December 1, 2014

Is your anesthesia or pain medicine practice participating in any bundled payment programs?  Bundled payments are single payments to providers or health care facilities (or to a combination of both) for all services furnished during an episode of care or over a certain time period.  Distribution of the single payment among the providers often entails a gainsharing and/or pay-for-performance arrangement to incentivize cost reduction and improve quality of care.  With many bundled payment packages including orthopedic, spine or cardiovascular service lines, it is almost certain that some anesthesiologists are involved.

More than 243 providers had entered into bundled payment contracts with CMS under Phase II of the Medicare Bundled Payments for Care Improvement (BPCI) Initiative as of July 2014.  More than 6,400 providers participated in Phase I.  According to CMS, some 6,500 providers are analyzing Medicare spending data to decide whether to apply to enter into BPCI contracts.  Although the ability of bundled payments to save costs while achieving high quality care is not proven, interest in the potential of such programs continues to grow.

The Advisory Board has identified more than 30 commercial bundled payment systems.  The numbers of private sector bundled care systems are small, and one reason for the relatively slow growth here is that many federal and state health care laws make bundled payments difficult to structure and implement outside of the Medicare BCPI.  Below are some of the federal and state legal issues that should be analyzed when establishing commercial sector bundled payment arrangements:

1. Antitrust

When independent providers join together to negotiate bundled payment agreements with health plans, the basic question is whether that joint activity constitutes illegal price-fixing.  Courts, and the federal agencies with antitrust jurisdiction, will engage in a two-step analysis.  First they will examine whether it is permissible for independent providers who are actual or potential competitors to negotiate bundled payments jointly at all.  Independent anesthesia groups at different hospitals within a network seeking to enter into bundled payment arrangements could be considered competitors.  If the providers are sufficiently integrated either clinically or financially to demonstrate that they are likely to create real efficiencies in the form of lower-cost and/or higher-quality care, their joint negotiations will pass the first test.  The second test is the effect on competition in the relevant market, the question being whether the arrangement is likely to raise prices and lower quality.  If the effect will be neutral, e.g., because the parties even in combination are too small to influence the market, or pro-competitive, the arrangement will generally pass antitrust scrutiny. 

Independent health insurers, unlike providers, benefit from a statutory exemption under the McCarran Ferguson Act that would make it lawful to agree on the terms of the bundled payment plans they will offer.

2. Fraud and Abuse

The various fraud and abuse rules, federal and state, must be considered whenever physicians receive direct or indirect payments from hospitals or other healthcare providers related—very broadly—to their patient care activities.  For example, if a hospital contracts with a health plan for a bundled payment package for total hip replacements and with the physicians, including the anesthesiology group, for the surgical and anesthesia components of the package, payments from the hospital to the physicians would warrant examination for compliance with the following laws:

1. Anti-Kickback Laws.  The federal statute prohibits payments to physicians and other providers that are intended to induce referrals of patients covered by federal health programs including Medicare and Medicaid.  The Office of the Inspector General (OIG) has defined a number of safe harbors.  Many states have all-payer anti-kickback statutes. 
2. Physician Self-Referral Laws.  The federal Stark law, and corresponding state statutes, prohibit physicians from referring patients for specific services where the patient and the provider receiving the referral have a financial relationship.  The statutes and regulations spell out a set of exceptions.
3. Civil Monetary Penalty (CMP) Law.  The federal CMP statute prohibits a hospital from knowingly making a payment, directly or indirectly, to a physician as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries.  This law is viewed as the biggest barrier to gainsharing, i.e., to physicians’ sharing in the amounts saved through the alignment of efficiency incentives.

3. Other Laws Potentially Inhibiting Bundled Payments

1. Fee-Splitting Laws.  In general, these state statutes prevent physicians from splitting professional fees with non-physicians.
2. Corporate Practice of Medicine Doctrine.   State laws based on this doctrine prevent hospitals and other corporate entities from providing professional medical services, e.g., by employing physicians.  There are many exceptions within the various statutes.
3. Tax Issues.  There are various restrictions, under the federal tax laws, that may circumscribe the ways in which not-for-profit hospitals distribute payments to physicians and others participating in bundled payment systems.  In particular, no part of a nonprofit’s net income may “inure to the benefit of any private shareholder or individual.”
4. Insurance Laws.  Provider organizations assuming financial risk under bundled payment programs may be regulated under state law as health insurers.  Alternatively, the financial risk undertaken may trigger reporting requirements to the state.
5. ERISA Law.  If the health plan paying the single bundled payment is an employer-sponsored benefit plan, other federal laws and regulations may affect the design of the arrangement.

All of these laws can come into play in the planning of a bundled payment program.  None of them are absolute bars.  One can design bundled payments so as to comply with the requirements of, or to avoid violating, each of them.  In a state that prohibits the corporate practice of medicine, for instance, the parties can avoid payment to the hospital for the physicians’ services by making clear in the agreement with the health plan that the hospital is accepting payment on its own behalf for certain services and only as an agent for the physicians’ professional services.  Nevertheless, the legal costs for ensuring compliance with the multiple statutes implicated can be a significant obstacle to establishing bundled payment programs—a cost which, on top of the administrative expenses of launching and running such programs, explains why there are not more of them up and running. 

There are signs of increasing sensitivity to the brake on healthcare reform at least on the part of the federal Department of Health and Human Services.  Over the past ten years the OIG has issued a number of advisory opinions finding that financial incentives to physicians to employ specific cost-savings strategies have the potential to induce physicians to reduce or limit care to Medicare or Medicaid fee-for-service beneficiaries and thus implicate the CMP law.  The OIG declined to impose sanctions, however, when safeguards such as disclosure and transparency, reasonableness in amount, credible medical support and protection again inappropriate reductions were in place.  (Gordon J, Martland D. et al. Legal Issues in Designing Bundled Payments and Shared Savings Arrangements in the Commercial Payor Context.  New Jersey:  Robert Wood Johnson Foundation, 2013.)  Generally speaking, the cost-saving measures approved by the OIG through 16 advisory opinions have fallen into the following categories:

• Incentive payments based on meeting quality benchmarks only—not tied to cost savings;
• Substitution of less-costly products for products previously in use;
• Product standardization;
• Opening supplies only when needed; and
• Eliminating or limiting the use of certain items and supplies

On October 2, 2014, the OIG released a proposed rule discussing its intention to codify the gainsharing CMP, which bars inducements to physicians to reduce or limit services, and soliciting public comments on comments on whether the OIG should narrow the definition of the term ‘‘reduce or limit services.’’  A new definition would allow for such changes in healthcare as the use of “objective quality metrics, recogniz[ing] that a change in practice does not necessarily constitute a limitation or reduction of services, but may in fact constitute an improvement in patient care or a reduction in cost without reducing patient care or diminishing its quality.”

The proposed rule would also add certain exceptions to the definition of  “remuneration” in the CMP, as well as a number of safe harbors to the anti-kickback statute, e.g., for free or discounted local medical transportation services that meet specified criteria.  Comments are due on December 2, 2014. 

The legal and regulatory framework thus appears to be changing, albeit slowly, to encourage shared savings endeavors such as bundled payments.  We continue to believe that such programs are in most anesthesiologists’ future.  Pending the development of further information, we encourage readers to study the seminal article published in the ASA Newsletter three years ago.  (Merrick, S., & Stead, S. (2011).  Episode-Based (Bundled) Payments for Anesthesiology. ASA NEWSLETTER, 75(5), 40-45.)  This article is still an excellent guide.

With best wishes,

Tony Mira
President and CEO