the current state of hospital/physician ......• commercial reasonableness • set in advance •...

© 2016 Fox Rothschild LLP

THE CURRENT STATE OF HOSPITAL/PHYSICIAN CONTRACTING:

RISKY BUT NECESSARY BUSINESS

FOR NJ HFMA CARE AND PHYSICIAN PRACTICE FORUMS

David S. Sokolow, Esquire March 2016

COMPLIANCE RULES YOU WILL NEVER SEE IN PRINT:

RULE #5: • Money is Never for Nothing, and No Lunch is Ever for Free!

RULE #1: • Contrary to Popular Adage, the “Sum of the Parts” is

Sometimes Greater Than the “Whole”!

RULE #3: • It is Not Illegal to Be the Richest Person in the Room!

RULE #4: • When it Comes to Stats and Data: Figures Sometime Lie, and

Liars Sometimes Figure!

RULE #2: • It is Not Illegal to Be Unlucky, Misguided, or Just Plain

Stoooopid!

COMPLIANCE RULES YOU WILL NEVER SEE IN PRINT: RULE #6: • Nobody Wants to be Called “Below Average”, and Nobody Wants to Be

Paid Like it Either!

RULE #7: • Evolution is Good: Today’s Routines Were Yesterday’s Innovations, and

Tomorrow’s Routines Might Require New Pathways to Be Tread Down Today! In the Game of Musical Chairs, the Last Person Standing Generally Loses: If Everybody Else Is Doing Something, Then Just Maybe There Is Some Merit to the Idea!

RULE #9: • With Fraud and Abuse Compliance, the “Journey” is Sometimes More

Important than the “Destination”! RULE #10: • To Err is Human; to Forgive and Forget, Well that is Downright

Superhuman!

RULE #8: • No Mission, No Margin!

MORE THAN 50 SHADES OF GRAY: HOSPITAL-PHYSICIAN ALIGNMENT STRATEGIES

• (PSEUDO) EMPLOYMENT ARRANGEMENTS • PRACTICE LEASING ARRANGEMENTS • CLINICAL CO-MANAGEMENT • DIRECTORS, DIRECTORS, DIRECTORS • PAY-FOR-PERFORMANCE (P4P)

REGULATORY STICKY WICKETS & POTENTIAL LEGAL PITFALLS

• Fair Market Value (FMV) • Commercial Reasonableness • Set in Advance • Not Related to the Volume or Value of Referrals

FAIR MARKET VALUE

• “Fair Market Value” is defined as “the value in arm’s-length

transactions, consistent with the general market value” • “General Market Value” means the compensation that would be

included in a services arrangement as a result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party at the time of the service agreement


COMMERCIAL REASONABLENESS

• To be considered “commercially reasonable,” both the services and the payment

must be commercially reasonable (in the absence of referrals between the parties) • PAYMENTS MUST BE CONSISTENT WITH FMV OF SERVICES ACTUALLY

RENDERED (AND SERVICES MUST BE WORTHWHILE SERVICES ACTUALLY NEEDED)

SET IN ADVANCE

• Compensation is considered “set in advance” – “if the aggregate compensation, a

time-based or per-unit of service-based (whether per-use or per-service) amount, or a specific formula for calculating the compensation is set out in writing before the furnishing of the items or services for which the compensation is to be paid. The formula for determining the compensation must be set forth in sufficient detail so that it can be objectively verified, and the formula may not be changed or modified during the course of the arrangement in any manner that takes into account the volume or value of referrals or other business generated by the referring physician.”


NOT RELATED TO VOLUME OR VALUE OF REFERRALS

• Unit-based compensation is deemed “not to take into account ‘the volume

or value of referrals’” – “if the compensation is fair market value for services or items actually provided and does not vary during the course of the compensation arrangement in any manner that takes into account referrals of DHS [i.e., “designated health services” under Stark].”

• Unit-based compensation is deemed “not to take into account ‘other

business generated between the parties,’ provided that the compensation is fair market value for items and services actually provided and does not vary during the course of the compensation arrangement in any manner that takes into account referrals or other business generated by the referring physician, including private pay health care business (except for services personally performed by the referring physician, which are not considered “other business generated” by the referring physician).

• NOTE THE INCORPORATION OF AN FMV TEST INTO THE VVR TEST

WHY IS IT IMPORTANT TO DOCUMENT FMV, CR AND NO VVR???

• Medicare and Medicaid Anti-Kickback Statute (AKS) • Stark Law (Stark) • False Claims Act (FCA) • NJ Codey Law/BME Regs • Potential Fines and Civil Penalties, including 3 times amount paid by Federal Health Care

Programs, plus up to $11,000 per occurrence (increased for inflation) • Potential Exclusion from Federal Health Care Programs • Potential Imprisonment • Potential Loss of Licensure • Government/Regulatory or Third Party Payor Audits and Investigations • Whistleblowers • Recent Settlements and Court Cases

LEGAL SUBTLETIES WITH NOT SO SUBTLE CONSEQUENCES

• Optional AKS “Safe harbors” versus Mandatory Stark “exceptions” • FMV Employment Requirement Under Stark But Not Under AKS • “Aggregate Compensation” Set in Advance Under AKS But Not Under Stark • Compensation Rate/Formula Set in Advance Not Required for Employees Under Stark But

Required for Other Contracted Parties (Employees eligible for productivity bonuses based on services personally performed)

• A Prohibited Financial Relationship Need Not Relate Directly to DHS in Order to Implicate

Stark and Preclude Other DHS Referrals • “Direct” versus “Indirect” Compensation Arrangements • What it Means to “Stand in the Shoes” (Owners versus employed physicians; captive entity

owners not required to stand in the shoes) • Qualifying “Group Practices” versus “Physician Organizations”

LESSONS LEARNED FROM RECENT COURT CASES & LESSONS WAITING TO BE LEARNED

• WHEN IS IT OKAY FOR A HOSPITAL TO LOSE MONEY ON ITS EMPLOYED AND CONTRACTED PHYSICIANS?

• CAN A HOSPITAL PAY A PHYSICIAN MORE THAN HE OR SHE

WAS EARNING IN PRIVATE PRACTICE? • IS WRVU PHYSICIAN COMPENSATION HEAVEN SENT OR HELL

BENT? • IS IT EVER OKAY FOR A HOSPITAL TO TRACK ITS PHYSICIAN

REFERRALS? • WHEN CAN A HOSPITAL DEMAND THAT ITS EMPLOYED AND

CONTRACTED PHYSICIANS REFER WITHIN THE SYSTEM? TO OTHER HOSPITAL PREFERRED PROVIDERS?

NEW EXCEPTIONS & RELAXED RULES UNDER CY 2016 MEDICARE PHYSICIAN FEE SCHEDULE

• NEW EXCEPTION FOR NON-PHYSICIAN PRACTITIONER COMPENSATION ASSISTANCE

• TIMESHARE ARRANGEMENTS • RELAXATION OF “CONTRACT IN WRITING” REQUIREMENT –

ABILITY TO RELY UPON BOARD MEETING MINUTES, WRITTEN COMMUNICATIONS, FEE SCHEDULES, CHECK REQUESTS, TIME SHEETS, CALL COVERAGE SCHEDULES, ACCOUNTS PAYABLE/RECEIVABLE DOCUMENTATION, CHECKS PAID OR RECEIVED, ETC.

• HOLDOVER ARRANGEMENTS • TEMPORARY NON-COMPLIANCE WITH SIGNATURE

REQUIREMENTS

HOSPITAL-PHYSICIAN COMPENSATION ARRANGEMENTS ARE UNDER ATTACK

• In recent years, there has been an increase in lawsuits and settlements involving health care providers under the False Claims Act, the Anti-Kickback Statute and the Stark Law that involve issues of fair market value and related commercial reasonableness considerations. Among other things, these cases demonstrate that merely having an arms-length negotiation between the parties to a transaction does not, in and of itself, mean that the compensation (or purchase price) under those arrangements is compliant with fair market value and commercial reasonableness requirements.

• Some of these cases also call into the question the ability of

hospitals to enter into compensation arrangements with physicians when the professional collections are inadequate to fully cover the physician compensation, and the assumption that physician compensation has taken the volume or value of referrals into account.


Some of the well-publicized cases in this arena include: • U.S. ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88 (3rd Cir. 2009); • U.S. ex rel. Singh v. Bradford Regional Medical Center, No. 04-186 (W.D. Pa Nov. 10, 2010), 2010 U.S.

Dist. Lexis 119355; • U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc., No. 3:05-CV-02858-MJP (D. SC 2010) [also

No. 10-1819 (4th Cir. March 30, 2012), and further developments in 2013-2015]; • Rush University Medical Center (2010 settlement); • Detroit Medical Center (2010 settlement); • Covenant Medical Center (2010 settlement); • U.S. ex rel. Villafane v. Sollinger, 453 F.Supp.2d 678 (W.D. KY 2008); • Goodstein v. McClaren, 202 F.Supp.2d 671 (E.D. Mich 2002); • U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, case no. 6:09-cv-1002-Orl-31 (M.D. Fla.

2013); • U.S. ex rel. Parikh v. Citizens Medical Center, 977 F. Supp. 2d 654 (S.D. Tex. 2013), aff’d sub nom. U.S.

ex rel. Parikh v. Brown, 762 F.3d 461 (5th Cir. 2014), opinion withdrawn and superseded on reh’g 587 F. App’x 123 (5th Cir. 2014), withdrawn from bound volume (Oct. 1 2014), and aff’d sub nom. U.S. ex rel. Parikh v. Brown, 587 F. App’x 123 (5th Cir. 2014) (eventually settled);

• United States ex rel. Barker v. Columbus Regional Healthcare System, case no. 4:12-cv-108 and case no. 4:14-cv-304 (M.D. Ga 2015) (2015 settlement);

• United States ex rel. Reilly v. North Broward Hospital District, case no. 10-60590 (S.D. Fla 2015) (2015 settlement); and

• United States ex rel. Payne v. Adventist Health System, case no. 12-856/United States ex rel. Dorsey v. Adventist Health System, case no. 13-217 (W.D. N.C. 2015) (2015 settlement)


But perhaps all is not lost and there is still hope . . . See U.S. ex rel. Corporate Compliance Associates v. Hospital for Special Surgery, 2014 WL 3905742 (S.D.N.Y. 2014) • “A hospital that takes into account in its compensation decisions the

doctor’s overall worth to the hospital has not engaged in a corrupt act, even when it seeks reimbursement for services from the government. It certainly does not bespeak of fraud or nefarious conduct, such as a kickback.”

• Although the hospital was alleged to be willing to incur losses on physician compensation because those physicians brought in millions of dollars of derivative revenue (i.e., Stark DHS), the court concluded there was no evidence that the alleged salary overpayments were tied to derivative revenue (i.e., no evidence that derivative revenue was “the main factor” in compensation negotiations).

• AND LET US ALL SAY MAZEL TOV AND AMEN!!!

COMMON COMPLIANCE PITFALLS INVOLVING HOSPITAL CONTRACTED PHYSICIANS

• Is there a legitimate need for the position? Or is a position being created to reward or incentivize an identified physician?

• Is a “medical director” position being created for an

unlicensed facility or setting that traditionally does not have a medical director? If so, what is the justification for having such a director?

• Remember the “One Purpose” test; do NOT be hasty or

inartful in describing the underlying reason for pursuing an arrangement – even in internal communications; inartful communications can be taken out of context at a later date long after memories fade and used to evidence improper motive.

COMMON COMPLIANCE PITFALLS INVOLVING HOSPITAL CONTRACTED PHYSICIANS (cont.)

• Is the identified physician objectively qualified for the position?

• Does the physician have any “skeletons” in the closet? Has a “sanctions check” been run on the physician?

• Does the physician maintain financial relationships with other facilities, providers or vendors with which your company or facility conducts business? Has the physician been asked to fully disclose all such financial relationships in order to facilitate the evaluation of potential compliance or conflict of interest issues?


• How much (on-site) time will be required of the position, and is the physician prepared to make the necessary time commitment? Is the anticipated time commitment memorialized in the contract?

• If the physician is being paid for “supervision” how will that supervision be measured, memorialized and compensated, and does that supervision satisfy applicable Medicare and third party supervision standards for reimbursement purposes?

• Is the physician being paid for productivity generated by others (including other physicians or NPPs), and if so, are appropriate allocations being made to avoid giving the same productivity credit to multiple persons?


• How has the determination of FMV been made and has it been memorialized? Reliance on FMV opinion or analysis by outside consultant? Reference to national physician salary survey benchmarks such as MGMA, Sullivan Cotter, AMGA, etc.? Reliance on collections from personally performed services? Reliance on wRVUs? Other measures of personal productivity?

• Has a separate determination been made of Commercial Reasonableness (and, as applicable, “set in advance” and “not taking into account the volume or value of referrals”)?


• When is it permissible to pay a physician at rates above median reported compensation levels? At or above 75%ile or 90%ile MGMA? Is physician personal productivity at comparably high levels?

• Can you still rely on the previously repealed Stark “safe harbor” for hourly physician payments (blended median reported compensation rate of at least 4 enumerated national salary surveys and/or reliance on local emergency room physician compensation rates)?


• What is the nature of the services – clinical or administrative? Is an hour of a physician’s administrative time worth the same as an hour of the physician’s clinical time? (CMS says maybe not)

• Will the physician or the facility have an opportunity to separately bill third parties for some or all of the physician’s services, and if so, which party retains those collections? In determining the FMV of the physician’s services, has the value of third party billings been taken into account?


• Is the physician’s actual performance of services documented? Does the physician complete and certify as to the accuracy of submitted daily/weekly/monthly time records? Are there other contemporaneous records of performance (patient records, encounter forms, master schedules, etc.)? Is the hospital’s “acceptance” of these documents memorialized?

• What if the level of services actually performed by the physician is materially less (or more) than the service level that is contemplated in the contract? Is documentation of actual services required? Does the contract require or permit a reconciliation of payments? Retrospective or prospective reconciliation? What constitutes a “material” deviation?


• Are payments being made in conformity with the contract? [Extra compensation, direct or indirect, should be avoided]

• What if the scope of services and/or required physician time commitment or other critical assumptions change over the course of the contract? Good faith estimation at time of initial contract? Amendments?


• Is the entire arrangement properly documented (and implemented in accordance with what’s been documented)?

• Is the contract properly signed and dated? • Does the contract end on a date certain and/or

does it automatically extend (evergreen)? • Have there been any temporary lapses in

signature collections and/or periods in which the contract was legally in effect?

• Is there active and ongoing monitoring of physician contracting compliance?

IT’S TIME FOR SOME AUDIENCE PARTICIPATION . . .

FROM THE PERSPECTIVE OF PROVIDERS. . .

WHICH OF THE BELOW SCENARIOS ARE FRAUDULENT, AND WHICH OF THEM ARE FANTASTIC???

WHICH OF THESE SCENARIOS ARE AWESOME, AND

WHICH OF THEM ARE ABUSIVE???

Hypothetical #1:

Hospital buys medical practice, employs physicians and immediately pays physicians 25% higher salary than they received in private practice before the acquisition.

Hypothetical #2:

Hospital hires medical director for outpatient clinic in 2013 under 2-year contract with no automatic evergreen provision. Contract expires in 2015 but the medical director continues to provide medical directorship services and the hospital continues to pay for such directorship services well into calendar year 2016.

Hypothetical #3:

Hospital and oncology physician discuss and agree upon via email the material business terms of a medical directorship for the physician to serve as the medical director of the hospital’s cancer center. The hospital’s VP of Physician Services asks the in-house counsel to prepare a formal Medical Director Agreement but the in-house counsel is on an extended leave of absence and the physician commences the performance of medical directorship services, submits invoices and receives payments for a period of nearly 8 months before the formal Medical Director Agreement is put into place and executed.

Hypothetical #4:

Hospital leases medical office building space to physician in 2010 under terms of 5-year lease that specifies the exact per square footage rental rate for each calendar year. The parties neglected to renew the lease in 2015 but the physician continues to occupy the space in 2016 with no present intentions to leave and pays rent at the 2015 per square footage rental rate.

Hypothetical #5:

Hospital conducts national search and hires renowned physician from across the country to be its new (employed) chief of neurosurgery. In the old position the neurosurgeon was productive at the 90%ile MGMA for personally generated work RVUs (wRVUs). Based on that information and tough negotiations with the physician, the hospital offers the neurosurgeon a guaranteed minimum base salary of $1.4 Million with an actual compensation to be earned of $130.51 for each personally generated wRVU – this latter payment per wRVU being equivalent to the 90%ile payment to wRVU ratio as reported by MGMA.

Hypothetical #6:

Hospital establishes cardiovascular clinical co-management company and offers participation to all qualified cardiovascular physicians on the hospital’s medical staff. Participating physicians receive fair market compensation for serving on committees and performing administrative and advisory functions, as well as in the event that the cardiovascular service line as a whole achieves certain pre-determined quality and efficiency measures. Participating physicians also are required to achieve minimum quality criteria with respect to their own cases at the hospital, and as a condition of participation in the co-management arrangement, physicians are required to be on-site at the hospital at least 4 days every month and to have at least 50 patient contacts at the hospital over every rolling 24-month time period.

Hypothetical #7:

Hospital leases medical practice. All medical practice physicians and staff remain employed by medical practice and continue to work in same office. All equipment, contracts and leases remain in medical practice’s name. Hospital pays budgeted amounts for overhead and wRVU compensation to physicians based on national physician compensation surveys. Compensation paid to the physicians is significantly higher than the compensation earned in private practice before the leasing transaction.

Hypothetical #8:

Cardiology group has 10-year old cardiac stress testing equipment in its offices. Commercial payors have stopped reimbursing group for in-office cardiac testing. Cardiology group approaches hospital and asks it to buy the equipment. Hospital pays fair market value for the used equipment but has no intention to use it and instead sells it on the open market using proceeds to acquire new equipment and open a hospital-based cardiac testing center. Hospital contracts with cardiology group to provide professional supervision services at new testing center in 4-hour time blocks, paying based on FMV time value and without regard to anticipated reimbursement levels for the professional services.

Hypothetical #9:

Ambulatory surgery center (ASC) owned by hospital, surgeons and management company seeks to rectify financial problems by amending its governing documents to obligate physician-investors to comply with the provisions under the ASC safe harbor regulations by requiring that at least 1/3 of each physician-investor’s eligible cases be performed at the investment ASC. The ASC governing documents also are amended to require physician-investors to derive at least 20% of their professional income from the performance of qualified surgical cases.

Hypothetical #10:

ASC seeks to hold physician-investors personally accountable for ASC’s profitability by requiring each physician to schedule at the ASC at least 2 surgical cases each month at designated operating times for each physician. Physician-investors who do not use their pre-scheduled operating time or swap operating times with another physician are personally charged a fee by the ASC that is intended to cover the ASC’s allocated staffing and other fixed operating costs related to the unused operating time.

FINAL THOUGHTS . . . Health Care Lawyer & Compliance Officer’s

Lament:

“Sometimes you get to be the fly, and sometimes you get to be the windshield!”

That way, when you criticize them, you’re a mile away and you have their shoes!!!”

“We are born naked, wet and hungry. Then things get worse!”

“Before you criticize someone, you should walk a mile in their shoes . . .

The truth may set you free, or it may lock you up!!!”

David S. Sokolow, Esquire Co-Chair, Health Law Fox Rothschild LLP

215.299.2712 and 609.895.3308 [email protected]

the current state of hospital/physician ......• commercial reasonableness • set in advance •...

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