions as a means of promoting collaboration. Instead, he said, policymakers should consider supporting the use of bundled payments for hospitals and physicians to improve coordination of care. “Hospitals are an essential part of the health care system, but they should not be the center of the delivery system,” said Robinson. “Rather, physician-led organizations based in ambulatory and community settings are likely to be more efficient and provide cheaper care.” The study authors noted that their findings are limited to California, and that further studies should be done using data from other states. “Nevertheless, these findings are important since California is the nation’s leader in terms of having physicians participate in large medical groups that already perform the functions ascribed to ‘accountable care organizations’ by the Obama administration,” said Robinson. The Robert Wood Johnson Foundation provided support for this research.
Capitated payments more acceptable to providers, survey finds By Melanie Evans
A survey of 39 health plans released this week adds to mounting evidence that hospitals and medical groups are getting comfortable with incentive-based payment structures that reward quality and lower costs. This new snapshot includes surprising evidence that a significant percentage are willing to expose themselves to financial losses under a new generation of capitation models, which went out of vogue 20 years ago. The survey by Catalyst for Payment Reform, an employer-funded health policy group, found that 15% of what the participating health insurers spend on medical bills is paid under capitation. Experts cautioned the figure may be somewhat skewed because the health plans that responded to the survey included a lopsided number of insurers with capitation contracts, but that would not entirely account for the significant percentage. The survey reflects payments for 101 million people—about two-thirds of the nation’s privately insured. The rapid adoption of more robust risk-based payment models could foster more rapid changes to how patients receive medical care. Use of incentives got a boost from the Patient Protection and Affordable Care Act, but not all incentives are equal. Some impose modest financial risk, as is the case with the healthcare law’s Medicare penalties for 30-day readmissions and potential bonuses and losses under Medicare accountable care contracts. Not all providers are equipped to handle the risk that goes with capitation, said Dr. Robert Berenson, a senior fellow with the Urban Institute. Nonetheless, it’s likely a more effective way to change providers’ behavior than more limited incentives that allow hospitals and doctors to keep some savings from cost-control efforts or impose modest penalties for low performance on quality measures. Capitation is jargon for a simple concept: a lump sum paid to cover all of a patient’s medical expenses. Providers profit when that sum is more than the expense and eat the loss if it isn’t. As incentives go, capitation carries significant risk but also the potential for bigger reward and greater flexibility for providers to pay for whatever care they consider most effective. Until recently, capitation had become a dirty word to many outside of California, Oregon and perhaps Minnesota. The model shared the fate of managed care, which rapidly gained market share two decades ago and almost as quickly lost favor with doctors. Medical groups suffered major losses under capitation as fast-growing medical expenses exceeded the lump sum payments. Doctors consolidated and used new leverage to reject capitation or demand higher rates. Slightly more than 15% of physician office visits for Medicaid and privately insured patients were paid under capitation in 1996, one federal analysis found. Nine years later, the figure stood at 7%. Experts now report mixed anecdotal evidence on the resurgence of capitation. They generally corroborate Catalyst for Payment Reform’s conclusion that incentives for quality improvement and cost control are growing, but they point out that the growth is uneven. Credit-rating agencies say capitation remains a small share of health systems’ revenue. “There’s a great interest in changing payment models,” said Elizabeth Sweeney, a senior director in healthcare with Standard & Poor’s, but adoption is still nascent in many markets. “In the hospital side, there is great appetite for increasing risk, but the kinds of risk hospitals are taking is fairly limited.” Capitation among hospitals remained a small fraction of total revenue last year—1.3% for the median hospital—among hospitals with credit ratings from Moody’s Investors Service. “It’s a small amount and slow-growing,” said Moody’s Lisa Goldstein, an associate managing director and analyst for the rating agency. The median hospital saw another 2.4% from risk-based contracts. The recent entry into contracts with incentive risks is “very measured” compared with the unprepared rush during the 1990s, she said.
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But Moody’s analysts do expect risk-based incentives and capitation to grow, she said, which is why the rating agency last year began to include reporting by payment model in the financial indicators its analysts track. Blue Shield of California has seen enrollment drop in its managed-care plans during the last five years but expects to rapidly boost enrollment through new managed-care plans that use accountable care to create additional performance incentives, said Juan Davila, executive vice president of healthcare quality and affordability for the insurer. Historically, Blue Shield of California paid doctors under capitation with its managed-care plan. In recent years, those plans lost market share as premiums increased, in part because large medical groups used their leverage to raise the capitated payments. The new plans continue to pay doctors under capitation, but total spending must also stay within an annual budget. Doctors, hospitals and Blue Shield split profits when spending stays below the budget and share losses when the budget is exceeded. Blue Shield so far has 20 such contracts and expects to have 45 to 50 by 2018, which should account for half its enrollment, Davila said.
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House GOP proposal includes plan to kill ‘two-midnight rule’ By Paul Demko House Republicans are circulating a proposal to overhaul the way Medicare pays hospitals for short stays, including a plan to eliminate the widely criticized “two-midnight rule.” The timing of the document, described as a “discussion draft” might seem strange. It arrives in the middle of a lame-duck session in which Congress is expected to do little but fund the federal government before it runs out of money on Dec. 11. And it was put forward by the House Ways and Means Committee, which will have a new chairman when the House reconvenes in January. But close watchers of Washington healthcare policy say they believe it’s an important marker that could provide insight into the contours of the Medicare debate. In addition, provisions of the bill could resurface during Congress’ next effort to repeal Medicare’s sustainable growth-rate formula for paying physicians, with the latest patch set to expire at the end of March. That annual exercise has become a vehicle for other healthcare proposals, in part because it’s one of the few bills that’s virtually guaranteed to gain traction. “This should be viewed as the latest step in the long-running and very difficult debate about how to deal with short stays at hospitals,” said Eric Zimmerman, a principal with McDermott + Consulting. “It is meant to start a discussion around how to resolve some of these issues.” Ilisa Halpern Paul, president of Drinker Biddle’s district policy group, sees the release of the Medicare payment proposal as a sign that the Way and Means Committee plans to “take the reins in an effort to unscramble this very messy egg.” Although Ways and Means Chairman Rep. Dave Camp (R-Mich.) is losing his gavel because of term limits—he’ll be replaced by Rep. Paul Ryan (R-Wis.)—the House Subcommittee on Health, which released the draft legislation, will still be chaired by Rep. Kevin Brady (R-Texas). “It has been over
four years since the last major legislation was passed that made payment changes that impact the way hospitals deliver care in the Medicare program,” the committee said in a fact sheet about the bill. “It is imperative that we address and consider these priorities as soon as possible.” Medicare payments for short-term hospital stays have been contentious for a number of reasons. Chief among them is the two-midnight rule. Under that policy, an admission is presumed to be appropriate if the patient’s stay lasts over two midnights. Providers, however, argue that the rule undermines their clinical judgment and has created more confusion than clarity. Congress this year delayed enforcement of the policy and the CMS has solicited ideas to improve it. And the Medicare Payment Advisory Commission has also debated whether it has the authority to do away with the two-midnight rule. Intertwined with that debate is the Recovery Audit Contractor program. More than $3 billion in Medicare overpayments to providers was recouped last year through the program. But appeals of those decisions can take more than five years and there’s a backlog of more than half a million appeals. In response, the American Hospital Association filed a lawsuit earlier this year seeking to force the CMS to meet its statutory requirement to decide Medicare-payment appeals within 90 days. The Ways and Means discussion draft proposes creating a new payment system for hospital stays that would be adopted for fiscal year 2020. It would combine the current payment systems for inpatient and outpatient care to create a unified system. In the interim, the CMS would be directed to develop a transitional per-diem payment system for short hospital stays. It would also place restrictions on RAC audits until the new payment system can be adopted. The bill also contains a host of other proposals from Republican legislators that are
likely to become part of the healthcare debate in the coming months. Among them is a partial lifting of the moratorium on expansion of physician-owned hospitals that was part of the Patient Protection and Affordable Care Act. That was included at the behest of Rep. Sam Johnson (R-Texas). Another proposal, sponsored by Rep. Diane Black (R-Tenn.), would establish a nationwide bundled-payments program, expanding a cost-control initiative that was part of the ACA. Halpern Paul said those other proposals are carrots to bring members on board with the broader discussion about overhauling Medicare hospital payments. “You don’t want to weigh it down so much that it buckles over,” she said. “You have to find this very fine balance.” Hospitals have been muted in their response to the proposal. A spokesperson for the American Hospital Association said that it was still studying the proposal and declined to comment on its specifics. The Federation of American Hospitals, which represents investor-owned hospitals, released a statement lauding the committee for taking on the difficult issue of Medicare payments. But it raised concerns about lifting the moratorium on physician-owned hospitals. “We are seriously concerned with efforts to roll back the self-referral law, which runs the risk of bringing back arrangements which will increase utilization and health care spending and threaten patient safety,” the trade group said. In recent years, any healthcare legislation has been politically toxic, owing to the stalemate over Obamacare. That viewpoint has discouraged serious discussions about healthcare policies. Halpern Paul views it as welcome news that Republicans are seriously engaging on the Medicare hospital payment front. “The issues that are in it are obviously very complex,” she said of the draft legislation. “It’s clear that a lot of thought and work went into the construction of the bill.”
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Medicare’s quality programs prove to be a hurdle, doc practices say by Andis Robeznieks
A
n overwhelming majority of medical practices say they are already participating in internal quality-improvement processes, according to a Medical Group Management Association survey, but an even higher number said they do not believe participating in Medicare physician quality-improvement programs is enhancing their practice.
While acknowledging that Congressional gridlock was making passage of any legislation difficult, McLaughlin and Gilberg touted the bipartisan Flexibility in Health IT Reporting Act, sponsored by Reps. Renee Elmers (R-N.C.) and Jim Matheson (D-Utah), which would shorten the meaningful-use reporting period for 2015 from the full year to 90 days.
According to a report on the findings released Monday at the MGMA’s annual conference in Las Vegas, 82% of survey respondents were engaged in their own clinical-improvement effort, and more than 83% said Medicare’s Physician Quality Reporting System, meaningful-use electronic health-record incentive program, and its Value-Based Modifier Program are distractions that impede quality improvement.
McLaughlin said the programs were reaching a tipping point where the costs of participating were outweighing the benefits.
Anders Gilberg, MGMA senior vice president of government affairs, said Medicare’s programs have lost their focus and are not providing the promised timely, actionable feedback. Instead of qualityimprovement programs, they have become bureaucratic data-reporting programs. “Physician practices are struggling mightily to comply,” Gilberg said. “But the effort is not translating to higher quality of care.” Gilberg also referred to the programs as “three silos with multiple penalties” asking physicians to report practically the same information in three different formats. The programs, which had previously offered small bonuses for compliance, switch to using punitive measures to gain compliance in 2015. Speaking at a “Washington Update” session at the conference, Jennifer McLaughlin of the MGMA government affairs department noted that harmonizing the reporting requirements for the three programs was “right up there” with repealing the Medicare sustainable growth-rate physician-payment formula as an MGMA priority.
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The MGMA also issued another report Monday on the qualities that differentiate better-performing practices from the rest of the pack. Better-performing multispecialty practices monitor their operating costs, use benchmarks to assess performance, have less bad debt, and have more clinical-support staff, according the report. The report, based on survey responses from 2,518 respondents, noted that operating costs for better-performing practices made up about 56% of total revenue compared with about 70% for other groups. The top performers also had higher ratios of clinical support staff: 6.3 employees per full-time physician compared with 4.3 for the lesser performers. Todd Evenson, MGMA vice president of data solutions and consulting services, said this figure represents a “right-sizing” of sorts for practices’ healthcare teams. The question practice managers must ask, he said, has changed from “Do I have enough people?” to “Do I have the right people?” Evenson also noted that 81% of better-performing practices are using patient-satisfaction surveys. “They’re listening to their customers,” he said.
5 recently announced ACOs By Ayla Ellison
The following is a roundup of recently announced accountable care organizations or collaborative care agreements, beginning with the most recent. 1. Aetna, Rainier Health Network and others partner for collaborative care Health insurer Aetna will begin providing coordinated care for patients in the state of Washington by partnering with four Seattle-based provider groups: Pacific Medical Centers, The Polyclinic, Providence-Swedish Health Alliance, and Rainier Health Network. 2. Via Christi Health, Humana launch accountable care initiative in Kansas Wichita, Kan.-based Via Christi Health and Louisville, Ky.-based health insurer Humana entered into an accountable care agreement aimed at providing more coordinated healthcare to Humana Medicare Advantage members in Wichita. 3. Regional HealthPlus, Cigna launch collaborative care program Spartanburg, S.C.-based Regional HealthPlus and health insurer Cigna entered into a collaborative care agreement aimed at enhancing patient care coordination and improving quality of care for more than 5,000 Cigna members who receive care from Regional HealthPlus physicians. 4. Humana, MDX Hawaii enter into accountable care agreement Honolulu-based MDX Hawaii — a third party administrator for employer and government-sponsored health pans — and Humana entered into an accountable care agreement aimed at improving quality of care and reducing healthcare costs for Humana Medicare Advantage members in Hawaii. 5. Anthem BCBS partners with IU Health Goshen’s ACO Health insurer Anthem Blue Cross and Blue Shield contracted with Indiana University Health Goshen’s ACO to help improve quality of care.
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