The 21st Century Cures Act Final Rule Has Taken Effect

By Mathew J. Levy, Esq. & Jessica Woodrow, Esq.

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After years of anticipation, the Office of the National Coordinator for Health Information Technology’s (“ONC”) issued its Cures Act Final Rule on Interoperability, Information Blocking, and Open Notes, effective April 5, 2021. This important issuance, which originated with the 21st Century Cures Act (2016), aims to transform on a national level the interoperability of healthcare IT systems, which has been a persistent impediment to efficient and effective delivery of health care and usage of electronic medical records. To achieve this important goal, the Final Rule contains complex and comprehensive mandates that warrant close scrutiny to ensure that providers and other entities are in full compliance. 

The three-part Final Rule, which supports seamless and secure access, exchange, and use of electronic health information, is designed to give patients and their providers secure access to patient health information and to increase innovation and competition generally in the health information technology sector. The Final Rule applies to a range of health care providers, including physicians, PAs, NPs, nurses, social workers, therapists, and chaplains; health information networks and/or exchanges; and developers of certified health IT, such as electronic medical record vendors (collectively, “Actors”).

The Interoperability Rule calls for the healthcare IT industry to create and/or adopt standardized application programming interfaces (“APIs”), to allow individuals undelayed access to their structured and unstructured health information via secure, user-friendly smartphone applications and practice management systems at no cost to the patient. 

The Cures Act defines “information blocking” as an organizational practice that interferes with, prevents, or materially discourages access, exchange, or use of electronic health information (EHI) when an entity knows, or should know that the practices is likely to do so. Under the new Information Blocking rule, individuals who are unable to access “without delay” their personal health information for clinic visits after April 5, 2021, and who are not provided with requested health information promptly by their providers and/or health systems, may report those providers to the US Department of Health and Human Services. 

The Open Notes Rule sets forth eight types of notes that must be made immediately available to all patients, unless the information is compiled in reasonable anticipation of, or for use in, a civil, criminal, or administrative action or proceeding:

  • Patient history and physical notes
  • Consultation notes
  • Procedure notes
  • Progress notes
  • Discharge summary notes
  • Imaging narratives
  • Lab report narratives
  • Pathology report narratives

The Open Notes rule also requires mental health providers to provide information about medication prescriptions and monitoring, clinical test results, modalities and frequency of treatments, start and stop times of sessions, and any summary of diagnosis, functional status, treatment plan, symptoms, progress, and/or prognosis. However, the Open Notes rule does not apply to psychotherapy notes, if they are:

  • Separated from the rest of the individual’s medical record
  • Recorded, in any medium, by a mental health care provider who is documenting or analyzing the contents of a conversation that takes place during a private, group, joint, or family counseling session

There are eight exceptions to the Final Rule’s prohibition against information blocking, which fall under two categories. Category 1 exceptions involve non-fulfillment of requests to access, exchange, or use EHI, while Category 2 exceptions address procedures for fulfilling EHI requests.

Category 1 exceptions include the following, if certain conditional requirements are met:

  • The Preventing Harm Exception allows Actors to engage in practices that are reasonably necessary to protect patients and other persons against appropriately documented risks of harm.
  • The Privacy Exception allows Actors to deny a request in order to protect an individual’s privacy.
  • The Security Exception allows Actors to deny a request in order to protect the security of the EHI itself, provided the denial is “directly related to safeguarding the confidentiality, integrity, and availability of EHI; tailored to specific security risks; and implemented in a consistent and non-discriminatory manner.”
  • The Infeasibility Exception allows Actors to deny a request if its fulfillment would be impracticable and/or impossible as a result of, i.e., natural or man-made disasters, public health emergencies, technological limitations, or an inability to “unambiguously” segment requested EHI.
  • The Health IT Performance Exception allows Actors to make EHI temporarily unavailable or to degrade the EHI’s performance for the benefit of the overall performance of the health IT, i.e., while performing routine maintenance, making system improvements, or to address some cause beyond the control of the healthcare organization.

Category 2 exceptions include the following, if certain conditional requirements are met:

  • The Content and Manner is a time-limited exception that allows Actors to limit a response to a request based on their EHR vendor’s ability to access, use, or exchange EHI. The provider must meet both the content and manner conditions, meaning that (i) they must provide at least the data elements set forth under the US Core Data for Interoperability Standard (USCDIS) and (ii) they must respond to the request either in the manner requested or in an alternative manner. This exception applies for the next 24 months, to allow EHR vendors time to improve the capacity of their systems in order to fulfill requests in full compliance with the Final Rule thereafter.
  • The Fees Exception, which will likely apply primarily to EHI vendors as opposed to physicians and other providers, allows Actors to recover certain costs reasonably incurred for the access, exchange, or use of EHI. This limited exception allows Actors to make a reasonable profit, however no fees may be collected for electronic access to EHI by individuals.
  • The Licensing Exception, which aims to promote innovation in health IT, allows Actors to protect their intellectual property by licensing Interoperability Elements (i.e., hardware, software, integrated technologies or related licenses, technical information, privileges, rights, intellectual property, upgrades, or services). Actors must initiate licensing negotiations within 10 days of the request and must negotiate a license within 30 days of the request. As with the Fee Exception, this exception will likely apply primarily to EHI vendors.

Under the Final Rule, health care Actors must develop compliant infrastructure and governance standards to eliminate prohibited information blocking. Steps to be taken by Actors include:

  • Establishing a governance structure to review requirements 
  • Develop an action plan to implement that governance structure
  • Develop, review, and/or revise access policies to ensure compliance with the Final Rule, including processes for evaluating and appropriately documenting potentially applicable exceptions
  • Conduct policy training for staff, including training in any new internal reporting processes
  • Develop implementation plans to identify and mitigate risks including current non-compliant information blocking practices
  • Identify necessary changes with respect to contracting and licensing policies and practices
  • Review and update formal policies regarding access, exchange, and use of EHI

Weiss Zarett assists healthcare providers and business owners to develop policies and procedures that are compliant with state and federal law. For more insights on how to protect your practice from inadvertent information blocking and to discuss our solutions for EHI regulatory compliance, contact us today.

Mathew J. Levy is a Partner of the firm and co-chairs the Firm’s corporate transaction and healthcare regulatory practice. Mr. Levy has extensive experience in, defending healthcare professionals in actions brought by State licensing authorities and the Federal agencies (OIG, Medicare, OMIG, Medicaid, DEA, OSHA, OCR OSHA, Hospital Review Boards, Office of Professional Medical Conduct and Office of Professional Discipline.) Mr. Levy has successfully defended numerous healthcare providers in actions involving the US Attorney’s Office investigations, Medicare Fraud Waste and Abuse investigations, Medicaid Fraud Control Unit investigations, OPMC, OPD, Medicare, Medicaid as well as commercial insurance audits including Prepayment Review, Post Payment Review, Medicare Hearings and Hospital Discipline Investigations.

Mr. Levy has successfully structured and negotiated joint venture agreements, private equity transactions, venture capital transactions, stock purchase agreements, asset sale agreements, shareholders agreements, partnership agreements, employment contracts, managed care agreements and commercial leases. Among the areas in which he focuses are coordinating mergers and acquisitions, compliance programs, ambulatory surgery centers, the establishment of diagnostic and treatment centers, HIPAA privacy regulations, fee-splitting issues, Stark law issues, fraud and abuse rules and regulations and Medicare/ Medicaid, Oxford, Americhoice, Fidelis, Healthfirst and other third-party payor settlements. Mathew Levy can be reached directly at Mlevy@weisszarett.com or 516-926-3320.

Jessica Woodrow is an Associate Attorney in the litigation and administrative proceedings practice group, handling matters involving all aspects of civil litigation with a primary practice focus on healthcare law. She can be reached at jwoodrow@weisszarett.com or 516-926-3309.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a New York law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, employment counseling and controversies, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.

New Workplace Law to Protect from Infectious Disease Spread

By: Carla Hogan, Esq. & Zoila Sanchez, J.D., M.P.H.

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As many return back to the workplace upon getting vaccinated, efforts are required to ensure we continue to guard against the infectious diseases spreading in the workplace. The recently enacted NY HERO Act guides workplaces on how to best protect their employees.

The HERO Act has two parts: (1) the Safety Plan and (2) the Safety Committee.

Part 1: 

The Safety Plan applies to all private employers regardless of size. While employers can establish their own plans, these safety plans will be developed by the NYS Department of Labor (NYSDOL) and Department of Health to include:  

(1) employee health screenings;

(2) face coverings and personal protective equipment;

(3) hand washing signage;

(4) cleaning/disinfecting shared equipment and other surfaces;

(5) social distancing and quarantine orders;

(6) engineering controls such as air flow and ventilation;

(7) designated supervisor(s) to enforce safety standards;

(8) review of safety standards, employer policies, and employee rights;

(9) compliance with notice requirements to employees and government officials

Importantly, noncompliance with the Safety Plan can result in NYSDOL imposed penalties ranging from $1,000 to $10,000. 

Part 2:

The Safety Committee applies to all NYS private employers 10 or more employees. Members of the Safety Committee are selected by non- supervisory level employees (not the employer). 

These selected members will be provided training and responsible for:

(1) bringing safety concerns to the attention of the employer (who must respond); 

(2) reviewing the employer’s health and safety policy;

(3) reviewing any new health and safety policies;

(4) participating in site visits by health and safety officials;

(5) reviewing health and safety reports filed by the employer; 

(6) attending quarterly meetings.

Due to the recent Centers for Disease Control and Prevention (CDC) pronouncement, that fully vaccinated individuals can be doors and outdoors without wearing masks except when in health settings on public transportation or in specified areas where masks are required, there is tremendous confusion regarding which requirements apply.

Simultaneously, states and municipalities are free to impose more stringent requirements.  Considering the CDC guidance, New York is relaxing its onerous requirements starting May 19, 2021. 

It remains to be seen whether the CDC will pull back its new guidance. For now, employers should follow the newly announced NYS guidelines available here.

Employers can take steps now to ensure they are positioned to best prepare, for example, by familiarizing themselves with the requirements of the two-part law, and begin strategizing where to post signage, and review and modify their employee handbook and other policies and procedures.

If you need guidance on compliance with the NY Hero Act, you can contact Carla Hogan, Esq at: chogan@weisszarett.com or call 518-527-9981 or (516) 627-7000.

Carla Hogan, Esq. is an employment and health care lawyer with over three decades of experience counseling employers and employees on regulatory compliance, wages and hours law, discrimination matters and defending disability cases. In addition to negotiating and settling many employment and health care disputes, she also litigates those matters that cannot settle in the administrative forum or in court. As part of her healthcare practice, she represents licensed professionals in disciplinary matters, discrimination defense, employment termination, and negotiating new employment agreements. She regularly defends impaired professionals in front of OPD and OPMC, working with alternatives programs such as the NYS Professional Assistance Program, the Professional Assistance Program and the Committee on Physician’s Health. Ms. Hogan has developed training programs and lectured, and written extensively on healthcare and employment law compliance, and has trained businesses and government agencies on best employment practices. She has done extensive audit defense work both in healthcare and employment and has longstanding working relationships with the applicable State agencies (DOH, DOL, OMIG, etc.).  Ms. Hogan is also a health care transactional attorney and has formed – and unwound—numerous health care ventures in all areas of licensed practice.  Prior to starting her own firm in 2014 and later joining Weiss Zarett as Counsel, she was a partner at Boies Schiller & Flexner where she worked on high profile litigation matters and later Greenberg Traurig where she developed an expertise in managed care and managed care financing.

Ms. Sanchez has experience in supporting the Firm’s business and health care law, and litigation practice areas. She has supported attorneys representing physicians under OPMC investigation and other licensed professionals in OPD disciplinary cases. Additionally, she has assisted with furthering the Firm’s general business litigation work on matters related to bankruptcy, torts and commercial real estate. Ms. Sanchez has also assisted attorneys with transactional matters regarding corporate formation and organization of physician groups, commercial leases, physician employment agreements, and health care regulatory compliance.

Weiss Zarett is a Long Island law firm providing a wide array of legal services to the members of the health care and financial services industries, including corporate and transactional matters, employment matters, civil and administrative litigation, regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.

Compliance Concerns Rise as Information Blocking Rules Become Fully Mandatory

By Mathew J. Levy, Esq. & Zoila Sanchez, J.D., M.P.H.

Health care providers constantly strive to do what is best for the patient. However, sometimes a practice’s policies and procedures may unintentionally fall short of this goal. For example, when a patient experiences challenges accessing his/her laboratory results and must wait until her physician has had a chance to review, this delaying of access could be considered preventing patient access to their own electronic health information (EHI). As a result, the provider may fall out of compliance with a new fully enforced rule on Information Blocking. 

Information Blocking is the interference with access, exchange, or use of EHI which can occur, for example, by a delayed lab result to a patient as illustrated above or charging excessive fees for patients to obtain their own records. The purpose of the regulation by the Office of the National Coordinator for Health Information Technology (ONC), is to promote patient control over their own health information by improving the facilitation of electronic access, exchange, and use of health information.

While the ONC information blocking regulations have been in full effect since April 5, 2021, many physicians, healthcare IT developers, and health information networks, are reportedly unprepared. In fact, a recent survey by Life Image, a health care interoperability company, discovered that most clinical, technology, and administrative healthcare leaders are unprepared to comply with the rule’s prohibition on information blocking. While 70% of participants reported to awareness of the rule, 50% of participants are reportedly unaware of the practices that constitute information blocking with reports of engaging in noncompliant practices such as sharing paper records or sharing records on CDs. Almost half of the participants responded that they either had not made any changes or did not know how to meet the requirements.  

Most concerning is that of those surveyed, 39% were unaware that noncompliance with information blocking practices could result in civil monetary penalties. OIG recently proposed that noncompliance with the rule could face penalties of up to $1 million. These penalties are significant, and it is imperative for providers to focus their attention on (1) understanding the requirements and exceptions (2) having a compliance program in place that integrates the rules into your practice and (3) maintaining your compliance program. New York no longer permits a per page copying charge when producing electronic records per patient request– providers can only charge for the time it takes to retrieve the record from its server which is usually de minimus. A reference for you to review related to this topic is “21st Century Cures Act Has Taken Effect” and “Understanding Compliance.”

About the Authors: 

Mathew J. Levy is a Partner of the firm and co-chairs the Firm’s corporate transaction and healthcare regulatory practice. Mr. Levy has extensive experience in, defending healthcare professionals in actions brought by State licensing authorities and the Federal agencies (OIG, Medicare, OMIG, Medicaid, DEA, OSHA, OCR OSHA, Hospital Review Boards, Office of Professional Medical Conduct and Office of Professional Discipline.) Mr. Levy has successfully defended numerous healthcare providers in actions involving the US Attorney’s Office investigations, Medicare Fraud Waste and Abuse investigations, Medicaid Fraud Control Unit investigations, OPMC, OPD, Medicare, Medicaid as well as commercial insurance audits including Prepayment Review, Post Payment Review, Medicare Hearings and Hospital Discipline Investigations.

Mr. Levy has successfully structured and negotiated joint venture agreements, private equity transactions, venture capital transactions, stock purchase agreements, asset sale agreements, shareholders agreements, partnership agreements, employment contracts, managed care agreements and commercial leases. Among the areas in which he focuses are coordinating mergers and acquisitions, compliance programs, ambulatory surgery centers, the establishment of diagnostic and treatment centers, HIPAA privacy regulations, fee-splitting issues, Stark law issues, fraud and abuse rules and regulations and Medicare/ Medicaid, Oxford, Americhoice, Fidelis, Healthfirst and other third-party payor settlements.

Zoila Sanchez, J.D., M.P.H. joined the Firm full-time upon graduating with her Juris Doctor degree from the Maurice A. Deane School of Law at Hofstra University. During law school, Ms. Sanchez served as a Legal Clerk with the U.S. Department of Health and Human Services Office of Counsel to the Inspector General in Washington, DC, where her work focused on health care fraud and abuse. Ms. Sanchez has experience in supporting the Firm’s business and health care law, and litigation practice areas. 

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES. 

Asserting The Fifth Amendment Privilege In Civil Proceedings Can Be Tricky

By Michael J. Spithogiannis, Esq. and Floyd G. Grossman, Esq.

Among the inalienable rights scrupulously protected is the privilege against self-incrimination.  The Fifth Amendment of the United States Constitution states that “[n]o person . . . shall be compelled in any criminal case to be a witness against himself. . . .”¹  The United States Supreme Court has ruled that the Fifth Amendment privilege is not only applicable to criminal proceedings, but “can be asserted in any proceeding, civil or criminal, . . . and it protects against any disclosures the witness reasonably believes could be used in a criminal prosecution or could lead to other evidence that might be so used.”² 

Whether to remain silent in connection with a criminal case seems clear-cut.  But whether to do so in a civil case requires a thorough understanding of its implications.  In a civil suit, the privilege against self-incrimination is often at odds with the obligation to disclose information to the other side.  

Fifth Amendment issues can arise in connection with pre-trial discovery and post-judgment collection proceedings, when it is not so clear that the privilege could or should be asserted.  

Pre-trial discovery.

The right to compel a party in a civil case to appear for a deposition under oath or produce documents is, with few exceptions, well-established.  Article 31 of New York’s Civil Practice Law and Rules (“CPLR”), the statute governing procedure in civil cases, compels “full disclosure of all matter material and necessary in the prosecution or defense of an action. . . .”³  To facilitate this mandate, courts are empowered to supervise discovery proceedings.  Invariably, civil courts not only make rulings compelling depositions or production of documents, but also rule on instances where a party seeks to avoid disclosure on Fifth Amendment grounds.⁴

CPLR §4501 provides that witnesses in a civil action are not required to answer questions that will tend to incriminate them. That said, refusing to provide discovery in a civil case on Fifth Amendment grounds has consequences.

If a defendant remains silent in a criminal case, no negative inference may be drawn from the refusal to testify.  It is always up to the prosecution to prove guilt beyond a reasonable doubt.  In a civil case, on the other hand, an adverse inference may be drawn against a party who refuses to testify on Fifth Amendment grounds.⁵  This means that a judge or jury may consider the refusal to testify in assessing the strength of the evidence offered by the opposing party.⁶  Moreover, unlike a criminal case, blanket refusals to answer questions in a civil action will not be permitted absent unique circumstances, and may only be asserted where there is reasonable cause to fear self-incrimination from a direct answer.⁷  The witness who asserts the privilege is required to justify his or her silence.⁸ To effectively invoke Fifth Amendment protections in a civil case, the witness has the burden to make particularized objections to each discovery request, and demonstrate that the evidence sought will either prove a crime or provide the source from which evidence of its commission might be found.⁹

Therefore, merely invoking the privilege is generally insufficient to preclude all discovery in a civil case.¹⁰ For example, even though a party in a civil case has the right to assert the privilege in the context of a deposition, it may only be asserted on a question-by-question basis; the testimony cannot be prevented altogether.¹¹  Even if criminal prosecution is pending, a witness is not entitled to stay the civil action until the criminal case is decided.¹²  In addition, asserting the privilege in a civil case does not relieve that party of his or her own evidentiary burden, or afford any protection against a failure to submit evidence.  The plaintiff is left to choose between, on the one hand, remaining silent and risk jeopardizing the case;¹³ and, on the other, presenting evidence that may constitute a waiver of the privilege, and opening the door to incriminating evidence.¹⁴    

Enforcement proceedings.

New York’s policy is to put no obstacle in the path of one seeking enforcement of a valid judgment.¹⁵  Enforcement proceedings, also referred to as supplementary proceedings, are civil proceedings to which a judgment debtor may be subjected.  Under New York law, supplementary proceedings aid in identifying and locating assets to satisfy a judgment and offer creditors tools for this purpose.¹⁶  

If the judgment creditor has some knowledge of who may have possession of property subject to collection, the CPLR permits service of restraining notices to prevent dissipation of the assets until they can be turned over in whole or partial satisfaction of the judgment.  As is often the case, however, a judgment creditor has little or no idea where money or other assets are hidden.  To address this problem, a judgment creditor can compel disclosure of all information relevant and material to the location of hidden assets.  A judgment creditor has the power to issue subpoenas compelling the judgment debtor to appear for a deposition, produce documents for examination, or disclose information in writing and under oath.  

Endemic to enforcement proceedings, however, is a judgment-debtor’s resistance to paying the judgment and may involve unlawful or even criminal disposition of assets to avoid execution.  Consequently, during enforcement proceedings, it may become apparent that disclosure of information by a judgment debtor could be incriminating.

The CPLR attempts to strike a balance between protection against self-incrimination and disclosure of information regarding a debtor’s assets. If the danger of prosecution is eliminated, the witness may be compelled to give testimony and produce evidence that might otherwise be incriminating.  To facilitate collection of money judgments, civil courts are authorized to grant immunity from criminal prosecution to any witness for giving testimony or evidence in an enforcement proceeding relating to disposition of property in which the judgment debtor has an interest, provided any interested district attorney is given 24-hours’ notice.¹⁷  Once immunity is granted, the Fifth Amendment is not a basis for withholding evidence.

Conclusion.

The Fifth Amendment privilege against self-incrimination is fundamental, and usually arises in the context of criminal investigations.  There are instances, less obvious, where an individual must consider whether testimony or production of evidence may open the door to criminal prosecution.  

A clear understanding of the nature and scope of the underlying legal proceeding and the consequences of providing testimony or producing evidence is essential. A thorough and candid discussion with counsel about these issues is crucial to protecting one’s inalienable privilege against self-incrimination.

Michael J. Spithogiannis, Esq. and Floyd G. Grossman, Esq. each have over 35 years’ experience litigating commercial and real-property disputes in state and federal courts throughout New York.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.

¹U.S. Const. amend. V.
²Kastigar v. United States, 406 U.S. 441, 444-45 (1972) (emphasis added). See Lefkowitz v. Turley, 414 U.S. 70, 77 (1973).
³CPLR §3101(a).
See Bank of Crete v. Koskotas, 1989 WL 46587 (S.D.N.Y. 1989).
Marine Midland Bank v. John E. Russo Produce Co., 50 N.Y.2d 31 (1980).  
El-Dehdan v. El-Dehdan, 114 A.D.3d 4 (2d Dep’t 2013), aff’d, 26 N.Y.3d 19.
Marine Midland Bank v. John E. Russo Produce Co., supra; Matter of Astor, 62 A.D.3d 867, 869 (2d Dep’t 2009); Wenham Realty Corp. v. Janoff, 1994 WL 16856431 (Sup.Ct. N.Y.Co. 1994).
Matter of Astor, 62 A.D.3d 867, 869-70 (2d Dep’t 2009).
State v. Carey Resources, Inc., 97 A.D.2d 508 (2d Dep’t 1983).
¹⁰Spencer v. City of Buffalo, 172 A.D.3d 1916 (4th Dep’t 2019).
¹¹Matter of Schwab, 233 A.D.2d 732 (3d Dep’t 1996); Wenham Realty Corp. v. Janoff, 1994 WL 16856431 (Sup.Ct. N.Y.Co. 1994).
¹²Spencer v. City of Buffalo, supra; Stuart v. Tomasino, 148 A.D.2d 370, 373 (1st Dep’t 1989).
¹³Federal Chandros, Inc. v. Silverite Construction Co.,  Inc., 167 A.D.2d 315 (1st Dep’t 1990), app. dis., 77 N.Y.2d 893; Laverne v. Incorporated Village of Laurel Hollow, 18 N.Y.2d 635 (2d Dep’t 1966); Levine v. Bornstein, 13 Misc.2d 161 (Sup.Ct. Kings Co. 1958), aff’d, 7 A.D.2d 995 (2d Dep’t), aff’d, 6 N.Y.2d 892.
¹⁴Access Capital, Inc. v. DeCicco, 302 A.D.2d 48 (1st Dep’t 2002).
¹⁵U.S. Bank National Association v. APP International Finance Co., B.V., 100 A.D.3d 179, 183 (1st Dep’t 2012).
¹⁶Id.
¹⁷CPLR §5211.

Ambulatory Surgery Centers As Investments

By Mathew J. Levy, Esq. and Mauro Viskovic, Esq

Investments in ambulatory surgery centers (“ASC”) appear to be on the rise. On April 29, 2021, the Office of Inspector General (“OIG”) posted an important advisory opinion¹ in which it concluded that a specific investment in an ASC by certain medical providers would not result in sanctions under the Anti-Kickback Statute (“AKS”)².

The transaction at issue involved a health system, individual surgeons and a medical management company that wished to invest in an ASC. As a general matter, AKS prohibits medical providers from paying or receiving kickbacks, remuneration, or anything of value in exchange for referrals of patients who will receive treatment paid for by government healthcare programs such as Medicare and Medicaid, and from entering into certain kinds of financial relationships.  As such, AKS would be a potential impediment to the contemplated investment because the offer or payment of investment returns from an ASC to an investor constitutes remuneration under AKS.      

In concluding that the transaction would not result in sanctions under AKS, the OIG cited numerous factors mitigating the risk that the investment returns to the medical providers would be problematic under AKS, including the following factors:

  • All ASC investors would invest directly in the ASC.  That is, no investor would hold any ownership through a pass-through entity, which could be used to redirect revenues to reward referrals or otherwise erode the safeguards provided by direct investment.
  • The management company certified that it would not make or influence referrals, directly or indirectly, to the surgeon investors or to the new ASC; and (ii) no surgeon investor has or would have ownership in the management company.
  • The health system certified that the surgeon investors would use the new ambulatory surgery center on a “regular basis” as part of their medical practices. In referring to this aspect, it is interesting to note that OIG concluded the surgeon investors would fail to meet the hospital-physician ASC safe harbor provision requirement that a physician investor derive at least one-third of his or her medical practice income for the previous fiscal year or previous 12-month period from the performance of ASC-qualified procedures.
  • The contemplated arrangement would contain certain safeguards to reduce the risk that the health system would make or influence referrals to the ASC or the surgeon investors. For example, the health system certified that any compensation paid by the health system to its affiliated physicians for services furnished would be consistent with fair market value and would not be related, directly or indirectly, to the volume or value of referrals such affiliated physicians may make to the ASC or its surgeon investors. In addition, the health system certified that it would refrain from any action to require or encourage its affiliated physicians to refer patients to the ASC or to its surgeon investors and would not track referrals made to the ASC by its affiliated physicians.
  • Neither the ASC, nor any investor, would loan funds to or guarantee a loan for any investor to obtain ownership in the ASC. The ASC would not offer ownership to any party based on the previous or expected volume or value of referrals made. In addition, capital contributions and profit distributions would be made in proportion to an investor’s ownership in the ASC. 
  • Certain safeguards would be implemented to reduce the risk that the ASC’s investors would receive profit distributions for referrals of patients to the ASC. The health system certified that any space or equipment leased by the ASC from the health system or an affiliated real estate company would comply with AKS safe harbors for space rental and equipment rental, as applicable, and any services performed by the health system or the real estate company for the ASC would comply with the safe harbor for personal services and management contracts and outcomes-based payments. 
  • Additional safeguards would be adopted that are designed to reduce fraud and abuse risks (e.g., improper billing). The ASC, the health system, the surgeon investors, and the management company would treat patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner. Further, the health system certified that all ancillary services provided to Federal health care program beneficiaries performed at the ASC would be related directly and integrally to primary procedures performed at the ASC and would not be billed separately to Medicare or any Federal health care program. The health system also certified that it would not include on any cost report or any claim for payment from a Federal health care program any costs associated with the ASC, unless such costs are required to be included by a Federal health care program.
  • The ASC and its investors would provide written notice to patients referred by ASC investors to the ASC of the referral source’s investment interest in the ASC.

This OIG Advisory Opinion provides helpful guidance for analyzing the AKS implications of a contemplated ASC investment by a medical provider.  It is critical to note, however, that the advisory opinion is limited in scope to the specific arrangement described therein, has no applicability to any other arrangements, and cannot be relied on by other parties.

Should you have any questions regarding the structuring of investments in ambulatory surgery centers, please contact Mathew Levy at 516-926-3320 or MLevy@weisszarett.com.

About the Authors: 

Mathew J. Levy is a Partner of the firm and co-chairs the Firm’s corporate transaction and healthcare regulatory practice. Mr. Levy has extensive experience in, defending healthcare professionals in actions brought by State licensing authorities and the Federal agencies (OIG, Medicare, OMIG, Medicaid, DEA, OSHA, OCR OSHA, Hospital Review Boards, Office of Professional Medical Conduct and Office of Professional Discipline.) Mr. Levy has successfully defended numerous healthcare providers in actions involving the US Attorney’s Office investigations, Medicare Fraud Waste and Abuse investigations, Medicaid Fraud Control Unit investigations, OPMC, OPD, Medicare, Medicaid as well as commercial insurance audits including Prepayment Review, Post Payment Review, Medicare Hearings and Hospital Discipline Investigations.

Mr. Levy has successfully structured and negotiated joint venture agreements, private equity transactions, venture capital transactions, stock purchase agreements, asset sale agreements, shareholders agreements, partnership agreements, employment contracts, managed care agreements and commercial leases. Among the areas in which he focuses are coordinating mergers and acquisitions, compliance programs, ambulatory surgery centers, the establishment of diagnostic and treatment centers, HIPAA privacy regulations, fee-splitting issues, Stark law issues, fraud and abuse rules and regulations and Medicare/ Medicaid, Oxford, Americhoice, Fidelis, Healthfirst and other third-party payor settlements.

Mauro Viskovic is a Partner in the Firm’s corporate and transactions practice group, where he focuses on providing high quality and cost-effective solutions to clients’ legal matters.  He represents entrepreneurs through all stages of their ventures’ development, including advice on structure, initial company formation and organization, private financings, commercial transactions, mergers and acquisitions and liquidity events.  In addition, Mauro represents investors in all aspects of corporate finance transactions and also focuses his practice on the representation of private investment fund advisers and portfolio managers

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

ATTORNEY ADVERTISING: PRIOR RESULTS DO NOT GUARANTEE FUTURE OUTCOMES.

¹OIG Advisory Opinion 21-02.
²42 USC § 1320a-7b(b).