OIG Fraud Alert on Physician Compensation: Pay Attention to Fair Market Value

OIG Prompted by recent settlements with 12 individual physicians who were parties to questionable medical directorship and office staff arrangements, the Office of Inspector General (OIG) on June 9 released a fraud alert, Physician Compensation Arrangements May Result in Significant Liability.  The OIG is judicious in its publication of fraud alerts, and thus the subject matter merits special attention by providers.

The OIG strongly encourages physicians to confirm any financial arrangement with a hospital or other healthcare provider reflects fair market value for the services provided.  The enforcement agency warns that liability for an improper financial arrangement extends to the physician as well as the party making payment to the physician:

Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide. Although many compensation arrangements are legitimate, a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business.

To protect themselves from allegations of wrongdoing under the fraud and abuse laws, physicians should be prepared to demonstrate the fair market value of any financial arrangement with another healthcare provider, including employment agreements, medical directorships, staffing arrangements, and space and equipment leases.  Otherwise, the arrangement is subject to challenge as illegal remuneration for referrals. 

Important safeguards include having a written agreement that specifically defines the parties’ respective rights and responsibilities, maintaining contemporaneous documentation of services provided (e.g., time logs), and ensuring adequate research has been performed to demonstrate the agreement is at fair market value.  If in question, it is always advisable to secure a fair market value opinion from a qualified, independent third party. 

The OIG’s warnings regarding physician compensation arrangements are not hollow threats: the agency’s website details numerous enforcement actions involving alleged violation of the Anti-Kickback Statute.  These enforcement actions all have a common theme:  the parties to the arrangement are unable to prove fair market value for the goods or services involved.      

At the conclusion of the fraud alert, the OIG encourages anyone “with information about physicians or other providers engaging in any of the activities described above” to contact the OIG Hotline.  Providers should take appropriate action to ensure they don’t end up the subject of such a report. 

What Just Happened? CMS Publishes Final Rule Overhauling the Medicare Shared Savings Program

On June 4, the Centers for Medicare & Medicaid Services (CMS) released its anxiously anticipated 592-page final rule making many changes to the Medicare Shared Savings Program (MSSP).  In our white paper, A Dangerous Balancing Act—Proposed Changes to the Medicare Shared Savings Program, published in January, we highlighted our “Top Ten to Watch,” an analysis of CMS’ proposed changes that we believed would have the greatest impact on the future of the MSSP, as well as other payment and delivery system reforms.

With some notable exceptions, CMS now has finalized these changes.  While our detailed analysis of the Final Rule is forthcoming, the following summarizes CMS’ action on our previously identified Top Ten

1.            CMS-provided data on assigned beneficiaries  

Near the beginning of each performance year, each accountable care organization (ACO) receives from CMS information on each of its prospectively assigned beneficiaries, including name, sex, date of birth, and health insurance claim number.  Additionally, CMS provides the ACO with aggregated expenditure and utilization data for its entire beneficiary population. 

CMS now has significantly expanded the breadth and depth of the information to be provided.  First, these reports will include all beneficiaries for whom any ACO participant has provided a primary care service in the last 12-month period, not just those prospectively assigned to the ACO. 

Second, CMS will provide additional data points for each beneficiary, including: (1) additional demographic information (e.g., enrollment status); (2) health status information (e.g., chronic conditions); (3) utilization rates of Medicare services; and (4) expenditure information related to utilization of services.    

But wait, there’s more!  Currently, if an ACO wants to receive from CMS individually identifiable claims data for its prospectively assigned beneficiaries on a monthly basis, it must (among other things) mail to each such beneficiary a CMS-approved notice regarding his or her opportunity to opt-out of such disclosure of his or her information.  Thirty days after sending the notices, the ACO can request from CMS individually identifiable claims data.  It’s proven to be an expensive, time-consuming process which often creates confusion for beneficiaries. 

CMS now has eliminated this process.  ACO participants still will be required to provide written notice at the point of care, but CMS’ disclosure of claims data would not be dependent on any prior notification. 

2.            Beneficiary assignment, part 1

Beneficiaries are not assigned to an ACO in a traditional sense, as a beneficiary still may receive services from any Medicare provider he or she chooses, regardless of whether that provider is associated with the ACO.  Instead, CMS assigns beneficiaries to an ACO for the purposes of setting spending benchmarks and calculating whether the ACO has been successful in reducing total costs of care.   

Under the current regulations, CMS uses a two-step process to assign beneficiaries to an ACO for this purpose:               

Step one: Assign to an ACO any beneficiary who received any primary care service (as defined in the regulation) from one of the ACO’s primary care physicians (PCPs) during the most recent 12-month period, but only if the total allowed charges for primary care services furnished by the ACO’s PCPs during that time period are greater than the total allowed charges for primary care services furnished by PCPs outside the ACO.

Step two:  Attribute to an ACO any beneficiary who did not receive primary care services furnished by any PCP (inside or outside the ACO) during the most recent 12-month period but did receive pri­mary care services furnished by one of the ACO’s specialist physicians during that period, but only if the total allowed charges for primary care services furnished by all ACO physicians and non-physician practitioners during that time period is greater than the allowed charges for primary care services furnished by all physicians and non-physician practitioners outside the ACO. 

CMS now will implement three key improvements to the assignment process.  First, the definition of primary care services has been expanded to include transitional care management and chronic care management services.

Second, CMS has revised step one to include services furnished by non-physician practitioners (i.e., nurse practitioners, physician assistants, and clinical nurse specialists.)  Under the new step one, a beneficiary would be assigned to an ACO if any PCP in the ACO furnished a primary care service to that beneficiary during the most recent 12-month period, but only if the total allowed charges for primary care services furnished by the ACO’s PCPs and the ACO’s non-physician practitioners during that time period are greater than the total allowed charges for primary care services furnished by the same types of providers outside the ACO.

Third, step two of the current beneficiary assignment process now has been revised to limit the types of specialist physicians whose services would be considered for assignment purposes. 

These changes in the beneficiary assignment process will become effective at the beginning of 2016, and all benchmarks would be adjusted to reflect the new population of assigned beneficiaries.

 3.           Extension of Track 1   

To date, nearly all ACOs have opted for the one-sided risk model (Track 1) with the opportunity to receive 50% of any savings.  Under current regulations, these ACOs would be required to move to Track 2 – with its downside risk – at the end of their first three-year participation agreement – or leave the program.   

Rather than running the risk of a mass exodus by ACOs unable or unwilling to accept downside risk at the present time, CMS now will permit Track 1 ACOs to continue under the one-sided shared savings model.  This option, however, is limited to those ACOs that (1) satisfied quality performance requirements in at least one of its first two performance years, and (2) did not generate losses in both of its first two performance years. 

CMS did decide not to finalize its proposal that second-term Track 1 ACOs be eligible to receive only 40% of any savings; instead, that amount will remain at 50% during the second term. 

4.            Modification to Track 2

Under Track 2, an ACO is eligible to receive up to 60% of savings.  However, a Track 2 ACO bears the risk of having to repay up to 60% of any loss (i.e., actual total cost of care in excess of the ACO’s benchmark).  For the handful of ACOs currently participating in Track 2, the minimum loss rate protects them from having to repay a portion of any loss of less than 2%. 

Under the new regulations, a Track 2 ACO will have a choice among several options for establishing its maximum savings/loss rate (MSR/MLR): (1) 0% MSR/MLR; (2) symmetrical MSR/MLR in a 0.5% increment between 0.5 – 2.0%; and (3) symmetrical MSR/MLR that varies based on the ACO's number of assigned beneficiaries according to the methodology established under the one-sided model. 

5.            New Track 3

Rather than making changes to Track 2 to make it more attractive to potential risk-takers, CMS has established a new Track 3.  These ACOs would be eligible to receive up to 75% of savings, but also would be at risk for up to 75% of losses.  Track 3 ACOs will have the same MSR/MLR options as Track 2 ACOs.

A Track 3 ACO’s performance payment limit will be 20% of its benchmark and its upper loss limit would be 15% of its benchmark.  For example, if an ACO’s benchmark was $10,000, it cannot receive more than $2,000 in shared savings and will not be at risk for more than $1,500 of losses.  By contrast, a Track 2 ACO’s performance payment limit is 15% of its benchmark, and its upper loss limit is 10%. 

6.            Beneficiary assignment, part 2

CMS also will use a different beneficiary assignment methodology for Track 3 ACOs, borrowing from the Pioneer ACO Model.  As discussed above, CMS currently uses a two-step process to identify those beneficiaries to be assigned to an ACO.  CMS provides an ACO with a list of prospectively assigned beneficiaries at the beginning of the year based on the primary care services received during the preceding 12 months. 

Each quarter, CMS updates that list based on a rolling 12-month period.  A beneficiary prospectively assigned to an ACO may roll off its ranks if he or she receives primary care services from a provider outside the ACO. 

Three months after the end of the year (to allow sufficient time for all claims to be filed and paid), CMS makes a final, retrospective assignment of beneficiaries who received the plurality of their primary care services from the ACO during that year.  CMS then calculates the total cost of care for these beneficiaries, compares that amount to the benchmark, and determines whether the ACO is eligible for shared savings (or is liable for shared losses). 

As a result of this retrospective assignment, an ACO does not know for which beneficiaries it will be accountable during the performance year.  CMS reports that ACOs experience an average “churn” rate of 24%.  That means nearly a quarter of the names on the first prospective assignment list are different than the names on the end-of-the-year list.

By contrast, Track 3 ACOs will be accountable for the cost of care for those beneficiaries identified at the beginning of the year, with no end-of-the-year adjustments based on where these beneficiaries actually receive primary care services. 

7.            Risk rewards

Probably the most disappointing news in the final rule was CMS’ decision to finalize only one of its four waivers of Medicare reimbursement rules for ACO participants.  CMS will waive the rule that requires an inpatient hospital stay of no less than three consecutive dates for a beneficiary to be eligible for Medicare coverage of inpatient skilled nursing facility (SNF) care.  CMS has experimented with this waiver in the Pioneer ACO Model, and now is extending this opportunity to Track 2 and Track 3 MSSP ACOs. 

For the present, CMS decided against the proposed payment rules relating to telehealth, the homebound requirement for home health services coverage, and the prohibition against hospitals steering patients to specific, high-quality Medicare providers of post-hospital care services.  Instead, CMS intends to further study the impact of these and other payment waivers.

 8.   Split track ACOs

As CMS noted in the proposed rule, many ACOs have expressed a desire to split their participants into two tracks, allowing a subset of the ACO to move into a risk arrangement.  These ACOs emphasize the advantages of providers continuing to work together through the ACO infrastructure, even though some providers remain unwilling to accept risk.

CMS, however, was convinced there are too many unanswered questions regarding the impact of split track ACOs, and thus deferred any action until a later date.   

9.            Repayment mechanisms

Under the original MSSP regulations, a Track 2 ACO must establish a repayment mechanism equal to at least 1% of its total per capita Medicare Parts A and B expenditures for its assigned beneficiaries, as determined based on expenditures used to establish the ACO’s benchmark at the beginning of a performance period.   An ACO may demonstrate its ability to repay losses by obtaining reinsurance, placing funds in escrow, obtaining surety bonds, establishing a line of credit, or establishing another appropriate repayment mechanism that will ensure its ability to repay the Medicare program.

In publishing the final revised regulations, CMS declined the opportunity to require increases to the value of an ACO’s repayment mechanism based on changes to its benchmark.  The agency, however, has now limited repayment mechanisms to escrow accounts, lines of credit, and surety bonds, noting other mechanisms have proven impractical.   

10.          Benchmark adjustments

CMS has finalized its proposed modifications to the benchmark rebasing methodology, to include equally weighting the ACO's historical benchmark years, and accounting for savings generated in the ACO's first agreement period when setting the ACO's benchmark for its second agreement period.   

CMS also announced its intention to publish later this summer a proposed rule on a benchmark rebasing approach that accounts for regional FFS costs and trends in addition to the ACO's historical costs and trends.  CMS will seek comment on the components of and procedures for calculating a regionally trended rebased benchmark through this soon-to-be-published proposed rule.

Key Highlight:

This is only the first of the regulatory changes. It will require much more in-depth analysis to ensure long-term success of the MSSP. PYA has worked with dozens of organizations and ACOs and believes that regardless of specific provisions, long term-success will be based on the hard work and commitment of the providers versus the structure of the program. In light of CMS’ provisions to the MSSP, what remains is for providers to remain diligent and hardworking as they move forward into the future. 

You're Invited - CCM Town Hall Meeting

On Thursday, June 11, Tom Sullivan, Executive Editor at HIMSS Media, will moderate a virtual Town Hall meeting on chronic care management (CCM) and other value-based reimbursement initiatives. The one-hour Town Hall, sponsored by PYA and Kryptiq Corporation, will air at 2 pm EDT/11 am PDT. 

The Town Hall will feature an expert panel, including:

  • Lori Foley, Principal, PYA 
  • Barry Allison, Chief Information Officer, Center for Primary Care
  • Matt Johnson, Chief Administrative Officer, Wake Internal Medicine Consultants

Panelists will explore how the shifting regulatory environment and reimbursement guidelines are driving the growth of value-based care.  The panelists will also share practical and useful lessons learned by CCM early adopters for the benefit of Town Hall participants.  

You may register for the Town Hall here.  And don’t forget to submit your questions for the panelists when you complete the registration form!

Lessons Learned from Year One of the Medicare Physician Value Modifier Program

The results are in for the first year of the Medicare Physician Value Modifier Program (VM Program), and they are quite interesting.

Increasingly, providers are feeling the impact of the Centers for Medicare & Medicaid Services’ (CMS) value-based payment programs, and now these first-year results are moving into the limelight. Nationwide, there are approximately 1,000 groups with 100 or more eligible professionals that are subject to the VM Program in 2015, based on 2013 performance. However, only 127 groups elected to have their value modifier calculated using the “quality-tiering” approach, an option CMS afforded these groups in their first year of participation in the VM Program. The results for 106 of those 127 groups[1] are shown below:

The payment adjustment factor (“x”), to be applied by CMS to the participating groups’ reimbursement, is calculated after the performance period is over; the adjustment factor is based on the total amount of downward payment adjustments. There were 11 groups above (in bold) that will be penalized by either -0.5% or -1.0% based on quality-tiering.

In addition to these 11 groups, a total of 319 Taxpayer Identification Numbers (TINs) did not successfully report through the Physician Quality Reporting System (PQRS) in 2013, resulting in an automatic -1% VM payment adjustment. Those 319 entities (physician groups) combined for an aggregate penalty pool of almost $11 million. Based on that penalty pool, the upward adjustment factor for 2015 was determined to be 4.89%.

So, the end result? It pays (literally) to offer high-quality, low-cost care. In fact, it pays quite well. The 4.89% upward adjustment factor has resulted in a total of $11,377,858 in reward payments to be shared among 14 groups (each with 100+ providers), which equates to about $812,000 per TIN.

Here is some back-of-the-napkin math: let’s estimate that the average group size (for those 14 TINs) is 125 eligible professionals (EPs). Distributed equally, that would roughly result in a $6,500 bump in revenue for each EP. Not a bad annual bonus, right?


What Does This Mean?

There are several key takeaways from the first round of performance measurement under the value modifier program. Here are our thoughts:

  • In order to succeed… you must first participate in PQRS! The greatest amount of penalty dollars for 2013 is attributable to groups that did not successfully participate in PQRS. CMS is taking this very seriously, because those same groups are also getting a PQRS penalty in 2015 for failing to report 2013 PRQS measures (for those keeping track, that is an additional 1.5% penalty for not successfully meeting PQRS requirements). However you want to look at it, CMS can’t measure quality performance for a group if the group doesn’t first report the data. It is more important now than ever for groups to participate in PQRS (in 2015). Doing so will place a group in “Category 1”, making it eligible for an upward, neutral, or downward payment adjustment based on performance, but will ensure the group avoids the automatic penalty.

  • Insufficient data excludes groups from participation – is that good or bad? Because of the statistical nature of the benchmarking process, CMS is careful not to rate a group’s performance if there is not enough data to make a sound conclusion. There were 21 groups that elected quality-tiering, but did not have sufficient data to determine a cost or quality composite score. Don’t be alarmed if the Quality and Resource Use Report (QRUR) displays “insufficient data.” Keep in mind that this message is not necessarily an indication that a group will continue to have insufficient data. Medicare simply needs one measure with at least 20 cases to calculate a quality score, or a statistically significant result for costs based on the group’s Medicare claims.

  • As expected, most groups fell within the “average cost, average quality” tier. The program is, in nature, designed for the majority of groups to be classified as “average.” The VM seeks to reward those groups that are significantly better performers than their peers, and penalize those that fall significantly below the performance of their peers. In 2013, 76% of groups were average in both cost and quality. It takes a concerted effort to elevate performance high enough to earn an incentive payment; likewise, groups with substantially higher costs or lower quality will be penalized for lagging behind.

  • The financial impact of this program is real. These results, when coupled with other programs such as PQRS and Meaningful Use, represent dollars taken away from (or added to) a practice’s bottom line. It is also important to note that the adjustments are magnified in both directions for 2016 and 2017. For instance, the 12 “winning” practices for this program will see a nearly 5% rate increase for their Medicare Part B claims for 2015

  • More is on the way. In 2016, this program will extend to groups with 10 or more eligible professionals, and quality-tiering will be applied to all groups with 100+ eligible professionals (e.g., no voluntary opt in or out). The expectation is that, as PQRS becomes a more familiar program, more groups with fall into “Category 1.” Don’t be surprised, however, if the adjustment factor remains similarly large as it is this year. The 2016 adjustments will be based upon 2014 performance; and, if 2013 is any indication of 2014 participation, expect to see a similarly large proportion of groups that have not met PQRS requirements.


 A Brief Reminder of the Program – How Does it Work?

 As a quick reminder, the VM Program grades the quality and efficiency of care that healthcare professionals are providing. CMS takes the performance of each provider within a group practice (identified by TIN) to calculate the group’s overall score. Groups are then stacked against each other and are assigned a payment adjustment based on their relative quality and efficiency of care.

The QRUR, provided by CMS, gives groups an annual look into their performance. CMS recently released the performance of all groups for performance year 2013, which is impacting 2015 payments for groups with more than 100 eligible professionals.[2] You can expect CMS to release QRURs for 2014 performance in the fall.

Source: 2015 Value Modifier Results, Centers for Medicare & Medicaid Services

[1] Twenty-one groups had insufficient data to make a statistically significant determination about quality and cost performance.

[2] In 2015, only groups that elected quality-tiering were assigned an upward, neutral, or downward payment adjustment based on cost and quality performance. 

ACO Investment Model - Federal Funds Available for Rural ACO Development

Rural providers have until May 29 to submit a non-binding notice of intent to participate in the Medicare Shared Savings Program (MSSP) and to apply for funding through the ACO Investment Model (AIM) Program

This year, the Center for Medicare and Medicaid Innovation (CCMI), part of the Centers for Medicare & Medicaid Services (CMS), is making available more than $100 million to help rural ACOs participating in the MSSP develop operational infrastructure.  These ACOs are eligible for $1.4 to $2.5 million in advance payments, depending on the number of Medicare beneficiaries attributed to the ACO.  This money may be used, for example, to acquire needed technology and support services and hire care coordination staff.

To be accepted into the MSSP – and thus be eligible for AIM funding – a rural ACO must have at least 5,000 and no more than 10,000 attributed Medicare beneficiaries.  On their own, most rural communities cannot reach this threshold.  Two or more communities partnering together, however, can meet this requirement. 

The first step in such a partnership is forming the ACO as a new legal entity.  CMS regulations require that multiple taxpayer identification numbers (TINs) coming together to form an ACO must create a new legal entity for that purpose.  This is a relatively simple process, requiring the filing of a one- or two-page article of incorporation or organization with the Secretary of State, and securing a TIN by completing IRS’ on-line form.  This work usually can be completed in a day or two.    

Once the ACO entity is formed and has a TIN, the next step is to submit the non-binding notice of intent with CMS by no later than May 29.  Again, this is a relatively simple process:  it is an on-line form that takes only a few minutes to complete.

Next, the ACO entity will need to get to work on completing the MSSP application, which is due July 31.  This is not a simple process, as it requires detailed information on how the ACO intends to operate if accepted into the program.  Also, the ACO must secure signed participation agreements from each entity that will be part of the ACO in advance of submitting the application. (To learn more about the MSSP application process, please see PYA’s ACO Road Map.  It provides a complete summary of the regulatory requirements.)

Because Medicare beneficiaries are attributed to an ACO based on the physician who provides the “plurality” of primary care services to a beneficiary, an ACO must recruit a sufficient number of primary care physicians as participants.  This means a hospital must communicate with its medical staff regarding the opportunity presented by the MSSP and the AIM Program. 

CMMI has not yet released the AIM Program application or the timeline for submission of that application, but we expect it will be concurrent with the MSSP application process.  We do know the application will require a detailed spend plan for the funds received through the program.  The spend plan must be unique to the ACO and identify and address local needs.

Keep in mind the AIM Program funds are not free money.  CMS will withhold any shared savings earned by the ACO until the full amount has been repaid. If an ACO elects to leave the MSSP before the end of the three-year performance period, the ACO must repay any amount still owed to CMS.  However, if the ACO completes the performance period and exits the program, any remaining amount owed will be forgiven.     

The AIM Program offers a real opportunity for rural providers to collaborate with neighboring communities to develop sustainable infrastructure for new payment and delivery systems.  The competencies developed through active participation in new care payment models, such as ACOs, are key to success in population health management and value-based reimbursement.  

PYA is supporting several rural communities as they organize to pursue the MSSP and AIM Program.  Our deep knowledge of rural health issues and experience with the MSSP and CMMI application processes allow us to be effective partners in this process.  To discuss opportunities for your community, please contact Martie Ross (mross@pyapc.com) or Jeff Ellis (jellis@pyapc.com).







Good-Bye SGR, Hello MACRA and MIPS

Apparently, the 18th time’s the charm. Late in the evening of April 14, the U.S. Senate voted 92-8 in favor of passage of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Among many other things, this legislation permanently repeals the sustainable growth rate (SGR) formula. President Obama has promised to sign MACRA into law when it arrives on his desk. 

As a result, payments under the Medicare Physician Fee Schedule (MPFS) for services furnished on or after April 1 will not be cut by 21%. Instead, current payment rates will remain in place until June 1, at which point they will be increased by 0.5%. 

The MPFS rates then will be increased by 0.5% in 2016, 2017, 2018, and 2019. The rates will remain constant at the 2019 rates through 2025.

During that same period, 2019 to 2025, providers will have the opportunity to earn bonus payments – or be subject to stiff penalties – under the new Merit-Based Incentive Payment System, or MIPS (more on MIPS below).

After 2025, MPFS rates will be updated annually by 0.5%. However, providers who participate in approved alternative payment models (more on APMs below), will receive an additional 0.5% increase, earning a total annual increase of 1.0%.

Under MACRA, the Medicare Advisory Payment Commission (MedPAC) is required to study and make regular reports to Congress regarding the impact of MPFS rate adjustments on beneficiary access and quality of care. Based on this information, Congress can determine whether additional increases are warranted.


Through the end of 2018, providers will continue to be subject to the penalties associated with the Physician Quality Reporting System (PQRS), the meaningful use program, and the physician value-based purchasing program. You can learn more about those programs here.

Beginning in 2019, these programs will be replaced by MIPs. This new version of physician value-based purchasing will be based on a provider’s composite score across four domains:  (1) quality measures; (2) efficiency measures (i.e., controls on total cost of care); (3) meaningful use of electronic health records; and (4) clinical practice improvement activities. 

The Centers for Medicare & Medicaid Services (CMS) is charged with defining measures for each domain, subject to certain requirements. For example, MACRA imposes specific requirements regarding the selection of quality measures and identifies specific types of clinical practice improvement activities, such as the use of remote patient monitoring.  

Providers will receive a composite performance score from 1 to 100 based on their performance on the to-be-specifically-defined measures.  These scores will be reported publicly, meaning everyone will be able to look up a provider’s score. Providers whose scores improve year-to-year will receive extra credit, as a way to incentivize performance improvement.

Each year, CMS will establish a threshold score based on the median or mean composite performance scores of all providers measured during the previous performance period.  The threshold will be published at the beginning of each year, in advance of the performance period to be measured.

Providers scoring below the threshold will be subject to payment reductions.  These negative payment adjustments will be capped at -4% in 2019, -5% in 2020, -7% in 2021, and -9% in 2022.  

Providers scoring above the threshold will receive MIPS bonus payments.  Those providers with higher performance scores will receive proportionately larger payments, bonuses of up to three times the annual penalty cap (i.e. up to a 12% increase in 2019.)  These bonus payments will be funded by the penalties assessed against providers scoring below the threshold.  

In addition, the best-of-the-best – those who score above a “stretch” performance score established by CMS – will receive an additional bonus payment allocated from a $500 million pool to be funded annually.    These additional incentive payments will be allocated according to a linear distribution, with better performers receiving larger bonuses.


Providers who receive a significant percentage of their income through alternative payment mechanisms (APMs) that involve risk of financial losses and quality reporting requirements will have the option to opt out of MIPS, and instead receive an annual 5% bonus payment between 2019 and 2024.  Again, the legislation provides broad outlines, leaving it to CMS to define exactly what qualifies as an APM and what amounts to a significant percentage of income.    

To ensure all providers have the opportunity to participate in MIPS, MACRA directs CMS to perform testing of APMs relevant to specialty professionals, professionals in small practices, and those that align with private and state-based payer initiatives. Further, a Technical Advisory Committee will be established to consider physician-focused APM proposals. CMS also is required to identify and address potential fraud vulnerabilities in APMs.

MACRA specifically provides that any standard established under any federal healthcare program cannot be used in a medical malpractice case as evidence of a standard or duty-of-care owed by a provider to a patient.  Thus, MIPS participation cannot be used in liability cases.  

In addition to these fundamental changes to the way in which physicians and other providers are paid by Medicare, MACRA also requires that electronic health records (EHR) be interoperable by 2018 and prohibits providers from deliberately blocking information sharing with other EHR vendor products. This mandate – which will eliminate the most significant barrier to electronic health information exchange – may very well prove to be just as important as new value-based payment models in driving the transition to population health management.  

There are many more important provisions contained in MACRA’s 300 pages. While we may celebrate the demise of the SGR today, we now must prepare for new payment and delivery models. The transition from volume-based reimbursement to value-based payments is now defined by law.


SGR Fix: Could This Be the Year?

It’s that time of year again. Absent Congressional action, physicians will see a 21% cut in Medicare Physician Fee Schedule payments April 1. That’s no April Fools’ Day prank: the most recent short-term sustainable growth rate (SGR) fix expires March 31.

The Congressional Budget Office estimates the cost of repealing the SGR at $174 billion. Not surprisingly, most observers expected Congress to opt for yet another (the 18th, in fact) short-term patch, most likely paid for (again) by reducing hospital payments and extending the 2% sequestration cut to Medicare payments.

However, on March 19, Congressional leaders introduced H.R. 4017 and S. 810, The SGR Repeal and Medicare Provider Payment Modernization Act. This bi-partisan legislation was crafted last year as a permanent solution to the SGR problem. A detailed summary of H.R. 4017 and S. 810 is available here

The following is a brief summary of that legislation, which also replaces current Medicare value-based purchasing programs with a single Merit-Based Incentive Payment System, or MIPS.  

The Basics

  1. The SGR formula now used to calculate MPFS rates is repealed effective April 1, 2015, avoiding the scheduled 21% reduction in those payments.
  2. Current MPFS rates will be increased by 0.5% effective June 1, and each year thereafter through 2019. 
  3. MPFS rates will remain constant at the 2019 rates through 2025.
  4. During that same period – 2019 to 2025 – providers will have the opportunity to earn bonus payments available through the new Merit-Based Incentive Payment System, or MIPS, discussed in greater detail below.
  5. After December 31, 2018, providers no longer will be subject to the penalties associated with the Physician Quality Reporting System (PQRS), the meaningful use program, or the physician value-based purchasing program; these programs will be replaced with MIPS.  Current Medicare value-based purchasing programs for hospitals will remain in place.
  6. Beginning in 2026, and thereafter, the MPFS rates will be updated annually by 0.5%. However, providers who participate in approved alternative payment models (as discussed below) will receive an additional 0.5% increase, earning a total annual increase of 1.0%.

Merit-Based Incentive Payment System

So let’s talk MIPS.  This new version of physician value-based purchasing starting in 2019 will be based on a provider’s score in four areas:  quality measures; efficiency measures; meaningful use of electronic health records; and clinical practice improvement activities.  While the legislation provides parameters for each category, the detail work is left to the Centers for Medicare & Medicaid Services (CMS).

Providers will receive a composite performance score from 1 to 100 based on their performance on the to-be-specifically-defined measures.  Providers whose scores improve year-to-year will receive extra credit, as a way to incentivize performance improvement.

Each year, CMS will establish a threshold score based on the median or mean composite performance scores of all providers measured during the previous performance period.  The threshold will be published at the beginning of each year, in advance of the performance period to be measured.

Providers scoring below the threshold will be subject to payment reductions.  These negative payment adjustments will be capped at 4% in 2019, 5% in 2020, 7% in 2021, and 9% in 2022.  

Over time, the MIPS penalties become substantially greater than those contemplated in existing CMS programs.  This, coupled with the fact private payers are likely to “piggy-back” on the MIPS program, make the push for quality and efficiency simply too strong for providers to ignore.  

Providers scoring above the threshold will receive MIPS bonus payments.  Those providers with higher performance scores will receive proportionately larger payments, up to three times the annual penalty cap.  These payments will be funded by the penalties assessed against providers scoring below the threshold.  

In addition, the best-of-the-best – those who score above a “stretch” performance score established by CMS – will receive an additional bonus payment allocated from a $500 million annual pool.    These additional incentive payments will be allocated according to a linear distribution, with better performers receiving larger bonuses.

Providers who receive a significant percentage of their income through alternative payment mechanisms (APMs) that involve risk of financial losses and quality reporting requirements will have the option to opt out of MIPS, and instead receive an annual 5% bonus payment between 2019 and 2024.  Again, the legislation provides broad outlines, leaving it to CMS to define exactly what qualifies as an APM and what amounts to a significant percentage of income.    

The proposed legislation specifically provides that any standard established under any federal healthcare program cannot be used in a medical malpractice case as evidence of a standard or duty-of-care owed by a provider to a patient.  Thus, MIPS participation cannot be used in liability cases.  

Other Provisions

  • Provides funding for quality measures development and technical assistance for smaller physician practices
  • Expands access to Medicare claims data to support quality improvement activities
  • Expands the information made publicly available regarding individual physician scores on performance measures
  • Requires that Electronic Health Records (EHR) be interoperable by 2018 and prohibits providers from deliberately blocking information sharing with other EHR vendor products.
  • Requires the Secretary to issue a report recommending how a permanent physician-hospital gainsharing program can best be established. 
  • Requires GAO to report on barriers to expanded use of telemedicine and remote patient monitoring.


Presently, Congressional leaders are discussing the SGR fix as part of a package deal that includes an extension of the Children’s Health Insurance Program (CHIP), as well as funding for other specific Medicare programs. The package would be paid for through a combination of means testing, i.e., making wealthier individuals pay more for Medicare; changes to the Medigap program; and reductions in the payment updates for hospitals and post-acute providers. 

These reforms will not cover the full price tag of the deal under consideration, but leaders will try to convince conservative critics that it will yield greater out-year savings after 10 years. As is usually the case in Washington, we’ll know what will happen when it happens.

Chronic Care Management: Inquiring Minds Want To Know

On February 18, the Centers for Medicare & Medicaid Services (CMS) sponsored a National Provider Call (NPC) on Medicare reimbursement for chronic care management (CCM).  The NPC was the first formal presentation CMS has made regarding CCM since it began paying for this service January 1, 2015.  In conjunction with the NPC, CMS also released a Medicare Learning Network Fact Sheet on CCM.    

While CMS now has provided clarification on several important points, there still remain some lingering questions that will require further attention from the agency.  Having now fielded hundreds of inquiries regarding CCM, PYA has compiled the following Top Ten list of CCM questions, along with the best answers we can offer at this time. 

If you would like a more comprehensive explanation of CCM, please refer to our white paper, Providing and Billing Medicare for Chronic Care Management.

Also, we have recently published an article on transitional and chronic care management from a coder's perspective.

1. What is required to initiate CCM services?

In its rulemaking, CMS had proposed that a practitioner must furnish an annual wellness visit (AWV) or an initial preventive physical examination (IPPE) for a beneficiary within the last 12 months to bill CCM for that beneficiary.  CMS, however, chose a different approach in the 2014 Medicare Physician Fee Schedule Final Rule:

However, in light of the widespread concerns raised by commenters about this requirement, we have changed the requirement to a recommendation for a practitioner to furnish an AWV or IPPE to a beneficiary prior to billing for chronic care management services furnished to that same beneficiary.

78 Fed. Reg. 74425 (Dec. 10, 2013) (emphasis added). 

CMS’ recent guidance, however, is not consistent on this point.  According to the Fact Sheet, “CMS requires the billing practitioner to furnish an [AWV], [IPPE], or comprehensive evaluation and management visit to the patient prior to billing the CCM service, and to initiate the CCM service as part of this exam/visit.”  Also, during the NPC discussion of the informed consent requirement, the CMS representative stated the provider must “initiate the CCM service...during a face-to-face visit.”  

As a technical matter, the statement made by CMS in the rulemaking process trumps the agency’s subsequent guidance.  When we asked the CMS representative who presented the NPC about this apparent contradiction, she advised us to communicate with the Medicare Administrative Contractor (MAC).   

Thus, at present, it is not clear exactly what is required to initiate CCM; hopefully, CMS will provide clarification soon. As a practical matter, however, we believe CCM services will be more effective if the service is initiated – and the beneficiary’s written consent is obtained - as part of a face-to-face visit. Keep in mind that such a face-to-face visit would be separately billable from the CCM.    

2. Can a physician practicing in a hospital outpatient department bill for CCM? Can the hospital charge a facility fee associated with CCM? (updated on 3/2/15)

CMS has clarified that a physician practicing in a hospital outpatient department who bills for CCM will be paid at the facility rate, which is approximately $9.00 less than the non-facility rate (i.e., the payment made to a physician practicing in an outpatient office setting).  The payment  to the physician reimburses him or her for supervision of hospital staff furnishing the non-face-to-face care management services, as well as any care management services furnished directly by the physician himself or herself.  CMS also has clarified that a hospital may bill a separate facility fee for CCM.  This payment reimburses the hospital for the costs associated with the licensed clinical staff furnishing the non-face-to-face care management services and related expenses.

3. Are there circumstances in which time spent providing non-face-to-face care management services cannot be counted toward the 20-minute requirement?

CMS stated in the rulemaking process that time spent while the patient is in an inpatient setting cannot be counted.  In its general discussion of care management services, the CPT Manual states non-face-to-face care management services furnished the same day as an E/M visit cannot be counted. CMS has not specifically recognized this rule, although the CPT Manual generally is considered authoritative unless contradicted by CMS. Thus, unless the same-day non-face-to-face service is wholly unrelated to the E/M visit, it should not be counted. 

4. To what information must the care team have access on a 24/7 basis?

This is another example of an inconsistency between CMS’ recent guidance with its statements in the rulemaking process.  The Fact Sheet states the beneficiary’s entire medical record must be accessible 24/7 to those members of the care team providing CCM service after hours.  However, CMS stated in the rulemaking that only the electronic care plan must be accessible.  See 79 Fed. Reg. 67722 (Nov. 13, 2014).   In this case, the CMS representative who presented the NPC acknowledged this inconsistency, and indicated the Fact Sheet would be revised to refer to the electronic care plan.  

5. Can Medicare Shared Savings Program (MSSP) participants bill for CCM?

Participants in CMS’ Multi-Payer Advanced Primary Care Practice (MAPCP) Demonstration and the Comprehensive Primary Care (CPC) Initiative cannot bill CCM for those beneficiaries who have been attributed to them for purposes of these programs. Otherwise, participation in other CMS’ initiatives – including the MSSP – does not disqualify a practitioner from billing CCM for any beneficiary. 

6. When filing a claim for CCM, what should be listed as the date of service? As the site of service?  As the relevant diagnosis?

CMS has stated that there are no claims edits in place for date of service, site of service or diagnosis codes, and thus CCM claims will not be denied based on the information listed for these items.  As a practical matter, we recommend the date of service be the date on which the 20-minute requirement is satisfied, the site of service be listed as the practitioner’s primary practice location, and that at least two of the beneficiary’s chronic conditions be listed as the diagnosis codes. Note: When listing the site of service, ensure that the location selected is associated with the practitioner in Medicare Provider Enrollment, Chain, and Ownership System (PECOS) to avoid unnecessary claims issues.

7. When should a claim for CCM be submitted?

Again, CMS has not provided guidance on this point, but we believe it is appropriate to submit the claim any time after the 20-minute requirement has been satisfied for that calendar month.

8. How should the subjective acuity test be applied?

To be eligible for CCM, a beneficiary must have two or more chronic conditions (the objective condition test)  expected to last at least 12 months, or until the death of the patient, that place the patient at significant risk of death, acute exacerbation/decompensation or functional decline (the subjective acuity test).  

During the NPC, the CMS representative noted that two-thirds of Medicare beneficiaries have two or more chronic conditions, and explained that CCM was intended to reach as many of these beneficiaries as possible.  It seems, therefore, the subjective acuity test was not intended to restrict access to CCM; instead, it was intended to identify those beneficiaries who would benefit from 20 minutes of care management services.  So long as legitimate and beneficial non-face-to-face services are being furnished to the beneficiary, the subjective acuity test should not otherwise limit access to this care.  

9. Who is qualified to provide non-face-to-face care management services?

To be counted, non-face-to-face care management services must be performed by licensed clinical staff under the general supervision of a physician.  This includes any person with a state-issued license in a healthcare profession, as well as medical assistants credentialed by a third-party organization.  Regardless of licensure or credentials, no person should provide any service beyond his or her training and competency.

10. What does it mean to electronically capture care plan information?

The electronic care plan – one of the key requirements for billing CCM – must be maintained in electronic format.  The plan must be available on a 24/7 basis (by means other than facsimile) to members of the care team, and the provider must be capable of transmitting the plan (by means other than facsimile) to other providers involved in the patient’s care.  Also, the provider must furnish an electronic or paper copy of the care plan to the beneficiary.  

The plan does not have to be generated using a certified electronic health record, nor does it have to be maintained in an EHR.  The information in the care plan may come from paper documents (such as a questionnaire completed by the beneficiary), but this information must be incorporated into the electronic document.  

During the NPC, the CMS representative emphasized these were the care plan rules for 2015, implying that CMS is contemplating tightening these requirements in 2016.  However, the representative gave no indication as to what CMS is intending to pursue.

Open Payments Update - Managing Reporting Risks

In the fall of 2014, the Centers for Medicare and Medicaid Services (CMS) launched its Open Payments website, a public, searchable database for information regarding payments made to physicians and teaching hospitals by pharmaceutical companies, medical device manufacturers, and other “applicable manufacturers” in the life sciences.

Currently, the searchable database contains information on payments made between August 1, 2013, through December 31, 2013, including the number of discrete payments made to each physician or teaching hospital, the form of each such payment (e.g., cash, in-kind items, stock), and the consideration for the payment (e.g., consulting fee, food and beverage, travel, education).

The scope of the data release included approximately $3.5 billion in payments received by 546,000 physicians and 1,360 teaching hospitals from 1,419 applicable manufacturers. Of these totals, about $2.2 billion (approximately 63% of total payments, or approximately 39% of total payment records) was de-identified before publication. While the database does not currently note the respective recipient, CMS has stated this data will be identified during a future cycle.

The regulations governing the Open Payments program afford physicians and teaching hospitals the opportunity to review and dispute payment information prior to public release. During the period leading up to the public release of data, multiple shutdowns of the Open Payments website in which physicians and teaching hospitals could view and verify their reported payment data caused widespread concern regarding the accuracy of the information. The data integrity issues that caused CMS to temporarily close the system stemmed from the attribution of payments to misidentified physicians.

Specifically, an error was reported in which one physician’s payments were incorrectly attributed to another physician, which alerted CMS to the “intermingling” of data for physicians with the same first and last names. Upon discovery of the problem, CMS elected to delay the release of a portion of data for 2013 until a later date.  The scope of this dataset, which was reported to CMS but not published (de-identified or otherwise) totals approximately $1.1 billion, or 199,000 records.

Despite concern regarding the accuracy of Open Payments data, only 26,000 physicians and 405 teaching hospitals successfully registered in the system during the initial review period. Of the 4.4 million records submitted, 17,994 records were affirmed, while 12,579 records were disputed (with 9,000 of these disputes still unresolved).

Applicable manufacturers now have through March 31, 2015, to report 2014 payments (i.e., payments made between January 1 and December 31, 2014), as well as corrected 2013 reports.   These reports will be available to the public in June of this year. Prior to that date, physicians and teaching hospitals will again have the opportunity to review and dispute the submitted payment information.

In light of nagging concerns regarding the accuracy of Open Payments reporting, and given the potential ramifications of public reporting, it is imperative that all impacted parties—physicians, teaching hospitals, and applicable manufacturers—plan their review, implementation, and compliance efforts accordingly. For more information, PYA’s upcoming whitepaper, “Don’t Get Burned By The Sunshine Act: Scrutinizing Physician Compensation,” will discuss the fair market value and commercial reasonableness issues that may arise when life sciences organizations make payments to physicians, and how these organizations can mitigate their associated regulatory risks. PYA has extensive experience in navigating the complex healthcare regulatory environment, and is well-positioned to assist all parties as they address the compliance issues that may arise due to the public release of Open Payments data.

The St. Luke's Antitrust Decision: Hit the Brake or the Gas Pedal?

On February 10, the U.S. Court of Appeals for the Ninth Circuit upheld the lower court decision that the 2012 acquisition of Saltzer Medical Group, Idaho’s largest multi-specialty physician group, by Idaho-based St. Luke’s Health System violated federal antitrust law. Absent further appeal, St. Luke’s now must divest itself of the acquired assets.

Since its filing by competing hospitals back in November 2012, the St. Luke’s case has garnered enormous attention, given the rapid pace of hospital practice acquisitions. St. Luke’s defended the acquisition as part of its overall strategy to deliver integrated patient care and to accept risk-based reimbursement. If St. Luke’s was unsuccessful, would that force others to recalibrate similar strategies? 

Even as compared to the fraud and abuse laws and Medicare reimbursement rules, the antitrust laws are highly complex and their application to specific facts and circumstances is challenging.   The crux of the argument in the St. Luke’s case was that the acquisition resulted in a significant increase in the hospital’s market share of adult primary care physicians (PCPs) in the Nampa, Idaho, area. 

The competing hospitals (and later the State of Idaho and the Federal Trade Commission) challenged the acquisition under Section 7 of the Clayton Act, which prohibits mergers that may substantially lessen competition. 

To prove a Section 7 case, the party challenging the transaction must: (1) define the relevant market, both in terms of geographic area and product or service (in this case, adult PCPs in Nampa); (2) quantify the parties’ respective pre-merger market share; (3) calculate the merged entity’s resulting market share; (4) and demonstrate that such market share may permit the entity to raise prices or otherwise lessen competition in the relevant market.  If the plaintiff is successful, the acquiring party then has the opportunity to rebut the presumption of anti-competitiveness, i.e., prove that it will not exercise market power in an anticompetitive manner. 

The district court found – and the appellate court agreed – that the plaintiffs successfully presented the four elements of a Section 7 case. The court’s ruling (and, from this point, “court” refers to both the district court and the appellate court that agreed with that lower court’s findings of face and conclusions of law) with regard to St. Luke’s rebuttal case is particularly informative, given current market trends in the face of delivery and payment system reforms. St Luke’s emphasized the procompetitive effects of the merger, particularly how the transaction would advance its efforts to move toward integrated care and risk-based reimbursement.

The court was unimpressed. First, the court questioned St. Luke’s true commitment to these goals, noting the merger documents “contained hortatory language about the parties’ desire to move away from fee-for-service reimbursement, but included no provisions implementing that goal.” 

Second, the court found even if the merger would allow St. Luke’s to better serve patients, that was not sufficient to offset its potential anticompetitive effects. In fact, based on the evidence presented, the court held that the reimbursement rates for PCPs in the Nampa market likely would increase. The antitrust laws do not authorize otherwise prohibited conduct merely on the basis the merged entity can improve its operations.

And, finally, the court determined that the merger was not necessary to achieve the claimed efficiencies. Based in part on testimony highlighting examples of independent physicians who had adopted risk-based reimbursement, the court found St. Luke’s could assemble a committed team without employing physicians. 

So……should those health systems contemplating physician practice acquisitions steer clear of such entanglements, based on the St. Luke’s decision? Should organizations pursuing clinical affiliations be concerned that their efforts may be undone by the antitrust laws?

Potential antitrust issues are always lurking somewhere when two independent economic entities contemplate combining their efforts. Before consummating a merger or acquisition, the parties should consider carefully potential market share issues and structure the deal to avoid any issues. For example, in the St. Luke’s case, the parties could have carved out the Nampa PCPs from the acquisition (which may or may not have been possible or practical). St. Luke’s also could have incorporated specific performance measures into the transaction to measure progress towards integration.

On the other hand, the St. Luke’s decision is a vote of confidence in favor of clinical affiliations among providers that are not based on ownership or employment, with the court noting such arrangements are a proven vehicle for delivery and payment system reform. 

Even these arrangements, however, have potential antitrust traps, specifically under Section 1 of the Sherman Act, which prohibits competitors from colluding on price, allocating markets, or engaging in other anticompetitive behavior. 

In healthcare, Section 1 is the reason why independent providers cannot jointly negotiate with insurance companies.  However, the antitrust enforcement agencies have recognized that there are circumstances in which such joint negotiations can be part of a procompetitive strategy. Specifically, as the Statements of Antitrust Enforcement Policy in Health Care explain, if independent providers are “clinically integrated ”— i.e., they have developed, implemented, and enforce a common standard of care and jointly engage in care coordination activities— then it is appropriate for that network of providers to engage in joint payer negotiations. In such cases, the joint negotiations support and promote clinical integration activities, with a pro-competitive effect.

Of course, clinical integration is challenging work, and it requires significant cultural change. But rather than rearranging the pieces on the chess board, clinical integration involving independent providers is a strategy that supports real transformation in healthcare.