June 2011

On June 29, 2011, the New Jersey Senate voted to pass Senate Bill No. 2780, which would amend existing New Jersey health care facility licensure statutes to require that one-room surgical practices operating in New Jersey obtain state licensure.  The term “surgical practice” is essentially defined to include any structure or suite of rooms that has no more than one room dedicated for use as an operating room, has one or more post-anesthesia care units or dedicated recovery areas and is established by a physician, physician-known entity or other professional practice for use by the physician’s private practice.

The bill, if passed, would impose various physical plant and functional requirements on one room surgical suites unless the entity is certified by the Centers for Medicare and Medicaid Services (“CMS”) as an ambulatory surgery center, but would exempt these entities from the New Jersey health care facilities tax assessment applicable to true ambulatory surgery centers.

Over the last several years, a cottage industry of businesses known as “Physician Owned Distributorships” (“PODs”) has taken root in the medical device world and according to a recent article in the American Medical News is now coming under scrutiny by federal authorities. PODs are typically companies organized by individuals, some or all of whom are physicians who utilize medical devices, to purchase and resell medical devices to end users such as hospitals and surgery centers. By purchasing devices directly from the manufacturer at a wholesale discount and reselling to a hospital at a markup, the PODs are typically able to offer their investors a healthy investment return. However, a bipartisan group of U.S. Senators has expressed concern that physician investors who are also in a position to influence the selection of medical devices by the hospitals where they are on staff, for example, may raise issues under federal fraud and abuse laws. According to the AMA article, the Senators have written letters to both the Centers for Medicare and Medicaid Services and the Department of Health and Human Services asking for the agencies to review the propriety of POD arrangements under the Federal anti-kickback statute.

PODs are only one of the many "investment opportunities" currently available to physicians.  Because of their unique ability to direct patients and influence the use of medical products, physicians are often highly sought after as investors in both legitimate and questionable medically-related ventures.  While many physician investment opportunities are legitimate and can be properly structured within federal and state fraud and abuse laws, physicians should be wary of investment opportunities which allow them to profit from their own referrals or their ability to influence product or service selection. Arrangements which create financial relationships between physicians and the entities to which they refer or from which they receive referrals may implicate the federal Stark statute, the federal anti-kickback statute and a number of other serious federal and state laws. Accordingly, before committing to healthcare investment, physicians should carefully review the proposed arrangements and seek legal guidance to ensure that they do not run afoul of these complex laws.

Kathleen Sebelius, Secretary of the Department of Human Services, recently announced during a press conference that HHS will as of July 1, 2011 be rolling out a $77 million computer program designed to prospectively identify potentially fraudulent Medicare claims by collecting and analyzing patterns in large numbers of submitted claims. According to a recent article in the Philadelphia Inquirer, the technology to be used by HHS is known as “predictive-modeling” software and is similar to technology used by banking and telecommunications companies in the private sector to identify fraud. The price tag for the new system will be paid through funding under The Patient Protection and Affordable Care Act of 2010. In the same press conference, Attorney General Eric Holder announced that in the last two years alone, the Federal Government has collected nearly $8 billion in judgments, settlements, fines, restitution and forfeitures related to healthcare fraud and improper Medicare payments.

It is apparent that the federal government is in fact putting its money where its mouth is when it comes to fraud and abuse enforcement. Physicians and other healthcare providers who have put their internal compliance efforts on the backburner in the last several years are well advised to redouble their compliance efforts – particularly with regard to periodic coding, documentation and claims review – to identify patterns and deficiencies which may raise red flags for the government and other third party payer programs. Auditing should be targeted, focusing on problem or high risk areas specific to practice specialty or service area. In addition, to be effective, auditing should be conducted at least annually and should be done under the supervision of legal counsel to preserve attorney client privilege of audit results. An experienced health care attorney can also help providers design audits and counsel on how to rectify identified deficiencies. Of course, deficiencies should be corrected (which may include refunding monies to Medicare or the third party payer programs) and providers and billing personnel should be appropriately educated based on audit findings. For more information on designing an effective compliance program, providers can visit the OIG’s website.