Spotting the legal risk in potential partnerships
As the transition to value-based contracts gathers steam, CFOs are sizing up the legal risks of forming strategic partnerships.
An interview with Scott Becker
By their nature, these value-based contracts create interdependence between payers and providers to serve their mutual interests. But how can health leaders make sure they’re choosing solid partners to optimize and fairly distribute savings? Scott Becker, partner at the Chicago law firm of McGuireWoods and publisher of Becker’s Hospital Review, recommends that health leaders preparing to sign such agreements keep these questions in mind.
Are potential partners reliable?
Trustworthiness is key, Becker notes. “You want to make sure the partner has the resources and the ethics to do what they say they’re going to do,” he says. It’s partly a matter of verifying the organization’s functional capacity and soundness: “If there’s risk-sharing, can they actually police it? Do they have the data and the tools to do what they need to do?” Becker believes that relying on outside assessment works best to help CFOs make fully informed decisions. “If there’s resistance to that,” says Becker, “well, then you’ve got a culture problem.”
The reliability test also involves examining a potential partner’s history for ethical lapses that could expose the organization to operational or reputational risk. Shrinking public tolerance for behavioral breaches heightens the need for such inquiry. Becker cites the case of Carlos Ghosn, ousted last year from the helm of Japanese carmaker Nissan for misusing company funds. “For 20 years, they let him use the corporate plane whenever he wanted to.” These days, says Becker, “there’s just less tolerance for all that stuff.”
Sometimes a review will reveal past misconduct — workplace harassment, most notably — that only recently has been taken seriously. For a CFO, Becker says, determining the gravity of another firm’s missteps can be a judgment call: “Is it a big thing that could cause a real problem? Or is this a small thing?” What’s essential, he suggests, is to ask questions before you act.
Mr. Becker is a partner at the Chicago law firm of McGuireWoods and publisher of Becker's Hospital Review.
Can they share data well and safely?
Data sharing is integral to care systems that reward value over volume — and so is data security. Yet while some industry players are sophisticated information sharers, others are just starting to gain traction. A 2018 survey by Quest Diagnostics1 found that many providers still lack the technology and patient data they need to succeed under value-based contracts. CFOs must therefore seek partners who can effectively monitor, manage and safeguard data. And every contract stakeholder must be prepared to heed the constellation of laws and regulations protecting patient privacy. Says Becker: “You must just really be aware of what you can and can’t legally share with your partner.”
The challenge is to find ways to minimize the inevitable risk of data-sharing. To do it, Becker says, CFOs should assess the strength of the prospective partner’s data-integrity processes and write careful contracts. “You don’t want to end up in a situation where you’ve shared data, your partner has a breach and you end up in trouble.”
Are they committed to compliance?
Regulatory compliance is an everyday preoccupation, and a core concern in evaluating potential partners. “There are a ton of numbers, details and systems that have to be right,” says Becker, and the trick is ensure that assessments are cost-effective. “If you’re a CFO, you have to make constant judgments about what’s good enough on compliance. Is the business running a clean way? Is it sustainable?”
The counterpart to external diligence is internal vigilance. “You want to do a periodic look at all of your contracts,” says Becker. “Make sure they’re meeting all the requirements for Stark, for claims. Audit billing, coding and collection. Make sure that HIPAA’s in good shape, that your security is in good shape.”
Ultimately, the best compliance indicator is institutional leadership. “What matters most,” says Becker, “is cultivating a culture of compliance within the organization. That’s what CFOs should be looking for. For partnerships to succeed over the long-term, it’s got to become a mantra throughout each organization.”
If you’re a CFO, you have to make constant judgments about what’s good enough on compliance. Is the business running a clean way? Is it sustainable?
Is their claims process clean?
False-claims risk is a compliance issue worth a mention of its own. In 2018 alone, the U.S. Justice Department recovered nearly $3 billion from False Claims Act cases. But not all claims process irregularities are deal-killers, says Becker, “Perhaps a possible partner has been doing something that they shouldn’t be doing — not always something horrible, but something that could lead to a false-claims case.” What should a CFO do then? “One approach is to tell the company you won’t close until you do a government self-disclosure and clean this all up.” Another is to accommodate heightened risk by incorporating process remedies and valuation discounts into a contract.
Are new market entrants prepared for partnerships?
Private equity firms are pushing into health care with ever-greater enthusiasm — investing in everything from technology and research to new clinic models and specialty practices. “They’ve become the dominant buyer today,” says Becker. “Some have experience in health care, and some don’t.”
That should be a concern when considering contracts with new market players. “When a fund starts to invest in health care and has not lived in health care,” Becker explains, “they’re sometimes not sensitive to all the legal risk that longtime industry members are very familiar with.” Creating agreements with new industry members may therefore require extra care.
Can they cooperate?
It’s often valuable to choose partners you already know well. “If you’re already doing business with somebody,” says Becker, “you have a pretty good sense of whether they’re sloppy operators or not.” It’s a consideration often at play in his law practice: “When we work with clients that are experienced, that have done this a lot, that are familiar, it’s just a million times easier. Can they give us the right accounting? Can they do the right for the valuation contract, or can’t they? We already know the answers.”
Social variables generally matter less than business acumen. “There may be people you don’t like,” says Becker, “but that you believe have high integrity. You can probably still work with them, because relationships have to do with competence.” And Becker warns against viewing the payer-provider relationship as inherently adversarial: “It really isn’t a zero sum game. It’s a pretty symbiotic relationship, and each player needs the other.” The best partners, Becker suggests, are those who see value-based contracts as the best way to serve all stakeholders.
Will they stay strong going forward?
Even as you vet your potential partner’s currents prospects, it’s important to keep an eye on the future economic landscape. Today’s generally healthy economy can cloud your ability to recognize an organization’s potential areas of weakness, and thus your possible vulnerability.
“We’ve been blessed with a really positive economy for some time,” Becker explains. “And that tends to cover up a lot of things. As health care inflation slows, as reimbursement slows, as leverage and debt catch up to people, those are things that worry me. If things go south business-wise, then you end up with everybody pointing fingers.” Careful inquiry and thoughtful negotiation up front can help avoid such difficulties.
The modern CFO makes constant judgement as to what's good enough and safe enough for us to move forward– Scott Becker
What’s the CFO’s vision?
As the shift from volume to value accelerates, CFOs must assume a visionary role in reshaping the health care landscape. “Some leaders think CFOs should make the trains run on time first and foremost,” Becker says. “And that’s crucial. But the next-level CFO also understands all the risks and sees the opportunity. The modern CFO makes constant judgments as to what’s good enough and safe enough for us to move forward.”
1. PR Newswire. New Study Reveals Stalled Progress Toward Value-Based Care. Published July 17, 2018. Accessed April 1, 2019.