United States: Affidavit: Healthcare And The Law — Healthcare Reform Update: What's In A Name?

One of the innovations under the Affordable Care Act (ACA) is the accountable care organization, or the ACO, a new healthcare reimbursement model that was developed as an alternative to the traditional fee-for-service model. The ACO has many cousins that go by different names: among them, pay-for-performance, gainsharing, bundled payments and co-management models. A global term for these arrangements is "value-based contracting." The common thread is that these arrangements reward primary care physicians and other healthcare providers for achieving quality measures based on patient health outcomes, efficiency, and patient satisfaction. Under an increasing number of risk-based programs, savings and losses are shared among the participants. A cornerstone of value-based contracting is population health management, or the use of big data and tools to manage disease for the value-based contract's patient population based on successful strategies for large populations of patients.

The goal of replacing fee for-service with a risk-and-reward reimbursement model appeals to common sense — and has been tried before. The HMO was intended to revolutionize healthcare by managing healthcare costs and taking on risk. At the macro level, the jury is still out on whether value-based contracting will truly change healthcare. At the micro level, the law has not caught up with this new approach, and there may be legal risk for a physician, hospital, or other participant.

The ACO is currently the flavor of the month. The Medicare Shared Savings Program (MSSP) provides a basic template for ACOs. An MSSP ACO requires the participation by written agreement of hospitals and physicians who must meet certain quality standards, such as providing immunizations and preventing readmissions, for a targeted group of Medicare beneficiaries. ACO providers continue to receive their Medicare fee-for-service payments but may receive additional payments based on shared savings (one-sided model or upside risk) or shared losses (two-sided model or upside and downside risk). More than 350 MSSP ACOs have been established since the passage of the ACA, as well as roughly 20 in Medicare's original Pioneer ACO Program.

In addition to ACOs, other value-based contracting models similarly seek to align payment with cost-efficient delivery of care. Some of them incentivize providers, typically physicians, to meet quality measures. They may be known as pay-for-performance or bonus-based programs. Others share upside and/or downside risk and often are broadly referred to as gainsharing arrangements. Still others pay on a bundled payment basis, i.e., paying providers based on episodes of care as opposed to each service. Many payors, including Blue Cross, Aetna, and United, as well as hospitals and large physician groups, have established their own value-based arrangements. A popular model among providers is the co-management arrangement in which a physician group contracts with a hospital to manage a service line, such as cardiology. The hospital pays the group a base fee to manage the provision of services, as well as performance bonuses for physicians who meet quality goals.

Value-based contracting may be touted as the solution to the quality-and-cost issues that plague healthcare, but few of them have long track records. More than 10 ACOs of the original 32 in Medicare's Pioneer ACO Program have pulled out. A fundamental challenge appears to be the expectation that quality will continue to improve over time. Consider this example:

If I am a physician and I immunize 85 percent of my eligible patients in year one, and 98 percent in year two, where do I go from there? Will I ever reach 100 percent? And once I have shown improvement in basic measures, such as immunization and mammographies, what quality measures come next? Further, how can quality be measured and improved among patients with complex and unique co-morbidities? Who is managing the data to ensure effective population health strategies and tools? Are the data accurate and useful?

Hospitals and physicians who are developing or entering into a value-based arrangement with a payor or other provider are often excited at the early stages about the potential financial gains and the opportunity to participate in innovation. Then they see the power points — the quality benchmarks and complex scoring systems; the formulae for determining risk; the criteria for selecting and managing the beneficiary pool; the methodologies for calculating savings and losses; and other features that are not easy to translate into the daily practice of medicine. Still, enthusiastic participants forge on — who wants to be left behind where there's money to be made?

For legal counsel, the challenge often involves ensuring that clients carefully review the contracts — no matter how dense — especially if downside risk is a possibility or reality. Despite the push towards value-based arrangements under healthcare reform, restrictive fraud and abuse laws remain in effect. According to the Department of Health and Human Services' Office of the Inspector General, the particular concerns are that performance-based and risk-sharing arrangements could encourage providers to "cherry-pick" healthier beneficiaries; "stint" on medically necessary services; "steer" patients to less expensive services; or "refer" patients to certain providers in order to enhance incentive payments or savings. In other words, in value-based contracting, the cost of care should be secondary to the delivery of necessary care. Yet, as one ACO consultant noted, "Reducing services is the point of these arrangements."

Keeping this delicate balance of interests in mind, the value-based arrangement should include checks and balances, such as tying quality measures to industry-recognized standards and providing stop loss (excess) coverage that provides protection for "outlier" cases, e.g., the million dollar claims, so that appropriate care for expensive cases is not discouraged. The financial arrangement should be based on a fair market value assessment, which should be performed by a third party with sufficient experience. Participating providers should ensure they have ample opportunity to, and assist in, reviewing the data supporting the quality measures and the payouts (or paybacks). Many providers do not expect to "look under the hood" at the data; instead, they should plan for it. Finally, they should ensure the arrangement is revisited annually and includes equitable unwind provisions.

Over the next few years, ACOs and other value-based contract models will be tested. By this time next year, there could be buzz around a new model. The lessons learned will likely improve the options and features, as well as help participating healthcare providers manage the benefits and potential legal risks.

Originally published by The Wharton Healthcare Quarterly, Spring 2015.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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