Medical Device Daily Washington Editor

BOSTON – Proponents of pay for performance (P4P) may feel they have already slogged up a steep road just to get a few pilot projects under way, but the coronation of the practice of tying compensation to healthcare quality is not yet a fait accompli.

While antitrust exemptions have been crafted to keep public and private payers in these programs out of the legal woodshed, new considerations are likely to make themselves heard, and the likelihood is that sooner or later judges and attorneys will enter the picture

That was the assumption surrounding the overview of the legal terrain surrounding P4P presented by Michael Costa, a senior associate at the law practice of Greenberg Traurig (Boston) on the last day of the P4P leadership summit here.

While billing P4P as “really the wave of the future,” Costa outlined a number of legal issues that have cropped up and will continue to do so as these arrangements play out.

Costa reminded the audience that however exculpatory an incentive payment might seem, P4P involves price fixing, even when incentive payments are weighted for variables that might seem to skew payment.

And then there's human nature. “Any time you get a group of people together and talk about prices, that raises antitrust issues,” he said.

Among the considerations that authors of P4P programs will have to remain mindful of are whether the payment structure is voluntary or mandatory and how much anti-competitive pressure such a payment system might produce in the healthcare market.

He said that programs able to pass legal muster should specify the desired cost-saving actions and disallow “cherry-picking.” Hidden incentives also are a perennial concern hovering over these issues.

On the other hand, Costa said that tiered compensation systems by payers do not present a legal problem “if they're [paid at] fair-market value” and do not involve referrals or payments tied to referrals.

And providing patients with incentives to seek services from upper-tier practices and facilities does not violate a law because there is no action on the part of the provider, he said.

However legally tidy P4P might seem to its enthusiasts, Costa said that trade associations have sued governments over issues that were similar to P4P in terms of government's interaction with the normal function of the market.

“It's still early in the process, but we will see litigation on the posting of performance and quality data,” which could be pursued via laws covering defamation and slander, Costa said. Such actions could be undertaken by individual entities, but class action is not ruled out in this scenario.

Finances also may play a role in stimulating legal resistance to P4P, according to Costa. A day earlier at the P4P conference, Arnold Milstein, MD, a consultant who is a member of the Medicare Payment Advisory Committee, alluded to potential legal problems with providers who can't conform to the appropriate P4P requirements and so will turn to legal recourse to eliminate or reduce some of the incentives (see accompanying story).

The first challenge to P4P, he said, may come “on an administrative basis,” essentially by questioning whether Congress is legitimately empowered to craft laws that enable P4P in the first place. Further action may be predicated on whether such arrangements constitute “an undue burden on business” via burdensome reporting to government entities or other payers on practices, outcomes or finances. (Here, reference Sarbane-Oxley requirements.)

States also may enter the legal fray should they find federally-mandated P4P nettlesome. Legal action is not available to states over programs run or financed wholly by Washington, Costa said, but they can do battle with the federal government over programs involving dual financial responsibility.

“They are already doing that in dealing with Medicare Part D,” Costa observed in reference to the federal attempt to force states to cover drug costs for beneficiaries who are enrolled in both Medicare and Medicaid.

The Department of Justice and Federal Trade Commission share jurisdiction over much of the medical marketplace, and the two conducted a review of a number of healthcare law issues in 2003. This effort was detailed in a 2004 report that gives some insight as to what these two agencies see as potential problems.

The cover sheet from that report notes that where P4P is concerned, “arrangements among a group of physicians may constitute a form of financial risk-sharing” that would by permissible. However, an approach such as this has to pass a test or two before it can be assured of clear sailing.

The document suggests that “clinical integration” is indemnifying and can be satisfied “by considering a number of questions, such as the goals of the joint venture, the likelihood those goals will be met, and the nexus between joint contracting and the attainment of those goals.”

The report says little about what specific states of affairs either or both would pursue.

In one of the few passages specifically addressing P4P, the report says that: “In determining whether a physician network joint venture is sufficiently financially integrated to avoid per se condemnation, the agencies will consider the extent to which a particular P4P arrangement constitutes the sharing of substantial financial risk among a group of physicians, and the relationship between the physicians' pricing agreement and the P4P program.”