May 2011 Health Law Update

May 10, 2011

Physician and Hospital Relationships After Passage of the Patient Protection and Affordable Care Act: Collaboration To Replace Competition

A major consideration in the drafting and passage of PPACA was an attempt to shift the historic competitive nature of hospital-physician relations (where hospital and physicians compete for control over diagnostic and treatment services), to a more collaborative relationship with the intent to reduce the fragmentation of services which is blamed for the reduced quality and increased cost of patient care.

As a result, administrators and executive management alike of all health care related entities should familiarize (or in some cases re-familiarize) themselves and their staff with the various models  being explored to facilitate the shift in hospital/physician relationships.


Hospitals and physicians are revisiting the hospital employed physician model pioneered in the 1990’s.  Although the employment relationship can be established through a number of permutations including direct hospital employment, foundation model, subsidiary-affiliate model, the physician employment relationship is widely considered to provide the following advantages:

  • Minimum fraud and abuse exposure
  • High degree of patient retention
  • Ease and accuracy of measuring clinical outcomes
  • Maximization of reimbursements


This model contemplates a single agreement wherein a physician group agrees to lead, on a global basis, an entire service line (more typically orthopedics, cardiology or oncology) offered by the hospital.  Services typically include inpatient and outpatient clinical services, development and implementation of service line strategies, staffing, supply, quality control plans and the like.

The result of placing such responsibilities in the hands of the group physicians is to shift to a collaborative effort between the hospital and the physicians to achieve improvements in patient outcomes, efficiencies, cost control and the like.


Another model that is often being considered is clinical network created by a community hospital.  The network is created when the hospital contracts with both its employed physicians (often PCP’s) and non-employed physicians (often specialists) to form a clinical network.  The purpose is to provide coordinated inpatient and outpatient care to meet all of the patients’ needs by way of an entity that can negotiate with payors for quality and safety incentives.  The clinical network approach requires very careful consideration of Anti-Kickback, Stark, and anti-trust issues in its implementation.


An ACO is a group of providers who are jointly responsible for the quality and cost of care delivered to a defined group of patients.  Responsibility for quality and cost is enforced through a direct payment impact.   If the ACO meets cost and quality targets, providers receive a bonus; if targets are not met, providers receive no bonus.

The goals articulated by Dr. Donald Berwick, Administrator of the Centers for Medicare and Medicaid Services for ACO’s are as follows:

  • Better care for individuals
  • Better health for populations
  • Lower growth in expenditures

To achieve these goals, it is contemplated that an ACO will have to include at least 50 physicians and a minimum patient population of 50,000.

Proposed regulations for ACO’s, although far from being finalized, contemplate that ACO’s will be exempt, in part, from Stark and anti-kickback statutes. As a result of this exemption, ACO’s will be highly regulated in terms of structure, governance and management and require significant up-front capital expenditures to ensure initial and on-going compliance.

The Pressure Is On

Lisa Madigan, Attorney General for the State of Illinois, and U.S. Attorney Patrick Fitzgerald announced a $25 million settlement with Blue Cross/Blue Shield of Illinois to resolve False Claims Act allegations. BC/BS was alleged to systematically deny legitimate claims for in-house, skilled nursing care for complex medical needs. This alleged conduct resulted in patients submitting their claims instead to the state and federal Medicaid program, costing taxpayers nearly $12 million. This case demonstrates a trend; the government and whistleblowers during increasingly creative theories of FCA liability against health care entities.

United States, Ex. Rel. Bennett V. Medtronic Inc. Highlights the
Difficulties of Imposing False Claims Act Liability

A Federal District Court in Texas recently dismissed a Qui Tam relator’s complaint against a medical device manufacturer under the False Claims Act Statute based on the manufacturer’s promotion of its product for an “off label” use.  The theory pursued by the Qui Tam relator in Bennett was that, by promoting its surgical ablation system for use by hospitals and physicians for purposes not approved by the FDA, the manufacturer had caused the hospitals and physicians to submit false claims for reimbursement from Medicare and Medicaid.

The False Claims Act (FCA), establishes the liability for any person who knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval for payment by the government.  As the court pointed out, the FCA does not create a cause of action for all fraudulent conduct affecting the government, but only attaches liability to a false or fraudulent claim for payment or a false record or statement made to obtain payment.

In the subject case, the relator did not allege that the device manufacturer itself filed false claims, instead the relator alleged that the device manufacturer knowingly caused the submission of false claims by hospitals and physicians through its extensive marketing and use of kickbacks to promote the “off label” or unapproved use of its surgical device, and that such use “caused” false claims to be submitted to the United States for reimbursement for surgical procedures involving the “off label” use of such device.

While the device manufacturer defended on the basis that the relator had not alleged that it had made or caused to be submitted any false claims, the relator argued that the device manufacturer’s marketing of the device for “off label” use was the “but for” cause of the hospitals and doctors to submit false claims to the U.S. for payment.

Based on a thorough review of the applicable Federal Rules applicable to court pleadings, and the extensive case law regarding manufacturer’s promotion of “off label” uses of drugs and medical devices, the court determined that the False Claims Act could not be extended to attach to allegedly improper marketing or promotion of drugs or medical devices without allegations as to specific submittal of false claims by the manufacturer itself or the submittal of claims by hospitals or physicians based directly upon the marketing or promotional material in question.

Multiple Medical Practices in New York State Succeed
In Transforming Into Patient Centered Medical Home

According to the Taconic Health Information Network and Community (THINC), six Hudson Valley health insurers set aside competition in favor of cooperation and paid $1.5 million to 236 primary care physicians in 11 practices that achieved Patient Centered Medical Home (PCMH) recognition from the National Committee for Quality Assurance (NCQA).  The incentives were paid to the providers for transformation to a PCMH and for the enhanced services that patients receive.

The Patient Centered Medical Home model is a team based approach that encourages close communication and cooperation among multiple health care professionals that may include physicians, nurses, pharmacists and others who utilize modern technology to share and coordinate patient information.

According to THINC, the large scale multi-payor participation in the project allowed the benefits of the medical home to extend to patients in a PCMH practice without regard to what type of insurance they have.

CMS Has Collected $162 Million in Overpayments in the First 3 Months of 2011

In the first 3 months of this year alone, the Centers for Medicare and Medicaid Services (CMS) has utilized its four regional Recovery Act Contractors (RACs) authorized by the Tax Relief and Health Care Act of 2006 to collect approximately $162 million in Medicare overpayments.  That amount represents approximately fifty-two percent of the total overpayments collected since the RAC program was expanded nationwide in October 2009.  The auditors also found and returned to providers $22.6 million of underpayments in the same three month period.

The statutorily authorized RACs review claims on a post payment basis (3 years maximum) using a staff made up of nurses, therapists, certified coders and physicians to perform automated (no medical records involved) or complex (medical records involved) reviews of Medicare payments.  Contingent fee based payments to the RACS are authorized.

The CMS report indicates that the top overpayment issues this year involve incorrect coding (citing improper calculation of ventilator use) and billing for bundled services separately (such as billing separately for DME’s during inpatient stay).

AMA Introduced Free CPT Code Application, Launches
Contest for Physician/Student Application Designs

The AMA has launched a free mobile phone application which contains about 130 CPT (Current Procedural Terminology) codes commonly used for E&M visits.  The AMA reports that it will issue updates with additional CPT codes for a fee.  The original application will remain available for free.  The updates are intended to allow users to customize the application to the physicians’ needs.

Additionally, the AMA recently launched an Application Challenge where doctors, residents, fellows and medical students can submit ideas for medical applications.  There will be cash prizes for the best ideas submitted in different categories.  About 60 submissions have been received ahead of the June 30 deadline.

Survey Indicates Fully Implemented EHRS
Result in Higher Productivity, Lower Costs

According to a survey of practices representing more than 120,000 physicians from a broad cross section of practice configurations, seventy-two percent (72%) of practices that had implemented an EHR system were either “satisfied” or “very satisfied.”  Of the practices surveyed that had fully optimized their EHR, eight-six percent (86%) were “satisfied” or “very satisfied.”  Of those who reported full optimization, sixty-one percent (61%) said their EHR system had increased provider productivity and boosted practice revenue.

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