Health Highlights

September 23, 2014

Engaging Patients While Addressing Their Privacy Concerns: The Experience of Project HealthDesign
Synchronization of Coverage, Benefits and Payment to Drive Innovation
Best Lawyers Names Deborah Bachrach NYC Healthcare “Lawyer of the Year” and Includes 62 Manatt Attorneys on Its Leading Lawyer List
Reference Pricing and Network Adequacy Standards: Implications and Considerations
You’re Invited to a New, Free Webinar: “Avoiding the Regulatory Land Mines of Commercial ACOs”
You’re Invited to “Reinventing Long-Term and Post-Acute Care: Integrating into a New Healthcare System”
Acacia Network Honors Manatt with Its Corporate Leadership Award

Engaging Patients While Addressing Their Privacy Concerns: The Experience of Project HealthDesign

Authors: Deven McGraw, Partner, Healthcare Industry, Manatt, Phelps & Phillips, LLP | Robert Belfort, Partner, Healthcare Industry, Manatt, Phelps & Phillips, LLP | Helen Pfister, Partner, Healthcare Industry, Manatt, Phelps & Phillips, LLP | Susan Ingargiola, Director, Manatt Health Solutions

Editor’s Note: Some patients and clinicians are using digital technologies to collect and share health information. Patient privacy concerns, however, may be an obstacle to widespread adoption of digital data sharing. Manatt Health has written a new white paper discussing the experiences of Project HealthDesign research teams—which used technology to facilitate communicating health information between patients and clinical care teams—in successfully navigating patient privacy concerns. (Project HealthDesign is a groundbreaking Robert Wood Johnson Foundation program, designed to spark innovation in personal health technology.) Key points from the white paper are summarized in the following article. Click here to download the full paper free. (This paper also has been published in Personal and Ubiquitous Computing.)

Patients are using the Internet, personal health records (PHRs) and mobile applications or “apps” to collect and manage personal health information. Many are seeking to share this information with their healthcare providers and clinical care teams to achieve health goals. At the same time, clinicians are beginning to recognize that information collected and shared by patients using digital technologies can lead to better outcomes and reduced costs.

Patients with privacy concerns, however, will be reluctant to collect and share sensitive information through the Internet and mobile tools, because existing privacy legal protections do not cover digital technologies.[1] Addressing patient privacy concerns could be key to enabling more widespread patient engagement in using technology to improve outcomes.

The experiences during the second phase of Project HealthDesign—which involved patients’ use of PHRs and mobile apps to track and share health information with clinical care teams— suggest that privacy concerns are not an insurmountable barrier. Leveraging the trust inherent in the clinician-patient relationship and assisting patients in safely navigating PHRs and mobile apps can give both patients and clinicians more confidence in using technology to share health information.

Lack of Legal Protections for the Collection and Sharing of Health Information by Patients Under Existing Law

The health information that patients collect and share through PHRs and other personal health apps is not comprehensively regulated under existing health information privacy laws. Following is a discussion of some laws that may apply to this activity.

1. HIPAA

The Health Insurance Portability and Accountability Act (HIPAA)[2] and its regulations (the HIPAA Privacy and Security Rules)[3] are potentially applicable to PHRs, but only when those PHRs are offered by HIPAA-covered entities (such as health systems or payers) or by contractors (known as business associates) acting on their behalf. HIPAA does not apply to freestanding PHRs that are not offered by covered entities.[4].

Whether a PHR is or is not covered by HIPAA (e.g., whether a PHR vendor would be providing a PHR on behalf of a covered entity and, therefore, would be a business associate for purposes of the HIPAA Rules) is a fact-specific determination. The U.S. Department of Health and Human Services (HHS) has clarified that a PHR vendor is not a business associate of a covered entity solely by virtue of entering into an interoperability relationship with a covered entity.[5] Most PHRs and mobile apps likely to be used by patients will not be covered by HIPAA.

2. Federal Trade Commission

Another federal statute applicable to PHRs and mobile apps is the Federal Trade Commission (FTC) Act. Section 5 of the FTC Act[6] states that “unfair or deceptive acts or practices in or affecting commerce ... are ... unlawful.”[7] The Act empowers the FTC to conduct investigations. If, after an investigation, the FTC believes a violation has occurred, it can take enforcement action against violators.[8]

The FTC has used its Section 5 authority to address privacy and security concerns. The authority, while limited, applies to most PHRs and mobile apps. The FTC has made it clear that it is illegal under Section 5 to violate privacy or security promises made in privacy policies or other assurances to consumers. Therefore, the Act could be used where PHR and mobile app providers commit that consumer information is private or secure but fail to protect data to the extent they’ve stated. In some cases, the FTC has brought enforcement actions and obtained consent orders against companies that failed to protect the security of customer data, in circumstances involving unfair design, unfair default settings, and unfair data security practices that cause substantial injury to consumers and are not offset by other benefits.

Because the FTC does not set detailed requirements for either data privacy or security, protections for patient-generated health information not protected by HIPAA are largely dependent on the technology vendor’s discretion and the FTC’s priorities and resources. In addition, because the FTC’s authority is broad, its determination of what constitutes an “unfair” or “deceptive” practice could be rejected by a court, if an enforcement action is challenged.

It is important to note that the FTC Act does not specifically require PHRs to have privacy policies. Therefore, the FTC has discretion in considering whether the lack of a privacy policy is “unfair” enough to warrant enforcement action.

Under the HITECH Act, PHR vendors (and apps offered through PHRs) not covered by HIPAA must notify individuals of any patient health information breach.[9] The FTC enforces this requirement, which provides some protection but only after a breach has occurred. The FTC released a Breach Notification Final Rule,[10] which contains specific requirements, including:

Sending breach notices no later than 60 calendar days after discovering a breach
Providing notice to consumers by first-class mail or, if the individual specifies, by email
Providing a substitute notice, through the media or a web posting, if there is insufficient contact information for ten or more individuals[11]

Legal Takeaways

Privacy protection is spotty at best for patient-generated health information from PHRs or mobile apps that is shared electronically with healthcare providers. The information is protected by HIPAA when it is in the hands of healthcare providers but is subject to the less specific authority of the FTC when it is in the hands of consumers or PHR and mobile app vendors.

When patients are not comfortable that their health information will remain confidential, studies show that some will engage in “privacy protective behaviors” that can undermine the effectiveness of healthcare. For example, according to a study published in 2013,[12] nearly one in eight patients have withheld information from a healthcare provider because of privacy and security concerns.

Strength of the Physician-Patient Relationship Can Help Overcome Privacy Concerns

Round II of Project HealthDesign consisted of five research teams that studied how observations of daily living (ODLs) collected using personal health apps can be incorporated into clinical care. ODLs are patient-recorded feelings, thoughts, behaviors and environmental factors that are personally meaningful and provide health cues. They can include information about an individual’s mood, what he or she ate, pain levels, medication and sleeping patterns.

The hypothesis tested in Round II is that capturing ODLs in real time enables patients to care for themselves better and provide their healthcare providers with more specific information about their health. The research teams anticipated several patient privacy and security concerns, triggering important questions, including:

Who is allowed to enter information into the patient’s app?
How does one prevent unauthorized access to data on the app by, for example, parents or others? (One of the teams involved adolescent and young adult patients still living at home.)
Who has the right to control who sees the health information generated by patients?
Who within the clinician’s office may see the information?
Is it possible to limit who within the clinician’s office sees what information?
What information could the commercial vendor providing the app access?
Is there any way for a patient to limit or otherwise control what the commercial vendor can see?

In the absence of clear legal protections, the research teams employed one or more of the following tactics to encourage patients to share their ODLs with the clinicians participating in the study:

Exploited “teachable moments” with the patients. Because the teams had frequent interaction with the patients participating in the study, they could take advantage of “teachable moments” to provide basic education about how to protect health information, as well as how to reduce the risk of unauthorized access to mobile devices.
Selected personal health app vendors with responsible privacy policies. One of the health information tracking apps that the researchers employed was TheCarrot.com, which commits that it will not sell or share patients’ identifiable health data with third parties. Further, TheCarrot.com voluntarily implemented policies and procedures that comply with HIPAA. Those research teams using commercially available “off the shelf” app solutions deployed the standard security capabilities of the app. For example, one team remotely wiped the memory of a patient’s mobile device when it learned that the patient had lost it.
Explained the issue of privacy in the context of the value of the healthcare benefits the participating patients (most of whom were managing chronic illnesses) would receive. This helped patients become comfortable with collecting and sharing sensitive information, even in the face of some privacy risk, because they had a greater understanding of what was at stake.
Relied on clinicians as key agents of trust. Patients generally trust their clinicians to act in their best interest—including with respect to confidentiality of their health information.[13] The research teams relied on the clinicians and staff of the healthcare providers participating in the study to help patients understand some of the basic steps that would help them protect the privacy and security of their health information and bolster patients’ willingness to participate in the project.

Conclusion

The Project HealthDesign experience suggests that clinicians seeking to engage patients in care models involving collecting and sharing patient-generated health information can play a pivotal role in helping patients resolve or at least manage their privacy concerns. This experience also indicates that payment models designed to reward outcomes may need to accommodate time for the clinical care team to engage in “teachable moments.”

_{[1] U.S. Policy Research, Inc. (2010) Managing Personal Health Information: An Action Agenda. Publication No. 10-0048-EF.}
_{[2] Pub. L. No. 104-191, 110 Stat. 1936 (1996).}
_{[3] The Privacy Rule is codified at 45 C.F.R. §§ 160 and 164, Subparts A and E). The Security Rule is codified at 45 C.F.R. §§ 160 and 164, Subparts A and C. Summaries of the Privacy and Security Rules are available at http://www.hhs.gov/ocr/privacy/index.html.}
_{[4] Section 13408 of the Health Information Technology for Economic and Clinical Health (HITECH) Act, Pub. L. No. 111-5, tit. XIII, Div. B, tit. IV, 123 Stat. 115, 276-79; 467-96 (2009).}
_{[5] See 78 Fed. Reg. 5572 (Jan. 25, 2013).}
_{[6] 15 U.S.C. §§ 41-58.}
_{[7] 15 U.S.C. § 45(a)(1).}
_{[8] 15 U.S.C. § 45(b).}
_{[9] Section 13407 of the Health Information Technology for Economic and Clinical Health (HITECH) Act, Pub. L. No. 111-5, tit. XIII, Div. B, tit. IV, 123 Stat. 115, 276-79; 467-96 (2009).}
_{[10] 74 Fed. Reg. 42962 (Aug. 25, 2009).}
_{[11] 16 C.F.R. Part 318.}
_{[12] Agaku IT, Adisa AO, Ayo-Yusuf OA, Connolly GN (2013) Concern about security and privacy, and perceived control over collection and use of health information are related to withholding of health information from healthcare providers. J Am Med Inform Assoc. 2014 Mar-Apr;21(2):374-8doi: 10.1136/amiajnl-2013-002079. Epub 2013 Aug. 23.}
_{[13] Eighty-three percent of respondents to a 2011 survey said they trust their physician office to use health information in the best interest of a patient. See iHealthbeat. Survey: Patients Trust Doctors Over EHRs to Ensure Data Security. Feb. 18, 2011. Available at http://www.ihealthbeat.org/articles/2011/2/18/survey-patients-trust-doctors-over-ehrs to-ensure-data-security}

Synchronization of Coverage, Benefits and Payment to Drive Innovation

Authors: Annemarie Wouters, Senior Advisor, Manatt Health Solutions | Nancy McGee, Managing Director, Manatt Health Solutions

Editor’s Note: More than a third of Medicare beneficiaries receive care from providers operating under some form of shared savings/risk type of pay-for-performance incentive. Implementing payment reform without changing coverage, benefit and other payment requirements, however, creates conflicting incentives. The result may cancel out the intended goals of payment reform to improve outcomes, while reducing costs. In a new paper published in the American Journal of Managed Care, Manatt Health examines current Medicare coverage policies, as well as the Centers for Medicare and Medicaid Services’ (CMS) experiences with Medicare Advantage (MA) plans, the Bundled Payments for Care Improvement (BPCI) initiatives and the launch of the inpatient rehabilitation facility prospective payment system. It then offers recommendations for next steps forward. The article below introduces the discussion and highlights some key conclusions. To download a free PDF of the full paper, click here.

Over 35 percent of the nearly 50 million Medicare beneficiaries in 2013 received care from providers operating under some form of shared savings/risk type of pay-for-performance incentive. This statistic reflects over 14.4 million beneficiaries in Medicare Advantage (MA) plans in 2013 that are paid using an annual capitation rate. It also includes 4.4 million beneficiaries in 2013¹ that are attributed to 252 Medicare accountable care organizations under the Medicare Shared Savings Program (MSSP)², which are paid using a combination of fee-for-service and shared savings or losses.

In October 2013, additional beneficiaries began receiving care from providers participating in the Center for Medicare and Medicaid Innovation’s (CMMI) Bundled Payments for Care Improvement (BPCI) initiative³. Under BPCI, awardees will be sharing financial risk with CMS for selected episodes of care. CMS is incentivizing providers through payment reform to redesign healthcare services to improve health outcomes, while saving costs. Implementation of payment reform without a corresponding change to coverage, benefit and other payment requirements, however, creates conflicting incentives that may nullify the intended aims of payment reform.

Three Types of CMS Policies Core to Managing Patients

To date, providers working under MA⁴, MSSP⁵, and the BPCI⁶ must comply with three types of CMS policies. These policies are core to the medical management of patients:

Coverage policies under Original Medicare Part A and Part B (e.g., national and local coverage determinations).⁷.
Medicare benefit policies⁸ (e.g., hospital services, physician services, home health, durable medical equipment, telehealth benefit).⁹
Other payment policy requirements tied to payment systems for particular sites of care (e.g., prior three-day inpatient stay for covered skilled nursing facility services, three-hour therapy inpatient rehabilitation rule).

Interestingly, while traditional payment methodologies that are tied to site of service are rapidly changing to allow for more innovative approaches—such as payment by episode of care, which permits patients to receive treatments at multiple service sites for one bundled payment—these three coverage principles remain static.

The Consequences of Not Evolving Coverage, Benefit and Payment Policy Requirements

Failure to evolve coverage, benefit and payment policy requirements as payment methods change is likely to impede payment reform’s ability to reach maximum quality, efficiency and care innovation. If related policies do not evolve to align with payment reform, those entities contracted to receive new bundled payments—referred to here as “principal accountable bundlers” (PAB)—are only able to redesign care to the extent that care meets the myriad of related payment policy requirements.

As a general rule, Medicare requires entities participating in payment reform initiatives such as MSSP¹⁰ and BPCI¹¹ to have processes in place that document and support adherence to evidence-based-medicine payment initiatives. The intent is to ensure that care redesign efforts result in clinically effective care.

Tensions arise, however, when new payment incentives conflict with traditional coverage and benefit policies which have not changed. For instance, based on a review of clinical evidence, a PAB’s medical leadership team may find that a particular medical innovation is reasonable and medically appropriate for its patient population. It cannot offer the service, however, because it is:

Not covered by Medicare,
Not a Medicare benefit, or
Does not comply with a payment policy requirement.

The net result is an unintentional stifling of innovation. This is not due to payment concerns, but because coverage and benefits are not in synch with the change in payment to allow an alternative treatment without roadblocks to payment. A case in point is CMS’s recent negative response to public requests to convert coverage of innovative remote access technologies (e.g., telemonitoring, web-based technologies, nurse hotlines and other similar services) from the status of supplemental benefit to a basic benefit, because CMS does not have the authority “to define Part C basic benefits as being broader or different than the Parts A and B benefits provided under original Medicare.”¹²

CMS has experience modifying payment requirements and coverage policies to support more bundled methods of payment. To date, however, the approach has been ad hoc. Examples include developing customized waivers for each payment model or reviewing each request for a new supplemental benefit in the MA program.

With new payment reforms emerging, a one-by-one review approach will soon become unwieldy, and implementation of payment reforms will be delayed. Further, an unintended consequence of an ad hoc approach is that it often lacks transparency. For example, little is known about the waivers requested and offered under MSSP and BPCI.¹³ It is an opportune time for CMS to adopt a more systematic and transparent approach to modifying coverage and benefit constructs to support payment reform goals.

The Path Forward: Sharing More Authority with PABs

Currently, most coverage, benefit and payment policy decisions are made centrally by CMS or regionally by local Medicare Administrative contractors, while decisions on how to spend the “bundle” are made by the PABs. The failure to delegate decision making to PABs regarding policies that are core to medical management is understandable in these early stages of payment reform since current bundled arrangements with either Medicare or commercial payers include only limited financial risk for most PABs.^{14, 15} As payment reform moves ahead and PABs assume more financial risk, they also will want more authority to redesign all aspects of care. For example, they will want to take on a greater role in designing all policies that impact medical management.¹⁶

Sharing more authority with PABs does not mean abandoning all existing coverage, benefit and payment policies. Instead, sharing more authority allows PABs to modify these policies when they meet the conditions designed to ensure beneficiary protections. Examples of such conditions might include:

Requiring PABs to meet baseline performance thresholds.
Having evidenced-based decision-making processes in place, including a consensus-based approach by the PAB’s medical leadership team, accompanied by ongoing evaluation mechanisms.
Ensuring transparency of these processes and policy modifications to providers and patients.
Establishing opportunities for appeal.
Using patient-centric decision-making tools (e.g., shared decision-making tools) to ensure that patients are empowered to make informed decisions.

If the PAB meets these conditions, CMS would not necessarily be required to approve every policy modification. It could, however, transition to a role of monitoring the performance and enforcement of these conditions.

Transitioning the role of medical management from CMS to PABs, including the ability to modify coverage, benefit and payment requirements, can be viewed as a continuum that includes three main stages. The stages are tied to the PAB’s degree of financial risk sharing, as well as the scope of the episode:

Stage 1: PABs assume minimal financial risk and receive limited delegated authority focused primarily on modifying payment requirements, i.e., modifications directly relevant to the payment methods being replaced.
Stage 2: PABs assume greater financial risk (e.g., prospective bundled payments for selected patient conditions) and have the delegated authority to modify not only payment policy requirements but also coverage policies for the patient conditions they are targeting.
Stage 3: PABs assume full financial risk for a comprehensive set of clinical conditions and would be delegated even more authority, allowing them to modify benefit policies.

Except for changes in benefit policies, these stages, for the most part, could be implemented without legislation and in ways that satisfy the statute to provide reasonable and medically necessary care.

National and local coverage policies would be the starting point for any explicit coverage policy for a PAB. In Stage 2, however, the PAB would be able to expand/limit coverage or even cover otherwise noncovered services (e.g., overturn a local or national noncoverage policy), allowing more opportunities for medical innovation .

Conclusion

Moving away from volume-based fee-for-service payment methods to value-based payments is widely recognized as a way to incentivize patient-centric, high-quality, innovative, and efficient care in the Medicare program. Making the unit of payment broader and tying payments to performance measures are helpful for setting the direction for health system change but will not be sufficient.

The myriad of payment, coverage and benefit polices—and the processes for establishing them—were created during the era of payment silos. They now will need to be revisited and redesigned, if we are to fully realize the objectives of payment reform. As in the commercial payer world, how fast this occurs will depend on the CMS’s appetite for change, the PABs’ ability to take on these new responsibilities and congressional action to support change.

_{¹The Henry Kaiser Family Foundation. Medicare Advantage Fact Sheet. May 2014. Available from http://kff.org/medicare/fact-sheet/medicare-advantage-fact-sheet/ (last accessed May 5, 2014).

² CMS. “Fact Sheet: Medicare Shared Savings Program Accountable Care Organizations” January 2013, http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/2013-ACO-Contacts-Directory.pdf (last accessed September 27, 2013).

³CMS. Fact Sheets: Bundled Payments for Care Improvement Initiative Fact Sheet. January 30, 2014. Available from http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-Sheets/2014-Fact-sheets-items/2014-01-30-2.html (last accessed May 5, 2014).

⁴CMS. Pub 100-16. Medicare Managed Care Manual. Chapter 4 – Benefits and Beneficiary Protections. June 2013. § 10.2, § 90.

⁵ 42 C.F.R. 425.10.

⁶ Center for Medicare and Medicaid Innovation. “Bundled Payments for Care Improvement Initiative Request for Application.” August 22, 2011. V4, p. 31.

⁷ CMS Pub. 100-02. Medicare Benefit Policy Manual.

⁸Under the Medicare program, the scope of benefits available to eligible beneficiaries is prescribed by law and divided into several main parts. Part A is the hospital insurance program, and Part B is the voluntary supplementary medical insurance program. The scope of benefits under Part B is defined in the Act under Section 1832. Other benefits are listed in 1834.

⁹ SSA 1834(m).

¹⁰ CMS. Federal Register. 76(212) November 2, 2011. P. 67826 (Medicare Shared Savings Program Final Rule).

¹¹Center for Medicare and Medicaid Innovation. “Bundled Payments for Care Improvement Initiative Request for Application. August 22, 2011. V4. p. 33.

¹² CMS. Announcement of Calendar Year (CY) 2015 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter. April 7, 2014, p. 99. Available from http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2015.pdf (last accessed May 5, 2014).

¹³ American Hospital Association. “Reforms to Medicare Payment for Post Acute Care.” Comment Letter Addressed to the House Ways and Means Committee and Senate Finance Committee. August 19, 2013.

¹⁴ Muhlestein DB, Croshaw AA, Merrill TP. Risk bearing and use of fee-for-service billing among accountable care organizations. Am J Manag Care. 2013; 19(7):589-592.

¹⁵ Premier. Payor partnerships: insights from Premier’s PACT Population Health Collaborative [Internet]. Charlotte, NC: Premier; July 2013 https://www.premierinc.com/wps/wcm/connect/6b9aad65-3d93-4bf4-8041-b3091a335d2f/Payor-Partnership-White-Paper-6+3.pdf?MOD=AJPERES (last accessed August 27, 2013).

¹⁶ Ibid}

Best Lawyers Names Deborah Bachrach NYC Healthcare “Lawyer of the Year” and Includes 62 Manatt Attorneys on Its Leading Lawyer List

The Best Lawyers in America has honored Deborah Bachrach as its 2014-15 New York City Healthcare “Lawyer of the Year.” Only a single lawyer in each practice area and community is recognized as a “Lawyer of the Year.”

Published on August 18, the Best Lawyers list is based entirely on a rigorous national peer-review survey involving more than 5.5 million evaluations. Manatt had 62 lawyers across 32 practice areas and 6 offices cited on the prestigious Best Lawyers list, including 10 listed in the area of Healthcare Law:

Reference Pricing and Network Adequacy Standards: Implications and Considerations

Authors: Jon Glaudemans, Managing Director, Manatt Health Solutions | Michael Kolber, Associate, Healthcare Industry, Manatt, Phelps & Phillips, LLP | Joel S. Ario, Managing Director, Manatt Health Solutions

Editor’s Note: With benefit designs and enrollee cost-sharing increasingly standardized across health plans under the Affordable Care Act (ACA), one of the remaining levers plans have to differentiate themselves—and control premiums—is the size of their provider networks. Regulators have been caught in a crossfire between narrow network advocates who say they promote quality and keep prices down and those who feel such networks could constrain access to necessary services. Unfortunately, recent federal guidance — addressing, among other items, the issue of “reference pricing” — blurs the distinction between in-network and out-of-network providers. More troubling, its expanded use of “reference pricing” could leave patients paying unexpectedly large out-of-pocket amounts for ostensibly in-network providers.

In a recent post on the Health Affairs Blog, summarized below, Manatt Health provides background on reference pricing as a subnetwork contracting strategy and describes some of the implications for consumers, regulators, plans and providers. Click here to read the full post.

In 2014, to comply with the ACA, plans must not impose cost-sharing in excess of $6,350 for an individual and $12,700 for a family. The federal Departments of Health and Human Services, Labor and Treasury (the Departments) have released a steady stream of guidance¹ addressing which expenses are included or excluded when calculating consumer out-of-pocket spending.

Guidance published on May 2 defines how out-of-network benefits should be applied to the annual limits. It also offers an initial view of the proposed regulatory treatment of “reference pricing,” which sets a ceiling on payments for a covered service or item.²

The most recent guidance explains that plans can, but need not, count consumer spending on out-of-network services toward the annual limits. In a new tack, it then gives plans the same discretion for consumer payments for services provided by in-network providers under a reference pricing scheme, when provider prices exceed the reference pricing limits.

Excluding Out-of-Network Charges from Out-of-Pocket Limit Calculations

To understand the federal guidance on reference pricing, it is important to understand how regulators treat out-of-network charges. Plans generally set an “allowed amount” for out-of-network charges, representing an estimate of the usual, customary and reasonable (UCR) charge for that service in the service area. The plan typically pays a percentage of the allowed amount, and the remainder, known as coinsurance, is the enrollee’s responsibility.

Because out-of-network providers have not signed contracts with agreed-upon prices, they can charge more than the allowed amount. The enrollee then may be liable for the balance of the billed amount due after the allowed amount has been applied, referred to as balance billing.

On January 9, the Departments expressed that a “plan may, but is not required to, count out-of-pocket spending for out-of-network items and services toward the plan’s annual maximum out-of-pocket limit.”³ This view allows plans to count some but not all out-of-network charges toward the limit. For example, a plan could count out-of-network coinsurance toward the limit but exclude balance billing.

Reference Pricing in Practice

Reference pricing establishes a single price for a single service or bundle of services. The plan first negotiates widely applicable rates with a broad set of providers to create a network. Once a network is in place, the plan identifies services that may be suitable for reference pricing. Typically, plans focus on services that are high-cost, high-volume, variably priced, and discrete in their treatment duration and outcomes. When the services are identified, a plan may issue a request for proposals to network providers to bid for the right to establish the reference price for a specific service for the entire network.

Once established, the reference price becomes the price ceiling for the plan’s payment to all in-network providers. Whether a patient goes to an in-network or out-of-network provider, the plan only “allows” the reference price and sets its payment accordingly, after accounting for coinsurance. For out-of-network services, the reference price is identical to a UCR-based “allowed amount.” For in-network services, the reference price overrides previously negotiated rates.

If patients go to an in-network provider for a service with a reference price, they are responsible for the in-network coinsurance. They also must pay the difference, if any, between the reference price and the provider’s individually negotiated rate.

Applying the Cost-Sharing Limit to Reference Pricing

The May 2014 guidance states that reference pricing for in-network services “may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.” The concern may be that a plan could establish a reference price so low that only the winning bidder is willing to provide the applicable service at the reference price—and the bidder may not have the capacity to serve the needs of all plan members.

Despite these misgivings, the guidance goes on to state that large group market and self-insured group health plans that use reference pricing for in-network services are able to treat “providers that accept the reference amount as the only in-network providers, provided the plan uses a reasonable method to ensure it provides access to quality providers.”

The import of this interim guidance is that even when a nominally “in network” provider charges a patient an amount in excess of the reference price, the balance billing need not count toward the annual out-of-pocket limit. That’s true even when the higher price is the one the provider negotiated with the plan.

Implications for Network Adequacy and Health System

The expanded use of reference pricing and the interim regulatory treatment of patient liability combine to introduce new challenges to the traditional view of in-network services— and call into question traditional metrics of network adequacy:

First, consumers obtaining an in-network service for which a reference price exists face the possibility of paying not just their coinsurance but also the difference between the reference price and the negotiated amount. Consumers would be well-advised to read the proverbial fine print carefully, since plans are likely to vary in the effectiveness of their reference pricing-related educational materials.
Second, plans may develop broad networks with seemingly generous payment rates, only to subsequently adopt aggressive reference pricing structures that render the contracts moot. Providers would be well-advised to consider a plan’s intentions with respect to reference pricing, as they review proposed network contracts.
Third, plans seeking to manage healthcare costs may consider adopting or expanding their use of reference pricing. Initial efforts have demonstrated that reference pricing can be a powerful force for restraining costs and improving quality but must be implemented fairly to avoid angering consumers or regulators.
Fourth, regulators may need to reconsider the traditional framework for assessing network adequacy. In the past, a network’s adequacy was often evaluated on the basis of straightforward metrics, such as the number of primary care providers or the mix of community hospitals and tertiary care facilities. In the future, these metrics may be less useful or moot, if plans impose intra-network payment limits that reduce the effective size of the network to a few winning bidders of the reference pricing RFPs.

This concern may be tempered, because current guidance applies only to self-insured and large group health plans. The worry that reference pricing will complicate the consideration and adoption of network adequacy standards becomes greater if the guidance is extended to Exchange plans and other coverage sold in the individual or small group markets.

Conclusion

Reference pricing can be a useful tool to reduce unexplainable price variations across providers. Its reflection in plans’ claim adjudication creates an important incentive for consumers to seek efficient, high-quality providers. Widespread adoption of reference pricing as a network management tool, however, calls into question the appropriateness of traditional network adequacy metrics. New metrics are needed to judge the adequacy of networks employing reference pricing as a tool.

_{¹2/20/13, 1/9/14, etc.}
_{²http://www.dol.gov/ebsa/faqs/faq-aca19.html.}
_³Q4

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You’re Invited to a New, Free Webinar: “Avoiding the Regulatory Land Mines of Commercial ACOs”

Join us on September 30 from 1:00 to 2:00 p.m. ET.

Commercial Accountable Care Organizations (ACOs) are increasingly attractive to providers, because they offer more flexibility but less burdensome requirements than Medicare. They also present greater risks, however, because the regulations under which they operate are not as clear. In a new, free webinar, Manatt Health helps you safely navigate the potential pitfalls of commercial ACOs while taking advantage of their benefits. Join us for “Avoiding the Regulatory Land Mines of Commercial ACOs”—and discover new approaches for conquering the compliance challenges of hospital-physician commercial ACOs.

How can commercial ACOs protect against price-fixing claims and antitrust scrutiny? How can physicians and hospitals collaborate in commercial ACO arrangements without fear of violating the Stark Law or Anti-Kickback Statute? How can doctors and hospitals structure financial relationships and calculate market value to minimize compliance risks? The webinar will reveal the answers—and show you creative paths to protecting your organization in an uncertain regulatory environment. During the program, you will:

Learn how commercial ACOs can potentially implicate the Stark Law and Anti-Kickback Statute.
Examine how the corporate structure and contracting arrangements of commercial ACOs affect the application of fraud and abuse laws.
Find out the scope of the fraud and abuse waivers established under the Medicare Shared Savings Program (MSSP)—and when the waivers can (and can’t) be used to protect commercial ACOs.
Discover how MSSP affects the antitrust analysis of commercial ACOs.
Explore concentration and market share analyses for ACOs.
Evaluate clinical integration for commercial ACOs.
Gain insight into contractual constraints—and how sensitive they are to antitrust analyses.

While commercial ACOs provide benefits, they also present risks. But careful planning and innovative thinking can keep your organization out of danger. The webinar will provide important guidance on how you can realize the advantages of commercial ACOs—without stepping on a regulatory land mine!

Even if you can’t make the original airing on September 30 at 1:00 p.m. ET, register now and we’ll send you a link to view the program on demand. (NOTE: This program is approved for 1.0 CLE credit in NY and CA.)

Presenters:

Robert Belfort, Partner, Healthcare Industry, Manatt, Phelps & Phillips, LLP Martin Thompson, Partner, Healthcare Industry, Manatt, Phelps & Phillips, LLP

You’re Invited to “Reinventing Long-Term and Post-Acute Care: Integrating into a New Healthcare System”

Click to register free for Manatt Health’s new webinar—and join us on October 28 from 1:00 to 2:00 p.m. ET.

According to the Congressional Budget Office, by 2050, 20% of the U.S. population will be 65 or older, compared to just 12% in 2000 and 8% in 1950. The number of people 85 or older will grow the fastest, constituting 4% of the population by 2050—10 times the share in 1950. One study estimates that more than two-thirds of 65-year-olds will need assistance to deal with impaired functioning at some point during their remaining years, sharply increasing the need for long-term care assistance. Adding to the soaring demand for long-term care is the growth in younger patients with chronic and disabling conditions.

Couple the exploding growth in older and disabled Americans with the seismic shift in healthcare driven by delivery system and payment reforms, and it’s clear long-term and post-acute care (LTC and PAC) providers need to reshape their strategies to thrive in a radically different world. What are the transformational trends that will have the greatest impact on LTC and PAC providers, as well as their acute care partners? How should you respond to ensure success in a changing healthcare landscape? Learn the answers at a new, free webinar from Manatt Health, “Reinventing Long-Term and Post-Acute Care.” During the session, you will:

Discover how LTC and PAC providers are redefining themselves to adapt to emerging reforms, evolving Integrated Delivery Systems (IDS) and the sea change in the healthcare system.
Identify the demographic, structural, regulatory, political and technological trends that will be the strongest change drivers for LTC and PAC—from their current status to their projected effects.
Understand how powerful trends are redesigning LTC and PAC providers’ relationships with consumers, as well as their business models with health plan and Accountable Care Organization (ACO) partners.
Explore how both states and health systems are responding to meet the “challenge of the vulnerable,” as the population ages and the need for caregiving skyrockets.
Examine the decisions and actions LTC and PAC providers must take to navigate the new market.

With cost pressures rising, health systems consolidating, demographics shifting and states gaining power, trends are converging to redraw the healthcare map. In this new environment, LTC and PAC will play a central role in meeting the needs of an aging population with increased care needs—and cutting hospital costs by reducing preventable readmissions. The webinar will ensure that LTC and PAC providers can anticipate and prepare for the changes critical to their future—and build sustainable success for their organizations.

Even if you can’t make the original airing on October 28 from 1:00 to 2:00 p.m. ET, register now and we’ll send you a link to view the program on demand.

Presenters:

Carol Raphael, Senior Advisor, Manatt Health Solutions
Stephanie Anthony, Director, Manatt Health Solutions

Acacia Network Honors Manatt with Its Corporate Leadership Award

Acacia Network, Inc.—the second-largest Latino-founded nonprofit organization in the country and the largest in New York State—will present Manatt, Phelps & Phillips, LLP, with its Corporate Leadership Award during its 2014 Annual Gala at the Grand Hyatt New York on October 2. William Bernstein, Partner, Chair of Manatt’s Healthcare Division, and Melinda Dutton, Partner, Healthcare Industry at Manatt, will accept the award on behalf of the firm.

The award honors Manatt for its support of Acacia’s mission: partnering with communities, leading change and promoting healthy and prosperous individuals and families. Acacia’s programs help improve healthcare, behavioral health and homeless services, as well as provide affordable housing. The Annual Gala raises funds to further Acacia’s important work, providing educational and recreational resources to the communities within its network.