By Richard Romero
Against a backdrop of increasing focus on quality, patient satisfaction and choice in decision making, the Center for Medicare and Medicaid Services (CMS) introduced several changes to the physician self referral law. These changes are intended to reduce the economic incentives facing physicians to refer patients to entities from which they held and ownership interest. As the expected potential influence of physicians regarding where a patient receives care diminishes, the playing field between providers begins to level. The demand for high-quality, clinically effective outcomes by providers with excellent “bedside manners” are only expected to increase. Documentation of relationships at fair market value is still a requirement. Organizations such as the National Association of Certified Valuation Analysts is helping to prepare the valuation community for the seemingly ever-changing nature of health care valuation.
A Change in Control
Under the physician self-referral statute, a physician may not refer Designated Health Services (DHS) to an entity, and that entity may not bill Medicare for such referred DHS, if the physician (or an immediate family member) has a financial relationship with the entity, unless an exception exists. One of the most common exceptions is that compensation does not exceed fair market value. Under the physician self-referral law (Stark Law), the responsibility that compensation received by a physician is at fair market value is the responsibility of both parties.
In Stark I, the Center for Medicare and Medicaid Services (CMS) stated that there is no requirement that parties use an independent valuation consultant for any given arrangement when other valuation methods are available. However, internally generated analysis by the parties are “subject to more intensive scrutiny” than an independent analysis. In the most recent Inpatient Prospective Payment System Final Rule, CMS stated its belief “85that the payment of compensation below, or above fair market value would rarely, if ever, be beyond the control of the entity.”
Given that Stark is a strict liability statute, the importance of an appropriate and thorough independent valuation analysis can be critical to document compliance with the fair market value exception under Stark. When an independent valuation is required, parties should seek a credentialed valuator with specific experience in health care to provide the analysis. The National Association of Certified Valuation Analysts (NACVA) has developed training for valuation analysts to provide services in health care. In addition to a one-week training workshop specifically for health care, the organization is introducing its Healthcare Practice Group. The group will provide resources, training and an industry-specific listserv to assist valuators in performing engagements to health care clients.
CMS introduced several changes to the Stark Law in the most recent Inpatient Prospective Payment System Final Rule.
CMS reiterated its goal of “eliminating, or at least reducing, the ability of a referring physician to profit directly from his or her own referrals for DHS, thereby reducing the risk of overutilization and abuse.” The rule also states that, “Although we [CMS] do not doubt that the great majority of physicians are honest and honorable, the profit potential inherent in self-referral can corrupt decision making through deliberate and less-conscious behavior.”
CMS also expressed concern based on comments received from industry stakeholders suggesting that “financial motivation is driving treatment choices85 (that is, where options exist for the treatment of diseases, physician ownership of equipment plays a key role in influencing what the patient ultimately will be prescribed); physicians sometimes steer patients to facilities that are willing to lease equipment from the physicians; overutilization is created by practices that, due to physician ownership, use treatments that yield lower efficacy outcomes and causes the need for re-treatment; and, physicians pressure hospitals to use their leasing company despite not being the low cost provider.”
There is also “the question of whether physicians are less concerned about risk because they can control the referral stream and whether hospitals are more concerned about risk because they fear that referrals will go to their competitors if they do not enter into contractual arrangements with physician groups.” The regulatory changes are expected to “85create a more level playing field between hospitals and physicians and also among hospital competitors.”
Ultimately, the level playing field is one of competition for patients in a given market. With the removal or reduction in financial incentives for physicians to self-refer, the competition for patients is expected to increase. Effective competition will require patients to be viewed as consumers, as effective marketing, branding and quality of service will have an increased impact on patient decision-making.
Patients as Consumers
One such ongoing change is the treatment of patients as loyal consumers rather than revenue earned from a series of individual medical procedures. Marketing professionals have documented that the costs of obtaining a new customer are five times that of keeping a loyal customer. According to Customer Loyalty by Jill Griffin, the reasons why customers leave include competition (9 percent), relocation (9 percent), complaints not handled (14 percent), and no specific reason – benign neglect (68 percent).
Providers and suppliers should understand these factors and the changing health care landscape. Likewise, whenever possible, valuators should review customer turnover, patient survey scores, physician and nurse satisfaction scores and trends in referrals. Negative scores or trends generally reduce practice value. However, effective monitoring of these metrics over time provides practices the opportunity to increase and maintain high levels of customer service.
The Quality Imperative
In recent years, the health care industry has dramatically increased its focus on quality. Industry stakeholders are continually seeking ways to identify and reward high-quality providers and suppliers. CMS ceased paying for “never events,” circumstances which should never happen in the provision of patient care, and requires identification of conditions acquired during a hospital stay through use of Present On Admission (POA) indicators. The underlying logic for this focus ranges from reducing costs to the Medicare program, realization of potential liability under the False Claims Act from providing less than sufficient care, to rewarding higher quality providers with financial compensation for their performance.
In addition to potential financial impacts, the focus on quality is also viewed as an imperative for Boards of Directors of health care entities. As described in Corporate Responsibility and Health Care Quality: A Resource for Health Care Boards of Directors, “In an era of increasing governance accountability, the boards of health care organizations are expected to understand and be involved in the assessment of performance on quality and patient safety initiatives for their organizations.”
Analysts suggest that the measures of quality will change. The current focus on treatment protocols is expected to shift to a focus on clinical outcomes. However, the industry is still in the process of developing common metrics and empowering patients to use the data that is available through education. Several websites provide online ratings of physicians and can include information self-reported by physicians. In using these websites, The American Board of Medical Specialties recommends that patients:
· Confirm the information. Many Web sites include self-reported physician information. A doctor may list a specialty but that doesn’t guarantee that he/she is board certified in that particular area of medicine.
· Search for online physician ratings that permit a “360 degree evaluation,” which allows consumers to read comments on an individual physician from a variety of sources, including other doctors, nurses and patients.
· Be aware that many online physician ratings do not consistently moderate content or review comments prior to posting. This means individuals can post negative or glowing comments about a doctor they’ve never even seen.
· When choosing a doctor, consider several sources of information rather than relying solely on a doctor rating Web site.
· For a small fee, consumers can also check for disciplinary actions against individual physicians through the Federation of State Medical Boards at www.fsmb.org
Richard Romero is a Director with FTI Consulting in Nashville, TN. He provides services in compliance, valuation and litigation support in health care related matters.