HealthLawProf Blog

Editor: Katharine Van Tassel
Case Western Reserve University School of Law

Tuesday, November 25, 2014

Guest Blogger Associate Dean and Professor of Law Joan H. Krause: The Complicated Relationship Between Integration and Health Care Fraud

KrauseOn October 17, CMS announced a one-year extension of the interim final rule on Final Waivers in Connection With the Shared Savings Program. The interim rule, published on November 2, 2011, established waivers of the Stark self-referral prohibitions, the Anti-Kickback Statute, and some civil monetary penalties provisions for certain entities participating in the Medicare Shared Savings Program (MSSP) created by the Patient Protection and Affordable Care Act. Per the interim rule, HHS was required to consider comments and publish a final rule within three years; that deadline has now been extended until November 2, 2015. In announcing the delay, CMS explained that feedback from the initial stages of the MSSP suggested that modifications were necessary before the waiver rule could be finalized.

The MSSP was designed to encourage multi-level groups of health care providers to integrate by forming Accountable Care Organizations (ACOs), through which they share accountability for the cost and quality of care for a group of Medicare beneficiaries; in return, participants are eligible to receive financial bonuses if they meet quality and savings benchmarks. According to CMS, the goals of the MSSP “are to promote accountability for a patient population, coordinate items and services furnished to beneficiaries under Medicare Parts A and B, and encourage investments in infrastructure and redesigned care processes for high quality and efficient service delivery.” Because the very nature of an ACO requires health care providers who generate referrals (such as primary care physicians) to work directly with health care providers who receive referrals (such as hospitals and specialists) to coordinate patient care – in return for potential financial gain – these arrangements directly implicate the health care fraud laws. Responding to concerns that the fraud laws would impede the development of the MSSP, HHS agreed to waive the provisions for ACOs if certain safeguards were present, including authorization by a governing body, a bona fide determination that the arrangement was reasonably related to the purposes of the program, and public disclosure of the arrangement.

At the heart of the health care fraud provisions is a restriction on financial relationships that have the potential to affect referral choices, a broad category that encompasses many efforts to offer providers financial incentives to coordinate patient care. While few may face prosecution, risk-averse providers may be unwilling to test the boundaries of these prohibitions and as a result may forgo opportunities to develop innovative, efficient, and patient-centered care arrangements. To the extent the current fraud laws inhibit the development of valuable new care models, critics argue that the laws are antiquated relics that pose unnecessary barriers to progress in the health care market. As the ACO waiver process illustrates, there may well be some truth to this criticism: the fraud laws assume the existence of a disaggregated health care system dominated by fee-for-service (FFS) reimbursement. With virtually every participant (including patients) potentially benefitting from more care, the laws were designed to prevent financial collusion that might decrease quality and increase costs. As the health care system moves toward rewarding providers for the quality rather than simply the quantity of their services – on a coordinated, collective basis rather than individually – the incentives to commit fraud by providing more care should fade.

Yet experience has demonstrated that fraud can flourish in virtually any health care system. Fraud may be rampant under FFS, but it also exists (in different forms) in alternative systems such as capitation. Whatever the basis for payment, there will be an incentive to misrepresent it in order to increase payment. Current fraud enforcement responds largely to the forms of fraud prevalent in FFS, such as billing for services not rendered, billing for more expensive services than were provided, and paying kickbacks for referrals. Providers in ACOs and similar integrated arrangements should face less temptation to engage in these traditional forms of fraud because such misrepresentations will not lead to greater revenue. Because ACOs will prosper by reporting high quality of care and patient satisfaction scores as well as lower costs, however, they may be tempted to engage in new forms of misbehavior, such as misrepresenting cost data, misrepresenting the patient mix or the degree of progress in meeting health care objectives, or encouraging riskier or noncompliant patients to opt out of the ACO entirely.

The fraud laws may indeed make some forms of integration more difficult, yet they also function as a necessary counterweight to the misguided assumption that integration inevitably reduces health care fraud. Experience suggests that rather than reducing overall fraud, integration simply will change the way in which fraud occurs. Importantly, some newer forms of fraud will be much more difficult to detect, requiring different expertise and the redeployment of investigatory resources. While the underlying premises of the fraud laws remain relevant, new health care arrangements may require changes in the way the prohibitions are implemented. Future fraud enforcement must respond to the complicated financial incentives providers face in a hybrid system, where new forms of integration coexist with remnants of the fragmented FFS model – enforcement that is more highly attuned to the realities of an ever-changing health care market.

- Associate Dean and Professor of Law Joan H. Krause

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