Key Health Law Issues for 2011
Throughout 2010 and continuing to the present, we have seen the introduction of substantial, new developments in health care laws, policies and initiatives that will impact the health care sector through the remainder of 2011 and well beyond. The following article highlights just a few of the most significant health law issues facing providers, payors and other stakeholders for the remainder of 2011.
Accountable Care Organizations, Health Care Delivery Models
Consolidation among health care providers and ever-larger health systems is expected to continue at a brisk pace throughout the year. The momentum for new alignments and affiliations among providers is unlikely to slow during 2011 because pressures on the health delivery system, especially medical inflation coupled with aging demographics, are more urgent than ever before. Policymakers and stakeholders increasingly refer to a “new model” of health care intended to do more than just control costs: Accountable Care Organizations (ACOs), Medical Homes, and other physician-integrated organizations are being established to simultaneously deliver high-quality health care, positive patient experience at reduced cost.
While ACOs and similar integrated models have enormous promise (they are intended to bend the health care cost curve), that promise is wrapped inside enormous complexity. This year promises to be a watershed year in which many stakeholders involved in ACOs will tighten their focus from the big picture to details. Many leaders who have spent the past several months putting the foundational aspects of an ACO in place, such as making acquisitions, negotiating provider alliances and arranging capital, will need to quickly grapple with myriad of issues that must be addressed.
A key decision ACOs will make in 2011 is whether to join the Medicare Shared Savings Program ACO, offer accountable care services to private payors, or both. In the private market, the details of each ACO will vary across the country, reflecting the particulars of a market, variance in laws from state to state, and the strength of physician and medico-administrative leadership and vision. These ACOs, that are currently negotiating commercial payment terms with payors, including self-funded ERISA plans, will be highly rewarded if they can effectively manage cost while improving quality, and measuring outcomes. In the short run, a successful ACO will be rewarded with contractual bonuses from payors when the ACO delivers as promised on quality and cost. Successful ACOs that hit quality benchmarks and manage costs in the first measurement periods will have an additional, significant upside as they tout their achievements and thus attract additional membership.
On March 31, 2011, CMS released the initial, proposed regulations under the Shared Savings Program, Medicare’s version of an ACO, which was established by the Affordable Care Act (“ACA”) and is set to begin in 2012. The proposed regulations, which will only be finalized after a sixty-day period for public comment and expected subsequent revisions by CMS, provide considerable details that begin to flesh out the ACA’s statutory framework for the Shared Savings Program. The proposed regulations include many provisions that were not necessarily widely anticipated, including the introduction of “downside risk” so that ACOs would absorb losses, if applicable, in addition to potentially sharing in the upside if costs are controlled.
Prior to the release of the proposed regulations, there was speculation that CMS would try to lower the barrier to entry for Medicare ACOs to attract a substantial number of entrants willing to sign up for the three-year commitment required by the Shared Savings Program. Based on the initial reaction of stakeholders, either the regulations will substantially change by the time they are in final form, or the Shared Savings Program will attract fewer ACOs than was previously thought. Providers considering participation in the Shared Savings Program will need to evaluate all the particular requirements in the proposed regulations and, following the public comment period, carefully scrutinize the final rule, when released, to evaluate the viability of their plans for participation as a Medicare ACO as of January 1, 2012.
Compliance Program Effectiveness and Increased Enforcement
Federal and state regulators demonstrated a heightened commitment to enforcing fraud and abuse laws during the first quarter of 2011 and this will continue throughout the year. This amplified focus on fraud and abuse is driven by a “perfect storm.” The Obama administration has stressed, by philosophy and funding, a robust regulatory climate with increased vigilance and scrutiny just as the prolonged recession, which has left government coffers drained, has helped add to an atmosphere in which high-profile government efforts to combat fraud are both good economics and good politics.
Meanwhile, whistleblowers and regulatory enforcers are better resourced than ever. Recent developments in the regulatory arsenal aimed at the health care sector include various provisions of and regulations authorized under the ACA, amendments to the federal False Claims Act, the DOJ using the Responsible Corporate Officer Doctrine of imputed senior officer liability, and, of course, larger enforcement budgets. The result is a substantial new burden across the health care sector. Additionally, while all segments of the health industry will be subject to these increased burdens over the coming months, some parts of the industry will feel the weight of increased enforcement more than others for the remainder of 2011. In particular, pharmaceutical and medical device manufacturers will continue to face a rapidly evolving regulatory landscape for the duration of the year.
While health care fraud enforcement and whistleblower actions seem to be proliferating at all levels, of particular concern for the remainder of 2011 will be efforts to target communication between medical device companies and health care providers, particularly health systems. Both the manufacturers and the health systems may be susceptible to unexpected liability and cost of litigation defense in instances where manufacturers and providers communicate about third-party payor reimbursement for the devices and the medical procedures related to the use of these devices.
Significantly, health care providers may have long-delayed repercussions resulting from these kinds of problematic communications between providers and device manufacturers. Absent a compliance effectiveness program that would identify the risk of any of these high-risk communications before they are received, health care providers may fail to recognize the exposure they have in these circumstances, allowing the communications to continue uncorrected for a period of time. Exposure may, consequently, result down the road. As an example, medical device makers are increasingly the subject of False Claims Act qui tam allegations regarding the device makers' advice to health systems on matters relating to medical device product and procedure reimbursement. Device manufacturer advice in these areas has spawned Department of Justice, HHS OIG and Recovery Audit Contractor activity focused on health systems that is national in scope and consequence.
Another significant development we have observed in recent months, which we expect will continue throughout the remainder of 2011, is of special relevance to officers and even inside counsel who should pay close attention to this developing trend. The DOJ had previously obtained an indictment of a former GlaxoSmithKline (GSK) attorney alleging that she had misled the Food and Drug Administration (FDA). At the end of March 2011, the DOJ had a setback in the case when the presiding court dismissed without prejudice the indictment of that GSK lawyer. She was, however, re-indicted on in April and subsequently acquitted. Despite the acquittal in the GSK case, the message to in-house counsel is clear: the DOJ is taking a keen interest in the direct contact that in-house counsel has with government agencies, whether in the ordinary course of business or otherwise, perhaps most especially with regard to representations that in-house counsel makes to these agencies.
Assessing compliance effectiveness in 2011 is essential. Of course, the daunting issue can often be the simple realization that there is no single tried and true approach that will work every time and for all situations. Still, it is fair to say that the accuracy of the assessment can be greatly enhanced by a seasoned hand. Depending upon the compliance program at issue and how relatively developed it is, the particulars of the assessment protocol will vary. Simply put, assessing compliance effectiveness is always a tailor-made endeavor—never “off the rack.” And while there are very few broad truisms applicable to these assessments, one paramount ingredient for all such programs is strong board oversight of the process.
Increased M&A Activity
The ACA has fundamentally changed the future operating landscape for hospitals, health systems, academic medical centers and physician practices, prompting them to re-examine their strategies for achieving their core missions/business objectives. In this new environment, institutions are re-evaluating whether they have the size, scale and market position to meet the new demands that will be imposed upon them as health reform is implemented. In doing so, many have recognized that growth and scale are critical to meeting the new cost, quality and reporting obligations that will be imposed upon them. In light of this, an increasingly important aspect of an institution’s strategy will be the active consideration of mergers, acquisitions, member substitutions, joint ventures and clinical affiliations with other hospitals, health systems and academic medical centers. In 2011, healthcare institutions have seen and will continue to see an increasing focus on transactions, and should plan to work with their counsel and financial advisors to develop and implement “Strategic Transactions Plans” which clearly articulate their strategic goals (and, if applicable, charitable goals) in pursuing strategic transactions and to realistically analyze the paths available for meeting these goals in a changing health care environment.