Sucker Punched?
www.modernhealthcare.com By Rich Daly Posted: June 20, 2011 – 12:01 am ET
Reform law’s strict enforcement, tough penalties a slap in the face for some providers
As the 2010 federal healthcare overhaul was moving through Congress, provider groups knew that it contained an unprecedented series of penalties aimed at improving the quality of patient care and reducing inefficiencies in the healthcare system. But 2011 has brought those penalties into greater focus, as federal policymakers have begun to issue the regulations that spell out the extent of the financial toll on providers.And some provider advocates worry that the cumulative impacts of the various fines and penalties could drive clinicians and hospitals to insolvency.
“On the one hand, we’re not arguing with the idea that you have to find ways to improve care and make it more efficient,” says Chip Kahn, president of the Federation of American Hospitals. “On the other hand, to have policies all based on penalties will ultimately increase compliance but it also makes it much more difficult to do business.”
Kahn has estimated that up to 10% of hospitals’ annual federal healthcare funding could be affected once all of the various penalties from the 2010 law and other federal initiatives, such as electronic health records, are implemented. Physician groups estimated that penalties could ultimately impact a similar share of their members’ Medicare reimbursements.
Separately, federal officials have estimated that by 2015, about 9% of all Medicare payments to hospitals will be linked to publically reporting errors, reducing hospital-acquired conditions and avoiding hospital readmissions, which are various initiatives of the 2010 law.
Bonus payments and penalties equaling a fixed percentage of a provider’s annual payments have emerged in recent years as healthcare payers have sought to leverage so-called carrots and sticks to encourage or discourage certain practices or initiatives.
Early penalty impacts
Among the highest-profile efforts before last year’s passage of the Patient Protection and Affordable Care Act was the $20 billion EHR initiative included that’s part of the 2009 American Recovery and Reinvestment Act. Like most penalty programs in healthcare, that digital record program initially offers several years of bonus payments to providers who buy, install and use qualifying technology.
However, those incentive payments give way to penalties for healthcare providers participating in Medicare who are not compliant by statutory deadlines. Although as-yet unreleased regulations will determine the exact penalty start dates, a CMS official said they may begin for hospitals and other qualifying healthcare facilities by Oct. 1, 2014, and Jan. 1, 2015, for physicians and other clinicians. Specifically, hospitals that fail to the meet the EHR program’s requirements will face a 25% reduction in their annual marketbasket update.
“To me, the penalty or a bonus is probably no different than a change in the provider rates,” says Paul Ginsburg, president of the Center for Studying Health System Change. “The motivation of the penalties is to get you to change.”
But what if the penalties did not have that intended effect?
That might happen in the case of the EHR incentives, according to an American Hospital Association survey released in April. It found that more than half of hospitals surveyed this year say they will fail to meet the program’s requirements before the penalty phase begins. Hospitals blamed the program’s time requirements, required resources and strict definitions for preventing their successful participation.
Another precursor to last year’s healthcare law that also included penalties is the 2008 Medicare Improvements for Patients and Providers Act, which instituted a Medicare e-prescribing program. That initiative began with small bonus payments for several years before switching to deductions for noncompliance starting at 1% of the provider’s total Medicare reimbursements in 2012 and climbing to 2% in 2014.
The presence of the penalties in e-prescribing apparently also has failed to drive overwhelming provider participation. The 2010 American Academy of Family Physicians practice profile survey found that on the cusp of the program’s penalty phase, their members’ compliance with the various requirements of the e-prescribing program ranged from 30% to 70%.
Part of that low compliance with e-prescribing likely stemmed from the lack of coordination between that program and the EHR initiative, which has its own but different e-prescribing requirement. The practical effect was that practices adopting EHR systems still faced Medicare penalties if they didn’t add a separate e-prescribing program to comply with that program, says Anders Gilberg, vice president for public and private economic affairs at the Medical Group Management Association.
Regulators may have realized the widespread penalties that the program was about to impose on providers when they issued a proposed rule change in the e-prescribing program June 1. The proposed rule would allow penalty exemptions for providers who are obtaining EHR certification.
But the last-minute proposed rule has a public comment period that continues after the June 30 deadline for e-prescribing compliance, which could leave many providers wondering if they will face penalties even if they follow the proposed rules, according to provider representatives.
“The requirements of these various programs are already confusing for practicing physicians,” says Dr. Glen Stream, president-elect of the American Academy of Family Physicians. “Add to that the fact that these programs just don’t seem very well-coordinated and it becomes more difficult.”
Many group practices did not participate in the incentive portion of the e-prescribing program because they believed they would not qualify, Gilberg says. However, many of those practices belatedly realized their prescribing patterns might subject them to the penalty phase so they rushed to add temporary programs to avoid the e-prescribing penalty before the proposed rule change was announced.
“In the meantime, in the group practice world everyone was spending money just to avoid this penalty,” Gilberg says. Implementing such short-term e-prescribing programs, which would not be necessary under the last-minute proposed rule, also took time and energy that practices could have used to improve workflow and patient care, he says.
ACA penalties loom
Payment penalties for various providers will spread beyond electronic healthcare data through the various provisions of the Affordable Care Act. For hospitals, potential provider penalties created through the reform law include a loss of up to 2% of Medicare payments for noncompliance with the value-based purchasing program and up to 3% for an initiative to reduce readmissions. Those penalties are in addition to cuts, such as a 0.75% marketbasket reduction in 2017, 2018 and 2019. The law also included a downward productivity adjustment, as well as documentation and coding adjustments.
“For these resource-strapped hospitals, it is not a small amount of money,” Xiaoyi Huang, assistant vice president for policy at the National Association of Public Hospitals and Health Systems, says in e-mailed comments.
In the case of NAPH member hospitals, every 1% reduction in Medicare revenue is about $1 million annually, on average, Huang says.
The 2010 law’s penalty provisions for physicians include an extension of the Medicare Physician Quality Reporting Initiative (now known as the Physician Quality Reporting System) that cuts reimbursements among providers who fail to report quality measures beginning in 2015. Also, physicians who fail to meet the requirements of the maintenance of certification program will face a 1.5% payment penalty in 2015, which rises to a 2% cut in 2016 and subsequent years.
Among the factors that could amplify the negative impact of the penalties on providers, according to the fears of their national representatives, are repeats of the uncoordinated approach followed by regulators implementing the e-prescribing and EHR laws. Continued issuance of uncoordinated and “impractical” regulations implementing other penalty programs in the coming years could leave providers scrambling from one temporary fix to another that would waste more money and energy, Gilberg says
“I wouldn’t call the approach to date thoughtful or incremental,” Gilberg adds. “With the stick and uncoordinated approach, that’s where you see the kind of temporary workarounds just to avoid the penalty.”
Effects unknown
The penalty provisions under the e-prescribing and EHR programs and various initiatives of the reform law represent the first large-scale use of payment cuts to drive changes in provider behavior, according to hospital and physician advocacy organizations. But little U.S. research has focused on the impact of penalties on providers, including the extent of unintended consequences.
In the run-up to the passage of the 2010 healthcare law, provider organizations were not able to project the potential impacts of the expansive penalty programs before it was enacted. But some, including AAFP, have begun collecting data on the ways the incentives and the penalties are affecting their members as those programs are implemented.
So far, anecdotal reports coupled with the emerging details of the penalties, as defined by new regulations, indicate that unwanted results are likely.
“It’s a bit of a slap in the face to providers willing to treat Medicare patients” despite reimbursements that are consistently less than private insurance rates, on average, Stream says.
Some large physician practices, according to Gilberg, are already working to decrease the proportion of their business that relies on Medicare because there is so much uncertainty about the extent, impact and design of the regulations implementing penalty provisions. Private insurers generally do not use similar provider payment penalties, although some charge the patients of providers ranked low by claims data higher copayments, according to provider advocates.
Among hospitals, those that are especially likely to face payment penalties are in rural areas and inner cities, Kahn says, because they are least likely to afford the technological upgrades and staff training costs necessary to qualify for incentives and to avoid penalties.
“Some hospitals won’t have the upfront resources to add the services to meet these new standards,” Kahn says. The law contains some provisions to address the challenges faced by these providers, including a four-year “test,” beginning by 2015, of whether extra payments to these providers improve access for low-income beneficiaries.
Fewer resources
But when such hospitals begin losing a percentage of the Medicare payments through penalties, they will have even fewer resources to make the necessary improvements, provider advocates noted.
“It does raise the question of ‘How can you get better if you’re constantly being penalized?’ ” says Edward Goodman, vice president of public policy at the provider alliance VHA.
The compounding effect of multiple penalties over successive years could ultimately undermine the economic viability of some providers. And those penalties could occur even after practitioners have spent large amounts of money on technology, training and lost productivity.
“The Physician Quality Reporting System, e-prescribing and looming development of ACOs all require reporting of various disparate quality metrics,” Dr. Sasha Kramer, a Washington state dermatologist, told the House Small Business Health and Technology Subcommittee on June 2. “Simply understanding and implementing all of these different programs is extremely difficult, and often overwhelming, as a small practice.”
She spent more than $41,000 on an EHR system three years ago from a vendor that was later acquired and whose service was discontinued. Even after that expense, Kramer noted, she will still face penalties if she does not buy a replacement system and suffer another round of reduced income as she and her staff are trained to use it.
Dr. Denise Elliott, a podiatrist, noted similar cost challenges for her small practice in Louisiana to comply with the EHR requirements and avoid Medicare payment cuts.
“The financial impact on me as a small business owner in complying with the requirements of health information technology and electronic health records is overwhelming and could be disastrous,” Elliott said during the same congressional hearing on the health IT challenges solo practitioners.
Like other federal officials who have addressed the topic of provider penalties in recent months, Dr. Farzad Mostashari, head of the Office of the National Coordinator for Health Information Technology at HHS, told the panel that the goal of federal officials is not to impose penalties on providers but to achieve only universal adoption and use of EHRs.
“We’re doing everything we can to not only have an ambitious program, but also a successful one,” Mostashari said.
Others are not as concerned with the cascading effects of various penalty provisions.
For instance, Ginsburg at the Center for Studying Health System Change says disastrous consequences of compounding annual penalties for providers may be beneficial for the healthcare system overall.
“There’s always going to be a risk that they are going to drive someone under and to some extent that’s a risk worth taking because they are not providing the kind of quality care that we want,” Ginsburg says.
But the threat of penalties that endanger the viability of a large number of providers is likely to spur congressional involvement, Gilberg says.
Rep. Renee Ellmers (R-N.C.), chairwoman of the House Small Business Committee’s Healthcare and Technology Subcommittee, told Modern Healthcare this month that she was considering legislation to eliminate the penalty phase of the health IT programs, depending on the leeway that regulators were willing to give providers. “These are small-business owners, and you have to look at this from the point of, ‘Is it cost effective,’ ” Ellmers says. “As important as it is—and our physicians understand that—still, we are burdening them with the high cost of technology.”
Fraud penalties
Another area of healthcare that has seen a greater use of penalties in recent years is in the federal attempt to combat waste and fraud.
Most providers consider waste, fraud and abuse fines far different from penalties imposed with the goal of improving care, but Grace Marie Turner, president of the conservative Galen Institute, says a culture of penalties has resulted in an increase among both types. In addition to creating fines related to healthcare delivery, the Affordable Care Act added a number of new financial penalties for fraud, along with the threat of a lifetime ban from federal healthcare programs, she says.
Healthcare providers also have increasingly faced lengthy and expensive investigations for unintentional paperwork errors, Turner says.
“You have the fraud police going out there and they can find laws and rules that most physicians don’t even know exist, much less that they are violating them,” Turner says of federal, state and private investigators in Medicare and Medicaid.
One new and overly broad enforcement approach, says William Dombi, vice president for law at the National Association for Home Care and Hospice, is the home-care audit by HHS’ inspector general’s office. If the audits find a provider has ever failed to perform a health screening required by the Medicaid program in any state then they urge the CMS to pull the equivalent of all funding that the company ever received from its share of that Medicaid program and encourage the state to demand the same amount back from the provider.
“In 90% of cases it’s either minor errors or paperwork snafus,” Dombi says.
Nonetheless, such cases can involve tens of millions of dollars cumulatively and at least one is threatening the financial viability of a home health provider.
“It’s costly and it can be overwhelming,” Dombi says.
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