Prepared by: Carlos Arce, Esq.
The Office of Inspector General (“OIG”) and the Centers for Medicare & Medicaid Services (“CMS”) have been vocal and have put out opinions thorough out the years on their concerns surrounding management services organization (“MSO”) engaging in management services agreements (“MSA”) with provider groups. The concerns usually stem from the control over the physicians in the group which contracts with the MSO, and whether overutilization occurs as a result of an MSA engagement between a physician practice and an MSO. However, with the involvement of private equity and venture capital into the healthcare space, CMS and the OIG through the OIG’s reports have expressed concerns over these MSA engagements and whether these agreements fit into the Anti-Kickback Statute, Personal Services and Management Arrangement Safe Harbor.
Concerns surround control over the medical practice groups and lack thereof oversight over practice billing which results in federal payor reimbursement (“overbilling”), percentage-based compensation which disguises marketing success rates which are derived by volume and value of referrals generated through the marketing and advertising efforts, and the lack of culture over healthcare compliance. For years the OIG has enforced serious regulations and oversight over hospitals, and in the last few years over the insurance companies who service federal plans. The trend is now focusing on private equity, venture capital, crowd funding, and family office involvement in the healthcare space.
The OIG has made it very clear that the business involvement by these new players will require close adherence to the law and proper compliance practices. Compliance stems from the due diligence conducted in transactions which private equity, venture capital, crowd funding, family office backed MSO’s engage in. Purchasing a provider practice surrounded by false claims, anti-kickback violations, and stark violations are not something that the Buyer should place no importance over, this is the catalyst to the future business relationship.
Most private equity, venture capital, crowd funding, and family office engage large firms with multiple practice departments to assist them in these transactions, the merger and acquisition lawyers typically don’t have healthcare law backgrounds, and only if they spot an issue in the deal will they suggest brining on a healthcare lawyer to opine on the finds. This is the process where things get missed and ultimately the private banking company has now bought a lemon. Not knowing that something was a foul or ignorance of the fact is typically not a defense in healthcare law. As of late False Claims Act violations are on the rise and the OIG through the Department of Justice is dedicated to sniffing out these types of allegations in the private equity and venture capital space. Do you want to take your chances in a judicial forum, or would you rather know prior to entering the transaction, and prior to entering into the MSA?
Attorney Carlos H. Arce works with the Florida Healthcare Law Firm in Delray Beach, FL. He has deep experience with health law, business law, and mergers & acquisitions. Carlos has handled multi-million-dollar healthcare transactions and has served as out-of-house counsel to various small to large healthcare entities. He can be reached via email at [email protected] or by calling 561-455-7700.