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  • February 15, 2021

    State Regulation of Centers of Excellence Programs: Where a National Trend Meets Local Law

    Employers and health care providers across the country are opting to participate in Centers of Excellence Programs and will need to meet the legal requirements of every state in which they do so. Angela Rust helps attorneys for providers and health plans spot these state law issues of importance, with specific commentary on Wisconsin.

    Angela M. Rust

    One in four large employers sought to expand their Centers of Excellence (COE) offerings last year.

    Although the format of Centers of Excellence programs vary, the term is generally used to describe the efforts of an employer or other payer to steer patients to high quality, cost efficient providers. These programs frequently target specialty and surgical care, in part because of their high financial and clinical impact, and in part because of the likelihood that such care can be “shopped” for in advance by a patient.

    For example, more than half of large employers report having a COE program for musculoskeletal conditions. Whether you represent health care providers or companies that offer health care benefits, COEs are likely a key initiative for your clients.

    Implementing a Center of Excellence: Federal Law Considerations

    While the trend is national, the implementation of a COE program also requires an intricate understanding of state law. When a COE program is first established, compliance with federal laws such as Employee Retirement Income Security Act of 1974 (ERISA)1, Stark2, and the federal anti-kickback statute3 are key.

    Understanding these types of federal regulations and the manner in which the program will comply is a critical first step. For example, because many COE programs involve collaboration among multiple providers who have relationships outside the program, federal fraud and abuse laws may be implicated, even if the health care services in the COE program will be reimbursed by a private health plan sponsor and not by federal health care programs.

    Angela Rust Angela Rust, Marquette 2007, is chief legal officer for NOVO Health, Oshkosh, and is of counsel to McCarty Law in Appleton, representing ambulatory surgery centers and independent health care clinics.

    Given the pervasiveness of COE programs, however, an analysis of federal law may be streamlined by those who have implemented the same or a similar program in other companies.

    As with any national trend, there are countless consultants, advisors, and other organizations interested in expanding their variation on the theme from one geographic market to the next. Maybe your client is hoping to adopt a model that has shown promise elsewhere, or to export a model they have used successfully here in Wisconsin. This is where you can play a particularly helpful role by making sure state law considerations are addressed up front.

    While not an exhaustive list, below are several state law topics you will want to review for the jurisdictions in which your client’s COE program will be implemented. Remember that clients with locations along state borders or locations in multiple geographies will need to consider whether their program is subject to the laws of multiple states.

    State Fraud and Abuse Regulation

    Once federal laws, including those on the topic of fraud and abuse, have been sufficiently addressed, consider state law varieties that often apply to “all payers,” meaning they cast a broader net over activities that involve no federal reimbursement.

    As just one example, many COE programs offer some type of reward or financial benefit to a patient who chooses to seek care at a COE rather than other provider locations that may be “in-network” with the primary fee-for-service plan, but not included in the more limited COE panel of providers.

    Of course, when patients share in the cost-savings of a program, they are more inclined to participate. Similarly, providers may be more willing to participate when they know their efforts have a financial impact on individual patients and not just the bottom line of a large corporation and its executives or shareholders.

    Accordingly, it is important to understand if and when state law would consider these types of financial rewards to be “inducement” or “kickbacks.”

    In some states, state fraud and abuse laws are codified in statutes like the Illinois Insurance Claims Fraud Prevention Act (740 ILCS 92/5a) which provides:

    it is unlawful to knowingly offer or pay any remuneration directly or indirectly, in cash or in kind, to induce any person to procure clients or patients to obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured person or the person's insurer.

    In contrast, Wisconsin’s regulations of this nature are incorporated into laws less obvious on their face, such as a fee-splitting statute contained in Wis. Stat. chapter 448, a statute regarding the state medical examining board. (See more on this below.) Contained within that statute is a prohibition on offering “anything of value” to “induce a person” to communicate with a physician.

    On their face, these types of prohibitions in state laws could be construed to flatly preclude providers from offering anything of value to any payer in exchange for encouraging patients to treat at their locations.

    Of course, this interpretation could result in a violation any time a health care provider agrees to accept less than their full “rack rate” billed charges to a payer in exchange for participating “in-network,” which is standard practice in the industry nationwide.

    Therefore, you can provide real value to clients by understanding the nuanced interpretations at a state level of what arrangements will likely draw scrutiny.

    Fee-splitting Regulations

    Beyond serving as a possible source of fraud and abuse regulation, as in Wisconsin’s statutes, fee-splitting regulations may impact the manner in which funds may and may not flow between participating providers in a COE program, and the manner in which the details of the program are communicated to patients in related billing.

    For example, bundled payment arrangements in which multiple health care providers deliver an episode of care for a single, global price, are a common component of many COE programs. Counsel for providers who collaborate in this manner must be able to demonstrate that their clients are not impermissibly allowing any provider to share in the fees for another’s professional services to the extent this statute applies.

    Also, be wary of scenarios in which the vendor of a COE solution offers to take payment in the form of a percentage of the earnings of a provider.

    Some states have found such arrangements to violate fee-splitting prohibitions. For example, Illinois appellate courts have found fee-splitting violations where administrative fees for participation in a program or network are based on percentage of revenue or even calculations that did not apply a straight percentage, but bore a “direct relation” to the revenue a program generated for a provider.4

    Alternatively in Wisconsin, authority interpreting our fee-splitting statute is scarce, and a thorough understanding of its application over the years involves familiarizing oneself with attorney general opinions pre-dating much of our modern health care delivery system.5

    Occasionally, challenges created by state-level regulations such as those described above can be avoided by relying on ERISA preemption. Section 514 of ERISA generally provides for the preemption of state laws that relate to any employee benefit plan, and such preemption occasionally avoids complications raised by the types of state-level regulations described above. However, a broad exception to ERISA preemption applies to state laws that regulate insurance.

    Insurance Regulations

    Nationwide, the regulation of the insurance industry falls to the states.

    State-level licensure requirements and oversight protect consumers by ensuring the sufficiency of financial underwriting and accounting methods, as well as the reasonableness and fairness of trade practices. The shift away from volume-based to “value-based” pay in health care has increasingly led to arrangements in which providers of care bear some level of downside financial risk to align incentives.

    Further, the sharing of financial risk is sometimes a core component of antitrust compliance, where a COE program involves collaboration among entities who are otherwise competitors in a market. (Here it is worth mentioning that state antitrust law often mirrors – but may not be identical to – federal antitrust law, and the state climate with respect to regulation and antitrust enforcement is another relevant consideration, although not covered in detail in this article.)

    The bearing of financial risk by COE providers or other entities involved in a COE program, however, can raise questions of insurance law compliance if the entity bearing the risk is not a licensed insurance company.

    Key to avoiding or addressing insurance requirements is the distinction between general business risk (e.g., the risk that you have inadequately priced a particular product or service) and bearing “insurance risk” for financial losses that might otherwise be the topic of actuarial projections. Factors to consider include the payment methodologies at issue, as well as which entity ultimately bears risk in relationship to the patients seeking care.

    If a licensed commercial insurance company is involved, or a self-funded ERISA plan is ultimately responsible to the patient (as opposed to the provider), this may be sufficient to avoid provider-level licensure.

    Similarly, the scope of financial risk and its format are important. Discounted fee-for-service, per diem, and global/bundled case rates typically cause less concern than true capitated arrangements.6

    Conclusion: Consider Your Advice

    As your clients consider how COE programs may benefit their organizations, consider how you might provide important insight into Wisconsin state law and how you might collaborate with local counsel in other applicable jurisdictions to ensure a smooth implementation.

    This article was originally published on the State Bar of Wisconsin’s Health Law Blog. Visit the State Bar sections or the Health Law Section web pages to learn more about the benefits of section membership.


    1 The Employee Retirement Income Security Act of 1974 is a federal law that governs most voluntarily established retirement plans and health plans in private industry to protect plan participants and their beneficiaries.

    2 Section 1877 of the Social Security Act (the Act) (42 U.S.C. 1395nn), also known as the physician self-referral law and commonly referred to as the Stark Law, prohibits a physician from making referrals for certain designated health services (DHS) payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship (ownership, investment, or compensation), unless an exception applies.

    3 The federal anti-kickback statute, 42 U.S.C. § 1320a-7b, prohibits exchanging (or offering to exchange) anything of value in an effort to induce or reward referrals of business that is reimbursable by federal health care programs.

    4Vine Street Clinic v. Healthlink, Inc., 222 Ill. 2d 276, 856 N.E.2d 422 (Ill., 2006); TLC The Laser Center, Inc. v. Midwest Eye Institute II, Ltd., 306 Ill. App.3d 411, 714 N.E.2d 45 (1999).

    5 See, e.g., 6 Op. Att'y Gen. 306 (1917); 71 Op. Att'y Gen. 108, 109 (1982); 75 Op. Att'y Gen. 200, 103 (1986).

    6 See Ericka L. Rutenberg, “Managed Care and the Business of Insurance: When Is a Provider Group Considered to Be at Risk?,” DePaul Journal of Health Care Law 267 (1996).

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    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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