Becker's Hospital Review

74 Executive Briefing: evolving, as are questions about how such ventures should be structured and implemented. As is the case in nearly every industry and circumstance, the most complex and hotly de- bated questions relate to the flow of money — who will receive remuneration for what under which circumstances. The Role of Physicians in Achieving Hospital Quality Historically, physicians have been viewed as the primary drivers of patient care processes. They are, to some degree, the captains-of-the-ship 2 whose orders and actions determine the type and extent of services provided to each patient. Legal- ly and culturally, they may have the most accountability for individual patient outcomes. For these reasons, the leadership and cooperation of physicians is usually regarded as essential for effectuating changes in care processes and delivery. For hospitals facing negative financial consequences if new payer measures of quality and value are not achieved, changes in care processes and delivery may be important to future survival and success, and the engagement of physicians to transform care processes is a reasonable if not imperative proposition. But what does it mean to engage physicians to transform care processes? Does engagement reasonably or necessarily involve payment to the physicians? If so, can the payments rea- sonably be characterized as compensation for "services" if they are contingent on a result (such as achievement of quality and value targets) rather than hours of effort that can be objectively measured? How does one measure and quantify the value and appropriate payment for such services? The Importance and Challenge of Ensuring Fair Market Value In the current regulatory environment, in which financial relationships with physicians — including most compensation arrangements — implicate a complicated patchwork of state and federal laws and regulations, and the stakes for violating any those laws and regulations can be very high, or even finan- cially disastrous 3 , these are tricky questions. They are especially tricky given that: (i) legal and reg- ulatory compliance often hinges on establishing that any remuneration flowing between physicians and hospitals is fair market value and commercially reasonable compensation for actual, legitimate and necessary items or services 4 ; and (ii) the prevailing understanding of "fair market value," "commercially reasonable" and "legitimate" items and services has devel- oped around volume-based compensation (i.e., more items or services personally provided = more compensation, rather than less items and services provided but better coordination and outcome = more compensation). Complicating things further is the fact that courts and enforcement agencies might reject opinions of fair market value and commercial reasonableness if they determine that they don't reflect proper consideration of the actual facts, circumstances and applicable law. 5 As ac- knowledged recently by the Center for Medicare and Medicaid Services, which is the Federal agency charged with enforcing the strict-liability Stark Law: Entities furnishing DHS [including hospitals furnishing inpa- tient and outpatient services] face the predicament of trying to achieve clinical and financial integration with other healthcare providers, including physicians, while simultaneously having to satisfy the requirements of an exception to the physician self-referral [aka Stark] law's prohibitions if they wish to compen- sate physicians to help them… structuring incentive compen- sation and other payments can be particularly challenging for hospitals, even where the payments are to hospital-employed physicians. 6 Three Factors that May Affect Value in a Quality or Value Focused Arrangement Below are three factors that may affect the determination of fair market value and commercial reasonableness in a quality or value-focused arrangement. 1. Appropriately Defining the Arrangement: Sometimes, the purposes and nature of an arrangement are straightforward and easily articulated. For example, a hospi- tal may enter into an hourly compensation arrangement with a physician to serve as the hospital's quality director, with duties that include collecting and reviewing clinical quality data, and communicating that clinical quality data to hospital managers and other physicians during monthly meetings. On the other hand, an arrangement to pay a group of physicians for achieving "quality" or "cost savings" is more nebulous. The value in achieving the "quality" or "cost savings" can vary, depending on: (a) what is involved in attaining the achievement, and/or (b) what the hospital will gain (or what loss it will avoid) from the achievement. The value may vary with the specific activities and criteria that trigger the payments, so good information about the details and purposes of an ar- rangement — about who will do or provide what and why — will help ensure an accurate and reliable assessment of fair market value, as well as commercial reasonableness. This information may require some careful thought to appropriately articulate. 2 This is a reference to the legal doctrine introduced in McConnel v. Williams (361 Pa. 355, 65 A.2d 243, 246 (1949)), which holds that, in most circumstances, the physician of record is legally responsible for what happens in their operating room, or, when more broadly interpreted, for whatever happens on their "watch." 3 For examples of recent cases of hospital liability, see U.S. ex rel. Drafeford v Tuomey Healthcare System, Inc. (which resulted in a $237.5 million verdict against the hospital that was upheld by an appeals court); and U.S. ex rel. Baklid Kunz v. Halifax Hospital Medical Center et al (which ended with an $85 million payment by the hospital to settle Stark Law claims, after the hospital reportedly incurred nearly $21 million in legal fees). 4 See the Office of Inspector General's Supplemental Compliance Program Guidance for Hospitals (2005), stating "The general rule of thumb is that any remuneration flowing between hospitals and physicians should be at fair market value for actual and necessary items furnished or services rendered based upon and arm's length transaction and should not take into consideration, directly or indirectly, the value or volume of any past or future referrals or other business generated between the parties." [70 Fed Reg. 4866 (January 31, 2005)]. 5 See 69 Fed. Reg. 16054, 16107 (March 26, 2004), stating "[w]hile good faith reliance on a proper valuation may be relevant to a party's intent, it does not establish the ultimate issue of the accura- cy of the valuation itself." Consider also that courts rejected the validity of fair market value and commercial reasonableness opinions obtained by the hospital defendants in the Tuomey case and other False Claims Act cases, such as U.S. ex rel. Singh v. Bradford Regional Medical Center. 6 80 Fed. Reg. 41686, 41928 (July 15, 2015) Everything Old is New Again and Vice Versa

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