Presenting a live 90-minute webinar with interactive Q&A Telemedicine Agreements: FMV, Commercial Reasonableness Compliance in Compensation Arrangements WEDNESDAY, AUGUST 8, 2018 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Luis A. Argueso, Director, HealthCare Appraisers, Denver Alex Houston, Senior Associate, HealthCare Appraisers, Boca Raton, Fla. Albert D. (Chip) Hutzler, Partner, HealthCare Appraisers, Delray Beach, Fla. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.
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Telemedicine Agreements: FMV and Commercial Reasonableness Compliance in Compensation Arrangements August 8 th, 2018
Presenters Luis A. Argueso, Director HealthCare Appraisers Email: Largueso@hcfmv.com Phone: 303-566-3174 Albert D. (Chip) Hutzler, JD, MBA, CVA, Partner HealthCare Appraisers Email: chutzler@hcfmv.com Phone: 561-330-3488 Alex J. Houston, JD, CHC, Senior Associate HealthCare Appraisers Email: ahouston@hcfmv.com Phone: 561-330-3488 6
Outline of Presentation I. Key developments related to the telemedicine industry II. Outline of the standard types of telemedicine service arrangements III. Laws those arrangements implicate IV. Commercial reasonableness and FMV requirements V. OIG opinions related to telemedicine arrangements VI. Opinions of commercial reasonableness in the telemedicine context VII. Key considerations for telemedicine FMV analyses 7
Key Developments 8
Key Developments Regulatory February 2018: Bipartisan Budget Act of 2018 April 2018: OIG Report on Medicare Telemedicine Payments July 2018: Calendar Year 2019 Medicare Physician Fee Schedule Proposed Rule Industry Heavy amounts of M&A activity Investment from venture capital and private equity Adoption of a variety of platforms from various players 9
Telemedicine Arrangements: Recent Structures 10
Summary of Telemedicine Arrangements Live face-to-face video between patients and practitioners Store-and-forward: saved data accessed by a remote practitioner to diagnose/treat patients (e.g., tele-dermatology) Remote monitoring of patients using medical devices (e.g., eicus and tele-rehab) List of specialties is continuously growing CMS emphasis on preventative telemedicine 11
CMS Policy Proposals Removal of restrictions on reimbursement Payment for three types of events: Telemedicine consult with patients Store-and-forward care using live video or images Interprofessional consultations Intent is to reimburse for telemedicine that reduces utilization Analysis of proposed relative value unit amounts show caution in the favorability of reimbursement 12
Compensation & Compliance 13
Overview of Legal Environment Three key laws/regulations: Anti-Kickback Statute: 42 U.S.C. 1320a-7(b) Stark Law: 42 U.S.C. 1395nn IRS and Private Inurement: 26 C.F.R. 1.501(c)(3)- 1(c)(2) Intent of statutes Improper financial incentives can influence physician decision-making and patient care Affects utilization, patient choice, and competition Why comply? Stark Law is strict liability Penalties (monetary and otherwise) are severe Telemedicine is on the OIG s radar 14
Anti-Kickback Statute Criminal Statute (violation constitutes a felony) Prohibits intentional payment for referrals Safe Harbors offer protection For Service Arrangements: 42 C.F.R. 1001.952(d)(5): Fair Market Value (FMV) 42 C.F.R. 1001.952(d)(7): Commercial Reasonableness OIG Advisory Opinions frequently require FMV 15
Stark Law Civil Statute (not criminal) Prohibits financial relationships between physicians and DHS entities to which they refer unless an exception is met DHS = Designated Health Service Stark exceptions typically require 3 tenets of defensibility: FMV, commercially reasonable, does not take into account DHS referrals For Service Arrangements: 42 C.F.R. 411.357(d)(v): Fair Market Value (FMV) 42 C.F.R. 411.357(d)(iii): Commercial Reasonableness 16
IRS Private Inurement Guidance Applicable to nonprofit entities Prohibits the use of public funds to benefit private individuals or for-profit entities What is legitimate compensation? Payments for services needed to ensure the nonprofit mission Payments must not exceed FMV for the services provided Penalties: loss of nonprofit status or sanctions Relevant rule: 26 C.F.R. 1.501(c)(3)- 1(c)(2) 17
How are telemedicine arrangements implicated? Often involve compensation from DHS entities Potential for referrals between numerous parties: Hospitals referring patients for follow-up visits to specialist telemedicine providers Telemedicine providers referring patients to facilities funding or operating the telemedicine service Concerns with providing a benefit for below-market levels in exchange for referrals (e.g., hub receiving referrals from spoke facilities) 18
Commercial Reasonableness and FMV Requirements 19
Commercial Reasonableness Defined No statutory or regulatory definition Generally, an arrangement that would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential business referrals between the parties (modified from International Glossary of Business Valuation Terms) For telemedicine: Is the arrangement consistent with prevailing market practices? Is there a matching between the compensation terms and scope of services? Does the telemedicine arrangement stand on its own, independent of potential referrals? 20
Fair Market Value Defined Stark Statute FMV: The value in arm s length transactions, consistent with the general market value (1877 (h)(3) of the Social Security Act) Narrower regulatory definition of FMV (42 CFR 411.351): The value in arm s-length transactions, consistent with the general market value. General market value means 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 [Emphasis added]. Compensation does not take into account the volume or value of anticipated or actual DHS referrals 11 Categories of Designated Health Services ( DHS ) Examples: clinical lab services, radiology and certain other imaging services, radiation therapy and supplies, outpatient prescription drugs, inpatient and outpatient hospital services, etc. 21
CMS Commentary on FMV Burden of establishing FMV rests with the parties Appropriate valuation methods CMS will not provide bright-line standards Based on facts and circumstances Look to nature of the transaction, location and other factors Limited guidance from CMS External valuations may be relevant to intent but will not ensure FMV BUT: while internal valuations are okay, they are susceptible to manipulation, do not have strong evidentiary value and are subject to more intensive scrutiny (i.e., external valuations are preferred). Use of multiple, objective, independently published surveys is prudent Documentation sufficient to support FMV will vary no rule of thumb 22
OIG Advisory Opinions Related to Telemedicine 23
OIG Advisory Opinions: Part 1 No. 98-18 Ophthalmologist subleased telemed equipment to optometrist OIG imposed no sanctions because: (1) the equipment was leased at FMV rates, (2) optometrist would not market availability of telemedicine, (3) no fee would be charged by optometrist for MD consults No. 99-14 Health system operated a hub-and-spoke program funded by grant OIG imposed no sanctions because: (1) policy favoring rural telemed networks, (2) oversight by gov t agencies during grant period, (3) compliance with grant terms, (4) comprehensiveness of services offered, (5) limited remuneration during postgrant period, and (6) significant community benefit 24
OIG Advisory Opinions: Part 2 No. 04-07 Health system provides consultative services to school-based clinics through telemedicine OIG did not impose sanctions: (1) physicians were not reimbursed for services, (2) no referrals to specific providers, and (3) community benefit of program. No. 11-12 Health system would provide tele-stroke consults to community hospitals OIG did not impose sanctions: (1) no requirement or encouragement of referrals, (2) reduction of patients transfers, (3) nature of stroke medicine, and (4) limited services billable to Medicare 25
New OIG Advisory Opinion: No. 18-03 No. 18-03 FQHC look-alike provides free IT equipment and services to a county clinic FQHC look-alike receives grant funding for HIV prevention and the equipment/services would be used solely for that purpose Telemedicine would facilitate look-alike to provide PrEP and PEP consults, which the clinic could not provide prior. Free equipment/services could be considered an inducement to refer. Look-alike operates a pharmacy. OIG determined low risk of fraud and abuse because: (1) safeguards to prevent patient steering; (2) neither party would recommend use of look-alike s pharmacy, (3) arrangement would not inappropriately increase costs, and (4) primary beneficiaries are clinic patients who need prompt access to care. 26
Commercial Reasonableness and Telemedicine 27
Market Norms in Telemedicine Recognition of telemedicine as an integral form of medical care Shift from fee-for-service to value-based reimbursement has shown the benefits of telemedicine Demographic changes resulting in the need for more care (aging and depopulation of rural areas) Expansion of reimbursement for telemedicine 28
Telemedicine Arrangements: Recent Structures 29
FMV and Telemedicine 30
Drivers of Fair Market Value: Overview Limited guidance from OIG regarding FMV compensation for telemedicine Relative youth of industry makes FMV assessments difficult where is the market today? Varying modalities of telemedicine causes further complication Prevalence of venture capital and private equity investments in digital health causes strategic value concerns Necessary to identify comparable services and appropriate adjustments specific to telemedicine 31
Drivers of FMV: Part 1 Availability: what are the hours of operation and what is the expected response time? Specialty: which medical specialties are involved in the service? Provider Type: who is delivering the medical services (e.g., MD, APP, counselor)? Frequency of Events: how often is a telemedicine service provided? 32
Drivers of FMV: Part 2 Level of Care: what is the scope and complexity of the service provided? Alternatives: absent telemedicine, how else could the healthcare services be provided? Payment Mechanism: how are the services paid for? Modality of Care: Live video Store-and-Forward Remote Monitoring 33
Drivers of FMV: Part 3 Extras : Setup and implementation Technology costs (fixed assets and software) Support costs (e.g., tech support) Reimbursement: what is the expected professional services revenue from the services? Last, but definitely not least. 34
Questions?