Physician Law : Pennsylvania Health Law Lawyer & Attorney : Fox Rothschild LLP : serving Philadelphia, Pittsburgh, Allentown, Erie, Upper Darby Twp

On March 26, 2013, the Office of Inspector General published much-awaited guidance on physician-owned medical device distributorships (commonly known as "PODs") in the form of a Special Fraud Alert.  The OIG makes no bones about where it stands on PODs which it describes as "physician-owned entities that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers." 

The Fraud Alert describes a number of characteristics which, according to the OIG, make POD arrangements potentially suspect under the federal anti-kickback statute.  These include the following:

1.            Selection of investors because they are in a position to generate substantial business for the entity. 

2.            Requiring investors who cease practicing in the service area to divest their ownership interests.

3.            Distributing extraordinary returns on investment compared to the level of risk involved.

4.            Choice of brand and the type of device may be made or strongly influenced by the physician.

5.            The size of the investment offered to each physician varies with the expected or actual volume or value of devices used by the physician.

6.            Distributions are not made in proportion to ownership interest, or physician-owners pay different prices for their ownership interests, because of the expected or actual volume or value of devices used by the physicians.

7.            Physician-owners condition their referrals to hospitals or ASCs on their purchase of the POD’s devices through coercion or promises, for example, by stating or implying they will perform surgeries or refer patients elsewhere if a hospital or an ASC does not purchase devices from the POD, by promising or implying they will move surgeries to the hospital or ASC if it purchases devices from the POD, or by requiring a hospital or an ASC to enter into an exclusive purchase arrangement with the POD.

8.            Physician-owners are required, pressured, or actively encouraged to refer, recommend, or arrange for the purchase of the devices sold by the POD or, conversely, are threatened with, or experience, negative repercussions (e.g., decreased distributions, required divestiture) for failing to use the POD’s devices for their patients.

9.            The POD retains the right to repurchase a physician-owner’s interest for the physician’s failure or inability (through relocation, retirement, or otherwise) to refer, recommend, or arrange for the purchase of the POD’s devices.

10.          The POD is a shell entity that does not conduct appropriate product evaluations, maintain or manage sufficient inventory in its own facility, or employ or otherwise contract with personnel necessary for operations.

11.          The POD does not maintain continuous oversight of all distribution functions.

12.          When a hospital or an ASC requires physicians to disclose conflicts of interest, the POD’s physician-owners either fail to inform the hospital or ASC of, or actively conceal through misrepresentations, their ownership interest in the POD.

13.          POD exclusively serves its physician-owners’ patient base.

14.          Physician-owners are few in number, such that the volume or value of a particular physician-owner’s recommendations or referrals closely correlates to that physician-owner’s return on investment. 

15.          Physician-owners alter their medical practice after or shortly before investing in the POD.

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In what would undoubtedly be a devastating blow to many medical practices that rely on the Stark in-office ancillary services exception (which allows physicians to refer within their practices for Stark services), President Obama's proposed FY 2014 would seek to eliminate the exception for physical therapy, radiation therapy and advanced imaging such as CT and MRI.  The budget suggests that the exception may still apply for those providers that meet certain "accountability standards" established by the Secretary of the Department of Health and Human Services.  The proposed budget offers no further detail on what these accountability standards might be. 

Although passing budgets has not been much of a priority in Washington for the last few years, this proposal clearly demonstrates that these services in the physician office setting are targeted for extinction.  Practices that offer these services should begin making contingency plans now to divest or restructure in the event that the exception is eliminated.

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Adding an interesting wrinkle to an already complex environment, the Federal Trade Commission filed a suit this month to block an Idaho hospital from acquiring a physician practice.  According to an article on thomsonreuters.com, the FTC and the IDAHO Attorney General have filed an antitrust complaint  seeking to block St. Luke's Health System's acquisition of Saltzer Medical Group, a large multi-specialty practice.  The FTC's alleges that the acquisition would result in St. Luke's having a 60% share  of the local primary care market.  This most recent foray into the physician/hospital acquisition arena suggests that a truly integrated delivery model may simply not be possible in some markets.

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Unless you've been living under a rock for the last several weeks, you are likely well aware of the budget sequester that took effect on March 1.  The sequestration requires "across the board" cuts in federal spending.  That, in and of itself, may not be such a bad news.  However, what you may not be aware of is that the sequestration will directly impact physician reimbursement.  Specifically, according to a recent article in OrthopedicsToday, the sequestration includes a 2% cut in Medicare reimbursement for physicians.  At a time when physicians are struggling to make ends meet, this is just more bad news from the feds.

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Over the last several years, hospitals have been acquiring specialty physician practices in response to a number of market forces.  However, these types of acquisitions are not new to the American health care system and those who have been around long enough know that these arrangements can and badly.  In my experience, one of the primary reasons that these combinations fail is that traditional hospital/physician practice acquisition/employment transactions tend to focus on short-term concerns and protections and as a result fail to build a strong foundation for a long-term successful relationship.  Under a typical acquisition/employment model, the physician is engaged for the sole purpose of providing clinical services and is insulated from input into the management and operations of the post-acquisition practice.  This has the effect of removing the physician from one of the key areas where they can provide significant value:  participation in operational cost savings.   

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Earlier this month, the Centers for Medicare and Medicaid Services (CMS) released final regulations implementing the federal Physician Payment Sunshine Act contained in the Federal Accountable Care Act.  Among other things, the Sunshine Act requires manufacturers of drugs, biologics, devices and medical supplies to track and report payments (including anything of value) made to physicians.  As many physicians receive compensation from these types of manufacturers for consulting, teaching and the like, physicians should understand that the payments they receive are likely to become matters of public record.  Regardless of the legalities of such payments (which are, of course, subject to various kickback and fee splitting laws), when entering into these types of arrangements, physicians should consider whether disclosure of such payments could have a negative implications from a public relations standpoint.  The regulations can be seen here:  https://www.federalregister.gov/articles/2013/02/08/2013-02572/medicare-medicaid-childrens-health-insurance-programs-transparency-reports-and-reporting-of

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Yesterday the U.S. Department of Justice announced that it has entered into a $26M False Claims settlement with a dermatologist in Florida.  According to the DOJ, this is one of the largest False Claims settlements against an individual in history.  The physician was accused of allegedly accepting kickbacks from a pathology lab and billing for medically unnecessary services. 

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The Obama administration announced today that as a result of increased federal health care fraud and abuse enforcement efforts, the federal government recovered $4.2 billion in 2012, setting a new record.  According to the Department of Health and Human Services, for every $1 spent on enforcement efforts, they recouped $7.90.  For more on the topic see "U.S. recovers $4.2 billion from healthcare fraud probes: report" on reuters.com.
 

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Today I am focusing on the self-referral ban under the federal Stark laws. In particular, a recent case – Fresenius Medical Care Holdings, Inc. v. Tucker (Dkt. No. 4:03-cv-00411-SPM-GRJ (Jan. 10, 2013, 11^th Cir.)) – discussed the interplay between those laws and a State’s attempt to impose more stringent requirements. 

The court first focused on two exceptions to the Stark laws’ ban on physician self-referrals. These exemptions concern clinical lab services for end-stage renal disease (ESRD), as well as certain lab services performed by a company with stockholder equity in excess of $75 million. 

A Florida statute subsequently narrowed these exemptions, and that statutory change impacted a Florida business’ ability to make referrals. 

The plaintiff argued that Congress had crafted the Stark laws’ exemptions in order to benefit Medicare and Medicaid recipients and, as such, intended to provided explicit benefits. That argument was rejected. 

The circuit court found that federal law permitted State laws to be more stringent, and that this was such a situation. Moreover, the court was not convinced that the plaintiff’s business was stifled by the State rules and, instead, found that the impact to the business was marginal. 

It remains to be seen whether or not this ruling will encourage States to enact more stringent restrictions and make it even more difficult for businesses to comply with a non-uniform set of rules.

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I imagine that few physicians contemplated being part of organized labor when they enrolled in medical school but as more and more physicians make the leap from private practice to hospital employment, perhaps large-scale unionization of the physician workforce could become a reality.  According to an article by David J. Leffell today on WSJ.com, the notion is perhaps not as far-fetched as we might have thought.  Mr. Leffell notes that one of the side-effects of the shift by physicians to employee status will be the right to engage in collective bargaining.  This presumably would also entail the right to strike -- likely not the ideal model for the delivery of quality care.  The implications of physician unionization are so monumental that one must wonder whether this possibility is an unintended consequence or an intended result. 

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Last week the U.S. Department of Health and Human Services (HHS) released final regulations modifying existing HIPAA enforcement, privacy and security regulations. Although a number of the changes merely serve as clarification of existing regulations, the modifications impose a number of new requirements on covered entities and business associates.

Some of the important issues addressed in the new rules include the following:

• Clarification of the definition of a privacy breach;
• Adoption of risk assessment factors to be taken into consideration in conducting a breach analysis;
• Modifications to the limitations on the use and disclosure of protected health information for marketing and fundraising purposes;
• Modifications regarding business associates including changes to the definition of a business associates and when business associates may held directly liable for violations;
• Modifications to the required terms in business associate agreements; and
• Modifications that covered entities are required to make to their Notices of Privacy Practices.

The new regulations take effect on March 26, 2013 and covered entities and business associates have until September 23, 2013 to comply. The regs were published in the Federal Register on January , 2013 and can be viewed here Federal Register.

Check back for more detail on the required business associates and NPP changes.
 

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This week the Office of Inspector General published an interesting Advisory Opinion (AO 12-22) dealing with a cardiology co-management agreement between a hospital and a private cardiology group practice.

Under the arrangement, the hospital would compensate the physicians for certain management, oversight, strategic planning and medical direction services in connection with the hospital’s four catheterization labs.

The Compensation payable to the physicians would consist of a fixed guaranteed amount and potential performance bonuses based on achieving specific patient satisfaction, quality and cost-saving targets.

Based on a number of safeguards within the arrangement, including that the bonus criteria were developed by a committee including providers outside the cardiology group and that the group's performance and compensation would be reviewed by an independent consultant, the OIG stated that it would not impose sanctions on the requesting parties.

Although the Advisory Opinion is fact specific, as one of the first opinions dealing with co-management arrangements, it offers providers significant insight into how the OIG is likely to view these types of arrangements going forward.
 

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Now that the new year is upon us, today’s post will look at the Department of Health and Human Services’ Office of Inspector General (OIG), in particular, OIG’s priorities for 2013.   According to OIG’s Fiscal Year 2013 Work Plan, it will be focusing upon a number of topics of interest – including some items not addressed last year.

OIG’s planned reviews of Medicare Part A and Part B will include:

● Billing patterns for nursing home stays.

● Accreditation of medical equipment suppliers, with a particular focus on quality standards.

● Claims submitted by medical equipment suppliers for lower limb prosthetics, power mobility devices and vacuum erection systems.

● Replacement of medical equipment, especially the frequency and necessity of that replacement.

● Independent physical therapists’ claims and whether the claims are reasonable, medically necessary and properly documented.

● Billing for electrodiagnostic testing.

● Ensuring that payments are not made for alien beneficiaries who were unlawfully present in the United States.

● Reviewing payments for Part A and Part B services to avoid claims starting after a beneficiary has died. 

Special attention should be paid to these areas in the coming year given OIG's additional scrutiny.

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It appears to be business as usual on Capitol Hill this New Year's Eve.  Once again, Congress has failed to fix the sustainable growth rate formula in the Medicare physician fee schedule. Unless at least a temporary "patch" is put in place to keep Medicare physician payment rates steady, physicians will experience a 27% cut starting January 1, 2013. 

Year after year, Congress has elected to put a one-year patch in place to forestall these drastics cuts and very often negotiations over even a temporary fix go to the eleventh hour.  While another temporary patch has been part of the ongoing "fiscal cliff" negotiations in Congress, no agreement has been reached yet on the cliff, so it appears that a "doc fix" may have fallen it by the wayside.  However, according to rollcall.com, both Senate Majority Whip Richard Durbin and Senate Finance Chairman Max Baucus still believe a doc fix will be in any agreement ultimately reached on the fiscal cliff. Keep your fingers crossed for a Happy New Year.

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