Health Care Valuations: The New, the Old and the Ugly

https://www.wipfli.com/insights/blogs/health-care-perspectives-blog/health-care-valuations-the-new-the-old-and-the-ugly?

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The shift in health care from volume-based, fee-for-service to value-based reimbursement (VBR) continues to push forward. In its wake, unintended consequences and new challenges have emerged — not only in aspects of delivery but also when determining fair market value (FMV) and remaining compliant with the federal Anti-Kickback Statute and the Stark Law. Below we touch on those consequences and how they’ve emerged from both new and old regulations.

The New: MACRA

Now in play, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) promises to fundamentally change the way the country evaluates and pays for health care. Its new payment schedules, however, have created ramifications that not only tangle the hospital-physician relationship but also create implications for VBR transactions and valuations.

As part of the transition to value-based medicine, four new MACRA elements in particular represent significant changes:

1. Pay for Performance (P4P) Arrangements: The remuneration system makes part of payment dependent on performance, measured against a defined set of criteria, and creates measurements and performance standards for establishing target criteria.

2. Shared Savings Arrangements: The new approach incentivizes providers to reduce health care spending for a defined patient population by offering a percentage of net savings realized as a result of their efforts.

3. Episodic Payments: An episode payment system offers a single price for all the services needed by a patient for an entire episode of care; for example, all the inpatient and outpatient care needed following a heart attack. The intent is to reduce the incentive to overuse unnecessary services within the episode. It also gives health care providers the flexibility to decide what services should be delivered rather than constraining them by fee codes and amounts.

4. Global Budget: With a fixed prepayment made to a group of providers or to a health care system (as opposed to a health care plan), this arrangement covers most or all of a patient’s care during a specified time period.

Clearly the value equation is shifting. Value is defined no longer solely by how much revenue a physician generates but rather by solving problems for patients and patient experience. Value can also be derived not by revenue per patient, but by how many patient lives a physician directs, and with that comes control over how some payments are allocated for patient related services.

As the value dynamics change, hospitals have sought to establish closer relationships with physicians. Acquisitions of physician practices by hospitals have continued at dramatic rates alongside the move toward direct physician employment and provider service agreements. New players in the market and marketplace forces have also emerged as competition to hospitals. Private equity groups and insurance companies are pursuing the acquisition of physicians and clinics for control of patient lives, and therefore revenue.

While the trend toward hospital-physician alignment is intended to improve health care delivery, it has come under scrutiny for potential fraud and abuse violations due in part to established laws that now appear at odds with the new VBR movement.

The Old: Anti-Kickback Statute and Stark Law

Health care organizations, providers and their counsels are well aware of the laws in place they must abide by, namely the Anti-Kickback Statute (AKS) and the Stark Law, which have been in force for more than three decades.

Such regulatory considerations related to fraud and abuse have long had significant impact on the value attributable to each property interest and on the valuation process itself. There are in fact several distinct meanings of fraud within the context of the health care regulatory framework, and they affect a property’s profitability and sustainability, creating significant risk and uncertainty for business entities.

What constitutes fraud, however, is now under the microscope and creating potential liability under the False Claims Act. The new direction of collaborative relationships on behalf of the patient and patient outcomes can make some arrangements suspect. How do physicians refer patients in the new MACRA environment without it being considered a conflict of interest or fraudulent? How will payments made to physicians not exceed the range of FMV and be deemed commercially reasonable? How can alignment strategies be constructed to provide a full continuum of care under VBR reforms?

While there have been no changes to the longstanding regulations, discord between the old laws and the new VBR direction is necessitating a different approach to compliance. The American Hospital, in a letter to the U.S. Senate Finance Committee in a hearing on the Stark law, said, “As interpreted today, the two ‘hallmarks’ of acceptability under the Stark law — fair market value and commercial reasonableness — are not suited to the collaborative models that reward value and outcomes.”

The Ugly: The Push and Pull of the New and the Old

The friction between the enforcement of fraud and abuse laws by the Department of Justice and the Office of the Inspector General, and the VBR models being implemented by Health and Human Services is warranting a review of MACRA and the threshold and definition of commercial reasonableness. With no one clear definition of commercial reasonableness, its analysis is ripe for distortion.

Many regulators’ arguments are centered around Practice Loss Postulate (PLP) — that the acquisition of a physician practice that then operates at a “book financial loss” is dispositive evidence of the hospital’s payment of consideration based on the volume and/or value of referrals.

The problem? In maintaining the economic delineation between physicians and hospitals, the PLP focuses exclusively on immediate and direct financial (cash) returns on, and returns of, investments by health care organizations related to vertical integration transactions. The PLP ignores other economic benefits associated with vertical integration, such as social benefits, qualitative gains, efficiency gains and avoiding costs.

As a consequence, such a vertical integration move could be viewed by regulators as evidence of legally impermissible referrals under the Stark law. However, it would prevent vertically integrated health systems from withstanding fraud and abuse scrutiny. And it would create barriers to satisfying the threshold of commercial reasonableness.

More “New” Is in the Future Forecast

Active industry input and congressional committee discussion is underway in hopes of generating workable strategies to reduce the law’s burden. And although the actual outcomes are uncertain, changes are clearly ahead.

29% of US health system payments tied to alternative models

https://www.beckershospitalreview.com/finance/29-of-us-health-system-payments-tied-to-alternative-models.html

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The percentage of U.S. health system payments linked to alternative payment models grew to 29 percent in 2016, up from 23 percent a year prior, according to a Health Care Payment Learning & Action Network report.

For the analysis, LAN calculated the amount of health plan in- and out-of-network spending that went through APMs. Analysts examined data from 78 health plans, three fee-for-service Medicaid managed care states and fee-for-service Medicare.

Here are three key findings from the report.

1. Forty-three percent of systems’ payments flowed through fee-for-service or legacy payment models in 2016. This is compared to 62 percent in the year prior.

2. Payments through pay-for-performance or care coordination fees reflected 28 percent of payments last year, up from 15 percent in 2015.

3. APM spending totaled about $354.5 billion nationally in 2016.

California’s New Single-Payer Proposal Embraces Some Costly Old Ways

http://khn.org/news/californias-new-single-payer-proposal-embraces-some-costly-old-ways/

Three of the dirtiest words in health care are “fee for service.”

For years, U.S. officials have sought to move Medicare away from paying doctors and hospitals for each task they perform, a costly approach that rewards the quantity of care over quality. State Medicaid programs and private insurers are pursuing similar changes.

Yet the $400 billion single-payer proposal that’s advancing in the California legislature would restore fee-for-service to its once-dominant perch in California.

A state Senate analysis released last week warned that fee-for-service and other provisions in the legislation would “strongly limit the state’s ability to control costs.” Cost containment will be key in persuading lawmakers and the public to support the increased taxes that would be necessary to finance this ambitious, universal health care system for 39 million Californians.

Several health experts expressed skepticism about the bill’s prospects in its current form.

“Single-payer has its pros and cons, but if it’s built on the foundation of fee-for-service it will be a disaster,” said Stephen Shortell, dean emeritus of the School of Public Health at the University of California-Berkeley. “It would be a huge step backwards in delivering health care.”

Paul Ginsburg, a health economist and professor at the University of Southern California, agreed and said the legislation reads like something out of the 1960s in terms of how it wants to reimburse providers.

“There’s broad consensus we ought to go from volume to value. This bill ignores all the signs pointing to progress and advocates a system that failed,” he said.

Backers of the Healthy California proposal are pushing for a vote in the Senate by Friday so the legislation can go to the state Assembly and remain in play for this year’s session.

The authors say that their single-payer proposal won’t rely entirely on old-fashioned fee-for-service and that there’s plenty of time for the bill to be amended. According to the authors, some of the criticism in the legislative analysis reflects a misreading of the bill: It would, they say, include some use of managed care.

Pay-for-Performance: Will the Models Provide Value?

http://www.healthleadersmedia.com/quality/pay-performance-will-models-provide-value-0?spMailingID=9166254&spUserID=MTMyMzQyMDQxMTkyS0&spJobID=960513787&spReportId=OTYwNTEzNzg3S0

In theory, paying for performance makes logical sense, says Ashish Jha, MD, MPH, director of Harvard’s Global Health Institute. But eliminating pay-for performance programs isn’t the answer, he says. Instead, an overhaul is necessary.