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May 31, 2010

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The Conundrum of The Conundrum of Contracts:Contracts:

A Panel Discussion ofA Panel Discussion ofPhysician Ownership andPhysician Ownership and

The LawThe Law

Panelists

Julie Kass, Esq., OberOber|Kaler|Kaler

Kevin Barry, Esq., Office of Inspector General

David Benjamin, MD, YU Committee Member

Facilitator

Lori Lerner, MD, YU Committee Chair

Topics for TodayTopics for Today

• Basics of Stark StatuteBasics of Stark Statute

• Basics of Anti-Kickback StatuteBasics of Anti-Kickback Statute

• Discussion of ScenariosDiscussion of Scenarios

• Questions and AnswersQuestions and Answers

Stark Self Referral Stark Self Referral ProhibitionProhibition

• Physician may not refer:Physician may not refer:– Medicare or Medicaid patientsMedicare or Medicaid patients– For “designated health services”For “designated health services”– To an entity with which the physician To an entity with which the physician oror– an immediate family member hasan immediate family member has– a “financial relationship”a “financial relationship”

• Different exceptions apply to protect Different exceptions apply to protect certain compensation arrangements certain compensation arrangements and ownership interestsand ownership interests

Stark Self-Referral Stark Self-Referral ProhibitionProhibition

• Potential Sanctions Include:Potential Sanctions Include:– Denial of PaymentDenial of Payment– Refund of Amounts Collected as a Result Refund of Amounts Collected as a Result

of Improper billingof Improper billing– Civil Money Penalties of $15,000 per Item Civil Money Penalties of $15,000 per Item

or Service Plus 3X the Amount Claimed or Service Plus 3X the Amount Claimed – Civil Money Penalties of $100,000 for Civil Money Penalties of $100,000 for

“Circumvention Schemes”“Circumvention Schemes”– False Claims Act LiabilityFalse Claims Act Liability– ExclusionExclusion

• ““Designated health services”Designated health services”- Physical Therapy- Physical Therapy - Clinical laboratory - Clinical laboratory

- Occupational Therapy - Occupational Therapy - DME- DME

- PEN - PEN - O&P- O&P

- Prosthetics - Prosthetics - Home Health- Home Health

- Outpatient drugs - Outpatient drugs - Hospital - Hospital servicesservices

- Radiology - Radiology - Radiation Oncology- Radiation Oncology

Stark Self Referral ProhibitionStark Self Referral Prohibition

Stark Self-Referral Stark Self-Referral ProhibitionProhibition

• Two important amendments Two important amendments to Stark regulations became to Stark regulations became effective October 1, 2009effective October 1, 2009– Revised definition of “entity”Revised definition of “entity”– Percentage-based and per service Percentage-based and per service

compensation prohibited for space compensation prohibited for space and equipment leasesand equipment leases

Basic Prohibition On Physician Basic Prohibition On Physician Ownership Of DHS Entities Ownership Of DHS Entities

Physician-owned DHS Provider; services NOT provided in the office of the physician practice Service Provider

bills Medicare for DHS

Referral for DHS

An ownership exception is required to protect physicians’ referrals to a DHS Provider and to permit the DHS Provider to bill Medicare. Unless the DHS Provider is a rural provider, it is unlikely that an ownership exception exists.

Revised Definition of Revised Definition of “Entity”“Entity”

• Prior to October 1, 2009, a person or entity is considered Prior to October 1, 2009, a person or entity is considered to be furnishing DHS if it is the person/entity to which CMS to be furnishing DHS if it is the person/entity to which CMS makes paymentmakes payment

• New rule – Both parties to an arrangement may be New rule – Both parties to an arrangement may be considered an “entity” if one party performs the DHS and considered an “entity” if one party performs the DHS and the other party bills for the DHSthe other party bills for the DHS– No regulatory definition of “performs the service”No regulatory definition of “performs the service”– However, CMS Guidance suggests an entity does However, CMS Guidance suggests an entity does notnot

“perform” DHS if it only:“perform” DHS if it only:• Leases or sells space/equipmentLeases or sells space/equipment• Furnishes suppliesFurnishes supplies• Provides management or billing services; orProvides management or billing services; or• Provides personnelProvides personnel

Revised Definition of Revised Definition of “Entity”“Entity”

• Impact of New Rule – As of Impact of New Rule – As of October 1, 2009, the physician October 1, 2009, the physician owner of an entity furnishing DHS owner of an entity furnishing DHS “under arrangements” may not “under arrangements” may not have an ownership interest in a have an ownership interest in a DHS entity that does not meet an DHS entity that does not meet an exceptionexception

Percentage-based and Per Percentage-based and Per Service Compensation Service Compensation

FormulaeFormulae

• Effective October 1, 2009, percentage-Effective October 1, 2009, percentage-based and per service compensation is based and per service compensation is prohibited for space and equipment prohibited for space and equipment rentals when referral is by physician-rentals when referral is by physician-owner of the leasing companyowner of the leasing company

Federal Anti-Kickback Federal Anti-Kickback StatuteStatute

• Anti-Kickback Statute prohibitsAnti-Kickback Statute prohibits– Knowingly and willfullyKnowingly and willfully– Directly or indirectly offering, paying, soliciting, or Directly or indirectly offering, paying, soliciting, or

receiving receiving– RemunerationRemuneration– In order to induce or reward the referral of patients or In order to induce or reward the referral of patients or

the purchase of items or services payable by federal the purchase of items or services payable by federal health care benefit programshealth care benefit programs

Violation of the Kickback Statute is a Violation of the Kickback Statute is a FelonyFelony– Criminal fines up to $25K; prison up to 5 yearsCriminal fines up to $25K; prison up to 5 years– Civil Money Penalty exposure, fines, exclusionCivil Money Penalty exposure, fines, exclusion– CMP $50,000 per violation and treble remunerationCMP $50,000 per violation and treble remuneration

Federal Anti-Kickback Federal Anti-Kickback StatuteStatute

• OIG HAS CONCERNS THAT OIG HAS CONCERNS THAT KICKBACKS CAN LEAD TO:KICKBACKS CAN LEAD TO:– OverutilizationOverutilization– Increased Program CostsIncreased Program Costs– Corruption of Medical Decision Corruption of Medical Decision

makingmaking– Patient SteeringPatient Steering– Unfair CompetitionUnfair Competition

Federal Anti-Kickback Federal Anti-Kickback StatuteStatute

• Statutory Exceptions:Statutory Exceptions:– Discounts, employer/employee, GPOs, Discounts, employer/employee, GPOs,

Part B coinsurance waivers, electronic Part B coinsurance waivers, electronic health records, e-prescribing, etc.health records, e-prescribing, etc.

• Regulatory Safe Harbors:Regulatory Safe Harbors:– OIG is tasked with promulgating OIG is tasked with promulgating

regulations on behalf of the Secretary to regulations on behalf of the Secretary to clarify statutory exceptions to the anti-clarify statutory exceptions to the anti-kickback laws and to establish kickback laws and to establish additional safe harborsadditional safe harbors

Anti-Kickback StatuteAnti-Kickback Statute

• Relevant Safe Harbors:Relevant Safe Harbors:- Investments in small entities- Investments in small entities

- Personal Service Agreements- Personal Service Agreements

- Leases- Leases

- Physician Recruitment- Physician Recruitment

- Ambulatory Surgery Centers - Ambulatory Surgery Centers (ASCs)(ASCs)

- Others- Others

Joint Venture Safe HarborJoint Venture Safe Harbor

• Small entity safe harborSmall entity safe harbor– <40% “tainted investors”<40% “tainted investors”– Terms same for “tainted” and non-“tainted” Terms same for “tainted” and non-“tainted”

“passive investors” “passive investors” – Offer to “tainted” investor not based on Offer to “tainted” investor not based on

referralsreferrals– No referral requirements or discriminatory No referral requirements or discriminatory

marketingmarketing– <40% of revenue from investor referrals <40% of revenue from investor referrals – Entity cannot loan purchase money to investorEntity cannot loan purchase money to investor– Return proportional to investmentReturn proportional to investment

Scenario #1: Laser UnitScenario #1: Laser Unit

• My two partners and I own a holmium laser My two partners and I own a holmium laser rental company, complete with laser, truck rental company, complete with laser, truck and tech. For years we’ve been doing and tech. For years we’ve been doing business with our two local hospitals. We had business with our two local hospitals. We had a per case rate and as of October 1, 2009, a per case rate and as of October 1, 2009, both hospitals have asked for a new contract.both hospitals have asked for a new contract.

1.1. Can we continue to be successful and contract with these Can we continue to be successful and contract with these hospitals?hospitals?

2.2. Can we still charge per click/per case?Can we still charge per click/per case?

3.3. Is there a difference if we own the equipment (laser) versus rent Is there a difference if we own the equipment (laser) versus rent or lease it from a vendor?or lease it from a vendor?

4.4. Do you expect more changes to the current Stark Laws?Do you expect more changes to the current Stark Laws?

5.5. Would it matter if we added a different type of laser (Greenlight) Would it matter if we added a different type of laser (Greenlight) etc.?etc.?

Basic “Under Arrangements” Basic “Under Arrangements” Structure Is No Longer Stark Structure Is No Longer Stark

CompliantCompliant

Referrals for ”hospital” services

Physician-owned Service

Provider

Referrals to hospital are now also considered

referrals to Physician-owned Service Provider

Do Not “Perform” Services Do Not “Perform” Services for the Hospitalfor the Hospital

• Start with the definition of “entity”Start with the definition of “entity”• How much do you need to “peel How much do you need to “peel

away” so that you are not considered away” so that you are not considered to “perform” the service?to “perform” the service?– EquipmentEquipment– PersonnelPersonnel– Disposable (but costly) suppliesDisposable (but costly) supplies

Convert Joint “Services” Venture Convert Joint “Services” Venture to a Joint “Equipment Leasing” to a Joint “Equipment Leasing”

CompanyCompany

Mobile Laser Joint Venture

Equipment Lease ONLY

Hospital provides personnel, supplies,

management

NOT %-based or per-click compensation formula

Referrals for Hospital Laser ServicesConsidered

to be Lessor

Lessor

Lessee

Insertion of an Intermediary Insertion of an Intermediary OrganizationOrganization

Mobile Laser Joint Venture

Management and Leasing

Company

Per-service compensation is

permissible

Flat-fee compensation arrangement

Scenario #1: Laser Unit Scenario #1: Laser Unit Anti-Kickback StatuteAnti-Kickback Statute

• Kickback analysis continues to be Kickback analysis continues to be

highly relevanthighly relevant

• Physician-ownership not illegal Physician-ownership not illegal

per seper se

Scenario #1: Laser Unit Scenario #1: Laser Unit Anti-Kickback StatuteAnti-Kickback Statute

• Basic Tenets of Anti-Kickback Basic Tenets of Anti-Kickback Analysis:Analysis:

– Cannot solicit or receive, or offer or pay Cannot solicit or receive, or offer or pay remuneration in exchange for referrals remuneration in exchange for referrals of program beneficiaries or to induce of program beneficiaries or to induce the purchasing, lease or arranging for the purchasing, lease or arranging for items or services reimbursed under items or services reimbursed under federal health care programsfederal health care programs

– Two way street – just as illegal to solicit Two way street – just as illegal to solicit or accept payment for referrals, as it is or accept payment for referrals, as it is to offer or make such payments.to offer or make such payments.

Scenario #1: Laser Unit Scenario #1: Laser Unit Anti-Kickback StatuteAnti-Kickback Statute

• Fact Specific Analysis – Turns on Fact Specific Analysis – Turns on “Intent” “Intent”

• Requirement for “Intent”Requirement for “Intent”– New LegislationNew Legislation: a person may : a person may

violate the anti-kickback statute violate the anti-kickback statute without knowledge of, or specific without knowledge of, or specific intent to violate, the statuteintent to violate, the statute

Scenario #1: Laser UnitScenario #1: Laser UnitAnti-Kickback StatuteAnti-Kickback Statute

• OIG Guidance – Joint VenturesOIG Guidance – Joint Ventures• 1989 Special Fraud Alert on Joint 1989 Special Fraud Alert on Joint

VenturesVentures– Questionable features of suspect Questionable features of suspect

JVs:JVs:• Manner in which investors Manner in which investors

selected/retainedselected/retained• Nature of business structureNature of business structure• Financing/profit DistributionsFinancing/profit Distributions

Scenario #1: Laser UnitScenario #1: Laser UnitAnti-Kickback StatuteAnti-Kickback Statute

OIG Guidance – Joint VenturesOIG Guidance – Joint Ventures– 2003 Special Advisory Bulletin on Contractual Joint 2003 Special Advisory Bulletin on Contractual Joint

VenturesVentures• JVs between existing suppliers and health care JVs between existing suppliers and health care

entities to provide services to the entities’ entities to provide services to the entities’ patients are “suspect”patients are “suspect”

– ““Suspect” criteriaSuspect” criteria• Provider expands into new line of businessProvider expands into new line of business• Provider neither operates nor provides Provider neither operates nor provides • Contract manager is an established providerContract manager is an established provider• Economic benefits are sharedEconomic benefits are shared• Return varies with volume or value of referralsReturn varies with volume or value of referrals

Scenario #2: Imaging Scenario #2: Imaging ServicesServices

• We are currently thinking about We are currently thinking about adding imaging services to the adding imaging services to the office with CT and plain film.office with CT and plain film.

1.1. Besides decreasing reimbursement for Besides decreasing reimbursement for these services, do you see the new Stark these services, do you see the new Stark laws affecting what and how we add these laws affecting what and how we add these services?services?

2.2. Can we get outside referrals for imaging? Can we get outside referrals for imaging? (PCP referring patients, etc.)(PCP referring patients, etc.)

In-Office Ancillary Exception In-Office Ancillary Exception to Stark to Stark

• DHS ancillary to referring physician’s DHS ancillary to referring physician’s professional servicesprofessional services

• Furnished by physician, group Furnished by physician, group practice member, or person practice member, or person supervised by themsupervised by them

• Centralized building or same building Centralized building or same building in which referring physician provides in which referring physician provides some services unrelated to DHSsome services unrelated to DHS

• Billed by physician or group practiceBilled by physician or group practice

In-Office Ancillary ExceptionIn-Office Ancillary Exception

• Building requirementBuilding requirement– Single street addressSingle street address– Need not be adjacent to where non-DHS providedNeed not be adjacent to where non-DHS provided– Can not be a mobile vehicle, internal loading dock Can not be a mobile vehicle, internal loading dock

or parking garage (Phase II)or parking garage (Phase II)– Can be a SNF, other facility or patient’s homeCan be a SNF, other facility or patient’s home– Shared facilities permittedShared facilities permitted

• Centralized BuildingCentralized Building– Group practices onlyGroup practices only– Can included mobile vehicleCan included mobile vehicle– No shared facilitiesNo shared facilities

Disclosure RequirementsDisclosure Requirements

• For CT and MRI, doctors need to For CT and MRI, doctors need to provide written disclosure of provide written disclosure of ownership of imaging equipment ownership of imaging equipment and list of alternative suppliersand list of alternative suppliers

• CMS may add other services to CMS may add other services to list of disclosure list of disclosure

Scenario #2: Imaging Scenario #2: Imaging Services Services

Anti-Kickback StatuteAnti-Kickback Statute

• Group Practice Safe Harbor May applyGroup Practice Safe Harbor May apply• Where no safe harbor applies, not Where no safe harbor applies, not

illegal illegal per seper se..• Facts & Circumstances AnalysisFacts & Circumstances Analysis• Accepting Outside Referrals Accepting Outside Referrals

–FMV/reasonableness/cross-referrals–FMV/reasonableness/cross-referrals• Potential issues with enrollment if too Potential issues with enrollment if too

many patients from outside the many patients from outside the practicepractice

Scenario #3: ASCsScenario #3: ASCs

I am considering forming a multi-I am considering forming a multi-specialty ASC. This is a stand alone specialty ASC. This is a stand alone center, solely owned by physicians. center, solely owned by physicians. There are 14 full partner/shareholders There are 14 full partner/shareholders and 2-3 part owner/shareholders. The and 2-3 part owner/shareholders. The shareholder specialties include – shareholder specialties include – General Surgery, Orthopedics, Podiatry, General Surgery, Orthopedics, Podiatry, Urology, ENT, Ophthalmology and Pain. Urology, ENT, Ophthalmology and Pain. There are many other surgeons and There are many other surgeons and specialties that use the center, but specialties that use the center, but have no ownership.have no ownership.

Scenario #3: ASCsScenario #3: ASCs

1.1. What are the Safe Harbor rules that apply?What are the Safe Harbor rules that apply?

2.2. Are there anti-kickback rules or any Stark Are there anti-kickback rules or any Stark issues with an ASC?issues with an ASC?

3.3. Would any rules change if an outside Would any rules change if an outside company bought a number of shares or company bought a number of shares or percentage of the center?percentage of the center?

4.4. Would the rules change if there was a joint Would the rules change if there was a joint venture made with the hospital with an venture made with the hospital with an established ASC?established ASC?

5.5. Are there differences in single specialty Are there differences in single specialty centers?centers?

Scenario #3: ASCs Stark Scenario #3: ASCs Stark LawLaw

• No DHS: No issueNo DHS: No issue

• Bundled payment rate for ASCsBundled payment rate for ASCs

• Beware of separately billed DHSBeware of separately billed DHS

Scenario #3: ASCsScenario #3: ASCsAnti-Kickback StatuteAnti-Kickback Statute

• ASC Safe Harbor: Common ASC Safe Harbor: Common RequirementsRequirements– Medicare certified (42 C.F.R. part 416)Medicare certified (42 C.F.R. part 416)– Dedicated OR and recovery roomDedicated OR and recovery room– Disclosure to patientsDisclosure to patients– Interest cannot be offered based on prior or Interest cannot be offered based on prior or

anticipated referrals or other business generatedanticipated referrals or other business generated– No loans from ASC or investor to purchase interestNo loans from ASC or investor to purchase interest– Returns proportional to ownership interestReturns proportional to ownership interest– All ancillary services must be part of ASC services All ancillary services must be part of ASC services

and not separately billedand not separately billed– No discrimination against Program patientsNo discrimination against Program patients

Scenario #3: ASCsScenario #3: ASCsAnti-Kickback StatuteAnti-Kickback Statute

• ASC Safe Harbor: Single Specialty ASCsASC Safe Harbor: Single Specialty ASCs– All investors areAll investors are

• Physicians in the same specialty, in a position to refer Physicians in the same specialty, in a position to refer directly to the ASC and perform procedure theredirectly to the ASC and perform procedure there

• Group practices composed exclusively of such Group practices composed exclusively of such physiciansphysicians

• ““Unrelated persons” (not making or influencing Unrelated persons” (not making or influencing referrals)referrals)

– At least 1/3 of each physician’s practice income At least 1/3 of each physician’s practice income in the past year derived from ASC proceduresin the past year derived from ASC procedures

Scenario #3: ASCsScenario #3: ASCsAnti-Kickback StatuteAnti-Kickback Statute

• ASC Safe Harbor: Multi-Specialty ASCsASC Safe Harbor: Multi-Specialty ASCs– All investors areAll investors are

• Physicians in a position to refer directly to the ASCPhysicians in a position to refer directly to the ASC• Group practices composed exclusively of such Group practices composed exclusively of such

physicians physicians • ““Unrelated persons”Unrelated persons”

– At least 1/3 of each physician’s practice At least 1/3 of each physician’s practice income in the past year derived from ASC income in the past year derived from ASC proceduresprocedures

– At least 1/3 of investor’s ASC procedures in At least 1/3 of investor’s ASC procedures in the past year must be at the investment ASCthe past year must be at the investment ASC

Scenario #3: ASCsScenario #3: ASCsAnti-Kickback StatuteAnti-Kickback Statute

• ASC Safe Harbor: Hospital/Physician ASCASC Safe Harbor: Hospital/Physician ASC– Investors areInvestors are

• One or more hospitalsOne or more hospitals• Physicians meeting other ASC safe harbor Physicians meeting other ASC safe harbor

requirementsrequirements• ““unrelated persons”unrelated persons”

– ASC may not use hospital space or services ASC may not use hospital space or services absent a safe harbored agreementabsent a safe harbored agreement

– Hospital may not claim ASC costs on cost Hospital may not claim ASC costs on cost reportreport

– Hospital may not be in a position to make or Hospital may not be in a position to make or influence referrals to investors or ASCinfluence referrals to investors or ASC

Questions?Questions?

Julie KassJulie KassOOber | Kalerber | Kaler

410-347-7314 jekass@ober.com410-347-7314 jekass@ober.com

Kevin Barry, Esq., Office of Inspector

General

David Benjamin, MD, YU Committee

Member

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