• Cyber Risk Insurance Policies: What You Need to Know
• Predictions for Stage 3 Meaningful Use
• Reinventing Long-Term and Post-Acute Care: Integrating into a New Healthcare System
• New Manatt Webinar: “Sharing Clinical Trial Data: Maximizing Benefits, Minimizing Risks”
• Antitrust Update: What Is the Impact of St. Luke’s Loss on Merging Providers?

Cyber Risk Insurance Policies: What You Need to Know

Author: Steve Raptis, Partner, Insurance Recovery Practice

Editor’s Note: As data breach incidents and related cyber risks continue to increase and gain publicity—and government agencies become more actively involved in policing the corporate response—many organizations are taking a close look at the protections that cyber insurance policies provide. Manatt’s insurance coverage leaders have joined with our integrated team of privacy, data protection, information security and governance professionals to deliver guidance on maximizing premium dollars when purchasing cyber policies and effectively dealing with claims that may arise under these policies. The article below captures key definitions, tips and recommendations to help you understand your options—and make the optimal decisions—when choosing cyber coverage.

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Although cyber coverage is a relatively new product in the insurance marketplace, there are now roughly 50 insurance carriers that offer it (although the amounts of coverage available often are limited). These policies are sold under a number of different names, including “cyber risk,” “information security,” “privacy” and “media liability” coverage. Unlike other types of insurance, there is no standard form on which the insurance industry as a whole underwrites cyber coverage. While this presents some challenges to purchasing coverage, especially for the uninitiated, it often provides more room for negotiating the terms of cyber policies than many other types of coverage.

Most cyber policies currently in the marketplace offer some combination of traditional liability coverage protecting against claims by third parties and first-party coverage protecting against losses suffered by the insured. There also are important terms and conditions of cyber policies that can have a significant impact on available coverage. While no organization can reasonably expect to secure every available component of coverage, awareness of differences among the policies being offered is critical to optimizing premium dollars spent.

While not exhaustive, following are some of the important features to be mindful of when shopping for cyber coverage.

Third-Party (Liability) Coverages: Types, Tips and Considerations

• Privacy liability coverage. This type of coverage includes liability to the insured’s customers/clients and employees for breach of private information. Seek trigger language that focuses on the insured’s failure to protect confidential information, regardless of the cause (e.g., “any failure to protect”), rather than language requiring an intentional breach. Some, but not all, cyber policies also provide coverage for the insured’s failure to disclose a breach in accordance with privacy laws. Because this can be a major component of liability in the case of a data breach, it is important to obtain this coverage.
• Regulatory actions. There is substantial variance among cyber policies regarding whether and to what extent they provide coverage for regulatory and other governmental actions. Even when they do provide regulatory coverage, some policies require that the action be initiated by a formal “suit” to trigger the defense obligation. This limitation typically would preclude defense of the investigative stage of government actions—often the most expensive stage for the entities being investigated. Look for policies that cover defense from the earliest stages of an investigation, typically including a civil investigative demand or similar request for information. In addition, be aware that civil fines and penalties are covered under many cyber policies. Be careful that an insurer does not seek to exclude such coverage.
• Notification costs. This coverage includes the costs of notifying third parties potentially affected by a data breach. There are an ever-increasing and constantly evolving landscape of breach notification laws on a state-by-state basis. Notification cost coverage is included in most cyber policies. However, many policies, often by endorsement, limit the number of individuals that must be notified and the method(s) of notification. Some policies also may vest some control over the notification process (which is often sensitive to the insured) with the insurer. These limitations could leave an organization absorbing at least some of the notification costs if a breach occurs, and may require it to relinquish some control over the notification process.
• Crisis management. Crisis management coverage includes the costs of managing the public relations outfall from most data breach scenarios. Most, but not all, cyber policies contain some form of crisis management coverage. The insured sometimes is required to choose from a predetermined list of vendors. In most cases, if the insured chooses another vendor, the insurer is not required to pay for the services. However, this restriction may be negotiable.
• Call centers. This coverage may be included within the notification and crisis management coverages, may be a stand-alone coverage, or may not be provided at all. Because call centers tend to be one of the higher costs associated with data breaches, it is important to identify whether this coverage is expressly provided and any applicable limitations (including the number of affected persons who are eligible to receive call center services, the hours and locations of the call center, and the specific services the call center staff will provide).
• Credit/identity monitoring. Although this coverage is included in most cyber policies, like call center coverage, it may limit the number of affected individuals who can receive the services and the prescribed vendors that are available.
• Transmission of viruses/malicious code. As its name suggests, this coverage protects against liability claims alleging damages from the transmission of viruses and other malicious code or data. Not all cyber policies have this coverage. Before making it a priority, organizations should consider the extent to which their operating systems realistically have the potential to be a source of this type of liability.

First-Party Coverages: Defining Key Terms

• Theft and fraud covers certain costs related to the theft or destruction of the insured’s data, as well as theft of the insured’s funds.
• Forensic investigation covers the costs of determining the cause of a loss of data.
• Network/business interruption covers the costs of business lost, as well as additional expenses resulting from an interruption in the insured’s computer systems. Some cyber policies require that the interruption be caused by an intentional cyber attack, and some do not. There typically are limitations to this coverage, including a requirement that the interruption last a minimal length of time before coverage begins and a limit on the total length of an interruption that will be covered. This coverage may also include contingent business expenses.
• Extortion covers the costs of “ransom” if a third party demands payment to refrain from publicly disclosing or causing damage to the insured’s confidential electronic data.
• Data loss and restoration covers the costs of restoring data if it is lost, and in some cases, diagnosing and repairing the cause of the loss. It is included in some but not all cyber policies. Data loss and restoration coverage typically is subject to a substantial retention, and may be limited in terms of the cause of the data loss at issue.

Other Key Provisions

• Trigger—loss or claim. Cyber policies typically are triggered either by an event that results in the loss of data, or a “claim” arising from the event that is made against the insured (or made against the insured and reported to the insurer) during the policy period. The claims-made type policies usually are more restrictive in terms of the events that can trigger coverage. In addition, the timing of resulting claims in relation to the loss may limit or preclude available coverage. For these reasons, the loss type policy is the preferred option, even though it may be more expensive.
• Trigger—defense. In some cyber policies, the defense obligation is triggered by a “Suit,” which requires a lawsuit or written demand against the insured. This definition may preclude defense of a claim that has yet to ripen into a lawsuit or a written demand (where much of the defense costs on a particular matter may be spent). If available, seek less restrictive defense language. In some cyber policies, the “Suit” limitation does not apply to governmental actions (such as investigations), which would make this language somewhat more palatable.
• Defense—choice of counsel. In some cyber policies, defense costs are covered only to the extent that the insured chooses from the insurer’s (sometimes short) list of “panel” law firms. If the insured chooses a different firm, its defense costs probably will not be covered. Given the substantial costs likely to be associated with a significant data breach (which could exceed the limits of the policy), the insured should have more substantive input into the choice of counsel. Accordingly, it’s preferable to seek a more balanced choice of counsel language (e.g., the insured and the insurer shall mutually agree on defense counsel; and if they cannot agree, the insured shall choose counsel for which the insurer shall pay up to a set hourly rate).
• Retroactive coverage. Cyber policies often contain a “retroactive date.” Losses arising from events prior to the retroactive date will not be covered. Insurers often fix the retroactive date at the initial date of coverage by the insurer, although the insured may be able to negotiate a retroactive date further back in time.
• Acts and omissions of third parties. Acts or omissions of third parties often may not be covered expressly, or even may be excluded, under cyber policies. For example, if a company uses the services of a third-party vendor to maintain its confidential employee or subscriber information in the “cloud” and the vendor experiences a data breach, the company could be sued by its subscribers or employees and may not have any coverage. We are aware of cyber policies providing coverage for breaches of data maintained by third parties as long as there is a written agreement between the insured and the vendor to provide such services. If an organization relies on any third parties to maintain any of its confidential subscriber or employee information, it should seek to have coverage for breaches of data maintained by third parties expressly covered. Moreover, any self-insured retention language applicable to this coverage should be clear that any payments made by the third party indemnifying the company for loss sustained by the breach count toward satisfaction of the retention.
• Coverage for unencrypted devices. Many cyber policies exclude coverage for data lost from unencrypted devices. If possible, seek cyber coverage without this limitation.
• Coverage for corporations and other entities. Cyber policies often define covered persons, for liability purposes, to include only natural persons—real human beings as opposed to “legal persons” which may be public or private organizations or entities. However, entities affected by data breaches may include corporations and other business entities. Companies should seek coverage that appropriately defines the scope of entities potentially affected by a data breach.
• Policy territory—occurrences outside the United States. Even if a company does not operate outside the Uniteds States, its employees may lose their laptops, PDAs and other electronic devices containing confidential information (or have them stolen) while traveling abroad. Many cyber policies restrict the applicable coverage territory to the United States and its territories. Organizations should ensure that their cyber policies provide coverage even if the loss or theft of confidential information at issue occurs outside the United States.
• Breaches not related to electronic records. Some cyber liability policies restrict coverage to loss or theft of electronic data. However, many breaches occur as a result of loss or theft of paper (or other nonelectronic) records. The best course of action is to choose a policy that covers both electronic and nonelectronic data.
• Location of security failure. Coverage under some cyber policies is limited to physical theft of data on the organization’s premises. This could be problematic in a number of situations, including theft of a laptop, PDA or external drive from an airport or an employee’s home. Other policies limit coverage for data breaches resulting from password theft to situations where the theft occurs by nonelectronic means. Be wary of these types of limitations, which may not seem particularly pernicious on initial review but could be extremely costly.
• Exclusion for generalized acts or omissions. Some cyber policies exclude coverage for losses arising from (i) shortcomings in security of which the insured was aware prior to the inception of coverage; (ii) the insured’s failure to take reasonable steps to design, maintain and upgrade its security; and (iii) certain failures of security software. Avoid these types of exclusions, if possible. They can be problematic, because they use broad language, lack adequate definition and may be applied subjectively.
• Exclusion for acts of terrorism or war. It is unclear to what extent insurers will rely on this common type of exclusion when a data breach results from an organized attack by a foreign nation or hostile organization. To the extent possible, it’s preferable to avoid these types of exclusions.

Conclusion

Cyber insurance is a new but quickly expanding area, as more and more data breach incidents hit the headlines. When choosing a policy, it’s critical to understand the differences among options—and be aware of limitations and exclusions—to make the optimal decision.

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Predictions for Stage 3 Meaningful Use

Author: Deven McGraw, Partner, Healthcare Industry

Editor’s Note: In a two-part interview for “Healthcare Informatics,” Manatt Partner Deven McGraw—a member of the federal Health Information Technology (HIT) Policy Committee and chair of its Privacy and Security Workgroup—looks ahead at what to expect from the Meaningful Use Stage 3 proposed rule. Below is a summary of Deven’s predictions of what the new rule—scheduled to be released in early March—might bring.

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Expectations for the Stage 3 Proposed Rule of Meaningful Use

Based on the emphasis of the Office of the National Coordinator (ONC), the proposed rule is expected to focus on ensuring the goals of interoperability are achieved—that disparate systems will be able to exchange data, consume it and use it to populate their electronic health record (EHR) systems. The Health IT Policy Committee believes it’s important that Stage 3 focuses more on achieving outcomes rather than emphasizing process. In anticipating Stage 3, the Policy Committee thoughtfully articulates the tension between wanting to move toward more outcomes-based measures and fearing we’ll lose the progress we’ve made toward the process objectives in Stages 1 and 2. The proposed rule is likely to seek a balance between heightened attention to interoperability and some relief in the specific process objectives and quality reporting measures that brought complaints from providers.

There has been some talk that Stage 3 will focus on interoperability only. We don’t have many metrics around evaluating outcomes, however—and very few process measures incorporate the necessity of exchanging data in an interoperable way. It’s hard to envision a robust incentive program that is microfocused on interoperability alone.

Moving Away from a “Check the Box” Approach

In Stage 2, there was some pushback and discomfort among program participants with how objectives for exchanging data were presented. There was the feeling that the way the objectives were set—such as the percentages of exchange that needed to happen—reflected a “check the box” approach as opposed to a true holistic assessment of whether care is better coordinated because all of a patient’s providers can exchange data.

How can we reward the interoperable exchange of data in a way that’s less "check the box?" There are not as many options as we’d like, but outcomes measurement is one possibility.

Privacy Challenges of Interoperable Systems

In most cases and most states, it is legally allowed to exchange data to treat patients, on the presumption that most patients would consent to the exchange, if asked. Under the Health Insurance Portability and Accountability Act (HIPAA), as well as many state privacy laws, exchanging data is permitted without the need for specific patient authorization.

There are exceptions. Sharing information that’s covered by federal substance treatment laws requires specific patient authorization, as well as the need to put the recipient provider on notice that the data carries additional privacy protections. In addition, some state laws require patient consent even to exchange data. In those instances, it is the originating provider’s responsibility to get and store patient consent.

The ability to persist consent (meaning the consent obligation travels with the data as it crosses institutional/organizational boundaries) isn’t quite there yet from a technical capability standpoint, in terms of widespread availability and use. Ultimately, it is the provider’s obligation to have secure ways to exchange data and be sure it is going to the right place.

Is Meaningful Use Near Its End?

There are some people saying this is the last rule. The incentive dollars are no longer going to be there. The penalty provisions remain, however—and the Centers for Medicare & Medicaid Services (CMS) needs a strategy for dealing with penalties in the years ahead, when the incentive dollars are gone. Even though the incentive program may be done, now we are moving into the penalty phase. That could require adjustments in the objectives that must be met to avoid incurring penalties.

CMS has enormous financial resources at its disposal through the Medicare/Medicaid programs that it could continue to deploy to create either incentives or disincentives. It could shape objectives that are related to avoiding penalties the same way it shaped objectives around earning incentives. The real question is how much can we leverage the penalties?

While Stage 3 is not a swan song, it is a significant milestone. It marks the last time that a set of objectives can be tied to incentive dollars. After that, it’s all about the penalties.

Congress already wants to know what we have done—and what we have gained for the dollars spent. Stage 3 is our last shot at maximizing our investment in meaningful use.

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Reinventing Long-Term and Post-Acute Care: Integrating into a New Healthcare System

Authors: Carol Raphael, Senior Advisor | Stephanie Anthony, Director | Anthony Fiori, Managing Director

Editor’s Note: In a recent webinar, Manatt Health provided a guide to navigating the exploding growth and transformational trends remapping the long-term and post-acute care (LTC and PAC) landscape. The article below summarizes highlights from the program. If you missed the session, click here to view it free, on demand. To download a free PDF of the presentation for your continued reference, click here.

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Defining LTC and PAC

It’s important to recognize the distinction between LTC and PAC. PAC involves a range of medical services that are focused on helping an individual recover from an illness or manage a chronic condition. Medical care includes home health, skilled nursing, inpatient/outpatient rehab, long-term acute care and hospital/palliative care. Medicare is the primary payer, but Medicaid and commercial insurers are involved as well. For example, for home healthcare, 45% of the payments come from Medicare.

In contrast, LTC involves a range of services and supports that individuals need to meet personal care and daily routine need. There is a large element that involves nonmedical assistance to help with daily living activities, such as bathing and dressing, and instrumental activities, such as housework and personal finances. LTC is really about helping someone to live his or her life in the best possible way. Medicaid is the primary payer. In 2011, Medicaid expended $131 billion for LTC, and 60% of nursing home residents have Medicaid as their primary payer. In 2009, 32% of elderly Medicaid enrollees used LTC financed by Medicaid. In fact, LTC accounts for 74% of Medicaid spending on the elderly.

Although there are distinctions between LTC and PAC, they are often provided alongside each other, and the demarcation is not always that clear. Both are vital parts of the care continuum.

Understanding How LTC and PAC Differ from Other Elements of the Care Continuum

There are four key ways that PAC and LTC differ from other elements of the care continuum:

1. Patient profiles. There is a much higher rate of chronic conditions in the PAC and LTC populations, often combined with comorbidities, functional impairments, and disabilities.
2. Use of services. Services are used for a longer period of time and include elements that are not medical.
3. Goals. PAC’s goal is to restore functional capabilities, as well as the ability to live independently following an acute illness or the development of a chronic disease. LTC’s objective is to support daily living activities. There are no true “medical recovery” goals.
4. Role of family and friends. Family and friends often play an enhanced role in patient care, both in the home and in different institutional settings.

Recognizing the Importance of Focusing on LTC and PAC

LTC and PAC providers are playing an increasingly critical role in ensuring continuity of care and addressing complications that can reduce unnecessary hospital admissions and emergency department use. There’s a growing consensus that there is a significant opportunity to improve care quality and cost-effectiveness for LTC and PAC populations.

Managed care for seniors and people with disabilities who use LTC is still relatively small, but it is steadily growing. In 2012, there were about 389,000 people who received Medicaid LTC through managed-care arrangements, compared with 105,000 in 2004, and we see more and more states beginning to include this population in their managed care plans. On the other hand, 30% of Medicare beneficiaries were enrolled in Medicare Advantage plans as of 2014, compared with 13% in 2004. It’s hard to imagine integrating the care continuum without encompassing post-acute and long-term care.

Emerging Policy Issues Affecting LTC and PAC

There’s increased attention on how to finance LTC and move beyond Medicaid, which is such a central element of the current financing system, causing a strain on state budgets. There are a number of government entities and organizations, most recently the Bipartisan Policy Commission, looking at options for reforming and improving the financing system.

At the same time, there is wide recognition that there are significant challenges around quality measurement and reporting. We don’t yet have a good sense of the state of quality today. We are dealing with a heterogeneous population that includes not only the elderly but also the young disabled and children. Adding to the complexities, LTC and PAC involve multiple provider types with different tools and payment structures.

Other major policy concerns include:

• Ensuring mandatory access across certain populations,
• Placing patients in the right care settings,
• Increasing public reporting requirements with penalties in some cases for nonreporting,
• Reducing unnecessary variation in spending and
• Growing attention on provider compliance.

Understanding the Four Mega Trends Shaping the LTC and PAC Landscape

There are four transformational trends that are defining LTC and PAC today—and into the future:

1. The new aging
2. From volume to value
3. Mega health systems
4. Centrality of states

Below we examine each of these critical trends—and its impact.

Trend #1: The New Aging

As everyone knows, the elderly population in the United States is growing. By 2050, 20% of the total population will be 65 and over, up from 12% in 2000 and 8% in 1950. By the same year, 4% of the population will be 85 or older, 10 times the share in 1950. It’s also important to recognize that average lifespan, which was 47 in 1900, is now over 79. In addition, a new MedPac report projects that by 2030 there will be 80 million Medicare beneficiaries.

In delving into the aging issue, it is vital that we look at the prevalence of chronic disease, which increases as people get older. We have made some strides, but prevalence remains high for many chronic conditions. For example, the percentage of those 65 or older with heart disease has remained stable at 30%. Hypertension also has not increased significantly, with 55% of people over 65 suffering from high blood pressure. Diabetes has gone up, with the prevalence now in the 20% range. Asthma has increased, as well, with prevalence for those 65+ now reaching about 11%.

Among the aging population, we have seen considerable change in palliative and end-of-life care planning and treatment. The percentage of adults who have written down or discussed what they wish for end-of-life care and who would consider palliative care has increased dramatically. There’s also been substantial growth in hospital-based palliative care—a 157% increase between 2000 and 2011. This growth has not been mirrored yet on the community side.

In addition, there has been a dramatic increase in the utilization of hospice care. In 2012, 1.6 million patients received hospice care—and 46% of Medicare decedents received hospice services, compared to 23% in 2000. Medicare spending on hospice care is expected to balloon from $15 billion in 2012 to $27 billion in 2020.

All these changes have combined to put the workforce under pressure, with LTC and PAC systems facing major shortages. The turnover rate for the formal workforce—including nurses and physical and occupational therapists—is a staggering 46%. Demand for these workers is expected to increase by 48% over the next decade.

Most of the care in the LTC system, however, is provided by informal or family caregivers. More than 75% of adults with LTC needs depend on their families. Today, 44 million Americans provide informal care, representing an economic value of $450 billion. On average, informal caregivers provide 18 hours of care a week, with 46% saying they perform medical and nursing tasks.

The key takeaways to remember for the new aging are:

• PAC and LTC need, usage and spending will explode in the coming years due to the growth in the elderly population and the increased longevity of those living with chronic and disabling conditions.
• The demographic changes will increase pressure on providers to develop new delivery models, expertise and treatment methods to help people manage chronic conditions.
• The care continuum must be integrated, with providers collaborating across all sites of care.
• Individuals and their families are increasingly embracing palliative care and hospice, creating a premium for providers to design care models that integrate these services.
• The direct service and informal caregiver workforces are under tremendous strain, requiring a deliberate strategy focused on workforce development and training.

Trend #2: From Volume to Value

From volume to value focuses on doing more with less. It has three offshoots, including what we see in terms of healthcare cost trends; the emphasis on population health management; and the focus on innovative payment mechanisms, which we are testing along with value-based purchasing.

When we look at spending trends, we see that Medicare PAC spending grew dramatically from 2000 to 2012. In that 12-year period, there was an 89% growth in per-beneficiary spend, and a 138% growth in the total PAC spend. That growth is notable because it exceeds the expenditure growth in hospitals and other parts of the healthcare system.

It’s also important to note, however, that PAC per capita costs vary considerably by region. There are parts of the country, such as Texas, Florida, and Louisiana, where per capita costs are much higher and supply is much greater.

The Affordable Care Act (ACA) authorized new Medicare payment models, a number of which, like payment bundling and Accountable Care Organizations (ACOs), not only increase risk-taking for providers but also put more pressure on them to integrate PAC and make sure that the proper site of care is being used. Looking ahead, there are six areas that the Centers for Medicare & Medicaid Services (CMS) will continue to focus on that affect Medicare PAC payments:

1. Broadening the readmission penalties for acute care providers and extending those penalties to PAC providers.
2. Emphasizing site-neutral payments for comparable services in different PAC settings for clinically similar patients.
3. Eliminating financial incentives to provide excess services and shrinking payment rates.
4. Piloting new payment programs to encourage coordinated, efficient care in clinically appropriate settings.
5. Using common assessment instruments to identify more clearly the optimal PAC setting for each patient.
6. Adopting common, consistent processes for measuring, collecting and reporting quality, cost and outcomes across settings.

In addition, there is a new emphasis on measuring patient quality and PAC performance. On October 6, 2014, the President signed a new law in the PAC area called IMPACT (Improving Medicare Post-Acute Care Transformation). IMPACT requires PAC providers to report standardized patient assessment data, data on quality measures, and data on resource use. It requires interoperability of data to coordinate care and improve Medicare beneficiary outcomes. It also provides performance feedback to PAC providers. Finally, it allows the Department of Health and Human Services (HHS) to reduce market basket percentages for skilled nursing facilities by 2% for failing to report data.

As PAC and LTC providers look to move from volume to value, they face continuing IT challenges, though change is on the horizon. PAC and LTC providers were not included in the Health Information Technology for Economic and Clinical Health (HI-TECH) Act and have been late in adopting electronic medical record (EMR) capabilities. They’ve struggled because of the significant capital needed, as well as the interoperability challenges.

We are beginning to see movement, however, with PAC providers starting to adopt EMR technology. Technology is improving with the development of PAC-specific capabilities. In addition, health systems are seeking tools to integrate with PAC EMRs, easing transitions and optimizing patient care. There has been an increase in IT tools used in PAC settings, including remote monitoring for home care, e-hospitalist and e-ICU programs, as well as other telehealth capabilities. Reimbursement remains an issue, however, though recent national attention to telehealth reimbursement is promising.

The key takeaways for the volume-to-value trend are:

• There is a push to reduce payments and pay for bundles of services across care sites.
• There is an increased focus on quality reporting and clinical outcomes as CMS and other payers seek to minimize variations in spending and identify higher-quality, lower-cost PAC providers to include in narrowing networks.
• Providers are innovating to integrate care coordination and care management services and will continue to do so at a rapid rate.
• New technologies are moving into the LTC space more quickly, helping providers manage patients in these care settings and connect to other providers to optimize patient management.

Trend #3: Mega Health Systems

The mega health system trend includes the rising power of consolidated organizations and affiliated networks, as well as the increase in national providers and continuing care networks. It is important to realize that over one-third of Medicare patients require some form of post-acute care after an inpatient stay—and many require multiple levels of care, a trend that’s expected to increase.

Currently, the highest percentage of discharges continue to go to skilled nursing facilities, but home healthcare has been increasing steadily in terms of its share of discharges. On the readmission side, 23% of those from PAC sites and 22% from skilled nursing facilities are readmitted to the hospital. Home healthcare has the highest readmission rate at 28%.

In a “race-to-scale” for health systems, we are seeing an acceleration in consolidation and the formation of integrated delivery systems. Integration is happening horizontally as well as vertically, and the super systems that are emerging are blurring the lines between traditional insurance, hospital systems and provider networks. They also are focusing more than they have historically on PAC and LTC.

At the same time, there is the emergence of larger PAC providers in the marketplace. For example, the merger of Genesis Healthcare and Skilled Healthcare in 2014 created a $5.5 billion PAC provider. In addition, the merger of Kindred and Gentiva creates the largest ($7.1 billion) integrated PAC provider in the United States.

The key points to remember about the mega health systems trend are:

• System formation nationally is creating larger integrated delivery systems that are seeking to include LTC providers through acquisition or strategic partnerships.
• Emerging health systems are looking to create networks of high-performing, collaborative LTC providers in continuing care networks, forcing LTC providers to establish formal relationships and demonstrate value.

Trend #4: Centrality of the States

States are becoming increasingly important players in the LTC space. There are three areas where states are focusing—transitioning to new models of Medicaid payment and delivery, transforming Medicaid into a proactive purchaser and extending managed care to high-cost beneficiaries.

Medicaid is a significant driver of the payment and delivery system reform happening throughout the country. There are a number of ways that states are partnering with the federal government to support payment and delivery system innovations:

• State Innovation Models (SIM). CMS awarded more than $300 million in SIM grants to states to support multipayer payment and delivery system transformation.
• Center for Medicare & Medicaid Innovation (CMMI). CMMI oversees $10 billion in transformation funding, including the $2 billion Healthcare Innovation Awards (HCIA).
• 1115 waivers and Delivery System Reform Incentive Payments (DSRIP). Reform funding ties investments in provider-led delivery system reforms to improvements in quality, population health and cost containment.
• Coverage expansion. Many states are expanding Medicaid to ensure the sustainability of delivery system and payment reforms. With expansion, Medicaid becomes the single largest payer.

In addition, many states are seeking to advance multipayer initiatives for long-term, sustainable reform. Seven states are testing models to align Medicaid and commercial payers. Nine states are participating in Dual Eligible Demonstrations to align incentives for PAC and LTC between Medicare and Medicaid.

It’s interesting to see each state bring its own approach to Medicaid payment and delivery reform, based on its own dynamic and political situation. For simplicity’s sake, we’ve bucketed the approaches into three areas:

• Provider-led care management. States are not relying on an insurance company-based model to drive reforms. Instead, providers are either delivering a care-management model themselves through patient-centered medical homes (PCMHs) or health homes (as in Arkansas), or coming together and assuming risk through a global capitation (as in Oregon).
• Managed Care Organizations (MCOs) and ACOs. States like New Jersey and Minnesota are requiring insurance companies to contract with ACOs or PCMHs to drive reform through provider-based organizations. There’s still the insurance model, however, that is assuming risk for the state.
• MCO Expansion. New York and Texas are examples of states focusing on expanding managed care. New York is probably most well-known for this approach, having moved virtually everyone in its Medicaid program to some sort of MCO, including those using LTC services.

The ACA provides a number of different levers for states and providers to improve the access and delivery of long-term services and supports (LTSS). Many of these—including The Money Follows The Person, The Community First Choice, and The Balancing Incentive Program—are aimed at transitioning individuals out of facility-based settings and into community settings.

Several states also have taken up the Health Home Option Program, which supports intensive-care coordination and a case-management approach for the chronically ill. The benefit is that the federal government picks up 90% of the cost for the first two years of the program.

The Duals Demonstration has proven to be another interesting experience in terms of integrating Medicaid and Medicare programs. States, providers and health plans have struggled for years with navigating the two programs. The ACA created a Duals Office, and 26 states initially showed interest. With a number of states pulling out for various reasons, that has now been whittled down to nine—but there still is a significant focus on trying to integrate both Medicaid and Medicare.

Another key issue is improving access to community-based LTSS for the medically frail. When states expand Medicaid, they have the option of determining which benefit package the medically frail will receive. States either can provide services through their current plan or use an alternative benefit plan, which is essentially the suite of benefits that is offered to the Medicaid expansion population. For the most part, states are choosing the state plan option, but we’re watching this area to see exactly how LTSS will be delivered to the medically frail population.

We have seen soaring growth in Medicaid Managed LTC programs, expanding coverage to more complex patient populations—and we expect that trend to continue. Medicaid managed LTC plans are focused on keeping individuals out of facilities and in the community. It will be interesting to see the role nursing homes play in Medicaid-managed LTC programs, as they have not traditionally been included in these risk-based models.

The key points to focus on around the centrality of the states trend are:

• Medicaid programs are becoming significant drivers of system transformation in their states, often creating platforms for integrating LTC into the Medicaid benefit.
• Managed care will continue to increase in states, including managed care for LTC services, forcing PAC/LTC providers to demonstrate value to payers.
• Emerging delivery models, including ACOs, PCMHs and others, will increasingly impact how LTC providers interact with Medicaid patients, encouraging them to become part of networks responsible for overall cost and quality.

Conclusion

There is increasing activity in the PAC and LTC arenas—and this trend will continue as the population ages and demand grows. The soaring need for services is forcing providers to target patients more effectively through differentiated interventions and new models of care. Providers need to focus on those with multiple chronic conditions and better coordinate medical and supportive care.

In addition, both fee-for-service and managed care systems are facing considerable payment pressures, with a growing need to increase productivity and demonstrate value. It will become essential to be agile and adapt to different accountability and payment structures, incorporating broader clusters of services and increasing levels of risk.

At the same time, the consolidation, both horizontal and vertical, to create mega health systems will drive PAC and LTC providers to integrate into networks or become valued partners. Large systems are beginning to recognize the importance of LTC services to their quality and clinical outcomes, yet are finding them hard to provide.

In this new environment, new competencies—such as marketing, negotiating, understanding costs and creating a culture and infrastructure around quality and accountability—will be necessary. With the growing demand for services and the new skills required, workforce capacity and technology, both internal and external, will require extensive attention and investment, at a time when capital is scarce.

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New Manatt Webinar: “Sharing Clinical Trial Data: Maximizing Benefits, Minimizing Risks”

Learn to Create a Global Ecosystem That Protects Stakeholders While Advancing Medicine

Sharing clinical trial data responsibly is critical to advancing medical science. At the same time, it presents complex challenges—from protecting participants’ privacy to safeguarding intellectual property rights. How can we develop a global ecosystem that balances the interests of stakeholders with the drive to improve the health of people around the world?

At the request of 23 public- and private-sector sponsors—including major life sciences companies, as well as U.S. and international regulators such as the FDA and NIH—the Institute of Medicine (IOM) created a multidisciplinary committee to address that critical question. In a new report, the committee provides guiding principles, strategies and recommendations for responsibly sharing clinical trial data. Now Manatt Partner Deven McGraw, a member of the IOM committee, shares firsthand insight into the report’s findings and implications at a new webinar, “Sharing Clinical Trial Data: Maximizing Benefits, Minimizing Risk.”

During the webinar, presented through PharmaVoice, you’ll learn how business models, academic culture and sponsor and investigator incentives need to change to support the sustainable sharing of clinical trial data. Don’t miss this important opportunity to:

• Discover the committee’s four key recommendations for sharing clinical trial data responsibly.
• Explore the guiding principles for sharing clinical trial data, and the committee’s approach to applying them.
• Examine the roles and responsibilities of key stakeholders, including participants, funders and sponsors, regulatory agencies, investigators, research institutes and universities, journals, disease advocacy organizations and professional societies.
• Understand what data should be shared--and when.
• Identify approaches for mitigating risks and creating a true learning system for sharing clinical trial data.
• Look ahead to the future of data sharing in a changing landscape, including addressing infrastructure, technical, work force and sustainability challenges.

Sharing clinical trial data can accelerate new discoveries, stimulate new research and drive the development of safer, more effective therapies. Find out how we can work together to create a culture of sharing while protecting the rights and interests of all stakeholders. This is a critical program for anyone involved in advancing medical treatments. Even if you can’t make our original airing on March 31 from 1:00 to 2:00 p.m. ET, register now, and we’ll send you an on-demand link to view the session, at your convenience.

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Antitrust Update: What Is the Impact of St. Luke’s Loss on Merging Providers?

Authors: Martin Thompson, Partner, Healthcare Industry | Lisl Dunlop, Partner, Litigation

Last February, Manatt Health Update examined the January 24, 2014, decision of the U.S. District Court in Boise that St. Luke’s Health System’s acquisition of Saltzer Medical Group, Idaho’s largest independent physicians’ practice, violated the Clayton Act. The case marked the first time that a hospital’s acquisition of a physician group had been ruled an antitrust violation.

Now a three-judge panel of the Ninth Circuit Court of Appeals in Portland has upheld that ruling, agreeing that the 2012 merger of St. Luke’s and the Saltzer Medical Group violated the Clayton Act, which bars mergers that may substantially lessen competition or create a monopoly. The Ninth Circuit also backed the District Court’s order that St. Luke’s unwind the deal.

What Did the Courts Say?

The District Court and Ninth Circuit’s decisions focused first on market definition. By accepting the Idaho Attorney General and FTC’s position that the market was as narrow as the single town of Nampa, Idaho, in which Saltzer accounted for over 80% of available primary care physicians, the District Court found the transaction presumptively anticompetitive and likely to result in price increases. The Ninth Circuit agreed with this conclusion.

In its defense, St. Luke’s argued that the acquisition would improve patient outcomes and healthcare quality in the communities it serves, such as through access to the Epic electronic records system and greater scale to successfully make the transition to integrated care. Many of these claimed efficiencies were rejected by the District Court as not being directly tied to the merger, but rather things that could be achieved by contracting or other means. But the court held that even if true, the predicted efficiencies were insufficient to overcome the finding that the transaction would result in higher reimbursement rates for primary care physician (PCP) services.

The Ninth Circuit seems to have been even more hostile to St. Luke’s efficiencies claims, expressing skepticism about the scope of the efficiencies defense. Judge Andrew D. Hurwitz wrote: “At most, the District Court concluded that St. Luke’s might provide better service to patients after the merger. This is a laudable goal, but the Clayton Act does not excuse mergers that lessen competition or create monopolies simply because the merged entity can improve its operations.” In the Ninth Circuit’s view, unless the efficiencies can be tied directly to enhancing competition as a result of the efficiencies, they cannot save an anticompetitive merger.

The Importance of Evidence

The St. Luke’s case highlights the importance of company documents and other evidence in an antitrust case. Two types of evidence were particularly devastating for St. Luke’s defense: a statement in internal emails about the possible impact of the transaction, and St. Luke’s past conduct in negotiating with payers following other transactions.

With all the information at its disposal, the courts looked to internal emails in which executives predicted that their bargaining power would allow them to raise prices after the acquisition, using phrases such as having the “clout of the entire network” at its disposal. As we see every day in the news, what we put in emails can come back to haunt us in ways we may never have anticipated.

In addition to internal speculation about the ability to raise prices after the merger, the courts also looked to evidence of St. Luke’s conduct following an earlier acquisition in Twin Falls, Idaho, where St. Luke’s used its leverage to force insurers to concede to its higher pricing proposals. This was strong evidence in support of the finding that St. Luke’s would likely use its postmerger power to negotiate higher reimbursement rates from insurers for PCP services.

How Does the Rule Affect Systems Seeking to Consolidate?

In our original article, we noted that the ruling would be likely to increase FTC scrutiny of hospital acquisitions of physician practices and other clinical operations. With health systems across the country forming Integrated Delivery Networks, the Ninth Circuit’s opinion is an important wake-up call that improving patient outcomes and cost efficiencies on their own will not outweigh antitrust issues.

Even “laudable” efforts to meet the goals of the Affordable Care Act (ACA) will not win the day if consolidations have the potential to result in higher prices. The St. Luke’s decision came down to high levels of market concentration—with St. Luke’s and Saltzer making up 80% of the primary care physician market in Nampa—which would “increase the bargaining power to raise prices.”

On the other side, there are those who argue that consumers can benefit from the new value-based delivery arrangements in ways that traditional antitrust analyses don’t take into account. They put forth the premise that consumers’ best interests should be considered in conjunction with market forces. But St. Luke’s makes clear that unless the benefits of consolidation translate into tangible, quantifiable benefits for consumers and insurers, they will not carry the day in traditional antitrust analysis.

As providers across the country explore new and innovative ways to join together to improve value, quality and outcomes, they will need to take a close look at potential antitrust challenges and how best to develop procompetitive efficiencies.

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