Before it was acquired by Vanguard Health Systems, Detroit Medical Center (DMC) entered into a Settlement Agreement with the US Department of Justice (US DOJ) and the US Department of Health and Human Services, Office of the Inspector General (OIG) to resolve potential violations of federal law as a result of entering into improper financial relationships with referring physicians. DMC agreed to pay $30 million in exchange for a release from liability under the False Claims Act, the Civil Monetary Penalties Law (which authorizes civil penalties for violations of the anti-kickback statute), the Program Fraud Civil Remedies Act, and the civil money penalties under the Physician Self-Referral (Stark) Law.

DMC discovered the improper relationships through the due diligence process. The improper relationships included so-called “technical violations” of Stark, such as the failure to have a written agreement in place that met the requirements of a Stark exception. It also included more substantive violations that may have raised a colorable allegation of an anti-kickback violation, such as providing business courtesies to physicians and paying higher than fair market value compensation.

Although it attempted to use the new CMS Voluntary Self-Referral Disclosure Protocol, CMS encouraged the hospital to work through US DOJ after DMC advised that they wanted to settle the matter within four to six weeks so they could close on the acquisition.

It is interesting to note that CMS was not a party to the settlement agreement. Further, the agreement does not resolve DMC’s obligation to repay Medicare for any claims that it submitted in violation of the Stark law, only the civil penalties that would be assessed for such violations. Such repayments are required under 42 CFR §411.353(d), and arguably, the statute itself, although the statute addresses only the obligation to refund payments to individuals.

CMS is authorized to compromise the amount due and owing for violations of the Stark law, including the repayment obligation, when the provider makes a submission under the Self-Referral Disclosure Protocol. Hopefully, in the future, CMS will also exercise this authority if the provider enters into a settlement agreement with US DOJ or the OIG.

The Centers for Medicare & Medicaid Services published a proposed rule on January 13, 2011 outlining the proposed Hospital Value-Based Purchasing Program(Hospital VBP Program) mandated by Section 3001(a) of the Patient Protection and Affordable Care Act (PPACA).

Although the Hospital VBP Program is not effective until October 1, 2012, Medicare hospitals must act now to ensure that they are eligible for incentive payments under the program as the initial performance period begins July 1, 2011.

Background

CMS is required to establish a Hospital VBP Program that provides meaningful incentives to improve the quality of the care that Medicare hospitals provide. The program must be in place by Fiscal Year 2013 (October 1, 2012). The incentive payments are funded by a one percent reduction in hospital DRG payments beginning in Fiscal Year 2013.

CMS views the Hospital VBP program as a natural outgrowth to the collection of hospital quality data that was originally mandated in the Medicare Prescription Drug Improvement and Modernization Act of 2003, as modified by the Deficit Reduction Act of 2005. This program is known as the Medicare Hospital Inpatient Quality Reporting Program (Hospital IQR Program).

Proposed Measures

PPACA requires that the proposed measures for the Hospital VBP Program be measures that are currently used in the Hospital IQR Program. CMS has adopted 45 measures in the Hospital IQR program. Of these measures, 27 are chart-abstracted process of care measures that assess the quality of care furnished by hospitals in connection with treatment of acute myocardial infarction, heart failure, pneumonia, and surgical care improvement. Fifteen of the measures are claims-based measures that assess the quality of care furnished by hospitals as measured by 30-day mortality and 30-day readmission rates. Three of the measures are structural measures that assess hospital participation in cardiac surgery, stroke care, and nursing sensitive care systemic databases. The final measure is the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey.

CMS may not select readmission measures or any measures that have been included in the Hospital IQR program for less than one year prior to the beginning of the performance period

Applying this criteria, there are twenty-nine initial eligible measures for the Fiscal Year 2013 Hospital VBP Program. Initially, CMS proposes to include only seventeen of these twenty-nine measures. It excluded measures that they consider to be “topped out,” meaning all but a few hospitals have achieved a similar high level of performance on them. They also excluded some measures that they intend to retire in the future.

CMS is proposing to add measures to the Hospital VBP Program in the future by implementing a “sub-regulatory process”. Under this process, CMS can add any measure to the Hospital VBP Program if that measure is adopted under the Hospital IQR Program and has been included on the Hospital Compare Website for at least one year. The performance period for new measures would start exactly one year after the date these measures are publicly posted on the Hospital Compare Website. There is some question whether this sub-regulatory process meets the requirements of the Administrative Procedures Act.

Proposed Performance Period

CMS is proposing a three quarter performance period from July 1, 2011 through March 31, 2012 for the clinical process of care and HCAHPS measures. The hospitals performance on these measures will be compared to a three quarter baseline period of July 1, 2009 through March 31, 2010. For the outcome, claims-based measures, CMS is proposing to use an eighteen month performance period from July 1, 2011 to December 31, 2012. The baseline period would be July 1, 2008 to December 31, 2009.

Proposed Performance Standards

PPACA requires that the performance standards include levels of achievement and improvement and must be established and announced not later than sixty days prior to the beginning of the performance period. CMS is proposing to set the achievement performance standard for each proposed measure at the median (50thpercentile) of hospital performance during the relevant baseline period (either July 1, 2009 through March 31, 2010 or July 1, 2008 to December 31, 2009). Hospitals would receive achievement points only if they exceed the achievement performance standard and could increase their achievement score if they receive a higher level of performance. The improvement standard would be based on each specific hospital’s performance on the measure during the performance period as compared to the baseline period.

Expected Impact on Payments

CMS anticipates that the percent increase in payments to a hospital participating in the Hospital VBP Program will range from 0.0236% for the lowest scoring hospital to 1.817% for the highest scoring hospital. This means that when the one percent reduction in hospital DRG payments is taken into account, roughly one-half of the participating hospitals will receive a net increase of payments and one-half will receive a net decrease in payments. No participating hospital will receive more than a net one percent increase or decrease in payments.

On November 19, 2010, the American Health Lawyers Association sponsored a Webinar entitled “The New Reality of Stark Self-Disclosures, What to Do and Not Do”.

The Presenters included Troy Barsky, Esq. and Roy Albert, Esq. from the Centers for Medicare and Medicaid Services. Mr. Barsky is the Director, Division of Technical Payment Policy and Mr. Albert is in the Financial Services Group, Office of Financial Management.

Mr. Barsky and Mr. Albert made the following points regarding the Stark Self-Referral Disclosure Protocol (SRDP):

• Prior to the enactment of Section 6409 of the Patient Protection and Affordable Care Act (PPACA), CMS was not authorized to reduce amounts due and owing as a result of a violation of the Stark statute. The inclusion of this provision in PPACA is essential to the Stark self-disclosure process because without this authority an entity has no incentive to self-disclose.
• CMS essentially adopted the approach taken by the HHS Office of Inspector General in accepting self-disclosures under the anti-kickback statute.
• The purpose of the SRDP is to resolve actual and potential violations of the law and not to provide a process to obtain an opinion on whether a particular factual situation constitutes a violation. Therefore, if a disclosure is made under the protocol, CMS will assume that it constitutes a violation. A submission that attempts to argue that a particular arrangement did not violate the statute will be rejected.
• If a submission is rejected, CMS will be entitled to reopen the claims submitted in violation of the statute from the date of the disclosure.
• CMS and OIG will know whether there are simultaneous disclosures of the same conduct. If a submission is made under the SRDP, CMS will assume it did not fall within the Department of Justice or OIG jurisdiction.
• The submission should not include protected health information (PHI). If the submitter believes it is necessary to include PHI, the information should be segregated and the submitter should let CMS know that PHI is included.
• Submissions must be made electronically. If the submission constitutes a large PDF file, the PDF files should be broken up into the cover memo and the exhibits.
• Submitters should expect a response immediately indicating the submission has been received. It is the receipt of this automated e-mail that stops the sixty day clock on the obligation to refund any over payments. CMS expects to review each submission within two to three weeks and advise whether the submission has been accepted, rejected or whether additional information is required. In most cases, CMS expects to request additional information.
• CMS is considering whether it needs to promulgate frequently asked questions on its website regarding the SRDP.
• CMS is not providing any specific guidance on how the submissions will be resolved. The only assurances they will provide are that they will strive to be reasonable and efficient and will evaluate each submission on a case by case basis.
• The financial analysis should include the total amount actually or potentially due and owing to CMS. This would include any payments made by Medicare fee for service for a designated health service that was furnished pursuant to a prohibited referral. The submission should be itemized by year. If the submitter is estimating the amount due and owing, the description of the methodology used should be provided.
• The Office of Financial Management (OFM) has the responsibility to determine whether the amount due and owing should be reduced.
• The SRDP discusses the factors that OFM will use to determine whether to reduce the amount due and owing. The most important factor is the nature and extent of the improper or illegal practice. Some of the sub-factors OFM will consider are whether the arrangement was commercially reasonable, whether the compensation paid was fair market value, whether the arrangement took volume or value of referrals into account, whether the entity has a history of program abuse, whether the payments were set in advance, whether the entity has a pre-existing compliance program and the strength of the program, the length and pervasiveness of non-compliance in relation to the size of the disclosing entity, and the steps taken to correct the problems causing the non-compliance. Ideally, the steps would be taken before the disclosure is submitted, but must come before settlement.
• The additional factors that OFM will consider are the timeliness of the self-disclosure, the cooperation in providing additional information, litigation risks and the financial position of the disclosing party. The definition of litigation risk is found at 42 CFR § 401.613. Under this Section, CMS may compromise a claim if it determines that it would be difficult to prevail in a case before a court of law as a result of the legal issues involved or inability of the parties to agree to the facts of the case. The amount that CMS accepts as a compromise under this provision will reflect; (i) the likelihood that CMS would have prevailed on the legal questions involved; (ii) whether and to what extent CMS would have obtained a full or partial recovery of judgment, depending on the availability of witnesses, or other evidentiary support for CMS’ claim; and (iii) the amount of court costs that would be assessed to CMS.
• CMS will also look at the financial position of disclosing entity. CMS expects to look at the ability to pay in only limited circumstances. It would be a factor if the disclosing entity argued that it could not pay the amount the amount of the penalty that CMS believed was appropriate to assess.
• Under Section 6409(c) of PPACA, CMS must submit a report to Congress no later than March 23, 2012, which addresses the implementation of the SRDP. The report shall include the number of health care providers/suppliers making disclosures; the amount collected pursuant to the SRDP; the types of violations reported under the SRDP and such other information as may be necessary to evaluate the impact of Section 6409 of the PPACA.
• CMS has not determined yet whether it will make settlements under the SRDP available to the public. The OIG has made settlement terms available to the public.
• CMS has received approximately thirty submissions, some prior to the date that the SRDP was promulgated. The size of the submission so far has varied from one or two violations to fifty to one hundred financial relationships. All of the proposed violations relate to compensation arrangements and not ownership interests. The potential violations disclosed include technical violations and lack of fair market value and commercial reasonableness.
• In the case of a technical violation where the parties continue to perform under an expired contact as an example, the starting point for the financial analysis is the total amount billed to Medicare fee for service for designated health services and not the total compensation paid under the arrangement. If CMS agrees that the violation is solely related to signature requirements and not a more substantive requirement, CMS expects to compromise the amount due and owing significantly. The analysis will begin, however with the overpayment amount.
• The SRDP only applies to Medicare payments and not to Medicaid payments, although the federal Stark law does apply to the federal government’s share of the Medicaid payments. If the payor is a Medicare Advantage Plan, there is an exception for such arrangements that should apply in those cases.