Health Care Consolidation and Human Nature: The

Role of the Fraud and Abuse Laws in a

Changing Health Care System

Joan H. KrauseUniversity of North Carolina

Consolidation and Integration: What Role For Law?

Relevant Fraud LawsMedicare & Medicaid Anti-Kickback Statute

Prohibits offer/payment of remuneration to induce the referral of patients, or the purchasing of items/services, payable by the federal health care programs

Ethics in Patient Referrals Act (“Stark Law”)Prohibits referral of Medicare/Medicaid patients for

designated health services to health care providers with which referring physician has financial relationship

Civil Monetary Penalties LawPrevents hospitals from paying physicians to reduce or

limit services (gainsharing) Prohibits offering of financial inducements to

beneficiaries

The AllegationsFraud laws limit financial relationships between

referral sources and referral seekersShift from volume-driven to value-driven paymentIn this new model, fraud laws prevent providers

from working together in more innovative, efficient, and patient-centered ways

Examples:MSSP -- Required ACO fraud and abuse waiversOlder:

HIPAA risk-sharing safe harbors Gainsharing debate

The RealityFraud laws written in

a very different eraLaws assume:

Disaggregated health care system with many independent providers

Little vertical or horizontal integration

Fee-for-service payment

Old models still salient

$$Patient

s/Service

s

Health Care Consolidation and Integration

Integration = Process of discrete health care providers coming together in (at least loosely) organized form to pursue coordinated, efficient, high-quality care

FormsFinancialStructuralOperational

Financial IntegrationIndividual success tied

to others in group, such as:Managed careMSSP

May exist alone or with other forms of integration

No specific payment mechanism required

May have little effect on potential for fraud

Structural IntegrationAssume that legal

organizational structure safeguards against fraudStark Law group

practice exceptionACA flexible with regard

to organizational modelMitigates risks for

individuals, but still potential for fraud by organization

Operational IntegrationOperation of entity is

coordinatedFinancesStructureDelivery of care

Important from patient perspective

Often missing in MCOsACA focus on

outcomes and patient satisfaction

“In health care, like in everything

else, the way we pay people affects the way they cheat.”*

*Pamela S. Bucy, Health Care Reform and Fraud by Health Care Providers, 38 VILL. L. REV. 1003, 1049 (1993)

Effect of Payment Model on Fraud

Fraud occurs in different ways under different payment systems, e.g.:FFS vs. capitationPPS shifted locus of fraud to outpatient settings

Fraud occurs in unexpected places and in unanticipated ways that may be worse for patients

Hybrid payment systems will be subject to multiple types of fraud, many of which we cannot anticipate

Human Nature?“Who cheats? Well, just about anyone if the stakes are right.... For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people, clever and otherwise, who will inevitably spend even more time trying to beat it.”Levitt & Dubner, FREAKONOMICS: A ROGUE ECONOMIST EXPLORES THE HIDDEN SIDE OF EVERYTHING 24-25 (2005)