Overpayment Rule Sets 6 Year Lookback

Nearly 6 years after the passage of the Affordable Care Act, CMS published the final 60 day rule for Medicare Parts A and B overpayments. The rule requires a person who has received an overpayment to report and return the overpayment to HHS, the State, an intermediary, a carrier or a contractor within 60 days after the date the overpayment was identified or the due date of any corresponding cost report, as applicable. The final rule is codified at 42 CFR 401.301 – 305; 401.607. Failure to properly identify and return overpayments may lead to liability under the False Claims Act.

The Final Rule sets a 6 year lookback period and clarifies what it means to identify an Overpayment. Prior to publication of the Final Rule, CMS previously published final rules for Medicare Parts C and D. As we previously reported, the New York District Court considered the “identification issue” in Kane v. Healthfirst, Inc. Unlike the Final Rule, the Court in Kane did not allow for quantification of an overpayment prior to commencement of the 60 day clock.

A. Ten Year Lookback Burden ‘Reduced’ to Six Years.

As we described in a February 2012, blog post, CMS initially proposed a ten year lookback period. The final rule eases this burden and requires that an overpayment be reported and returned within six years of receipt of the overpayment. In CMS’s view, “[c]reating this limitation for how far back a provider or supplier must look when identifying an overpayment is necessary in order to avoid imposing unreasonable additional burden or cost on providers and suppliers. Yes, 6 years is better than 10, but CMS declined to adopt a 4 year lookback as contained in the current reopening rules at 42 CFR 405.980. In reaching the 6 year rule, it appears that CMS contemplated burden, statutes of limitation in enforcement statutes, and state law record retention rules that require providers to retain records for 6 or 7 years.

B. Clarification of Meaning of ‘Identification’ of An Overpayment.

When does the 60 day clock start? The ACA provides that an overpayment must be reported and returned by the later of (i) the date which is 60 days after the date on which the overpayment was identified; or (ii) the date any corresponding cost report is due, if applicable. The Final Rule clarifies that “a person has identified an overpayment when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment.” 81 Fed. Reg. 7654. Conversely, the Final Rule provides that “a person should have determined that the person received an overpayment and quantified the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.” 81 Fed. Reg. 7661, 7683. Moreover, it identifies specific examples of where an overpayment may be identified. 81 Fed. Reg. 7659.

1. Reasonable Diligence in Quantifying an Overpayment – The commentary to the Final Rule provides guidance on what constitutes reasonable diligence. In terms of quantifying an overpayment, reasonable diligence is demonstrated “through the timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.” Extraordinary circumstances are fact specific but may include unusually complex matters. Reasonable diligence in the Final Rule replaced the concept of “all deliberate speed” in the proposed rule.

2. Reasonable Diligence Through Compliance Activities – Under the Final Rule, reasonable diligence includes both proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments and investigations conducted in good faith in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment. The Final Rule admonishes the provider and supplier community to engage in meaningful compliance activities:

We believe that undertaking no or minimal compliance activities to monitor the accuracy and appropriateness of a provider or supplier’s Medicare claims would expose a provider or supplier to liability under the identified standard articulated in this rule based on the failure to exercise reasonable diligence if the provider or supplier received an overpayment.

81 Fed. Reg. 7661.

C. Reporting.

A person will satisfy the reporting obligations by making a disclosure under the OIG’s Self-Disclosure Protocol or the CMS Voluntary Self-Referral Disclosure Protocol. Otherwise, providers are required to use “an applicable claims adjustment, credit balance, self-reported refund, or other reporting process set forth by the Medicare contractor to report an overpayment.” Those SRDPs submitted prior to the effective date of the Final Rule will still be governed by the 4-year lookback period. Going forward the 6-year look back period will apply, though CMS still needs to modify this period with the OMB with regard to the financial analysis they are allowed to collect under the Paperwork Reduction Act. Therefore, at this point providers may voluntarily provide information for the 5th and 6th year. 81 Fed. Reg. 7673.

D. Conclusion.

In light of the Final Rule, providers should evaluate their compliance and auditing activities and evaluate the extent to which they could demonstrate “reasonable diligence.” In general, providers should work diligently to quantify and report overpayments by no later than 8 months (6 months to quantify, 2 months to report).

Adam Snyder is Chair of the Ogden Murphy Wallace Business Department and is a Part-time/Adjunct Faculty member of the University of Washington School of Law. For additional information regarding the Medicare 60 Day Overpayment Rule, Corporate Compliance, or internal investigations, please contact Adam Snyder.

WHOA ME! TUOMEY!

For the second time in the past three years, Tuomey Healthcare System found its fate in the hands of the 4th Circuit Court of Appeals as a Qui Tam Defendant under the False Claims Act (“FCA”). Only this time it did not fare quite as well in what amounts to a crushing defeat. Back in 2012, pending retrial on allegations that Tuomey violated the FCA, the 4th Circuit Court of Appeals vacated a $45 million judgment stemming from violations of the Stark Law, see prior article here.  Now, on July 2, 2015, the 4th Circuit affirmed the district court’s decision on retrial that Tuomey submitted 21,730 False Claims based on Stark Law violations and was thereby liable for $237,454,195 in damages and penalties. The 4th Circuit rejected Tuomey’s arguments that no reasonable jury could have concluded that Tuomey violated Stark or intended to submit False Claims and that it was entitled to a new trial based upon various assignments of error related to jury instructions and damages issues related to measurement and constitutional matters.

The result is stunning, and should give pause to health lawyers, consultants and healthcare executives who find themselves walking the tightrope between sound business judgment and the complicated maze of the Stark Law and other complex healthcare rules. Indeed, in his concurring opinion, Judge Wynn expressed distaste for the outcome:

But I write separately to emphasize the troubling picture this case paints: An impenetrably complex set of laws and regulations that will result in a likely death sentence for a community hospital in an already medically under-served area…..Health care providers are open to extensive liability, their financial security resting uneasily upon a combination of their attorneys’ wits [and] prosecutorial discretion.” [citations omitted]. Despite attempts to establish “bright line” rules,…the Stark law has proved challenging to understand and comply with.

This case is troubling. It seems as if, even for well-intentioned health care providers, the Stark Law has become a booby trap rigged with strict liability and potentially ruinous exposure – especially when coupled with the FCA.

Judge Wynn’s words were not lost on the majority:

Finally, we do not discount the concerns raised by our concurring colleague regarding the result in this case. But having found no cause to upset the jury’s verdict in this case and no constitutional error, it is for Congress to consider whether changes to the Stark Law’s reach are in order.

Short of congressional action, CMS recently announced Stark-related proposals [http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-07-08.html] that could ease the burden of the law. Tuomey will need to find its relief elsewhere.

Stark Generally.

A physician may not make a referral to an entity for the furnishing of designated healthcare services (“DHS”) if the physician has a financial relationship with the entity, unless an exception applies. DHS include inpatient and outpatient hospital services. A referral does not include any DHS personally performed or provided by the referring physician. There is a referral, however, when the hospital bills a facility fee in connection with personally performed services. A financial relationship may exist through ownership or a compensation arrangement.

Tuomey’s Reaction to Business Challenges.

Tuomey is a nonprofit community hospital in Sumter, South Carolina, a mostly rural, medically underserved area. In the early 2000s, like so many other community hospitals, Tuomey faced the challenge of dropping outpatient volumes due to physicians performing procedures in their own offices or in ambulatory surgery centers. Tuomey’s future looked bleak and tens of millions in lost revenue was predicted. Tuomey developed a strategy to enter into part-time employment agreements with several previously-independent physicians on its medical staff. The arrangements were problematic for several reasons, without considering their current $237 Million price tag:

 

  • Compensation that varied year to year based on collections;
  • A requirement that Physicians perform outpatient procedures at Tuomey facilities;
  • Productivity bonuses of eighty percent of collections and an additional incentive bonus up to 7 percent of the productivity bonus;
  • Physicians were paid more than their collections, despite fair market value opinions from valuation experts;
  • Tuomey provided malpractice coverage, and performed the billing;
  • Ten year terms with 2 year back-end non-competes;
  • Physician who refused the arrangement and raised specific Stark issues (e.g. the Qui Tam Plaintiff in this case, Dr. Drakeford); and
  • Competing expert legal opinions from top health lawyers who were kept in the dark from one another and rejection and lack of diligence regarding negative opinions from counsel

 

Following two trials and two appeals, the 4th Circuit affirmed the $237 Million jury verdict and concluded that the trial court correctly granted a motion for a new trial, and rejected Tuomey’s various claims of error. As discussed below, the Court considered and commented on several important Stark and FCA issues.

Significant Aspects of 4th Circuit’s Opinion

 

Testimony of Kevin McAnaney:

 

Following the first Tuomey trial in 2010, the jury found that Tuomey had violated the Stark Law, but not the FCA. The trial court granted a post-trial motion based on what it viewed as its substantial error in excluding the testimony of Tuomey’s Senior Vice President and Chief Operating Officer, Gregg Martin. The 4th Circuit agreed that a new trial was proper, but reached that decision on slightly different grounds – the trial court’s exclusion of Kevin McAnaney’s testimony. Mr. McAnaney, a lawyer in private practice, was retained by Dr. Drakeford and Tuomey to advise of the Stark Law risks. Mr. McAnaney previously wrote a substantial portion of the Stark Law regulations in his role as Chief of the Industry Guidance Branch of DHHS Office of General Counsel to the Inspector General. The Court and the jury, apparently, found the McAnaney testimony to be particularly probative of the knowledge element of the FCA. McAnaney advised that the Tuomey employment agreements raised significant “red flags” under the Stark Law, such as compensating physicians in excess of their collections, thus making the arrangement “an easy case to prosecute.”

 

On McAnaney’s testimony, the 4th Circuit observed and concluded the following:

 

In the first trial, the jury did not hear from McAnaney and found for Tuomey on the FCA claim. When the case was retried, McAnaney was allowed to testify and the jury found for the government. Coincidence? We think not.

Indeed, it is difficult to imagine any more probative and compelling evidence regarding Tuomey’s intent than the testimony of a lawyer hired by Tuomey, who was an undisputed subject matter expert on the intricacies of the Stark Law, and who warned Tuomey in graphic detail of the thin legal ice on which it was treading[.]

Jury Reasonably Found Stark Violations:

 

It is unremarkable in a general sense that the 4th Circuit refused to set aside a jury verdict and find that no reasonable jury could have concluded that Tuomey violated Stark. Tuomey argued, unsuccessfully, that the only question that should have gone to the jury was whether the contracts, on their face, took into account the value or volume of anticipated referrals. The Court concluded that two components of the physicians’ compensation varied with the volume or value of referrals. The physicians were paid a base salary that was adjusted upward or downward in the subsequent year depending on collections from the prior year. The physicians were also paid a productivity bonus that was set at eighty percent of their collections. The Court concluded that it was “plain that a reasonable jury could find that the physicians’ compensation varied with the volume or value of actual referrals.” The Court also recalled its earlier opinion where it noted that the tainted referrals were the “facility component of the physicians’ personally performed services, and the resulting facility fee billed by Tuomey based upon that component.”

False Claims Act

 

The Court rejected Tuomey’s claim that no reasonable jury could have found a violation of the FCA because it acted on the advice of counsel. The court again pointed to the testimony of attorney McAnaney and amplified the District Court’s conclusion that a “reasonable jury could have found that Tuomey possessed the requisite scienter once it determined to disregard McAnaney’s remarks.” Tuomey’s ‘advice of counsel’ defense ultimately failed because it was unable to show that there had been a full disclosure of all pertinent facts to and among legal counsel, and a lack of good faith reliance on just the favorable legal advice. The Court was not persuaded by Tuomey’s claims that it had, following Mr. McAnaney’s negative view, retained top national health lawyers from reputable firms to complete the transaction.

Tuomey Unsuccessfully Challenges Jury Instructions and Damages Award

 

The Court rejected Tuomey’s various claims of error related to jury instructions. Tuomey argued that the trial court failed to limit the jury’s inquiry to whether or not the contracts, on their face, took into account value or volume of anticipated referrals. The Court emphasized that the jury could consider the parties’ intent to determine if an arrangement took into account volume or value of referrals, but intent alone would not be enough to create a violation.

 

Tuomey argued that the jury should have been separately instructed on the knowledge element in the indirect compensation arrangement definition under Stark and in the FCA. The court found that any such error here was harmless since the jury’s conclusion that Tuomey possessed the requisite scienter under the FCA and also possessed knowledge that the Physicians’ aggregate compensation varied with referrals, a necessary element of the definition of an indirect compensation arrangement under Stark. 42 U.S.C. § 411.354 (c)(2)(iii).

 

Tuomey claimed that the trial court erred by failing to instruct the jury that disputed legal questions are not false claims under the FCA. As with all providers who bill Medicare, Tuomey was required to certify its compliance with laws, to include the Stark Law. Because the jury found that Tuomey violated the Stark Law, the certification of compliance was false, and therefore all tainted claims were false. This seems like fertile ground for further appellate challenge.

 

The Court rejected Tuomey’s challenge to the trial court’s failure to give an instruction that Tuomey was entitled to rely on legal advice even if it turned out to be wrong. The Court found that other jury instructions regarding knowledge under the FCA already were sufficient to cover Tuomey’s concern in this regard.

 

Finally, the Court rejected various challenges by Tuomey regarding the whopping $237,454,195 judgment. It argued that the trial court improperly calculated the penalty, that it incorrectly measured damages, and that the award violated the 5th and 8th Constitutional Amendments. The Court rejected all of Tuomey’s arguments, and found that the jury was properly instructed to consider all tainted hospital claims – both inpatient and outpatient, to determine prohibited referrals. The Court further concluded that the Government was allowed to rely on summary evidence of referrals, perhaps due in part to the fact that Tuomey did not offer its own expert as to damages calculations. The court rejected Tuomey’s challenge that the Government was not damaged, and rejected Tuomey’s claims that the award was unconstitutional under the Due Process Clcause of the 5th Amendment and the Excessive Fines Clause of the 8th Amendment.

 

The Court rejected Tuomey’s argument that if it submitted false claims that the only false claims were its annual cost report submissions and not the 21,730 UB-92/04 forms that it submitted. The Court concluded that Tuomey violated the FCA each time it submitted a claim for reimbursement because it was knowingly asking the government to pay an amount that, by law, it could not pay. Again, look for this issue to be prominently featured in a future appellate review of this case.

 

Takeaways from Tuomey

While Tuomey presents staggering results, it does represent a somewhat unusual set of facts. While it provides a strong reminder that hospitals should critically view their arrangements with referring physicians, it does not preclude the development of sound business and legal strategies within a complicated regulatory legal framework. The following are among the valuable lessons learned from Tuomey:

 

  • Courts and juries may look beyond the four corners of an agreement to determine if an arrangement takes account of volume or value;
  • Courts and juries may look beyond supporting items such as self-serving appraisals to find legal violations; Lawyers and their clients are best-advised to validate the assumptions supporting such appraisals;
  • There is a reason that nearly every FCA matter settles and that is due to the shear potential downside, as evidenced by this case;
  • Review arrangements with physicians and consider them and their fair market value support in the context of the history and intent that lead to the arrangements, to determine if they would pass Tuomey-like scrutiny;
  • Take care when bringing in the next lawyer to rule out a prior negative legal opinion or to break the tie between two competing legal opinions – who is the client? Where is the attorney-client privilege? How will all lawyers’ opinions be considered by the lawyers and the client?

 

Adam Snyder is Chair of the Ogden Murphy Wallace Business Department and is a Part-time/Adjunct Faculty member of the University of Washington School of Law. For additional information regarding Tuomey, Stark, or the False Claims Act, please contact Adam Snyder or Greg Montgomery.

 

1st Circuit Court of Appeals Upholds Tax Refund In False Claims Act Case

The United States Court of Appeals for the First Circuit upheld the district court’s decision allowing Fresenius Medical Care Holdings, Inc. (f/k/a National Medical Care, Inc.) to deduct $95 Million from a $385 Million dollar civil settlement under the False Claims Act (“FCA”).  Accordingly, the First Circuit affirmed the district court’s tax refund judgment in favor of Fresenius in the amount of $50,420,512 (Fresenius Medical Care Holdings, Inc. v. United States, August 13, 2014, Case No. 13-2144).

The First Circuit held that, in determining the tax treatment of a FCA civil settlement, the court may consider factors beyond the presence or absence of a tax characterization agreement.  In reaching its decision, the Court applied generally accepted principles of tax law to depart from earlier contrary authority in Talley Industries Inc. v. Commissioner, 116 F.3d 392 (9th Cir. 1997).

Because Fresenius and the government did not agree on the tax characterization of the FCA civil settlement, the critical consideration in determining deductibility was the extent to which the disputed settlement payment was compensatory as opposed to punitive.  The Court acknowledged that no deduction may be made for fines or penalties paid to the government for legal violations, whereas compensatory damages paid to the government, which are deductible, do not constitute a fine or penalty.  26 U.S.C. §162(f).

The First Circuit rejected the government’s argument and interpretation of Talley, in part, based on the notion that substance prevails over form in tax characterizations of transactions between private parties, and that amounts paid or received in settlement should receive the same tax treatment, to the extent practicable, as would have applied had the dispute been litigated to judgment.

Judge Selya, who is known for using uncommon words and phrases to draw an intersection between jurisprudence and interesting prose, authored the Fresenius opinion for the First Circuit and he did not disappoint.  The opinion, makes use of several intriguing words and phrases, such as:  gallimaufry, explicated, ordained, asseverates, asseveration, talismanic, ferocity, expedient, indistinct beacon, inters, the graveyard of forgotten canons, perforce, infelicitous asymmetry, judicial fiat, paint the lily, remonstrance, calumnizes, patina of plausibility, pari passu, and praxis.

For additional information regarding the False Claims Act, please contact Adam Snyder.

 

 

2014 OIG Work Plan Contains New Priorities Specific to Hospitals

The Department of Health and Human Services, Office of the Inspector General (OIG) recently released its Fiscal Year (FY) 2014 Work Plan.  The Plan contains new priorities specific to Hospitals in areas related to Policies and Practices, Billing and Payments, and Quality of Care and Safety.  For a complete copy of the OIG 2014 Work Plan, please click here.

The OIG Work Plan provides a description of what the OIG will be focusing on in the coming year, giving providers insight into identifying corporate compliance risk areas and providing focus for ongoing efforts relating to compliance program activities, audits, and policy development.  Some of the hospital-specific priority areas identified as ‘New’ include the following:

A.      Policies and Practices

  1.  2 Midnight Rule: As of FY 2014, physicians should admit inpatients where they expect the patient’s care to last at least 2 nights in the hospital.  This modification is due to the OIG’s previous findings of over payments for inpatient stays, inappropriate billings and inconsistent billing practices.  OIG plans to review the impact of this new admission criteria and how billing varies among hospitals.
  2. Defective Medical Devices: OIG will review the increased costs to Medicare resulting from additional services necessitated by the use of defective medical devices.
  3. Comparison of Provider-Based and Free-Standing Clinics:  OIG will compare the payments made in provider-based settings and free-standing clinics with respect to similar procedures to determine the potential impact to the Medicare program for hospitals claiming provider-based status, and presumably, whether providers claiming provider-based status meet the criteria in 42 CFR § 413.65(d).

B.      Billing and Payments

  1.  Outpatient Evaluation and Management Services:  OIG will review payments made for outpatient E/M services to determine if they were appropriately billed as “new” or “established.”  Patients are generally considered “new” unless they were seen as a registered inpatient or outpatient within the past 3 years.
  2. Cardiac Catheterization and Heart Biopsies:  Billings for right heart catheterizations will be reviewed to determine if they were appropriately billed separate and apart from billings for heart biopsies.
  3. Payments for Patients Diagnosed with Kwashiorkor:  Due to the high level of reimbursement, billings for Kwashiorkor will be reviewed to determine whether diagnoses are supported by the medical record.
  4. Bone Marrow or Stem Cell Transplants: OIG will review procedure and diagnosis codes to determine the appropriateness of bone marrow and stem cell transplantation.

C.      Quality of Care and Safety

  1. Pharmaceutical Compounding:  In light of a recent meningitis outbreak resulting from contaminated injections of compounded drugs, OIG will review the oversight and accreditation assessment of pharmaceutical compounding in Medicare-participating acute care hospitals.
  2. Review of Hospital Privileging:  OIG will review how hospitals consider medical staff candidates prior to granting initial privileges, verification of credentials, and review of the National Practitioner Databank.

For additional information regarding the 2014 OIG Workplan or hospital/corporate compliance please contact Adam Snyder.

 

 

New Law Would Limit Liability for Innocent Billing Errors

The Fairness in Health Care Claims, Guidance and Investigations Act, H.R. 2931  would amend the False Claims Act (“FCA”) by requiring that regulators satisfy procedural steps before embarking on costly fraud investigations.  The Bipartisan legislation, introduced by Representatives Howard Coble (R), North Carolina and David Scott (D), Georgia, would raise the burden of proof under the FCA, would except matters that do not exceed a ‘de minimus’ threshold, and would establish safe harbors for reliance on regulator guidance and implementation of model compliance programs.

The American Hospital Association issued a letter in support of the proposed legislation as well as a memo describing the legislation.

For more information regarding the False Claims Act or Government Investigations, please contact Adam Snyder at 206.447.7000.

Tacoma Physician Group Pays $14.5 Million To Settle Medicare Over-Billing Allegations

Sound Physicians, a Tacoma-based, national physician group that employs more than 700 hospitalists, paid $14.5 million to settle claims that it over-billed Medicare.  Former Sound Physicians’ employee Craig Thomas filed a whistleblower lawsuit under the qui tam provisions of the False Claims Act.  The lawsuit alleges that the company knowingly submitted inflated claims where documentation did not support the level of service billed.  Qui tam relators are generally entitled to 15 – 30 percent of the government’s recovery; Thomas will receive $2.7 million, or approximately 18.6%, of the $14.5 million settlement.  The settlement represents one of several recent settlements between the government and health care providers under the False Claims Act.

To read the Department of Justice press release click here.

To read qui tam Relator Craig Thomas’ statement click here.

For more information about government investigations, Medicare compliance, or the False Claims Act, please contact Adam Snyder.

OIG ISSUES SPECIAL FRAUD ALERT ON PHYSICIAN-OWNED DISTRIBUTORSHIPS

On March 26, 2013, the Office of Inspector General (“OIG”) issued a Special Fraud Alert regarding physician-owned entities or distributorships (referred to as “PODs”) that generate revenue from the use of implantable medical devices ordered by their physician-owners for use in procedures performed by such physician-owners at hospitals or ambulatory surgery centers (“ASCs”).

While the Special Fraud Alert focuses on certain characteristics of PODs that create substantial risk of fraud and abuse and potential danger to patient safety, the OIG cited other prior pronouncements and guidance it issued over the past twenty-four years regarding its long-standing concern over physician investments in entities to which they refer.  Prior OIG guidance cited included the 1989 Special Fraud Alert on joint Venture Arrangements, published in 1994  and a letter dated October 6, 2006, regarding physician investments in the medical device industry.

It is clear that the OIG believes that significant risk of patient or program abuse, including but not limited to potential violations of the Federal Anti-Kickback statute, may flow from arrangements between and among physicians, device manufacturers and other device vendors.  The Anti-Kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, referrals of items or services reimbursable by a Federal health care program.

In its current Special Fraud Alert regarding physician-owned entities, the OIG recounted its view of certain questionable features regarding selection and retention of investors, solicitation of capital contributions, and distribution of profits, all of which potentially raise four general concerns typically associated with kickback arrangements:

1.  Corruption of medical judgment;

2.  Over-utilization;

3.  Increased costs to the Federal health care programs and beneficiaries; and

4.  Unfair competition.

The OIG is particularly concerned in this arena because the physician may play a significant role in the selection of the type of device and which manufacturer to use.  The OIG cautions that disclosure of financial interest may not be sufficient to cure what would otherwise amount to fraud and abuse, and identifies the following specific characteristics of arrangements that would cause concern:

— The size of the investment offered varies with anticipated volume or value of devices used by the physician.

— Distributions are made on the basis of volume as opposed to ownership interest.

— Conditioning referrals based on the use of certain devices on entities to which physicians refer.

— Arrangements that incentivize a physician’s use of certain devices or penalizes the physician for the failure to use certain devices.

— PODs ability to buyout physicians interests on favorable terms based on physician’s failure to meet certain volume requirements.

— The POD is a shell entity that is not truly engaged in the business, or provides no oversight related to distribution functions.

— Physicians fail to identify conflicts of interest through their involvement with PODs related to Hospital or ASC conflict of interest processes.

This Special Fraud Alert reiterates the OIG’s longstanding position that a physician’s ability to profit from referrals may lead to violations of the Federal Anti-Kickback statute.  Finally, the OIG reminds concerned parties that the OIG Advisory Opinion process is available.   For more information about physician-owned entities, the applicability of the Anti-Kickback statute, and the OIG Advisory Opinion process, please contact Adam Snyder or Don Black at (206) 447-7000.

CMS APPROVES 106 NEW ACCOUNTABLE CARE ORGANIZATIONS

On January 10, 2013, the Centers for Medicare & Medicaid Services (“CMS”) announced that it selected 106 new Accountable Care Organizations (“ACO’s”) to participate in the Medicare Shared Savings Program.

CMS Acting Principal Deputy Administrator Jonathan Blum blogged about the aim of ACO’s and described them as having the potential to improve the US health system:  

“In other words, great health care requires a team that will work together at every stage of your care, which can lead to better health at lower cost.  That’s the aim of the ACOs.  Affordable Care Act reforms such as ACOs have helped to set Medicare on a more sustainable path today and into the future, as well as serve as a model for what improvements are possible for our nation’s health care system.”

Northwest organizations were included on the complete list of 106 new ACO’s, including the Billings Clinic in Montana, Franciscan Northwest Physicians Health Network, LLC in Washington, and St. Luke’s Clinic Coordinated Care, Ltd. serving Idaho and Oregon. 

CMS plans to issue dates for the January 2014 application cycle sometime during the spring, 2013.  For more information about ACO’s and ACO development, please contact Adam Snyder at (206) 442-1317.

NCQA Awards First ACO Accreditations

The National Committee for Quality Assurance (“NCQA”) awarded its first Accountable Care Organization (“ACO”) accreditations in December, 2012.  Established as a voluntary accreditation program in 2011, the NCQA awarded accreditations to the following organizations:  Billings Clinic, Crystal Run Healthcare, HealthPartners and Kelsey-Seybold Clinic.   The NCQA website contains detailed information regarding ACO Accreditation.

In general, NCQA Accreditation includes evaluation of seven categories:

  • ACO Structure and Operations
  • Access to Needed Providers
  • Patient-Centered Primary Care
  • Care Management
  • Care Coordination and Transitions
  • Patient Rights and Responsibilities
  • Performance Reporting and Quality Improvement

In contrast to those organizations that raced to the ACO accreditation finish line, overall ACO readiness has been elusive for hospital/health system ACOs.  The Commonwealth Fund published a report from the Premier Research Institute (Premier) in December, 2012, finding a generally low level of readiness across 59 hospital organizations who were members of the Premier Partnership for Care Transformation (PACT) Readiness Collaborative.

To assess readiness, Premier assessed ACOs progress by evaluation of six core components:  a patient-centered foundation, primary care medical home, a high-value network, payer partnership, population health data management, and ACO leadership.  Although the hospital organizations were part of PACT for the purpose of easing the transition to accountable care, the report finds that no organization achieved full implementation of the six core components and several failed to undertake a single activity relative to the core components.

For more information contact Adam Snyder at 206.442.1317 or asnyder@omwlaw.com

OIG Opines Favorably on Hospital Emergency Department Call Coverage Arrangement

On October 23, 2012, the Office of Inspector General (“OIG”) issued a favorable response to a hospital’s request regarding its payment of per diem fees to various physician specialties in exchange for emergency department call coverage and related services.  Based on the facts as certified by the hospital-requestor, the OIG concluded that, although the arrangement could violate the federal anti-kickback statute if the parties intended the arrangement to induce or reward referrals of federal health care program business, it would not impose administrative sanctions.  While only the requestor may rely on this advisory opinion, it represents the third time the OIG issued a favorable Advisory Opinion regarding hospital pay for call arrangements.  The OIG similarly reached favorable conclusions in Advisory Opinion No. 07-10 and Advisory Opinion No. 09-05.

In the Opinion, the requestor is a tax-exempt hospital that operates a full time emergency department.  Under the arrangement, the hospital pays per diem fees to physicians to provide call coverage.  The physicians on call are required to be available and respond to calls from the ED within 30 minutes and must provide follow up care, regardless of a patient’s ability to pay.  The Hospital certified to the OIG that 19% of its patients seen in its ED receive uncompensated care, that it offers the arrangement to all specialists on its medical staff who are required to participate in call coverage, that it sets an annual allocation per specialty based on various “burden” factors, that it experienced shortages in the availability of physicians to take call, and that it monitors ongoing performance under the program.  Based on an independent consultant’s review of the per diem rates, the requestor certified to the OIG that the rates are consistent with fair market value and do not take into account the volume or value of referrals or other business generated between the parties.

The OIG concluded that the arrangement fails to qualify for the safe harbor under the federal anti-kickback statute for personal services and management contracts because aggregate compensation is not set in advance (See Safe Harbor, 42 C.F.R. 1001.952(d))    In addition, the arrangement failed to precisely specify a schedule of part-time service intervals.  Because the arrangement does not fit squarely within the safe harbor, the OIG analyzed the totality of the facts and circumstances to determine if the arrangement presents minimal fraud and abuse risk.

Just as it did in the previous Advisory Opinions, the OIG applied the following general “rule of thumb”:

“The general rule of thumb is that any remuneration flowing between hospitals and physicians should be at fair market value for actual and necessary items furnished or services rendered based upon an arm’s-length transaction and should not take into account, directly or indirectly, the value or volume of any past or future referrals or other business generated between the parties.”  70 Fed. Reg. 4858, 4866 (Jan. 31, 2005).

While the OIG generally recognized that hospitals may properly structure pay for call arrangements within the general “rule of thumb,” it also generally identified the same problematic compensation structures that it listed in previous opinions:  (1)  Arbitrary “lost income” compensation, (2) payment for no identifiable service, (3) aggregate on call payments disproprotionately high compared to regular practice income, and (4) payment for services for which the physician already receives separate reimbursement from payors or patients.

The OIG concluded that, overall, the arrangement presents a low risk of fraud and abuse for the following reasons:

  1. The requestor certified that, based on an independent valuation, the per diem rates are fair market value and the hospital meaningfully contemplated call burden to set rates;
  2. Uniform administration of per diem payments without regard to referrals or volume of business generated;
  3. Physicians required to provide actual and necessary services for which they are not otherwise compensated;
  4. The arrangement is offered on a consistent basis to all specialists who are required to take call; and
  5. Costs are not passed on to federal health programs.

The OIG was ultimately convinced that this arrangement contains sufficient safeguards to reduce the risk that the per diem fees are intended to generate referrals of Federal health care business.

For more information about ED call coverage or the Anti-Kickback and Stark rules in general please contact Adam Snyder.