The Money Is In The Management

Conversation regarding ACOs and even healthcare reform itself is misplaced.  The well established facts are (1) more people will receive health care, and (2) the cost of healthcare will come down.  It does not matter whether the stimulus is a new law or just marketplace reaction.  The fact is that a healthcare system whose players are incentivized to do more with more expensive stuff is not economically sustainable or socially tolerable.

Take a look at our evolving marketplace.  What’s the single most distinctive feature in healthcare, aside from inactivity?  Integration.  Larger hospital systems and larger medical practices, typically single specialty.  Good adaptation?  Maybe.  It is in the short run.  Single specialty aggregation is purely defensive though.  It allows groups to maintain market share and to resist price compression better.  But how will that allow providers to do more with less?  How will that stimulate more outcome based, financial risk based care?  It doesn’t.  It is well established that cost and quality management demands broad spectrum system awareness….ummmm primary care physicians.  The adaptation of single specialty group integration is short term.  How short?  Who knows?  But it is clearly not as sustainable as one whose preparation for change includes primary care capabilities.

And how do hospital-based physician alliances help physicians survive and thrive?  They don’t unless they have a strong primary care base, and even then it is very questionable whether hospitals will be able to utilize their PCPs and specialists in a way that rewards outcomes based, financially smart behavior.  Hospitals have always been sink holes in the landscape of healthcare costs, so why jump in?  Physicians need to make sure that their affiliated hospital systems have clear plans and abilities (e.g. management and good physician billing and collection experience) to deliver outcomes at the right price.  Studies, however, that indicate over sixty percent of Florida hospital admissions are unnecessary are consoling in a fee for service environment, but devastating in a capitated (or other risk based) one.  Physicians have to make sure the ship they book passage on can sail a long way.

And they have to make sure they are part of the right team.  What expertise is there in things like IT, financial management, clinical outcomes management, and risk based contracting?  You’re gonna need that!

If one believes that healthcare costs are unsustainable (this guy does) and that our entire payment system is driving that result, then the need for new payment systems is clear.  And the challenge, just in terms of thinking about healthcare differently, is enormous!  How do you go to work and not think “I gotta do a lot, test a lot, do lots of procedures.”  How do you begin to shift?  Do you shift?

The compelling answer is “YES.”  Why not act now, before any law (even one dumber than the one that passed a year ago) gets passed, before our society calls the issue a failure and politicians and our neighbors demand a single payer-type system?  Isn’t there a huge opportunity RIGHT NOW?  You betcha.

So where is it?  It’s in management.  The money is in the management.  The data collectors, crunchers and implementers are the new gods in healthcare.  Anyone who can collect data, show what makes clinical and financial sense and then implement it will be more sought after than conflict diamonds.  Show one hospital how to live in that new system, where there are more patients, but less money available, and you retire rich.  Show physicians and other healthcare business people the same thing and lead change.  And since physicians are busy being physicians, except for a handful of physician entrepreneurs, they’re best bet is gonna be to find good partners in “business” who embrace change and see opportunity.


Consignment Closets: Still a Viable Option for DME Providers

In the age of heightened regulatory scrutiny, physicians and other health care providers often question whether “Consignment Closet” relationships are legal.  If properly structured these arrangements are not only legal but are of great benefit to patients needing valuable medical devices.  A properly structured relationship will, in all probability, withstand a regulatory challenge by the Office of Inspector General or from other regulatory authorities.Continue reading

Innovative Surgery Center Arrangements

While surgery centers generally follow the guidelines set forth in the federal Safe Harbor to the Anti Kickback Statute (AKS), not all do. In fact, there are some creative arrangements worth considering.

Some centers do not perform services which are compensated in any way by a state or federal healthcare program. As such, they don’t have to comply with the usual federal laws (e.g. AKS and Stark). That leaves the center to comply only with state regulation, which is usually far less restrictive than the federal laws. This works if the center intends, for instance, only to do work pursuant to Letters of Protection (LOP) or bodily injury suits. Though the pool of patients is very different in this type of center, the lid is nearly off when it comes to how creative the arrangements among the owners and referring physicians can be.

One of the more vexing challenges among all surgery centers is ensuring patient referrals by owner surgeons. While most centers will simply follow the federal Safe Harbor “one third test,” other centers go further and do things like: (1) making loans to owner surgeons, (2) creating “put” or “pull” periods during which time an investing physician can buy back out or be bought back out, and (3) even making exceptions to the restrictive covenants commonly contained in ASC documents.

Complying with the federal Safe Harbor applicable to surgery centers is clearly the most conservative way to go, in terms of regulatory compliance, since compliance means immunity from AKS violations. That said, Safe Harbor compliance is a little like horseshoes: coming close counts. The simple reason is that Safe Harbors are examples of conduct that complies with the AKS, but they are not all encompassing. There may be arrangements that do not violate the AKS which are simply not described in the Safe Harbors. Simply put, there are many other creative arrangements commonly employed in surgery centers. Since surgery center ownership and referral arrangements are hotly regulated, owners must be careful when considering veering off the straight course provided by federal law.


Haven’t Thought Much About Compliance Lately? The Government Has


It is estimated that health care fraud is a $60 billion a year business fueled by illegal conduct such submitting false claims and paying kickbacks to physicians and suppliers. Until recently, if large health care organizations were the targets of fraud investigations, these companies, as their penance, typically wrote a big check to the government and continued business as usual. Things have changed.

While indicting and convicting health care executives is not a new practice, officials at the Department of Health and Human Services (“DHHS”) and the Department of Justice (“DOJ”) are said to be frustrated with the frequent occurrence of repeat violations and they are ramping up their strategy. Lately there have been aggressive new initiatives rolling out to combat rampant health care fraud and the government is increasingly bringing criminal charges against executives even if they were not complicit in the fraud scheme, but could have stopped it if they had known.

What’s more striking is that in addition to civil monetary penalties and criminal indictments, the government is taking great efforts to exclude convicted executives from being involved in companies that do business with federal health programs. A recent bill introduced to Congress under the name of the “Strengthening Medicare Anti-Fraud Measures Act of 2011 (the “Act”), increases DHHS’ existing powers and allows them to seek to exclude owners, officers and mangers of companies that are convicted of health care fraud from federal healthcare programs even if they left the company prior to any conviction of the entity.

In addition to the expansion of the permissive exclusion afforded by the Act to DHHS, regulators and law enforcement officials are going to be increasingly utilizing current permissive exclusion remedies. DHHS’ bold move appears to be based on the rationale that the permissive authority of Secretary of DHHS or the Office of the Inspector General of DHHS to exclude individuals is a much easier process than criminal proceedings.

The impact of this aggressive new government strategy will likely have even further reaching consequences for convicted healthcare business owners and executives. For instance, an exclusion from being part of a business that works with federal health care programs would be a career ending blow for most executives. It should also be emphasized that smaller organizations are not in any way immune from enforcement activity. In fact, with newly increased enforcement budgets, authorities have the means and the time to target organizations of all sizes.

Law makers and regulators are hopeful that by ramping up the enforcement of existing laws and expanding the scope of DHHS’ power, it will act as a powerful deterrent against overt acts and will compel corporate executives to take proactive steps in preventing fraudulent activities and affirmatively addressing fraudulent practices when discovered. It is vitally important now more than ever, to have an active compliance program in place. A strong compliance program can not only detect and prevent fraudulent or negligent activities but also will typically be considered as a mitigating factor if an organization is culpable of fraudulent activity. The Florida Healthcare Law Firm works with health care organizations of all sizes to assist in the audit, development and implementation of effective compliance programs.


OIG Advisory Opinion Nicks the Heels of "Company Model" Arrangements

palm beach county task force

A “company model” arrangement is reasonably popular in surgery centers these days. The model entails a legal entity owned by both anesthesiologists and referring surgeons, which performs anesthesia. Why not just have the surgery center contract with an anesthesia group to performs those services? Because the referring surgeons who are owners of the surgery center want to share some of the anesthesia fees. Does it raise fee splitting and fraud and abuse issues? You bet, but there is no real clear or direct legal guidance from any governmental body yet. A recent OIG Advisory Opinion will have physicians and healthcare lawyers alike buying new spectacles to keep a closer watch on how the legal issues unfold.Continue reading

Anti Trust Concerns Greatly Affect Healthcare Reform – Part 3 of 3

A Good Trend

Healthcare reform is causing the Department of Justice and other regulators to do two nearly unprecedented things in the history of anti-trust law:  innovate and cooperate.  I’m exaggerating, but the truth is that healthcare reform has lit a huge fire under the…ummm…butt of government regulators to find ways to facilitate competing healthcare providers to “come together” for the sake of reducing cost and improving quality. 

 Several years ago, the Department of Justice has lightened its almost unworkable antitrust restrictions by: (1) expanding the Arule of reason@ analysis for determining whether the antitrust laws have been breached, (2) expanding the notion of shared financial risk beyond mere capitation; and (3) expanding the role of the Amessenger.@  Though the role of so called Messenger Model organizations (e.g. IPAs) provide to be a failure, the fact that the DOJ would consider other ways of creating “substantial economic risk” was shocking.  And now, what is even more shocking is that the DOJ recently:  (1) promised to view all ACO proposals essentially more leniently, and (2) agreed in a joint statement with the HHS Office of Inspector General (which has primary enforcement authority on such things as Stark and Anti Kickback violations) to cooperate with eachother to facilitate the development and roll out of ACOs.

 Rule of Reason

For those who appreciate a little more depth, possible antitrust violations are analyzed by governmental authorities using either Aper se@ or Arule of reason@ analysis.  Violations considered to be Aper se@ violations are indefensible, regardless of possible good intent or even positive market effects.  Examples include: (1) two or more physicians agreeing to charge specific fees for certain procedures in their respective, independent practices, and (2) two or more physicians agreeing not to do business with a particular HMO. 

In contrast, rule of reason analysis requires enforcement authorities to probe deeper into the investigated arrangement to see if the arrangement furthers or conflicts with the principles underlying the antitrust laws.  This type of analysis gives the investigated parties an opportunity to justify their arrangement; per se analysis does not.

The revised Statements of Antitrust Enforcement Policy in Health Care, issued several years ago by the DOJ, expanded application of the rule of reason analysis to situations previously viewed as per se violations.  For instance, a provider network has traditionally had to be financially integrated through capitation or withholds to receive rule of reason analysis, and discounted fee for service arrangements with the network sent many physicians to antitrust defense attorneys during enforcement actions based on the network=s negotiations of other payment arrangements.  And now, with healthcare reform, they want to go further.

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What To Consider When Buying A Medical Practice

As physicians retire and the era of healthcare reform rocks physicians, opportunities to purchase practices will likely surge, and not just for entities that employ physicians, like hospitals.  The big issues generally break down like this:

  1. What to pay;
  2. How to structure it; and
  3. How to pay for it.

The Price

It depends on what you’re buying.  If all of the practice income is from personal services performed by the selling physician, the answer is generally “not a lot.”  The price typically consists of (1) the value of the fixed assets (e.g. equipment, furniture), and (2) maybe a little more in order to avoid the cost of starting up a new practice from scratch.  In the event, however, the practice also generates income from services that are not personally provided by the selling doctor, the price is increased to account for this “passive revenue.”  How much?  Maybe the amount of one year’s profit from that ancillary service.

Structure

Practice purchase take one of two forms:  (1) stock purchase, or (2) asset purchase.  Buyers that buy the stock of a medical practice are rare because the buyers get all the liabilities associated with the stock of the selling practice.  Most practice purchases are asset purchases, which makes it easier to say what you’re buying, what you’re not buying, which liabilities you want to assume (e.g. leases) and which ones you don’t want to assume.  Sellers often prefer stock purchases because the seller gets better tax treatment on the purchase price (capital gains instead of ordinary income) than sellers who sell just their assets.

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Do Your Mega Group Documents Include an Operating Agreement?

                 Physicians are becoming more and more willing to pool their practices together in large group practices in order to (1) negotiate managed care contract rates, (2) develop ancillary service revenue sources, and (3) get some cost savings from economies of scale in such areas as professional liability insurance, EMR and the like.  This is great news for physicians! 

                The dominant format of such a large group, a “mega group” is what has come to be called the “Umbrella LLC” or “Super LLC” model.  Simply put, the model consists of a limited liability company (the “Big LLC”) which owns multiple limited liability companies (“Sub LLCs” or just “Subs”).  Physicians are owners of the Big LLC and are employed by it.  The Sub is comprised of the practice that joined the mega group.  Physicians looking to join a Mega Group have many things to get comfortable with such as:  governance, income sharing and overhead sharing.  Physicians need legal and financial advice to guide them in that process.  That said, what many physicians often miss is an agreement between the Super LLC and the Sub which is designed to protect their autonomy to the maximum extent allowed by applicable law.  This sort of agreement, which we can call an “Operations Agreement,” should be part of every mega group transaction.

                Mega group transaction documents often contain more legal and financial jargon than clear language about operations and what actually happens within the practice that joined the mega group.  An Operation Agreement is designed to address the particulars within the Sub (operational and financial matters) and to ensure the independence of the sub, which “houses” the group that joined the mega group.  For instance, once the mega group takes a management fee to pay for centralized expenses, what do the physicians in the Sub do with the money?  Usually, mega group documents only address the fact that the Sub gets the money. But now what the Sub does with the money (i.e. who gets what).  This is just one example of the many important issues that ought to be addressed in an Operations Agreement, including who gets to make decisions in the Sub, how to handle compensate disabled or retiring physicians, and hiring and firing matters within the Sub. 

                Mega groups present a terrific opportunity for today’s physicians.  That said, they have to make sure the documents address their legal, financial and operational needs.