California Medical Board Abandons Replacement for Physician Diversion Program

$11 a year. That’s how much less California physicians will pay ($22 biannually) as a result of the abandonment of the Medical Board of California’s (MBC) decision to abandon its Diversion Program altogether. The MBC published its “Final Statement of Reasons” today, explaining further its decision not only to let the Diversion Program die, but also not to replace it with an alternative as many had expected.

The Diversion Program had served as an option for physicians struggling with chemical dependency/substance abuse or other mental health issues to “self-refer” and address their challenges in a confidential setting. In exchange for confidentiality, doctors were evaluated for their safety level and monitored for any drug use, participating in facilitated groups. In addition, the Board had referred physicians with these issues into the Diversion Program as a condition not to pursue disciplinary relief or as term of probation in disciplinary orders.

The death of the Diversion Program as of June 30, 2008 was a victory for advocates of a zero tolerance approach to substance abuse, who had identified shortcomings in the program which led to its suspension. Opponents, such as Julianne Fellmeth, made themselves heard at a January 2008 “summit” and succeeded in blocking an alternative.

The absence of the Diversion Program creates risks of which physicians struggling with chemical dependency or mental health issues need to be aware. There is no prospect of a “safe harbor” for physicians seeking treatment; if the MBC discovers the problem, it now takes a zero tolerance approach and has the right to institute a disciplinary action. A single incident, such as a DUI, may be sufficient to trigger a licensing action. Physicians should do their best to ensure that any treatment sought is kept strictly confidential. For physicians who are ordered to undergo biological fluid testing as a condition of probation, the prospect of a positive test is likely to result in a petition to revoke probation. Zero tolerance advocates may think the end result is better patient safety. It would be interesting to consider the extent to which the opposite may be true: physicians have more incentive than ever to keep chemical dependency and mental health issues secret.

Judge Upholds Department of Managed Health Care Balance Billing Rule

California physicians suffered a setback in the effort to block the “balance billing” regulation this week when Sacramento County Superior Court Judge Michael Kenny denied the California Medical Association’s (CMA) petition to invalidate regulations promulgated by the California Department of Managed Health Care (DMHC) that prohibit physicians and hospitals from “balance billing” for emergency care.

“Balance billing” is the practice of billing patients directly for outstanding out-of-network care costs not covered by health plans. Balance billing has been a remedy to address nonpayment or underpayment by HMO’s and health plans; physicians could seek payment of “usual and customary” fees not only from the plans, but from the patients enrolled in the plans when the plans failed to pay. Until the regulations took effect, the only constraint on balance billing were contractual provisions in health plan contracts that prohibited billing patients for “covered services.”

The “Balance Billing regulation” defines “unfair billing pattern” to include balance billing in the context of emergency care rendered to enrollees in a health plan or HMO. The regulation provides as follows:

(a) Except for services subject to the requirements of Section 1367.11 of the Act, “unfair billing pattern” includes the practice, by a provider of emergency services, including but not limited to hospitals and hospital-based physicians such as radiologists, pathologists, anesthesiologists, and on-call specialists, of billing an enrollee of a health care service plan for amounts owed to the provider by the health care service plan or its capitated provider for the provision of emergency services.

(b) For purposes of this section:

(1) “Emergency services” means those services required to be covered by a health plan pursuant to Health & Safety Code section 1345(b)(6), 1367(i), 1371.4, 1371.5 and Title 28, California Code of Regulations,, sections 300.67(g) and 1300.71.4.

(2) Co-payments, coinsurance and deductibles that are the financial responsibility of the enrollee are not amounts owed to the provider by the health care service plan.

(3) “The plan’s capitated provider” shall have the same meaning as that provided in section 1300.71(a).

The DMHC policy appears to have emerged as a negative reaction to a single provider, hospital system Prime Healthcare, which balance billed thousands of Kaiser Permanente HMO patients for out-of-network emergency care. In retrospect, Prime’s action –which was intended to put pressure on Kaiser — led to a alignment of the state with the health plans in a way that puts emergency physicians in California in a terrible position. DMHC now takes the position that California law bars balance billing for emergency services because the legal obligation to provide emergency care under EMTALA gives rise to an implied contract with the health plans obliged to pay for those services.

The CMA had sued DMHC on behalf of California physicians over the regulation, Title 28 California Code of Regulations, § 1300.71.39 (28 C.C.R. 13700.71.39). Judge Kenny heard the CMA writ petition (seeking a writ directing DMHC to cease and desist from enforcing the regulations), Case No. 34-2008-80000059, on November 21, 2008. The CMA was joined by other groups whose members will be hard hit by the new regulations: the California Hospital Association (CHA), California Chapter of the American College of Emergency Physicians (ACEP), California Orthopeadic Association, California Radiological Society, and California Society of Anesthesiologists.

Judge Kenny’s ruling focused on the authority of DMHC under Health and Safety Code § 1371.39, which was added to the Knox-Keene Act as part of Assembly Bill 1455 (Scott, 2000) and allows HMOs to report “instances in which the plan believes a provider is engaging in an unfair billing pattern” to DMHC. Judge Kenny rejected the arguments that the regulation was invalid, which were:

(1) that the DMHC lacked the requisite delegated authority;

(2) that DMHC did not follow proper procedures under the California Administrative Procedure Act in promulgating the regulation because its economic impact statement conflicts with substantial record evidence;

(3) that the record lacked substantial evidence that the Balance Billing Regulation was reasonably necessary to effectuate the statutory purpose;

(4) that the regulation conflicts with the Knox-Keene Act’s purpose that contracts between HMO’s and providers be “fair and reasonable to ensure adequate networks”; and

(5) that the regulation violated due process because it is overly vague. Judge Kenny’s analysis of the issues was as follows:

The full text of Judge Kenny’s ruling can be downloaded here. He rejected all of the CMA’s arguments, concluding that the Knox-Keene Act, California Health and Safety Code § 1371.39(b)(1), plainly authorized DMHC to define “unfair billing practice,” in the manner reflected in the regulation. He declined to consider CMA’s argument that the Legislature never intended to vest DMHC with such sweeping authority. Among other arguments, Judge Kenny also rejected the contention that DMHC lacked statutorily-delegated authority to regulate emergency services providers because doctors and hospitals are regulated by the Medical Board and Department of Public Health, respectively. Relying on a plain language reading of § 1341(a) of the Knox-Keene Act, he held that the Act gives DMHC authority to execute laws “relating to” HMO’s and does not limit that authority to laws directly regulating HMO’s. Moreover, he noted,

the Legislature expressly stated in § 1371.39 that DMHC was to define certain provider conduct. As § 1371.39’s provisions regarding “unfair billing patterns” engaged in by providers in submitting bills to HMO’s are plainly laws “related to” HMO’s, it is within DMHC’s jurisdiction to regulate providers with respect to such billing patterns.

The balance billing issue remains at the heart of a separate case pending before the California Supreme Court. Physicians, hospitals, and their advocates can only hope that the Supreme Court takes a different view. For emergency physicians and hospitals that purposely avoid health plan contracts, balance billing had offered leverage to demand payment of their usual and customary rates; if health plans failed to pay, they faced the prospect of patient-enrollees angered by receiving physician or hospital bills. As of October 15, that leverage is gone as a result of the DMHC, enabling health plans to underpay providers. (DMHC claims that it will regulate plan payment, but, if history is any indication, providers should not expect DMHC to be able to rein in plans’ discretion to set rates for payment where they deem appropriate.) Indeed, early reports from our emergency medicine clients have confirmed that health plans are now unilaterally setting rates for noncontracted emergency care at absurdly low rates that do not even cover staffing costs. Emergency physicians who depended on balance billing (or the threat of balance billing) are likely to cancel or renegotiate contracts with hospitals, who in turn will be pressured to subsidize care. Should the law fail to change, the end result is almost certain to be the closure of even more emergency rooms in an already decimated Southern California emergency care system. Or perhaps another bailout plan?

California Limits Billing Options for Diagnostic Imaging Arrangements

As diagnostic imaging has come to be seen as the “runaway train” of healthcare spending, federal Medicare regulations relating to imaging (from Stark to the Anti-Markup Rule) have gotten more and more restrictive in hopes of curbing overutilization. Now California is getting in on the act, with a new law signed by Governor Schwarzenegger in late September. The law (Assembly Bill 2794, amending California Business & Professions Code Section 655.8, which takes effect January 1, 2009, sharply restricts California physicians’ ability to bill for the technical component of imaging. With the backing of the California Radiological Society, the new law sharply limits the ability of physicians who order diagnostic imaging tests to bill directly for the technical component of diagnostic imaging services (CT, MRI and PET).

The law is calculated to cut back on the ability of physicians to enter into creative leases of imaging facility time and then bill for the technical component. The law takes aim at billing by ordering physicians, but exempts interpreting physicians, who can still bill globally as long as they didn’t order the image and interpreted it through their group.

The new law may be a model that other states adopt. Nonetheless, it is more likely to slow rather than stop the growth of diagnostic imaging. Ultimately, the driving forces behind the growth of imaging are more systemic, such as a physician payment structure that incentivizes the use of imaging in lieu of traditional, “low tech” diagnosis.

Interview with Physicians Practice on M.D. Bankruptcy Trends

Physicians Practice, a leading medical practice management journal, contacted me for observations about trends in physician bankruptcies and financial distress. My comments will be published in an upcoming issue, but I have a preview for faithful readers on my thoughts:

1. There’s little doubt that physicians are going to be adversely affected by the economy-wide decline in healthcare consumption. The notion that demand for healthcare services was inelastic because care is a necessity was a fantasy. There’s been a rash of news reports of patients foregoing healthcare, everything from patients skipping appointments and diagnostic tests and cutting prescription dosages to stretch drugs out to parents who delay their daughter’s sweet 16 nose job and take care of her post-operatively at home, rather than foot the bill for an overnight stay. Anecdotally, many clients are confirming that patients who can put off care are doing so, and that even affluent patients are slower to pay and harder than ever to collect from.

2. This recent downturn, which was already brewing in 2008 prior to the crash, is a very recent trend, but the long-term downward trend in physician reimbursements and revenues has been one of growing disparity between the “haves” and “have nots” among physician practices, including divides:

• between low tech primary care physicians, who bear the brunt of a payment structure that fails to reward the diagnosing of patients with multiple problems through longer physical exams and detailed histories, and subspecialists, who, in general, fare better in a procedure-oriented structure;
• between subspecialties that perform more remunerative procedure-oriented care involving capital-intensive technology (orthopedics, cardiology, urology) and those that don’t (pediatric subspecialties, pulmonology, endocrinology);
• between physicians, particularly in elective medicine and concierge-type practices, whose patients are cash and PPO patients pay more for their services and physicians who are forced to accept the flat (and therefore declining in real terms) and often actually declining reimbursements from Medicare, Medicaid, and HMO’s;
• between physicians in saturated markets (particularly large urban centers) and physicians in small and medium sized markets, who often earn more for the same work based on supply/demand, but and save significantly on overhead expenses (e.g. office space, support staff) and regional variances (e.g. lower rates of malpractice litigation).

The “have not” ranks are growing and the “have” ranks are shrinking for variety of reasons.

3.  Ultimately, the payment structure of medical practice drives physician supply towards more remunerative areas, while Medicare fee schedules and private payors steadily erode  the more remunerative sectors.  Over time, more and more physicians are experiencing the downgrading of medicine into a middle-class profession, albeit one that requires more training than any other in our society.  Physician services are being/have been commoditized.   (Physicians who are cash-only are bucking this trend by successfully differentiating themselves so that they can opt out of the third party payment system that drives these trends.) Younger physicians are opting in ever greater numbers for larger organization practice, such as in systems like Kaiser or in hospital-based medicine, where being part of a large organization looks better than ever.  Physicians remaining in small or solo private practice turn to alternative revenue sources (e.g. ancillary services, such as imaging and physical therapy), but the payors and regulators ratchet down on these over time as well.  It’s a losing battle.

4.  Many physicians already in practice ignore these trends until they can’t any more.  There is a generation of physicians in solo and small, private practice that have watched their incomes erode dramatically under capitation and managed care.  The physicians most at risk in the current downturn include this significant population of physicians who are already suffering, treating patient populations that are heavily HMO and Medicaid, and don’t need much more to push them over the edge.

More to follow…

The Baucus Healthcare Proposal

Both the New York Times and the Wall Street Journal report today on Senator Max Baucus’
healthcare reform proposal. By releasing his plan at this point, Baucus, the chair of the Senate Finance Committee, is both signaling a commitment to major healthcare reform and stealing a bit of President-elect Obama’s thunder.

The Baucus plan is similar to Obama’s except for its adoption of the Massachusetts model of requiring everyone to purchase health insurance. (This was Hillary Clinton’s campaign proposal.) Like Obama, Baucus proposes the “Health Insurance Exchange,” a national marketplace in which individuals and small businesses can buy coverage with income-based subsidization. Most employers would be required to offer insurance to their workers or pay into a fund based on their size and revenues. Other interesting aspects of the Baucus Plan:

• allowing “pre-Medicare” seniors (55-64) to buy Medicare coverage if they do not have access to a public insurance program or a group health plan;
• expanding Medicaid availability to all Americans below the poverty level;
• expanding State Children’s Health Insurance Program (SCHIP) to cover all uninsured youngsters in families with incomes at or below 250% of the poverty level;
• Lifting the Medicare and SCHIP ban on legal immigrants in their first five years in the United States;

As undeniably broken as the existing system is, providers may want to think twice before getting behind the Baucus Plan or any future Obama Plan. Perhaps the most telling warning sign is the position of the big health plans, which are licking their chops at the mandate that every American purchase health insurance. Although Senator Baucus would place limits on their ability to charge high premiums or exclude preexisting conditions, his proposal would lead to an even larger slice of every dollar spent on healthcare going to payors rather than providers.  In addition, it doesn’t take much of a stretch of the imagination to see new restrictions imposed on providers in the future to ensure that they treat the wave of new low-reimbursement patients that will flow from reform.

Healthcare Reform Myths

Professors Katherine Baicker and Amitabh Chandra write in the most recent edition of Health Affairs about the myths that hinder healthcare reform. They argue that correcting these misimpressions will allow us to address the fundamental challenges facing the American healthcare economy. So what are the myths?
(1) that the problem is the inability of the uninsured ill to find affordable health insurance;
(2) that the cost of insurance coverage for the uninsured will be offset by the savings from the reduction in expensive and inefficient emergency room care;
(3) that the lack of insurance is the principal barrier to high-quality care;
(5) that employers can shoulder more of the insurance cost burden;and
(5) that high-deductible plans and competition, rather than government action, are the key to lower costs.

Baicker and Chandra present some fundamental challenges to the current healthcare reform discourse. They point out that insurance by definition is far from a panacea, and is in some respects a problem in itself. With regard to the emergency room, for example, the evidence is that any savings from fewer expensive emergency visits are offset by the greater consumption of health care services that takes place once patients have insurance:

in general, prevention is good for your health, not your wallet. Some preventive care has been shown to be cost-saving–such as flu vaccines for toddlers or targeted investments such as initial colonoscopy screening for men ages 60-64–but most preventive care results in greater spending along with better health outcomes.

The authors challenge some other sacred cows of the healthcare debate. We often assume that the problem is limited to the uninsured, but an ignored issue is the difference in quality of care that the insured receive based on geography: patients in certain high-spending areas “see more specialists more frequently, have more diagnostic and imaging services, and get more intensive care at the end of life–none of which has been shown through clinical trials to improve health.”

Legislators whose solutions focus on the panacea of universal insurance should take note of the authors observation that

[i]nsuring the uninsured will give them access to the sort of health care that everyone else receives: a combination of valuable care, overuse of some costly interventions with little proven benefit, and underuse of some vitally important therapies–care that is sometimes coordinated but often fragmented. This is better than no care, but it highlights the problem of collapsing the entire debate about U.S. health care reform down to the issue of uninsurance: health insurance does not guarantee good health care.

With major healthcare reform looking like a reasonable possibility this year, Baicker and Chandra’s article should be required reading.

ICD-10: 1170 Codes for Angioplasty??

Jane Zhang reports in yesterday’s Wall Street Journal on the coming revision of Current Procedural Terminology (“CPT”) codes by which healthcare providers bill payors for healthcare services. Instituted in order to describe medical services accurately primarily for third party payors (Medicare, Medicaid, and private health plans), the CPT coding sytem is said to have become too constricted.

While the revision will radically expand the number of codes (yes, there really will be 1170 codes to diffentiate angioplasties), this is a “fix” that may be worse than the problem. Providers, in general, already devote inordinate resources to coding, which can require billing personnel that serve no other patient care purpose. Is more detail really going to help? The risk of more errors is already anticipated, which can only mean more opportunism from Medicare and other payors in seeking to withhold or recoup payment. This appears to be yet one more reform that threatens to shift a bigger slice of the healthcare dollar away from providers and towards administration.

Washington Joins Oregon on Physician-Assisted Suicide. Is California Next?

Jane Gross reports in the New York Times on the passage of “Initiative 1000,” the referendum that makes Washington the second state in the country (after Oregon) where physicians are permitted to prescribe lethal doses of medication to terminally ill people who want to hasten their own deaths. It’s been 11 years since Oregon passed its referendum. The Washington measure requires that the assisted parties be state residents, mentally compentent, have two physicians confirming their terminal (six months or less) condition, to live according to two physicians, and that they wait 15 days after their request and then repeat that request orally and in writing. They must be capable of administering medication themselves and agree to counseling if their physicians request it. The patients also must be informed of alternatives.

Dr. Timothy Quill, a palliative care expert, recommended a palliative care consultation prior to assisting a patient with any of the following “last resorts”:

• aggressive pain management that may, but is not principally intended to, hasten deathPain management (“double effect”);
• permitting a patient to opt out of life-sustaining therapies;
• abiding a patient’s voluntary refusal to eat and drink;
• sedation to the point of unconsciousness (endorsed earlier this year by an AMA panel).

Will California be next, forming a Pacific Coast “bloc” on the issue? In 2007, the California legislature debated but could not pass a measure that would have made California the second state in the country to permit physician-assisted suicide. The failure capped a three-year effort that is almost certain to be renewed in light of the Washington decision. The California Medical Association (CMA), which represents 35,000 doctors, opposed the California bill, arguing that it created a conflict with a physician’s ethical duties. (The California Association of Physician Groups, however, supported it.)

Is Medical Record Blackmail a Trend to Come?

CNN reports on what may be a harbinger of trends to come: Express Scripts, one of the largest pharmacy benefit management companies (PBM’s), received an anonymous threat that, unless it paid an extortionate demand, millions of its patient records would be released. Trends in data breaches generally suggest that Express Scripts will not be the last target of such blackmail.

Providers who face similar threats of blackmail should take a page out of Express Scripts’ playbook: it contacted the FBI, publicly disclosed the threat to the patients, and reiterated its commitment to protecting patient privacy rights. In so doing, Express Scripts provided a model from which others can learn.

With growing volumes of medical records stored electronically, the threat of records getting hacked will be an everpresent reality. The attraction to would-be extortionists is the idea that providers will pay just to avoid the negative publicity associated with patient privacy breaches, which upset patients worried about protecting their privacy and trigger legal investigations from government agencies like California’s new Office of Health Information Integrity (OHII), coming in January.

Are patient collections worsening?

Reed Abelson provides another report on the impact of the economic downturn on healthcare in the New York Times.
Hospitals are reporting a declines in the percentage of patients able to pay for care they need, from knee replacements to hernia repairs to weight-loss surgeries. If true, the loss of these inpatient revenues — as a result of economy-driven concerns — will be a big problem both for physicians in the relevant specialties and hospitals. (Although the article focuses on hospitals, the drop-off has parallel serious negative implications for physicians who depend on steady streams of patients needing these procedures.)

Under the Emergency Medical Treatment and Active Labor Act (EMTALA), hospitals are required to provide emergency care to patients who show up, at least to stabilize their condition. Hospitals depend on subsidization from more lucrative procedures to pay for the emergency care for non-paying patients. An increase in the percentage of patients who can’t afford to pay doesn’t bode well for the future of Southern California hospitals, many of which are already stretched financially.