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With reimbursement levels declining, physicians and hospitals continue to look for ways to diversify their businesses. Historically, ancillary joint venture arrangements were a very attractive vehicle for increasing revenues. These joint venture arrangements typically included ambulatory surgical centers (ASCs), diagnostic imaging centers, equipment leasing arrangements and real estate investments. With continued financial pressure in the health care industry, we are beginning to see a concerted effort to align physician and hospital incentives through the emergence of specialty health care ventures. These ventures, including specialty hospitals, gainsharing arrangements and specialty purchasing groups and alliances, commonly known as "group purchasing organizations" (GPOs), provide a mechanism through which certain physician specialists and hospitals can control and reduce costs, increase efficiencies and enhance quality of care. The ventures, however, are not without risk.
Specialty Hospitals and Stark Generally, Stark prohibits a physician (or immediate family member) who has a financial relationship with an entity from making referrals to that entity for the furnishing of designated health services for which payment may be made under the Federal health care programs, unless an exception or safe harbor is satisfied. Stark is often implicated in the specialty hospital context, because physicians make referrals for designated health services, including inpatient hospital services, to the entity and have an ownership or compensation relationship with the entity. Prior to the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), specialty hospitals benefited from the "whole-hospital" exception of Stark, which protected a physician’s interest in a hospital, provided the referring physician was authorized to perform services at the hospital and the ownership or investment interest was in the hospital itself (not in a subdivision of the hospital). MMA, however, amended the "whole-hospital" exception of the Stark law and added an additional requirement to the exception, which specified that for an 18-month period (ending in June 2005), physician ownership and investment interests in specialty hospitals would not qualify for the exception. Although the U.S. Congress ignored efforts to extend the moratorium, allowing it to expire in June 2005, the Centers for Medicare and Medicaid Services (CMS) subsequently announced that it would review procedures over a 6-month period and continue the suspension until February 2006. Last year, the Deficit Reduction Act of 2005 (DRA) was adopted by Congress. Under the DRA, the Department of Health and Human Services (HHS) was to develop a strategic and implementing plan regarding physician investment in specialty hospitals and include recommendations for legislative and administrative action. Recently, HHS submitted its report to Congress, which outlines plans to address physician ownership in specialty hospitals and end the administrative moratorium on specialty hospital enrollment in the Medicare program. Specifically, in an era of transparency and disclosure, specialty hospitals will, among other things, be required to disclose to CMS their compensation and investment relationships with physicians in the new Medicare enrollment forms. CMS will use this information to monitor physician and hospital compliance with the Stark law. Importantly, however, with the issuance of HHS’s report on specialty hospitals under DRA, came the end of the moratorium on the development of specialty hospitals and a new opportunity for physician specialists (including orthopedic and cardiac surgeons) and hospitals to co-invest. Physicians and hospitals should be aware that specialty hospitals will continue to present challenges under the federal Anti-Kickback Statute. Gainsharing Arrangements and the Federal Civil Monetary Penalties Law Gainsharing arrangements have been broadly defined as "arrangements pursuant to which a hospital provides physicians a percentage share of any reduction in the hospital’s costs for patient care attributable in part to the physicians’ efforts." Cost saving recommendations generally include product standardization, product substitution, open as needed and use as needed recommendations. Depending upon how they are structured, these cost-saving arrangements may implicate certain laws, most notably the federal Civil Monetary Penalties law. The federal Civil Monetary Penalties Law prohibits a hospital from knowingly making a payment, directly or indirectly, to a physician as an inducement to reduce or limit services provided with respect to Medicare or Medicaid beneficiaries who are under the direct care of the physician. Physicians and hospitals which enter into such impermissible arrangements will be subject to penalties. Although originally frowned upon by the OIG, such arrangements have recently gained the OIG’s approval, provided they are structured not to conflict with law and include certain safeguards. Recently, the OIG has refused to impose sanctions on several proposed gainsharing arrangements between hospitals and physician specialists, including cardiologists. Under the proposed arrangements, the OIG has generally identified the following safeguards as minimizing any risk of abuse: · Transparency of the arrangement as evidenced by specific cost-saving actions and resulting savings. Accordingly, gainsharing arrangements, if properly structured, can provide physician specialists and hospitals a viable alternative for reducing costs and increasing the bottom line. Specialty GPOs and the Federal Anti-Kickback Statute Other businesses focused on cost reduction are health care purchasers in the medical supply chain. GPOs are purchasing agents authorized to act for their members, thus allowing them to enter into agreements with manufacturers through which items and supplies can be purchased by members at competitive prices. Since GPOs are funded by fees received from manufacturers, they are able to furnish these services at little cost to their members. Given their tremendous benefits, physician groups (such as orthopedic surgeons) and hospitals looking for purchasing power, alternative revenue streams and value adds have begun to invest in and develop their own specialty GPOs. These arrangements, however, are not without risk, since many of the payment arrangements often implicate the federal Anti-Kickback Statute. Generally, the federal Anti-Kickback Statute prohibits an individual or entity from knowingly and willfully offering or paying, or from soliciting or receiving, remuneration in order to induce the referral or the arranging for the referral of business reimbursed by Federal health care programs. OIG has adopted safe harbors to protect certain payment arrangements under the GPO model. Administrative Fees and Discounts Since GPOs are in a position to arrange for the referral of business to suppliers (through their negotiation of contracts for the benefit of their members) and receive administrative fees in return for these services, a GPO’s arrangement with a supplier implicates the federal Anti-Kickback Statute. These fees represent the bulk of a GPO’s revenue and, therefore, protection of these arrangements is critical to a GPO’s financial survival. The group purchasing organizations safe harbor is designed to protect administrative fees from a supplier to a GPO. Discounts give a manufacturer the ability to provide health care purchasers, in this case physicians and hospitals, with more competitive pricing. Discounts, however, implicate the federal Anti-Kickback Statute because they are viewed as remuneration being transferred to a physician or hospital which is in a position to purchase items or services from the supplier providing the discount. There is safe harbor protection for certain discounts to physician and hospital members who enter into contracts with manufacturers, provided the parties comply with certain disclosure and reporting obligations. Distribution and Dividend Payments Although there are safe harbor provisions that protect administrative fees and discounts, the safe harbor regulations do not necessarily offer protection to any dividend and distribution payments made to the physician and hospital owners of the GPO. On the contrary, the only potential safe harbor is the investment interests safe harbor for small investments. To obtain protection under this safe harbor, however, a GPO has to satisfy a number of stringent requirements. These strict requirements may significantly impair the ability of a physician and hospital member-owned GPO to achieve safe harbor protection since the OIG may take the position that since the physician and hospital owners would also be purchasing members of the GPO, they would be in a position to refer and generate revenues for the GPO. Because the Anti-Kickback Statute is a criminal statute, however, failure to fall within a safe harbor does not equate to violation of the law. Accordingly, if the dividend and distribution payments made to the physician and hospital owners are carefully structured in accordance with OIG’s position concerning health care joint ventures and other safe harbors requirements relevant to the proposed venture, the arrangement may pass muster under the statute. In this new era of specialty health care ventures, an effort is being made to align physician and hospital incentives and increase revenues and reduce costs. To manage the uncertainty and potential risk of liability presented by these and other health care ventures, physicians and hospitals should structure such ventures in conformance with regulatory guidance in this area. By John W. Jones, Jr., Esq. Source: Physician's News Digest John W. Jones, Jr., Esq., is a member of the Health Care Services Group at Pepper Hamilton in Philadelphia, Pa. |
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