Revolutionary Evolution in Health Care

In the era of affordable care, health-care organizations are under pressure to cut costs and improve patient outcomes. They’re also under scrutiny from the Federal Trade Commission. Industry lawyers like Laura Peabody must enable continuous improvement without injunction.

With all the hoopla and wrangling around the Affordable Care Act (ACA), it’s easy to come away with the impression that it’s all about money, the balance of power, and politics. But Laura Peabody of North Shore-Long Island Jewish Health System (North Shore-LIJ) takes a different view.

“People think the ACA is just about insurance,” says the senior vice president and chief legal officer for the $8 billion, 21-hospital organization. “But, in fact, the entire health-care delivery system is
undergoing a major transformation.”

North Shore-LIJ exemplifies what that transformation is all about. The changes mandated by the ACA push providers to find ways to reduce costs without compromising care, and cost reduction and improvement of patient outcomes are driving the changes taking place in this sprawling Great Neck, New York-based health-care provider.

North Shore-LIJ is not unique in this regard. As a large regional player in the health-care landscape, the hospital system encapsulates what is happening nationwide. Add to that Peabody’s prior work as a health-care attorney in Massachusetts—the state that forged its own health-care reform a decade prior to Obamacare. That background strongly informs how she navigates the rocky shoals of multiagency
government regulation and oversight.

“There is no recipe for how to do it. Antitrust is very fact-specific, with many variables. We try to approach this proactively, conducting good analyses to make sure we don’t raise antitrust concerns.”

The emerging health-care models in this environment, Peabody says, can be broken into four categories: consolidation, provider integration, various forms of risk contracting, and innovative partnerships. Each presents legal challenges she and her industry peers must navigate so their organizations can deliver innovative solutions while remaining compliant.

Fortunately for North Shore-LIJ, its top lawyer has been through this before.


Either by acquisition, merger, or innovative affiliations, consolidation is a key component of health-care reform. In some instances, it enables more collaborative, high-quality, and efficient delivery of care. When hospitals and physician groups are either under a single owner or working together in formal affiliations, patient care should be improved through better information-sharing and common quality goals while unnecessary costs are shaved from the process.

But consolidations can dance close to the line of antitrust, pitting the objectives of the Department of Health and Human Services against those enforced by the Federal Trade Commission. Case law has shown that the courts might view these alliances and acquisitions as anticompetitive. The case of Saint Alphonsus Medical Center–Nampa, Inc. et al. v. St. Luke’s Health System Ltd. ended in a determination that St. Luke’s violated antitrust law and an order to reverse the acquisition of Saint Alphonsus, setting a benchmark. The Ninth US Circuit Court of Appeals in Portland upheld the decision earlier this year.

Could that happen to North Shore-LIJ? Ranked near the top 10 in size in the country, North Shore is consolidating only where it makes sense, Peabody says. “There is no recipe for how to do it. Antitrust is very fact-specific, with many variables. We try to approach this proactively, conducting good analyses to make sure we don’t raise antitrust concerns.”

Peabody explains that she participates in strategic discussions with company executives early in the process. The 25 lawyers who report to her, along with roughly the same number of compliance staff, are subject-matter experts embedded in each business unit. “Our [internal] clients are expected to devise creative solutions and identify when those ideas could fall into the gray area,” she notes. “Our role is to identify risk in advance and to develop plans to mitigate that risk.”

Provider Integration

An approach to health care that originated in the 1970s, provider integration fortifies managed care and is the goal of new affiliations. Essentially, it applies information and communication technology to the idea that an effective chain of care will improve patient treatment and, perhaps, do so at a lower cost.

One example is the voluntary Medicare Shared Savings Program that Centers for Medicare and Medicaid Services (CMS) has implemented. The program requires coordinated care for Medicare beneficiaries whose services are paid for on a fee-for-service basis. CMS also encourages providers to invest in infrastructure to manage care and to redesign care processes to improve outcomes. Provider groups meeting the requirements of the program can apply to CMS for designation as an “accountable care organization,” eligible to participate in the program. The designation provides protection, in some circumstances, from federal antitrust, Stark, and anti-kickback regulation—a result of collaboration among several federal agencies.

Provider integration can result in innovative models for taking care of patients, particularly those with complex conditions. “Looking at a patient’s comorbidity factors enables our physicians to monitor all caregiving and is an important component of clinical integration,” Peabody says. “This requires coordinated care that includes sharing patient records between specialists.” Peabody notes that the system’s protocols are mindful of the federal Health Insurance Portability and Accountability Act of 1996, known as HIPAA, compliance.

If new provider affiliations try to negotiate as a unit with payers, antitrust issues may be raised. The FTC has published guidelines regarding the clinical integration required to avoid an antitrust challenge.

Risk Contracting

North Shore-LIJ has embraced risk contracting, including pay for performance, for a number of years—enough that the hospital system has been cited as one of a handful of similar organizations that are exemplary in its implementation.

According to the March 2013 report, “Early Adopters of the Accountable Care Model; A field report on improvements in health care delivery” (funded by the Commonwealth Fund, a foundation focused on health-care access), North Shore-LIJ is an early adopter of this model, which drives “toward a higher-performing health system.”

Consider an injured patient. He or she initially requires emergency services, followed by a short-term hospitalization, therapy, and possibly follow-up surgery. The old model of Medicare and Medicaid— and most private insurance coverage—paid for each of these services distinctly under a fee-for-service model. There were few, if any, payment models wherein providers had financial incentives to achieve positive outcomes. This is all changing, in part as a result of CMS changing its reimbursement methodology.

Peabody notes that Medicare and Medicaid reimbursement models generally lead the way in all of these changes, but that private insurers almost always follow suit.

“This is about replacing fee-for-service payments with bundled payments, financial incentives tied to quality and performance, or capitation payments that shift the risk of medical expenses to the provider,” Peabody notes. In each of these methods, the provider should take a holistic view of patient illnesses and outcomes, delivering a full cycle of health care, sometimes for a pre-negotiated fee. The term “risk contracting” refers to how the provider organizations might lose money if they don’t manage care effectively or earn money if they improve outcomes, such as preventing unnecessary hospitalization.

In addition to potential antitrust and anti-kickback concerns, patient information sharing is heavily regulated. “We have to make sure that in sharing information with physician organizations, payers, and others, our systems and other information are compliant with HIPPA,” Peabody says. In a world of cyber attacks and data breaches, which have already affected major insurance companies as much as retailers and banks, confidentiality and privacy are no small matters.

Innovative Partnerships

Perhaps most visible to health-care consumers is how hospital systems such as North Shore-LIJ are shifting to outpatient care by way of innovative partnerships.

Think “minute clinics”—flu shots at Walgreens or blood pressure checks at CVS. Even retailers such as Target and Walmart, which have pharmacies, are offering treatments for flu, sinus infections, pink eye, minor burns and rashes, head lice, ear infections, and urinary tract infections, as well as allergy tests. Generically called convenience care clinics, there are more than 1,900 such sites operating in the United States.

Before millions of people were able to buy health insurance through the ACA, these sites were primarily a means for retailers to deliver lower out-of-pocket-cost care to underinsured populations. Now, hospital systems are forging innovative partnerships with retailers to deliver these services. “Part of this is about easy access for patients,” Peabody says.

North Shore’s Medical Group Urgent Care Centers are a stepped-up version of extended-hours, out-of-hospital treatment. Staffed by board-certified emergency medicine physicians, radiology technologists, and medical assistants, these facilities address infections, burns, and sprains and provide digital X-rays, IV administration, rapid laboratory testing, ultrasound, vaccines, pregnancy testing, and minor surgery, such as skin lesion removal and wound repair. Some are community-based, while others are attached to hospitals.

How does a patient decide between one of these centers and an emergency room? There is some common sense involved. Emergency rooms are well-equipped to handle life-threatening emergencies. Other problems, such as ear infections, sore throats, or the flu, can be handled in an urgent-care center.

Other advantages to urgent care centers are shorter wait times and lowered expenses. “Our medical staff has to work within in the scope of their licenses,” says Peabody, suggesting that urgent-care center staff can make the call to transfer a patient to a hospital. “The goal is to prevent people from getting sicker and to treat patients in an appropriate environment,” which is good for the patient and cost containment.

North Shore-LIJ reported that it will open 50 such urgent-care centers over the next four or five years. These will address access and cost considerations that Peabody believes are critical. “There are populations out there that are vulnerable, at risk,” she says. Patients use emergency rooms as clinics when they can get better care in a more appropriate setting. “We are a nonprofit institution, after all. We need to find new ways to provide care, keep quality high, and address the cost issue.”