1. Overview of Medicare+Choice
2. Stark Problems
3. Mandatory Compliance Programs
4. Failure to Provide Medically Necessary Services
5. Conclusion: The Choice of Abuse
Overview of Medicare+Choice
The new Medicare+Choice program ("M+C") significantly expands the healthcare options available to Medicare providers and beneficiaries. Effective January 1, 1999, M+C provides for three types of plans:
Each type of Medicare+Choice plan offers capitated payments to the M+C organization as consideration for providing the contracted healthcare services. Because the capitated payments require the M+C organization to accept financial risk for providing all contracted care that is medically necessary, each M+C organization (except for certain PSOs receiving special waivers) must be licensed under State law as a risk-bearing entity.
The Health Care Financing Administration ("HCFA") has issued a series of regulations defining a PSO, setting solvency standards for a PSO, and detailing the requirements for the three types of M+C plans. HCFA declares that the M+C program is arguably the most significant change in the Medicare program since its inception in 1965. Currently, approximately 5.5 million beneficiaries are enrolled in 307 Medicare HMOs. HCFA estimates that anywhere from 160 to 800 new entities may apply as M+C organizations, including 125 new PSO's by the year 2002.
HCFA's predictions for M+C plans may be overly optimistic. As of September 28, 1998, HCFA had 48 applications pending for new M+C contracts, which were mostly from existing HMOs for coordinated care plans rather than the new M+C options. HCFA had only 4 applications for PSOs, only 1 for a PPO, and none for MSA or PFFS plans under M+C. Perhaps Medicare's offer of capitated payments with nominal 2% minimum annual increases is insufficient to induce providers to assume the financial risks of providing healthcare services to an aging population. Many HMO's are already losing money and cutting back on geographic areas where they are willing to serve. In addition, the procedural requirements of M+C are immense: roughly 180 Federal Register pages of regulations and explanations issued thus far, plus the requirement to obtain a state license for risk-bearing. Politicians are threatening even more legislation against HMOs to address complaints about denied coverage for medically necessary services.
The fraud and abuse implications of M+C also strongly discourage providers from participating in the new M+C options. This article will focus on the fraud and abuse dynamics of M+C versus traditional Medicare and explain why healthcare providers should avoid M+C.
Buried in the preamble to M+C regulations is an interesting discussion about the impact of the federal physician self-referral prohibition (a/k/a "Stark") on M+C plans. HCFA recognizes that Congress failed to except M+C plans from the Stark statute. HCFA believes that this failure must have been an oversight, since existing HMOs are excepted from Stark and Congress expressed no intention of subjecting existing HMOs to Stark when it adopted M+C to encompass and replace HMO risk contracting under Medicare. HCFA further reasoned that Stark is contradictory to Congress' purposes in allowing physicians to establish PSOs as coordinated care plans under M+C. To rectify this Congressional oversight, HCFA looked to a subsection of the Stark statute (42 U.S.C. §1395nn(b)(4)) which allows the Secretary of the Department of Health and Human Services to create additional Stark exceptions for "any other financial relationship which the Secretary determines, and specifies in regulations, does not pose a risk of program or patient abuse." The author of this article has argued that all regulatory safe harbors to the federal anti-kickback statute (42 U.S.C. §1320a-7b(b)) also constitute exceptions to Stark under the same authority. See the article on WMO’s website entitled “Submerged Safe Harbors to Stark Attacks”. If so, providers could at least own up to 40% in M+C organizations under the "60-40" anti-kickback safe harbor, and the Congressional oversight for M+C could be directly solved by HCFA issuing regulations that establish risk-sharing safe harbors as authorized by the 1996 amendment to the anti-kickback statute. HCFA has not yet confirmed, however, that the anti-kickback regulatory safe harbors also apply to Stark.
Instead, HCFA analyzed whether the three new M+C plans would pose a risk of program or patient abuse. For coordinated care plans, HCFA observed that capitated payments eliminated the risk that the Medicare program would pay for over-utilization of services. M+C statutes and regulations also limit the total amount of premiums and cost-sharing that CCPs can require from beneficiaries. Because of the capitated payments by the Medicare program and the limit on patients' financial liability, HCFA concluded that M+C organizations offering CCPs posed no risk of program or patient abuse, and created a new regulatory Stark exception for M+C CCPs to cure the Congressional oversight.
HCFA then analyzed the risk of program or patient abuse for the two other M+C plans: MSA and PFFS plans. Again, HCFA found no risk of program abuse because M+C limits the capitated amount paid to organizations offering those plans. HCFA did find a risk of patient abuse, however, because M+C does not limit the amount that a beneficiary may have to pay as premiums and cost-sharing under M+C MSA and PFFS plans. Since a risk of patient abuse existed, HCFA refused to create a regulatory exception to Stark for M+C MSA and PFFS plans, as it did for CCPs. Physicians should not accept capitated risk under M+C MSA and PFFS plans because of the risk that such an arrangement may be considered a violation of Stark. Without physician participation, M+C MSA and PFFS plans offer little more than new acronyms for the traditional HMO.
In contrast to traditional Medicare, the M+C regulations state that all M+C organizations must have a compliance program. HCFA claims statutory authority for mandating compliance programs, but the cited section makes no specific mention of compliance programs and it merely authorizes the Secretary to establish by regulation other standards for M+C organizations consistent with, and to carry out, the M+C statute. As developed in the Federal Organizational Sentencing Guidelines, compliance programs are a voluntary means for reducing the organization's exposure to illegal conduct. The Office of Inspector General ("OIG") urges providers to voluntarily join the government in its efforts to eliminate fraud and abuse by implementing compliance programs. The carrot for adopting compliance programs is the promise of reduced organizational sanctions if an effective compliance program exists but illegal conduct nevertheless occurs.
By mandating compliance programs, the M+C regulations convert the carrot into a stick. Every M+C organization must establish and comply with a compliance program that includes each of the seven elements suggested by the OIG in its compliance guidance for traditional Medicare:
Any failure in the M+C mandatory compliance obligations is grounds for termination of the contract under M+C and may be considered a misrepresentation that justifies intermediate sanctions. To make matters worse, M+C sanctions can exceed the already exorbitant sanctions applicable under traditional Medicare, including:
The ultimate M+C sanction is contract termination by HCFA. The M+C statute and regulations also state that HCFA will not enter into an agreement with a M+C organization if a previous contract with that organization was terminated at the request of the organization within the preceding 5 years, absent special circumstances. Table A compares M+C sanctions with similar sanctions under traditional Medicare:
TABLE
A - MEDICARE SANCTIONS
|
|
Medicare Parts A & B |
M+C |
|
Type of violation |
False claim |
Misrepresents or falsifies information |
|
Civil monetary penalties per violation |
$10,000 per violation, plus triple the claim |
$100,000 per violation, plus double any excess charged to beneficiaries |
|
Minimum period of exclusion following termination |
5 years |
5 years |
|
Suspension of payment for beneficiaries enrolled during sanction period |
No |
Yes |
|
Suspension of marketing |
No |
Yes |
Failure to Provide Medically Necessary Services
Another area which can trigger sanctions
under M+C, in contrast to traditional Medicare, is the failure to provide
medically necessary services. The Wall Street Journal reported on
October 19, 1998 that HMO fraud is a major new focus for federal investigators,
with more than 10 HMOs currently under investigation for healthcare fraud.
James Sheehan, assistant
The OIG disclosed its compliance concern for risk-bearing entities in its Compliance Program Guidance for Hospitals ("Hospital Guidance") released in February 1998. The final draft of Hospital Guidance included 18 areas of so-called "special concern" to the OIG including the following:
Medicare Parts A and B run the risk of program abuse because providers may earn more gross income from Medicare when they perform more services. M+C CCPs pose no risk of program abuse because payments are capitated and do not vary with quantity of service. On the other hand, M+C plans pose a greater risk of patient abuse because providers may earn more net income when they perform less services. Medicare Parts A and B pose less risk of patient abuse because providers receive payment for every service that the patient needs, subject to some limits such as the prospective payment systems for hospitals, home health and skilled nursing facilities. Table B summarizes this dichotomy:
TABLE
B - RISK OF PROGRAM OR PATIENT ABUSE
|
Risk of Abuse |
Medicare Parts A& B |
M+C CCP's |
|
Program Abuse |
Yes, payments vary with quantity |
No, payments are capitated |
|
Patient Abuse |
Less, Medicare pays for all medically necessary services, subject to limits such as the prospective payment system |
Greater, CCPs may earn more net income if they provide less services |
All providers are held responsible by their patients under medical malpractice tort law for failing to provide medically necessary services. Under M+C, the government can also second guess professional opinions of medical necessity and assess severe sanctions against M+C plans as a consequence of such patient abuse. For example, the maximum civil monetary penalty under both the existing HMO statute and the new M+C statute for failing to provide medically necessary services is $25,000 per violation, or 2.5 times the maximum monetary penalty for providing medically unnecessary services under traditional Medicare.
If providers bill for medically unnecessary services under traditional Medicare, they may face enforcement actions and lawsuits from Government regulators and/or qui tam plaintiffs. If providers fail to provide medically necessary services under M+C risk-sharing contracts, they may face medical malpractice lawsuits and/or the M+C plans in which the providers share financial risk may face M+C sanctions. Providers have to walk a very fine line on the issue of medical necessity, which is inherently complex and subject to widely different opinions. Providers can avoid the financial risk of severe government sanctions for failure to provide medically necessary services by declining to participate in M+C risk-sharing arrangements.
Conclusion: The Choice of Abuse
From a fraud and abuse perspective, M+C presents healthcare providers with a choice:
Either way, providers will be suffering their own abuse: the financial abuse imposed on providers by shrinking Medicare reimbursement. Physicians should not participate in risk-sharing with M+C MSA or PFFS plans because the arrangement may violate the Stark physician self-referral statute. While M+C CCPs have a regulatory exception to Stark, the M+C regulations expose providers to severe M+C sanctions for failures in mandatory compliance program obligations and failures in providing medically necessary services. Prudent providers should choose the risk of program abuse under traditional Medicare, rather than the risk of patient abuse and financial disaster under M+C.
© 1998 Scott C. Withrow. All rights reserved.
NOTE: This site includes a summary of certain compliance issues facing
healthcare providers today. This site does not, and is not intended to, give
legal advice. Reference should be made to full text of the statutes and
regulations for complete analysis. Consultation with competent counsel is
strongly recommended.