Office Based Surgical Procedure Audits – How to Handle Them

By Mathew J. Levy, Esq.
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Regrettably, many physicians are receiving a letter from an insurance carrier informing the physician that the physician must repay a substantial amount of money as a result of what has been billed to the insurance carrier and paid without objection. Perhaps the most frustrating part of all is that the physician has billed the insurance company in a particular manner for years with full disclosure and  the approval  from the  insurance  carrier. Without warning  the insurance carrier informs you that it is changing its policy as to the physicians past billing and is changing the method of billing for future services. That is the current situation faced by an increasing number of physicians who for years with the explicit approval of insurance companies have been billing a separate facility fee in connection with the performing of office-based surgical procedures.  

The typical scenario is one in which a physician sets up a private dedicated room for performing procedures.  A separate entity, owned by the physician is established to receive payments for these services.   That entity has a separate tax id number and payments for the costs incurred in the use of separate dedicated room are made to that new entity.  These facilities are approved by the American Association for the Accreditation of Ambulatory Surgical Facilities (“AAAASF”) or another accrediting organization such as the Joint Commission on Accreditation of Health Care Organizations (“JCAHO”) or the American Association for the Accreditation of Ambulatory Plastic Surgery Facilities (“AAAAPSF”).  Full disclosure has been made to the insurance carrier concerning the formation of the separate entity and, in fact, in many cases, insurance carriers have explicitly, in writing, acquiesced to this arrangement and informed the provider that it will pay for a separate facility fee in connection with the performance of office-based surgical procedures.  In most cases the payments are made for years in the regular course of business without any objection by the insurance carrier.

Recently, however, in concert with the increasing emphasis on retrospective audits (industry wide) as a mechanism for cost savings and to collect funds already paid out, the insurance carriers have sent out notices to hundreds of providers that not only will the insurance company not reimburse the physician for this facility fee in the future but it is also seeking repayment of past claims that were paid. Clearly the insurance companies had complete knowledge of the status of the facility (letters were issued) where the surgery was performed and with the implicit or explicit approval from the insurance carrier.

The insurance carrier is claiming that no provider, whether participating or non-participating, can bill for a facility fee if that facility has not been licensed under Article 28 of the New York State Public Health Law.  This is a misinterpretation of existing law.  There is no statutory requirement that a facility be an approved Article 28 facility to be able to bill for a facility fee.  In fact there are no statutory or regulatory guidelines that either explicitly permit or prohibit a physician from billing for a facility fee for a procedure performed in a separate operating room located in a physician’s facility.

The Department of Health has issued an opinion in which it acknowledges that there is no statute or regulation that prohibits billing for a separate facility fee and that ‘the wide variety of fact patterns must be analyzed on a case-by-case basis before specific conclusions can be reached about the criminal, civil or disciplinary consequences of particular conduct by corporations or physicians.”  This statement supports our position that the payment of a facility fee is a contractual issue between a physician and an insurance company and that there is no absolute prohibition against paying such a fee, if agreed to by the insurance carrier and the physician.

The contractual nature of this issue is demonstrated by the fact that with the merger of United and Oxford, Oxford, which paid a facility fee for the performing of office-based surgical procedures, has notified participating providers that it will no longer pay a facility fee in order to conform with United’s policy which does not allow for the payment of a facility fee.

Physicians should be aware however, that the Department of Health has also advised that under certain circumstances, where the entity being paid the facility fee is owned by a non-professional, such an arrangement may constitute professional misconduct and/or criminal violations.  Both Kern Augustine and The Medical Society of the State of New York have advised the Department of Health that its opinion is based upon a misinterpretation of existing law.   

In conclusion, it is this the position of this firm that an insurance carrier who has explicitly acquiesced to the billing of a facility fee and has continually paid such facility fee without objection, where full disclosure of the accreditation status of the facility has been made, has no legal grounds to seek repayment of claims already paid to providers who relied upon this representation in submitting claims for facility fees.

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@app-60705ed4c1ac183264fb7857.closte.com.

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Understanding Financial Arrangements Between Anesthesiologist and Ambulatory Surgical Centers as per the Recent OIG Opinion

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Introduction

The Department of Health and Human Services’ Office of Inspector General (“OIG”) issued a long awaited advisory opinion on May 25, 2012 offering guidance as to the proposed arrangements between Ambulatory Surgery Centers and anesthesia services providers (OIG Advisory Opinion No. 12-06). In today’s healthcare arena, Ambulatory Surgery Centers (especially those whose physicians specialize in gastroenterology and endoscopy) have been placing increased pressure on anesthesiologists to enter into various financial arrangements that would allow the Ambulatory Surgery Center or its owners to share in the income received by anesthesiologists who provide anesthesiology services to the Ambulatory Surgery Center.  These arrangements take a variety of forms, however, they all have one element in common:  the Ambulatory Surgery Center (and/or the surgeons who own the Ambulatory Surgery Center), who are in a position to refer business to the anesthesiologists, are seeking to share in the revenue generated by the anesthesiologists who are the beneficiaries of such referrals.  As per the recent OIG Opinion, the OIG has expressed concerns with these arrangements as they could result in findings that the arrangements are in violation of the Anti-kickback Statute[1].   As such, especially in light of this new OIG Opinion, any arrangement between an anesthesiologist and an Ambulatory Surgery Center (or any other provider for that matter) must be analyzed in the context of the general prohibitions in both New York and Federal law against kickbacks in order to ensure that such arrangements are compliant and minimize risk. 

The OIG Opinion/Analysis

As per the recently issued OIG Opinion, two proposals with respect to the arrangement between an Ambulatory Surgery Center (hereinafter the “ASC”) and the Requestor (a physician-owned anesthesia services provider) were evaluated.   The OIG found that each of the proposed arrangements could be found to be in violation of the Anti-Kickback Statute. 

Proposal 1 (the “Services Model”):

As per the first proposal, the Requestor would serve as the ASC’s exclusive provider of anesthesia services and would bill and retain all collections from patients and third party payors, including Medicare, for its services.  The Requestor would pay the ASC for “Management Services” including pre-operative nursing assessments; adequate space for all of the Requestor’s physicians, including their personal effects; adequate space for the Requestor’s physicians’ materials, including documentation and records; and assistance with transferring billing documentation to the Requestor’s billing office on a per patient basis. Such payment would be made on a per-patient basis, which would be set at fair market value and not take into account the volume or value of referrals or other business generated.   The Requestor indicated that such “Management Services” are included in the facility fees paid by private payors and the ASC payment paid by Medicare.   Furthermore, federal health care program patients would be excluded from the Management Services fee calculation.  

The OIG concluded that this arrangement implicates the federal Anti-Kickback Statute as it appears that the payments to the ASC would be to induce referrals to the Requestor. Furthermore, the ASC would essentially be paid twice for the same services, and the additional remuneration paid by the Requestor in the form of the Management Services fees could unduly influence the ASC to select the Requestor as the ASC’s exclusive provider of anesthesia services.  Furthermore, the OIG found that the “carve out” of federal program beneficiaries from Requestor’s payment would not reduce the risk of fraud and abuse. 

Although this model has historically not been the most lucrative for Ambulatory Surgery Centers since they only received the fair market value of the services provided, many physicians believed that this arrangement was “low risk” as this model was able to be structured to fall within the safe harbors for space rental (42 C.F.R. §1001.952(b)), equipment rental (42 C.F.R. §1001.952(c)) and personal services and management contracts (42 C.F.R. §1001.952(d)).   However, based upon the OIG Opinion, any arrangement whereby an anesthesiologist is  providing  (or intends to provide) services on behalf of an Ambulatory Surgery Center or any other entity and is paying such entity for “Management Services”  needs to be reviewed and scrutinized in order to ensure that there is no suggestion of fraud and abuse.

Proposal 2 (the “Company Model”):

As per the second proposal, the ASC’s physician-owners would establish separate companies (hereinafter “Subsidiaries”) to provide anesthesia-related services to outpatients undergoing surgery at the ASC.  Such Subsidiaries would exclusively furnish and bill for all anesthesia-related services provided at the ASC.  The Subsidiaries would then employ or contract with anesthesia providers for the clinical services, as well as contract with Requestor to provide all other administrative, management, and operational oversight services on behalf of the Subsidiaries.  The Subsidiaries would pay the Requestor a negotiated rate for the services which would be paid out of the Subsidiaries’ profits for anesthesia – the remaining profits for anesthesia would be retained by the Subsidiaries.

The OIG has indicated that as per its review,  this arrangement poses more than a minimal risk of fraud and abuse since it would constitute a “suspect joint venture” in accordance with previous guidance issued by the OIG (See Special Advisory Bulletin concerning Contractual Joint Ventures-April 2003) for the following reasons: (1) the ASC physician-owners would contract out substantially all of the operations exclusively to the Requestor; (2) the ACS’s physician-owners would be expanding into a related line of business-anesthesia services that would be wholly dependent on the ASC’s referrals; (3) the ASC’s physician-owners’ actual business risk would be minimal because they would control the amount of business they would refer to the Subsidiaries; (4) Requestor and the ASC’s physician-owners would share in the economic benefit of the Subsidiaries; and (5) Requestor would otherwise be a competitor of the Subsidiaries since Requestor would provide the same services.  Furthermore, the OIG has determined that with respect to this proposal there are no safe harbors which would protect the remuneration the Subsidiaries would distribute to the ASC’s physician-owners.  Essentially, the OIG found that in this arrangement the ASC physician-owners are indirectly doing what they cannot do directly (derive compensation for anesthesia services in exchange for referrals).

The recent OIG Opinion has reiterated our concerns with respect to the “Company Model[2].  From our perspective, the issue that has always existed with the Company Model is that the arrangement would have to qualify either under the Safe Harbor for investment interests[3] or for investments in group practices[4], which it is unable to do.  However, some of these concerns might be ameliorated by allowing the anesthesiologists to acquire equity interests in the “New Company”.  However, the basic problem of having non anesthesiologists share in the profits of a group practice through which they do not practice would remain.  As such, any arrangement similar to the “Company Model” must be evaluated as it is currently subject to scrutiny.

Conclusion

As further demonstrated by the recent OIG Opinion, any arrangement between health care providers whereby referrals are being made and there is money being exchanged between the parties may be under scrutiny.  Especially with respect to the relationship between anesthesiologists and Ambulatory Surgery Centers (and their owners), the existing arrangements each pose hurdles with respect to satisfying applicable Safe Harbors under the Anti-Kickback Statute.  Due to the significant penalties associated with violations of the state and federal law regarding kickbacks, it is especially important that any such relationships be carefully analyzed by a health care attorney taking into account the specific facts and circumstances. 

About the Authors:

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@app-60705ed4c1ac183264fb7857.closte.com.

Stacey Lipitz Marder is an associate at Weiss Zarett Brofman Sonnenklar & Levy, PC., with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling.  Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.

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[1]The Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program. See 42 U.S.C. § 1320a-7b(b).  For purposes of the anti-kickback statute, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.  The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. As such, intent needs to be proven United States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v. Greber, 760 F.2d 68 (3d Cir.), cert. denied, 474 U.S. 988 (1985).  

An individual who violates the Anti-Kickback Statute can be guilty of a felony upon a conviction, and may be fined not more than $25,000 or imprisoned for not more than five years, or both. See 42 USCA §1320a-7b(1).  In addition to the criminal penalties described above, violation of the Federal anti-kickback statute can result in civil penalties and exclusion from participation in Medicare and Medicaid.  See 42 USCA §1320a-7a.

The Department of Health and Human Services has promulgated safe harbor regulations that define practices that are not subject to the Anti-Kickback Statute because such practices would be unlikely to result in fraud or abuse. See 42 C.F.R. § 1001.952.

[2] This “Company Model” is described in a June 16, 2010 letter from the American Society of Anesthesiologists to the OIG (the “ASA Letter”)” and involves the formation of a separate entity (the “New Company”) by the owners of an Ambulatory Surgery Center to provide anesthesia services whereby such anesthesia services are contracted out to a third party

[3] The investment Safe Harbor requires, among other things, that no more than 40% of the equity interests in the entity be held by investors who are in a position to make referrals.  See 42 C.F.R. §1001.952(a). As such, ASC physician-owners would not be able to own more than 40% of the “New Company” as the physician-owners are in a position to make referrals to the “New Company”.

[4] The group practice Safe Harbor includes a requirement that “the equity interests in the practice or group must be held by licensed health care professionals who practice in the practice or group.”  See 42 C.F.R. §1001.952(p).  However, as described in the ASA Letter, this requirement would not be satisfied because the New Company only provides anesthesia services, while its owners are physicians who practice through other practice entities.  

‘Constant Tension’: Health Care Reform and Antitrust Law

Controlling the cost of health care has become a top, albeit divisive, domestic priority for the United States. National spending on health care increased from 9.5 percent of GDP in 1985 to 16.4 percent in 2011, and is expected to rise to about 22 percent of GDP by 2038.1

With the intention of addressing this problem, the Patient Protection and Affordable Care Act, or ACA,encourages collaboration, coordination and integration among health care providers to achieve lower costs and increased efficiencies in health care delivery. In New York and throughout the country, hospitals, health care providers and other organizations are accordingly consolidating. Antitrust Concerns in Health Care Reform.

Antitrust Concerns in Health Care Reform

The primary vehicle for integrating health care delivery systems under the ACA is Accountable Care Organizations.3 ACOs are groups of doctors, hospitals, and other health care providers who come together voluntarily to render coordinated care to their patients. ACOs can provide a full spectrum of services to patients, including inpatient hospital care, outpatient preventative care, and ambulatory surgery services. The formation of ACOs has been incentivized by the federal government through financial rewards for offering higher quality care and improved patient outcomes through programs such as the Medicare Shared Savings Program.4 Another trend in the health care industry, consistent with the general theme of consolidation behind the ACA, has been a marked increase in hospital and health system acquisitions of private medical groups. Facing overall reductions in reimbursement and increased operating costs, many physician groups have chosen to sell their practices to hospitals and health systems, opting for the physicians to become employed by the hospitals rather than owners of their own independent medical practices.

Whether as a result of ACO formation or hospital acquisitions of medical practices, there are legitimate concerns that this trend toward consolidation may in fact lead to higher, rather than lower, health care costs (at least in the short-term). Some believe that if health care reforms lead to more integrated hospital and physician groups, with increased market power in negotiations, an unintended consequence will be higher reimbursement rates paid by commercial insurance companies and, consequently, an increase in premiums paid by purchasers of such insurance. Moreover, depending on the circumstances, some of the business combinations forming in the health care markets may potentially violate decades of established federal and state antitrust law designed to promote fair competition for the benefit of consumers. Just last year, the Secretary of the United States Department of Health and Human Services, Kathleen Sebelius, was quoted as saying that certain aspects of the ACA are in “constant tension” with antitrust laws.5 Similarly, noted antitrust attorney and former Federal Trade Commission policy director David Balto, explained: Two ideas, which at times conflict, have gained acceptance with respect to health care markets: (1) market consolidation has led, in some markets, to anti-competitive developments that could result in the lack of consumer choice and may raise prices for consumers; and (2) the transition to a system of care that is more efficient and higher-quality requires increased levels of coordination among providers, payers, and, in many cases employers.6 Antitrust Enforcement in Health Care In April 2011, the FTC issued a public statement that it would “aggressively enforce the antitrust laws to ensure that consolidation among health care providers will not increase health care costs in local communities across the United States.”7 Recognizing the conflict between antitrust enforcement and certain provisions of the ACA, in October 2011, the FTC and the Department of Justice developed a Final Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Saving Program detailing how they would enforce antitrust laws with respect to ACOs.Physician group acquisitions, however, have not been afforded the same level of detailed guidance from the FTC and, over the past several years, the FTC has been actively investigating such acquisitions (even those that are non-reportable under the thresholds set forth in the Hart-Scott-Rodino Act.9 

In August 2012, the FTC entered into its first settlement of an investigation into a physician group acquisition, and the only antitrust consent decree by any federal or state agency applying the “structural” remedy of a partial divestiture of physicians.10 That merger involved the acquisition of two cardiology groups in Reno, Nevada by Renown Health, the largest provider of acute care hospital services in northern Nevada, and would have resulted in Renown’s employment of 88 percent of the cardiologists in the Reno, Nevada area. The St. Luke’s Decision More recently, a much publicized federal court decision illustrated that despite the potential “quality of care” benefits of consolidation and integration among health care providers, the federal courts will continue to apply antitrust law scrutiny to health care mergers and acquisitions.

On January 24, 2014, at the conclusion of a bench trial, Chief Judge B. Lynn Winmill, in Boise, Idaho, concluded that the St. Luke’s Health System violated Section 7 of the Clayton Antitrust Act11 and Idaho’s Competition Act12 when it purchased Idaho’s largest independent physicians’ practice, Saltzer Medical Group, comprised of 40 physicians.13 Two of St. Luke’s competitors sued to prevent the acquisition, leading to the FTC and the Idaho attorney general commencing their own lawsuits against St. Luke’s. The plaintiffs argued that the acquisition of Saltzer gave St. Luke’s an unfair and illegal marketplace advantage by dominating primary medical care in Canyon County. They further argued that following the acquisition, St. Luke’s greater bargaining leverage with commercial health plans would result in higher prices for primary care services, which would ultimately be passed on by the insurance plans to subscribers. After the trial, much of which occurred behind closed doors, several newspapers sought to have the sealed portions of the court’s decision made public. Ultimately, Judge Winmill unsealed the full decision revealing that, following the merger collections for the same medical services provided by Saltzer prior to the merger were expected to dramatically increase.

For example, prior to the transaction Saltzer performed many routine ancillary services, such as laboratory and diagnostic imaging, as well as therapy services and specialized facility services and minor outpatient surgeries, at its own facilities.14 St. Luke’s determined it could increase commercial reimbursements by insisting that health plans pay higher “hospital-based” rates for those routine ancillary services, even when they were performed in the same physical location as before the acquisition.”15 Blue Cross of Idaho estimated that its costs for these ancillary services would increase by 30 to 35 percent.16 “St. Luke’s own analysis projected that it could gain an extra $750,000 through hospital-based billing from Saltzer from commercial payers for lab work and $900,000 extra for diagnostic imaging.”17 

Furthermore, a consultant hired by St. Luke’s to conduct due diligence prior to the transaction prepared an analysis showing how office/outpatient visits could be billed for higher amounts if the visit was “hospitalbased” rather than Saltzer-based.18 Primarily based on these findings of fact, and a quite narrow determination of the geographic and product markets, Judge Winmill issued a permanent injunction against the acquisition, concluding that: (i) following the acquisition St. Luke’s would employ 80 percent of the primary care physicians in Nampa, Idaho, (ii) this would enable St. Luke’s to negotiate higher reimbursement rates with commercial health care plans; and (iii) the higher rates would be passed onto consumers. Notably, Judge Winmill also went out of his way to commend St. Luke’s, stating that fixing health care “will require a major shift away from our fragmented delivery system and toward a more integrated system. … St. Luke’s saw this major shift coming some time ago. And they are to be complimented on their foresight and vision.”19 The Judge further noted, “the Acquisition was intended by St. Luke’s and Saltzer primarily to improve patient outcomes. The court is convinced that it would have that effect if left intact, and St. Luke’s is to be applauded for its efforts to improve the delivery of health care in the Treasure Valley.”20 However, the Judge concluded that “The [Clayton] Act does not give the court discretion to set it aside to conduct a health care experiment”21 and that the “there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs.”22 Thus, recent events show that while consolidation in the health care markets across the country (and here in New York) are moving at a rapid clip as a result of market forces and the ACA, health care antitrust enforcement is alive and well. The courts will continue to scrutinize health care industry mergers, including acquisitions of physician practices by hospitals and health systems.

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Endnotes

1. Congress of the United States, Congressional Budget Office, “2013 Long-Term Budget Outlook” (September 2013).

2. Public Law 111-148.

3. See http://www.cms.gov/Medicare/Medicare–for-ServicePayment/ACO.

4. 42 U.S. Code § 1395jjj.

5. See http://ehrintelligence.com/2013/04/09/sebelius-care-coordination-can-easily-turn-into-a-monopoly.

6. Balto, David, “Antitrust: The Problem and Solution for Health Care,” US News and World Report, Apr. 12, 2013.

7. Richard Feinstein, Statement on the Abandonment of Providence Health & Services of its Plan to Acquire Spokane Cardiology and Heart Clinics Northwest in Spokane, Washington, D.C. (Apr. 8, 2011), available at http://www.ftc.gov.

8. http://www.justice.gov/atr/public/health_care/276458.pdf.

9. Public Law 94-435.

10. http://www.ftc.gov/enforcement/cases-proceedings/1110101/ renown-health-matter.

11. 15 U.S.C. § 18.

12. Idaho Competition Act, Idaho Code § 48-106.

13. Findings of Fact and Conclusions of Law, FTC v. St. Luke’s Health System, Ltd., No. 1;13-CV-00116-BLW (D. Idaho Jan. 24, 2014), available at www.ftc.gov.

14. Id. Findings of Fact ¶ 124.

15. Id. Findings of Fact ¶ 123.

16. Id. Findings of Fact ¶ 125.

17. Id. Findings of Fact ¶ 126.

18. Id. Findings of Fact ¶ 128.

19. Id. at 2.

20. Id. at 3.

21. Id. Conclusions of Law ¶ 77.

22. Id. at 3.

Understanding Ambulatory Surgery Centers

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Introduction:

It is no secret that ambulatory surgery centers (“ASCs”) are becoming the go to place for physicians to perform procedures as opposed to hospitals as physicians attempt to increase revenue and align with hospitals. As per the Centers for Medicare and Medicaid Services (CMS), an ASC is defined as followed: “any distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization and in which the expected duration of services would not exceed 24 hours following an admission. See 42 cfr § 416.2 Definitions  While there are certainly several benefits to ownership in an ASC, prior to jumping on the ASC bandwagon, it is imperative that physicians and other investors understand the process of starting/operating an ASC, as well as evaluate the legal, business and regulatory implications. Although the corporate practice of medicine doctrine in New York State generally prohibits general business corporations from employing physicians for the purpose of providing medical services or arranging for the provision of medical services, ASCs, unlike medical practices, can be owned by non-physicians. See NY BCL §1501 et seq.; NY Education Law §6522

CON Process:

In order to operate an ASC in New York, approval must be obtained from the Department of Health and Health Planning Committee via the Certificate of Need (CON) process. The objectives of the CON process are to promote delivery of high quality health care and ensure that services are aligned with community need.  The CON process can be very involved and can often take several months to complete.  All proposed operating documents have to be submitted, in addition to floor plans and other information pertaining to the project.

In order to increase the probability that approval is granted, many ASCs are partnering with hospitals as hospitals often are able help prove the need for an ASC in the community.  Additionally, hospitals have an interest in entering into joint ventures with ASCs as it is more cost effective to perform procedures at an ASC as opposed to a hospital.

Legal Documents:

Prior to commencement of the CON application process, proposed documents in connection with the ASC need to be drafted. For instance, formation documents (Articles of Organization/Certificate of Incorporation) need to be drafted, as well as operating documents (operating agreement/shareholders agreement) dictating the terms regarding how the ASC will be governed and the rights of its owners.  There are several key provisions to consider in such operating documents. For instance, potential investors should ascertain information regarding how distributions are made, how decisions are made with respect to the ASC, as well as who is responsible for the day to day management and decision making. Furthermore, potential investors should consider how new members are added, as well as what their buy-in will be.  Termination provisions are also important to consider, specifically how an owner can be terminated (without cause or with cause), whether an owner has an exit strategy in the event the owner wants to terminate the relationship, as well as what the buy-out terms are in the event of termination.  Furthermore, it is important to consider whether there is a restrictive covenant and non-solicitation provision, which may preclude the physician investor from having an ownership interest in another ASC within a certain geographic region, as well as soliciting patients, employees and referral sources. A Subscription Booklet, including a Subscription Agreement, should also be drafted and distributed to potential investors. Such documents would outline the terms of the venture, including but not limited to investment terms, and the proposed terms of a lease agreement, billing agreement, consulting agreement, and escrow agreement, as applicable.  A questionnaire should also be distributed to obtain information regarding potential investors for due diligence purposes. 

Regulatory Concerns:

In the event an investment is made by a physician and there are referrals being made, the federal and state rules and regulations governing referrals must be reviewed, including but not limited to the Stark Law and Anti-kickback Statute. 

While the Stark Law (self-referral statute) has significantly restricted the possibility of many physician joint ventures, it does not prohibit a physician from entering into an arrangement with an ASC.  The Stark law prohibits physicians from referring Medicare patients to an entity for certain “designated health services” if the physician has a financial relationship with that entity, subject to certain exceptions. Since ASC services are not, themselves, “designated health services” covered by the Stark law, the Stark Law does not restrict physician ownership of ASCs, so long as the ASC does not provide any separately billable designated health care services. See 42 USC § 1395NN

However, an investment by a physician in an ASC can implicate the Anti-kickback Statute.  The Ant-kickback Statute prohibits any person from “knowingly and willfully” providing any remuneration to induce referrals, or in exchange for referrals, of federal health care program patients or business. See 42 U.S.C. § 1320a-7b(b) Accordingly, the Anti-kickback Statute applies to any physician-owned ASC that treats federal health care program patients (including Medicare and Medicaid) since the physician’s return on investment can arguably be viewed as an inducement for physician investors to refer patients to the ASC.

Such arrangement would not run afoul of the Anti-kickback Statute in the event the arrangement falls within the parameters of an applicable safe harbor, specifically those which protects various types of physician-owned ASCs as well as hospital/physician ASC joint ventures. See 42 C.F.R. § 1001.952(r)  Although safe harbor protection is afforded only to those arrangements that precisely meet all of the conditions set forth in the safe harbor, the absence of safe harbor protection is not fatal, rather the arrangement may be subject to further scrutiny. 

The ASC safe harbor generally excepts from the definition of “remuneration” payment that is a return on an investment interest made to an investor, so long as the investment entity is a Medicare-certified ASC, the ASC’s operating and recovery room space is dedicated exclusively to the ASC, patients referred to the ASC by an investor are informed fully of the investor’s investment interest, and all of the applicable standards are met within one of four categories: surgeon-owned ASCs, single-specialty ASCs, multi-specialty ASCs and hospital-physician ASCs.

Some standards which are applicable to each of the categories are as follows: See 42 C.F.R. § 1001.952(r)

  • the terms on which an investment interest is offered to an investor must not be related to services furnished, the previous or expected volume of referrals or the amount of business otherwise generated from that investor to the entity;
  • any distribution or dividend payment to an investor in return for the investment must be directly proportional to the amount of the capital investment (including the fair-market value of any pre-operational services rendered) of the investor;
  • at least one-third of each surgeon investor’s medical practice income from all sources for the previous fiscal year or previous 12-month period must be derived from the surgeon’s performance of those procedures on the list of Medicare-covered procedures for ASCs (with respect to a multi-specialty ASC, at least one-third of these procedures must be performed in the ASC as well);
  • any and all ancillary services for federal health care program beneficiaries performed at the ASC must be directly and integrally related to primary procedures performed at the ASC, and none may be separately billed to any federal health care programs, including Medicare; and
  • the ASC and any surgeon investors must treat federal health care program beneficiaries in a nondiscriminatory manner

It is important to note that physicians must also disclose in writing their ownership interest in an ASC to patients.  See 42 CFR Part 420  ASCs must also ensure that all rules and regulations governing patient confidentiality, including but not limited to HIPAA, are complied with, and that all billing and coding rendered in connection with services rendered at the ASC are accurate and are substantiated by the medical records. 

Conclusion:

In sum, investing in an ASC can be a great opportunity for physicians and other non-physician investors.  To that end, prior to participating, it is in the best interest of potential investors to evaluate the opportunity from a business, as well as regulatory perspective in order to ensure maximum benefit. 

About the Authors:

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@app-60705ed4c1ac183264fb7857.closte.com.

Stacey Lipitz Marder is an associate at Weiss Zarett Brofman Sonnenklar & Levy, PC., with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling.  Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.

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Understanding Business Associates

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.
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Overview:

Throughout a health care provider’s career, he/she will often enter into several relationships with third party vendors – billing companies, EMR companies, marketing companies, internet providers, staffing companies and medical device/equipment suppliers to name a few.  The relationship between these third party vendors and health care providers is important not only from a business perspective, but also a compliance perspective.  These third party vendors often have access to the protected health information of the practice’s patients, rendering such vendors as business associates under the Health Insurance Portability and Accountability Act (“HIPAA”).  Therefore, it is imperative that health care practices understand the applicable rules and regulations governing the relationship between practices and such vendors, and comply with same.  This is especially important in light of the new Health Information Technology for Economic and Clinical Health Act (“HITECH Act”)[1], which amended HIPAA, as there are now more stringent requirements which must be met with respect to the relationship between covered entities (including health care practices and providers) and business associates.  

What is a business associate?:

As per the HITECH Act, business associates are individuals and entities that are not part of a covered entity’s workforce and that engage in activities such as claims processing or administration; data analysis, processing or administration; utilization review; quality assurance; billing; benefit management; practice management; patient safety and repricing, and create, receive, maintain or transmit protected health information to perform certain functions or activities on behalf of a covered entity.  Therefore, if a business associate has access to such protected health information, even if it does not view such information, it is considered a business associate and must therefore comply with all applicable rules and regulations. The final rules also indicates that subcontractors (individuals or entities that business associates delegate functions, activities or services other than a member of such business associate’s work force) that create, receive, maintain or transmit protected health information on behalf of business associates are now considered business associates. Therefore, all requirements and obligations applying to business associates also apply to subcontractors. 

Business Associate Agreements:

Under HIPAA, covered entities were always required to enter into HIPAA compliant business associate contracts with their business associates so that covered entities could obtain “satisfactory assurances” from a business associate that the business associate would appropriately safeguard protected health information.  Amongst other things, HIPAA required business associate agreements to contain language identifying permitted and required uses and disclosures, a limitation on the business associate using or disclosing protected health information other than as stated in the business associate agreement or as required by law, and a statement that the business associate would use appropriate safeguards to prevent the inappropriate use or disclosure of protected health information.

As per the HITECH Act, there are additional requirements that must be met with respect to the business associate agreement, including having language indicating that business associate have compliant written security policies and procedures, as well as specifying that business associates must timely report breaches of unsecured protected health information to the covered entity.  Furthermore, all business associate agreements should indicate that business associates should enter into agreements with their subcontractors in order to ensure that any protected health information disclosed is adequately protected. As such, it is recommended that such business associate agreements be revised to make certain that the business associates comply with the electronic security rules under HIPAA.  Interestingly, under the HITECH Act, business associates are now also required to enter into HIPAA compliant business associate agreements with their subcontractors, although covered entities are not required to enter into business associate contracts with their business associates’ subcontractors. 

Although HHS now has direct enforcement authority over business associates and subcontractors, business associate agreements are still important in order to have business associates/subcontractors remain contractually liable. 

Conclusion:

In sum, health care providers should immediately evaluate their relationships with their vendors, including identifying which vendors constitute business associates in order to ensure that they have compliant business associate agreements in place.  That being said, covered entities who have business associate agreements already in place should have their business associate agreements reviewed so that the appropriate amendments can be made if necessary, and those covered entities without business associate agreements in place should have such agreements drafted immediately.   In addition to having compliant business associate agreements in place, covered entities need to make certain that their privacy and security policies, as well as HIPAA authorization forms, are compliant, and that their staff is informed of such changes.  The federal government has invested a significant amount of money with the Office of Civil Rights (the branch of HSS responsible for enforcement of HIPAA violations), and has indicated that it will be conducting an increasing number of audits in the near future in order to identify instances of non-compliance.   Such violations carry steep penalties and health care providers need to protect themselves and their practices so that exposure is limited. 

About the Authors:

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-926-3320 or email: mlevy@app-60705ed4c1ac183264fb7857.closte.com.

Stacey Lipitz Marder is an associate at Weiss Zarett Brofman Sonnenklar & Levy, PC., with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling.  Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.

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[1]  On January 17, 2013, the U.S. Department of Health and Human Services (HHS) released the omnibus regulations under HIPAA , including implementing changes made by the HITECH Act (the final rule).  The final rule is effective September 23, 2013.