Walking a tightrope: regulating Medicare fraud and abuse and the transition to value-based payment.

• Author: Santo, Corbin

"The current legal environment has created major barriers to delivery system innovation. Innovation will not occur if each novel way to organize and pay for care needs to be adjudicated case-by-case or is threatened with legal proceedings." (1)

ABSTRACT

As the American health care system undergoes a fundamental shift from paying for health care on a fee-for-service basis to one based on value, providers are faced with the question of how to structure the business arrangements necessary to operate in a value-based market while simultaneously complying with the existing fraud-and-abuse regulatory framework. The passage of health care reform ushered in an era of rapid change in how health care is delivered, but the underlying regulatory structure within which health care business arrangements must reside has not kept pace with these changes. Consequently, providers are left to question whether their business arrangements comply with prior laws and regulations. While the government has recognized the inherent disconnect between the value-based care framework and the regulatory regime predicated on fee-for-service financial incentives, policy makers have not offered a permanent solution.

This Note addresses the fundamental conflict between paying for the value of care where providers assume risk for the management of a population's health in more tightly integrated care settings and the application of a fraud-and-abuse framework that came about because of perverse incentives in fee-for-service reimbursement. The discussion includes a review of the waiver authority granted by Congress as part of the Patient Protection and Affordable Care Act, which has facilitated certain innovative, value-based pilots, and evaluates the scope and long-term viability of this approach. While the waivers have, to a certain extent, permitted the development of the business relationships required to assume risk and receive value-based payments, they have left unanswered many questions that continue to cause providers to act cautiously. The resulting hesitation by providers to implement value-based reforms has chilled the pace of innovation. This Note argues for a new approach to regulating health care fraud and abuse in an era of expanded value-based payment and highly integrated provider relationships. This approach considers the role of the fee-for-service regulatory framework in light of new incentives to deliver high quality, value-based care and builds on the steps already taken to ensure integrity within the Medicare Shared Savings Program.

CONTENTS INTRODUCTION I. MEDICARE REIMBURSEMENT AND STRUCTURAL REGULATION IN THE PRE-REFORM ERA A. Structure of Medicare Fee-for-Service Payments B. The Inherent Effects of Fee-for-Service Payment C. The Current Health Care Regulatory Structure 1. The Anti-Kickback Statute 2. The Stark Law 3. Civil Monetary Penalties Statute II. THE TREND TOWARD VALUE-BASED PAYMENTS A. How Value-Based Payment Differs from Fee for Service B. Value-Based Purchasing C. Shared Savings Programs and the Development of ACOs D. Bundling Payments by Episode of Care III. VALUE-BASED REIMBURSEMENT AND THE EXISTING REGULATORY FRAMEWORK A. Conflicts with the Anti-Kickback Statute B. Conflicts with the Stark Law C. Conflicts with the CMP Statute IV. THE LEGISLATIVE RESPONSE: FRAUD-AND-ABUSE WAIVERS V. A NEW APPROACH TO REGULATING HEALTH CARE IN THE VALUE-BASED PAYMENT ERA A. Interim Reforms for Immediate Consideration B. Ideas for Long-Term Regulatory Reform CONCLUSION INTRODUCTION

The portion of the United States economy devoted to paying for health care has more than doubled over the last forty years. (2) Efforts to curtail the rate of growth and reduce spending have a long history and have achieved varying degrees of success. The onset of large governmental payers like Medicare (3) and Medicaid (4) in 1965 and the corresponding increase in health care expenditures focused the attention of policymakers who sought to preserve the financial integrity of the programs.

Perhaps as a function of reimbursing providers on a fee-for-service basis, the problem of providers paying kickbacks in exchange for referrals became a significant threat to the financial health of the federal programs. (5) In 1972, Congress realized the detrimental effect these improper payment arrangements could have on the solvency of the programs and made it a crime to knowingly offer or receive "remuneration" in exchange for the referral of health services financed by the Medicare and Medicaid programs. (6) The anti-kickback statute and its associated safe harbors have since become one of the hallmark structural regulations aimed at mitigating fraud and abuse in the federal health care programs.

Throughout the 1980s, the effort to contain costs through managed care utilization controls, coupled with Medicare's prospective payment system, (7) created incentives for physicians to engage in entrepreneurial business practices that could take advantage of a reimbursement system based on payment for each separate service provided. (8) These arrangements included the provision of in office ancillary and laboratory services, physician ownership of diagnostic imaging centers and durable medical equipment companies, and physician investment in outpatient surgery centers. Physicians were able to supplement the reduction in income that they experienced as a result of managed care by referring patients for treatment at a facility in which they had a financial interest. (9)

Seeking to curtail this practice, Representative Fortney "Pete" Stark sponsored legislation that would bar Medicare and Medicaid patient referrals by any physician to a facility providing designated health services in which the physician or a member of her family had an investment interest or a compensation arrangement. (10) The statute, by its very nature, presumed that all existing referrals made to entities with physician ownership interests or compensation arrangements were illegal unless the parties to such arrangements could satisfy one of the enumerated exceptions in the statute or those later promulgated by the Centers for Medicare and Medicaid Services (CMS). (11)

Together, the anti-kickback statute and the Stark law, along with provisions of the False Claims Act (12) and the Civil Monetary Penalties (CMP) provision of the Social Security Act, (13) formed the basis from which the federal government regulated the structural relationships within the health care sector. It is against this background that innovations in provider reimbursement gained traction in the early 2000s, as health policy experts began to question the effectiveness of paying providers for the volume of services provided with little consideration of the value or quality of care delivered. (14) As experiments for value-based payment began to show signs of success, so too did they begin to highlight the restrictive nature of the underlying fraud-and-abuse regulatory scheme. In many instances, these regulations either prohibited, or made very risky, a number of integrated provider relationships that were required to form successful value-based payment arrangements.

In 2010, the Patient Protection and Affordable Care Act (ACA) (15) formally blessed several of the value-based payment initiatives that showed early success in pilot arrangements and encouraged broader adoption by providers. The regulatory framework within which these legally enshrined initiatives are to operate, however, has not changed. Perhaps realizing the difficulty in structuring the provider arrangements necessary for receiving value-based payments, Congress granted waiver authority to the Secretary of Health and Human Services, which provides for the waiver of various fraud-and-abuse laws and regulations--namely the anti-kickback statute, Stark, and several CMP provisions--for entities participating in various payment programs. (16)

This Note highlights the incongruity between the existing health care regulatory framework and modern forms of value-based payments. It argues that the fraud-and-abuse waivers are unduly narrow and do not provide sufficient guidance to providers who may at some point become technically noncompliant with a specific requirement of the value-based payment program. This Note goes on to explore ways in which legislators and policy makers can implement changes into the waiver program to facilitate the broader transition to value-based payments in the short term. The long-term challenge, however, involves making a more permanent transition from the structural approach to regulating fraud and abuse to an approach that obviates the need for blanket waivers. This approach would build on the quality reporting, transparency, and accountability requirements that CMS uses to protect against program abuse in the Medicare Shared Savings Program. The lingering issue for legislators is defining the future role of the underlying statutes from which a growing number of providers are receiving waivers to structure their business arrangements.

Part I provides an historical overview of the Medicare fee-for-service reimbursement system and the fraud-and-abuse provisions enacted in that era to combat the effects of essentially paying for the volume of services provided. Part II explains recent developments in the move to pay providers according to the value of care, including early value-based payment demonstration projects that were expanded in the ACA.

Part III elaborates on the disconnect between the current structural regulations concerning relationships among health care providers and the provisions of the ACA that encourage innovative payment-for-value models. Part IV then discusses the implications of this disconnect and critiques aspects of the regulatory waivers that have left many questions unanswered. Finally, Part V offers short-term proposals regarding the use of fraud-and-abuse waivers and contemplates the long-term...