Throughout 2010 and continuing through the first quarter of 2011, we have seen the introduction of substantial, new developments in health care laws, policies and initiatives that will impact the health care sector through the remaining months of 2011 and beyond. To cite just one example, on March 31, 2011, which coincided almost precisely with the first anniversary of the passage of the Patient Protection and Affordable Care Act and the Education Reconciliation (together, the ACA), the Centers for Medicare & Medicaid Services (CMS), the Federal Trade Commission (FTC), and the Department of Justice (DOJ) issued hundreds of pages of new, proposed regulations and policies regarding the Medicare Shared Savings Program. That program is just one health reform initiative among many, and the proposed regulations are no doubt the tip of the iceberg of regulations to come.
Beginning with the passage of the ACA, the U.S. health care sector has been readying itself for unprecedented changes in the way that health care is provided, managed and funded. The jury remains out, however, as to whether many stakeholders are actually taking the necessary steps to adjust to the changing landscape. At the end of 2010 and beginning of 2011, two separate U.S. district court decisions that upheld legal challenges to the ACA's constitutionality added to the uncertainty some stakeholders already had about the enormity and permanency of health reform. Obviously, the ACA did not replace existing health care laws; rather, it introduced numerous new programs and modified certain existing laws. Simultaneous with the legal effects of the ACA itself, the recession, other economic forces driven by U.S. demographics, technological developments, state and federal regulatory agencies, and other factors have and will continue to affect the health care sector in profound ways. Given these pressures and converging forces, the following is a summary discussion of what we see on the horizon as the top eleven significant health law issues facing providers, payors and other stakeholders for the remainder of 2011.
Health Insurance Industry Reform
Even the first steps of implementing the ACA in 2010 caused major changes in health insurance that affect all participants, including health insurers and health plans, self-funded employer/union group plans, employers that purchase insurance and individuals who purchase insurance themselves. With the economic downturn as a backdrop, U.S. consumers face increased health care costs and increases in associated premiums. The result has been a relatively sicker insured population with higher health care expenditures. In part because the ACA mandates certain enhancement benefits for individual insurance policies, as well as restrictions on insurers, the individual mandate to purchase health insurance will not begin until 2014, (assuming that court challenges to the ACA fail). In 2011, there will be an increased focus on the state health insurance benefit exchanges. Insurance products and benefit designs will need to be considered by health insurers between now and 2014 while states prepare to deal with a major expansion of Medicaid at a time when state budgets are significantly constrained.
All health insurers will now have to consider compliance issues arising from strict new federal "Medical Loss Ratio" regulations (MLR), which specify that administrative costs and profits may not exceed 15 percent of the premium dollar for large group insurance products and 20 percent for small group and individual insurance products. an insurer that fails to comply risks being required to pay rebates as well as other penalties. However, states may apply for waivers from the MLR requirements. The basis for a waiver is whether application of the MLR will destabilize the individual insurance market in that state. As of March 2011, one state, Maine. has received a waiver and numerous others have applied or intend to apply for waivers.
The U.S. government is intensifying its interest in health insurance rate controls, with the Department of Health and Human Services urging state insurance departments to engage in critical reviews of all proposed insurer premium increases. The insurance commissioners in several states are attempting to delay and reverse proposed health insurance premium increases that they deem "unreasonable," and state legislation is pending to provide insurance departments with greater powers to review and reject premium increases.
Stark Law, Self Disclosure
The Physician Self-Referral Law (Stark Law) self-referral disclosure protocol (SRDP), which is required under the ACA, was released by CMS in late September 2010. The SRDP permits providers and suppliers to proactively disclose actual or potential violations of the Stark Law. Of note, CMS is explicitly authorized by the ACA to accept payment of less than the full Stark Law measure of damages (i.e., Medicare collections relating to prohibited referrals) in appropriate circumstances with regard to matters disclosed through the SRDP. However, the extent to which CMS will exercise this discretion is still not clear.
The health care community had hoped that the SRDP would provide a meaningful safety valve for so-called technical violations (e.g., failure to obtain a signature on a timely basis) and other violations where there was no improper intent to induce referrals. However, while a number of disclosures have been made pursuant to the SRDP, currently there has been only one publicly disclosed settlement publicized under the SRDP. While in that case CMS settled for a small fraction of the total potential Stark Law damages, the amount paid was still significant, and it remains to be seen what formula CMS will use for determining settlement amounts. As such, providers will continue to struggle with evaluating their options for addressing Stark Law violations, and the efficiency and efficacy of the SRDP will be a hot topic for 2011 as more health care entities seek to disclose and resolve Stark Law violations through this process.
Accountable Care Organizations, Health Care Delivery Models
Consolidation among health care providers and ever-larger health systems is expected to continue at a brisk pace throughout the year. The momentum for new alignments and affiliations among providers is unlikely to slow during 2011 because pressures on the health delivery system, especially medical inflation coupled with aging demographics, are more urgent than ever before. Policymakers and stakeholders increasingly refer to a "new model" of health care intended to do more than just control costs: Accountable Care Organizations (ACOs), Medical Homes, and other physician-integrated organizations are being established to simultaneously deliver high-quality health care, positive patient experience and cost efficiencies.
While ACOs and similar integrated models have enormous promise (they are intended to do nothing less than bend the health care cost curve), that promise is wrapped inside enormous complexity. This year promises to be a watershed year in which many stakeholders involved in ACOs will tighten their focus from the big picture to details. Many leaders who have spent the past several months putting the foundational aspects of an ACO in place, such as making acquisitions, negotiating provider alliances and arranging capital, will need to quickly begin grappling with a myriad of issues that must be addressed.
A key decision ACOs will make in 2011 is whether to join the Medicare Shared Savings Program ACO, or to offer accountable care services to private payors, or both. In the private market, the details of each ACO will vary across the country, reflecting the particulars of a market, variance in laws from state to state, and the strength of physician and medico-administrative leadership and vision. These ACOs, currently negotiating commercial payment terms with payors, including self-funded ERISA plans, will be highly rewarded if they can effectively manage cost and quality. In the short run, a successful ACO will be rewarded with contractual bonuses from payors when the ACO delivers as promised on quality and cost. Successful ACOs that hit quality benchmarks and manage costs in the first measurement periods will have an additional, significant upside as they tout their achievements and thus attract additional membership.
On March 31, 2011, CMS released the initial, proposed regulations under the Shared Savings Program, Medicare's version of an ACO, which was established by the ACA and is set to begin in 2012. The proposed regulations, which will only be finalized after a sixty-day period for public comment and possible, subsequent revision by CMS, provided considerable details to flush out the ACA's statutory framework for the Shared Savings Program. The proposed regulations included many provisions that were not necessarily widely anticipated, including the introduction of "downside risk" so that ACOs would absorb losses, if applicable, in addition to potentially sharing in the upside if costs are controlled.
Prior to the release of the proposed regulations, there was speculation that CMS would try to lower the barrier to entry for Medicare ACOs in order to attract a substantial number of entrants willing to sign up for the three-year commitment required by the Shared Savings Program. Based on the initial reaction of stakeholders, either the regulations will substantially change by the time they are in final form, or the Shared Savings Program will attract fewer ACOs than was previously thought. Providers that have been considering participation in the Shared Savings Program will need to evaluate all the particular requirements in the proposed regulations and, following the public comment period, carefully scrutinize the final rule, when released, in order to evaluate the viability of their plans for participation as a Medicare ACO as of January 1, 2012. Compliance Program Effectiveness and Increased Enforcement
Federal and state regulators demonstrated a heightened commitment to enforcing fraud and abuse laws during the first quarter of 2011 and this will continue throughout the year. The amplified focus on fraud and abuse is driven by a "perfect storm." The Obama administration has stressed, by philosophy and funding, a robust regulatory climate with increased vigilance and scrutiny just as the prolonged recession, which has left government coffers drained, has helped add to an atmosphere in which high-profile government efforts to combat fraud are both good economics and good politics.
Meanwhile, whistleblowers and regulatory enforcers are better resourced than ever before. Recent developments in the regulatory arsenal aimed at the health care sector include various provisions of and regulations authorized under the ACA, amendments to the federal False Claims Act, the DOJ using the Responsible Corporate Officer Doctrine of imputed senior officer liability, and, of course, bigger enforcement budgets. The result is a substantial new burden across the health care sector. Additionally, while all segments of the health industry will be subject to these increased burdens over the coming months, some parts of the industry will feel the weight of increased enforcement more than others for the remainder of 2011. In particular, pharmaceutical and medical device manufacturers will continue to face a rapidly evolving regulatory landscape for the duration of the year.
While health care fraud enforcement and whistleblower actions seem to be proliferating at all levels, of particular concern for the remainder of 2011 will be efforts to target communication between medical device companies and health care providers, particularly health systems. Both the manufacturers and the health systems may be susceptible to unexpected liability and cost of litigation defense in instances where manufacturers and providers communicate about third-party payor reimbursement for the devices and the medical procedures related to the use of these devices.
Significantly, health care providers may have long-delayed repercussions resulting from these kinds of problematic communications between providers and device manufacturers. Absent a compliance effectiveness program that would identify the risk of any of these high-risk communications before they are received, health care providers may fail to recognize the exposure they have in these circumstances, allowing the communications to continue uncorrected for a period of time. Exposure may, consequently, result down the road. As an example, medical device makers are increasingly the subject of False Claims Act qui tam allegations regarding the device makers' advice to health systems on matters relating to medical device product and procedure reimbursement. Device manufacturer advice in these areas has spawned Department of Justice, HHS OIG and Recovery Audit Contractor activity focused on health systems that is national in scope and consequence.
Another significant development we have observed in recent months, which we expect will continue throughout the remainder of 2011, is of special relevance to officers and even inside counsel who should pay close attention to this developing trend. The DOJ had previously obtained an indictment of a former GlaxoSmithKline (GSK) attorney alleging that she had misled the Food and Drug Administration (FDA). At the end of March 2011, the DOJ had a setback in the case when the presiding court dismissed without prejudice the indictment of that GSK lawyer. The court found that the DOJ attorneys gave the grand jury an incorrect explanation of the legal relevance of the "advice of legal counsel" defense. Despite the judge's dismissal in the GSK case, the message to in-house counsel is clear: the DOJ is taking a keen interest in the direct contact that in-house counsel has with government agencies, whether in the ordinary course of business or otherwise, perhaps most especially with regard to representations that in-house counsel makes to these agencies. Moreover, on April 15, 2011, the former GSK attorney was re-indicted, and the case continues.
Assessing compliance effectiveness in 2011 is essential. Of course, the daunting issue can often be the simple realization that there is no single tried and true approach that will work every time and for all situations. Still, it is fair to say that the accuracy of the assessment can be greatly enhanced by a seasoned hand. Depending upon the compliance program at issue and how relatively developed it is, the particulars of the assessment protocol will vary. Simply put, assessing compliance effectiveness is always a tailor-made endeavor—never "off the rack." And while there are very few broad truisms applicable to these assessments, one paramount ingredient for all such programs is strong board oversight of the process.
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