June 02, 2020

Physician Contracting Issues Related to COVID-19

By Patsy Powers, Esq., Waller Lansden Dortch & Davis, LLP, Nashville, TN and Christopher Fete, Esq., MHA, Pinnacle Healthcare Consulting, St. Louis, MO

Introduction – The Landscape is Changing

On January 27, 2020, under the authority of the Public Health Service Act, U.S. Health and Human Services (HHS) Secretary Alex M. Azar II declared the 2019 Novel Coronavirus (COVID-19) pandemic a Public Health Emergency (PHE).2 Then, on March 13, 2020, President Trump declared the COVID-19 pandemic a national emergency under the Stafford Act.3 In response, under authority granted by Sections 1135 and  1812(f) of the Social Security Act, the Centers for Medicare & Medicaid Services (CMS) issued an extraordinary amount of temporary regulatory waivers to enable beneficiaries to access care, collectively referred to as the 1135 Waivers.4 State government agencies also joined in issuing waivers of state law and regulation to expedite access to care. On the federal level, CMS implemented changes to the physician self-referral law (Stark Law),5 the Anti-Kickback Statute,6 the Emergency Medical Treatment and Active Labor Act (EMTALA),7 the interim payment rules,8 and to a myriad of other aspects of the federal regulatory framework to eliminate regulatory hurdles so that patients can access necessary COVID-19 treatment.9

As a result of the pandemic, healthcare organizations are facing significant operational and financial challenges, one of which is provider contracting extremes. As states have restricted elective surgery and non-essential medical care, health systems have furloughed employees, including physicians, in order to shift resources to the COVID-19 response. At the same time, health systems are quickly scheduling available licensed practitioners to address the surge of COVID-19 patients seeking treatment in the emergency department.  The result is that health system, facility and practice agreements with physicians are no longer relevant, impossible to perform, or needed where none were previously in place.  In our fast-changing reality, physician practices and health systems are scrambling to adjust physician arrangements to respond to the pandemic. This article provides an overview of physician contract issues in light of the recent compliance changes implemented by CMS and the states that U.S. health systems should address.

Key Contracting Issues Related to COVID-19 Response

CMS and the Office of Inspector General for the United States Department of Health and Human Services (OIG) have announced temporary changes to the rules and regulations directly related to contracting compliance so healthcare providers can quickly respond to current needs.  These include:

  • Stark and Anti-Kickback Statute Waivers
  • Telehealth Services During Certain Emergency Periods Act of 2020
  • Relaxation of Quality Reporting Requirements for clinicians, providers, hospitals, and facilities
  • Temporary forced closure of physician clinics
  • Temporary forced cancellation of elective procedures
  • Implementation of ICD-10-CM Code for 2019 Novel Coronavirus
  • Relaxation of HIPAA regulations enforcement
  • Commercial payor coverage for coronavirus testing, limits on barriers to access, and increased access to prescription drugs

Blanket Waivers Related to the Stark Law

The Stark Law prohibits a physician from making a referral to a provider of designated health services (DHS) and prohibits a DHS provider from billing for services referred by the physician if the parties have a financial relationship (contractual or investment) that does not comply with the statutory or regulatory exceptions to the prohibition.10 Announced March 30, 2020, but effective March 1, 2020, CMS issued 18 waivers to certain statutory and regulatory provisions of the Stark Law if the financial relationship and the referrals are related to the COVID-19 emergency (the “Blanket Waivers”).11 In addition, on April 3, 2020, the OIG issued a Policy Statement affirming that it will not impose administrative sanctions under the Stark Law and the Anti-Kickback Statute for certain remuneration relating to COVID-19 that is covered by the Blanket Waivers.12

While termed Blanket Waivers, the scope of the waivers applies to remuneration solely related to COVID-19 purposes.  These COVID-19 purposes13 are:

  • “Diagnosis or medically necessary treatment of COVID-19 for any patient or individual, whether the patient or individual is diagnosed with a confirmed case of COVID-19;
  • Securing the services of physicians or other health care practitioners and professionals to furnish medically necessary patients care services;
  • Ensuring the ability of healthcare providers to address patient and community needs;
  • Expanding the capacity of healthcare providers to address patient and community needs;
  • Shifting the diagnosis and care of patients to appropriate alternative settings due to the COVID-19 outbreak; or
  • Addressing medical practice or business interruption due to the COVID-19 outbreak in order to maintain the availability of medical care and related services for patients and the community.”

The Blanket Waivers waive significant regulatory requirements in Stark exceptions for financial relationships if related to a COVID-19 purpose:

  • Fair Market Value (FMV) payments to physicians by a provider of DHS (Waivers 1 and 4)
  • FMV rent paid to or by a provider for the lease of space or equipment or items purchased (Waivers 2, 3, 5, and 6)
  • Remuneration in the form of incidental medical staff benefits (Waiver 8)
  • Non-monetary compensation (Waiver 9)
  • FMV interest rates (Waivers 10 and 11)
  • Other waivers limited to the Stark Law only address writing requirements (Waiver 18),  physician-owned hospitals (Waivers 12, 13, and 14) and in-office ancillary services provided by physician group practices (Waivers 15 and 16)

The Blanket Waivers provide a great deal of unexpected flexibility.  CMS stated that the Blanket Waivers are necessary to allow healthcare providers the flexibility to meet patient care demands.

Of course, some restrictions remain. For example, if a hospital enters into a lease with a physician at a below-market rate, the arrangement must be related to a COVID-19 purpose, and presumably the reduced rental rate should revert to FMV following the expiration of the Blanket Waiver.  Moreover, the other elements of the lease exception not otherwise waived by the Blanket Waivers must still be met. As another example, a hospital may pay a physician above the prior-contracted service rate when supplying professional services to COVID-19 patients, since providing services to COVID-19 patients is more hazardous than the typical hospital environment.  All physicians who treat COVID-19 patients, however, should be paid a similar increase in compensation, rather than paying only physicians who historically refer a high volume or value of patients.14

Ultimately, when entering into or modifying existing arrangements under the Blanket Waivers, it is vital to build in the flexibility needed to meet all of the requirements of the applicable Stark exception at such time as the Blanket Waivers are no longer available.  The Blanket Waivers are currently set to end no later than the termination of the emergency period or 60 days from the date the Blanket Waivers were first published by HHS, unless extended by the Secretary.15 As of the date of this writing, neither CMS nor the OIG has issued a statement providing the expiration date of the Blanket Waivers.

Modifying Physician Arrangements – Legal and FMV Considerations During COVID-19

A majority of physician relationships and practices have been impacted by the reality of the societal changes in conjunction with the regulatory initiatives outlined above.  Key contractual arrangements include:

1.       Existing Productivity-based Compensation Models

  • Increased demand for professional services and hyper-accelerated productivity (e.g., emergency physicians, intensivists)
  • Decreased demand for professional services, decreased productivity and negative impact of provider quarantines (e.g., closed practices, elective surgical specialties)

2.       Quality Metrics and or Incentive-Based Contractual Arrangements

  • Co-management, pay-for-performance (P4P), Comprehensive Primary Care Plus16 (CPC+), on-call coverage, recruiting agreements

3.       Financial Support for Overhead

  • The need to support independent practice overhead when clinics and elective services are forced to cease operations

4.       New Temporary Arrangements to Support Newly Identified Needs

  • Redeployment of physicians to support hospital-based specialties
  • Physician administrative support

Productivity-based Compensation Models – Legal and FMV Considerations and Potential Solutions

The impact of COVID-19 on physician contracts is directly related to a provider’s ability to practice.  Governors across the country have restricted elective procedures to ready hospital space for emergent COVID-19 cases and prevent the spread of the virus within waiting rooms. Patients are canceling non-emergent physician visits, such as annual wellness visits, to social distance. In arrangements where physicians are compensated based on productivity, each elective procedure and office visit canceled results in fewer wRVUs17 performed by the provider, which results in lower compensation. In contrast, several specialties now in high demand are being asked to work more hours and treat more patients, which can lead to a significant increase in compensation.  Healthcare organizations are struggling with how to reconcile these scenarios and navigate some of the associated legal and regulatory challenges along with other financial demands.

For productivity-based models, the structure of these arrangements may self-correct, resulting in decreased compensation to providers impacted by the social distancing initiatives and an increase for the specialties in demand (e.g., emergency physicians, intensivists).  If an organization is financially able to continue to honor the existing contractual obligations with lower-utilized providers, there are practical solutions that can be considered.  In the event of a material decrease in wRVU production, it is always advisable to pay the physician the base compensation and the amount derived using the actual productivity calculation.  However, since Blanket Waivers have loosened the FMV requirements, a health system might be able to pay an amount greater than the base, provided that a system is in a position to offer the static compensation levels for all similarly situated providers, and can prove that, absent such support, the specialty would not be available to the community.  Any such decision should not be made based on (or appear to have been based on) the volume or value of a physician’s referrals.  To the extent that a facility pays a physician who generates a large number of referrals amounts greater than the base compensation and, at the same time, reduces the compensation of a physician who refers a low volume of patients or patients that do not generate the same level of income to a facility, then that would not fit in the Blanket Waiver and would therefore potentially implicate the Stark Law18 and the Anti-Kickback Statute.19

Additional alternatives to support providers negatively impacted by cancelations are to redeploy individuals to assist with other necessary services.  Community providers often have a good pulse on the community. They can be redeployed to assist with community-based initiatives (e.g., drive-by testing centers, administrative and coordinating services).

Other options are to maintain existing productivity models through the use of telemedicine.  Government and commercial payors have greatly increased the ability of physicians to examine, treat and bill for telemedicine services provided to patients from most any location.20 From a productivity perspective, because of parity of payment for telemedicine with face-to-face care, organizations may be able to align productivity metrics (e.g., wRVUs) for telemedicine visits in the same way as in-person visits. Of course, any provision of equipment by facilities to non-employed physicians must be separately analyzed for compliance with the Stark and Anti-Kickback laws.

Quality-based Compensation Models

This global pandemic endangers progress the U.S. healthcare system has made in the transition away from fee-for-service toward value-based purchasing if action is not taken. Additionally, other contracting structures heavily reliant on quality and performance may be impacted (e.g., P4P, CPC+, co-management).  Similar to the productivity models, organizations may want to consider re-evaluating the current metrics being monitored and select or identify new metrics specific to COVID-19 to help support these contracts and payment mechanisms.  Given the probability the impact of COVID-19 will be longer in term (e.g., possibly up to one year or more), the parties can develop and track additional initiatives (e.g., a citizenship behavioral metric) that have a more profound impact on the current operating environment – whether as a substitute or through an amended agreement.

Value-based reimbursement models present additional uncertainties as many quality-based metrics that form the basis for quality bonus calculations are, in many cases, no longer feasible.  Quality metrics can be impacted by a variety of factors that are now outside the control of the physicians and health systems  - e.g., local stay at home /safer at home orders and general quality reporting measures falling off due to significant numbers of COVID-19 patients to the exclusion of all other patients.  Additionally, it is likely that parties to co-management agreements are unable to perform, and as a result, agreement terms should be reviewed.   For these types of arrangements, the question may be when to modify the contract.  Does it make more sense to amend the agreement to remove the bonus payment calculations and metrics in the midst of the pandemic to decrease the financial liability, or to wait until the public health emergency subsides, and build in new benchmarks responsive to facility resources and needs? Quality payment pass-through payments from third party payors should also be reviewed.  Again, the issue may resolve itself if there are no quality bonus payments to pass through. Finally, while not technically quality payments, other standard contractual agreements may also merit review.  The payment methodology of agreements such as on call coverage and administrative services agreements should be reviewed carefully to assess each party’s obligations during these uncertain times.  If such services are payable based on time worked, then, like compensation based on productivity, reduced payment may be the result.  If not, then payments may be due without any services provided.

CMS has made three updates to the Merit-based Incentive Payment System (MIPS).21 Specifically, individual physicians (not groups) who have not submitted data by the deadline of April 30, 2020 will automatically receive a neutral payment adjustment in 2021.  Secondly, a new improvement activity has been added for clinicians who participate in a clinical trial utilizing a drug or biological product to treat a patient with COVID-19.  Finally, CMS has delayed the Qualified Clinical Data Registry measure testing and data collection policies by one year.22

New Temporary Arrangements

Hospitals, skilled nursing facilities, and other facilities treating COVID-19 patients need physicians and advance practice practitioners (APPs) – especially in critically impacted regions (e.g., NYC, Detroit).  In addition to clinical services, healthcare organizations are finding they need additional administrative physician leadership support to assist with strategic initiatives related to resource deployment, testing center set-up, media response, etc.  Given the newly relaxed contracting rules, organizations can more easily enter into temporary employment or independent contractor arrangements to provide services where needed.  Examples of this include the redeployment of anesthesia providers to support intubation coverage services or the appointment of a physician to provide system-wide administrative leadership services to assist with deployment and implementation of organizational resources.  Depending on the individual market, this has even resulted in multi-health system collaboration efforts.23

When assessing the appropriate payment rates for these services, organizations should assess the value based on the type of services to be provided.  Given the temporary nature of the services, it might be easiest to construct compensation as an hourly or shift payment.  Payment rates should align with services provided, not to provider specialty.  One methodology is to develop a blended compensation rate based on relevant data sets for relevant or similar specialties.  In the example of providing intubation, intensive care unit (ICU) or inpatient support services, organizations may want to consider blending information for relevant specialties which include emergency medicine, hospitalist, intensivist, and the provider’s primary specialty. 

Similarly, when assessing the value of administrative leadership positions, it will be important for the organization to have a clear understanding of the duties and responsibilities associated with the newly developed position. Payment rates should align with these services and be benchmarked against similar or comparable positions where appropriate.  Should facilities have a defined and specific need for new or additional administrative time from their medical directors and/or physician executives, facilities should work with counsel to determine if an agreement addendum is appropriate. This assessment may include a review of monthly caps on paid hours and/or discussion of stipend arrangements.

Practice Support to Community Physicians

Community physicians that currently have no contractual relationship may turn to a local hospital for financial support to maintain their practices during this time.  With the cancellation of office visits, systems are contemplating how to work with physicians on rent, supplies, work force, technology, and other operating expenses. In addition to the extensive loan (paycheck protection program) and financial assistance (CARES ACT) programs24 available from the federal government, under the Blanket Waivers, a valid COVID-19  purpose is “arrangements necessary to maintain the availability of medical professionals in the community.”25  Of course, hospitals are also under great financial stress in spite of the CARES Act financial support.26 To the extent an organization has the resources to assist local practices, support offered should be consistent and strategic, and not based on previous or potential referrals.  For example, a facility could offer penalty-free rent concessions to all tenants.  It would not be appropriate to offer rent concessions to just those who generate lucrative referrals as it could appear that that, in spite of the Blanket Waivers, the rent concessions could be viewed as a reward or inducement for referrals.  If a system has the financial wherewithal to offer loans, under the Blanket Waivers the interest rate need not be on commercially reasonable fair market value terms, i.e., the same terms as offered by a commercial bank, but the loan payment amount should be reasonable in the context of assisting practices through the pandemic.

Best practice dictates clear documentation for the rationale for concessions, loans, and modifications to agreements.  Although the Blanket Waivers are incredibly helpful, a qui tam relator could find an angle to allege the benefit inappropriate.  When addressing contracting concerns, the parties should:

  • Consider whether  this arrangement falls within the scope of the Blanket Waivers or amended rules
  • Be thoughtful, reasonable, and consistent with the  approach to contracting, whether or not a waiver or other exception exists
  • Document whenever possible the approach and rationale for arrangements up-front versus after the fact
  • Assess whether the changes are sufficiently flexible to monitor and revise quickly upon the termination of the PHE.

Conclusion

COVID-19 has identified challenges with the legal and regulatory landscape related to provider contracting. However, government agencies have taken steps to decrease the barriers to contracting, and all parties are working together to survive the current difficulties.

In addition to understanding what changes can be made to physician arrangements due to the government’s loosening of healthcare regulations and restrictions, the other looming question is: when will these regulatory changes expire?  The easy answer is when the PHE ends. Given the slow, state-by-state re-opening, monitoring the end of the PHE is a challenge.  Hopefully there will be a uniform declaration when CMS deems the COVID-19 waivers as terminated so all healthcare providers understand which rules to follow.

The maintenance, oversight, and review measures which document the key facts associated with provider contracting arrangements will be more critical than ever. Arrangements can certainly always be compliant and reflect FMV. However, as facts change, continuous review and documentation should occur commensurately. All organizations need to be measured and reasonable in handling contracting arrangements during these challenging times.  

  1. The authors wish to thank Emily Duncan, an associate with Waller Lansden, for invaluable assistance provided in drafting and editing this article. 
  2. https://www.phe.gov/emergency/news/healthactions/phe/Pages/2019-nCoV.aspx.
  3.  https://www.whitehouse.gov/briefings-statements/letter-president-donald-j-trump-emergency-determination-stafford-act/.
  4.  https://www.cms.gov/newsroom/press-releases/trump-administration-makes-sweeping-regulatory-changes-help-us-healthcare-system-address-covid-19.
  5. https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf.
  6. https://oig.hhs.gov/coronavirus/OIG-Policy-Statement-4.3.20.pdf.
  7. https://www.cms.gov/medicare/quality-safety-oversight-general-information/coronavirus.
  8. https://www.cms.gov/files/document/covid-final-ifc.pdf.
  9.  https://www.cms.gov/about-cms/emergency-preparedness-response-operations/current-emergencies/coronavirus-waivers.
  10. The Physician Self-Referral Act, also known as the Stark Law, can be found at 42 U.S.C. § 1395nn. Numerous exceptions and definitions are found at 42 C.F.R. § 411.350 (collectively, the “Stark Law”).
  11. https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Spotlight.
  12. https://oig.hhs.gov/coronavirus/OIG-Policy-Statement-4.3.20.pdf.
  13. https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf.
  14. https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf.
  15.  https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/SurveyCertEmergPrep/Downloads/1135-Waivers-At-A-Glance.pdf.
  16. Comprehensive Primary Care Plus is a national advanced primary care medical home model that aims to strengthen primary care through regionally based multi-payor payment reform and care delivery transformation.  See https://innovation.cms.gov/innovation-models/comprehensive-primary-care-plus.
  17. wRVUs are work Relative Value Units for physician service, which are a measure of value used by the Medicare program for payment for physician services. 
  18. 42 U.S.C.§ 1395nn, 42 C.F.R. § 411.350.
  19. 42 U.S.C. § 1320a-7b(b).
  20. https://www.cms.gov/files/document/covid-19-physicians-and-practitioners.pdf.
  21. MIPS is the Medicare payment incentive system in which payments to physicians are increased based on the achievement of certain quality metrics. See https://qpp.cms.gov/mips/overview.
  22. https://www.cms.gov/files/document/covid-19-physicians-and-practitioners.pdf.
  23. For example, the St. Louis regional healthcare systems (SSM, Mercy, BJC, and St. Luke’s Hospital) launched the St. Louis Metropolitan Pandemic Task Force.  The Task Force has appointed a physician to serve as incident commander to manage the health systems’ preparation for the expected COVID-19 patient surge across the St. Louis region. See http://www.stlamerican.com/news/local_news/st-louis-regional-health-care-systems-launch-st-louis-metropolitan-pandemic-task-force/article_e0f829dc-76b8-11ea-84c5-03810fd803c8.html.
  24. https://www.congress.gov/bill/116th-congress/house-bill/748/text.
  25. https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf.
  26. On April 22, 2020, President Trump signed the CARES Act legislation and with Congress authorized up to $100 billion to hospitals to in the form of grants and payments.  In the case of the Medicare Accelerated Payments, hospitals and physicians can receive advance payments which, at the time of this article, are to be repaid through subsequent recoupment of claims. See https://www.hhs.gov/about/news/2020/04/22/hhs-announces-additional-allocations-of-cares-act-provider-relief-fund.html

About the Authors

Patsy Powers is a healthcare regulatory partner with Waller Lansden in Nashville TN with over 25 years of experience in advising healthcare providers in maintaining compliance with state and federal laws and Medicare payment issues.  She also advises clients on structuring and diligence for healthcare transactions.  She may be reached at patsy.powers@wallerlaw.com.

Christopher Fete, Esq., MHA joined Pinnacle Healthcare Consulting in 2011.  As a Director, he supports Pinnacle’s consulting engagements including fair market value reviews of physician compensation, Key Opinion Leader analysis, business plan development, financial and market analysis, and telehealth initiatives. In addition to supporting Pinnacle’s compensation valuation division, Mr. Fete is Vice President of TeleNeph, LLC, an affiliated nephrology-focused telemedicine company. He is active in writing and speaking throughout the country on physician compensation, transaction due diligence, fair market value consideration and telemedicine arrangements. He may be reached at cfete@askphc.com.