1. SHARED SAVINGS & INCENTIVE PAYMENT PROGRAMS Ellen V. Weissman Hodgson Russ LLP www.hodgsonruss.com

2. © 2009 Hodgson Russ LLP2 OVERVIEW Legal Constraints In Structuring  Federal  State Recent Developments  15 Favorable OIG Advisory Opinions  Proposed Stark Exception What Can You Do Now? Federal Health Reform???

3. © 2009 Hodgson Russ LLP3 FEDERAL LAWS Civil Monetary Penalty Law (CMPL) Anti-Kickback Statute (AKS) Physician Self-Referral Law (Stark) Tax Exemption Laws Managed Care

4. © 2009 Hodgson Russ LLP4 CIVIL MONETARY PENALTY LAW Prohibits: Hospitals Knowingly Making A Payment To A Physician To Induce A Reduction Or Limitation In Services To Medicare/Medicaid FFS Beneficiaries Applies Even If Pay To Reduce Services That Are Not “Medically Necessary” OIG Enforces, Issues Advisory Opinions

5. © 2009 Hodgson Russ LLP5 ANTI-KICKBACK STATUTE Prohibits: Knowingly/Willfully Paying Or Receiving Remuneration To Induce Referrals Of Services Covered By Federal Health Programs No Safe Harbor On Gainsharing – To Date OIG Enforces, Issues Advisory Opinions

6. © 2009 Hodgson Russ LLP6 STARK STATUTE : PHYSICIAN SELF-REFERRAL LAW Prohibits: Physicians Referring Medicare & Medicaid Patients To Hospital For Inpatient And Outpatient Services If Financial Relationship With Hospital, Unless Within Exception Proposed CMS Exception CMS Enforces, No Advisory Opinions

7. © 2009 Hodgson Russ LLP7 TAX EXEMPTION LAWS Tax Exempt Hospitals May Not Pay Physicians If Would Constitute:  Private Inurement  Private Benefit Or  Excess Benefit Transaction IRS Guidance: Generally OK If “Reasonable Compensation”

8. © 2009 Hodgson Russ LLP8 MANAGED CARE CMPL Is Not Applicable To Managed Care Medicare/Medicaid Managed Care Risk- Based Payors Are Covered By Different Statutes Allows “Physician Incentive Plans” If They Do Not Reduce “Medically Necessary” Services

9. © 2009 Hodgson Russ LLP9 MANAGED CARE, cont. Stark Is Applicable (If Serve Medicare/Medicaid Enrollees) Stark Exceptions:  42 CFR 411.355(c) – Protects Services Provided To Enrollees Of Medicare/Medicaid MCOs  42 CFR 411.357(n) – Protects Risk-Sharing Compensation Arrangements Between MCOs And Physicians, If No AKS Violation

10. © 2009 Hodgson Russ LLP10 MANAGED CARE, cont. If Commercial Insurer, Flexibility In Structuring Unless:  Induce Changes Re Medicare/Medicaid FFS Patients  Measure/Pay Based On All Patients  Involve Dually Eligible Patients See OIG Advisory Opinion No. 08-16.

11. © 2009 Hodgson Russ LLP11 STATE LAWS Some States Have Laws That Apply To All Payors  Including Medicare And Medicaid Managed Care Payors/Beneficiaries Many State Statutes Have Different Exceptions From Stark If Your Hospital Operates In A State With An All-Payor Statute, Structure Carefully

12. © 2009 Hodgson Russ LLP12 WAIVER AUTHORITY General CMS Authority: Waives Stark, But Not AKS or CMPL.  See Robert Wood Johnson University Hospital v. Thompson, 2004 U.S. Dist. LEXIS 8498 (D.N.J. Apr. 15, 2004) Statutory Demonstration Projects: Waive Stark, AKS and CMPL:  MMA of 2003 § 646  Deficit Reduction Act of 2005 § 5007

13. © 2009 Hodgson Russ LLP13 OIG GUIDANCE Addresses CMPL And AKS Does Not Address Stark, Because OIG Lacks Jurisdiction

14. © 2009 Hodgson Russ LLP14 OIG SPECIAL ADVISORY BULLETIN (1999) All Gainsharing Programs Violate CMPL No Authority To Issue Exception To CMPL Declines To Issue Advisory Opinions Has Since Issued 14 Favorable Opinions AHA/AAMC Recently Asked OIG To Retract

15. © 2009 Hodgson Russ LLP15 OIG CONCERNS “Stinting” On Patient Care “Cherry-Picking” Healthy Patients “Steering” Sicker Patients To Hospitals Not In Program Disguised Payments for Referrals

16. © 2009 Hodgson Russ LLP16 OIG ADVISORY OPINIONS 15 Favorable Advisory Opinions  14 Shared Savings Programs  1 Pay For Performance Program Shared Savings Programs:  Product Standardization Or Substitution  Use As Needed All Contain Similar Elements OIG Finds CMPL Implicated, But Declines To Prosecute Due To Safeguards

17. © 2009 Hodgson Russ LLP17 CMPL SAFEGUARDS Credible Medical Evidence Supports Each Performance Measure/Target Targets Based On Hospital’s Patient Population Compared To Regional/National Norms All Supplies/Devices Remain Available If Needed For Particular Patient Floors Below Which Cannot Earn Incentive Independent Review; Termination Of Physicians Written Disclosure To Patients

18. © 2009 Hodgson Russ LLP18 AKS SAFEGUARDS Pools Of 5 Or More Physicians On Active Medical Staff Per Capita Payment Limits On Amounts To Be Earned Re-Basing If Multi-Year Limited Duration (1-3 Years) Monitor Admissions For Changes

19. © 2009 Hodgson Russ LLP19 OIG ADVISORY OPINION 08-16 PAY-FOR-PERFORMANCE Private Insurer Pays Bonus To Hospital Hospital Pays 50% of Bonus To Physicians  2 Data Reporting Targets  4 Quality Targets – CMS Specifications Manual For Nat’l Hospital Quality Measures CMPL Implicated Because Measure Performance Using All Inpatients OIG Issues Favorable Opinion Due To Safeguards

20. © 2009 Hodgson Russ LLP20 PROPOSED STARK EXCEPTION Proposed 7/7/08 In MPFS 2009 Shared Savings & Incentive Payment Programs 16 Sections, Over 40 Requirements Requirements Similar To OIG Advisory Opinion Elements CMS Reopened Comment Period to 2/17/09  Sought Comments On 55 Issues  One vs Two New Exceptions?

21. © 2009 Hodgson Russ LLP21 COMMENTS BY AHA/AAMC Proposed Exception Is Too Complex, Burdensome, Narrow, Inflexible Instead, Adopt Broad Principles:  Credible Medical Evidence Supports Targets  Monitoring Inappropriate Actions  Reward Individual Physician’s Contributions  Maintain Documentation Of Design/Payments  Legally Binding Written Agreement

22. © 2009 Hodgson Russ LLP22 Proposed Exception Too Narrow Instead: Restructure To Address  Programs Designed To Reduce Operational Bottlenecks  Responsible Physicians  Direct Protections for Quality of Care and Against Self-Referral vs Micromanagement COMMENTS BY NJHA

23. © 2009 Hodgson Russ LLP23 COST FINDING CMS: Current Cost Less Acquisition Cost Problem: CMS Proposal Doesn’t Work For Programs Targeting Operational Improvements Or Quality Alternative: Use APR DRGs With Severity Of Illness Adjustment

24. © 2009 Hodgson Russ LLP24 PHYSICIANS/PAYMENT CMS: Requires Pool Of At Least 5 Physicians And Per Capita Payment Problem: Artificial Groups; Diffuses Incentive Alternative: Pay Individual Physicians Responsible For Managing A Case To Reward Individual Performance; Address Concerns Relating To Abuse Directly Rather Than Indirectly

25. © 2009 Hodgson Russ LLP25 RE-BASING TARGETS CMS: If Multi-Year Program, Must Re-Base Targets At End Of Year To Avoid “Duplicate” Payment/Disguised Payment For Referral Alternative: Reward Maintaining Good Performance As Well As Improvement; Important To Incentivize Physicians To Spend Time On Non-Billable Activities Such as Discharge Planning

26. © 2009 Hodgson Russ LLP26 QUALITY PROTECTIONS CMS: Micromanagement, such as requiring access to same supplies/devices available before program and no limits on new technology Alternatives:  Add Severity Of Illness Adjustment  Best Practice Norms Based On Community Practice Compared To Regional Data  Committee Monitors “Outliers”; Can Withhold Incentives Or Terminate Physician

27. © 2009 Hodgson Russ LLP27 SELF-REFERRAL PROTECTIONS CMS: Currently On Medical Staff, plus Many Indirect Protections Alternative: Direct Protections Such As  Must Have 10+ Admissions At Par Hospital  If Dual Privileges, Cap Incentives At Prior Year Volume At Participating Hospital, Adjusted for Normal Practice Growth

28. © 2009 Hodgson Russ LLP28 CURRENT OPTIONS If No Medicare/Medicaid FFS Beneficiaries  Flexibility In Structuring A Program  Determine Whether To Include Managed Care Beneficiaries  Determine Whether State Laws Apply

29. © 2009 Hodgson Russ LLP29 CURRENT OPTIONS If Medicare/Medicaid FFS Beneficiaries  Use Existing Safe Harbors/Exceptions  Follow Design Features Approved In OIG Advisory Opinions  Participate In CMS Demonstration Project

30. © 2009 Hodgson Russ LLP30 THE FUTURE CMPL: Will Congress modify to allow incentive programs allowed by Managed Care statute? Stark: New Exceptions May Be Added & Existing Exceptions May Be Modified AKS: Will HHS Heed The Call Of The AHA/AAMC To Issue A Regulatory Exception? Demonstration Projects: Reports To Congress Due Soon; Will They Prompt Changes? Federal Healthcare Reform:???