AHLA. K. FMV Year in Review. H. Edward Kleine, III Assistant Vice President HCA Physician Development Brentwood, TN

Transcription

1 AHLA K. H. Edward Kleine, III Assistant Vice President HCA Physician Development Brentwood, TN Donald H. Romano Foley & Lardner LLP Washington, DC Physicians and Hospitals Law Institute February 5-7, 2014

2 Fair Market Value - The Year in Review American Health Lawyers Association Physicians and Hospitals Law Institute New Orleans, Louisiana February 5-7, 2014 H. Edward Kleine, III, CPA Assistant Vice President HCA Physician Development Brentwood, TN Donald H. Romano, Esq. Of Counsel Foley & Lardner, LLP Washington, DC Fair Market Value Affinity Group Leadership Chair, FMV Affinity Group: Gregory D. Anderson, CPA/ABV, CVA HORNE LLP Hattiesburg, Mississippi Vice Chair for In Person Programs: Andrea M. Ferrari, Esq., MPH HealthCare Appraisers, Inc. Delray Beach, Florida Liaison to HHS Practice Group Leadership: Claire Turcotte, Esq. Bricker & Eckler LLP West Chester, Ohio Vice Chairs: Kelly Anderson, Esq. Corporate Counsel Baptist Health Louisville, Kentucky W. James Lloyd, CPA/ABV, ASA Pershing Yoakley & Associates Knoxville, Tennessee Summer H. Martin, Esq. McKenna Long & Aldridge LLP Atlanta, Georgia 1

3 Overview Regulatory Update Update on DOJ settlements Update on current DOJ cases Expected future DOJ enforcement activity OIG Advisory Opinions Year in Review Hot Topics : The Top Ten Business Issues Regulatory Issues Addressing Business Issues in the Context of Regulatory Issues Q&A 3 Regulatory Update: Update on DOJ Settlements 2

4 Cooper Health System January 2013 $12.6 million to resolve allegations that its payments to certain physicians violated Federal and New Jersey state laws prohibiting kickbacks and physician self-referrals FMV Issues: Settlement is the ultimate result of claims by a physician qui tam relator that compensation to fellow physicians serving on an advisory board was above FMV (and not for legit services) Involvement of New Jersey state law claims illustrates that FMV is a state law concern in addition to Federal law concern Amount of money paid to each physician was approximately $18,000 for attending 4 meetings reminder that FMV should be a concern even for small amounts of $$ Ultimate issue in this case was that services were not legitimate was FMV ultimately only a secondary issue? 5 Intermountain Health Care April 2013 $25.5 million to resolve allegations involving improper relationships with referring physicians FMV Issues: Settlement was the result of a self-disclosure of Stark violations The self disclosure included 18 physician lease agreements with potentially below FMV rent for a 10-year period, and 37 physician employment arrangements with bonuses that may have taken into account volume and value of referrals, plus many Stark technical violations. Settlement was much larger than others that happened this year- is this due to the length of time that the potentially non-compliant arrangements were allowed to persist? 6 3

5 White Memorial Medical Center May 2013 $14 million to settle claims relating to transfers of assets, including supplies and inventory, for a payment below FMV, and for compensating physicians above FMV for teaching services FMV Issues: Settlement is the ultimate result of claims by two physician qui tam relators that hospital relationships with fellow physicians were not FMV. As with the Cooper Health System settlement, the involvement of state law claims (California) illustrates that FMV is a state law concern in addition to Federal law concern. 7 St. James Healthcare/Sisters of Charity of Leavenworth December 2013 $3.85 million to settle claims of Antikickback, Stark and False Claims Act violations involving real estate joint ventures FMV Issues: Impetus for the disclosure and key part of the settlement was below FMV space rentals related to improper payments to physicians in the joint venture St James spokesperson: We re so glad that it s done [Compared to Intermountain Healthcare s settlement] [o]urs is a lot, but not that much. 8 4

6 REGULATORY UPDATE: CURRENT DOJ CASES Current DOJ Cases The Courts moved a number of qui tam cases forward: United States ex rel. Osheroff v. Tenet Healthcare Corp. March 27, 2013 Denied motion to dismiss; case based on allegations that Tenet entered below market office leases meant to induce referrals. United State ex rel. Simmons v. Meridian Surgical Partners LLC May 2, 2013 Denied motion to dismiss; case based on allegations that physicians were paid kickbacks for referrals through inflated returns on their investment in surgical centers. United States ex rel. Schubert v. All Children s Health Sys., Inc. November 15, 2013 Denied motion to dismiss on the ground that the Stark Law only relates to Medicare and not Medicaid claims; case based on allegations that over 1/3 of 75 employed physicians are paid over the 75 th percentile of nationwide compensation rates. 10 5

7 Current DOJ Cases (cont.) The DOJ won a case United States v. Halifax Hosp. Med. Ctr. November 13, 2013 In a partial summary judgment, the court held that a physician group s annual bonus pool based on the physician s referral billings to the hospital violated the Stark Law. Case started with allegations of compensation above FMV; summary judgment was decided on a volume/value issue The DOJ lost a case United States ex rel. Nunnally v. West Calcasieu Cameron Hospital April 3, 2013 A lawsuit alleging improper kickbacks to physicians for lab referrals did not contain enough details to withstand dismissal. A court finished a case United States ex rel. Drakeford v. Toumey Healthcare System, Inc. October 2, 2013 After a retrial and verdict against Tuomey, the court ordered Tuomey to pay $237.5 million in fines and penalties. 11 Current DOJ Cases (cont.) More on U.S. ex rel. Drakeford v. Toumey Healthcare System, Inc. Like in Bradford, the 4 th Circuit mixes up FMV with the volume or value prohibition. The Court stated: As the Stark Regulations and the agency commentary indicate, compensation arrangements that take into account anticipated referrals do not meet the fair market value standard. Thus, it is for the jury to determine whether the contracts violated the fair market value standard by taking into account anticipated referrals in computing the physicians' compensation. Court misapprehends definition of FMV. 12 6

8 Current DOJ Cases (cont.) More on U.S. ex rel. Drakeford v. Toumey Healthcare System, Inc. Definition of FMV for Stark purposes at does not say that compensation that takes into account volume or value of referrals is necessarily not FMV -- What it says is Usually, the fair market price is... the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. Statutory definition says nothing about volume or value of referrals, and statute gives no authority to CMS to restrict the definition by regulation. 13 Current DOJ Cases (cont.) More on U.S. v. Halifax Hospital When does a productivity bonus take into account the volume or value of referrals? Physicians were employed by Halifax Staffing but Halifax Hospital pays all of the expenses and obligations of Halifax Staffing, including payroll, either directly or by transfer of funds into Halifax Staffing s payroll account. Halifax argued productivity bonus met the requirements of the employment exception. Did not argue indirect compensation exception; Government did not contest employment relationship, and parties agreed that the V or V standard was the same in both exceptions. 14 7

9 Current DOJ Cases (cont.) More on U.S. v. Halifax Hospital The employment exception prohibits productivity bonuses that take into account directly or indirectly the volume or value of referrals. Here, a percentage of the revenues of the medical oncology department, which included DHS, was set aside as a bonus pool. The physicians were paid a per capita share of the bonus pool. The court agreed with the Government that the bonus payments took into account the volume or value of referrals, because everything else being equal, the more a physician referred, the more the bonus pool grew. 15 Current DOJ Cases (cont.) More on U.S. v. Halifax Hospital The court said the bonus was not a bonus based on services personally performed by the physicians as the exception allows, but instead this was a bonus divided up based on services personally performed by the physicians. Is the court engaging in semantics? The court is holding that no DHS can be part of a bonus pool. How does the court s reasoning square with the aggregate compensation component of the definition of indirect compensation arrangement? In order for this component to be met, the aggregate compensation must take into account referrals for DHS. 16 8

10 Current DOJ Cases (cont.) Gastroenterology Specialists Inc. (GSI) $500,000 settlement Issues involved non-compete between physicians and hospital In exchange for not opening an endoscopy center, hospital was to pay $50, each month for first five years of the Agreement, and $60, per month for the next five years of the Agreement. If volume in the endoscopy center dropped to an average of 160 hours per month during any consecutive three-month period, the monthly payment dropped to $33, per month. 17 REGULATORY UPDATE: EXPECTED FUTURE DOJ ENFORCEMENT ACTIVITY 18 9

11 Expected Future DOJ Enforcement Activity October 23, 2013 Sacred Heart Hospital - Owner, three executives, and four physicians were indicted on 17 counts for paying kickbacks for patient referrals Paid hundreds of thousands of dollars in rent $150,000 for purportedly teaching podiatric surgery residents $68,000 for teaching medical students, and $32,000 for consulting and instructional services purportedly provided to the hospital and its staff Each indictment carries a maximum 5 years in prison, $250,000 fine and restitution. 19 Expected Future DOJ Enforcement Activity January 11, 2014 Health Management Associates - DOJ has intervened in a case that involves claims that Health Management Associates, Inc. and its former CEO induced and pressured emergency room physicians to increase the rate of hospital to ER admissions. Allegations include payment of performance bonuses to ER physicians to increase admission rates. In this case, does it matter if total compensation to ER physicians was consistent with FMV? 20 10

12 REGULATORY UPDATE: OIG ADVISORY OPINIONS 21 OIG Advisory Opinions OIG Opinion Issued January 7, 2013 Addressed an arrangement under which a hospital pays a cardiology group compensation that includes a performance bonus based on implementing certain patient service, quality, and cost savings measures associated with procedures performed at the hospital s cardiac catheterization laboratories FMV Issues: At issue was a co-management arrangement that provided for a co-management fee composed of two components: (1) a fixed payment; and (2) a potential annual performance-based payment. To the extent revenue derived from the arrangement resulted in dividends payable to the group s shareholders, the group distributed such dividends based on each shareholder s pro rata share of ownership, and distributions had no relation to an individual physician s participation in the arrangement

13 OIG Advisory Opinions OIG Opinion Issued January 7, 2013 Addressed an arrangement under which a hospital pays a cardiology group compensation that includes a performance bonus based on implementing certain patient service, quality, and cost savings measures (cont.) FMV Issues (cont.): The performance based payment was determined as follows: 5%- employee satisfaction within the cath labs 5% - patient satisfaction within the cath labs 30% - improved quality of care within the cath labs; and 60% -implementation of certain measures to reduce costs attributable to cath lab procedures 23 OIG Advisory Opinions OIG Opinion Issued January 7, 2013 Addressed an arrangement under which a hospital pays a cardiology group compensation that includes a performance bonus based on implementing certain patient service, quality, and cost savings measures (cont.) FMV Issues (cont.): Most measures had 3 minimum possible achievement levels to trigger payment. The baseline achievement level for any measure reflected improvement over status quo performance for that measure prior to the effective date of the agreement. If the group met the baseline achievement level for a measure, it received 50% of the total compensation available for that measure; if it met the middle benchmark, it received 75%; if it achieved the highest benchmark, it received 100%

14 OIG Advisory Opinions OIG Opinion Issued January 7, 2013 Addressed an arrangement under which a hospital pays a cardiology group compensation that includes a performance bonus based on implementing certain patient service, quality, and cost savings measures (cont.) FMV Issues (cont.): In opining favorably on the arrangement with respect to both the Antikickback statute and CMPL, OIG took into consideration (and relied upon), among other factors: The Requestor certified that both the fixed fee and performance/incentive compensation had been reviewed and deemed FMV and commercially reasonable for the substantial services provided. There were multiple levels of internal and independent clinical and financial review for all components of the arrangement and performance measures, to ensure the appropriateness of the arrangement and provide safeguards against improper practices. The arrangement was reasonably limited in duration and amount (i.e., limited to 3 years, subject to a cap). 25 OIG Advisory Opinions OIG Opinion Issued August 16, 2013 Addressed a proposed arrangement between a vendor (a subsidiary of a pharmaceutical company) and hospitals to provide services to patients with certain diagnoses following hospital discharge, with the goal of reducing preventable hospital readmissions. FMV Issues: In opining favorably on the arrangement, the OIG took into consideration that the parties certified that the vendor s fees for the arrangement would be FMV as determined by the Vendor s market research and cost analyses and confirmed by an independent third party assessment. OIG identified the perceived Antikikback risk in the arrangement as follows: The vendor is a subsidiary of a pharmaceutical company and may provide the services at below fair market value either to obtain data to market its parent company s products or to induce a hospital to purchase or prescribe its parent company s drugs. A hospital may pay above fair market value for the services to induce the vendor s employees or contractors to refer patients to the hospital

15 OIG Advisory Opinions OIG Opinion issued November 12, 2013 addressed an arrangement under which anesthesia service providers contract with a psychiatry practice to provide anesthesia services in connection with electroconvulsive therapy procedures at a hospital FMV Issues: OIG opined unfavorably on the arrangement, noting: The arrangement did not meet the requirements for the personal services safe harbor because compensation was not set in advance and was below fair market value ; and The arrangement appeared to be designed to permit the Psychiatry Group to do indirectly what it cannot do directly; that is, to receive compensation, in the form of a portion of Requestor s anesthesia services revenues, in return for the Psychiatry Group s referrals of ECT patients to Requestor for anesthesia services. Opinion is a reminder that below FMV compensation can be suspect /2014 HOT TOPICS (THE TOP TEN, IN NO PARTICULAR ORDER) 14

16 Issue 1: Physician Practice Purchases: Marrying Post-Acquisition Physician Compensation and Purchase Price Issue 1: Marrying a post-acquisition compensation plan and practice purchase agreement Business issues: Managing physician and purchaser expectations Identifying institutional needs versus wants Working with counsel for both parties Managing known obstacles to getting the deal done Regulatory issues: Issue: Could the purchase be construed as payment for the value or volume of referrals? Ancillary Services Other Intangible Assets Issue: Is any form of the compensation structured in a manner that could be considered payment for the value or volume of referrals? Addressing Business Issues in the Context of Regulatory Issues? 29 Issue 2: Physician Practice Purchases: Purchase Price for Practices with EMR/EHR Issue 2: Is EMR/EHR a reasonable factor in purchase price? Business Issues: Physician investment vs. actual value Physician and staff time investment Hardware vs. software (is it up to date?) HIPAA and ICD-10 Compliance Types: Subscription vs. owned Meaningful use Transferability Regulatory Issues: Stark/Antikickback/False Claims Act Balancing regulatory issues against the Government s own emphasis on quality and care coordination through electronic data management Meaningful Use Addressing Business Issues in the Context of Regulatory Issues? 30 15

17 Issue 3: Physician Practice Purchases: Compensation for Intangibles Issue 3: Compensation for intangibles in practice purchases, including non-competes and workforce in place Business Issues: Sunk investments and replacement costs We can t make this work if Regulatory Issues: Oh, where do we begin? Addressing Business Issues in the Context of Regulatory Issues? 31 Issue 4: Physician Practice Purchases: What to Do With Ancillary Services Lines Issue 4: Compensation for ancillary service lines such as physical therapy Business Issues: Value as a stand-alone Sharing of expenses/allocation of costs Merge into existing service lines or remain independent? Physician supervision issues Regulatory Issues: Stark/Antikickback/False Claims Act State law issues, including state self referral and antikickback laws, and supervision requirements Addressing Business Issues in the Context of Regulatory Issues? 32 16

18 Issue 5: Value-Based Physician Compensation Issue 5: Value-based physician compensation, including incentive pay to achieve cost and quality goals, Hospital Efficiency Programs, and physician payments in Clinically Integrated Networks and ACOs Business Issues: Post PPACA reimbursement environment Establishing agreed-upon measurements Establishing baseline period and measurement period Establishing type of compensation associated with metrics (fixed fee, holdback, % etc.) Working within compensation structures (employment, PSA, management/co-management) Regulatory Issues: Stark Law exceptions- which one(s) fit(s)? Antikickback/CMPL are there limits to activities/goals for which you can pay? State law antikickback, self referral and licensing laws Post- ACA regulatory environment- emphasis on quality and value, but increased enforcement activity, including qui tam activity Addressing Business Issues in the Context of Regulatory Issues? 33 Issue 6: Stacking Compensation Arrangements Clinical Employment, Medical Director, Co-Management, Incentive Plan and OH MY Issue 6: Stacking Compensation Arrangements Business Issues: Post PPACA reimbursement environment Long standing relationships with physicians Increased demand on physicians The 80 hour work week Regulatory Issues: Stark/Antikickback/False Claims Act Uptick in qui tam relator activity Requirements of specific Stark exceptions Tax exempt entity considerations CMPL considerations (if any compensation ties to incentives ) Addressing Business Issues in the Context of Regulatory Issues? 34 17

19 Issue 7: Increase in Demand for Primary Care: Expanded Roles for Midlevel Providers Issue 7: Expanded roles for midlevel providers: How are physicians compensated for supervising midlevel practitioners? Business Issues: How are midlevels currently used? Will this change? Cost/benefit analysis of the future use of midlevels Compensation of midlevels Incident to service and billing Reasonable physician compensation structure (monthly or annual stipend, wrvu adjustment, per encounter payment etc.) Regulatory Issues: Stark/Antikickback/False Claims Act issues (in re selection of payment structure and payment amount) Medicare incident to billing regulations State law midlevel supervision requirements Addressing Business Issues in the Context of Regulatory Issues? 35 Issue 8: Physician Compensation for Clinical Research Activities Issue 8: Physician compensation for clinical research activities Business Issues: Importance of clinical research activities e.g., to meet Cancer Center Standards Defining scope of physician s activities - e.g., investigator versus physician who merely identifies subjects for a study; if investigator, scope of the investigator duties Source of compensation pharma funding, hospital/health system funding, etc. Reasonable payment structure e.g., annual or monthly stipend, per subject amount, % of research budget, fee for service, hourly compensation, etc. Regulatory Issues: Stark/Antikickback considerations Sunshine Law Post ACA regulatory environment Considerations for tax exempt entities Addressing Business Issues in the Context of Regulatory Issues? 36 18

20 Issue 9: Real Estate FMV Issue 9: Physician price for purchasing or leasing real estate Business Issues How much space is enough, too much? Changing real estate market Landlord consents Tenant improvements and other leasehold improvements Regulatory Issues: Stark/Antikickback/False Claims Act Uptick in qui tam relator activity Stark definition of FMV for real estate Addressing Business Issues in the Context of Regulatory Issues? 37 Issue 10: On-Call Pay Issue 10: On call pay, including pay for on-call compensation to an employee versus an independent contractor, and pay for oncall coverage to multiple facilities Business Issues: Physicians moving from contractor to employee status they still expect call pay? Pay an employed physician for the first day of call coverage, or build some call pay into the employment agreement? Shrinking or expanding of call panels with integration Integration of hospitals may need coverage for multiple facilities Regulatory Issues: Stark/Antikickback/False Claims Act OIG Advisory Opinions Uptick in relator activity EMTALA and state law (e.g., hospital licensing) requirements for call coverage Addressing Business Issues in the Context of Regulatory Issues? 38 19