Health Law Blog - Healthcare Legal Issues

Ambulatory Surgery Centers – Federal Settlement Highlights Safe Harbor Requirements

September 29th, 2014

ASC Investments Safe HarborsA Tennessee based ambulatory surgery center company has agreed to pay damages to a former employee who filed a suit alleging that physician investments in local surgery center entities violated the Anti-kickback Statute.  The case highlights some of the unique kickback issues that are present in ambulatory surgery center structure.  Specifically, the case demonstrates how investment terms that are intended to assure compliance with the safe harbor regulations under the Medicare Anti‑Kickback Statute (42 U.S.C. § 1320a-7b(a)-(b)) can create evidence of non-compliance if the initial terms of the offering relate, in whole or in part, to the volume or value of expected referrals from the investor in the ASC venture.

In order to comply with safe harbor requirements, ASCs must generally require investing physicians to use the facility as an extension of their medical practices.  However, if the terms of the investment are based on the volume or value of referrals, those same requirements become evidence that referrals are being required in exchange for remuneration.  In the Tennessee case, the ASC management company purchased controlling interests in local surgery center entities at a high multiple of earnings.  Physicians who were referral sources were offered investments at less than 1/3 of the value that was applicable to the non-referring management company.  That differential in value was evidence of “remuneration” under the Anti-kickback Statute and also indicated that investment terms were more advantageous based on expected referrals.

Structuring ambulatory surgery center investments to comply with Anti-kickback requirements is an extremely complex task.  Indications of compliance can become evidence of non-compliance depending on initial investment terms.  Cases such as the Tennessee case illustrate the problems that can occur when safe harbor requirements are not complied with and when decisions on investment or exclusion are made based on past or anticipated referrals.  The Tennessee case also illustrates how these issues come to light.  The Tennessee case was filed as a whistleblower case by a former administrator of one of the local surgery centers who walked away with a settlement in the millions of dollars.

We have published a more complete analysis of the Tennessee case which you can access through the following link   ASC-Investment-Federal-Case

Is your EHR Donation Agreement in Compliance?

May 23rd, 2014

The EHR donation regulations allow certain qualified entities to provide nonmonetary remuneration to physicians and other health care providers to obtain electronic health information systems without violating the Anti-Kickback Statute or the physician self referral laws.  Hospitals and other organizations have structured EHR donation programs around the existing exception.  The regulations that permitted hospitals to make payments on behalf of physicians for EHR technology was set to expire on December 31, 2013.

The Center for Medicare and Medicaid Services released final regulations on December 27, 2013, which extended the protections of the EHR donation regulations through December 31, 2021.  However, it is important that providers examine their EHR donation agreements to determine whether continued payments under the agreement comply with federal law.  Many EHR donation contracts contain automatic expiration clauses that terminated the agreement on December 31, 2013.  If those agreements have not been properly extended, payments that may have occurred under those agreements following expiration may raise compliance issues.

Providers should not assume the continued payments are protected under the extended EHR donation expiration date.  In many instances, entering a new agreement or amendment of existing agreements will be required in order to continue to qualify donation amounts under the application exceptions.

Primary Care Integration Strategies – The Division Model Group Practice

May 21st, 2014

 Divisional Merger IntegrationIt is no secret that the role of primary care is central to the creation of systems to respond to health care reform and changing reimbursement models.  To the extent primary care providers have not already relinquished their strategic positions by becoming employed, entering provider service agreements or service line management agreements with hospital controlled systems, primary care providers maintain a strong position in the market.

Primary care groups are still faced with the need to create or participate in organizations that provide for the best means to manage patient care.  Primary care groups are seeking strength in numbers by creating larger groups.  The goal is to best maintain their competitive position, to diversify risk, to create efficiencies through shared savings opportunities, and to maintain appropriate levels of influence over care cycles, protocols and division of emerging, episodic-based payment.

In order to achieve these goals, some independent primary care groups are considering merger with other groups.  Oftentimes, merging providers will seek ways to maintain some degree of intra-office independence while still taking advantage of the benefit of a larger group.

Provider mergers and acquisitions, particularly between competing independent practices in the same specialty area, can create sensitive antitrust issues.  Generally, competing providers are prohibited from agreeing to the price of services.  However, otherwise competing providers who legitimately merge into a single group are legally incapable of conspiring because they are a single entity.

The tension between the desire to maintain a degree of independence and the need to effectively merge practices leads to consideration of what has become known as a “divisional merger.”  A divisional merger is similar in many ways to the concept of a group practice without walls that was prevalent during the 1990s.  Under this model, individual offices or groups of offices form divisions that maintain some degree of operational and financial independence.  Structuring divisional model groups can be extremely tricky.  Balance needs to be created in the amount of financial, governance, and operational authority that is ceded to the central board of directors and maintained in the divisions.  If too much authority is maintained at the divisional level, there is a risk that a “failed merger” will have taken place.  If a failed merger is found, the individual providers or divisions will be considered to be independent and capable of conspiring in violation of antitrust laws.

Divisional mergers raise a host of additional legal and business issues.  A divisional model group must be structured to comply with Stark Law and Anti-Kickback prohibitions.  Generally, the group and its financial structure must comply with applicable Stark Law exceptions and must be structured as a qualifying “group practice.”  An issue that arises in virtually all divisional model structures involves the treatment of ancillary revenues; in particular, “designated health service” revenues under the Stark Law.  Although primary care practices tend not to generate as much DHS revenue as specialty practices, clinical laboratory and diagnostic revenues are common.

A divisional merger will be subject to all of the same transactional and due diligence issues that apply to any other type of merger or acquisition.  Each participant will need to assess the risk associated with merging under one entity with other participants.  This involves a lengthy process of due diligence and addressing issues that are raised through the process.  Oftentimes, numerous sets of legal counsel are involved in the structural and transactional issues.

In the end, assuming that the divisional merger is properly structured, the combined entity can create significant benefits to primary care participants.

Antitrust Policies Avoiding Spillover – Clinically Integrated Networks

May 19th, 2014

Antitrust “Spillover” In Integrated Networks

Even clinically or financially integrated networks need to take affirmative steps to limit what has been labeled by enforcement agencies as “antitrust spillover.”  This term generally refers to the affect that an agreement on price within a network might have on pricing that occurs outside of the network.  It is not wise for an organization to openly debate fees among competing provider members, even if the organization is clinically integrated.  Affirmative steps should still be taken to limit distribution of sensitive fee information.

Clinically integrated networks should implement detailed antitrust policies that reduce any adverse effects on an agreement on pricing.  Ideally, specific pricing terms should be lock boxed.  Perhaps most importantly, the clinically integrated network should assure that all providers receive training on the content of the antitrust policies and general antitrust law considerations.  Training should be verified and documented in the same manner as other compliance training.

Standards for Achieving Clinical Integration – How Much Is Enough

May 19th, 2014

Clinical Integration AttorneyI am often asked to provide my opinion on the standards that must be met in order to be considered to have achieved clinical integration.  Clinical integration provides some significant benefits under the antitrust laws.  Failure to meet clinical integration standards can have some significant downsides for providers who are attempting to adapt to health care reform by establishing new organizational models to manage care.

There is no single test to determine whether an organization is clinically integrated for antitrust purposes.  The DOJ/FTC Joint Statement on Antitrust Enforcement Policy in Health Care provides some very general guidance on factors that are indicative of clinical integration.  More detailed analysis of clinical integration requirements can be found in several advisory opinions that have been issued by the FTC.  Analysis of all available resources makes it clear that there is no single formula for achieving clinical integration and each organization will be unique in the mechanisms and processes that are used to achieve required levels of collaboration and interdependence between providers.  I can sense a degree of frustration when I am unable to provide a certain answer of the precise conditions that must be in existence to meet clinical integration tests.  I believe some of the uncertainty is due to the fact that clinical integration is a system and a process rather than a static model of operation.

We are certainly able to flush out the primary elements of a clinically integrated network.  An organization that wishes to create a CIN should clearly set its objectives, define the mechanisms that it intends to create, and should develop a plan to move toward achievement of defined goals and operation of the CIN mechanisms.  Too much focus on precisely when clinical integration is achieved tends to place the emphasis on the wrong factors and assumes that clinical integration is an end in and of itself rather than a system and a process that much be created and continuously operated.  Clinical integration changes the very fabric of how health care is delivered.  It does this by reshaping the culture in which health care providers operate.  It is not something that can be achieved overnight.  Rather, it is a continual process of growth and development.

If the focus is on creation of the system and processes, the antitrust benefits will naturally flow.  Therefore, we should be cognizant of the way that clinical integration is defined under the antitrust laws as we structure clinically integrated organizations.  But we should avoid getting bogged down in questions about how much integration is enough.

 

Clinical Integration – Key Factors of Integrated Networks

May 19th, 2014

Key Clinical Integration Factors

Here are just a few of the key factors that are indicative of clinical integration.

  • Collaboration and Coordinated Care
  • Care Protocols
  • Provider Selection Criteria
  • Enforcement of Standards
  • Use of Shared Data
  • Robust Quality and Efficiency Standards
  • Provider Training
  • Continual Process

I am releasing a series of articles on various legal aspects of clinically integrated networks.  Sign up for our Newsletter or grab the RSS feed to receive notification when I publish articles in the series.

 

Physician Owned Hospital Expansion – CMS Approval Process

May 16th, 2014

Obtaining Approval for Expansion of Physician Owned Hospitals 

physician owned hospitalsCurrently, federal law effectively prohibits the establishment of new physician-owned hospitals.  Expansion of existing physician-owned hospitals is also effectively prohibited.  An existing hospital may request an exception from the prohibition from the Center for Medicare and Medicaid Services.  An exemption may be granted by CMS, but not without the hospital going through the formal request and review process.

Under the federal Stark Law, physicians are prohibited from owning interests or having financial relationships with entities that provide “designated health services,” including hospital services, unless an exception exists.  Previous versions of the Stark Law contained an exception for investments in the hospital itself as opposed to a subdivision of the hospital (known as the “whole hospital” exception.  The Affordable Care Act virtually eliminated the “whole hospital” exception from the Stark Law for future hospital projects and for expansion of existing projects.

Beginning in March of 2010, a physician-owned hospital is prohibited from expanding existing capacity unless it applies for and is granted an exception as either an “applicable hospital” or a “high Medicaid facility.”  Federal regulations set forth the procedures that must be complied with when submitting requests for an exception.

Physician-owned hospitals that wish to expand existing capacity must follow the regulatory process for obtaining approval.  Part of this process involves CMS obtaining input from other providers in the community.  Even if expansion is approved, expansion cannot exceed 200% of the baseline number of operating norms, procedure rooms, and beds.  Expansion must be limited to the hospital’s primary campus.

Employment Exceptions From Anti-kickback Statute

May 9th, 2014

Employee Exception to the Anti-Kickback Statute

Are There Limitations on the Protection?

employment exception safe harbor regulationsBoth the Anti-Kickback Statute and the Stark Law contain exceptions that apply to employer/employee relationships.  The Stark Law exception contains several additional requirements and limitations that vary based on whether the physician is an employee of the group practice, or of a hospital or other provider of designated health services.

The Anti-Kickback Statute contains a fairly broadly worded exception which is generally been interpreted to exempt any remuneration made from an employer to a bona fide employee from consideration under the Anti-Kickback Statute’s criminal and civil prohibitions.  However, close examination of the wording of the exception, together with recent case law, may begin to demonstrate some limitations on the protection that is provided by the Anti-Kickback Statute’s employment exception.

The statutory exception under the Anti-Kickback Statue has been in place for over 35 years.  It is not a safe harbor under the safe harbor regulations but is directly included within the statute itself.  This has significant implications for the government’s burden of proof once a bona fide employee arrangement is established.  The Anti-Kickback Statute employment exception states that remuneration “shall not apply…to any amount paid by an employer to an employee for employment in the provision of covered items and services.”  The exception applies only to “bona fide employment relationships.”

Some of the limitations of the statutory exception may be included in the wording of the statutory provision itself.  The employment exception states that “remuneration” does not include amounts paid for “employment in the provision of covered items and services.”  On the other hand, a comparable safe harbor addressing employment arrangements that is included in the safe harbor regulation protects amounts paid to employee for “employment in the furnishing of” covered items and services.

Historically, most attorneys reviewing the employment exception have assumed that it provides complete insulation for employment arrangements.  This is contrary to statements from the Office of Inspector General which indicates that the scope of the exception may be more limited to payment for the provision of covered services rather than all payments.  Strictly interpreted, the statutory protection may not apply to payment that is made to an employee for administrative or other types of services that are not covered services under the Medicare and Medicaid programs.  This statutory language leaves open whether payment for services that are not covered services are included within the Anti-Kickback Statute’s exception.  There is no answer to this question as there has been no further interpretation or case law.  It is worthy to note however, that there could be limitations to the employee exception which should be considered when structuring arrangements; particularly when those arrangements could be abusive except for the fact that payment is being made to an employee.

Temporary Non-Compliance With The Stark Law

May 9th, 2014

Stark Law Temporary Non Compliance – Is There Any Wiggle Room?

Stark Law Temporary Non ComplianceOne issue that has raised concerns of providers when complying with the Stark anti-referral laws is what to do when a financial arrangement temporarily fails to comply even though it was originally structured to comply with Stark.  The Stark Regulations provide for a little wiggle room for arrangements that temporarily fall out of compliance. The relevant exception applies to referral arrangements that fall out of compliance temporarily for reasons that are beyond the control of the provider.

The temporary non-compliance exception only applies to arrangements that have historically complied with an  exception from Stark fora period of at least 180 days before the arrangement falls out of compliance. The exception then gives a provider a window period of 90 days to either correct the temporarily non-complying financial arrangement to bring it back into compliance or to terminate the non-complying referral relationship.

This exception brings to light the importance of continuing to monitor financial arrangements that could implicate the Stark Law to assure continued compliance. It is not enough to originally structure arelationship to comply with Stark and then forget about the ongoing arrangement. Changing circumstances could lead to future non-compliance.  Adverse consequences can be avoided if proper monitoring is in place and proactive steps are taken to correct any non-compliance issues.

If a review indicates that an arrangement has fallen out of compliance with the Stark Law, the provider should fully document the nature of the non-compliance and the reasons that the temporary non-compliance occurred. The documentation should include whatever evidence exists that the reason for the non-compliance was beyond the provider’s control.

In addition to documenting the reasons for the non-compliance, the provider should also immediately take steps to remedy the situation. The temporary non-compliance exception creates a narrow 90 day remedial time period. However, this 90 day window can actually be quite short. The exception provides that the 90 day remedial period begins to run on the date that the arrangement falls out of compliance; not the date that the provider discovers the non-compliance. Depending on the diligence of the provider in discovering the non-compliance, the time period to take remedial action may be substantially less than 90 days.

The temporary non-compliance exception can only be used once every 3 years with respect to the same referring provider. The exception is not available if the non-compliance places the arrangement in violation of the Anti-Kickback Statute.

It should also be noted that the exception does not apply to violations of the non-monetary limit on incidental medical staff benefits. Violaters of the non-monetary cap must bring the arrangment into compliance for subsequent years but cannot remedy past violations.

The biggest lesson to take from this exception is the need for providers to establish a systematic program for continual monitoring of financial relationships with referring providers.

Antitrust Law Application In Rural Areas- Hospital Mergers

May 7th, 2014

Antitrust Law is a “Big City” Legal Issue, Right?  Wrong.

Antitrust Law Small TownsOne might tend to believe that the rather obscure area of antitrust law would have little application in small town America.  After all, most of the legal expertise on the antitrust is located in big cities (Ruder Ware being a major exception).

When you really examine the cases that are being brought by the Federal Trade Commission, you will begin to see that it is the market where there are few competitors that tend to be on the receiving end of antitrust enforcement activities.  Market areas where there are only three or four hospitals are much more likely to see antitrust enforcement activity than are markets with more competing hospitals.

The same concepts hold true with physician affiliation and mergers.  For example, the merger of two urology groups in a big city market would quite possibly not involve a sufficient number of providers to adversely impact competition in the market.  In a smaller market, those same two urology groups could involve all of the urologists in town.  A merger in that situation could create a monopoly.

Similar issues arise in the development of clinically integrated provider networks.  Even if independent physicians achieve clinical integration control of too much of the market could adversely impact competition and could raise antitrust concerns.  These risks are often much greater in small town markets.  This “big city” legal issue cannot be overlooked when putting together “small town” business deals.

John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
500 First Street, Suite 8000
P.O. Box 8050
Wausau, WI 54402-8050

Tel 715.845.4336
Fax 715.845.2718

Ruder Ware is a member of Meritas Law Firms Worldwide

Search
Disclaimer
The Health Care Law Blog is made available by Ruder Ware for educational purposes and to provide a general understanding of some of the legal issues relating to the health care industry. This site does not provide specific legal advice and you should not use the information contained on this site to address your specific situation without consulting with legal counsel that is well versed in health care law and regulation. By using the Health Care Law Blog site you understand that there is no attorney client relationship between you and Ruder Ware or any individual attorney. Postings on this site do not represent the views of our clients. This site links to other information resources on the Internet; these sites are not endorsed or supported by Ruder Ware, and Ruder Ware does not vouch for the accuracy or reliability of any information provided therein. For further information regarding the articles on this blog, contact Ruder Ware through our primary website.