Reproduced with permission from BNA’s Health Law Reporter, 22 HLR 48, 11/21/2013. Copyright � 2013 by TheBureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

Clinically Integrated Networks Give Providers and Payers an Opportunity forTransformative Collaboration

BY LISA A. HATHAWAY, RACHEL D. LUDWIG, PETER

A. PAVARINI AND MICHAEL F. SCHAFF

I. Executive Summary

T he health care sector is experiencing a series ofmarket reforms that have the potential to reshapehow care will be delivered and reimbursed for de-

cades to come. Although a number of concepts such asaccountable care organizations (ACOs) and patient-centered medical homes have attracted the most atten-

tion during the implementation of the Affordable CareAct (ACA), one organizational model that has beenaround for nearly 20 years has quickly jumped to theforefront of industry transformation. Clinically inte-grated networks (CINs) were first recognized by theDepartment of Justice (DOJ) and the Federal TradeCommission (FTC) as a way for groups of competingproviders to work together to improve quality and re-duce costs without running the risk of violating federalantitrust laws,1 but more recently have establishedthemselves as viable alternatives to the development ofmore costly and complex arrangements, such as ACOs.This article explores opportunities in the new healthcare delivery paradigm created by CINs working to-gether with health plans and payers to improve thequality and cost-effectiveness of care delivered to par-ties. This article is intended to be a practical guide tothe best practices of CIN creation and implementationwhich identifies and reconciles provider and payer per-spectives on this emerging area of health law.

II. Payers and Providers Desire CollaborationHealth care reform commenced a paradigm shift to-

ward reduced costs and improved quality of caregrounded in new performance-based payment models.Health care reform fostered increased competition be-tween providers and instilled growing uncertaintyabout the future of reimbursement. The ACA makes itessential that hospitals and health systems have a ve-hicle for managing patient care and receiving appropri-ate compensation. Payers also are feeling an intensepressure to reduce costs and improve quality of care.

1 See Statements 8 & 9, Department of Justice and FederalTrade Commission Statements of Antitrust EnforcementPolicy in Health Care, 1996 Revisions.

Lisa A. Hathaway is assistant general counselat Blue Cross and Blue Shield of Florida Inc.in Jacksonville, Fla. Lisa is also a board mem-ber of the American Health Lawyers Associa-tion.

Rachel D. Ludwig is a Healthcare Fellow atSquire Sanders (US) LLP and a member ofthe American Health Lawyers Association.

Peter A. Pavarini is a partner at Squire Sand-ers (US) LLP and president-elect of Ameri-can Health Lawyers Association.

Michael F. Schaff is a shareholder and chairof the Health Care and Corporate LawDepartments of Wilentz, Goldman & SpitzerPA and resident in its Woodbridge, N.J. office.Michael is on the advisory board of BNA’sHealth Law Reporter.

An oral presentation on this topic was madeat the AHLA Annual Meeting in July 2013 byLisa A. Hathaway, Peter A. Pavarini andMichael F. Schaff.

COPYRIGHT � 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1064-2137

BNA’s

Health Law Reporter™

This pressure stems from increased scrutiny by regula-tors, employers, and plan beneficiaries and the new re-quirements from the ACA and the Centers for Medicare& Medicaid Services (CMS) such as risk-adjusted pay-ments, medical loss ratios (MLRs), and various qualityof care requirements including Health Care Effective-ness Data and Information Set (HEDIS) measures andFive-Star Quality Ratings. In conjunction with require-ments for payers to reduce costs, the ACA requires pay-ers to assume new costs, taxes, and rating systems ofproducts that will increase operational costs for payers.Payers also face a demand for increased provider reim-bursement due to declining government payments.Government promotion of, and commercial payers’ in-terest in, performance-based payment has compelledthe entire health care market to concentrate on devel-oping models that successfully reduce costs while con-currently improve quality of care.

III. The Advantages of the CIN model

A. CINs: PHOs Version 2.0CINs have been compared to the physician hospital

organizations (PHOs) of the 1990s,2 but CINs are un-likely to experience the same bell curve trajectory of the1990s PHOs. The reason for this is that CINs have thefollowing characteristics that enable opportunities forcontinual performance improvement, which positionCINs for long-term success:

1. CINs provide more depth and breadth of coveragethan other integration models;3

2. CINs are under-inclusive and only admit the bestphysicians to the membership organization. Theyusually are sponsored by the hospital but led bythe physicians;

3. CINs allow hospitals to engage a mixed medicalstaff (independent and employed physicians);

4. CINs have the IT infrastructure and data aggrega-tion ability to manage risk;

5. CINs encourage better quality and may utilizeperformance-based payment methods; and

6. CINs provide a competitive vehicle for joint con-tracting with third party payers.

B. Benefits of Provider and Payer Collaborationthrough CINs

In light of the shifting health care paradigm, indepen-dent medical practitioners and hospital-employed phy-sicians continue to want a fair reimbursement for theirservices and some seek higher reimbursement for deliv-ering better care along with providing more efficient

claims administration, improved quality of care, andmore efficient technology (especially health informa-tion technology). CINs offer these benefits with nomi-nal or zero capital contribution requirements. Despitethe dramatic increase in the number of physicians seek-ing employment by hospitals and health systems,4 inde-pendent medical practice shows no signs of disappear-ing. CINs present providers the option to become em-ployed physicians or remain independent. Independentpractitioners face major hurdles in getting prepared foraccountable care and health system integrations.5

Small groups—the setting in which most independentphysicians currently practice—generally lack the capi-tal or depth of management to make changes requiredby health reform. Fee-for-service medicine, as long as itremains the predominant form of reimbursement, is adisincentive to taking the steps required to improve thequality and cost-effectiveness of most practices. CINsoffer an arena for employed physicians and indepen-dent physicians to work together toward improvingquality of care and attaining cost-efficiency.

For hospitals to compete in the new health care arenathrough controlling costs and improving care, they re-quire cooperation from physicians. Hospitals are will-ing to employ those physicians who want to be em-ployed, but they also want to align with independentphysicians who may be some of the best doctors ontheir medical staffs. If hospitals fail to align with physi-cians through a network, they may see these physiciansjoin other CINs that have performance-based payercontracts. The ultimate business purpose of a CIN is toallow providers who are not otherwise economicallyaligned to engage in joint contracting with third partypayers.6 Providers understand that performance-basedcontracting is the future of reimbursement and thatCINs are an effective vehicle to achieve this goal.

CINs can help payers with today’s changing providerstructure and rapidly changing regulatory and accredi-tation requirements. CINs provide data aggregation andmetrics necessary to demonstrate quality improvementand can align physician behavior to drive costs down.CINs allow payers to evaluate the efficacy of new pay-ment and risk sharing methods including: global pay-ments, bundled payments, and shared savings. Integra-tion between physicians and hospitals reduces the like-lihood of payments for overlapping services contrary toa fee-for-service model where hospitals and physiciansfunction separately and each seeks payment for over-lapping services.

IV. Payer and Provider Perspectives on CINCreation

A. All Parties Require Regulatory ComplianceA basic foundational principle for CIN success is CIN

compliance with federal and state regulatory laws. CINs2 See Barry S. Bader, ‘‘Clinically Integrated Physician-

Hospital Organizations,’’ Great Boards, Vol. IX, No. 4 (2009),available at http://www.greatboards.org/newsletter/2009/Great-Boards-Winter-2009-reprint-Clinically-Integrated-PHOs.pdf.

3 See ‘‘Building the Performance-Focused Physician Net-work: Road Map for Assessing and Implementing a Clinical In-tegration Strategy,’’ Health Care Advisory Board, September2010, executive summary available at http://www.advisory.com/Research/Health-Care-Advisory-Board/Studies/2010/Building-the-Performance-Focused-Physician-Network.

4 ‘‘When the Doctor has a Boss,’’ Wall Street Journal, Nov.8, 2010, available at http://online.wsj.com/news/articles/SB10001424052748703856504575600412716683130.

5 Mark Shields, M.D., et al., ‘‘A Model for Integrating Inde-pendent Physicians Into Accountable Care Organizations,’’ 30Health Affairs 161 (2011).

6 Mark Shields, M.D., ‘‘From Clinical Integration to Ac-countable Care,’’ Annals of Health Law, Vol. 20, p. 154 (2011),available at http://lawecommons.luc.edu/cgi/viewcontent.cgi?article=1036&context=annals.

2

11-21-13 COPYRIGHT � 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. HLR ISSN 1064-2137

should consult with a lawyer about compliance with alllaws the CIN could potentially implicate, including anti-trust laws, federal and state anti-kickback and self-referral laws, various tax laws, especially those dealingwith Internal Revenue Code Section 501(c)(3) classifi-cation, federal privacy laws such as the Health Insur-ance Portability and Accountability Act of 1996, stateinsurance regulatory oversight, state corporate practiceof medicine laws, state fee splitting prohibitions, statelicensure requirements, and state security laws. Wehave not specifically addressed all of these laws in thisarticle; however, the following is a short discussion ofthe federal antitrust considerations highlights:

Independent competing providers’ joint negotiationof fees through a CIN may raise antitrust concerns. TheFTC has not identified specific criteria to provide a safeharbor for CINs, but has provided some guidancethrough statements and advisory opinions.7 In order tocomply with antitrust regulations, the pro-competitiveefficiencies of the CIN must outweigh the potential an-ticompetitive effects.8 Demonstration of this principle iscrucial. CINs should aim to improve quality of care andaccess to high quality care, while at the same time re-duce costs.9 It is imperative that quality improvementbe more than just an objective, but that measures suchas clinical practice guidelines are implemented to docu-ment and show the quality improvement.10 Collabora-tion on patient and treatment information via health ITsystems is another way to demonstrate quality improve-ment. The CIN should require providers to be active inachieving the objectives by developing the actual mea-sures through serving on committees and the board ofthe CIN.11 Participating providers’ performance shouldbe evaluated and monitored regularly.12 The availabil-ity of significant capital to build the infrastructureshows the potential for substantial pro-competitive effi-ciencies.13 The CIN should be nonexclusive in that pay-ers that do not want to contract with the CIN still may

contract with participating providers individually.14

This is simply an overview of a few antitrust principlesand is not a comprehensive analysis of antitrust lawwith respect to CINs. CIN development and implemen-tation requires comprehensive and continued antitrustanalysis by an experienced antitrust attorney.

B. Provider Perspective: Physicians-HospitalCollaboration

One key step in developing a CIN is appropriatelybalancing hospital interests and physician interests. ACIN often is structured as an entity for which the hospi-tal provides the capital, information technology and ad-ministrative support and the physicians lead the organi-zation and maintain a high level of self-direction. Hos-pitals usually expect to receive certain reserved powersthat align the CIN’s interests with those of the commu-nity. Balancing provider interests ensures mutual de-pendency between the physicians and the hospital andincentivizes the providers to work together toward theoverarching goals of quality improvement and cost re-duction. Providers must consider the following CIN de-velopmental issues in light of the regional market, thespecific participating providers, and the potential areasfor quality improvement within the CIN.15

1. Choice of EntityFor regulatory reasons, CINs should be organized as

separate entities. There is a strong trend towards struc-turing CINs as limited liability companies (LLCs) be-cause LLCs provide the flexibility required to accommo-date various classes of participants, certain tax advan-tages, and potential for equity appreciation over time.Other options include taxable, not-for-profit corpora-tions or for-profit corporations. The specific businessobjectives of the participants and the governing statelaws play the primary role in choice of entity.

2. Governance StructureCINs often have a complex governance structure that

involves multiple layers of decision making that actconcurrently to carry out the mission of the CIN. Theboard of managers or directors (board) is a reflection ofthe ‘‘balance of power,’’ therefore it is imperative thatthe hospital, employed physicians, independent physi-cians, primary care physicians and specialty physiciansare adequately represented. Physician-dominant boardsare common. Tax-exempt hospitals must ensure the ex-istence of class voting, super-majority voting or re-served powers when partnering with independent phy-sicians. Officer positions should be distributed betweenpracticing physicians, physician executives, and lay ad-ministrators. The CEO or board chair usually is a prac-ticing physician. While the board makes policy andstrategic planning decisions, the committees performthe majority of the work. Since committees make mostday-to-day operational decisions, substantial integra-tion and quality improvement will be achieved only ifphysicians agree to participate in and lead committees.Typical committees include finance, utilization manage-

7 See Statements 8 & 9, Department of Justice and FederalTrade Commission Statements of Antitrust EnforcementPolicy in Health Care, 1996 Revisions; FTC Staff Letter Re-garding MedSouth Inc. (Feb. 19, 2002), available at http://www.ftc.gov/bc/adops/medsouth.shtm; FTC staff letter regard-ing Greater Rochester Independent Practice Association Inc.(Sept. 17, 2007), available at http://www.ftc.gov/bc/adops/gripa.pdf; FTC staff letter regarding TriState Health PartnersInc. (April 2009), available at http://www.ftc.gov/os/closings/staff/090413tristateaoletter.pdf; FTC staff letter regarding Nor-man Physician Hospital Organization (Feb. 13, 2013), availableat http://www.ftc.gov/os/2013/02/130213normanphoadvltr.pdf;76 Fed. Reg. 67026.

8 See 15 U.S.C. § 1; Statements 8 & 9, Department of Jus-tice and Federal Trade Commission Statements of AntitrustEnforcement Policy in Health Care, 1996 Revisions.

9 See Statement 8, Department of Justice and Federal TradeCommission Statements of Antitrust Enforcement Policy inHealth Care, 1996 Revisions.

10 See FTC staff letter regarding Greater Rochester Inde-pendent Practice Association Inc. (Sept. 17, 2007), available athttp://www.ftc.gov/bc/adops/gripa.pdf; FTC staff letter regard-ing Norman Physician Hospital Organization (Feb. 13, 2013),available at http://www.ftc.gov/os/2013/02/130213normanphoadvltr.pdf.

11 See FTC staff letter regarding TriState Health Partners,Inc. (April 2009), available at http://www.ftc.gov/os/closings/staff/090413tristateaoletter.pdf.

12 See id.13 See id.

14 See FTC staff letter regarding Norman Physician Hospi-tal Organization (Feb. 13, 2013), available at http://www.ftc.gov/os/2013/02/130213normanphoadvltr.pdf.

15 James J. Pizzo and Mark E. Grube, Getting to There fromHere: Evolving to ACOs Through Clinical Integration Pro-grams, 2011, available at http://www.advocatehealth.com/documents/app/ci_to_aco.pdf.

3

BNA’S HEALTH LAW REPORTER ISSN 1064-2137 BNA 11-21-13

ment (UM), quality improvement, credentialing andcontracting. The CIN must consider physician compen-sation for board and committee participation. Voluntaryphysician service on a CIN board or committee is com-mon in the early stages of development, but many phy-sicians are in a position to demand reasonable compen-sation for their administrative services once the CIN isfully operational.

3. Provider ParticipationCINs may require a participation fee from physicians,

but unlike other joint ventures, they do not expect phy-sicians to contribute substantial capital. The most suc-cessful CINs require participating providers to have awillingness to deliver health care services in confor-mance with an agreed set of performance standards,meet the CINs credentialing standards, agree to shareclinical data with the CIN, and actively participate inand develop clinical improvement activities. Unequaltreatment of independent and employed physiciansthrough membership classes or different governancerights and leadership roles has a polarizing effect thatalways impedes the development of a cohesive deliverynetwork. While equal treatment of independent andemployed physicians is not mandatory, creating aneven playing field for all physicians cultivates collabo-ration between physician factions within the CIN. Like-wise, embracing a diverse physician membership andensuring diversity in leadership roles supports theCINs’ clinical and business objectives by creating abroad, high-quality network.

As discussed in Part IV(A) above, developing CINs re-quires stealthy navigation of a variety of regulatory is-sues, particularly in the antitrust arena. Without engag-ing in an extensive discussion of CIN antitrust law, ba-sic guidelines regarding appropriate behavior forcompeting physicians during developmental meetingsmust be obeyed to avoid antitrust liability. Each meet-ing should have a written agenda and that agendashould be followed closely. The CIN should record min-utes of each meeting that document the specifics of thediscussions and clearly set out up front (and include inthe minutes) any items that should not be discussed. Anoutside third party should be used to collect and man-age competitive information and a neutral facilitatorshould oversee meetings to ensure that the providersare not engaging in illegal conduct. Providers shouldexchange information which is reasonably necessaryfor the development or operation of the CIN. It is impor-tant that providers discuss the procompetitive reasonsfor the CIN, including how the network will enhancepatient care in the service area, how the CIN will createefficiencies that will make care more accessible andcompetitive, and how health care is changing and howthe medical community should respond to thosechanges.

Physicians should not discuss or agree with a com-petitor on any type of price fixing, including talkingabout current or expected prices for any provider. Nodiscussions on limiting the amount of care for individu-als or groups should occur. No fee schedules, marketshare data, or any contract negotiations or contractterms with third parties should be shared. There shouldbe no discussion among providers about the eliminationor reduction of competition in the market or division orallocation of markets or patients. Providers must notsystematically boycott dealing with any payers or other

providers. Adherence to these guidelines will providepowerful documentation that the CIN complies with theregulatory requirements for CINs established by theFTC.

4. Joint ContractingThe predominant benefit providers realize through

CIN participation is the ability to engage in joint con-tracting and negotiate better payment while focusing onimproving quality. Joint contracting is most effectivewhen every physician participates in every contract,there is adherence to common set of quality, safety, andcost-effectiveness measures, physicians are able toshare in incentive funds, there is appropriate infrastruc-ture including effective electronic medical records(EMR)/electronic data interchange (EDI) and adequatephysician training and education, and the CIN has theability to achieve market recognition.

C. Payer Perspective: Does the CIN FormationEnable Payers to Meet Regulatory andAccreditation Requirements?

1. Risk Adjustment of PaymentsUnder the ACA, the new metal plans16 must certify

over 100 items and be accredited in order to participatein a marketplace (exchange).17 The quality of care of-fered and the types of providers in a plan’s network fac-tor into accreditation for participation in the ex-changes.18 Payment for both metal and Medicare Ad-vantage (MA) plans is on a risk-adjusted basis—basedon acuity, diagnoses, age, sex, and other characteristicsof the plan members. Generally, risk-adjusted pay-ments require plans to accept less payment for healthymembers than for members with chronic conditionsand higher acuity members. With a set limited reim-bursement, metal plans and MA plans need cost effec-tive, yet quality care to meet CMS and exchange re-quirements. Risk-adjusted payments create additionaladministrative burdens on plans to document acuity, di-agnoses and health condition, and to produce the clini-cal best record to support the payment the plan re-ceives.

2. MLRsNongrandfathered plans are subject to MLRs.19 Cur-

rently, for the large group market, plans must spend 85percent of premiums on medical care (incurred claims)with the rest of the premium available for administra-tion and profits.20 For the small groups and the indi-vidual market, plans need only spend 80% of premiumson medical care.21 If the MLR is less than the applicablerequired percentage, plans must issue a rebate to en-rollees or the employer.22 In May 2014, MA plans andPart D sponsors also will face a required MLR of 85 per-cent.23

16 Levels of coverage in the plans offered through the ex-changes are designated by different metals: bronze, silver,gold and platinum.

17 See 45 C.F.R. § 156.275.18 Id.19 See 45 C.F.R. § 158.210.20 Id.21 Id.22 See 45 C.F.R. § 158.240.23 See 42 C.F.R. § 422.2410; 42 C.F.R. § 423.2410.

4

11-21-13 COPYRIGHT � 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. HLR ISSN 1064-2137

CINs may want to examine recent guidance on deter-mining how to classify payments using the followingfour factor test: (i) entity contracts with issuer to de-liver, provide or arrange for clinical services to enroll-ees but is not the issuer of services; (ii) entity contrac-tually bears financial risk for delivery, provision or ar-rangement of specific clinical services to enrollees; (iii)entity delivers, provides or arranges for the delivery andprovision of clinical services through a system of inte-grated care delivery that provides for coordination ofcare and sharing of clinical information, including pro-vider performance reviews, tracking of clinical out-comes, and evidence based guidelines use; or (iv) func-tions other than clinical services that are included in thepayment must be reasonably related or incident to theclinical services and must be performed on behalf of theentity or entity’s providers.24 Performance-based pay-ments also must be evaluated under this four part test.

In classifying incurred claims for medical servicesand administrative costs, the type and the structure ofthe contractual relationship payers have with providersmust be evaluated and have the potential to affectMLRs. Typically, capitation payments to physiciangroups or hospitals allow the entire payments to be con-sidered an incurred claim. Capitation paid to a vendorwho does not directly provide health care but who con-tracts the network for the plan and provides credential-ing, claims payment, and UM activities will requireanalysis to classify what part of the capitation paymentcan be attributed to covered services for incurredclaims, and which part of the payment will be classifiedas administrative. Additionally, there also could be aquality of care component. Payments to improve healthcare quality—if designed to (i) increase the likelihood ofdesired outcomes compared to the baseline and reducehealth care disparities among specified populations us-ing evidence based medicine; (ii) improve health out-comes, reduce hospital readmissions, focus on hospitaldischarges; (iii) improve safety, reduce medical errorsand lower infection and mortality rates; or (iv) imple-ment, promote and increase wellness and healthactivities—can be classified as ‘‘health care quality ex-penditures’’ and are not considered administrativecosts.25

With the MLR requirements for health plans, payerswill need the cooperation of providers and vendors toaccurately calculate the MLRs and will likely introducecontract language to require MLR reporting. Prior tocontracting, payers will internally decide how to clas-sify payments with respect to MLR reporting, but pay-ers may want to analyze the CIN structure, choice of en-tity, the services to be provided and the payment struc-ture to ensure that the CIN’s entire payments will beconsidered incurred claims for MLR purposes.

3. Quality of Care and Accreditation RequirementsAccreditation agencies—such as the National Com-

mittee for Quality Assurance (NCQA) and URAC (for-merly known as the Utilization Review AccreditationCommission)—and CMS measure quality of care by

many specific defined requirements. Currently, to re-ceive state licensure or participate in the exchanges un-der the ACA, all plans must be accredited.26 Accredita-tion not only requires licensure and other typical cre-dentialing requirements but also now requiresevaluation of the availability of practitioners in theplan’s network and the plan’s ability to meet members’needs in terms of primary care physicians, specialists,behavioral health care providers, geographic distribu-tion of providers, and members’ satisfaction with theplan and care. Providers have a direct effect on the ac-creditation and scores a plan achieves. Payers are likelyto consider how CINs can assist the plan in meeting the‘‘elements’’ to obtain and maintain accreditation andhigh scores.

(a) HEDIS Measures and Five-Star Quality RatingsAll payers use Healthcare Effectiveness Data and In-

formation Set (HEDIS) measures to assess themselves,set goals and improve services. HEDIS scores serve aspart of accreditation measures, which make them ex-tremely important to payers.27 Providers must under-stand that plan accreditation often hinges on appropri-ate HEDIS scores, and that plans utilize provider medi-cal records to demonstrate that HEDIS measures weremet. For this reason, plans are often interested in howproviders manage patients and ‘‘case manage’’ an epi-sode of care. Plans prefer care coordination and UM be-tween a hospital, its staff, its employed physicians andancillary service providers. Plans are increasingly rec-ognizing the importance of EMRs in coordination anddocumentation of the quality of care. Plans are progres-sively offering financial incentives in the form of sharedshavings, bundled payments, pay for performance orglobal payments to encourage sufficient care coordina-tion, record keeping, cooperation and cost effectivequality care.

Currently, HEDIS is the central component of theFive-Star Quality ratings, which is a CMS measure ofquality applied to MA plans.28 MA plans are rated on ascale of one star to five stars (with one expressing poorquality and five representing excellent quality). CMScurrently utilizes over 50 stars measures primarilybased on HEDIS; however, each year CMS has added,removed, or changed the stars measures. Stars mea-sures evaluate enrollee experience, care provided, andplan structure, success and enrollee outcomes. As withHEDIS, stars ratings require care coordination and UMand require cost effective quality care, record keeping,cooperation and a high level of coordination. MA plansare currently able to receive additional payments if theyare rated three stars or above.29 There are also incen-tives for MA plans to contract with providers who focuson patient management, readmission prevention, casemanagement, and providers need to understand HE-DIS, Star measures, the necessity for thoroughness indocumentation, and how to effectively handle chronicpatients.

24 See CCIIO Technical Guidance (CCIIO 2011002) Ques-tions and Answers Regarding Medical Loss Ratio Interim FinalRule (hereinafter CCIIO Q & A); CCIIO Q & A # 20, #21, avail-able at http://www.cms.gov/CCIIO/Resources/Files/Downloads/2012-02-10-guidance-mlr-ipas.pdf; see also 45 C.F.R § 158.40

25 See 45 C.F.R. § 158.150(b); CCIIO Q & A # 14.

26 See 45 C.F.R. § 156.275.27 See id.28 See CMS fact sheet, ‘‘Proposed Changes to the Medicare

Advantage and the Medicare Prescription Drug Benefit Pro-grams for Contract Year 2012 and Demonstration Quality Bo-nus Payments’’ (Nov. 10, 2010), available at http://www.cms.gov/apps/docs/Fact-Sheet-2011-Landscape-for-MAe-and-Part-D-FINAL111010.pdf.

29 See id.

5

BNA’S HEALTH LAW REPORTER ISSN 1064-2137 BNA 11-21-13

With the extensive regulatory and accreditation re-quirements with which payers must comply, payershave incentive to analyze CINs with great detail prior tosigning a contract. Payers will ensure the CIN meetsFTC requirements and will scrutinize the structure andphysician involvement and participation in the CIN; thecontractual terms for providers that delineate theircommitment to quality and cost reduction; the re-sources placed into the CIN; the breadth of servicesprovided and service area covered by the CIN; alreadyestablished evidence based guidelines, metrics, andperformance standards; familiarity with regulatory re-quirements that the CIN and plans face; use of EMRsand documentation standards; ability to provide re-ports; types of payment schemes; and the payer prod-ucts to which the contract would apply.

D. Tools for Success

1. Comprehensive Physician Performance DataEMRs are only one part of the data required to suc-

cessfully operate a CIN and contract with third partypayers. To create a complete picture of the physician’sperformance and to properly assist payers, the CIN alsoneeds to draw from billing records, scheduling records,CMS core measures reports, Joint Commission Ongo-ing Professional Practice Evaluations (OPPEs), and anyother available reports. These data sets can providevaluable information including cost per case, patientvolumes, hospital utilization, quality outcomes, hospitalcharges and costs, patient satisfaction scores, and com-parisons with evidenced-based medical protocols andCMS core measures.

2. Physician Leaders Willing to Develop and ChampionPractice Protocols

Development of metrics, protocols and other stan-dards that minimize variation in the care delivery is thekey to raising system performance. For the CIN metricsand standards to be effective, physicians must improvetheir understanding of the clinical and economic forcesthat impact care they deliver and be willing to collabo-rate with their peers to develop reasonable, achievablestandards against which their performance is mea-sured. CINs must focus on attaining physicians that ex-emplify the ‘‘best practices’’ and physicians that arewilling to train and educate other physicians for servicein leadership roles.

3. Performance Based Incentives, Both Financial andNonfinancial

During CIN development, incentive funds will not beavailable from third party payers because CINs may notengage in joint contracting until clinical integration isachieved. Thus, it is desirable to institute incentivefunds from the hospital (e.g. shared savings program)and physician incentive funds from withholds or otherdiversions of funds. Planning an incentive payment pro-gram requires thought about how much financial incen-tive is needed to change traditional practice patterns,the proper balance of group versus individual rewards,how frequently the CIN should measure the effective-ness of the incentive payment, how to structure the ap-propriate process of reform if the payment is not suc-cessful, and how regulatory issues should be addressed.Nonfinancial incentives such as awards for clinical ex-cellence, research opportunities and improved adminis-

trative and technical support also serve to motivate phy-sicians to improve quality of care.

4. Preparations for Evolving Reimbursement ModelsAlternative payment programs such as shared sav-

ings or bundled payments require the CIN to have pa-tient attribution techniques, chronic disease manage-ment programs, the ability to easily transition patientsfrom inpatient to home-based care, patient-centric casemanagers, and improved patient communications andaccess to health data.

V. Payer and Provider Perspectives on CINContracting

There are many contract provisions that need to benegotiated and included in the contract between payersand the CIN. For purposes of this article, four of themore important areas are discussed below.

A. Representations and WarrantiesIn the representations and warranties portion of the

contract, payers want providers to represent or warrantthat the CIN meets FTC requirements for clinical inte-gration; that the CIN complies with federal and stateregulatory requirements; that the CIN is appropriatelylicensed; that the providers meet the plan’s credential-ing requirements; that the participants are bound to theterms of the CIN and the payer agreement; that no pro-vider is excluded, suspended or disbarred from any fed-eral health care program; that the CIN meets any appli-cable third party administrator requirements; and thatthe providers will participate in quality and efficiencymetrics. Providers want payers to represent or warrantthat the providers will be timely paid. Providers alsowant to see adequate dispute resolution processes laidout in the contract.

B. Data SharingWith respect to data sharing, providers usually want

aggregated data on their performance under quality ofcare standards compared with that of other providers sothey understand where they stand in relation to theirpeers. Payers will restrict access to any data that couldreveal rates paid to other providers and other confiden-tial information. Due to the sensitive nature of the datashared, payers and providers both want as much confi-dentiality as possible with data and information that isshared and must comply with confidentiality and pri-vacy laws. Generally, payers want access to clinical re-cords and care plans and want the right to use/publishdata from the CIN relationship and provide it to mem-bers of the plan and the government (as noted above,data are often required for MLRs, quality reporting toCMS and as a record to support risk adjustment). It isadvisable to set forth clear requirements on recordkeeping, access to data, and terms on sharing memberinformation that is necessary for quality measurements.

C. Technology Systems and MetricsIncompatibility of the parties’ technology systems

and use of metrics will lead to inefficiency and may re-sult in a strained relationship between the parties. Pay-ers will want providers to have the appropriate technol-ogy system(s) and generally want the providers to minethe necessary data for the payer; however, as many pro-viders may not have this ability, plans may need to pro-vide this. Providers want a joint agreement on technol-

6

11-21-13 COPYRIGHT � 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. HLR ISSN 1064-2137

ogy with financial contribution from the payer, and maywant the payer to use their EMR system, and generallywant the payer to mine any data they require. The oftenopposing desires of payers and providers make it im-perative that the contract lay out who will perform thedata mining and the techniques that will be used tomine the data. The contract should directly refer to thetechnology system that will be utilized by the parties.Technology financing terms and statements about jointcontribution commitments should be stated in the con-tract. Specifics about particular metrics (HEDIS/starand/or incentive-based quality metrics) and bench-marks also should be included in the contract.

D. Contract TermOne of the most important aspects of the contract is

the language about the contract term. Payers want theright to terminate the agreement if quality of care, tar-gets goals, metrics, or members’ satisfaction is not metor the deficiency is not cured after a set period of time.Payers prefer ‘‘with cause’’ termination provisions suchas failure to comply with laws or FTC requirements,change of control of the entity that is not approved bythe plan, change in federal or state requirements, orloss of ability to participate in any federally fundedhealth program. Payers also may contract for the rightto terminate or to require that the CIN terminate indi-vidual providers or groups if there are quality issuesthat remain uncured or member dissatisfaction withparticular providers. As a practical matter, payers needto contract to receive sufficient notice of providers with-drawing or being removed from the plan. Providerswant to contract for the right to terminate the contractif they are not timely paid.

E. Tools for SuccessMany of the contract terms are dependent upon the

structure of the established CIN, so consideration ofcontract terms during CIN development will prove use-ful. Eventually, CINs will receive a contract offer from apayer that provides increased payment or potential forincreased payment. While this contract is likely to beenticing for obvious reasons, CINs should not ignorethe other contract provisions. It is always beneficial toreview each contract provision carefully and to expressconcerns over all important contract terms and draftingissues. Ensuring that both parties have the same expec-tations and that those expectations are delineatedthrough a clearly written, detail-oriented, fully negoti-ated contract will lead to the most effective collabora-tion between payers and providers.

VI. ConclusionCINs are the latest chapter in the health care sector’s

decades-long attempt to restructure itself in response tothe public’s growing demand for health care that is bothaffordable and accountable. Although they may eventu-ally be swept up by other reforms coming out of theACA, for the moment CINs represent one viable way forproviders and payers to work together in achieving sus-tainable improvement in the delivery system. The legalquestions presented by CINs are similar to those thatarise in the implementation of other managed care ar-rangements; however, the answers to those questionswill continue to change as the laws and regulationscome to reflect a preference for outcome-based pay-ment and a greater level of cooperation among provid-ers and payers.

7

BNA’S HEALTH LAW REPORTER ISSN 1064-2137 BNA 11-21-13