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Sleep Services Mergers, Acquisitions, Sales & Management Contracting in 2014 Jayme R. Matchinski Date: Friday, May 16, 2014 Location: Orlando, Florida.

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Presentation on theme: "Sleep Services Mergers, Acquisitions, Sales & Management Contracting in 2014 Jayme R. Matchinski Date: Friday, May 16, 2014 Location: Orlando, Florida."— Presentation transcript:

1 Sleep Services Mergers, Acquisitions, Sales & Management Contracting in 2014 Jayme R. Matchinski Date: Friday, May 16, 2014 Location: Orlando, Florida This presentation and outline are limited to a discussion of general principles and Should not be interpreted to express legal advice applicable in specific circumstances.

2 2 Key Regulations Which Impact Mergers, Acquisitions, Sales and Management Contracts Stark III Rules Anti-Kickback Statute HIPAA Anti-Markup Rule 2014 Physician Fee Schedule (PFS) DME Regulations Key Compliance Issues For Contracts : Medicare Coverage and Payment Billing and Reimbursement National Coverage Determination (NCD) Local Coverage Determination (LCD) OIG Work Plan for FY 2014 Expanded Enforcement Activities

3 3 Joint Ventures  Regulatory Compliance  Stark Law  Anti-Kickback Statute  Scope of Licensure  Medical Practice Act (i) Revisions to Fee-Splitting Provisions

4 4 Stark III Stark Law prohibits a physician from making a referral for a designated health service (DHS) to an entity in which the physician (or the physician’s immediate family member) has a financial relationship, including a compensation arrangement, if the DHS is reimbursed by a governmental program (42 U.S.C. § 1395 nn(a)(1)). Bottom Line: Only referrals for DHS are prohibited. Outpatient and Inpatient Hospital Services = DHS DME = DHS PSG ≠ DHS

5 5 Stark Self-Referral Laws Is the medical test or equal test a “Designated Health Service?” Is supplying the medical equipment or supplies a “Designated Health Service?” State self-referral laws often are more restrictive than the federal Stark Law. Make sure your sleep lab and/or DME company complies with all state and federal regulations.

6 6 Stark Self-Referral Laws (continued) Penalties / Sanctions —denial of payment —refunds of amounts collected for services performed in violation of the statute —civil money penalty of up to $15,000 for each bill or claim for a service a person knows or should know is for a service for which payment may not be made under the statute. —civil money penalty of up to $100,000 for each arrangement or scheme which the physician or entity knows or should know has a principal purpose of assuring referrals which, if directly made, would be in violation of the statute. —exclusion from the Medicare, Medicaid and/or other federally funded health care programs

7 7 Impact of the Anti-Markup Rule Before January 1, 2009, the “Purchased Diagnostic” Rules prohibited a physician from purchasing the Technical Component of a test from an outside supplier and “marking up” the price the physician billed Medicare for the test.

8 8 Anti-Markup Rule Starting January 1, 2009, the Anti-Markup Rule places a limit on the amount that a physician group or physician-owned IDTF may bill for either: The technical component (TC) of a diagnostic test; or The professional component (PC) of a diagnostic test.

9 9 The Anti-Markup Rule Only Applies if the Physician Performing the TC or PC Does Not “Share a Practice” With the Ordering Physician Alternative 1 – “Shared Services” Test. If the performing physician, who is the physician that supervises the TC or performs the PC or both, furnishes substantially all (at least 75%) of his or her professional services through the billing physician or other supplier, none of the physician’s diagnostic testing service will be subject to the anti-markup payment limitation. Alternative 2 – “Site of Service” Test. If the arrangement does not meet the “Share Services” test, then the physician performing the TC or the diagnostic test will be deemed to share a practice with the billing entity if the performing physician (who is the supervising physician in the case of the TC) supervises the test in the “office of the billing physician or other supplier”.

10 10 Anti-Markup Rule “Office of the billing physician or other supplier” means any medical office space in which the ordering physician or other ordering supplier regularly furnishes patient care (which may include space where the billing physician or other supplier furnishes diagnostic testing) if the space is located in the same building in which the ordering physician or other ordering supplier regularly furnishes patient care.

11 11 Anti-Markup Rule If the Anti-Markup Rule applies, then Medicare will pay the billing physician or other supplies (less applicable deductibles and co- insurance) for the TC or PC billed by the billing physician at the lowest of: 1. the performing supplier’s net charge to the billing physician or other supplier; or 2. the billing physician’s or other supplier’s actual charge; or 3. the fee schedule amount for the test that would be allowed if the performing supplier billed directly. (42 CFR §414.50(a)(1))

12 12 Anti-Kickback Law It is unlawful for anyone to knowingly and willfully solicit or receive any payment in return for referring an individual to another person or entity for the furnishing, or arranging for the furnishing, of any item or service that may be paid in whole or in party by any federally- funded health care program. (42 U.S.C. § 1320a-7b(b)(1)).

13 13 Anti-Kickback Statute Prohibits Knowingly and willfully Offering or receiving Remuneration (including any kickback, bribe or rebate) To induce Referral Of federal health care program or business (42 U.S.C. § 1320a-7b(b)(1)).

14 14 Anti-Kickback – Fraud & Abuse Prohibits payment for referrals Criminal statute – up to five years in prison and/or $25,000 fine Intent-based statute Applies to both physicians and hospitals Government priority for enforcement – use of wires for immunity Exclusion from the Medicare, Medicaid, and/or other federally- funded health care programs Safe harbors Fraud alerts

15 15 Scope of Practice – Mergers, Acquisitions, Sales and Management Contracts History of professional licensure must be taken into account to understand the current regulatory system that governs scope of practice. Scope of practice → defined in each State’s laws in the form of practice acts. State legislatures have authority to adopt or modify practice acts. * Changes in education, practice, research, technology, and health care demands determine scope of practice.

16 16 Revisions to practice acts sometimes pit one profession against another. For example, one profession may perceive another profession as “encroaching” into their area of practice. Economic factors often drive opposition to legislative efforts to change scope of practice. “Turf Battles” are often costly and time consuming for the regulatory bodies, professionals, and legislators. Changes in Scope of Practice

17 17 Purpose of Regulation Why do we Regulate Health Care and Scopes of Practice? Protect the public health, safety, and welfare Provide assurance to the public that the individual providing care is competent and has the requisite background, expertise, and education Provide a means to discipline the professional who fails to comply with the practice act and related scope of practice → probation, suspension, or revocation of licensure

18 18 The Impact of Health Care Policy on Scopes of Practice Framework for Scope of Practice: Collaboration between health care providers → professional norm Changes in scope of practice are inherent in our health care system Public protection = purpose of regulation → should be top priority in scope of practice decisions

19 19 The Impact of Health Care Policy on Scopes of Practice (continued) Framework for Scope of Practice: Overlap among professions is necessary → No one profession actually owns a skill or activity and one activity should not define a profession. Entire scope of activities within the practice makes a particular profession unique Practice acts should require licensed professionals to demonstrate requisite training and competence to provide a service.

20 20 Medical Practice Act and Fee-Splitting Provisions Example The Illinois General Assembly has written new legislation that amends the Medical Practice Act of 1987, and alters the rules regarding the splitting of professional fees between physicians and physician practice groups and third-party billing and collection companies. Public Act 096-0608 was signed into law by Governor Quinn on August 24, 2009, and the Act is effective as of that date. The legislation repeals ILCS 60/22 (14), and adds a new section, 225 ILCS 60/22.5. 225 ILCS 60/22.2(c)(d) (new) Nothing contained in this Section prohibits a licensee under this Act from paying a fair market value fee to any person or entity whose purpose is to perform billing, administrative preparation, or collection services based upon a percentage of professional service fees billed or collected, a flat fee, or any other arrangement that directly or indirectly divides professional fees, for the administrative preparation of the licensee’s claims or the collection of the licensee’s charges for professional services, provided that: (i) The licensee at all times controls the amount of fees charged and collected; and (ii) All charges collected are paid directly to the licensee of the licensee’s practice or deposited into a “trust” account by a licensed collection agency in accordance with the requirements of Section 8 (c) of the Illinois Collection Agency Act.

21 21 Physician Joint Venture Possible reasons for joint venturing with another sleep lab, DME company or other facility:  Decreasing reimbursement/income  Expenses are increasing faster than revenue and income  Complex regulatory environment  Proposed cuts to 2014 Medicare Part B Physician Fee Schedule  Shortages for specialty practices in certain geographic areas

22 22 Joint Venture (JV) Considerations: Compensation models/structure Patient Care Governance/Voting Insurance Productivity Indemnification Quality Assurance/Incentives Regulatory Compliance Cost and Expense Savings FMV Profits/Revenue Flow

23 23 OIG Special Advisory Bulletin Contractual Joint Venture – April 23, 2003 JV defined by OIG as “contractual arrangement between two or more parties to cooperate in providing services or the creation of a new legal entity by the parties to provide such services.”

24 24 OIG Identified Problematic Arrangements that Included Common Elements (1) Owner expanded into a related line of business which is dependent on referrals from or other business generated by the owner’s existing business. (2) Owner does not operate the new business itself nor commits substantial financial, capital or human resources to the venture. (3) The manager/supplier is an established provider of the same services as the owner’s new line of business. (4) The owner and manager/supplier share in the economic benefit of the owner’s new business.

25 25 Fair Market Value is the Key to Compliance FMV = The value in arm’s length transactions consistent with the general market value. General Market Value = Compensation that would be included in a service agreement as a result of a bona fide bargaining between well-informed parties who are not otherwise in a position to generate business for the other party at the time of the agreement. FMV should not be determined in any manner that takes into account volume or value of actual or anticipated referrals.

26 26 Physician Alignment Options Employment Joint Ventures practices, space, equipment Management Services Agreement Gainsharing and other pay for performance initiatives Exclusive Provider Agreements Medical Director Agreements Networks and managed care contracting (IPA)

27 27 Possible Signs of a Suspect JV: New Line of Business. Owner seeks to expand into a health care service that can be provided to the owner’s existing patients. Captive Referral Base. The newly-created business predominately or exclusively serves the owner’s existing patient base. Little or No Bona Fide Business Risk. Owner’s primary contribution to the venture is referrals. Status of the Manager/Supplier. The manager/supplier is a would-be competitor of the owner’s new line of business and would normally compete for the captive referrals.

28 28 Possible Signs of a Suspect JV: Scope of Services Provided by the Manager/Supplier. The manager/supplier provides all or many of the key services. Remuneration. The practical effect of the arrangement, viewed in its entirety, is to provide the owner the opportunity to bill insurers and patients for business otherwise provided by the manager/supplier. Exclusivity. The parties agree to a non-compete clause, barring the owner from providing items or services to any patient other than those coming from owner and/or barring the manager/supplier from providing services in its own right to the owner’s patients.

29 29 Anatomy of a Joint Venture Sleep Lab  Two owners are reaching retirement age  Sleep labs revenues are decreasing Possible JV Options  Merging with another sleep lab or health system  Seek support from health system (medical director agreement, management services agreement, exclusive provider agreement) JV Issues  Acquisition of sleep labs’ assets; ancillary service line  Patient care and measured outcomes  Group pooled compensation or individual compensation model  Sleep lab governance  FMV – not based on value or value of referrals

30 30 Legislative History of PPACA March 2009: Senate Finance Committee met over a period of several months to design a bipartisan health reform plan. November 7, 2009: House passed health reform bill. January 20, 2010: Republican Scott Brown’s upset victory in Massachusetts for the Senate. February 2010: White House hosts bipartisan health reform summit. March 2010: March 21, 2010 → House passes PPACA and Reconciliation Act. March 23, 2010 → President Obama signs PPACA into law. March 25, 2010 → Senate passes Reconciliation Act and House passes Reconciliation Act with Senate’s changes. March 30, 2010 → President Obama signs Reconciliation Act into law.

31 31 Health Care Reform Goals Universal Coverage Improve the Quality of Health Care and Public Health Lower the Cost of Health Care Coverage Establish Accountability Measures → Accountable Care Organizations Minimize the Inefficiency of Physicians and Hospitals Move from Government Reimbursement Towards Value-based Purchasing Developing a Payment System based upon Outcomes and Reward a Coordinated System of Care with Emphasis on Quality

32 32 Health Care Reform Patient Bill of Rights No lifetime or Annual Limits, §2711 Prohibition on Rescission, §2712 Coverage of Preventative Health Services, §2713 Extension of Dependent Coverage, §2714 Development and Utilization of Uniform Explanation of Coverage Documents and Standardized Definitions, §2715 Appeals Process, §2719 Patient Protections, §2719A

33 33 Physician Shortage DHHS Projects a Shortage of 55,000 by 2020. Health Affairs Projects 200,000 by 2020. Bottom Line = Not Enough Physicians Which Impact Sleep Labs, Patients, Hospitals, and Physicians.

34 34 Health Care Reform The Balance Between Clinical Efficiency and Operational Efficiency. Health Care Reform Focuses on patient-centered Care and Rewarding:  Quality  Outcomes  Safety  Efficiencies

35 35 Health Care Reform Hospital-Sleep Labs Collaboration  Past models losing favor because compensation was based on volume of patients: Joint ventures PHOs MSOs Gainsharing Recruitment assistance from independent groups

36 36 Hospital-Sleep Labs Collaboration  New forms of collaboration based on value and quality: Employment Co-management of Sleep and DME/service lines Physician compensation for hospital leadership EHR integration ACOs Medical Homes

37 37 Examples of Collaboration 1. Clinic, Foundation, IHO 2. Employment – Direct, Permanent 3. Employment-Hospital Affiliated Group Practice (HAGP), Single or Multi- Specialty 4. Employment-Incubator 5. Clinical Integration 6. Participating bond Transactions 7. Equity Joint Ventures (E.g.: ASCs, Imaging Centers, Radiation Centers, Whole Hospitals) 8. Under Arrangements (E.G.:Cath Las, Imaging ‘suites, Operating Rooms) 9. Clinical Service Line co- Management Arrangements 10. Equipment Leasing Arrangements CRI 11. Gainsharing Programs 12. PHO/Managed Care Risk Contracting 13. Hospitalists, Intensivists, Laborists, Surgicalists, Etc 14. Physician Coverage Agreements (Cal Coverage) 15. Professional service Contracts (E.G.: pathology, emergency, Anesthesiology, Radiology, Hospitalist) 16. Medical Directorship Stipends & Agreements 17. Physician Leadership Compensation 18. Physician Leadership Development & raining 19. Malpractice Insurance Captive 20. Physician portals

38 38 Examples of Collaboration (continued) 21. IT connectivity (hospital- practice) 22. Private Practice Support / MSO / MSO Services 23. VO Medical Affairs 24. Physician Board Membership 25. Joint Conference Committees 26. Physician Liaison Program 27. Centers of Excellence, Institutes 28. Marketing / Joint Marketing 29. Clinical Informatics / IT Connectivity 30. Informal Arrangements – Scheduling in procedure rooms, Ors, etc. CRI – Stephen Gelineau 32. Physician-Centric Retreats 33. Physician Advisory Groups (:PAG) 34. Clinical Councils 35. Collaborative Strategic & Capital Planning, Budgeting 32. Meeting stipends 33. Hospital Committees 34. Physician only lounges, dining rooms, parking 32. Business Loans 33. Practice Start-Up Support 34. Relocation Assistance 35. Physician Recruitment 36. Staff Privileges

39 39 Co-Management Benefits  For Sleep Labs: Control over quality Increased compensation at various levels for various types of services Management of day-to-day operations Increased reimbursement for clinical services

40 40 Co-Management Benefits (continued)  For hospitals: More efficient medical management Improved quality of care Higher reimbursement Sought after alignment with physicians, sleep labs, and DME

41 41 Example of Co-Management Model  Hospital engages independent sleep lab or DME company to provide clinical oversight of hospital-based program  More than just a directorship and coverage  Truly a shared management of a given program Multiple tiered directorship of categories of cardiovascular program Oversight of Sleep Medicine Program Concrete administrative/management duties Intensive peer review program Public promotion of health initiatives Strategy for referrals among other specialties Mentoring/teaching for residents of new attendings Non-physician staff management Gainsharing for product standardization; cost-savings Business plan input Quality Improvement initiatives/incentives

42 42 Takeaways on the Impact of Health Care Reform, on Sleep Services Mergers, Acquisitions, Sales Management Contracting Reform and healthcare in general is a multi-faceted, complex issue. This does not lend well to mass-media analysis. Very few parties are actually informed on the actual components of Reform. Stakeholders are still exploring the potential impacts on themselves, let alone on others. We need the regulations! Notice and comment periods may be the most active ever. Get used to this topic- It is not going away anytime soon.

43 43 Jayme R. Matchinski (312) 985-5940 jmatchinski@clarkhill.com


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