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When a Health Plan Buys a Physician Practice February 2015

AGENDA Identifying the Regulatory Pitfalls Calculate the fair market value (“FMV”) and commercial reasonableness of a physician entity acquisition Review professional coding abnormalities prior to acquisition Document potential compliance concerns related to practice operations

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The Acquisition Trend Noticeable increase in practice acquisitions Symptom of the disruption in the health care system • • • • •

Health Reform: better care coordination (e.g. ACOs) Reimbursement: movement from FFS to risk-based Increased competition Shortage of physicians Diversification

Overall notion that physician group acquisition will provide better access to care, especially primary care in a physician shortage environment For physician groups, alternative to hospital affiliation

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IDENTIFYING THE REGULATORY PITFALLS

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Regulatory Pitfalls Federal and State Fraud and Abuse Laws Corporate Practice of Medicine (“CPOM”) Restrictions Other (fee splitting, licensing, etc.) Have to look at these issues for several reasons: • Evaluating the deal (“what are we getting into, and do we want to”) • Structuring the deal (purchase price, etc.) • Structuring post-closing relationships (employment/contracted)

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Fraud and Abuse Laws Health plans, especially MAOs and PDPs, are subject to varying fraud and abuse laws and requirements There are others health plans don’t typically wrestle with in normal operations • Federal Physician Self-Referral Prohibition (The Stark Law) • Federal Anti-Kickback Statute • State Self-Referral Prohibitions (“Mini-Stark”) and AntiKickback Prohibitions

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The Stark Law - Basics Statute – 42 U.S.C. §1395nn • Ethics in Patient Referral Act of 1989 (Stark I) • “Physician Self-Referral Prohibition”

Implementing Regulations – 42 C.F.R. §411.350, et seq. CMS Advisory Opinions • http://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/advisory_opinions.html

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Stark – The Prohibition Prohibits a physician from: • “Referring” a patient • To an “entity” in which the physician (or an “immediate family member” of the physician) • Has a “financial relationship” (either an “ownership interest” or a “compensation arrangement”) • For the furnishing of “designated health services” (DHS) • Otherwise payable under Medicare

Unless a specific exception is met: • Ownership • Ownership and compensation • Compensation

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Stark – The Specifics Physician – MD, DO, DDS, DDM, DPM, OD, or DC DHS – clinical laboratory, PT, OT, speech language pathology, radiology/imaging, radiation therapy, DME/POS, parenteral/enteral, home health, outpatient prescription drugs, inpatient/outpatient hospital services payable under Medicare Entity – any entity that bills Medicare for DHS or that furnishes DHS billed by physicians Immediate Family Members – spouse, parent, child, sibling, in-laws, grandparents, grandchildren, spouse of grandparent or grandchild

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Stark – The Specifics (cont.) Financial Relationship • Direct or Indirect Ownership (equity/stock, LLC membership, debt, loans) • Direct or Indirect Compensation (physician services, leases, medical director agreements, management services)

Referral – defined very broadly • • • •

Request/order/certification for DHS Establishing a plan of care Request for consultation Does not include services personally performed by the physician 10

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Stark – the Penalties Strict liability statute – no intent required Technical violations can be rampant Penalties include: • • • •

Entity providing DHS cannot submit claim for services If submitted, the claim must be denied If paid, the amount must be refunded Civil monetary penalties (up to $15K for each prohibited referral, and up to $100K for circumvention scheme) • Exclusion from participating in Medicare/Medicaid programs • Potential False Claims Act liability

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Stark – Considerations for Diligence Must identify Stark-implicated relationships, and the relevant exception Can materially affect value of transaction, and may warrant taking a pass Exceptions common for diligence review • • • •

In-office ancillary services (ownership/compensation) Office space/equipment rental (compensation) Employment and personal services (compensation) Indirect compensation arrangements (compensation)

Beware: the requirements are very technical!

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Stark – Considerations for Structuring the Transaction

Most likely implicated if the physician is referring to a payor’s DHS entity prior to transaction • E.g. clinical lab or imaging facility owned by payor • Concern transaction price is payment for past referrals • Must examine direct and indirect relationships

Isolated Transaction Exception • • • •

Fair Market Value Cannot take into consideration volume or value of referrals Commercially reasonable No other transactions for 6 months (unless otherwise excepted)

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Stark – Structuring Post-Close Relationships Post-close relationships must meet an exception for a physician to refer Medicare DHS to a payor’s DHS entity Exceptions common for post-closing relationships: • Bona fide employment • Personal services arrangement

Health plan exceptions: • For services provided to prepaid health plan members • For services provided to health plan enrollees under risk sharing arrangements (e.g. withholds, bonuses, risk pools)

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The Anti-Kickback Statute - Basics Statute – 42 U.S.C. 1320a-7b(b) Regulations – 42 C.F.R. §411.1001.951, et seq. OIG Advisory Opinions http://oig.hhs.gov/compliance/advisory-opinions/index.asp

OIG Special Fraud Alerts, Bulletins and Other Guidance http://oig.hhs.gov/compliance/alerts/index.asp 15

AKS – The Prohibition Makes it unlawful for anyone: • • • • •

To knowingly and willfully Directly or indirectly Offer, pay, solicit, or receive Any form or remuneration In order to induce or reward the referral or purchase of items or services to be paid for by a federal healthcare benefit program

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AKS – The Penalty Violation is a felony Criminal fines up to $25K Prison up to 5 years Civil Monetary Penalty exposure, fines Mandatory exclusion from participation in Federal programs

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AKS – The Specifics Applies to everyone, not just physicians • Facilities, consultants, vendors, brokers, health plans, manufacturers, etc.

An offer or solicitation is enough to create liability … actual payment is not necessary “Inducement” has been applied incredibly broadly • Traditional marketing activities; price discounts

Remuneration = anything of value • Paying any more or less than FMV raises inference of kickback

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AKS – The Specifics (cont.) “Referral” is not defined • It is interpreted incredibly broadly • A “recommendation” is probably sufficient

“Intent” • The law is not settled • Intent to violate the law, versus committing the act

“In return for referring” • The “one purpose” test

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AKS – Exceptions and Safe Harbors Statutory Exceptions • Established by Congress • E.g., discounts, employer/employee arrangements, group purchasing

Regulatory Safe Harbors • Established by the DHHS OIG • Transactions satisfying all elements will not be prosecuted • Transactions not satisfying all elements are not per se illegal, but are subject to a facts and circumstances analysis • Warranties, space rentals, equipment rentals, employment and services arrangements, ownership interests, etc.

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The False Claims Acts Generally • Creates liability for any person who knowingly: (1) submits or causes another to submit a false claim to the federal government; or (2) makes a false record or statement to get a false claim paid by the government • Reverse false claim - provides for liability where one acts improperly to avoid having to pay money to the government

Penalties – • civil penalty of between $5,500 and $11,000 for each false claim; and • treble the amount of the government’s damages

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FCA - Health Care Implications • Violation of the Stark Law or AKS can establish basis for FCA liability • Allows qui tam plaintiffs to bring self-referral and kickback allegations • Risk Adjustment • Deal structuring: effects values of the deal, reps and warranties, post-close obligations, etc.

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State Fraud and Abuse Laws Varies Widely By State • Usually not as stringent as Federal law, but can be moreso • Often based on Federal law • A deal or contractual arrangement cannot be appropriately structured without accounting for applicable state law

Examples • State physician self-referral restrictions (“mini-Stark”) • State anti-kickback prohibitions • Physician fee-splitting/sharing

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Corporate Practice of Medicine Generally prohibits a corporation/non-professional entity from employing or contracting with a physician/professional to practice medicine through the corporation Concern with non-physician owners influencing the independent medical judgment of employed physicians Practical effect – corporation cannot bill for physician services

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CPOM – Scope of the Prohibition Varies widely by state Some states not prohibited at all (e.g. Louisiana) Some states very strict, even precluding hospital employment of physicians/professionals (e.g. California) Generally recognized exception for professional corporations Most states with a CPOM prohibition have exceptions – key is finding them

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Other Considerations Physician Fee Splitting • Cousin to the CPOM prohibition • Prohibits a physician from splitting professional fee

HIPAA Licensing Audits/enforcement actions

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PAYING FOR THE PRACTICE AND PHYSICIANS

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Definition of Value – Fair Market Value The amount at which property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts (Revenue Ruling 59-60) The value in arm’s-length transactions, consistent with the general market value. “General market value” means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party on the date of acquisition of the asset or at the time of the agreement (42 CFR Section 411.351) 28

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Other Standards of Value

Investment Value: the value of a property to a particular investor Market Value: the price at which a center would transfer for cash or its equivalent under prevailing market conditions in an open and competitive market

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Application of Valuation Approaches A continuing education text published by the Internal Revenue Service in 1996 outlined methodologies for determining the value of a physician practice under the fair market value standard. • Income Approach • Market Approach • Asset Approach

Recent tax cases have affected the valuation communities thinking on physician practices • Bergquist v. Commissioner • Derby v. Commissioner

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Example Compensation Model The largest portion of the compensation methodology would be a productivity based compensation methodology which would pay the physicians on a per work RVU basis. Also, the physicians would receive additional compensation from meeting performance incentives based around quality improvements and operational efficiencies, as well as for participating in managing certain aspects of the service line or medical directorships.

Potential Compensation Methodology

Work RVU / Physician

X

Conversion Factor

=

Pro-forma Clinical Compensation / Physician

+

Optional: • Medical Directorship • Incentive Compensation • Call Coverage

=

Total Compensation Pool

Example Incentives Quality Performance Elements











Patient Satisfaction Infection Rates Unplanned return to surgery Demand Matching SCIP Core Measure Compliance Risk Adjusted Complication Rates Risk Adjusted Mortality Rates Readmission Rates Medical Records Compliance AMI  Aspirin at Arrival  Aspirin at Discharge  ACE inhibitor use for LSVD  Beta blocker prescribed at discharge
CHF  Discharge Instructions  LVF Assessment  ACE inhibitor use for LSVD  Adult smoking cessation counseling
Door to Balloon Time

Operational Performance Elements











First morning start times Room turnover time Standardized clinical care processes On time start rate Patient prep time Wait time Cancellation rates Utilization of block schedules Case Delays Patient Discharge by 11:00 am, by 2:00 pm
Admission Protocols
Staff turnover
Throughput

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Benchmark Surveys

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Data Available for Benchmarking wRVUs Professional Collections Encounters Total RVUs • Includes practice expense RVUS for designated health services (DHS) Total Collections • Includes ancillary revenues from DHS Operating Expenses

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Benchmarking Example Sub Specialty

FTE Status

Collections

25th Percentile

Benchmark 75th Median Percentile

90th Percentile

%ile

Non-Invasive/General

1.0

473,475

428,296

611,771

838,094

1,216,953

31P

Invasive/Interventional

0.6

350,134

610,536

762,549

962,796

1,204,643

24P

Electrophysiology

1.0

850,422

615,358

742,237

948,202

1,123,496

63P

Benchmark Specialty

FTE Status

wRVUs

25th Percentile

Median

75th Percentile

90th Percentile

%ile

Non-Invasive/General

1.0

5,770

5,408

7,117

9,315

12,134

30P

Invasive/Interventional

0.6

4,575

7,465

9,447

12,529

16,081

27P

Electrophysiology

1.0

12,293

8,040

9,846

12,447

17,116

74P

Is there a perfect correlations? How do I weigh these?

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Understanding Benchmarks Which survey(s) does not include sign on bonuses in total compensation? Which survey presents shareholder and nonshareholder data separately?

MGMA

AMGA

SCA

Which survey(s) include physicians providing full time administrative services with clinic based physicians?

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Compensation Analysis Should the physician producing at the 90th percentile wRVUs earn 90th percentile compensation per wRVU? • Maybe, but unlikely • The physician should not be compensated at the 90th percentile compensation per wRVU solely for clinical services • The 90th percentile compensation per wRVU should be earned through a culmination of multiple services

Specialty

wRVUs

Internal Medicine

7,214

General Cardiology Hem Onc

Comp / wRVU (75P) $

Extended Comp

90th %ile Comp

Comp / wRVU % Higher (90P)

50

$ 359,009

$ 316,038

113.6%

12,450

70

868,245

637,929

7,905

103

816,194

783,651

$

Extended Comp

% Higher

61

$ 443,255

140.3%

136.1%

92

1,144,716

179.4%

104.2%

127

1,004,208

128.1%

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Compensation per wRVU Trend

Source: MGMA Physician Compensation and Productivity Survey

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ANALYZE CODING/BILLING PRACTICES

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Taking the Pulse of the Practice Data is… Factual information, measurements or statistic used as a basis for reasoning, discussion, or calculation information in numerical form that can be digitally transmitted or processed* A collection of facts from which conclusions may be drawn; "statistical data”** Data is not… Data is just DATA and only as good as it is, “Garbage in, Garbage out” Means little without investigation and validation exercises

* Webster 2007 ** Wordnet 40

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Data: Taking the Pulse of the Practice

Using Billing Utilization & Frequency: determine patterns or trends over a period of time

By using the following what could we determine? • • • •

CPT Utilization Modifiers ICD-9 Utilization RVU/Encounter Rates

HEDIS® is a registered trademark of the National Committee for Quality Assurance (NCQA). 41

Data: Taking the Pulse of the Practice Agencies and Private Carriers: to determine "outliers". • (CMS Pub 100-08) … for early detection of potential risk areas

Investigative teams can efficiently focus on risk areas Proven Successful: Historically has offset investigational team costs As part CMS's Strategic Action 2006-2009, "CMS is also expanding the use of electronic data to more efficiently detect improper payments and program vulnerabilities"

Allows you to identify trends to: • Investigate Possible Risk Areas • Correct Potential Errors • Offers Opportunity to Find Lost Revenue

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Data: Taking the Pulse of the Practice Error Validation Review • Questionable billing practices • Alerts from: Beneficiaries, Other Carriers, Internal Complaints, Qui Tam…

Comprehensive Error Rate Testing “CERT” & HPMP for hospitals: • CMS monitors which services have high error rates (coding/billing)

Probe Review or Discovery Sample Reviews: Problems found are targeted • Probe review – Random Stratified Sample generally a small number of claims (ex: 20-40 individual, 100 for systemic) (OIG/CMS) • Large enough to provide a confidence result, but not large enough for reliable extrapolation to the universe. (to obtain repayment estimate) • Small enough to limit administrative burden. • Errors found as a result are subject to corrective action

Full Sample Review- For repayment • “Sufficient number of sampling units to yield results that estimate the overpayment in the population to be within a 90% confidence and 25% precision level.” (GAO) * Webster 2007 ** Wordnet 43

Data: Taking the Pulse of the Practice Review data for unusual trends (All Code-sets) • E&M Bell Curves • Codes misaligned for usual business • Codes seeming to have unexplained frequencies

Review Documentation- review random chart sample Create Action Plan Take Further Action as Necessary Provide Education to Practitioners, Clinicians & Staff Perform Additional Review(s) to Ensure Compliance

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Data: Taking the Pulse of the Practice Medicare Provider Analysis and Review “MEDPAR” Data

• Publicly Available: http://www.cms.hhs.gov/MedicareFeeforSvcPartsAB/0 4_MedicareUtilizationforPartB.asp • Website thread: • • • • • • •

www.cms.gov Click on “Research, Data & Systems” Click on “Medicare Fee for Service for Parts A & B” Click on “Medicare Utilization for Part B” Find “Evaluation and Management Codes by Specialty” Opens as Adobe (.pdf) File (convert to MS Excel) CY 2012 available now, CY 2013 should be released soon 45

Data: Taking the Pulse of the Practice Vision of the Practice: Group Averages Previous Year • By Provider • By Group

“Model” Provider Some data is sold for this purpose. • Research before use or purchase • Many vendors sell MEDPAR data in easier to use formats as the comparison source. • May not work for all specialties (Ex: OB/GYN, Pediatrics) 46

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Data: Taking the Pulse of the Practice Utilization of Primary CPT and Add-on codes • 17000 and 17003 • 90471 and 90472

Modifier usage • 25, 59, 58 v 78, GA, GY, GC, GZ

Services for which equipment isn’t consistent • 81000 (non-automated) vs. 81002 (automated)

Services coded outside of Specialty Norms • Primary Care Infusion: Chemo vs. Infusion of Hydration

Units billed (HCPCS & CPT) • Unusually high or low billing units vs. normal practice 47

Data: Taking the Pulse of the Practice Does this represent a typical patient base for the practice? Are E&M average visits lower/higher than expected? • Volumes of younger patients w/acute problems or older with chronic illness(es)? • Walk in clinic, minor problems? • Is your provider new to the practice billing higher levels for thorough visits until familiar with their conditions/record? Is the volume of patients/day, value per visit reasonable? The procedures/diagnostics as would be expected and at ratio to one another? Review sample charts to verify concerns/validate accuracy

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Data: Taking the Pulse of the Practice Patient Population, Payor Mix / Carrier requirements: • • • •

“G” Screening Codes “G” Vaccine Administration “Q” Specimen Handling codes Vaccines given vs. # of Administration Charges

Surgical Combination Codes Fluoroscopy/Guidance Use vs. Frequency Reported Post op visits (99024): CPT with global periods performed? Price of 1 Unit vs. Total Units Average: Fee adjustments?

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Data: Taking the Pulse of the Practice

V code use with certain CPT & HCPCS Codes Screenings with appropriate screening codes? Frequency of non-specific ICD-9 use? • Specific options? (type, cause, site…) • Is the specialty conducive to evidence of specific conditions? • Endocrinology (250.00-250.93, 246.9…) • Orthopedics (Fracture ICD-9 w/out sites) • Cardiology (401.9, 410.90,…)

• Impact on P4P (Medicare Part C): HCC payments 50

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Darryl Landahl, Bryan Cave; (303) 866-0527; [email protected] Curtis Bernstein, Altegra Health; (720) 240-4440; [email protected] Kelly Loya, Altegra Health; (704) 287-4545; [email protected]

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