Health Care Contracting

Health Care Contracting Best Practices Toolkit and Three Tenets of Defensibility Presented by Presented at The Alaska State Hospital and Nursing Home Association Annual Conference September 27, 2017 Barbra Z. Nault, Esq. bnault@hallrender.com Stephen D. Rose, Esq. srose@hallrender.com

Agenda Part I: Introductory Concepts The Road to Compliance The Enforcement Environment Part II: Overview of the Regulatory Standards Anti-Kickback Stark Law False Claims Act Yates Memo Part III: Case Studies Part IV: Best Practices Toolkit 2

3 Part I: Introductory Concepts

The Road to Compliance The Current Climate: More integration and financial relationships with referring physicians More physician compensation arrangements that are tied to quality and/or value metrics More alternative payment models (e.g., CJR, BPCI, MIPS and APMs, etc.) in the market Despite reforms, the health care industry must still comply with a rigid and technical (mostly Stark Law) regulatory framework Recent enforcement + disproportionate penalty structure = Enterprise Risk "Toolkit" of Considerations for Managing Risk: Financial relationships must be defensible under the all applicable health care laws Must focus on demonstrating the 3 Tenets of Defensibility: Fair market value ("FMV"), commercial reasonableness ("CR") and not taking into account ("TIA") referrals Documentation and governance processes (e.g., business planning, valuation, etc.) should support defensibility For CMS Innovation Models (e.g., ACOs, BPCI, CCJR, etc.) focus on meeting the applicable technical requirements and the fraud and abuse waiver requirements For cost-control models, must also focus on building in safeguards to ensure the models do not incentivize reductions in medically necessary services 4

Enforcement Environment: A Bit Hostile? Enforcement (on both federal and state level) IRS, DOJ, CMS, OIG, state AG, HRSA, OCR, ZPIC, MAC, MIC, etc. Whistleblowers/qui tam relators Civil claims, criminal liability, stiff penalties Media and public scrutiny Political focus on health care reform 5

6 Part II: Overview of the Regulatory Standards

7 Regulatory Framework Federal Health Care Programs Anti-Kickback Statute Federal Stark Law False Claims Act Civil Monetary Penalties Law EMTALA HIPAA Non-Profit and Tax Exemption Issues Antitrust Compliance State Law Issues

8 The Anti-Kickback Statute Criminal Statute: Prohibits paying "compensation" to induce items or services payable under federal health care programs Intent is required (case law allows for inference of intent) Broad and subjective statute Safe Harbors: Protection requires strict compliance with all conditions of the applicable safe harbor Safe harbor compliance is voluntary Failure to comply with a safe harbor does not mean an arrangement is illegal Arrangements that do not fit in a safe harbor must be evaluated on a case-bycase basis

Stark's General Framework If a Physician has a Financial Relationship with an Entity: Then the Physician may not make a referral to that Entity for the furnishing of designated health services ("DHS") for which payment may be made under Medicare; and The Entity may not bill Medicare, an individual, or another payor for the DHS performed pursuant to the prohibited Referral... unless the arrangement fits squarely within a Stark exception ThresholdCompliance Statute: Strict liability no intent required. Civil (non-criminal statute) Triggered by "technical" violations, inadvertence and error Your regulatory "Litmus Test" 16

False Claims Act Liability for Certain Acts: Knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval Knowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim Knowingly avoids or decreases an obligation to pay or transit money or property to the government Knowingly means there is actual knowledge; acts in deliberate indifference to the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information requires NO proof of intent to defraud 10

The Yates Memo Guidelines issued September 9, 2015 by Deputy A.G. Sally Yates Stressed focus on individual accountability in DOJ prosecutions Identified several changes to DOJ policy, including: To be eligible for any cooperation credit, corporations must provide all relevant facts about individuals involved in misconduct Corporate investigations should focus on individuals from beginning Absent extraordinary circumstances, a corporate resolution will not provide protection to individuals Attorneys should consider factors beyond an individual's ability to pay 11

12 Part III: Case Studies

Recent Cases and Settlements New York Heart Center $1.33 million Infirmary Health System $24.5 million All Children's Health System $7 million Halifax Hospital $85 million King's Daughters Medical Center $40.9 million Memorial Health $9.8 million Tuomey Healthcare System $72.4 million Adventist Health System $115 million North Broward Hospital District $69.5 million Columbus Regional Health $35 million Dr. Andrew Pippas $425 thousand Westchester Medical Center $18.8 million Citizens Medical Center $21.8 million Lexington Medical Center $17 million Tenet Healthcare Corp. $513 million 13

Focus on 3 Tenents of Defensibility The Tuomey Case FMV CR TIA The Halifax Case FMV CR TIA 14

15 Focus on Defensible Business Planning

16 Focus on Defensible Valuation

17 Focus on Penalties and Enterprise Risk

18 Emanuele v. Medicor Associates: Facts Private cardiology group joined a tertiary care facility to form a heart institute, including 6 Medical Director Agreements Agreements automatically terminated Dec. 31, 2006; parties did not renew until Nov. 29, 2007 Memo from SVP, Medical Director: "It is my understanding that the first 5 of these contracts officially expired on December 31, 2006; however, we have continued to operate under these agreements It is our suggestion that contracts be prepared to cover the period from January 1, 2007 until December 31, 2007" This occurred again in 2008 and 2009 with the parties entering into backdated addenda until the agreements expired in 2010 Further, beginning in 2008, one of the physicians was receiving pay for administrative duties without a documented, formal arrangement

19 Emanuele Practical Takeaways Providers must exercise caution in documenting physician arrangements Any "collection of documents" relied upon must contain at least one contemporaneous writing, signed by the parties Contemporaneous writing signed by the parties must have key terms in order to satisfy goal of transparency embodied in Stark Law's writing requirement The collection of documents must also describe: Identifiable services; A timeframe; and A rate of compensation Unsigned drafts, emails, memos are unlikely to be sufficient

Hammett v. Lexington Medical Center New Settlement: $17 million; Dr. Hammett: $4.5 million The absence of the directed referrals language, combined with counseling to refer, used as allegation to question CR Narrow rule allowing directed referrals in 411.354(d)(4) Includes: in writing, must state carve-outs: patient's, insurer's, physician's judgment; only to advance legitimate business purposes of the compensation arrangement If referral counseling is to occur, documenting the directed referrals rule may offer some protection 20

21 Part IV: Best Practices Toolkit

Key Tool: Contracting and Compensation Audits Phase I: Contracting and Compensation Process Review Review current policies and procedures Onsite review of current processes Phase II: Process Development Revise and/or develop specific policies and procedures Phase III: Compliance Education Physician Contracting Staff Members Management Governing Board 22

23 Key Tool: The Anti-Kickback Safe Harbors

Key Tool: The Stark Exceptions Common Stark Exceptions: Rental of Office Space or Equipment Physician Recruitment Personal Service and FMV Exceptions Isolated Transactions Bona Fide Employment In-Office Ancillary Services New in 2016 - Assistance to Compensate an NPP New in 2016 - Time Share Arrangements Common Elements of the Stark Exceptions: The arrangement must be set out in writing and signed by the parties The arrangement must be commercially reasonable, and compensation must be consistent with fair market value Compensation must be set in advance and not take into account the volume or value of referrals generated between the parties 24

25 Key Tool: The 3 Tenets of Defensibility Fair Market Value Narrow Regulatory Definition 42 CFR 411.351 Best Regulatory Position: FMV should be determined based on services that are personally performed and based on the quantity and intensity of the physician's own work effort Reference multiple, objective, independently published salary surveys Commercial Reasonableness No statutory or regulatory definition Document the appropriate subjective and objective non-referral based supporting business factors The "Taking into Account" Prohibition Compensation cannot be calculated in a manner that takes into account a physician's DHS referrals Document the non-referral based business factors that support the arrangement Avoid actions that may be misconstrued as taking into account referrals (e.g., documentation referencing anticipated referrals, processes, projections, etc.)

26 Key Tool: Compensation Processes Initial and periodic reviews Commencement of the arrangement Periodically (e.g., quarterly, annually) Prior to material changes If compensation exceeds (or likely will exceed) established thresholds Suspension of contracting processes Payment withhold FMV and commercial reasonableness analysis Development of supporting documentation before payment Ongoing reviews of compliance with existing supporting documentation and written FMV opinions 26

27 Key Tool: CMS Fraud and Abuse Waivers Current Issued Waivers Pioneer Accountable Care Organization (ACO) Model Bundled Payment for Care Improvement (BPCI) Models Health Care Innovation Awards (HCIA) Round Two Comprehensive ESRD Care (CEC) Model Comprehensive Care for Joint Replacement (CJR) Model Next Generation ACO Model Medicare Shared Savings Program Caution from CMS Eligibility Individuals or entities seeking waiver protection should keep in mind that a waiver will apply to their arrangement(s) only if the are eligible to use the waiver and all conditions of the waiver are met. Legal Counsel Consult with legal counsel as necessary to ensure that waivers are available and that arrangements for which you seek waiver protection meet all required conditions.

Key Tool: Gainsharing Models The CMP Law Prohibits: A hospital or critical access hospitals from knowingly making payments, directly or indirectly, to a physician as an inducement to reduce medically necessary services provided to Medicare (Parts A or B) or Medicaid beneficiaries under the direct care of the physician Penalties CMP of $2,000 per patient covered by the arrangement Both the hospital and the physician receiving payment are subject to liability Blending of Co-Management/Gainsharing Standards 28

29 Key Tool: Gainsharing Safeguards OIG Statement (10/03/14): "OIG would be unlikely to bring a case against a hospital or physician for a gainsharing arrangement that included patient and program safeguards such as those identified in our advisory opinions" Example Safeguards from OIG Advisory Opinion 12-22: Cost savings measures based on evidence & clinical outcomes An external valuation regarding the FMV of the fixed and performance-based components of compensation An independent third party review of performance fee factors and clinical outcomes Performance fee structures with safeguards that addressed historic concerns: Conditioned on the physician not: (i) stinting on care; (ii) increasing referrals to the hospital; (iii) cherry picking patients or those with desirable insurance; or (iv) accelerating patient discharges

30 30 Key Tool: Performance Categories

Key Tool: Compliance Program Office of Inspector General's seven elements for an effective compliance program: 1. Standards of Conduct/Written Policies and Procedures 2. Compliance Officer and Committee 3. Effective Training and Education 4. Effective Lines of Communication (Reporting) 5. Auditing and Monitoring 6. Enforcing Disciplinary Guidelines 7. Responding to Detected Offenses and Taking Corrective Action 31

32

33 Recap: Tools and Takeaways Compensation arrangements must be defensible under the all applicable health care laws (e.g., Anti-Kickback, Stark Law, CMP, etc.) Focus on demonstrating the 3 Tenets of Defensibility: Fair market value, commercial reasonableness and not taking into account referrals Documentation and governance processes (e.g., business planning, valuation, etc.) should support defensibility from inception through performance For gainsharing models, also focus on safeguards that ensure gainsharing models do not incentivize reductions in medically necessary services For CMS Innovation Models (e.g., ACOs, BPCI, CCJR, etc.) focus on meeting the applicable technical and fraud and abuse waiver requirements Closely scrutinize any quality metrics New models should align with payor arrangements and evolving reimbursement Critical to monitor the evolving enforcement environment

Please visit the Hall Render Blog at http://blogs.hallrender.com for more information on topics related to health care law. Barbra Z. Nault, Esq. bnault@hallrender.com Stephen D. Rose, Esq. srose@hallrender.com This presentation is solely for educational purposes and the matters presented herein do not constitute legal advice with respect to your particular situation. Anchorage Annapolis Dallas Denver Detroit Indianapolis Louisville Milwaukee Philadelphia Raleigh Seattle Washington, D.C.