1. David C. Marshall, Esq. 6085721

2.  Nursing facilities depend on ancillary providers to furnish needed services to their residents.  Those relationships must be structured in compliance with applicable law, and tailored to address the business and service needs of the facility.  We’ll discuss: (a) basic contractual requirements; (b) Anti-Kickback Statute issues for all agreements; and (c) Stark considerations for physician arrangements. 6085722

3.  Parts of a (binding) contract ◦ Offer ◦ Acceptance ◦ Consideration ◦ No Defense  mutual mistake  misrepresentation or fraud  capacity  unconscionability  Services ◦ Specifically list the obligations of both parties and the services to be provided, including:  Duty to act in accordance with law and facility policies  Recordkeeping requirements  Licensure/certification requirements  Criminal Background checks 6085723

4.  Compensation and Billing ◦ Contract must specifically spell out all forms of compensation to be provided in exchange for services  Fair Market Value for services rendered  Compliance issues (discussed later) ◦ Contract should explicitly address which party has the responsibility for billing any residents, third party payors, governmental agencies  Federal regulations require for SNFs in order to avoid “duplicate billing” issues 6085724

5.  Term and Termination ◦ Establish a timeframe – 1 year minimum (per AKS)  This doesn’t mean that the services owed can’t be completed in less than 1 year ◦ Will the contract automatically renew?  If so, make sure to calendar dates, to meet any notice of termination deadlines ◦ How can the parties “get out” of the agreement?  While we have the best of intentions entering a relationship, it is wise to plan for the eventual end of the arrangement. 6085725

6.  Term and Termination ◦ Terminations with and/or without cause  Termination without cause is the “cleanest” way to get out of an arrangement  What constitutes “cause?” ◦ Breach issues  Notification to breaching party  Is there an opportunity to “cure” the breach and continue?  Who gets to determine whether the breach is cured?  Parties can easily find themselves in litigation over whether a breach has occurred which authorizes termination of the agreement 6085726

7.  Indemnification ◦ Means of being made whole because of other parties’ actions. ◦ At a minimum, should be reciprocal. ◦ Should contain notice requirements ◦ Limitations on liability ◦ What standard –  “gross negligence” – higher standard  acts or omissions  breach of duty  Fraud provision  must be clear and unambiguous 6085727

8.  Other Issues to Address ◦ Appeal Issues ◦ Arbitration ◦ Independent Contractor ◦ Confidentiality/HIPAA  if applicable, business associate addendum ◦ Nondiscrimination ◦ Miscellaneous Terms  Assignment  Governing Law  Notice 6085728

9.  Basic Prohibition ◦ Prohibits offering, paying, soliciting, or receiving anything of value to induce ore reward referrals or generate Federal health care program business. ◦ Referrals can be from anyone, for any items or services. ◦ Intent: knowing and willful (i.e. specific intent) ◦ Penalties  criminal: fines up to $25,000 per violation, up to a 5 year prison term per violation  civil/administrative: FCA liability, civil monetary penalties and program exclusion, potential $50,000CMP per violation, civil assessment of up to three times amount of kickback. 6085729

10.  “Any One Purpose” Test ◦ The third Circuit has held that the Anti-Kickback Statute is violated when any one purpose of a transaction is prohibited, regardless of other legitimate motivations the parties may have. See United States v. Gerber, 760 F.2d 68 (3 rd Cir. 1985).  Swapping ◦ Providing an impermissible discount in order to secure Medicare covered business ◦ Ambulance example: Discount of Part A covered services with no corresponding discount on Part B transports 60857210

11.  CMS has promulgated numerous “Safe Harbors” to the AKS ◦ An arrangement that fits within a Safe Harbor is automatically deemed in compliance with the AKS ◦ An arrangement that doesn’t, is not automatically considered in violation of the AKS ◦ In those cases, a facts/circumstance test is applied  When contracting, the parties should strive to structure the agreement in compliance with a Safe Harbor (or as close as possible) 60857211

12.  Pertinent Safe Harbors ◦ Personal/Management Services ◦ Investment ◦ Space and Equipment Rental ◦ Discounts ◦ Employee ◦ Group Purchasing  Arrangements can be covered by/trigger multiple Safe Harbors 60857212

13.  Safe Harbors – Key concepts ◦ Compensation set in the aggregate, in advance, and not indexed to the volume/value of business or referrals  What does this mean, practically speaking? ◦ Contract term set for at least 1 year; If terminate early, can’t re-enter relationship on different terms ◦ Must spell out services to be provided, and, if periodic, specifically address when services will be provided, or space will be rented/used 60857213

14.  Personal Services Safe Harbor ◦ Will apply to most SNF/Ancillary provider arrangements ◦ Note that compensation arrangements which are based on a “per unit, per evaluation, per diem,... etc.” basis will not satisfy this Safe Harbor. As a practical matter, this means that most therapy, lab, pharmacy, medical supply, and other fee-for- service contracts will not fit within this Safe Harbor. ◦ Can’t adjust payment terms based on volume of services/units ordered 60857214

15.  Discount Safe Harbor ◦ Discounts are not discouraged by the Medicare Program. ◦ However, discounts must be earned based on purchases of the same good or service during a single fiscal year, and the discount must be passed on to the Medicare Program during the cost reporting process. ◦ The seller is required to disclose the discount offered on the invoice provided to the buyer. ◦ A discount is defined as a reduction in the amount a buyer (who buys either directly or through a wholesaler or a group purchasing organization) is charged for an item or service based on an arms- length transaction. A discount does not include a cash payment or supplying one good or service without charge or at a reduced charge to induce the purchase of a different good or service, unless the goods and services are reimbursed by the same Federal health care program using the same methodology and the reduced charge is fully disclosed to the Federal health care program and accurately reflected where appropriate, and as appropriate, to the reimbursement methodology. 60857215

16.  STARK ◦ Prohibits a physician from referring Medicare patients for designated health services to an entity with which the physician (or immediate family member) has a financial relationship, unless an exception applies.  “Referral” includes signing a Plan of Care which includes DHS ◦ Prohibits the designated health service entity from submitting claims to Medicare for those services resulting from a prohibited referral. ◦ No intent standard for overpayment (strict liability), intent required for civil monetary penalties for knowing violations. ◦ Penalties:  civil: overpayment/refund obligation, FCA liability, CMP and program exclusion for knowing violations, potential $15,000 CMP for each service, and civil assessment of up to three times the amount claimed. 60857216

17.  STARK ◦ Designated Health Services are:  clinical laboratory services;  physical therapy, occupational therapy, and outpatient speech-language pathology services;  radiology and certain other imaging services;  radiation therapy services and supplies;  DME and supplies;  parenteral and enteral nutrients, equipment, and supplies;  prosthetics, orthotics, and prosthetic devices, and supplies;  home health services;  outpatient prescription drugs; and  inpatient and outpatient hospital services. 60857217

18.  STARK ◦ Personal Services Exception – to satisfy it must:  be in writing, be signed by the parties to the agreement, and specify the services covered by the agreement;  cover all of the services to be furnished by the physician under the agreement;  cover aggregate services that do not exceed those that are reasonable and necessary for the legitimate purposes of the arrangement;  be for a term of at least one year;  provide for compensation to be set in advance. not to exceed fair market value and not be determined by the volume or value of any referrals or other business generated between the parties; and  not involve counseling or promotion of a business arrangement or other activity that violates any state or federal law, such as the federal Anti-Kickback Statute. 60857218

19.  Medical Director Relationship ◦ A SNF/Medical Director relationship triggers the Stark law, and must be structured consistent with the Personal Services Exception. ◦ This relationship is also critical to ensure the delivery of quality care at the facility. ◦ American Medical Director’s Association  Medical Directors should “supervise the medical staff” at the facility  Medical Director must inform the “medical staff” of relevant policies and procedures  Medical director organizes, coordinates, and monitors the activities of the “medical staff” and helps ensure that the quality and appropriateness of services meets community standards 60857219

20.  Regulatory Requirements ◦ 42 CFR 483.75(i)  (1) The facility must designate a physician to serve as medical director.  (2) The medical director is responsible for –  (i) Implementation of resident care policies; and  (ii) The coordination of medical care in the facility. ◦ 42 CFR 483.40  Resident must be admitted to facility on orders of physician and must remain under the care of a physician  When attending physician is unavailable, another physician must be available to supervise resident’s care  Visitation requirements 60857220

21.  State Operations Manual ◦ Very detailed in expectations of Medical Director  Assist facility in the development and implementation of policies and procedures and that these are based on current standards of practice  Interacts with the physician supervising the care of the resident if requested by the facility to intervene on behalf of the residents  Be available to surveyors to clarify clinical questions or information about the care of specific residents, request surveyor clarification of citations on clinical care, attend the exit conference to demonstrate physician interest and help in understanding the nature and scope of the facility's deficiencies, and help the facility draft corrective actions. 60857221

22.  State Operations Manual ◦ Very detailed in expectations of Medical Director  Be involved in facility level issues, even if working at a multi- facility organization with corporate or regional offices.  Help the facility obtain and maintain timely and appropriate medical care that supports the healthcare needs of the residents, that is consistent with current standards of practice and helps the facility meet its regulatory requirement.  Establish a framework for physician participation, and physicians should believe they are accountable for their actions and their care.  Recommendation – share the SOM text with your Medical Director; incorporate provisions into your agreement with the Medical Director 60857222

23.  Compensation Issues ◦ Bonus/Incentive Compensation Issues  Currently no Exception to cover such compensation programs (except under current Medicare Advantage Plan)  2008 Proposed Exception (never finalized) for shared savings plans  OIG issue with gainsharing/incentive plans that have the effect of reducing services to beneficiaries  Tie to quality indicators/improvement, ensure no reduction in services, not indexed to financial status of the facility 60857223

24.  Compensation Issues ◦ Stark Recruitment Exception  In addition to “the basics”:  The physician must relocate his/her practice to the hospital’s geographic area, which is the area composed of the lowest number of contiguous zip codes from which the hospital draws at least 75% of its inpatients, as evidenced by  the physician moving his/her practice at least 25 miles, or  physician deriving 75% of his revenues from professional services furnished to patients not previously seen by the physician during the previous 3 years. 60857224

25.  Compensation Issues ◦ Recruitment  Note that the Stark Exception applies to “hospitals”  Currently is no Exception for SNF’s to make payments to recruit physicians  Absent changes in law, would probably need to seek an advisory opinion from CMS to see if they would agree to extend the current Exception to SNFs, in light of the reform measures being pushed 60857225

26.  Imperative that those with contracting authority understand the compliance issues that overlay these relationships  Goal is to enter into contractual relationships that are beneficial from a service and business perspective, while achieving compliance with governing law.  Advice – develop a contract policy and checklist to ensure achievement of these goals 60857226

27.  David C. Marshall, Esq.  Latsha Davis & McKenna, P.C.  1700 Bent Creek Blvd., Ste. 140  Mechanicsburg, PA 17050  dmarshall@ldylaw.com dmarshall@ldylaw.com  web site: ldylaw.com  (717) 620-2424 60857227