Category: Physicians Practice

Last week’s article began with a joke involving two cows, and the differences between capitalism, socialism, fascism and communism. The joke illustrated a once “unthinkable” problem: What to do when the right of a physician to control his medical practice has been arrogated by someone else? It is bad enough government and private insurance have literally have taken over your cows, and don’t want to pay for the milk. Worse, they are busy as we speak, dreaming up ever more elaborate ways of making it seem that you have done something wrong to justify skipping out on the tab.

Every day, in every physician’s practice I visit, I see the same thing, a “war on doctors and patients”:

1. In the relative blink of an eye, government and now private plans dictate when, where, why, and how much time you are permitted to see a patient. You are told how much treatment the patient should require, and in cases of psychotherapy, that you should pronounce him “cured” after precisely so many sessions. With government insurance, you are told with whom you may (and may not) form relationships with under Stark Law and similar state and federal laws. You are threatened with felony prosecution, and imprisonment, for the slightest violation of these rules. All of this, despite the promise of federal non-interference (it is against the law for the federal government to interfere with your practice).

2. You are being cheated at a systemic level by government and private plans, following a similar pattern as the financially devastating, “post-claims underwriting,” which has been used for years against patients. It works this way: After the services are rendered, an army of auditors scour documents looking for a pretext to deny payment (which was often pre-authorized.)  This is accomplished through Medicare Recovery Audit Contractor (RAC) audits, or in the case of private insurance plans, a “benefits review audit,” which I described in this column. Sometimes, the claim is that you didn’t document the file correctly. Other times, the alleged fault is based purely on statistics.

I used the term “unthinkable” earlier with purpose. There was a time when these oppressive forces would never have dared to presume to tell a physician what to do. (They were literally terrified of you, more particularly, the political power once wielded by the AMA.) Nothing spoils, however, like success. When Medicare and Medicaid turned out to be a financial godsend to doctors, the AMA’s staunch conservative ideology seemed out of touch. Recall, it is precisely what the AMA objected to in 1965 that is causing most of the trouble today. The AMA warned what would happen if the government or corporations started telling doctors what to do. That’s why 42 U.S.C. 1395 was included in the Medicare and Medicaid statute.

Driving this is a simple fact: Congress and corporations cannot afford to keep the promises they have made to beneficiaries (and they don’t want to tell policyholders and Medicare beneficiaries “no.”) Instead, they have “declared war” on you under the banner, “fraud, waste, and abuse.” No amount of AMA power can squeeze money from turnips.  But what you can (and must) do in my opinion, is once again concentrate your forces. The public will side with you, but you have to blow the whistle to make the public aware of what is really going on.

 If you are concerned about this, a good place to start is the AAPS, which held a summit on May 17 entitled, “The War on Doctors and Patients.” Full versions of the presentations are available for free here.

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Ebby Halliday, who celebrated her 102nd birthday on March 5, 2013, is a national treasure.  She founded Dallas-based Ebby Halliday Realtors, which now sells more homes than any other broker in Texas, with over $5 billion in annual sales. My favorite “Ebbyism,” comes from the 1950s as repeated in her 2009 biography:

“Socialism,” is when you have two cows, and you share the milk with everyone else. “Communism,” is when you have two cows, the government takes them, and gives you the milk. “Fascism,” is where you have two cows, the government takes your cows, and sells you the milk. “Nazism,” is when the government takes your cows and shoots you.  “Capitalism,” is where you have two cows, sell one, and buy a bull.”

From, Poss, Micael: “Ebby Halliday, The First Lady of Real Estate,” (Brown Books, Dallas 2009.)

As physicians, until recently, there is a good chance you have never spent much time thinking about yourselves as members of a workforce operating somewhere between socialism, communism, and capitalism, and for good reason. Until recently, America has been hugely successful as a capitalistic country, augmented by social programs to aid the elderly and the poor. In times of prosperity, pointing out the distinctions between social, economic, and political needs of the workforce seems a useful tool primarily to entertain, or to gain political advantage. If everyone is making money, everyone is happy. There was a time, however, before the government took measures to soften the harsh effects of pure capitalism, when these distinctions for the workforce were much more serious. Capitalism was enforced upon workers at the end of a length of lumber, and leftist organized labor responded in equally violent fashion. At its core, theory had its benefits and each had its counter-balance.

Modern conservative television talk show hosts have made names for themselves, largely though a cartoonish depiction of capitalism as purely “virtuous,” and socialism as purely “evil.” Neither is true, and both are necessary. The original rhetoric forming the foundation for much of the modern name calling, was fomented in an era when both camps had genuine needs, and both were capable of tremendous barbarity. But for much of the modern era, we have had the luxury to knock the rough edges off. It is simply a fact that Karl Marx probably would not have written works elaborating on “The Communist Manifesto,” had he not lived in Dickensian London from 1848 until his death in 1883. There, he observed first-hand the disregard of the suffering of poor “street urchins.”

In healthcare, the government attempted to remove the chief argument of socialists against capitalism by subsidizing medical care for the poor and elderly. This plan only worked while times were good and the government could afford it. As it now stands, government policy could be described, with a nod to Ebby Halliday: “Medicare and Medicaid,” is a system in which the government takes your two cows, but in a fumbling attempt to distribute the milk, kills the cows.

Physicians are leaving the profession early, candidates are choosing alternate careers, and those who remain are in short supply and wondering how they will survive. Many physicians who write comments in response to these blogs lament that it is illegal for physicians to adopt many of the lawful techniques available to others in the workforce. Physicians cannot form unions, collectively bargain for better wages, or conspire to set rate “floors” below which they will offer their services.

At least as far as governmentally funded programs are concerned, physicians have no say at all in how much the government will reimburse, or through what hoops they must jump to win a fair ration. When physicians seek to resort to capitalism’s “sell one of the cows and buy a bull,” they are informed that Stark Law forbids forming these relationships. A sense of despair, reminiscent of the defunct communist bloc, pervades.

Next week, I will discuss some of the things which can be done, at a local and grass roots level, and why physicians must do something, while acting within the bounds of the law.

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The United States healthcare system was described by Maggie Mahar in her book “Money Driven Medicine,” as a “war of all, against all,” turning physicians, hospitals, insurers, drug makers, and device makers into blood rivals.

As available funds decrease, providers are seeking new ways to secure reimbursements, and health insurance carriers seek new and more clever ways to deny, delay, and frustrate physicians. This is no more pronounced than the war between Blue Cross and Blue Shield of Texas (the Blues) and medical providers – and things have been getting nasty of late, particularly in the area of “out-of-network” claims.

Last year, two hospital groups sued 30 out-of-state “Blues” who do business in Texas alleging the insurers authorized payment then either denied payment, or offered payments so low that the hospitals could not stay in business. “It’s basically a claim that the insurance companies are not paying their healthcare providers,” said Dallas attorney Larry Friedman of Friedman & Feiger LLP, who represented the hospitals, in the Dallas Business Journal.

Emily Wey, an attorney with Polsinelli Shughart PC who specializes in payment disagreements between hospitals and payers of medical claims, told the Journal that disputes of this type are becoming increasingly common.

“Out-of-network” claims used to pay more than “in-network,” because the provider did not have a contract with the insurer.  Thus, physicians and hospitals were supposed to receive a “fair and reasonable” reimbursement payment. This was also the understood justification for the low levels paid by Medicare and Medicaid; the providers could make up the difference elsewhere. Then, the Blues started paying at rates near the Medicare level. “This has been a significant change in the last four or five years,” according to Wey.

Upping the ante, private and public plans have demonstrated a willingness to resort to complaints in front of state medical boards.

Referrals to the state medical board may also have an unintended negative consequence for patients. In a recent address to a group of healthcare professionals, James Patterson, managing partner with Agape Healthcare Partners, said the results of a complaint before the medical board over simple charting and billing may adversely affect the ability of the physician to obtain malpractice insurance, especially where the physician has agreed to some type of administrative remedy. This means much needed medical malpractice coverage may be unavailable when a patient needs it most.

In the current environment, what once was considered an unthinkable “dirty trick,” is becoming commonplace. This “war of all against all” shows no sign of abating in the near future.

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One of the primary differences between the food stamp program and government run healthcare programs, lies in the fact that utilization of the food stamp program can be controlled (a person can eat only so much food in a month.)

In fact, no one blinks at the idea of “rationing” food with coupons. On the other hand, there is no practical way to limit how much healthcare a person might consume, short of a coupon book. Naturally, if you want to start a “silver riot,” try broaching the subject of rationing Medicare to seniors.

So, the government and private contractors approach the problem of rationing healthcare in a back-handed, often sneaky game of “gotcha,” aimed directly at physicians and dentists who provide Medicaid benefits. Long after the money has been paid and the matter closed, even small physicians’ practices are receiving letters with the seemingly innocent request to review “five files,” just to make sure the chart is accurate. In reality, the auditors are looking for any way to demand repayment, even if the patient genuinely needed the care provided.

I recently spoke with Angela Miller, CHC, CMC, president of Dallas-based Medical Auditing Solutions LLC, on ways practices can survive a benefit review audit.

Martin Merritt: The audit process calls to mind the famous quote from Cardinal Richelieu: “If you give me six lines written by the hand of the most honest of men, I will find something in them which will hang him.”

Angela Miller: If they read the “lines” at all. Auditors are typically looking for any excuse to demand a refund.  Physician’s handwriting is typically not legible. Often, an auditor will just ignore unreadable documentation. If the records are not legible, have them dictated and have the physician review and approve with an attestation statement for the records. Any amendments need to be done prior to submission of first level audit for best results. They could be done later but why go through multiple levels of appeals if you can win at level one.
If the records are not organized, the payer will not look for information. If the records are not legible, the payer will not try to read them. [Note: Never alter a record. You must identify any changes after the fact clearly with physician signature and date as of January 1, 2013.]

MM: Why not just pay the several-hundred dollar demand after an audit of the five files? It is cheaper than hiring a lawyer.

AM: Many clients just capitulate, and refund an overpayment request of a few hundred dollars because it costs less than hiring an attorney to fight the payer.  That’s the “trap.” The client refunds the few hundred dollars, and then 14 months later learns the few hundred dollars have been “extrapolated” over the entire universe of files, and the bill is now, $75,000 or $100,000. Medicare is restricted to extrapolation 12 months from date of initial finding/overpayment request. There seem to be no rules for Medicaid, Medicaid contractors, or private insurance. This can be catastrophic to a small solo practice physician.

MM: Why do you encourage using a consultant and/or attorney, depending on the circumstances, to respond to audits?  

AM: Attorneys and consultants know what is going on in the industry with various payers which can be beneficial to helping the provider in the audit process. The payers are becoming very tenacious, so hoping for the best in an audit is “naive.” Also fresh eyes can play devil’s advocate with questions as well as ideas for corrective action that would benefit the provider that could be implemented prior to submitting the first level audit.

MM: You emphasize the importance of winning as many as possible at the first level, why?

AM: If you respond to the initial audit/overpayment request within the first 20 days to 30 days that will prevent the requirement for payments on extrapolation until the appeal process is complete. This is critical, especially for small providers. The more you win in first level appeals, the more the error rate improves and the overpayment and extrapolation go down.  

MM: In closing, what point would you like to leave physicians with?

AM: Providers must be proactive. It is much less expensive and it will protect them from prepayment audits, extrapolations, and worse.  Payers are sneaky and relentless, because they have everything to gain and nothing to lose.

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The shop-worn metaphor of a frog in boiling water appeared frequently in the 1950s to justify capitalism’s “red scare” paranoia. While I personally deplore the practice of attaching labels (it only encourages name-calling,) there are times when I must simply scratch my head and say, “well, I’ll be darned.” This often occurs when I realize something which sounded crazy, actually wasn’t too far off the mark. The metaphor holds that a frog placed in boiling water will jump out, while a frog placed in cold water gradually heated to boiling, won’t notice the subtle change, until he is cooked.

 In 1965, when Congress debated the passage of Medicare and Medicaid, the AMA warned of “socialist” medicine and the eventual government takeover of the free-enterprise system which led to the greatest healthcare delivery system in the world. In 1961, the AMA even hired Ronald Reagan to record a 10-minute phonograph entitled Ronald Reagan Speaks Out Against Socialized Medicine. When I first heard this in the 1980s, I thought the AMA was out of touch. Turns out, they weren’t paranoid after all. It simply took 50 years for the water to boil.

In 1965, if the AMA hadn’t objected, government could have nationalized Medicare and Medicaid as a government-operated program, similar to the U.S. Department of Veterans Affairs (VA). The VA is the nation’s largest integrated healthcare system, with a reported $150 billion budget, more than 1,700 hospitals, 280,000 employees, clinics, community living centers, domiciliaries, readjustment counseling centers, and other facilities.

Hypothetically, had the government delivered Medicare and Medicaid directly to the elderly and disabled, the budgeted costs could have been plotted on a pie chart. There would be a place on the chart for the actual cost of the buildings which house the clinics or hospitals, utilities, supplies, a portion for the modest salaries of doctors, physician’s assistants, nurses and staff. What would not be on the chart is any slice for “profit.” In other words, the government would pay only the actual “cost” of the delivery of Medicare and Medicaid services.

But the AMA did object. The government chose not to attempt to own and operate hospitals and clinics which provide Medicare and Medicaid. Instead, securing the necessary support and votes for passage forced Congress to promise two things: 1.) to pay 80 percent of the usual and customary fee (including profits) for services; and 2.) the government must “stay out of the examining room.” As a result, the very first section of the Medicare Act states: “Nothing in this subchapter shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided.”

Things went really, really well for doctors and hospitals through the 1980s. So much so, the AMA and its “pro-capitalistic” stance seemed to belong to another time. Membership declined to startling levels. Then, the water temperature in the pot began to slowly rise. Reimbursement rates for services declined, almost imperceptibly at first.

Eventually, Medicare and Medicaid reimbursements have dropped to levels which resemble what we might expect to see if the government had taken over the delivery of healthcare. Why takeover, if it costs the same to get somebody else to do it? Unlike true socialism, the government isn’t seeking to own the buildings, nor employ the staff directly. The goal isn’t to take over healthcare. The goal seems to be to pay the same “costs,” as if the government actually had taken over. The promise of “non-interference” under 42 U.S.C. 1395, likewise has given way to RAC audits and “fraud, waste, and abuse” prosecutions (which can frequently be defined as “failing to do what the government tells you”).

This news should nevertheless be fairly good, for a simple reason. Even if the government pays only enough to break even, the overhead is nevertheless paid. Physicians should have all they need toward earning a profit from everyone else. It’s called “cost-shifting,” and this is the justification for asking physicians to work for “cost.” The government pays your basic overhead and you ignore you are working for free, because you can still earn a free-market profit from everyone else.

Two problems arise, however: 1.) we are running out of “other people” who can afford to pay anything close to cost, plus a profit – private insurers are following the government’s lead, which jeopardizes the whole system; and 2.) physicians are spending so much time jumping through insurance reimbursement hoops, no one has time or energy to develop a practice.

Increasingly, the “frog in a pan” metaphor appears to be a valid one. It didn’t happen all at once, but sadly, the end result seems to be the same. As the Soviet model revealed, when physicians are made to realize “it doesn’t matter” how hard they work, or how many patients they see, a kind of “darkness” falls. It may be a long time before we all see daylight.

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The Association of American Physicians & Surgeons (AAPS) filed suit April 23, 2013, against the American Board of Medical Specialties (ABMS) over their maintenance of certification program. The suit, filed in a New Jersey federal court, alleges that the ABMS is restraining trade and causing a reduction in patient access due to burdensome recertification processes.

Jane Orient, MD, the AAPS’ executive director, graciously agreed to discuss the issues with me.

Martin Merritt: I understand maintenance of certification (MOC) is one of the hottest topics in the field of medicine today?

Jane Orient: Yes. Many physicians are outraged, not only by the cost an expense which must be incurred to maintain certification, but also by the fear that MOC  is being advanced as a requirement for hospital privileges, and perhaps even maintenance of licensure (MOL).

MM: The public might think the ABMS is a government entity?

JO: The ABMS is a not-for-profit corporation. According to the lawsuit filed by AAPS, the ABMS seems to exist to enrich its own executives, with little appreciable evidence that the MOC program has an effect on the quality of care.

MM: How does the ABMS MOC program actually work?

JO: I can mostly speak about what the lawsuit contains. ABMS and 24 separate corporations, which make up the 24 recognized board-certified specialties have agreed to impose on physicians a recertification program called the ABMS Maintenance of Certification. At one time, a physician could voluntarily choose to become board certified, and upon completion of the process, he or she was board certified for life. Now, the ABMS has decided to force board certified physicians to purchase its products every 10 years. If a physician cannot afford the time or the expense of recertification, he or she may be designated as “not meeting” the requirements of the ABMS, which tends to imply that a physician is less than qualified to care for patients.

MM: What is the AAPS seeking in the suit?

JO: AAPS’ lawsuit, seeks declaratory and injunctive relief to enjoin ABMS’s continuing violations of antitrust law and misrepresentations about the medical skills of physicians who decline to purchase and spend time on its program. AAPS also seeks a refund of fees paid by its members to ABMS and its 24 other corporations as a result of ABMS’ conduct.

Again, the lawsuit itself is the best source for information about the relief requested, but in a nutshell, what we are worried about is the fact that perfectly capable physicians are being black-balled, or locked out of the ability to treat patients, because they do not have the time, or inclination to purchase a product from a private corporation, which has nothing to do with the physician’s ability to treat patients.

MM. You cite an example in the lawsuit, I believe.

JO: In a case cited in this lawsuit, a first-rate physician in New Jersey was excluded from the medical staff at a hospital in his state simply because he had not paid for and spent time on recertification with one of these private corporations. He runs a charity clinic that has logged more than 30,000 visits, but now none of those patients can see him at the local hospital because of the money-making scheme of recertification.

MM: I would like to thank Dr. Orient for speaking with us. You can follow this lawsuit and other issues of concern at the AAPS website.

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More and more frequently, I am being asked by clients in private practice, “What are the pitfalls of physician ownership and operation of a compounding pharmacy?” A “compounding pharmacy” is a type of ancillary medical provider, similar to an imaging center or a lab, which is thought to be desirable because of the potential to supplement physician income.   

Each state maintains its own unique set of rules and laws which must be considered. Often, a state law may permit a physician to compound medication in the office for a patient’s immediate needs, but require a licensed pharmacist to dispense prescribed compounded pharmaceuticals outside of the office setting.  There are also a number of FDA and Stark Law implications, as well as AMA Ethics Opinions which must be considered. It is impossible to cover all these rules in one blog. The following considerations are universal to physicians in each state.

AMA Ethics Opinions
Originally, the AMA took the position that physician ownership of any pharmacy constituted prohibited “fee- splitting.” Many states passed statutes along the same lines. Eventually, the AMA realized the real problem was not so much the “ownership,” but the “referral” of a physician’s own patients which was troublesome.  Thus, AMA Ethics Opinion 8.06 replaced the “fee splitting” opinion. Under 8.06(3) Physicians may own or operate a pharmacy, [note: check state law for licensing rules details] “but generally may not refer their patients to the pharmacy” unless exceptional circumstances under Opinion 8.032 (conflict of interest) exist.

Stark Law
Stark Law and its close cousin, the Anti-Kickback Statute, have their origins in the AMA rules. In fact, most of the trouble one can encounter at the federal level could be avoided by simply following the AMA’s main rule: “Don’t refer your own patients.” Problems multiply where a number of physicians seek to invest in a single compounding pharmacy. Many have been told that investing in a management company can safely avoid Stark Law issues. All I can tell you is “hire an experienced Stark lawyer” before you do anything which could be considered abusive of a state or federal program.

FDA Rules
In the absence of special rules, each compounded prescription would need to be approved by the FDA, which would be prohibitively expensive. Further, the requirement of a uniform label as to proper dosage would completely defeat the purpose of compounding. The trouble isn’t whether the drug itself is accepted as an “effective treatment,” but instead, “how much of it” would be “safe and effective” for a particular patient’s body weight, or tumor size. Therefore, it is important that the FDA remain flexible with compounding. On the other hand, left unchecked, compounding pharmacies could abuse the FDA’s leniency as an end-around the approval process entirely. A compounder could stockpile wholesale quantities under the guise of compounding, which could be unsafe, and would be unfair to retail manufacturers who must pay up to $800 million for studies and approval.  

The court in the case of Medical Center Pharmacy v. Mukasey, 536 F.3d 383 (5^th Cir. 2008) writes an excellent treatment of the history of the FDA’s efforts relating to the problem of compounding pharmacies. Originally the FDA banned advertising of compounding pharmacies, but this was rejected by the United States Supreme court in Thompson v. Western States Medical Center, 535 U.S. 357 (2002.)

On April 12, 2013, the Congressional Research Service wrote a report entitled “Federal Authority to Regulate the Compounding of Human Drugs,” which covers the basics in greater detail. As the name implies the CRS works for Congress as its research agency.

In conclusion, there are many, many issues for which you, as a physician, are ultimately responsible. This is true regardless of assurances that the same model has “worked like a charm for others, without any problems.” Always consult independent legal counsel to represent your interests.

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News earlier this week that the Obama administration has delayed the rollout of a plan intended to give small businesses multiple health plan options starting in 2014 is almost universally met with a simple question: “What are they talking about now?”  

Small businesses and those who work for them have always been at a disadvantage. It is more difficult to find affordable plans for smaller businesses, due to a lack of purchasing power. As a result, small businesses have always paid much higher premiums. This often has limited the number of small businesses offering insurance to workers. One purpose of Affordable Care Act is to level the playing field by offering small businesses (25 or fewer employees) large incentives through tax credits.

Starting Jan. 1, 2014, small companies with up to 100 workers will be able to buy coverage through new health insurance marketplaces called exchanges. These exchanges will likely be subsidized by the government, meaning, workers may obtain below-market prices for health insurance.  As originally envisioned, employees would have been the ones to pick their plans. But now, for the first year, the employer will choose for the entire company.

There are also provisions for tax credits for individuals purchasing coverage. Individuals in the private health market have not only been forced to pay higher premiums, their coverage usually comes with more requirements and fewer protections. Under the ACA, individuals will have the ability to shop for insurance through exchanges, where they will be able to buy at prices everyone else on the exchange pays. If a person’s income is low enough, he will qualify for a government subsidy, which lowers the cost even further.

Under the ACA, if a person’s income is at or below 133 percent of the federal poverty level, he or she will qualify for Medicaid. But the Supreme Court opinion upholding ACA struck down the provision allowing the federal government to force states to adopt this provision. For example, a person in Alabama is disqualified from Medicaid if he has a job and earns over 25 percent of the poverty level (about $5,000 a year.) Under the ACA this person should be able to qualify for subsidized insurance through an exchange.

This should be great news for physicians, because of the reduced number of uninsured persons. It remains to be seen whether the benefits paid to physicians will approximate current reimbursement rates for commercial health insurance benefits, or if the rates will more closely resemble those paid by Medicaid.

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This week, I feel fortunate to interview a colleague, physician and attorney Raymund King. Based in Dallas, King is one of the few attorneys in the country with practical experience setting up physician-owned accountable care organizations (ACOs) on behalf of physicians.  After practicing medicine for 10 years as an otolaryngologist (ear, nose, and throat doctor), he became a healthcare attorney almost 14 years ago.  You will want to hear what he has to say.

Martin Merritt: I can imagine you are very busy, with all the attention focused upon ACOs.

Raymund King: It has been a busy year. What I am discovering is that doctors are being heavily recruited to join hospital-owned or healthcare system-owned ACOs. Unfortunately, not all ACOs are created equally, and many physicians will need to read the fine print before signing the dotted line.

MM: Can you elaborate?

RK: An ACO is a group of doctors, hospitals, and/or other health care providers, who voluntarily participate in a program of at least three years in duration designed to coordinate high quality care to their Medicare patients. Ideally, the goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds, both in delivering high quality care and spending healthcare dollars more wisely, it will share in the savings it achieves for the Medicare program.

Perhaps the most commonly touted program that is currently available is called the Medicare Shared Savings Program (MSSP). There were two other prior programs (the Pioneer ACO Model and the Advance Payment Initiative) that are no longer available. The government sets a national benchmark that represents the amount
of healthcare dollars allocated per patient per year. The regulations require a minimum of 5,000 Medicare patients covered in order to qualify as an ACO. If the national benchmark for your region is, for example, $10,000 per patient, then an ACO with 5,000 patients represents a total of $50 million.

In an MSSP, the government looks at what dollars are spent per patient at the end of the year, and if the amount is less than the national benchmark, that amount is called the “shared savings.” In our previous example, if the ACO spends $40 million in one year to treat 5,000 covered lives, then the difference between our example national benchmark and the amount spent is $10 million. The $10 million constitutes the shared savings, which is split 50/50 with the U.S. government. In the third year of participation, however, the government may require the ACO to participate in the losses incurred by the ACO if it spends more than the benchmark for that region.

An ACO is either owned by a hospital/healthcare system, or it is owned by a group of physicians. In the system-owned ACO, the 50 percent portion of shared savings goes to the system. In the physician-owned ACO, however, the 50 percent portion of shared savings goes to the physicians. That is primarily why I have been busy forming physician-owned ACOs.

CMS is not involved in the details of how the money is distributed among the shareholders or members of the ACO, nor does CMS ensure that distribution is fair based upon the work done, or even if the amount paid is distributed in a sustainable way. As a healthcare corporate business lawyer, therein lies a tremendous opportunity to design a sustainable business model for healthcare.

MM: Can a physician participate in more than one ACO?

RK: Primary-care doctors (which include internal medicine, pediatrics, and geriatrics) may join only one ACO. However, specialists may join as many ACOs as they want. An ACO can only participate in one governmental shared-savings program at a time. It is very important to read the fine print in the ACO participation agreement as well as the operating or shareholders agreements, as I have seen many restrictive clauses buried in these documents that create restrictions above and beyond any that are in the regulations.  For example, I have seen ACOs attempt to limit contractually the specialist physician’s ability to participate in more than one ACO.

MM: You say there are also concerns with how the beneficiaries are counted?

RK: Absolutely. The ACO must provide for 5,000 beneficiaries to be recognized. However, CMS only counts the physician with the “plurality of visits” with the patient. A specialist physician with 3,500 patients may find that only 350 are actually recognized by CMS, because the primary-care physician has been credited with the lion’s share of the patients.

MM: What can physicians do to protect themselves?

RK: Physicians need to understand that all ACOs are not created equal. Are they being offered ownership interest, or merely a right to work for the ACO? Is the management agreement structured to fairly compensate the ones doing the work? Large chains, be they insurance or hospital, are known for being top-heavy in administrative costs. As I mentioned, physicians must ensure that they read the entire agreement to ensure they are not limiting their rights beyond what is required in regulations.

MM: Any final thoughts?

Yes. When the Affordable Care Act described the formation and goals behind the ACO, the legislators likely did not contemplate extensively the morass of existing healthcare and non-healthcare regulations that would likely create serious issues in the formation, operation, and administration of an ACO. Some very important laws to consider are the Stark Law, the Anti-Kickback Law, and the Sherman Antitrust Act, which are all very relevant and may easily be violated by an ACO. Indeed, if the ACO is not cognizant of these potential legal landmines, the physician participants may be in for a rude awakening.

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Much has been written about curtailing fraud, waste, and abuse in Medicare cases. Let’s take a closer look at what these terms actually mean.

What is Fraud?

 If I simply “take” your property without permission, that could be stealing or it could be a mistake. Whether or not I have committed a civil or criminal wrong depends upon my subjective state of mind and whether or not there is a statute against my behavior. If in taking your property, I am simply mistaken in thinking I have a right, I may have to give the property back, but usually will not be punished for the act. On the other hand, if I knowingly take your property without right, then I have committed and act for which society says I can be civilly or criminally punished.

Fraud in the healthcare context is generally defined as “an intentional deception, or intentional misrepresentation, that a person makes in order to gain a benefit to which the person is not entitled.”

What is Waste?

The second way to get into trouble is “waste,” which has only recently been inserted into the discussion. Waste is “the careless, inefficient, or unnecessary use of public resources.” For example, waste can occur when public money is spent on unnecessary program administration.

Unlike fraud and abuse, “waste” would not seem to necessarily involve “rule breaking.” Because waste is a fairly new designation, and therefore there are few regulations imposing fines, the solution is for the government to threaten to simply strike a wasteful provider from the list of approved providers. While “waste” isn’t “fraud,” the government may simply refuse to pay for anything deemed “wasteful,” such as hospital acquired infections.

What is Abuse?

The third way to get in trouble with the government is “abuse.” Abuse is any practice that is inconsistent with sound fiscal, business, or medical practices and results in unnecessary program cost. For example, abuse can include reimbursement for services that are not medically necessary, or that do not meet professionally recognized standards. Unlike fraud, abuse can occur when there is no intentional deception or intentional misrepresentation.

Whether a practice is “fraudulent,” “abusive,” or merely “wasteful,” goes hand in hand with the question: Will a pattern of conduct result in paying back the money received, criminal action, or simply civil money penalties? The answer isn’t entirely simple to provide. A practice or “scheme,” whether malum in se, or malum prohibitum, is normally occasioned within a continuum, or range of mental states – from innocence, to negligence, gross negligence, conscious indifference, willful ignorance, knowing, or intent to defraud. Because the potential penalty is (by definition) punitive, normally at a minimum, a “knowing” violation is required.

It is up to the government to decide which charge, or allegation to bring, based upon the strength of the evidence.  It is up to the jury to decide if the charge or allegation is true. In practice, “fraud or abuse” is usually prosecuted as a crime for behaviors which are fairly close to “stealing.” See, Hooper, Patrick, Health Care Fraud And Abuse, Los Angeles: ABA Health Law Section, pp. 197-251 (2001) “Abuse,” is more or less synonymous with “medically unethical”. . . but without the intent to defraud or steal.

Next week we shall look as some specific examples of fraud, waste, and abuse.

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