The Hospital & Healthsystem Association of Pennsylvania

Comments
to
The United States Senate Finance Committee
on

Transforming the Health Care Delivery System:
Proposals to Improve Patient Care
and Reduce Health Care Costs

May 14, 2009

The Hospital & Healthsystem Association of Pennsylvania (HAP) represents and advocates for more than 250 acute and specialty care hospitals and health systems across Pennsylvania, and most importantly, the communities and the patients these hospitals and health systems serve. HAP appreciates the opportunity to comment on the Senate Finance Committee’s April 29 policy options paper on delivery system reforms.

Pennsylvania hospitals and health systems support comprehensive, meaningful health care reform. Over the past several years, HAP worked to develop a framework for health reform that includes the following tenets:

• The good health of all Pennsylvanians must be a priority. Health care reform must allow our health care delivery system to achieve its full potential to prevent disease, improve treatment, and sustain wellness. Reform also must improve quality and care outcomes, while restraining the overall growth in the cost of health care and health insurance.
• Individual patients must be the core focus of the health care system. The relationship between a patient and his or her health care professional is fundamental to quality health care delivery. Patients have a right to expect quality care and useful information tailored to their needs in every health care encounter. Greater patient choice requires informed decision-making and access to helpful information.
• The health care system must work for all Pennsylvanians. All Pennsylvanians, regardless of health status, national origin, gender, race, age, or income, should have access to affordable health insurance and quality health care.
• The best elements of our health care system must be preserved and enhanced. Health care reform should correct the shortcomings of the current system without sacrificing the features that allow the delivery of the most advanced care in the world. Health care reform should focus on improving quality, coordination, and efficiency of care. Reform also should encourage innovation in all areas of health care, including prevention, screening, diagnosis and medical treatment, and communication between patients and providers.

HAP’s framework for health care reform is consistent with the elements of reform in the American Hospital Association’s (AHA) Health for Life: Better Health. Better Health Care, which focuses on:

1. Health coverage for all, paid for by all.
2. A focus on wellness.
3. The most efficient, affordable care.
4. The highest quality care.
5. The best information.

The options paper on “Transforming the Health Care Delivery System: Proposals to Improve Patient Care and Reduce Health Care Costs,” includes ideas that are consistent with HAP’s and AHA’s reform framework. Pennsylvania hospitals and health systems are committed to being an active and engaged partner in efforts to achieve health care reform.

Pennsylvania hospitals and health systems are on the front lines of care for the poor and uninsured. They know first-hand what it means for individuals to be uninsured. We know the problems these individuals have in getting preventive care, the difficulties they may have in managing complex medical conditions, and the delays they may endure before seeking medical treatment. Therefore, ensuring health coverage for all is absolutely critical, and delivery system reforms will be necessary to achieve cost savings to expand coverage and encourage high-quality, efficient, and affordable care.

HAP appreciates that the options paper incorporated the need to develop a comprehensive strategy to address workforce shortages, redistribute unused graduate medical education slots to increase access to primary care, and to ban, under certain conditions, physician self-referral to hospitals in which the physician has an ownership interest.

Pennsylvania hospitals and health systems support delivery system changes to improve quality, care coordination, provider collaboration, chronic care management and efficiency. Hospitals and physicians across the commonwealth of Pennsylvania are working collaboratively to advance these issues—whether in public-private programs, such as the chronic care commission led by the Pennsylvania Office of Health Care Reform, or through provider collaboratives, such as those under the auspices of the Institute for Healthcare Improvement which has worked to reduce health care-associated infections, prevention of pressure ulcers, and improved care for surgical patients.

Pennsylvania hospitals and health systems believe that, in principle, value-based purchasing (VBP), bundling payments, and decreasing hospital readmissions, offer the potential to achieve greater benefits. However, as described in the options paper, HAP believes that some of the provisions go beyond what hospitals can withstand. In addition, for any such incentives to succeed, Congress must make changes to current laws and regulations to allow providers to integrate clinical activities and work together in the patient’s best interest.

HAP is concerned that implementation of value-based purchasing, bundling, and readmission provisions, as drafted in the options paper, would result in significant payment cuts to an already underfunded Medicare payment system. The Medicare Payment Advisory Commission (MedPAC) projects that hospitals will have a negative 6.9 percent Medicare margin in 2009—down from a positive 6.2 percent Medicare margin in 1999—the lowest level in more than a decade. In Pennsylvania, on average, hospitals received only 94 cents for each dollar of care that serving Medicare patients costs. Couple this with the recently announced (FFY) (FFY) 2010 inpatient prospective payment system (IPPS) proposed rule, which nationwide reduces hospital payments by $22 billion over the next ten years, makes reform very difficult. Hospitals cannot withstand these types of cuts, at a time when investment in health information technology, health care workforce, and system reform are needed.

It is important that delivery system reforms be implemented appropriately. HAP appreciates that the Senate Finance Committee’s options papers includes timelines and phase-in policies proposed to implement delivery system reforms. Some hospitals and health systems, especially those which offer clinically integrated delivery services, will have an easier time adopting reforms than others. This is not uniform across the breadth of hospitals that serve communities in Pennsylvania.

The options paper calls for most of the reforms to start in 2013-2015, a time period in which most Pennsylvania hospitals and health systems will be focused on implementing health information technology (HIT) to comply with the incentives and requirements under the American Recovery and Reinvestment Act of 2009. In addition, HAP is concerned about the cumulative effect of the proposals on certain hospitals. Pennsylvania has no public hospitals. HAP is concerned that our state’s safety-net hospitals, which serve large minority and low-income populations, could be disproportionately harmed by the value-based purchasing, bundling, and readmission provisions as drafted. In addition, our state’s small and rural hospitals, which have less volume and larger-than-average shares of Medicare beneficiaries, could be disproportionately affected by significant payment changes or cuts in the Medicare program. It is important that the impact of proposals be considered across the breadth of hospitals that are so vitally important to our communities.

HAP looks forward to working with the AHA as it works with the Senate Finance Committee and other policymakers to develop the best policy changes possible to achieve better health, better health care, and better health care coverage in America.

Following are HAP’s detailed comments on key provisions affecting Pennsylvania hospitals and health systems. In addition, there are two issues that were not addressed in the committee’s options paper for which we have included recommendations—clinical integration and administrative simplification—as HAP, like the AHA, views these two components critical to successful delivery system reform.

Value-Based Purchasing

The options paper proposes to establish a value-based purchasing program that would pay all inpatient acute-care prospective payment system (IPPS) hospitals for their actual performance on quality measures, rather than just the reporting of those measures, beginning in (FFY) 2013. Certain hospitals would be excluded, including those that do not have a sufficient number of patients within the related conditions. Measures would be selected from those used in the current Medicare pay-for-reporting program, and could be expanded after the first year. Funding for the program would be generated by reducing all Medicare IPPS Medicare-severity diagnosis-related group (MS-DRG) payments to participating hospitals by two (2) percent in (FFY) 2013, three (3) percent in (FFY) 2014, four (4) percent in (FFY) 2015, and five (5) percent in (FFY) 2016 and beyond. A hospital that meets or exceeds a performance standard would be eligible to “earn” back the money initially withheld.

A hospital’s single, composite performance score would be used to determine whether the hospital meets an overall performance standard. Hospitals would be rewarded for quality improvement or quality attainment, whichever level is higher. A hospital with a score in the bottom 25th percentile would not receive back any of the money withheld. A hospital with a score in the 26th to 75th percentile would receive payment based on a sliding scale, while a hospital with a score above the 75th percentile would receive its full withheld amount. Unused incentive funds would be returned to the Medicare Trust Fund.

Pennsylvania hospitals and health systems have long been committed to improving the quality and safety of patient care. HAP supports the concept of creating payment incentives to foster high-quality patient care, but given the complexity and magnitude of the program, HAP would encourage the Senate Finance Committee to move forward on this issue more thoughtfully and deliberately. HAP appreciates that the options paper proposes to implement the program incrementally, reward both quality improvement and quality attainment, fund the pool through adjustments to the base MS-DRG amount which excludes add-on payments such as indirect medical education, and create demonstration projects to test value-based purchasing models for critical access and small hospitals. However, value-based purchasing should not be done in a manner that would penalize the very hospitals already struggling to serve patients under inadequate Medicare reimbursement.

As currently structured, high performing hospitals would be “rewarded” by winning back the portion of the withheld payment to which they were already entitled. The remaining 75 percent of hospitals would receive either a portion or none of the money withheld from their payments. While a budget-neutral provision would redistribute payments from low performers to high performers, HAP believes it is important that at least a portion of hospitals have the potential to receive increased funding from Medicare under this provision.

HAP agrees with the AHA’s recommendation that no more than one (1) percent of hospital payment be used to reward performance. The size of the reduction proposed in the options paper is too large, given that the program is untested and not yet proven to achieve better patient outcomes. The options paper proposes an amount greater than the (1) to (2) percent recommended by MedPAC. As your committee has seen, hospital quality scores have been continuously increasing under the pay-for-reporting program that publicly reports hospital performance. Therefore, rather than the large withhold suggested under the options paper, HAP would suggest that an incentive of one (1) percent is sufficient enough to take the initial steps needed to align quality and payment and to further encourage hospitals to adhere to evidence-based care.

Measure Development—The options paper calls for measures to be selected from those used in the current Medicare pay-for-reporting program, including measures for heart attack, heart failure, pneumonia and surgical care, and measures assessing patients’ experience of care. The Secretary of Health and Human Services (HHS) would have the ability to expand the list after the first year. HAP believes that the selection of the measures is critical to the success of a value-based purchasing program. It is essential that measures be developed through an open, transparent, and consensus-based process. As written, it is unclear whether only measures endorsed by the National Quality Forum (NQF) and adopted by the Hospital Quality Alliance (HQA) would be included. It is unclear how the health care field would provide comments to recommendations regarding measures. HAP urges Congress to take responsibility to enumerate that only consensus-based measures, which also allow for a public comment process, be included in a value-based purchasing program.

Withhold pool—HAP contends that only the MS-DRGs related to the quality measures – rather than all MS-DRGs—should be subject to the withhold pool. It is excessive to reduce payments to all MS-DRGs when a hospital will be rewarded or penalized based on its performance on only a subset of MS-DRGs.
As reform measures are pursued, it is critical that such measures not create more problems in health care delivery access by unduly jeopardizing the financial health of hospitals that are critical to assuring access to care for the nation’s senior citizens.

Composite scores—The options paper recommends using a single composite performance score to determine whether a hospital meets the overall performance standard. This approach will make it difficult for hospitals to determine areas where they need to improve and to direct their quality improvement efforts accordingly. HAP supports AHA’s recommendation that multiple condition-specific composite scores be used to evaluate hospital performance. This would allow hospitals to receive an incentive payment for clinical areas where they perform well, while penalizing them in clinical areas where they are low performers. This also will protect those hospitals with a low volume of patients in certain services and minimize the impact of potentially arbitrary weighting policies.

Bundled Payments

The Senate Finance Committee’s proposal would establish a post-acute care bundling policy to encourage greater coordination of care among acute and post-acute care providers. Starting in (FFY) 2015, acute inpatient hospital services and post-acute care services—including home health, skilled nursing, inpatient rehabilitation, and long-term care hospital services—occurring or initiated within 30 days of the acute hospital discharge, would be paid through a bundled Medicare payment. Physician services would be excluded from the bundle. The bundled payment would be the average Medicare amount for the inpatient MS-DRG plus the average Medicare post-acute care costs of treating patients in that MS-DRG, plus the cost of expected or planned readmissions within the 30 day-post acute time frame, minus an amount for expected efficiencies to be gained from improved care coordination. Bundling would be implemented through a three-stage process, beginning with a subset of MS-DRGs in (FFY) 2015 and ending with all MS-DRGs in (FFY) 2019.

HAP supports efforts to bring providers (facilities and practitioners) together to coordinate care, and bundling Medicare payments should be explored as a way to encourage the delivery of efficient and effective care. However, this is an extremely complex issue, and it has yet to be tested broadly in either the public or private sector. HAP agrees with the AHA recommendation that the careful design and testing of any bundling provision occur prior to widespread implementation. While the options paper calls for phasing in implementation of bundling over a number of years, HAP recommends that an approach be used that tests different models of bundling to determine what works and what does not is critical occur before broad adoption across the nation.

Demonstration projects—While some hospitals are organized in ways that would likely facilitate bundling payments, most hospitals are not clinically integrated to implement such a policy. It is essential to provide hospitals and other providers with the tools and infrastructure necessary for coordinating care and managing risk. Changes in law and regulation, discussed later in our comments, are necessary elements to the successful implementation of bundling. Without such changes, bundling payment will be difficult to achieve in many hospital and community settings. Therefore, HAP urges consideration of demonstration projects to develop and explore the many design elements of this complex payment approach before implementing it across all providers.

HAP supports the AHA recommendation that hospitals be allowed to participate in bundling demonstrations on a voluntary basis. Various approaches should be allowed and tested – such as hospital-physician, hospital-post-acute care providers, hospital-physician-post-acute care providers, and post-acute care provider-only bundling. Such approaches are warranted to ensure that changes do not result in inequities or other harmful unintended consequences for patients and providers. Additionally, bundling should be limited to high-cost, high-volume services, where better patient management across care settings is needed.

Physician services—The options paper calls for bundling hospital and post-acute care services, but excludes physician services. Physicians are critical players in the delivery of health care services: they decide whether or not to admit a patient to the hospital; they determine what services are needed to treat a patient; they determine whether a patient is ready for discharge, and they determine the need for follow-up care. Without the inclusion of physicians in bundled payment demonstrations, hospitals and health systems are concerned that there will not be the incentives that are essential to achieving better care coordination, quality, and efficiency.

Legal and regulatory barriers—A number of legal and regulatory barriers exist that make greater care coordination and management of patients by physicians and hospitals more difficult. Under the options paper, the Centers for Medicare & Medicaid Services (CMS) would waive certain laws to ensure patients receive appropriate post-acute care services and that access to care is maintained. CMS also would examine payment rules in the existing post-acute payment system to determine if modifications are needed to allow proper coordination and care management of patients. This is important because providers’ ability to respond to bundling payment incentives currently is significantly hampered by multiple laws and regulations.

In addition to the antitrust laws, four federal statutes have a significant impact on hospitals’ ability to form financial relationships with physicians: the Ethics in Patient Referrals Act, also known as the “Stark law;” the anti-kickback statute; the Civil Money Penalty (CMP) law; and the tax-exemption provisions of the Internal Revenue Code. These laws and their regulations severely limit a hospital’s ability to respond to the incentives of a bundled payment system.

Existing regulations also inhibit care coordination and would need to be reformed or withdrawn to achieve the goals of bundling. For example, today’s requirement that hospitals provide a list of all local home health providers to patients at the point of discharge would need to be eliminated. In a new bundled payment system, hospitals, working in collaboration with physicians and post-acute providers, will need the ability to choose the post-acute setting that is the most appropriate for patient care. The inpatient rehabilitation facility “60% Rule,” long-term care hospital “25% Rule” and the skilled nursing facility “3-day Inpatient Stay Rule” also could inappropriately hamper care management and should be rescinded under a bundled payment system.

Data and information—Under a bundled payment system, new quality and outcome measures may be necessary to ensure that appropriate care is provided throughout the entire episode of care. In addition, changes to existing fee-for-service payment methods would be necessary to provide Medicare payment to post-acute care providers after the 30-day bundled time frame has ended. Finally, at this time, only CMS and certain researchers have an ability to conduct analyses of patient-care utilization and cost across multiple provider settings. To ensure that policies are appropriate and their implementation is transparent, Congress should require that CMS release claims and other necessary data for hospitals and other researchers to analyze bundled care. Doing so would lead hospitals and other researchers to gain a greater understanding of the services and costs involved in an episode of care, which could, in turn, lead to improvements in the provision of care.

Readmissions

The options paper would establish a readmission policy, in conjunction with the post-acute care bundling policy, to encourage greater coordination among acute and post-acute care providers. Starting in 2010, CMS would calculate national and hospital-specific data on the readmission rates of IPPS hospitals for eight conditions with the highest volume and the highest rates of readmissions. Selection of the initial eight conditions would be left to the discretion of the Secretary and could be updated over time. Starting in (FFY) 2013, hospitals with readmission rates above the 75th percentile for selected conditions, based on a hospital’s prior year performance, would be subject to a 20 percent payment withhold for the selected MS-DRGs. Money from this withhold would be returned to a hospital only if a new patient assigned to that relevant MS-DRG in (FFY) 2013 were not readmitted to a hospital within 30 days for a “preventable” readmission. The readmissions policy would be phased out as the bundling policy was adopted.

Preventing readmissions is a complex, system-wide problem that involves hospitals, physicians, and other providers who manage patients’ care, as well as patients and their families. Hospital and clinical leaders recognize that some readmissions can be prevented. However, there are factors beyond the hospital’s control that affect whether a patient is readmitted, including the natural course of the disease, the limited availability of post-acute and ambulatory health care services, high levels of poverty among some hospitals’ patients, and a lack of community-based social services. These factors can substantially affect readmissions. If these factors are not accounted for, they will lead to payment penalties, inequities, and other serious consequences for hospitals, particularly safety-net hospitals that serve distressed communities and large numbers of vulnerable patients.

Defining readmissions—Public policies seeking to reduce readmissions should focus exclusively on certain types of unplanned readmissions that are related to the initial admission for which there are evidence-based approaches or actions that hospitals, clinicians, and post-acute care providers can take to prevent the occurrence of the readmission. Readmissions that were planned as part of the recommended course of treatment or unrelated to the original admission should be excluded. Readmissions that can be reasonably “paired” with an initial admission would be a good place to start, such as an orthopedic surgery followed by readmission for a blood clotting disorder.

Additionally, HAP recommends that you consider incorporating measures of quality into the readmissions policy such that only hospitals with both high readmission rates and low quality performance scores are penalized. This would allow high-performing hospitals with outstanding quality not to be penalized for treating complex patients who might have higher rates of readmission given their disease types, comorbidities, or other social conditions.

HAP appreciates that the options paper acknowledged that certain conditions should be excluded. These conditions should be identified as preventable using currently available administrative data. In addition to cancer, burn and trauma care, and scheduled surgeries, there are other types of readmissions that also are not preventable and should be explicitly excluded from a readmission policy, including psychoses, maternity and neonatal, and end-stage renal disease.

Payment policy—HAP is concerned about the proposal to withhold 20 percent of certain hospitals’ Medicare payments for certain MS-DRGs and then pay back the withheld funds if patients are not readmitted within 30 days. This excessive, prospective reduction in payment will place a significant financial strain on providers, many already struggling under inadequate Medicare and Medicaid payments. It is particularly problematic for hospitals that serve large numbers of poor and uninsured patients, and for smaller and rural hospitals that have limited cash flow. HAP agrees with AHA’s recommendation that hospital payments be reduced only after an unplanned, related readmission occurs. Such a policy could be implemented in a manner similar to the CMS’ IPPS post-acute care transfer policy. Additionally, the withhold amount should be smaller than 20 percent. Given that the readmission policy would apply to high volume MS-DRGs, withholding such a high percentage of payments could create significant financial difficulties. HAP would suggest that a smaller amount, no more than five (5) percent would be sufficient to create incentives to reduce readmissions.

Time period—HAP believes that the policy should focus on readmissions with seven (7) days. Applying the policy to readmissions within 30 days of hospital discharge is not appropriate. The longer the length of time after a patient’s discharge, the more likely it becomes that the readmission is not related to the initial admission. It also makes it more and more unlikely that that readmission could have been reasonably prevented by the hospital. A time frame of seven (7) days is more appropriate for a readmission payment policy related to unplanned, related readmissions.

Data availability—At this time, only CMS and certain researchers have the ability to conduct readmission analyses with Medicare claims data. Hospitals cannot calculate complete readmission rates because they do not have data on readmissions to other hospitals. Hospital policymakers cannot calculate readmission rates because access to patient-identifiable claims data is restricted. Given that readmission rates are a central aspect of the delivery system reforms envisioned by the Senate Finance Committee, Congress should require that CMS release patient-identifiable claims data to hospitals and others, in an appropriate manner, so they can analyze and evaluate the hospital readmission rates calculated by CMS. This is critical to ensuring that the readmissions policy is fully transparent.

Accountable Care Organizations

Beginning in 2012, groups of qualifying providers—such as individual physician practices, physician group practices, hospital-physician joint ventures, and hospitals employing physicians—would be allowed to voluntarily form accountable care organizations (ACO) and have the opportunity to share in the cost savings they achieve for the Medicare program.

ACOs offer an opportunity to improve integration of inpatient and outpatient care and promote joint accountability for care delivery across providers and across the continuum of care, including post-acute and community-based care. HAP has supported the use of integrated delivery and believes there should be opportunities to test the ACO concept. It should be recognized that ACOs will not work in all areas, given the minimum 5,000 beneficiary requirement. In addition, testing the ACO concept will require regulatory and/or legislative changes to eliminate or modernize the federal and state laws that would impede hospitals and physicians working together, and to utilize incentives to improve the quality of care and increase efficiency.

Graduate Medical Education

The options paper proposes to redistribute unused graduate medical education (GME) slots to increase access to primary care and general surgery. The paper proposes to reallocate 80 percent of unused slots, and allows hospitals to request up to 50 new slots. Seventy-five percent of new slots would be designated for primary care or general surgery for five years. Slots would be redistributed based on a set of criteria, such as whether the receiving hospital is in a health professional shortage area.

HAP acknowledges the efforts to expand the number of physicians to improve access and expand health coverage. HAP supports the proposal to redistribute unused residency slots. According to recent data from the Association of American Medical Colleges (AAMC), hospitals are currently training approximately 6,900 residents over their resident caps. Given that there are approximately 2,500 unused residency slots, HAP is pleased that these unused slots will be reallocated to hospitals that are already training physicians. This will help address a portion of the current need. However, given the enhanced need for resident slots now, coupled with the projected shortage of physicians in the future, HAP agrees with the AHA recommendation that the number of Medicare-supported training positions for medical residents be increased by 15,000 slots.

Self-Referral

The options paper proposes that the current “whole hospital” and rural exceptions be repealed under the Ethics in Patient Referrals Act, better known as the “Stark” law. They would be replaced by an exception for physician-owned hospitals with a Medicare provider number as of July 1, 2009. These hospitals would be “grandfathered” and allowed to continue to self-refer, subject to certain conditions. This new grandfathering exception includes several conditions for those physician-owned hospitals such as:

• Ethical investment practice rules to ensure bona fide investment and proportional returns on investment.
• Disclosure of physician ownership interests in hospitals to patients at the point of referral and again at the earliest point of an admission, to the public through notices on the hospital’s Web site, and in reporting to CMS, which is charged with providing ownership information on their website.
• Patient safety requirements to ensure that such hospitals are capable of responding appropriately to complications or emergencies and safely transferring patients who need care beyond their ability, as well as patient disclosure at admission if the hospital does not have 24-hour/7-day onsite physician coverage.
• Required approval by HHS of any increase in the number of operating rooms, procedure rooms and beds, as well restrictions on growth overall and conditions that must be met.

These provisions are important. Pennsylvania hospitals and health systems feel strongly that no patient should have to question whether their physician is acting in the best clinical interest of the patient or responding to financial investment decisions. Given the changing nature of health care delivery, blanket prohibitions against physician self-referral will not likely address the variety of investment, employment, and financial arrangements for physicians. There needs to be careful consideration of the issue of physician self-referral to assure that the clinical interest of the patient is first and foremost. There needs to be clear standards at the federal level to define the types of self-referral arrangements that clearly need to be prohibited, and standards for other types of allowed arrangements to ensure that physician referral decisions are being made in the best clinical interest of patients and not influenced by financial investment in a facility, incentives that solely focused on financial targets, or other financial arrangements that create conflicts of interest for physicians in making decisions regarding patient care.

Safeguards addressing physician self-referral should include consideration of limitations on financial investments; clear definition of capabilities needed in such facilities to deal with any complications or patient safety issues; ownership disclosure to patients; compliance with state and federal laws; adherence to quality standards; commitments to provide access to uninsured, Medicaid, and other publicly supported patients; and fulfillment of an obligation to support the community’s emergency service capacity. In addition, in joint ventures between physicians and not-for-profit organizations, having the not-for-profit organization retain the authority regarding such issues as quality, patient safety, and access to care for the uninsured, Medicaid, and other publicly supported patients, are examples of the type of requirements that could be considered.

Sustainable Growth Rate

The options paper proposes two options to fix the sustainable growth rate (SGR) problem under the physician fee schedule. The first option would provide a one (1) percent update in calendar years 2010 and 2011, a zero percent update in calendar year 2012, and then revert back to current law for the update in calendar year 2013 and beyond. The second option would implement the same schedule of updates for calendar years 2010-2012, but would place a floor of negative three (3) percent in effect in calendar year 2013.

Beginning in calendar year 2014, the physician fee schedule update for localities with two-year average fee-for-service growth rates at or greater than 110 percent of the national average would have a negative six percent floor. HAP supports fixing the physician fee schedule by providing physicians with a positive update in calendar years 2010 and 2011, and would suggest that a permanent fix to the SGR is needed.

Clinical Integration

Pennsylvania hospitals and health systems believe the issue of clinical integration needs to be addressed in exploring delivery system reform. The ability of doctors and hospitals to work together and clinically integrate is an important element of delivery system reform. It is critical that current barriers to care coordination be removed or modernized so that caregivers can work together more effectively to improve patient care. The following laws and regulations will hamper the ability of physicians and hospitals to respond to the payment incentives your committee envisions.

1. Federal Antitrust Laws (Sherman, Clayton, and FTC Acts) prohibit joint action (with potential criminal penalties) by hospitals and physicians unless they are sufficiently clinically or financially integrated. The current lack of guidance on clinical integration creates uncertainty, making it difficult for a hospital and doctors to collaborate to improve care coordination across settings. The federal antitrust agencies (the Department of Justice (DOJ) Antitrust Division and Federal Trade Commission (FTC)) could make a significant contribution to furthering clinical integration by working with the hospital field to provide guidance to providers who are eager to undertake clinical integration programs—guidance that providers could readily understand and use. The success of the FTC’s earlier Statements of Antitrust Enforcement Policy in Health Care in addressing providers’ concerns about the vagaries of the antitrust laws suggests that a similar effort more focused on clinical integration would be of substantial benefit to providers as they explore innovative approaches to working together to improve quality and lower the cost of health care.
2. Medicare’s Civil Money Penalty (CMP) Law prohibits hospitals from paying physicians for reducing or limiting services to a Medicare or Medicaid beneficiary. Enacted soon after Medicare adopted the prospective payment system, the CMP law was an attempt to ease concerns that the new system might lead hospitals to pay physicians to reduce services. In 1999, the HHS Office of the Inspector General (OIG) surprised the hospital field by issuing a Special Advisory Bulletin interpreting the statute to prohibit any payment that has the effect of reducing or limiting services without regard to whether they were medically necessary or appropriate. This interpretation is obstructing care improvement initiatives, especially incentives for physicians to bring their practices in line with evidence-based, clinical protocols.
3. The Ethics in Patient Referrals Act (Stark law) limits financial relationships between hospitals and physicians. The current law and regulations, chiefly in non-ownership situations, impede the use of financial incentives as part of care improvement initiatives and clinical integration activities. The Stark law prohibits a physician, or his or her immediate family member, from making referrals for certain designated health services paid for by Medicare, including inpatient or outpatient hospital services, to an entity with which the physician or immediate family member has a financial relationship (self-referral), unless an exception applies.
   
   The physician is subject to a civil money penalty if he or she knowingly makes a noncompliant referral, as is the entity— a hospital, for example—that knowingly makes a claim for services provided pursuant to a noncompliant referral. In addition, a hospital is liable for any reimbursement related to services ordered by the self-referring physician, regardless of whether the hospital knew the referral was noncompliant. The statute also creates exceptions under which arrangements that otherwise would be prohibited may go forward. These include a general exception for payments that are fair market value, another for personal service arrangements and another for employment, both of which also include a fair market value criterion. In the new world of health care delivery, however, where payments are increasingly conditioned on outcomes, measuring a fair market rate for services rendered is ill-suited to aligning hospital and physician interests.
4. Medicare’s Antikickback Law prohibits any payment or reward to induce patient referrals. Current agency guidance inhibits the use of savings or performance incentives related to quality or safety of care. The antikickback statute prohibits, among other things, knowingly or willfully offering or accepting any benefit or “remuneration” in exchange for, or to induce the referral of, patients for services, or the purchase, lease or order of any good, facility, service, or item paid for by Medicare, Medicaid, and most other federally funded health care programs. These carry both civil and criminal penalties. The breadth of the statute places any financial arrangement under scrutiny. While the OIG has authority to issue advisory opinions providing advance clearance for an arrangement, only the person making the request is protected and the opinion is limited to the precise facts provided in the request. Like the Stark law, the antikickback statute inhibits the use of incentives to implement the clinical protocols and practices that are needed to improve quality and efficiency.
5. The Internal Revenue Service’s (IRS) Tax-Exempt Laws prohibit private benefit or inurement by tax-exempt hospitals to physicians. Current rules limit performance-related payments to physicians. One of the fundamental conditions of tax exemption is that the organization’s assets may not “inure to the benefit of any private shareholders or individuals.” The standard is strictest for those who are board members or in a position to control or significantly influence the decisions of the organization, sometimes referred to as “insiders.” The IRS no longer takes the position that all physicians on a hospital’s medical staff are insiders and instead uses a case-by-case, “facts and circumstances” approach. Nevertheless, relationships with physicians are given particular scrutiny and, under certain circumstances, incentive compensation can be seen as constituting inurement of the hospital’s net earnings to private individuals.

All of these laws create barriers in improving coordination of care as envisioned in the options paper. Under the Stark and antikickback laws, payments from hospitals to physicians are almost always suspect—presumed by policymakers to be a means to induce referrals, interfere with clinical decisions, or increase payments from federal health care programs. Under the CMP law, there is the concern that hospitals might encourage doctors to limit or reduce services provided to program beneficiaries by offering a share of the resulting financial gains. Under the Internal Revenue Code, the suspicion is that payments to physicians will be for the private benefit of the physicians and not to advance the charitable purpose of the hospital. Under these four statutes, the litmus test of a payment’s legality is typically whether it is “fair market value” for a service provided by the physician, a standard that is not well-suited when the emphasis is more on achieving outcomes than payment for work.

HAP believes that the impediments raised by these laws and policies must be addressed because providers will not be able to respond sufficiently to incentives to change care delivery practices so that care becomes more effective and more efficient. In some instances, doing so could be achieved by issuing more direct guidance, similar to what hospitals are seeking from the antitrust agencies; in other instances, legislation or other regulatory policy changes are needed to effectively remove the impediment. More specifically:

• The Senate Finance Committee should direct the Department of Justice to take the lead in issuing guidance, similar to that found in the Statements in Antitrust Enforcement Policy that is in accord with the Guidance for Clinical Integration, a working paper prepared for AHA by antitrust experts and provided to the Department of Justice in 2008. That process could start with a request from Congress for an immediate briefing by the Department of Justice’s Antitrust Division on ways to implement that guidance.
• The Senate Finance Committee should consider enacting a safe harbor under the antikickback law to allow incentive payments and shared-savings programs in relationships between hospitals and physicians. Such a safe harbor should strike a balance between protection for the Medicare program and flexibility for hospitals of different sizes, locations, and resources to work with physicians to structure arrangements to meet the quality, patient safety, and efficiency goals that public policy demands. Compensation arrangements, including incentives and shared savings programs, should be removed from coverage under the Stark law. The framework that should be required for developing implementing regulations should:
• Establish only those requirements that are essential or material to reasonably ensure that the arrangement is not to induce referrals.
• Establish accountabilities for hospitals to demonstrate goals for improving quality and efficiency, but not regulate the specific means by which they are achieved.
• Use the preamble to any rule to provide non-exclusive illustrations of potential ways to demonstrate compliance with elements of the exception. Guidance on ways to comply with the exception is welcome, but writing it into the regulation creates mandates that are significantly limiting and can quickly become out of date.
• The Senate Finance Committee should instruct CMS and the Office of the Inspector General to interpret the Civil Money Penalty Law prohibition on inducements to physicians to reduce or withhold services as meaning only when the services are medically necessary. Alternatively, a simple word change in the Civil Money Penalty law to insert the term “medically necessary” into the prohibition also would be effective.
• The Senate Finance Committee should instruct the IRS to ensure that its rules regarding private inurement are consistent in allowing incentive payments and shared-savings programs when they meet the requirements of the Stark exception/antikickback safe harbor.

HAP and its member hospitals and health systems want to be partners in efforts to reform health care and more specifically to reform the delivery system. HAP appreciates the opportunity to present the hospital community’s views on the Senate Finance Committee’s options paper and your committee’s willingness to engage in a public dialogue on health care reform.

HAP looks forward to working with the Senate Finance Committee and its staff as Congress moves forward with any health reform legislation. If you have any questions regarding HAP’s comments, please contact Michael Strazzella, HAP’s vice president, federal legislation, at mstrazzella@haponline.org or at (202) 863-0287.