By Franklin J. Rooks Jr., PT, MBA, Esq.

Introduction

Undoubtedly, physicians have heard the grumblings of their patients.  Health insurance premiums continue to rise, and patients are exposed to higher financial burdens.  First, they bear an increased expense in contributing to the portion of the premium not paid by their employer.  Second, their out-of-pocket cost for service has generally increased in the form of higher deductibles or higher co-payments.  Due to these economic conditions, patients who now have a $40 copayment may put off that trip to the specialist or otherwise reduce their consumption of medically necessary services.  The physician’s waiting room may be a little less crowded and fewer patient visits may be performed.  Patients with commercial health insurances are generally the most affected population.  There is one population of patients who require medical care that are largely immune to the effect of rising premiums – those unfortunate patients who were injured on the job, and covered by workers compensation.

Workers Compensation Reimbursement

Workers compensation has long been regarded by many medical providers as being the one of the best sources of reimbursement.  Historically, workers compensation claims were reimbursed at 1.5 to 2.5 times more than HMOs, Medicare and other commercial health plans.  The higher reimbursement sometimes, but not always, resulted in higher profit margins.  Often, treating injured workers requires more time and resources than providing care for patients with identical injuries who covered by group health plans.  Physicians frequently have to interact with case managers and attorneys, appeal adverse utilization reviews, and provide disability status reports.  Workers compensation claims are often slow to pay, taking many more months than non-workers compensation claims.  But, in general, workers compensation claims were worth the additional time and effort.

That is slowly changing.  While the workers compensation reimbursement is generally good, it is not as good as it used to be.  All areas of medicine are susceptible to cost cutting. Workers compensation reimbursement is no exception.  For example, Illinois recently enacted legislation which reduced the workers compensation fee schedule by approximately 20%.  Other states have made reductions to their workers compensation fee schedules or are in the process of making reductions.  As part of its administrative regulatory process, Tennessee is currently engaged in its notice and comment period for proposed reductions to workers compensation reimbursement.  And in February of this year, Florida’s House of Representatives passed a bill to close what it termed a loophole in the workers compensation system for a physician’s sale of repackaged drugs, in an effort to control workers compensation reimbursement to physicians.  Delaware also reduced physician reimbursement by migrating from a “usual, customary, and reasonable” approach to a fixed fee schedule.

Most states attempt to limit workers compensation costs through provider fee schedules.  Many of these fee schedules reimburse at a multiple of Medicare, even though Medicare-based fee schedules have no relationship to the cost or value of the medical care provided.  California, Maryland, Pennsylvania, and Tennessee are just a few of the many states that tie their workers compensation fee schedule to Medicare.  When reimbursement is pegged to fairly current Medicare reimbursement rates, there will always be uncertainty looming, given the current fragility of the Medicare program relative to the Balanced Budget Act.  For instance, Texas’ workers compensation rules require that “[w]henever a component of the Medicare program is revised, use of the revised component shall be required for compliance with Division rules, decisions, and orders for professional services rendered on or after the effective date. . .”[1]   Other states use historic Medicare rates in arriving at a fee schedule.  Pennsylvania’s workers compensation fee schedule is at 113% of 1994 Medicare, adjusted annually by the percentage change in the statewide average weekly wage.[2]   Overall, when taken at face value, many of the states’ workers compensation fee schedules still provide good reimbursement.  However, some states workers compensation acts deprive the injured workers of their choice of medical providers.  Employer direction of medical care tends to erode workers compensation reimbursement to levels below the state fee schedule.

Employer’s Direction of Care

An employer’s direction of the injured worker’s care inherently siphons reimbursement away from medical providers.  The workers compensation statutes in many states allow the employer, not the injured worker, to select the physician.  In a sense, the injured worker patient population can be viewed as a commodity.  In states that permit the direction of care, the employer controls who has access to treat this patient population  Unfortunately, the caveat is that, in order to gain access to treat the injured worker population, the physician frequently has to take a discount off of the state fee schedule.  Enter the “workers compensation PPO.”  The workers compensation PPO creates a network of providers who are willing to work at rates that are less than the state-mandated workers compensation fee schedule.  In exchange for the provider’s discounted fees, the PPO purports to funnel patients to the physician.  The employer saves money, the PPO makes money, and the physician does the same work for less money.  To illustrate, one such network reportedly saved an insurer $28million below what would have been paid at the current state fee schedule.[3]  Taking money from physician is, seemingly, one of the easier ways to reduce the expenses associated with workers compensation claims.

Numerous states permit the employer to direct the medical care of an injured worker.  Pennsylvania allows the employer to choose the injured worker’s medical providers for the first 90 days.[4]  Michigan allows the employer to control an injured workers choice of physician for the first 28 days.[5]   New York allows the employer to participate in a preferred provider network, where the injured worker can chose any physician, as long as that physician is within the network.  New Jersey’s workers compensation statute also allows the employer to direct the injured workers care.  Interestingly, New Jersey has no state workers compensation fee schedule.[6]  Instead, physicians are reimbursed the usual, customary, and reasonable rates.   As a consequence, a “de facto” fee schedule is created, because employers generally will only direct care to those physicians who agree to significantly reduced reimbursement terms.  The employer’s direction of care ratchets down the provider’s margins.  There are also a fair number of states that take the opposite approach.  These states empower injured workers to take control of their medical treatment.  Alaska, Arizona, Maryland, Delaware, Illinois, Washington D.C., and Louisiana – employee choice states -are examples of some states that permit injured workers to exercise their own discretion in selecting a physician.

Workers Compensation PPOs and Employee Choice

But, there is a new threat rising against physician reimbursement in employee choice states – the expansion of workers compensation PPOs into this marketplace. Through these PPOs, some employers have surreptitiously taken over the direction of an injured worker’s care in states that permit the employee, not the employer, to choose.  This conduct contravenes the express language of the respective states’ workers compensation statute.   For example, Delaware’s workers compensation statute states “[a]ny employee who alleges an industrial injury shall have the right to employ a physician, surgeon, dentist, optometrist or chiropractor of the employee’s own choosing.”[7]  Other state statutes are similar in wording.  Injured workers, many times, do what their employer tells them.  They are frequently unaware that the laws in these states permit them to seek treatment with the physician of their choice.  And, they are generally not informed by their employer of their ability to do so.  It is an easy sell to uninformed injured workers.

Similarly, the pitch to employers is easy.  One major workers compensation network claims that it “[d]elivers average savings up to 21% below state fee schedules or provided allowable depending on bill type and charge amount, with successful negotiation rates averaging 58% of eligible charges for higher value bills.”[8]    Another PPO network, noting that it serves all 50 states, claims that it can offer “Superior Savings Rates – We negotiate with providers for rates that are significantly reduced from fee schedule or reasonable and customary charges.”[9]  This begs the question, why would a physician join a workers compensation PPO in states where the injured worker is free to choose his or her own care?  Participation in a workers compensation PPO always results in reduced physician reimbursement.  A physician would not ordinarily take a payment reduction without something in return.  There must be a return benefit in order for the physician to compromise his or her fees.  The answer appears to be that the PPO will direct care to that physician.

Even if there are physicians who are willing to join these workers compensation PPOs in employee-choice states, how does the PPO apparently circumvent state statutes which prohibit the employer’s direction of care?  “Non-mandatory” suggestions appear to be the mechanism by which the PPO dupes the injured worker.  In the words of one PPO, injured workers can be “[a]ctively channel[ed] . . .to network providers, using state “employer choice” laws where available and non-mandatory recommendations where they are not. Some payers achieve very high network penetration percentages in “employee choice” states by offering injured workers scheduling services. . .” [10]  Scheduling services that function to make appointments with PPO providers and not non-PPO providers certainly tips the scales in favor of the employer.   With respect to recommendations, it is unlikely that the PPO is recommending anything other than the discounted PPO providers to the injured worker.  That is, when an injured worker is presented with a choice of providers, their choices are probably not between PPO and non-PPO providers.  Because many times an injured employee does not know that he or she has a choice, the PPO’s “non-mandatory recommendation”  and scheduling services are the functional equivalent of direction of care.

Conclusion

Clearly, not all 50 states permit the employer to direct an injured worker’s care.  Yet, several of these PPO’s boast networks in states whose workers compensation statutes expressly empower the injured workers with their choice of medical provider.  Providers, like the injured workers, may be unaware of the law.  Find out the workers compensation laws of your state.  When confronted with the opportunity to join a workers compensation PPO, find out the benefit to participation. You should not be surprised to learn that the benefit of participation will be touted as an increase in patient volume, at the expense of a discount off of the fee schedule.  If you are in a state that allows the employee to choose, ask the PPO how they will direct care to your practice and stay within the parameters of the laws designed to protect injured workers.

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About the author: Franklin J. Rooks Jr., PT, MBA, Esq. is a physical therapist and practicing attorney in Philadelphia, Pennsylvania.  Prior to his practice of law, Frank was a founding partner of PRO Physical Therapy, a Wilmington, Delaware based operator of physical therapy clinics.  Frank sold his interest to a private equity firm in 2006.   This article is intended to provide only very general, non-specific legal information.  The specific facts that apply to your situation determine the outcome.  Frank can be contacted at fjrooks@gmail.com

Striking key findings from the Taking the Pulse(R) U.S. 2012 study include:

• Tablets, mostly iPads, are mainstream: Physician tablet adoption for professional purposes almost doubled since 2011, reaching 62 percent in 2012, with the iPad being the dominant platform. Furthermore, one-half of tablet-owning physicians have used their device at the point-of-care.
• More screens, more access: Physicians with three screens (tablets, smartphones and desktops/laptops) spend more time online on each device and go online more often during the workday than physicians with one or two screens.
• Physician-only social networks stagnant: Adoption of physician-only social networks remained flat between 2011 and 2012. Additionally, the study found that physicians reach out more frequently to and are more influenced by colleagues they formed relationships with at school or at work than peers who they first connected with online.
• Online video widely used: More than two-thirds of physicians use video to learn and keep up-to-date with clinical information.

“Physicians are evolving in ways we expected — only faster,” said Monique Levy, Vice President of Research at Manhattan Research. “The skyrocketing adoption rates of tablets alone, especially iPads, means healthcare stakeholders should revisit many of their assumptions about reaching and engaging with this audience.”

The American Board of Internal Medicine is on a mission to curtail unnecessary medical testing, suggesting that physicians order too much and thus drive up the cost of care.

Dr. Christine K. Cassel, president and CEO of the ABIM claims to be looking at the big picture.  “The campaign is not about rationing or withholding proper care. On the contrary; if waste is not reduced, there will be less money for the care that is necessary,” she said.  “If we don’t as a community collectively address this cost issue, then there’s a whole lot of people that aren’t going to get the care that they need.”

From my viewpoint as a practicing physician, central planners seem to consider any test that comes back normal to be unnecessary. On the flip side, any abnormal test that was not ordered one week earlier is a cause for a lawsuit. It appears that physicians are caught in a vice that cannot be not easily remedied. The real solution lies in patients having to bear the cost of most tests and in the physicians having to explain why they are needed.

But speaking of unnecessary testing, the ABIM is one of the leaders in demanding unnecessary testing for physicians to maintain certification in their chosen specialty.  And ABIM would like to see the Maintenance of Certification (MOC) become Maintenance of Licensure. (MOL).

Over the past 20 years huge demands have been piled onto practicing physicians, pulling them out of their practices, expecting them to take costly review courses and having them spend thousands of dollars to re-certify in their specialties. While this MOC might sound reasonable, less than 5% of doctors feel that this makes them better able to care for patients. Specialists find that the tests are outdated, not surprising since it takes time to develop questions, and prepare and administer exams.  Who needs this?

The fact that this re-certification is only imposed on younger doctors, and that the older physicians do not seem to be harming their patients, is lost or ignored by those who reap huge profits in the certifying industry.

The report from the MOL Implementation Group has 30 pages of wise-sounding but unsubstantiated rhetoric. They claim that they want to improve patient care and “facilitate the engagement of physicians in a culture of continuous improvement through a verifiable and reproducible system.”  Read balderdash.

For “practical reasons,” they want to phase this in over 10 years. This will stave off the outcry of physicians currently running successful practices. By “grandfathering” current physicians, just as was done with MOC, MOL advocates would silence those who can see the bigger picture. The handcuffs on new young physicians can be tightened later.

As if physicians have nothing better to do, “state board members should require licensees to use comparative data and, when available, evolving performance expectations to assess the quality of care they provide and then apply best evidence or consensus recommendations to improve and subsequently reassess their care,” say MOL advocates.

Medical students are very bright, motivated scholars who devote much time, personal expense, and energy to get accepted to medical school, pass their courses and take the standardized tests required to become licensed physicians. So when do they turn into lazy, incompetent, unmotivated, and greedy shopkeepers who need to be prodded and goaded to keep up with their chosen profession?

The people who are proposing all this are academicians who see a way of enriching themselves without having to actually care for patients. Christine Cassel herself earns more than $800,000 in salary and benefits. Regular doctors do the best they can to get good outcomes, even with patients who are often obstinate, non-compliant, and demanding. But dealing with irrational bureaucrats is another story.

Why not call for Maintenance of Competence exams for politicians who would rule us? Or of lawyers who would sue us?

At a time when we will be facing an acute doctor shortage, we must stave off this looming Doctor MOLestation, questioning the motives of those who are proposing MOL. We have much evidence to question the value of MOC, so MOL must be halted before it begins.

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Dr. Alieta Eck, MD, President of Association of American Physicians and Surgeons (www.aapsonline.org), graduated from the Rutgers College of Pharmacy in NJ and the St. Louis School of Medicine in St. Louis, MO. She studied Internal Medicine at Robert Wood Johnson University Hospital in New Brunswick, NJ and has been in private practice with her husband, Dr. John Eck, MD in Piscataway, NJ since 1988.

For several years, the health care industry has been in the latest round of acquisition of physician entities.  A typical scenario includes the sale of a physician practice to a hospital with post acquisition employment of practice physicians.  To complete the transaction, a valuation of the practice is conducted by an independent third-party valuator familiar with the requirements and limitations of various regulatory rules. Completing the valuation includes the request, receipt and analysis of data from the practice.  The volume and nature of the information request can seem lengthy, but each item serves a specific purpose.  This article provides an overview of the types of information requested, how valuators use this information, and suggestions for working with valuators.

Value

Value can be defined as estimated or assigned worth.  Value can be calculated by the equation of Value = Benefit / Risk.  The benefit is an economic income stream (i.e., revenue resulting in net cash flow) generated by the practice. Risk is multifaceted and accounts for business, economic and financial factors.  As a result of Federal laws involving healthcare transactions, identifying the source and nature of revenue is of critical importance.   The often cited definition of fair market value as defined by the Stark Law is: [1]

“Fair market value means the value in arm’s-length transactions, consistent with the general market value. ‘‘General market value’’ means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.”

The Stark Law also requires that an arrangement be commercially reasonable (i.e, in the absence of referrals, the arrangement would make sense).  A referral is a specified term and is defined by the Centers for Medicare and Medicaid Services by selected CPT codes. [2]  As stated in the definition above, fair market value cannot be based in any manner that takes into account the volume or value of anticipated or actual referrals.

A thorough analysis of the physician practice is necessary to determine and support fair market value. This requires significant information be provided to the valuator.

Background Information

Information requested can include the legal name of the practice, date of inception, foundational documents, locations, office hours, the number of physicians and mid-level providers, their schedules and types of services provided.

Some of this information is required to meet valuation standards (e.g., legal name of the practice, date of inception, etc.) while other items are needed for analysis related to provider productivity, identification of referrals and post transaction compensation.  A solo physician operating without mid-level providers or diagnostic imaging equipment is a less complex practice than a multi-specialty practice which includes mid-level providers, lab and radiology services. Identifying the number of providers and the types of services provided in the practice are key in calculating a future benefit stream that does not does take into account the volume or value of referrals.

Financial Information

Financial information requested can include internally prepared financial information and accountant prepared financial statements both for several previous years and a year-to-date period. The valuator will also request at least the two most recent tax returns for the practice.  Total revenue as filed on income tax returns should match or reconcile to revenue and expenses on internal financial statements.

Productivity Reports

In order to understand the nature and source of practice revenue, the valuator will request several reports related to practice productivity for two or more previous full years and year-to-date information.  This can include by year:

• CPT code reports by provider including modifiers, volumes and collections
• Total collections by provider
• Total collections by payer

As part of the analysis, the valuator will compare total collections by provider with CPT code production reports.  If there is a variance, a common explanation may be that the practice simply missed submitting production information for all providers to the valuator.  Some level of variance is expected due to timing between dates of service for billed CPT codes and recognition of cash received for services provided prior to the billed dates of service.  However, if the variance is significant, it could mean that production reports do not accurately represent the work performed by providers or that collection reports include payments for services other those billed by CPT code.

The valuator will also compare collections from CPT code reports and total collections by provider with financial statements.  Variances between production and collections reports and financial statements are most often the result of revenue for other services being provided by the practice or its physicians (i.e., call pay, medical directorships, research, etc.).   Understanding the nature of revenue streams is critical to complying with regulatory requirements.

Leases

A valuator will typically request copies of all leases to which the practice is a party.  These typically include medical equipment, office equipment and office space.  For medical equipment, the practice should also provide any related software update and repair and maintenance contracts.   If the equipment is under a capital lease, an amortization schedule or payoff amount as of the date of valuation will allow determination of the outstanding debt.

For office space, the practice should provide current leases for all locations and identify any location where the real estate is owned by a party related to an individual associated with the practice.   Information the practice may have obtained regarding current lease rates in the market is also beneficial.  The valuator will compare lease rates with fair market value rates for similar office space. Variances between contractual lease rates due to a lease contracted by related parties and fair market value rates will be reflected in adjusted cash flows of the practice.

Staffing

The valuator will request a staff roster for the practice.  This should include employee’s name, job title or position description, salary or hourly compensation rate, hours worked per year, hire date and termination date (if applicable).  The practice should identify any personnel related to practice owners or other providers.

The valuator will compare total expenses calculated from the staff roster with historical expenses.  The practice should be prepared to explain changes between the staff roster provided and the historical levels of expense.  The practice should also volunteer any unique training or skill sets of key employees.

Non-Operating and One Time Costs

The valuator will request identification of any one-time or non-operating costs included in practice financials.  These can range from payments for automobiles to purchases of new computers throughout the practice.  These expenses may be adjusted by the valuator to a normalized level with the difference between reported and normalized levels reflected in the practice cash flows.

Closing Thoughts

Valuators will issue an opinion or conclusion of value.  This opinion or conclusion is based on information provided by the entities involved in the transaction, industry research and experience of the valuator.  Representatives from the practice should become engaged in the valuation process. The more accurate the information received and more consistent the facts provided, the more accurate and supportable the conclusion or opinion of value will be.

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Richard Romero is a Director with CBIZ Healthcare Valuation in Franklin, TN and can be reached at 615.732.6266 or richard.romero@cbiz.com. 

Ryan Harvey is a Consultant with CBIZ Healthcare Valuation in Atlanta, GA and can be reached at rharvey@cbiz.com.

Long before the contentious passage of the Patient Protection and Affordable Care Act of 2010, and the Supreme Court hearings on healthcare reform, there was a silent, steady, movement underway to inextricably alter the practice of medicine.  For years, performance in medicine was determined by a patient’s outcome.  Today, the performance measures of value-based purchasing (VBP) and pay-for-performance (P4P) programs have reprioritized healthcare causing many to speculate whether these programs actually improve quality of care, or are merely a notch on the political tool-belt of lobbyists.

What is P4P?

Broadly defined, P4P programs are performance-based payment arrangements which align financial rewards with improved outcomes and changed behavior.  The impetus behind P4P originated in response to rising medical costs, growth in chronic care conditions, and consumer demands for efficiency and improvements in the quality of care.[1]

Despite growing popularity, financial incentives in healthcare are nothing new.  One of the earliest P4P programs was launched by U.S. Healthcare, now Aetna, and HealthPartners in 1985 and 1993, respectively.  Today, there are more than 170 P4P programs nationwide; a sharp increase from the mere 10 which existed in the 1990s.[2]

What Gets Measured, Gets Managed

It has been said that before something can be improved it has to be measured, which implies that what needs improvement can be quantified.  P4P programs typically include three kinds of performance measures: (i) structural measures, which engage key systems to improve quality of care; (ii) process measures, which assess performance against evidence-based guidelines and protocols; and (iii) outcome measures, which focus on a patient’s progress and condition.^[3]

The statistical methodology of P4P has two major defects.  First, it is vulnerable to the weaknesses of all statistical analyses: biased measurements; inadequate sample sizes; and the manipulation of definitions and data skewed in favor of private interests.[4]  Second, and more importantly, P4P measures fail to take into account the cornerstones of the practice of medicine: diagnostic skill; clinical judgment; and the sanctity of the physician-patient relationship.[5]

So who is doing all this measuring?  More than 90 percent of America’s health plans utilize the Healthcare Effectiveness Data and Information Set (HEDIS) as a tool to measure performance and services.  Similarly, the National Committee for Quality Assurance (NCQA), the Leapfrog Group, JCAHO, and the American Medical Association Physician Consortium on Performance Improvement (AMA-PCPI) work to build scientifically valid, evidence-based, guidelines to measure performance.

Where there is Money, there is Politics

A central concern with P4P is its potential to shift the locus of clinical decision making from clinicians to bureaucrats.[6]   Over the years, this concern has spurred considerable controversy amongst conservatives and liberals alike, and has prompted the American Medical Association (AMA) and the American Academy of Family Physicians (AAFP) to rigorously advocate the sanctity of the physician-patient relationship over competing financial interests.

Despite the contention, many public and private-payers continue to embrace P4P programs as the next best thing since sliced bread. When questioned as to the viability of these programs, Newt Gingrich, former speaker of the House, commented that, “Health care is one of the most archaic systems in the United States today.  It is a stunningly inefficient system that protects and defends an entire range of incompetent, inefficient, and destructive behaviors. The current fee-for-service, transaction-based model, is designed to optimize somebody’s income rather than the quality of health care quality.” Gingrich surmised, “We ought to define the performance we expect, and then align payments to fit the performance.”[7]

Irrespective of political pressure, the AMA remains unequivocally opposed to P4P measures that are untested, clinically irrelevant, or are chosen not because of their potential to improve quality, but to control costs.[8]  In an effort to police the efficacy of government and private-payer programs, the AMA has developed a stringent set of principles that promote: quality of care; fostering of the physician-patient relationship; voluntary physician participation; use of accurate data and fair reporting; and fair and equitable program incentives.[9]

Tough not every P4P program is critiqued in accordance with AMA principals, to follow are several programs implemented by the Centers for Medicare and Medicaid (CMS), which remain under careful observation:

Physician Quality Reporting System

The 2012 Physician Quality Reporting System (PQRS) is a voluntary reporting program that compensates physicians for submitting data on selected performance measures regarding Medicare patients.  Because no physician profiling is done, many of the AMA’s P4P principles do not apply.

PQRS provides eligible professionals with an incentive payment of 0.5% on all Medicare Part B physician-fee-scheduled professional services satisfactorily reported during a 6-month (July 1, 2012 through December 31, 2012) or 12-month (January 1, 2012 through December 31, 2012) period.[10]  The two major components of the PQRS are: (i) a unique denominator that describes the eligible case for measure by ICD-9-CM, CPT Category I, HCPCS codes, and patient demographics (age, gender, and place of service); and (ii) a numerator that describes the clinical action by CPT Category II codes and G-codes.[11]

Once the data is submitted to CMS, a two-step validation process is conducted.[12]  The first is the “clinical relation test” which determines whether additional measures, from the same clinical cluster, could have been reported.  If CMS determines that no additional measures could have been reported, the participant is eligible to receive a bonus.  If additional measures were warranted, step two, known as the “minimum threshold test,” is applied.

The minimum threshold test takes into account claims for which additional measures, from the same clinical cluster, could have been reported.  If 15 or more claims were submitted, the participant is held accountable for reporting the additional measures, and is not entitled to a bonus.  Conversely, if fewer than 15 claims were submitted, for which additional measures could have been reported, the participant is not held accountable for the reporting, and is eligible to receive a bonus.

Participants who fail the validation process may request an informal review, in writing, within 90 days from the release of the feedback report issued by CMS.

Hospital Value-Based Purchasing Program

On February 28, 2012, CMS released the much anticipated dry run of its Hospital Value-Based Purchasing (VBP) Program.  Under the program, CMS will withhold a portion of Diagnosis-Related Group (DRG) payments each year (1% in FY 2013 and gradually increasing to 2% by FY 2017), and redistribute these funds as incentive payments to hospitals based on improvement and achievement in two domains: (i) Clinical Process of Care, which contains 12 measures; and (ii) Patient Experience of Care, which contains eight dimensions from the Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS).[13]

To be eligible, hospitals must report on at least four Hospital VBP measures during the performance period, with a minimum of 10 cases per measure.  The first Hospital VBP performance period began July 1, 2011, and ended March 31, 2012.  In future years, the performance period will be one full year.[14]

Using the performance standards established for each measure, the Secretary of the Department of Health and Human Services (HHS) will assess each participating hospital and assign it a total performance score.  A hospital’s total performance score will be calculated by taking the sum of the hospital’s weighted domain scores (70% for Clinical Process of Care and 30% for Patient Experience of Care).

+

=

Based on the total performance score, the Secretary will specify a value-based incentive payment percentage, which will be multiplied by the hospital’s base operating DRG payment for the fiscal year to determine the amount of the value-based incentive payment earned.[15]

Participating hospitals will be notified, on November 1, 2012, of the “exact” amount of the value-based incentive payment, through the hospital’s QualityNet system.  Presently, there is no appeals process in place to challenge performance scores; however, CMS plans to propose a process in accordance with Section 1886(o)(11) of the Social Security Act, in the near future.[16] 

Pitfalls

As the number of P4P programs have grown, disparity and inequity of treatment has also increased. [17]   Since the primary object of P4P is to reward providers for improved efficiency related to the treatment of specific elements of a single disease or condition, many patients with multiple chronic conditions, such as the elderly, have fallen prey to the report-card mentality encouraged by these lucrative incentives.

Many providers caution that, “The spread of incentive payments raise concerns that physicians might emulate cherry-picking and lemon-dropping behaviors (a related practice of terminating care for difficult, costly or otherwise unwanted patients) as a means to augment their pay-for-performance ranking.” [18]

Although empirical research on the effect of P4P practices on healthcare disparity is limited, research shows that P4P practices have unintended consequences; especially in rural areas with predominately minority or socioeconomically disadvantaged populations.[19]  Unintended consequences include patient dumping, reduction in income for physicians, and focusing on quality measures at the exclusion of other, more pressing, clinical problems.[20]

Viable Alternatives to P4P

In light of the complexities that continue to plague P4P, many providers and payers are exploring Provider Performance Incentive Plans (IPPIPs), Alternative Quality Contracts (AQCs), and Accountable Care Organizations (ACOs) as viable alternatives to traditional P4P programs.  While many of these programs are not radically different from other efforts to improve the cost-effectiveness of healthcare delivery, their innovation lies in the flexibility of their structure, payments and risk assumption.[21]

Most recently, ACOs have taken the lead in this transition.  On April 10, 2012, CMS released the much anticipated list of designated healthcare entities which will serve as the first ACOs in the Medicare Shared Savings Program.  The entities which include more than 10,000 physicians, 10 hospitals, and 13 physician-led practices in 18 states, will serve an estimated 375,000 Medicare beneficiaries nationwide.

Jonathan Blum, director of the Center for Medicare at CMS, said that he anticipates, “The new ACOs will have more success in controlling healthcare costs than similar payment and delivery reform projects of the past.”[22]  Similarly, Marilyn Tavenner, acting CMS administrator, boasts, “We are encouraged by this strong start and confident that by the end of this year, we will have a robust program in place, benefitting millions of seniors and people with disabilities across the country.”[23]  Alas, only time will test the validity of these statements!

Conclusion

While the future of healthcare is uncertain, one thing is sure: physicians must remain ever vigilant against incentive methodologies and outcome-based reimbursement models which restrict their freedom to practice medicine in accordance with their conscience, medical ethics, and sound medical judgment.

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Lucia Francesca Bruno, J.D., LL.M., M.B.A., is Principal Shareholder of Physicians’ Legal Group, LLC (www.physicianslegalgroup.com). She can be reached at Lbruno@physicianslegalgroup.com.

U.S. Congressman Phil Gingrey, M.D.

By U.S. Congressman Phil Gingrey, MD

Imagine a world where a simple cut, or common cold, can routinely lead to hospitalization and even death. Sixty years ago, that world was a reality. The advent of penicillin along with 40 years of medical innovation changed all that, resulting in a host of new antibiotic drugs that literally transformed public health in the United States.

However, as with many other forms of life, living micro organisms will adapt and build defenses to outside threats over time. For bacteria, that defense mechanism is evolution: the more often a drug is used to treat a certain type of bacteria, the more that bacteria will respond by developing resistant strains.

To counterbalance this progression, patients need access to newer and stronger forms of antibiotics when resistance occurs. Unfortunately, drug development has not kept up with the pace of bacterial evolution in recent years.

According to the Food and Drug Administration (FDA), the approval of new antibiotics has decreased by 70 percent since the mid-1980s. A combination of factors – including the high cost of drug development and small profit margins – have helped to drive companies out of the anti-infective space for markets where the return on investment is much higher. The result, quite simply, is a stagnant research and development pipeline for antibiotics that is ill equipped to keep up with evolving bacterium. Without fresh and complex medical treatments available, the American people face a potentially catastrophic situation.

Today, antibiotic-resistant infections cause more deaths annually than AIDS, traffic accidents, or the flu – and those numbers will only get worse if nothing is done. The discovery of the “New Delhi” gene, which can create drug-resistance to nearly any bacteria it comes in contact with, is a threat that remains particularly worrisome as it makes these infections virtually untreatable. Americans from all walks of life are at risk to bugs like the “New Delhi” gene, but patients with chronic illnesses, children, and wounded soldiers on foreign battlefields are especially vulnerable populations.

Without new policies and market mechanisms that encourage companies back into the antibiotic business, we are simply ignoring the looming public threat that compromises the health and welfare of the United States – and the world. Given the fact that it takes years to create and get a new drug approved by the FDA, it is imperative that we address this problem now before we are faced with a deadly bug for which no treatment is available.

Therefore, I joined with colleagues on both sides of the aisle to introduce H.R. 2182, the Generating Antibiotic Incentives Now (GAIN) Act, now included in broader health care legislation known as the FDA User Fee Authorization Act. Among other things, the legislation creates more value for new antibiotic companies by increasing FDA data exclusivity protections for new products, while at the same time encouraging greater collaboration between regulators and companies that seek approval for new treatments.

As both a physician and a Member of Congress, I recognize that the threat posed to public health by bacterial infections is not a political issue, but rather a serious health problem facing all Americans. People from all walks of life – and on both sides of the aisle – are at risk. It is my hope that this legislation – crafted on a bipartisan basis for the benefit of patients in all 50 states – will spur innovation and encourage the development of new antibiotics to the superbugs of tomorrow.

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Congressman Phil Gingrey, M.D., was elected to the U.S. House of Representatives in 2002.  He is a graduate of the Medical College of Georgia and practiced for 26 years as an OB/GYN.

Lynn Lucas-Fehm, M.D.

By Lynn Lucas- Fehm, MD, JD

Health systems across the nation are competing for patients, attempting to position themselves as the destination point for quality medical care. In this endeavor, it has become common place for hospitals, medical groups and even individual doctors to “brand” their institutions and practices with logos and slogans displayed on everything from billboards and bus signage to television ads in prime time.  The goal is to produce a compelling tagline and image that symbolizes the services or philosophy of their health care system.

One question to consider is for all of the money spent on cutting edge web designs, advertising firms and air time, does branding really impact a patient’s selection of a health care provider.  Second and perhaps more important is should it play an integral role in a patient’s decision making process?

The answer to the first question has to be yes since the only way not to be exposed and at least partially influenced by the endless barrage of ads on TV and in print would be to live in a cave.

However, there is no definitive answer to the second question particularly when what doctors perceive as value is often quite different from what the public wants and what health systems advertise.

Doctors are likely to think of value in terms of clinical quality (skill level, training, and peer reputation) in affiliation with a health system that provides state of the art equipment and technology. But the public (the buyer) often values service (access, amenities, ease of scheduling).  Since effective branding is targeted at the buyer what we as physicians want to promote may not be what needs to be sold from a marketing/business point of view by the health systems.

There has been considerable research on this topic. One article written by Dana Goldman (RAND Chair in Health Economics and Adjunct Professor of Health Services Radiology at UCLA) and John Romley (Associate Economist at RAND) emphasizes the importance of “amenities” to patients.  The article entitled “What Can We Learn About Hospitals from the Revealed Preferences of Patients?” noted that in choosing their hospital, patients are concerned with both quality of care and amenities such as comfortable rooms. The authors also went on to stress the need for assessment of the value of amenities in relation to other hospital benefits if a hospital wishes to successfully compete.

Given the results of this research it is not a surprise that the health care branding field has grown significantly in the past decade along with programs to assure patient/customer satisfaction.  In fact, even Disney has gotten involved.

In the July 22, 2011 issue of Physicians News Digest the article Hospitals Look for Disney Magic to Make Customers Happy reported on Disney’s expansion into the health consulting field.   Fred Lee, a former Disney health consultant and hospital administrator (author of the 2005 book “If Disney Ran Your Hospital”), noted that Disney was “shrewdly capitalizing on the fear and concerns of hospital executives who may lose millions of dollars if their patient satisfaction scores are not at the top of the pack.”

There is little doubt that many patients make choices at least in part on the basis of advertising and some of the marketing might be targeted more at amenities than medical treatment.  However, if we are to care for our patients to the best of our ability, consideration must be made to address all aspects of patient care and the patient’s preferences play a part.  The difficult task is to make sure advertising is not taken to an extreme where the doctor patient relationship and sound medical judgment get lost in a media campaign.  As usual, it comes down to each one of us.  I still speak with many patients who tell me that what brings them back year after year to the same hospital and doctor is the compassion, trust and genuine caring that they experience.  That means a lot more than any logo or slogan.

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Lynn Lucas- Fehm, MD, JD, is the 150^th President of the Philadelphia County Medical Society (www.philamedsoc.org).

Hospitals frequently recruit physicians who are either Board Certified or “board eligible.” “Board Certified” in medicine means a physician has taken and passed a medical specialty examination.  “Board eligible” in medicine, in contrast, means that a physician has completed the requirements for admission to a medical specialty board examination, such as completion of a specialty residency program, but has not taken and passed that examination.  “Board eligible” is a status often used as a criterion in a physician contract and as a qualification status in Medical Staff Bylaws.

“Board eligible” has in the past also been used by physicians who have completed the required residency training but deferred indefinitely completion of the examination requirements.  However, a new policy by American Board of Medical Specialties (“ABMS”), approved by the Board of Directors on September 21, 2011, limits the period of time that may elapse between the completion of residency training and attainment of Board Certification. Each of the 24 Member Boards must establish a limit for its specialty of no fewer than three years and no more than seven years between completion of training and completion of certification. After that time, a physician who has not attained Board Certification will be ineligible until he/she completes the requirements of that Member Board for re-entry into the examination process. This policy became effective on January 1, 2012.  Implementing this policy can have negative consequences for physicians who do not attain board certification, but can no longer claim board eligibility, if the hospital’s criteria for admission to the medical staff include a board eligibility or board certification requirement.

           The TMB strictly regulates advertising of “Board Certified” and “Board Eligible.” The Board has a broad general prohibition against advertising which is false, misleading or deceptive, or advertising which claims professional superiority or performance of a professional service in a superior manner, if the advertising is not subject to verification.  Advertising which causes confusion or misunderstanding as to the credentials, education, or licensure of a physician or health care professional is also prohibited.  Standards for physician advertising are found in Chapter 164 of the Texas Medical Board rules.

Physicians in Texas can run afoul of Texas Medical Board (“TMB”) rules in several ways when using the terms “Board Certified” or “Board Eligible” in advertising.  Under a Texas Medical Board rule established in 2011, a physician simply cannot advertise at all using the terms “board eligible” or “board qualified,” or any similar word or phrase calculated to convey the same meaning.

In addition, for using the term “Board Certified,” the Texas Medical Board recognizes only those certifying boards which are members of one of three groups:  the American Board of Medical Specialties (ABMS), the American Osteopathic Association Bureau of Osteopathic Specialists (BOS), or the American Board of Oral and Maxillofacial Surgery.  ABMS has 24 Member Boards.  There are many other bodies which provide “certification” for physicians which are not automatically approved by the Texas Medical Board.  The TMB rules do have a mechanism by which a physician certified by a non-ABMS Board can apply to a committee of the TMB to demonstrate that the certifying board meets specific criteria set forth in the rules.  If the certifying body is approved by the TMB following the application, the physician can advertise as being “Board Certified.”

Finally, a physician cannot use “Board Certified” in advertising if his or her Board certification has expired or has not been renewed.

Under TMB definitions, advertising is quite broad.  Advertising includes any type of communication, including oral, written, broadcast, or other types of communication.  Facebook and other social media accounts are included. Communications made to patients, prospective patients, professionals or other persons who might refer patients, and to the public at large are considered to be advertising by the TMB.  Advertising specifically includes communications on signs, nameplates, professional cards, announcements, letterheads, listings in telephone directories and other directories, brochures, radio and television appearances, and information disseminated on the Internet.

Furthermore, the individual physician may be held responsible for the advertising, even if he or she was not actually responsible for the placement of the ad.  In physician practice groups, each physician who is a principal partner or officer of a firm or entity identified in any advertisement, can be held individually responsible for the form and content of any advertisement. This provision also includes any physician employees acting as an agent of the firm or entity. Physicians are responsible for keeping a recording of every advertisement communicated by electronic media, and a copy of every advertisement communicated by print media and a copy of any other form of advertisement.  These copies must be kept by the physician for a period of two years from the last date of broadcast or publication.  The TMB may ask to review these copies, as well as any documentation to substantiate claims made in advertisements.

The need for regulation of physician advertising has been supported by both the American Medical Association and the ABMS.  An AMA survey found that patients are confused about the credentials of those providing their medical care, and an ABMS survey in 2010 found that 91% of the patients surveyed believed that Board Certification is an important factor when choosing a physician.

The TMB will actively enforce their rules with disciplinary action.  A finding by the Board that a physician has used false, misleading or deceptive advertising may result in required removal of all sources of such advertising, administrative penalties or fines, and additional required continuing medical education on ethics and jurisprudence.

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Joyce B. McLaughlin is senior counsel at Austin-based Davis & Wilkerson (www.dwlaw.com). She practices health law, addressing issues related to hospitals, physicians, and other health care providers.  McLaughlin is Board Certified in Health Law by the Texas Board of Legal Specialization and is a Member of the State Bar of Texas Health Law Section and served on the Governing Council of the Health Law Section.  She can be reached by email at jmclaughlin@dwlaw.com