Recent Trends & Developments in Health Care Joint Ventures: Payor/Provider and Provider/Provider Joint Ventures | Insights

Speakers:

On this fourth episode of Ropes & Gray’s Recent Trends & Developments in Health Care Joint Ventures podcast series, health care partners Devin Cohen and Brett Friedman discuss key regulatory considerations for payor and provider alignment models, including clinically integrated networks and vertical integration transactions, as well as approaches for mitigating risk in markets increasingly scrutinized by federal and state regulators.

Transcript:

Devin Cohen: Hello, and welcome to today’s podcast. My name is Devin Cohen—I’m a partner in Ropes & Gray’s health care practice group based in Boston. I represent providers, payors, and investors in value-based collaborations, alternative payment models, and vertical integration transactions, with a core focus on insurance requirements and payor-provider alignment. With me today is Brett Friedman, a partner in our health care practice group based in New York. Now, Brett represents clients in areas such as government insurance programs, digital health, accountable care, and value-based payments and regulatory compliance—really leveraging his prior experience as the former head of the New York State Medicaid program.

Brett Friedman: Thanks, Devin. Excited to do this podcast with you today.

Devin Cohen: Well, let’s dive in. There’s been a lot of payor-provider alignment activity in the market over the last several years, particularly in the joint venture (JV) space. We’ve seen joint ventures between DaVita and Blue Cross Blue Shield in Minnesota, and with Cigna and Walgreens, just to name a few. We’re continuing to see a push towards value-based care akin to these models, but increasingly through joint ventures rather than traditional mergers and acquisitions. Now, Brett, what do you think are the top reasons for this trend towards JVs between payors and providers in particular?

Brett Friedman: That’s a great question, Devin, and I think there are really a few reasons. First, traditional vertical integration, whereby there’s a straight acquisition by a plan of a provider or a provider entity, or similar alignment models, require a laundry list of—and sometimes—onerous regulatory approvals. Rather, if you do a contractual or equity JV, it’s a structural opportunity that would allow the parties to achieve their business goals while in many cases limiting the need to receive a regulator’s blessing prior to closing. That’s really the biggest reason.

The second reason is really payment opportunity. There has been a plethora of federal programs and policies, including those that we’ve seen over the last eight to 10 years from the Center for Medicare and Medicaid Innovation (CMMI), that have created opportunities in the marketplace for value-based care, and because of these provider-payor alignment opportunities, the way the care is compensated and how providers are being paid is changing. Doing these arrangements through a JV would provide a model of support for these novel payment methodologies that can promote those mutually beneficial outcomes for payors and providers alike. Still, those payments through a JV may still need to comply with a ton of regulatory and state laws governing mainly fraud and abuse. OIG is really the primary regulator here, and they really, for 30 years, have been identifying concerns with joint ventures when those joint ventures increase referrals between or among health care beneficiaries such as those who receive Medicare and Medicaid, or through which one party provides capital towards the JV but not really sweat equity in the partnership.

Finally, there are a lot of opportunities and ways to share risk between members of a joint venture, their affiliates that support their operations, and then the providers who participate and actually deliver the care. Through this last prong, the stakeholders really need to keep in mind antitrust considerations to make sure there’s not impermissible collusion or data-sharing. And so, with those considerations top of mind, a JV can really be a beneficial structure, but one where compliance concerns need to be front and center.

Devin Cohen: I agree, Brett, but there’s a lot to unpack on these regulatory considerations. So, trying to take it one step at a time, let’s start with the implications for joint ventures under the federal Anti-Kickback Statute (AKS), False Claims Act, Civil Monetary Penalties Law—the fraud and abuse laws we’re all familiar working through. Now, given the payment to health care professionals under most joint venture models involving payor-providers, or even payor-payors, whether that’s through an equity distribution services agreement, or a participating provider agreement, the Anti-Kickback Statute, in particular, is relevant, and especially when the joint venture results in substantial service area or service line expansion. As Brett was discussing, this is an area that the OIG has long viewed as potentially suspect, particularly in contractual joint ventures.

Now, these joint venture parties share aligned priorities in promoting improved quality and reducing health care costs. Beyond payments to health care professionals participating in or supporting the joint venture, these aligned incentives promote patient engagement and potential—or opportunities—for transfers of value to plan enrollees; whether it’s an iPad to promote a primary care physician telehealth visit or remote patient monitoring, free transport, or gift cards for completing intake questionnaires. Patient engagement is not prohibited under these laws. In fact, more recent safe harbors to the Anti-Kickback Statute, and exceptions to the Civil Monetary Penalties Law from 2020, provided really more expansive—although, I’ll say untested from an enforcement perspective—opportunities to promote patient engagement, while posing a low risk of harm to beneficiaries of federal health care programs. In addition, the OIG nominal gift guidelines, particularly under the Civil Monetary Penalties Law, have set annual thresholds for permitted non-cash or cash-equivalent transfers of value to enrollees set at either $15 per transfer or $75 per member per year, of course, changing by inflation almost annually.

Now, many times, the government’s decision to commence an enforcement action focuses on whether the joint venture partner payments or the inducements pose more good than harm to these programs. From your perspective, Brett, what are regulators looking at when they’re balancing these considerations?

Brett Friedman: It’s a good question, Devin. It’s not really my perspective—it’s really the OIG’s perspective. Looking back to their history of guidance, whether through special fraud alerts or advisory opinions, they tend to focus on three things:

Is it unlikely that the joint venture will interfere with clinical decision-making?
Is it unlikely that the joint venture will increase costs through overutilization or inappropriate utilization of services that are reimbursed by Medicare, Medicaid, or other federal health care programs?
Does it not raise patient safety or quality-of-care concerns?

In framing all of these, I’m cognizant that they’re all framed in the negative, but I think it’s helpful to think about it if you frame it in the positive, which is: Do these programs, supported through a joint venture, improve quality and lower cost? To that end, generally acceptable low-risk access-to-care freebies for programs like smoking cessation, access to primary care, other support groups, or even the provision of childcare or transportation to get to health care appointments, could all be appropriate, but, really, it’s looking at, overall: Is the federal health care program spending more money? And in a lot of these payment opportunities, they’re not, because the programs themselves are designed to save money through provider-payor incentive alignment.

Devin Cohen: Yes, and it’s a bit of a mystery, though, on how far payors and providers partnering in this space can really go to that end, Brett, and be eligible for protection under relevant safe harbors, OIG enforcement positions, or otherwise, right? We know the government is accepting more broad understandings of permissible value-based enterprise structures and permissible care coordination for patients, but against that backdrop, there have been reported Civil Investigatory Demands for providers relating to beneficiary outreach and free transport. What the industry really hoped would develop into a bit more bright-line rules is still a gray area, leaving payors and providers with risk determinations and compliance levers that they can be exercising in order to promote access to essential services, while reducing risk of harm.

Now, something the government has been crystal clear on relating to beneficiary engagement is the need to protect some of the nation’s most vulnerable populations who are impacted by joint ventures from false or misleading advertisements, aggressive marketing campaigns, or abuses to consumer protections. I think it would be interesting to talk through how does that come into play in the payor-provider joint venture space?

Brett Friedman: That’s something that we’re seeing a lot, Devin, and I think are some of the more novel questions that we’re getting in this area. Really, I think, to focus on—this goes back to your point on vulnerable populations—the issues arising most in the Medicare Advantage context, and the requirement to identify how the joint venture can either directly engage in marketing or support a contracted provider partner in marketing to Medicare Advantage enrollees consistent with the long-standing Medicare Marketing Guidelines. And so, really, it’s this concept that is not new. But if the provider is contracted with the payor, and the provider is the one with the patient relationship, are they engaged in impermissible or suspect whitecoat marketing? Here, the concept of “marketing” is subject to CMS approval, so that, if the provider is engaged in marketing without CMS approval, they can get into a lot of trouble. Getting CMS approval is often onerous and administratively burdensome. Critically, the first thing to do is to ask yourself, “Is what the provider is doing marketing?” The way that “marketing” is typically defined is, “communications, materials, activities that are designed to promote enrollment in a Medicare Advantage plan.” And so, a provider can say a lot of things to a patient, even in connection with a joint venture that is not enrollment, but there’s an intent standard that is met if the marketing communications or marketing materials are intended to do really one of three things:

Draw a beneficiary’s attention to a specific Medicare Advantage plan.
Influence a beneficiary’s decision-making process with regard to when to select a Medicare Advantage plan (which is particularly important, especially around the open enrollment period).
To influence a beneficiary’s decision to stay enrolled in a plan (so, retention-based marketing).

CMS evaluates that intent in looking at whether a communication or marketing material is providing objective information, or if it’s really intended to influence those decisions based on the nature of how the information is communicated, how it’s timed, as well as the context around which the communication is made in connection with the partnership that the provider may have with the Medicare Advantage plan.

Devin Cohen: Putting the intent to the side, there’s a second prong, right? The content standard.

Brett Friedman: That’s right, and that’s like what’s actually in the material itself. And so, if there is specific content in the communication or material, it’s going to be marketed. That content is anything that describes a particular Medicare Advantage plan’s benefits, their benefit structure, their premium, their cost-sharing—anything what that plan provides. The second piece is anything that discusses how good the plan is—measuring or ranking systems (Star Ratings being the big one, because that’s a comparative measure on how good one Medicare Advantage plan is against another). And then, the third is whether the plan is offering any specific beneficiary rewards and incentives—like some of the things you mentioned earlier—that could be considered beneficiary inducements.

Devin Cohen: I think that that’s overlaid, right, in a world of third-party marketing organizations or TPMOs. New regulations that just came out this spring seeking to really limit the ways certain payors can contract with those types of marketing organizations, must oversee them, should record enrollee outreach calls, and ensure adequate disclosures to consumers; this is really helping to level-set that playing field, much like the Medicare Marketing Guidelines. Luckily, those regulations also require information be provided across a region’s most prevalent languages, which will greatly benefit potential enrollees—which is one of the OIG’s most ultimate aims here.

Brett Friedman: That’s right—it all comes down to patient harm, patient understanding, and quality of services. There’s a real risk to payor and provider partners if they communicate this information incorrectly to enrollees, overstep the lines, or otherwise get it wrong. At the end of the day, if the provider is doing a form of marketing, or what could be construed as marketing, you want to make sure that what you’re really paying for are the bona fide services that the provider is doing in connection with a specific care-delivery model. If you’re not careful about how you define the services, and how you define the compensation for those services, you could really end up in Anti-Kickback Statute land because the payment that the joint venture or the plan is making to the provider could look like a conversion fee—a fee that is paid only upon the member getting referred through enrollment in a particular plan. And so, we do a lot of advising in this space about how to appropriately structure and safeguard those arrangements so it’s not an impermissible conversion fee in violation of the Anti-Kickback Statute. The way to do that is really to think about it under the personal services and management contract safe harbor:

You want to delineate the services clearly.
You want to make sure that the compensation that you’re paying for the services is consistent with fair market value and is otherwise commercially reasonable.
You want to keep the care management payments as fixed as possible so they’re not varying by the value of the member enrolling in a plan.
And we always think it’s helpful, too, consistent with this beneficiary-centric aspect of the analysis, that service-level agreements (SLAs) or other quality measures are imposed in the agreement so that you’re really focusing, again, on the bottom line: Is the care good? Are patients well served?

Devin Cohen: An oversight really exists outside of, so to speak, Anti-Kickback world, where we’re seeing it implemented across payor-provider joint ventures, in particular, as traditional change of control and affiliate contracting requirements are implicated under the National Association of Insurance Commissioners’ (or the NAIC) requirements. A lot of state Divisions of Insurance really require—and state legislation models further require—NAIC standards. This becomes really relevant when the parties are partnering to develop a new plan in a payor-provider model, build out market presence of an existing plan, or otherwise develop an asset that will support the health plan operations—even contracted services-provider relationships.

Brett Friedman: That’s right, Devin. Anytime you have a payor-provider joint venture that is going to result in a new insurance business or a new insurance product (i.e., a new health plan), that entity is going to need to apply for an insurance license. In most cases, that’s an HMO license, an insurance Certificate of Authority, or a similar type of state approval. Often, the joint venture, as they’re developing these offerings, will provide vesting rights to potential investors or partners. And speaking about the NAIC, these will trigger what’s called a Form A change of ownership filing if those rights ever vest and it results in a “change of control” (broadly defined) in the insurance plan, by greater than 10%. Once you hit Form A land—you’re talking about a process that can take many months—it can include public hearings and require background checks of individuals and entities all the way up the chain (the “Character and Competence Process”).

When parties are focusing on developing a joint venture that may support payor operations, like, revenue-cycle services to the payor member, other NAIC requirements may be triggered. A Form D is required prior to execution of certain inter-company agreements, as one example. The Form D is less onerous than a Form A, but it’s really nothing to underestimate, and it could really increase the timeline and complexity of the joint venture’s activities if they start charting into these spaces.

Devin Cohen: Speaking of filings that could push timelines, we haven’t even touched on antitrust yet. We’ve seen both the Department of Justice (DOJ) and Federal Trade Commission (FTC) rescind prior guidances, some relating to what’s permitted and not permitted for vertical mergers, and others relating to permissible joint contracting amongst members of an Accountable Care Organization (ACO). Now, while at least one draft guidance on mergers more broadly was issued in July of this year, it’s unclear what the regulators are willing to permit in vertical-alignment models, in particular, and payor-payor joint ventures. What we do know—there are certain underlying concerns that the regulators have with aligned joint ventures and clinically integrated networks that were previously permissible, but now, they view that as having anti-competitive conduct that’s impermissible.

Brett Friedman: That’s right, Devin. This is a really evolving landscape. As someone who doesn’t predominantly practice antitrust, we could only hope to flag and say, “This really needs to be looked into.” But stakeholders need to consider the implications for horizontal or vertical price fixing, in particular, between providers who are jointly contracting together in connection with a single payor. The DOJ and the FTC are suspect of marketing transparency and data access, especially with regard to provider prices or provider rates because it can lead to anti-competitive coordination—that is a historical and long-standing concern. So, the DOJ and FTC, in addition to some states through their offices of attorney general, have promulgated guidance encouraging restrictions on provider rate-sharing during negotiations. And the way this presents itself—in the course of these deals, or even standing up the operations—you want to create firewalls, clean teams, and other antitrust considerations that you can monitor through the diligence and build-out process. Really, not to get into it, but just to say, there is a lot to be considered in this space that you really want to consult antitrust counsel for.

Devin Cohen: Thank you so much, Brett, for talking with me about these important topics. For those of you listening who would like more information on the topics discussed during the podcast, or our health care group more broadly, please don’t hesitate to reach out and contact myself or Brett. You can also subscribe and listen to other Ropes & Gray podcasts wherever you regularly listen to your podcasts, including on Apple and Spotify. With that, thanks again for listening.