Payor-Provider Contract Management/media/files/insights/...39 Offices in 19 Countries Payor-Provider Contract Management: How to Avoid Becoming a Horror Story September 23, 2013 The

39 Offices in 19 Countries

Payor-Provider Contract

Management:

How to Avoid Becoming a Horror

Story

September 23, 2013The Princeton Club

New York City

2

Speakers

• John M. Kirsner, [email protected], +1 614.365.2722

• John Kirsner acts as both counsel and advocate for large and small hospitals, physician group practices, other healthcare providers, and imaging and lithotripsy development companies. His work involves the creation of foundation model arrangements, physician-hospital alignment, joint venture transactions, clinical integration, accountable care, contract analysis, group practice merger and formation, network formation and operation, managed care contracting, regulatory review, compliance issues, and recruitment and physician employment.

• John is listed in The Best Lawyers in America for healthcare law and insurance law. He has been named an Ohio Super Lawyer each year since 2006.

3

Speakers

Paul Gallese, [email protected], +1 312.601.9071Paul Gallese is a Director with Alvarez & Marsal Healthcare Industry Group, LLC in Chicago. Mr. Gallese specializes in the development, operation, design, and restructuring of health care delivery systems, academic medical centers, risk bearing provider organizations and health insurers..

Prior to joining A&M, Mr. Gallese had extensive experience in the operations and finance of insurers, provider organizations, and integrated delivery systems. He has conducted and concluded complex negotiations for physician hospital joint ventures, physician compensation plans, and managed care capitation contracts on behalf of physicians, hospitals, and ancillary providers nationally. His clients included The University of Colorado School of Medicine, The University of Mississippi Medical Center, Florida Atlantic University, The University of Miami Miller School of Medicine, Children's Memorial Hospital in Chicago, Clark County Medical Center in Las Vegas Nevada, and The Children's Hospital, Denver

In addition to his advisory and policy experience, Mr. Gallese has served in senior leadership and interim executive roles for health plans, hospitals, and medical groups. His senior leadership roles include the Lewin Group; The Albert Einstein Practice Plans (Philadelphia); Cleveland Clinic Florida, Mt, Sinai Medical Center (Cleveland, Ohio), and Salick Cancer Centers (Los Angeles). He served as a member of the commissioning team and Associate Administrator of USC University Hospital in Los Angeles.

Currently, Mr. Gallese is engaged in a number of projects including restructuring and re-purposing of a safety-net hospitals and development of sustainable ambulatory care models. He has also served as the CEO of Community Health Plan of Washington, an $800 Million earned premium, 240,000 member Medicaid and Medicare Advantage Health Plan based in Seattle, Washington..

Mr. Gallese earned a bachelor's degree in physical therapy, with focus on neuroanatomy and pathokinesiology, from Marquette University. Mr. Gallese’s professional practice focused on Pathokinesiology and Sports Medicine. He has practiced in California, Nevada, New Mexico and Arizona. He earned a master's degree in business administration, with concentrations in strategy and finance, from Pepperdine University in Malibu, California.

4

Agenda

• Healthcare Industry: Increasingly Complex & Changing Rapidly• Complexity and Change Heightened Need for Compliance and Spur

to Integration• Fundamental Observations• Managing the Unknown• Complexity and Change Enforcement Risk• Horror Stories• Basic Best Practices• How to Avoid Becoming a Horror Story

5

Healthcare Industry: Increasingly Complex & Changing Rapidly

Uncertainty: Current regulatory environment driving unprecedented unrest– New regulations and payment systems– New penalties – Focus on “value” and “quality”

New push for integration, ACOs and the like– Range of vertical integration strategies, hospitals acquiring and developing other

businesses– Creates new ongoing Stark/Anti-Kickback/CMP/Antitrust issues that increase legal

risk– ACO waivers– Proper contracting model and compliance strategies extremely important

Insurance Exchanges (developments)– Narrow networks– Leverage pendulum shifting towards payers rather than providers– New reporting and compliance requirements

Changing Payment Structures– Moving away from fee for service models toward quality and outcome-based models

» Shared savings» Bundling/Global Payments

Projected Increased Spending– Funding the added coverage

6

Hospital Finances: In a Shrinking Bubble

Hospital finances

Medicare value

purchasing

Statutory DSH

Reductions

Reduced Medicare Payments

Lower Medicaid

DSH

Increased Medicaid coverage

& mobility

Ostensible decrease in the number

of uninsured

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Hospital IP OP Shift

0

500

1000

1500

2000

2500

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Hospital Outpatient Visits and Inpatient Bed days per 1,000 population 1990 to 2010

Outpatient Inpatient

Source: AHA Trendwatch Data

8

Hospital IP National Admission Trends

Source: AHRQ HCUPNetSource: AHRQ HCUPNet

Millions

9

Evolution of Payment Models: Public Funding

Fee for service

Per diem Inpatient DRG Episode of care

Multi-provider episode of care

payment

Diagnosis or condition specific

capitation (health system

at-risk)

Full capitation (health system

at-risk)

Source: HD Miller. Creating Payment Systems to Accelerate Value Driven Health Care. Issues and Options for Policy Reform. Commonwealth Fund, Sept 2007

Growing “Creativity” in Public Payment Models…not our first journey through this healthcare business cycle• Medicaid redesign models: New York State• Single Payer redesign: Maryland• Novel Medicaid Expansions: RI, OK, AR

Providers face increasing complexity, increasing regulatory challenges and a range of resulting financial challenges. Government payers are increasingly utilizing downstream risk vehicles that appear to be commercial contracts. The reality is: providers are increasingly reimbursed by public funds and are, therefore subject to public payer rules, regulations, audits and scrutiny

10

Complexity and Change Heightened Need for Compliance and Spur to Integration

• Implement and carry out compliance plansNeed to live up to perceptions of consumers and regulatorsNeed to oust bad behavior

• Providers live in an increasingly challenging space that demands, by virtue of market forces, a radical change in business and operational mindset

ConsolidationMerger IntegrationMarket RationalizationBusiness ScaleVertical Integration Strategies

• New push for integration, ACOs and the likeRange of vertical integration strategies, hospitals acquiring and developing other businessesCreates new ongoing Stark/Anti-Kickback/CMP/Anti-trust issues that increase legal riskACO waiversProper contracting model extremely important

11

Hospital “Deal Flow”: Pace of Consolidation Increasing

60 6050

7690

111

52$9.2

$2.5 $3.8 $4.3

$9.9

$12.3

$7.9

0

20

40

60

80

100

120

$0.0$2.0$4.0$6.0$8.0

$10.0$12.0$14.0

2007 2008 2009 2010 2011 2012 2013YTD

All Hospitals

Number of Transactions

Announced Dollar Value of Transactions ($ in Billions)

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Government Sources “Own” Healthcare

Wall Street Journal 4 February 2010

• In 2010, total public spending for healthcare services exceeded 50% of total national health expenditures

2009 2010 2011 2012 2013 2014 2021NHE, billions $2,495.80 $2,593.60 $2,695.00 $2,809.00 $2,915.50 $3,130.20 $4,781.00 NHE per capita $8,148.60 $8,402.30 $8,660.50 $8,952.80 $9,214.20 $9,807.50 $14,102.60 GDP, billions of dollars $13,939.00 $14,526.50 $15,093.00 $15,696.80 $16,387.40 $17,223.20 $24,395.30

NHE as percent of GDP 17.91% 17.85% 17.86% 17.90% 17.79% 18.17% 19.60%

Keehan S P et al. Health Aff doi:10.1377/hlthaff.2012.0404

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Hospitals “Sell” Reputation First: What is “Value”?

1. Lieberman, Trudy. "Do Hospital Ratings Matter?" Centers for Advancing Health. June 2012.2. Abraham, Jean, et al. "Selecting a provider: what factors influence patients' decision making?." Journal of healthcare management/American College of Healthcare Executives 56.2 (2011): 99.

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Fundamental Observations

1. The US healthcare system is commanding increasing amount of funding from all sources, primarily government sources. Public payer sources will increase as a percentage of total for most providers.

2. Hospitals are reacting to changes in healthcare finance by deploying vertical integration strategies. So called “headwaters” strategies (get closer to the payer source) have driven hospitals to become insurers, home health providers, physician groups, etc.

3. Providers are consolidating to create business scale and more survivable financial models. Provider consolidation is rampant and will likely continue for the foreseeable future.

4. Increased market footprint combined with increasing public funding makes providers more likely regulatory targets. Providers are increasingly challenged to create and maintain complex and thorough compliance functions designed to withstand regulatory scrutiny.

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Managing the Unknown

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Complexity and Change Enforcement Risk

• Why the enormous focus on reducing healthcare fraud?PRACTICAL: government views this money as stolen or wastedThe Government’s return-on-investment for healthcare investigations is over $7.90 per every $1.00 expendedIn 2012, Government collected $4.2 billion for healthcare fraudStates are joining in this effort with respect to Medicaid Fraud and increased enforcement of State anti-trust and anti-kickback laws

Fiscal Year

Total $ Recovered Return-on-Investment

FY 2012 $4.2 Billion 2010-2012 = $7.90FY 2011 ≈ $4.1 Billion 2009-2011 = $7.00FY 2010 ≈ $4.02 Billion 2008-2010 = $6.80FY 2009 ≈ $2.58 Billion Since 1996 = $4.00FY 2008 ≈ $2.14 Billion NAFY 2007 ≈ $1.07 Billion NA

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Meet your Regulators:

• Usually work together but are not required to• States cooperate with federal agencies as well

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Increased Enforcement of the following laws:• Stark Law (42 U.S.C. § 1395nn)

Prohibits physicians from making referrals for certain designated health services payable by Federal Health Care Programs to an entity with which physician or immediate family member has financial relationshipPenalties include denial of payment, refund of overpayments, exclusion, civil penalties ranging from $15,000 per each service to $100,000 per each circumvention scheme, failure to report civil monetary penaltiesEnforcement authority in CMS and OIG (HHS)

• Anti-Kickback Statute (42 U.S.C. § 1320a-7b)Prohibits remuneration paid purposefully to induce or reward referrals of items or services payable by Federal Health Care ProgramsCriminal penalties of maximum fine of $25,000, imprisonment up to 5 years, or both, and automatic exclusion and civil monetary penaltiesEnforcement authority in OIG (HHS)

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Increased Enforcement of the following laws:• Civil Monetary Penalties (“CMP”) Law (42 U.S.C. § 1320a-7a)

OIG may seek CMPs for a variety of conduct including False Claims, violation of the Anti-Kickback Statute, the Stark Law, and hospital’s violation of EMTALA.Penalties include treble damages of amount improperly claimed and varying penalty amounts per violation (form $10,000 to $50,000) Enforcement authority in OIG

• False Claims Act (“FCA”) (31 U.S.C. §§ 3729–3733)Prohibits persons and companies from defrauding federal programs by improperly receiving payments from or avoiding payment to the federal governmentQui Tam provision that allows civilians to bring claims on behalf of the government (known as “whistleblowing”)Incentive = Relator receives between 15-25% of the recoveryCan recover treble damages and attorney’s feesComplaint must be filed under sealEnforcement authority in DOJ

20


Increased Enforcement of the following laws:• Antitrust Laws

Sherman Act: outlaws "every contract, combination, or conspiracy in restraint of trade," and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize.“

– criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison

– the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million

Clayton Act: prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly.“

– authorizes private parties to sue for triple damages when they have been harmed by conduct that violates either the Sherman or Clayton Act and to obtain a court order prohibiting the anticompetitive practice in the future

FTC Act: prohibits "unfair methods of competition" and "unfair or deceptive acts or practices"

– all violations of the Sherman Act also violate the FTC actEnforcement authority in DOJ, FTC, State AGs, and private citizensFTC specifically addresses antitrust enforcement policy in health care

21


Increased Enforcement of the following laws:• Tax Issues • 501(c)(3) issues:

Maintaining tax exempt status in era of consolidation and ventures with for-profit corporationsACA’s new 990 and Schedule H requirements for charitable 501(c)(3) hospitals

• Penalties for ACA individual mandate non-compliance starting 1/1/14:2014 = the greater of $95 per person or 1% of taxable income2015 = the greater of $325 per person or 2% of taxable income2016 = the greater of $695 per person or 2.5% of taxable incomeEnforcement Authority in IRS

• State Versions of the Above Laws enforced by the StatesNot precluded from pursuing separate state action for violation of state lawsStates cooperate with Federal Government for recovery of Medicaid money

22


Creation of various federal entities targeting healthcare fraud:• Health Care Fraud and Abuse Control Program (HCFAC)

based on cooperation of AG and HHS

• Health Care Fraud Prevention and Enforcement Action Team (HEAT)based on cooperation of AG and HHS

• Recovery Audit Contractors (RAC) through CMS

• Medicaid Fraud Control Units

• Medicare Fraud Strike Force Teams (currently nine of them)

• National Fraud Prevention PartnershipPrivate insurers and federal government share claims data

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Primary avenues for enforcement:• Government Encourages FCA lawsuits filed by whistleblowers

Relator files suit under seal; DOJ gets notification, does preliminary investigation, involves other agencies as necessary, and decides whether to intervene or notIf decision not to intervene, DOJ kicks back to agency for enforcementCompany doesn’t know what is happening or who relator is because suit is under seal

– 647 qui tam actions filed in 2012– $439 million to whistleblowers in 2012

• Data mining through agenciesAgencies use powerful computers to crunch large amounts of data to locate “outliers” who treat patients differently than his/her peersInterested in those who bill for expensive services or bill more frequently than the norm

• Self-Disclosure through Anti-Kickback Statute and Stark LawParties disclose their own actions they believe violate the law in hopes of reaching a favorable settlement

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Life Cycle of an Investigation:1. Government gathers information; could be in form of:

attestation statements prior to an audit basic telephone call for voluntary production of documentscivil investigative demandgrand jury subpoenaadministrative healthcare subpoenasearch warrant

2. Conducts investigationusually lengthy; evaluates documents, conducts interviewsgovernment can disappear for 6 months at a time but likely still investigatinggovernment has long statute of limitations and tends to use it

3. Work toward a settlement or go to trial on FCA• Typical investigation/case lasts 2-4 years

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Horror Stories

• – consultant was relator in Qui Tam actionno compliance plan or enforcement Settlement Amount: $26 million in 2013

• – Whistleblower FCA suitfair market value issuesSettlement Amount: $11.5 million to US, $2.6 million to State of California, $2.8 million to whistleblowers and 5 year CIA in 2013

• - 1st issue: CMS Investigation; threat of loss of Medicareserious threat to patients; Corrective Action Plan

- 2nd issue: Whistleblower FCA suit but fully cooperatedup-coded charges and medically unnecessary proceduresSettlement Amount: $1.4 million and 5-year CIA in 2013

26

Horror Stories

• – Sacred Heart Hospital of Chicago CLOSED due to fraud investigation

FBI raided hospital and CEO, CFO, and four physician arrested for kickback scheme in which doctors were bribed to admit Medicare patients to hospitalClosed after Medicare decided to suspend payment for 180 days

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Horror Stories

• - Former employee whistleblower FCA suit- Paying doctors in exchange for referring cardiac patients to hospital

Settlement Amount: $108 million to US with $23.5 million to relator and 5-year CIA in 2010

• - FCA suit appealed to the 4th Circuit- Fair market value and commercially reasonable

compensation issuesCircuit court vacated district court’s verdict on procedural grounds and remanded for retrialThe new jury found violations of the Stark Law and FCA with 21,730 false claims valued at $39,313,065 before adding treble damages, which could exceed $200 millionFinal judgment still being negotiated with government

28

Horror Stories

• - Medicare Advantage Whistleblower FCA suit- Health Plan Medicare/Medicaid Overpayments

Settlement Amount: $129.4 million to the US, $190.5 million to California, $3.8 million to US to settle whistleblower suit in 2012

• - 1st offense: Criminal Medicaid investigation - Result: Entered into a DPA for $40 million in

restitution and forfeiture of an additional $40 million in 2009- 2nd offense: Four separate FCA suits in 2012False inflation of amounts spent, knowingly retained overpayments, cherry-picking, misrepresentation of patient medical conditions, etc.Settlement Amount: $137.5 million with interest in fixed payments over three years to US and nine states; $35 million contingent payment for sale of company or change in control within three years of agreement; $20.75 million to one relator and the others share $4.66 million

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Horror Stories

• – FTC case that went to Supreme CourtPhoebe attempted to acquire Palmyra, the only other competing hospital in the Albany, Georgia area, resulting in a merger to monopoly In 2013, Supreme Court ruled in favor of the FTC holding that the State of Georgia has not clearly articulated a policy that allows hospital authorities to make acquisitions that substantially lesson competition, therefore state action immunity doctrine does not applySettlement:

– Does not require Phoebe Putney to divest the hospital – Does not impose price caps or information firewalls to allow for separate, confidential

negotiations between each hospital and managed care plans– Requires Phoebe Putney to give the FTC 30 days prior notice of certain future

acquisitions in the six-county area surrounding Albany, Georgia, for the next 10 years

– Prohibits Phoebe Putney “from raising any objections to or providing negative comments about [state certificate of need (CON)] applications for general acute-care hospitals in the six-county area surrounding Albany, Georgia”

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Horror Stories

• - FTC case decided in 2012Acquisition of hospital in Lucas County, Ohio would harm competition and allow ProMedica to raise prices of general acute care inpatient hospital services and obstetrical servicesRequired to divest St. Luke’s Hospital to approved buyer within 180 days of date that the order become final and effectiveAppealed to the Sixth Circuit

• vs. - Pending private payer suit for insurance fraud and common law fraud filed in 2013

Alleges Alere/Avee “distributed unlawful marketing materials which were intended to mislead and in fact, misled health care providers into performing unnecessary POCT and ordering unnecessary confirmatory tests from Avee”Horizon is seeking $36 million in actual damages plus treble damages

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Basic Best Practices

• Realize that whistleblowers are often driven by hurt feelings/being dismissed; believe they have a higher calling

if you encourage/acknowledge them and fix the problems, then might not turn into FCA lawsuit

• Don’t ignore importance of government requests; no matter how trivial, attend to the matter

hire a lawyer for guidance and for benefit of privilegeturn over data in contextengage early and cooperate fully

• Have alerts in system about government requests; have a system to address government requests

• Run your own data mining to see where you may look abnormal and have an explanation for that; make sure within national trends and if not document why not

• NEVER destroy evidence• Be careful what you say and where you say it (emails, texts, and social

media can and will be used against you)

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How to Avoid Becoming a Horror Story

Contract Drafting• Can’t be a mechanical response; the relationships between the parties

are as important as the words in the contractCodify the relationship in the contract

• Perform adequate due diligenceIlluminates the current state of the partiesAllows parties to take into account the current state and special circumstances

• Drafting and organizationCreate/negotiate innovative deal terms and maintain all draft iterationsBasic honesty and common senseUnderstand concepts of Fair Market Value and Commercial Reasonableness and utilize independent third party valuations

• Use ACO waivers very carefully Know existing Stark/FTC analysis and State LawUnderstand that waivers only apply to ACO patients

• Plan ahead so deadlines for ACA mandates are met; bundling; value-based purchasing and re-admission rates

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How to Avoid Becoming a Horror Story

Operationalize the Contract• Get operational and finance staff on board/more involved to help with

compliance issues• Successful compliance requires putting yourself in a defensible position

if an investigation occursIT systems providing real time infoProper monitoring and reporting; as talked about in basic best practicesQI and UM

• Create execution plan and do it to a tee; more forgiving later if genuine attempt is clearly evident

Lack of enforcement of the institution’s own rules is a very common indicator of business failure

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Conclusion - A New Reality

• Providers are bearing more risk and the burdens of compliance and performance

• Providers must understand this and adapt to this new responsibility• Operate as responsible stewards of public funds• Develop and maintain an operating “culture of compliance”

Imbed compliance into the organization’s cultureEngage in informed rule-making

– no room for speculation or un-informed interpretation of complex rulesOperate from a “glass house” platform

– Assume added scrutiny and the need for complete transparencyDevelop, make, and enforce rules without exception

– No “side deals” or “special cases”– The exceptions to the rules are generally of greatest interest to the regulators– In the long run: if it does not feel right it probably is not right so...don’t do it

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Questions?

39 Offices in 19 Countries

Payor-Provider Contract

Management:

How to Avoid Becoming a Horror

Story

September 23, 2013The Princeton Club

New York City

Documents

Payor-Provider Contract Management/media/files/insights/...39 Offices in 19 Countries Payor-Provider Contract Management: How to Avoid Becoming a Horror Story September 23, 2013 The