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July 9, 2015

OCR Announces Consolidation of Kansas City and Chicago Branches

On April 20, 2015, the Department of Health and Human Services' Office of Inspector General, in partnership with the American Health Lawyers Association and the Association of Healthcare Internal Auditors, published Practical Guidance for Health Care Governing Boards on Compliance Oversight, which describes the OIG's expectations of the compliance oversight role healthcare governing boards (e.g., Board of Directors of a hospital) should play in a healthcare organization. For a summary of this guidance, please visit:

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May 22, 2015


Recently, pharmacies (specifically compounding pharmacies) across the country have begun receiving letters from the U.S. Department of Justice (DOJ) notifying them that the pharmacy is being investigated for fraud under the False Claims Act for knowingly billing for drugs that were not medically necessary. Industry insiders have reported that, just yesterday (on 5/21/2015), at least four pharmacies received these investigation notices from the DOJ. The industry insiders also reported that the letters were hand-delivered on Thursday, May 21, 2015, by U.S. Navy CIS agents, were signed by the U.S. Attorney General, and demanded that the pharmacies respond to the billing fraud allegations within twenty (20) days.

Further, pharmacies are being investigated and receiving DOJ letters specifically related to their contacts with patients, and allegations of impropriety regarding the same. These actions/letters are, of course, somewhat related to major recent developments related to Tricare's scrutiny of compounding pharmacies. For more information, please see the Enhanced Compound Ingredient Screening Notice issued by the Department of Defense's Pharmacy Operations Division on May 11, 2015, which is available here.

Letters from the DOJ alleging billing fraud, False Claims Act violations, or referencing a DOJ investigation are extremely time-sensitive. False Claims Act fines and penalties can be crippling for a pharmacy. A pharmacy that receives such a letter must act quickly to engage experienced healthcare legal counsel to defend it against these allegations and to represent them during the investigation.

The Health Law Partners, P.C. (HLP), is a full-service healthcare law firm representing pharmacies and other healthcare entities across the country. Healthcare regulatory matters are extremely complex and frequently evolving, and healthcare investigations require representation by attorneys experienced in such matters. The attorneys at HLP specialize in healthcare fraud and abuse matters, including government investigations. HLP has experience defending pharmacies in DOJ investigations and understands the defenses available to fight allegations of billing fraud and False Claims Act violations.

If you received a letter from the DOJ regarding an investigation, or for more information, please contact Adrienne Dresevic, Esq.,, or Clinton Mikel, Esq.,, at (248) 996-8510.

February 4, 2015

Outpatient "Observation" Battle Continues

On January 22, 2015, in the case of Barrows v. Burwell, No. 3:11-cv-1703, 2015 WL 264727 (2nd Cir., January 22, 2015), the United States Court of Appeals for the Second Circuit ruled that Medicare beneficiaries be granted the opportunity to demonstrate a Constitutionally-protected property interest to challenge their patient status designations as hospital outpatients rather than inpatients.

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August 29, 2014

BCBSM Places Limits on Quantity of Highly Abused Narcotics

With the fight against prescription drug abuse reaching an all-time high, health insurance plans are now taking a proactive role in attempting to reduce the quantity of some of the most abused drugs in the marketplace. As of September 2, 2014, Blue Cross Blue Shield of Michigan (BCBSM) commercial plans (non-Medicare) will implement new quantity limits for Oxycodone immediate release tablets and capsules (sold under the brand names of Roxicodone an OxyIR) and Oxymorphone immediate release tablets (sold under the brand name of Opana) of 180 per 30 days. These new limits apply to all strengths of the generic and brand-name versions of these drugs. Some pain management physicians have expressed concern that such limitations are an attempt by the health insurance companies to usurp the medical judgment of treating physicians due to cost containment measures while others believe that such limitations are helpful in reducing the potential for unsupervised use, misuse or abuse of prescription painkillers that can lead to addiction, hospitalization and even death. BCBSM will entertain a written request from a prescriber for an override of the limitation that includes documentation that the amount prescribed is medically necessary. A quantity limit override form is available from BCBSM on its website.
The attorneys at The Health Law Partners have a significant amount of experience in the defense of health care fraud investigations and pharmacy legal matters. For more information regarding such matters, please contact Robert S. Iwrey, Esq. at (248) 996-8510 or

August 14, 2014

OIG Posts New Guidance for Submitting a Contractor Self-Disclosure

On August 12, 2014, the Office of Inspector General ("OIG") posted new guidance for contractors self-disclosing violations of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations or violations of the civil False Claims Act in connection with U.S. Department of Health and Human Services contracts or subcontracts. The Federal Acquisition Regulation ("FAR") requires federal contractors with contracts valued over $5 million to disclose to the OIG when they have credible evidence of one of these violations. The FAR contractor self-disclosure rule provides, in part:

(3)(i) The Contractor shall timely disclose, in writing, to the agency Office of the Inspector General (OIG), with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed-- (A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or (B) A violation of the civil False Claims Act (31 U.S.C. 3729-3733). (See, 48 CFR 52.203-13(b)(3)(i).)

The newly posted guidance instructs that self-disclosure made under the rule "are made with no advance agreement regarding possible OIG resolution of the matter and with no promises regarding potential civil or criminal actions by the U.S. Department of Justice." However, the guidance states that prompt disclosure, along with full cooperation, completed access to necessary records, restitution, and adequate corrective actions indicate an attitude of integrity even when self-disclosing potential criminal conduct.

The Guidance for Submitting a Contractor Self-Disclosure, the Contractor Self-Disclosure Form, and Frequently Asked Questions regarding the self-disclosure program are available on the OIG's website at

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August 13, 2013

HLP Publishes Client Alert on 2014 IPPS Final Rule

On August 2, 2013, the Centers for Medicare & Medicaid Services ("CMS") published its highly anticipated 2014 Inpatient Prospective Payment System ("IPPS") Final Rule (the "2014 IPPS Final Rule"). The 2014 IPPS Final Rule will be effective on October 1, 2013. There are two main aspects of the 2014 IPPS Final Rule that will significantly affect the day-to-day operations of hospitals nationwide: First, the 2014 IPPS Final Rule finalizes CMS' proposal to revise its "Payment Denial Policy" and allow billing of many services under Part B following a determination that a Part A inpatient claim will be denied as not medically necessary. Second, the IPPS Final Rule changes the criteria for coverage of Part A of inpatient hospital claims.

The HLP has prepared a Client Alert outlining key provisions of this important rule.

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August 6, 2013

New Inpatient Admission Requirements, Part B Inpatient Rebilling Policy Finalized

On August 2, 2013, the Centers for Medicare & Medicaid Services ("CMS") issued its highly anticipated 2014 inpatient prospective payment system ("IPPS") Final Rule (the "Final Rule"). Within this Final Rule, CMS finalized (1) its new requirements for Medicare Part A coverage of inpatient hospital admissions; and (2) its Part B inpatient rebilling policies.

Medicare Part A Coverage of Inpatient Hospital Admissions

Under the Final Rule, CMS adopts its proposal to presume that "inpatient hospital claims with lengths of stay greater than 2 midnights after the formal admission following the order will be presumed generally appropriate for Part A payment and will not be the focus of medical review efforts absent evidence of systematic gaming, abuse, or delays in the provision of care in an attempt to qualify for the 2-midnight presumption." See Final Rule at 1842.

This is a policy shift on the part of CMS. Under its previous policy, physicians admitting beneficiaries to inpatient status were instructed to use a 24-hour period as a benchmark (i.e., admitting physicians were instructed that they "should order admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis"). See Medicare Benefit Policy Manual (CMS Internet-Only Publication 100-02), Chapter 1, Section 10. However, there was no presumption of coverage tied to meeting this 24 hour benchmark.

Note that although a length of stay crossing 2 midnights could mean a 24 hour and 2 minute hospital stay, a length of stay crossing 2 midnights also could mean a 71 hour and 58 minute hospital stay.

The Final Rule also adopts CMS' proposal to require a physician's order to inpatient status before payment will be made for an inpatient claim. See Final Rule at 1789 et seq.

Part B Inpatient Rebilling

Under the Final Rule, CMS adopts its proposal to allow rebilling under Part B (following a denial of a Part A inpatient hospital claim) for many services (with certain notable exceptions, such as observation services). See Final Rule at 1653 et seq. The Final Rule retains many aspects of the Proposed Rule, including the following:

• Eventually rebilling will be limited to claims that are within 1 year of the date of service at issue; However, CMS is permitting hospitals to rebill under the timeframes set forth in Ruling 1455-R for claims eligible under the Ruling, as well as for services provided before October 1, 2013 that are denied after September 30, 2013;

• Certain services will be excluded from the opportunity to rebill, i.e. ED visits and observation services; However the Final Rule deviates from CMS' proposal in that it will allow hospitals to rebill physical therapy, occupational therapy and speech therapy services; and

• Administrative law judge jurisdiction remains limited to whether the Part A claim at issue was medically necessary.

The American Hospital Association ("AHA") has expressed its disappointment with the Final Rule as it relates to Part B inpatient rebilling and indicated its intent to proceed with its pending lawsuit against CMS related to this issue.

A more comprehensive summary will be forthcoming by way of HLP client alert. Please contact Jessica L. Gustafson, Esq. or Abby Pendleton, Esq. at (248) 996-8510 with any questions.

March 15, 2013

CMS Speaks: The Future for Payment of Part B Services Post-RAC Denial - CMS' Long-Term Solution Too Limiting!

On March 13, 2013, the Centers for Medicare and Medicaid Services ("CMS") concurrently issued Ruling CMS-1455-NR (the "Ruling") and a proposed rule for revising Medicare Part B billing policies in the event of Part A payment denials (the "Proposed Rule").


Since the conclusion of the Recovery Audit Contractor ("RAC") demonstration program and prior to March 13, 2013, CMS has taken the position that following a contractor's denial of a Part A inpatient hospital claim, hospitals were permitted to bill Medicare Part B for only a very limited portion of the denied services (i.e., the "ancillary services"). Moreover, these ancillary services could only be billed under Part B if such services were provided during the prior year under existing timely filing rules. Compounding the litany of financial problems created for hospitals from RAC denials, the RACs have denied an extraordinary number of short stay inpatient claims, in many cases many years following the dates of service, leaving hospitals with zero payment for services fully rendered, which the hospitals believe were reasonable and necessary under Part A. Although in many cases the RACs have determined that the services were reasonable and necessary as outpatient services, the RACs failed to provide Part B offset.

Accordingly, hospitals have had no choice but to vigorously pursue relief through the Medicare appeals process. In many cases, hospitals have argued that the inpatient services were medically necessary. Moreover, as an alternative, hospitals have argued that they are at least entitled to an offset under Part B (e.g., payment for outpatient observation services, payment for the procedure as if the patient had been an outpatient, etc.). Notably, some Administrative Law Judges ("ALJs") have agreed that to the extent the Part A denial is upheld, the hospital is entitled to Part B payment (not limited to ancillary services) and have ordered same ("Partially Favorable Decisions"). The Medicare Appeals Council likewise agrees and has issued many decisions to this effect. Although CMS has been vocal in its disagreement on this issue, in July of 2012, CMS issued a memorandum to its contractors providing instructions as to how to effectuate the Partially Favorable ALJ and MAC decisions. For the past few months, many ALJs have also started to remand cases back to the Qualified Independent Contractor ("QIC") stage of appeal as the QICs have ignored the hospitals' arguments related to the Part B offset issue. Amazingly, despite the remand orders, the QICs have been reissuing the exact same decisions made in the first instance, in essence failing to comply with the ALJ's orders and refusing to address the Part B offset issue.

CMS' position, as adopted by its contractors, has led to a significant financial impact on hospitals as well as resulted in the unnecessary unburdening of the Medicare appeals process.


Given pressures asserted by the hospital community, including the recent litigation over the above issues filed by the American Hospital Association and five (5) health systems, on March 13, 2013, CMS announced a new Ruling in conjunction with the release of a proposed rule to define Part B billing policies when a Part A claim for a hospital inpatient admission is denied as not medically reasonable and necessary. While this Ruling provides significant relief, CMS' continued position that outpatient observation services cannot be billed is troubling. Moreover, CMS proposed long term solution as set forth below is not palatable for the hospital community.



Ruling 1455-NR (the "Ruling") became effective immediately on March 13, 2013. The Ruling is the interim guideline until CMS finalizes the proposed rule on the issue, establishing a permanent policy. The Ruling reiterates CMS' position that the MAC and ALJ decisions discussed above are contrary to longstanding CMS policy that only allows billing for Part B ancillary services within a specified time from the dates of service (following a finding of Part A overpayment). The Ruling acknowledges that CMS is "acquiescing" to the ALJ and MAC decisions discussed above, and is applicable to all denials made (1) while the Ruling is in effect, (2) prior to the effective date of the Ruling where appeal rights have not expired, and (3) prior to the effective date for which an appeal is pending.

Summary of Billable Services under Ruling

When a Part A claim for inpatient services is denied by a Medicare contractor (not self-audit determinations or utilization review determinations) as not reasonable and necessary, the hospital may do the following:

1. Submit a Part B inpatient claim for more than just ancillary services. The hospital is entitled to bill a Part B inpatient claim for the Part B services that would have been payable had the beneficiary originally been treated as an outpatient rather than admitted as inpatient. However, CMS states that the hospital may NOT bill for those services that specifically require an outpatient status (e.g., outpatient visits, ED visits, and outpatient observation services). CMS' decision to not permit observation services is particularly problematic as many of the cases at issue involve admissions from the ER where observation services would be applicable.

2. Submit a Part B outpatient claim for reasonable and necessary services for the outpatient services furnished during the 3-day payment window prior to the original inpatient window, including ED visits and observation services.

No Duplicate Claims

In order to rebill the claims, a hospital cannot have an outstanding appeal for payment under Part A. In other words, a hospital must withdraw the pending Part A appeal or wait for an appeal decision to become final or binding before rebilling is allowed. Once a claim for Part B reimbursement is submitted, the hospital will no longer be able to pursue an appeal for the Part A claim.

Timeframe for Rebilling

While the Ruling is in effect, a hospital will have 180 days from the date of determination or dismissal of a Part A appeal to rebill under Part B. The Ruling retains the presumed date of receipt: 5 days from the date of the notice/decision unless there is evidence to the contrary.

Treatment of Current ALJ Remands

Cases that have been remanded by an ALJ will be returned to the ALJ level and adjudicated according to the new scope defined by this Ruling - namely, the ALJ may only decide if Part A inpatient billing was appropriate because the services provided were reasonable and medically necessary. According to the Ruling, it is CMS' position that the ALJ may not order Part B payment. Rather, the hospital must either withdraw the appeal from the ALJ or wait for a determination before rebilling for Part B services. This statement is particularly problematic, raising questions as to whether CMS has such authority via a memorandum ruling to essentially take away a provider's due process appeal rights. Hospitals who seek outpatient observation payment as an alternative are well advised to continue making arguments in the appeals process as such issues may need to be preserved for potential federal court cases. Patient Status (copayments, deductibles, etc.)

Under the Ruling, because a patient's status (inpatient vs. outpatient) cannot be changed after discharge, the patient will be considered an inpatient for Part B inpatient services billed, and an outpatient for Part B outpatient services billed.

Part A/B Rebilling Demonstration Terminated

The Ruling noted that the demonstration program for Part A to Part B billing, an experiment targeted at solving the problem of excessive lengths of observation care stays, is terminated since the Ruling and the permanent rule to follow are the perceived resolution to the problem.


The Ruling is only the interim solution. Also on March 13, 2013, CMS released a proposed rule to be published in the Federal Register on March 18, 2013, which would supersede the Ruling once issued as a final rule. The Proposed Rule would retain the right for hospitals to rebill under Part B for inpatient hospital services deemed not to be reasonable and medically necessary within the same scope as defined in the Ruling, but significantly narrows the circumstances for doing so. In fact, CMS readily admits that the Proposed Rule will "greatly limit the capacity in which a hospital could rebill," thus offsetting the cost to the Medicare program. The additional limitations not present in the Ruling, but introduced in the Proposed Rule are described below.

As detailed below, CMS's proposed long term solution is not a fair remedy for hospitals and must be challenged. Hospitals must take advantage of the comment period as well as continue to pursue legal recourse if necessary.

One Year from Service Limitation

The most significant problem with the proposed rule is CMS' position that Part B claims may only be filed within one (1) year of the beginning date of service, irrespective of any audit or decision on appeal. This severely restricts the availability of CMS' solution and casts doubt as to its real intention behind the Proposed Rule. If a determination is not made within one year of the beginning date of service (which will be the circumstances in most audit determinations outside of pre-payment review), a hospital will not be able to avail itself of Part B billing in the event that Part A services are found by an auditor to be not reasonable and medically necessary. CMS treats the billing as an original claim, and not as an adjustment.

Hospitals May "Self-Audit" and Rebill

Unlike the interim solution under the Ruling discussed above, the Proposed Rule would allow hospitals that discover inpatient hospital admissions to be not medically necessary in the course of utilization reviews to rebill these claims as Part B if the other requirements of the Proposed Rule are met. CMS anticipates that hospitals will increase "self-audits" and rebill under Part B, saving the Medicare program money by reducing the number of Part A claims. CMS also anticipates lower appeal volumes.

Patient Requirement and Treatment

For a hospital to be allowed to rebill services under Part B, the subject patient must be enrolled in Medicare Part B. The Proposed Rule also requires that any Part A payment collected from the patient be refunded. Additionally, the Proposed Rule contemplates requiring prior notice to patients about possible changes in deductible and cost sharing if Part A payment is denied. Patients would continue to be liable for Part B copayments, the full cost of drugs that are usually self-administered, and Part D coverage (the patient may pursue Part D reimbursement).
A patient's right to appeal a Part A inpatient admission denial is not extinguished by a hospital's submission of a Part B claim. If a patient has a pending Part A claim, the hospital may not file a concurrent Part B claim. If the patient's appeal is not decided within 12 months of the date of service, hospital will not be able to rebill under Part B.


While CMS purports to address the problem of increasing lengths of outpatient hospitalizations and resolve the piecemeal solution of MACs and ALJs ordering payment as if outpatient services were performed when it is determined that inpatient hospital services are not reasonable and medically necessary, in reality the Proposed Rule will not likely result in these solutions.

First, as noted above, in permitting hospitals to rebill claims as Part B claims if an inpatient hospital claim is denied as not medically necessary under Part A, CMS has expressly created an exception for rebilling observation services; this is not permitted. Therefore, as it is clear that RACs are continuing to aggressively deny hospital "short stay" cases, there is very little incentive for hospitals not to admit beneficiaries as outpatients and order observation services for the first 24-48 hours of each hospitalization, in cases where there beneficiary will require services that can be provided both to "outpatient observation" patients and inpatients (i.e., ongoing monitoring and assessment). This result decreases reimbursement to the hospitals, and increases costs passed along to beneficiaries and does not ensure "accurate" reimbursement.

Moreover, creating a result that ALJs are purportedly stripped of authority to issue "partially favorable" decisions raises significant due process concerns.

The one-year claims filing limitation included in the Proposed Rule would put a hospital between a rock and a hard place - it must decide whether to preemptively accept reduced payment when in fact it is very likely that an ALJ or MAC may find that inpatient hospital services were indeed medically necessary, or to risk losing all payment for medically necessary services rendered to the Medicare patient.

For the reasons described above, the Proposed Rule does not create a meaningful solution for hospitals, and will not result in more "accurate" payments being made to hospitals.

The HLP intends to submit comments to this Proposed Rule. For more information on the information addressed herein, including RACs, the Ruling or Proposed Rule, please contact Abby Pendleton or Jessica Gustafson at (248) 996-8510.

March 7, 2013

Abby Pendleton, Esq to Speak at The American Academy of Orthopaedic Surgeons Annual Meeting

Abby Pendleton, Esq. will be co-speaking with Jack Bert, M.D. and Ranjan Sachdev, M.D. MBA, CHC on March 19, 2013 at the American Academy of Orthopaedic Surgeons Annual Meeting in Chicago. They will be presenting on the topic "Compliance 2013- What You Need to Know".

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December 26, 2012

Hospital Employment of Surgeons on the Rise

It seems like every ten years or so the pendulum swings towards or away from physicians seeking employment from hospitals as opposed to heading off on their own or joining existing private physician practices. Over the last few years, the pendulum has swung towards hospital employment. A number of factors have arguably led to this trend including the desire by many physicians to focus their attention on practicing medicine and shifting the burden of billing, third party payor audits, EMR and compliance with the new myriad of federal healthcare regulations (e.g., Patient Protection and Affordable Care Act a/k/a "Obama Care") to the hospitals that have the resources to employ administrative staff to address such matters. A recent study published this month in the Archives of Surgery confirms this shift for surgeons. According to the study, from 2006 to 2011, the number of surgeons in a full-time hospital employment arrangement increased by 32%. Moreover, according to the American Medical News,by the end of 2013, only 36% of the nation's projected 792,594 practicing doctors will have a practice ownership stake.

In November 2012, the American Medical Association ("AMA") House of Delegates issued new guiding principles for physicians entering into employment and contractual arrangements. The Principles expressly urge both the employer and the employee to "obtain the advice of legal counsel experienced in physician employment matters when negotiating employment contracts." All too often, well-respected attorneys who do not specialize in the field of healthcare fail to address important issues specifically related to physician employment due to their lack of expertise on the subject. Typically, the review of a proposed employment contract only involves a handful of billable hours, and the benefit of having such a review is immeasurable when considering the duration of a physician's career.

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June 5, 2012

Viewing the Recent OIG Company Model Advisory Opinion for What It Truly Is: Meaningful Guidance That Must Be Incorporated Into These Arrangements (But Certainly Not the Death Knell to All Company Models Across the Country)

On June 1, 2012, the Department of Health and Human Services Office of Inspector General (the "OIG") issued its Advisory Opinion No. 12-06, which provides long-awaited guidance to the health care industry regarding the legal permissibility of an anesthesia delivery service model commonly referred to as the "company model." Insofar as Advisory Opinion No. 12-06 is the initial OIG guidance that specifically focuses on such an arrangement and determines that the factual paradigms presented implicate risks under the Medicare and Medicaid Antikickback Statute (the "AKS"), this Advisory Opinion understandably is capturing broad attention within the medical and legal communities. While OIG Advisory Opinion 12-06 clarifies the almost-axiomatic observation that company model arrangements, especially those that contain the indicia that the OIG historically has identified as problematic under the AKS, certainly have the potential to violate the AKS, the legal permissibility of each company model arrangement should continue to be analyzed based upon each arrangement's unique facts and circumstances. Stated otherwise, OIG Advisory Opinion 12-06 should not be interpreted to mean that all company model frameworks necessarily are violative of the AKS; rather, the Advisory Opinion reinforces the consistent guidance provided by The Health Law Partners that these arrangements need to incorporate the requisite structural safeguards.

Broad Overview of Company Model Arrangements and Related Controversy

A significant percentage of ASC procedures involve anesthesia services provided by an anesthesiologist or a certified registered nurse anesthetist ("CRNA"). Due to changes within the health care environment, including, in particular, contraction to reimbursement and an increased emphasis on quality and efficiency of patient care, an increasing number of ASCs around the country have transformed their relationships with the anesthesia providers from the normative arrangement (under which an independent anesthesia group bills fee-for-service for the anesthesia services that it furnishes at the ASC) to "company model" arrangement. Although there are a number of permutations of the structure, the company model generally involves the ASC or some or all of its physician owners (hereafter, in either case, the "ASC Physician Members") establishing a separate legal entity that will provide anesthesia services to the ASC by employing or contracting with anesthesia providers (the "New Company"). The New Company separately bills for the anesthesia services and then pays the anesthesia providers an agreed-upon rate (or contractual compensation in the case of employed anesthesiologists). As a result, the ASC Physician Members capture a portion of the anesthesia revenue generated from procedures furnished at the ASC (which, under the traditional paradigm, had been exclusively realized by the anesthesiologists).

The company model debate has prompted vigorous discussion within the health care bar. The legal dialogue, in particular, focuses upon the application of the AKS to the company model structure. In pertinent part, the AKS prohibits anyone from knowingly and willfully soliciting, receiving, offering or paying remuneration, in cash or in kind, to induce or in return for referrals of items or services payable by any federal health care program. Liability is imposed upon both parties to an impermissible transaction. The AKS has been interpreted to cover any arrangement where one purpose of the remuneration is to obtain money for referral of services or to induce further referrals, even if other salutary purposes exist. Violation of the AKS constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years or both. Conviction will also lead to automatic exclusion from federal health care programs, including Medicare and Medicaid and may result in the imposition of civil monetary penalties.

In the company model context, the profit that the ASC Physician Members derive from the anesthesia revenue at the ASC, in an improperly structured arrangement, potentially represents impermissible remuneration in the AKS context. In its most basic terms, the issue is whether, in substance, the ASC Physician Members are "converting their referral stream into a revenue stream." The theory is that the anesthesiologists would essentially be required to forego the anesthesia profit (in favor of the New Company) in exchange for the ability to provide (or, in the case of a then-current anesthesia provider, continue providing) anesthesia services at the ASC, and the ASC Physician Members would earn such profit, based in part, upon their referrals of such services to the anesthesiologists. As discussed below, the fact that the company model affords the ASC Physician Members the ability to capture anesthesia revenue, by itself, does not violate AKS insofar as the determinative element of any AKS violation is impermissible intent. Further, the Federal government is particularly concerned with arrangements that have the ability to negatively affect patient care and/or to result in overutilization. OIG Advisory Opinion No. 12-06 states "[t]he anti-kickback statute seeks to ensure that referrals will be based on sound medical judgment, and that health care professionals will compete for business based on quality and convenience, instead of paying for referrals." Any AKS analysis requires consideration of the aggregate facts and circumstances in light of available Federal guidance.

In our view, OIG Advisory Opinion No. 12-06 should be seen as corroborative of the AKS principles that the OIG has articulated in prior guidance. Thus, there is no unique company model jurisprudence. Rather, to the extent that a company model arrangement contains the suspect indicia that the OIG has consistently identified, then such an arrangement will assume a higher level on the risk spectrum, whereas, by contrast, company models that both demonstrate a clearer nexus between the ASC Physician Members and New Company's business (especially in the form of active participation, particularly focused towards the elevation of clinical care), and which avoid correlations between distributions to the ASC Physician Members and their referrals, the risks will be comparatively lower.

Recent OIG Advisory Opinion No. 12-06 and HLP Comments

In OIG Advisory Opinion No. 12-06, the OIG reviewed two proposals (i.e., Proposal A and B) (the "Proposed Arrangements") for modifying the relationship between certain ASCs and their exclusive provider of anesthesia services (the "Requestor") and determined that both of the Proposed Arrangements could potentially violate AKS and result in administrative sanctions.

At the outset, we note that Proposal A itself is not truly a "company model" arrangement. Proposal A involved the Requestor continuing to serve as the exclusive provider of anesthesia services and to bill and retain collections for its services, subject, however, to the requirement that it would pay the ASCs a per-patient fee for certain "management services" with respect to non-federal health care program patients. The OIG clarified that the proposed "carve out" of federal health care program patients is does not insulate the otherwise-defective structure from AKS scrutiny. The Federal government would view the relationship between the Requestor and the ASCs (which also included the provision of services to federal health care program patients) as a whole. The OIG noted that the ASCs were already essentially paid for such management services through the facility fee that the ASCs receive from Medicare and therefore, under Proposal A, the ASCs would be paid twice for the same services. Further, such management fee would have the potential to inappropriately dictate which anesthesia provider was selected by the ASC. The OIG's disapproval of Proposal A reaffirms the position that HLP has consistently taken that conditioning a provider's (e.g., an anesthesiologist's) right to perform services upon entry into a contractual arrangement with a group of physicians who potentially control the referrals to such provider (e.g., ASC Physician Members) can implicate substantial regulatory risks.

In contrast to Proposal A described above, Proposal B represents a more normative variant of company model arrangement (albeit one against which we have counseled). Under Proposal B, the ASC Physician Members would indirectly (through their professional entities or the ASC itself) own a new subsidiary entity (the "Subsidiary"). The Subsidiary would engage the Requestor as an independent contractor to provide a broad (i.e., substantially the full spectrum of required) anesthesia-related administrative services through the new Subsidiary entity in return for a negotiated fee. Further, the Subsidiary would employ anesthesia providers (some or all of whom would be affiliated with Requestor) or contract with the Requestor's anesthesia providers on a contractor basis. The Subsidiary would furnish and bill for all anesthesia services provided at the ASC and pay the anesthesia providers agreed-upon compensation. Simply stated, insofar as the ASC Physician Members would indirectly own the Subsidiary, there would be a correlation between the number of procedures performed at the ASC that require anesthesia and the profit distributions to the ASC Physician Members from the Subsidiary. (It should be noted, in the context of this discussion, that such correlation between referrals and profit distributions exists in legally permissible in-office ancillary service arrangements, even among single specialty group practices.) Among other factors, the OIG also found it significant that the ASC physicians would not be involved in the operations of the Subsidiary and that substantially all of the operations would be contracted out to Requestor. Further, it is noteworthy that the anesthesia services would be provided by the same provider that historically furnished the anesthesia services before entry into the company model arrangement. Relying heavily upon its previously issued joint venture guidance, the OIG concluded that Proposal B would pose "more than a minimal risk of fraud and abuse."

The OIG's conclusions with respect to Proposal B are consistent with the advice that HLP has previously provided: if a company model arrangement (such as Proposal B) is implemented (or appears to be implemented) to convert referrals (by ASC physicians to anesthesiologists) to a revenue stream and to incentivize overutilization and undue influence over choice of anesthesia provider, such company model involves a high level of risk and is likely impermissible. Factors that increase the risk of inappropriate utilization through the ordering of unnecessary procedures and anesthesiology services to generate revenue have the ability to increase costs to the federal health care programs, interfere with clinical decision-making and raise patient safety or quality of care concerns. By contrast, if a company model arrangement is organized and operated for legally permissible goals (i.e., improving quality and efficiency of care), the ASC Physician Members participate actively in the business' conduct, and the profit distribution mechanism does not bear a connection between distributions and the ability to generate procedures, its legal risk is significantly mitigated and the arrangement is in a far better position to be defensible, especially if all the requisite structural safeguards are included.


OIG Advisory Opinion No. 12-06 reminds us that company model arrangements must include meaningful safeguards to mitigate legal risk and to be defensible from an AKS perspective. That being said, the value of such safeguards depends upon the manner in which they are implemented and the actual intent that underlies their inclusion.

Any company model arrangement must be structured, and most importantly, actually implemented, in a good faith manner and involve circumstances that reflect good intent, such as improving quality, efficiency and coordination of care or other permissible purposes. Meaningful efforts to coordinate care through increased integration and alignment among providers is a favorable factor. Employment of the anesthesiologists and CRNA's by the new ASC or physician owned anesthesia entity would promote such a nexus. Further, if the objective of the new entity is genuinely to improve quality and efficiency, all the physician owners should be meaningfully engaged in the operations of the Company, especially with regard to the development and continuous refinement to policies and protocols (e.g., "best practices") designed to enhance the quality and efficiency of services furnished at the ASC.

We also take the opportunity to emphasize that distributions from the new company under a company model arrangement to the physician owners (directly or indirectly) should be made in accordance with such physicians' respective ownership interests (or some other factor unrelated to referrals) and certainly not based upon the number of procedures they perform at the ASC. Accordingly, it is imperative that such new company not determine the ownership interests of the physicians based upon their anticipated referrals or business generated, not encourage physician investors to divest their ownership interest if they fail to generate a certain level of referrals or business generated, and not track the source of referrals to or business generated for the company.

Continue reading "Viewing the Recent OIG Company Model Advisory Opinion for What It Truly Is: Meaningful Guidance That Must Be Incorporated Into These Arrangements (But Certainly Not the Death Knell to All Company Models Across the Country)" »

June 5, 2012

In Office DME Arrangements Should be Carefully Reviewed by Legal Counsel

In their June newsletter, The Record, Blue Cross Blue Shield of Michigan (BCBSM) recommended that physicians "consult with their legal counsel periodically." The problem that BCBSM identified is the situation where physicians prescribe and dispense durable medical equipment and prosthetics and orthotics items in order to provide a means for their patients to be ambulatory prior to leaving the physician's office. BCBSM has encouraged this practice; however, they warn physicians that certain practices may run afoul to local, state and federal laws. In particular, physicians should worry about the Stark and anti-kickback laws that prohibit self-referrals. Therefore, as BCBSM concludes, it is important for physicians to consult with their legal counsel to ensure compliance with the law. This is especially important when physicians provide durable medical equipment to patients directly from their office. Legal counsel should carefully review such practices to ensure compliance with the Stark law.

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May 26, 2012

State Attorney General-Initiated HIPAA Settlement Nets $750,000

The Massachusetts Attorney General's Office announced Thursday that it has settled, for $750,000, a data breach lawsuit filed against South Shore Hospital under the Massachusetts Consumer Protection Act and the federal Health Insurance Portability and Accountability Act (HIPAA).

The alleged HIPAA violation arose from unencrypted back-up tapes that South Shore sent offsite to a data archiving company to be erased and re-sold as blank media. However, the hospital did not inform the data company that the tapes contained protected health information (PHI), did not determine whether the data company had appropriate safeguards in place to protect the PHI, and did not enter into a business associate agreement with the company. In shipment, two of three boxes containing the PHI were lost and have not been recovered.

The lawsuit, brought by the Massachusetts Attorney General's Office, is only the third of its kind. Through the Health Information Technology for Economic and Clinical Health (HITECH), passed in 2009, Congress: (i) dramatically increased the HIPAA monetary penalties that could be levied against providers; (ii) granted authority to state attorneys general to prosecute HIPAA privacy and security violations; and (iii) perhaps most importantly, allows state attorney generals to share in any monetary penalties that they are able to collect (e.g., a "bounty sharing" provision). The changes were in response to a perceived lack of enforcement of the HIPAA regulations by the Office for Civil Rights of the Department of Health and Human Services (HHS).

While only the Vermont and Connecticut Attorneys General have initiated lawsuits under HITECH, the legislation is expected to add serious teeth to healthcare privacy laws. Under HITECH, an attorney general receiving a complaint from a resident may sue in federal district court for an injunction and monetary damages. In all three cases, the attorneys general have brought suit under both HIPAA and state privacy laws, and HHS has actively supported the initiative by offering in-person and computer-based training to state attorneys generals nationwide, and even assisting the Connecticut Attorney General's Office in its prosecution.

South Shore Hospital, which settled for $750,000, was the largest of the three AG-initiated lawsuits. As the size of HIPAA violation settlements continue to grow, so too will the interest of states in exercising their new-found authority. Attorneys general may also be more inclined to initiate HIPAA lawsuits because of the positive impression such actions will make on constituents.

As the HITECH incentives catalyze the shift toward electronic health records, privacy issues will be at the forefront, attracting much greater attention than in the past. Hospitals, physicians, health care providers, Business Associates, and all other parties subject to HIPAA regulations are well advised to ensure that they have appropriate HIPAA policies, procedures, and safeguards in place to protect patient privacy, avoid violating HIPAA, and avoid attracting the attention of a much more aggressive, financially incentivized, state attorneys general corps.

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May 2, 2012

New CMS Guidance Allows SRDP Analysis to be Limited to Four Years

In four new recently posted frequently asked questions (FAQs) (select Fraud and Abuse in the left column), the Centers for Medicare & Medicaid Services (CMS) offers new guidance regarding the CMS Voluntary Self-Referral Disclosure Protocol. On September 23, 2010, CMS published the Medicare self-referral disclosure protocol ("SRDP") pursuant to Section 6409(a) of the Patient Protection and Affordable Care Act (ACA). The SRDP sets forth a process to enable providers of services and suppliers to self-disclose actual or potential violations of the physician self-referral statute.

Although the SRDP provides that the financial analysis must cover the entire look-back period, the new FAQs indicate that a disclosing party will satisfy the SRDP by submitting financial analysis setting forth the total amount actually or potentially due and owing for claims improperly submitted and paid within the time frame established for reopening determinations at 42 C.F.R. s 405.980(b) (i.e. four years). However, a disclosing party must still comply with other aspects of the SRDP, which includes specifying the duration of any period of noncompliance with the physician self-referral statute. That requirement remains unchanged by the recently added FAQs and a disclosing party must continue to specify the duration of any period of noncompliance, even if that period exceeds the time period that the party must submit financial analysis for.

The new guidance provided by the recent FAQs is a positive development for providers, as it reduces the burden on a provider who participates in the SRDP process.

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April 11, 2012

New Hampshire House Passes Sweeping Rules Regarding Physician Relationships with Medical Device Companies

On March 29, 2012, with veritably no debate and less fan-fare, the New Hampshire House of Representatives recommended for passage HB 1725. HB 1725 is broad-reaching, and would prohibit all medical practitioners from prescribing or referring any FDA class II or class III implantable device in cases where they would gain profit, directly or indirectly from the sale of the device, or from performing any procedure involving the device. HB 1725 is currently being fast-tracked - the New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725 on April 19, 2012.

Supporters of the bill assert that it is necessary to protect New Hampshire from the perceived problems associated with physician-owned distributors ("PODs"), which appears to be pre-textual insofar as it is believed that no PODs are currently operating in New Hampshire, though supporters have argued the law is necessary as a preventative measure. As drafted, however, the bill goes significantly further than merely outlawing PODs; HB 1725 would essentially prohibit physicians from continuing to practice in their specialty in New Hampshire if they have legitimately developed medical devices and received payment for the same. Thus, even in the absence of any potential abuse or evidence of over-utilization, those physicians would effectively be barred from practice in the State.

Opponents of the bill argue that it could have significant unintended patient safety implications, as New Hampshire would effectively have outlawed the process by which physicians and legitimate medical device manufacturers continuously develop, promote, test, obtain feedback on, and improve life-saving medical devices. Additionally, HB 1725 could have significant chilling and anti-competitive effects on innovators, small businesses/medical device startup companies, and hospitals that employ physicians who develop intellectual property (such as university hospitals and others who engage in significant research and pay royalties to physicians).

Most of the potentially negative effects of HB 1725 occur because of the breadth of the bill, its lack of exceptions, and the fact that it layers upon a statutory definition in New Hampshire's current "self-referral" law, which currently merely requires disclosure of certain ownership interests to patients (a la the Stark In Office Ancillary Services exception's disclosure requirement for certain imaging services). That statute defines an "ownership interest" broadly as being:

"any and all ownership interest by a health care practitioner or such person's spouse or child, including, but not limited to, any membership, proprietary interest, stock interest, partnership interest, co-ownership in any form, or any profit-sharing arrangement. It shall not include ownership of investment securities purchased by the practitioner on terms available to the general public and which are publicly traded."

HB 1725, as drafted, would prevent a practicing physician (or their spouse/children) from receiving royalties for intellectual property that they have developed and licensed to a medical device manufacturer. Further, an innovative and entrepreneurial physician would be subject to liability if they, or their spouse or children, decided to create or invest in a medical device company for otherwise legal purposes. HB 1725, as drafted, does not distinguish between legitimate physician/medical device company interactions (e.g., bona fide businesses, as opposed to a marketing tool of a device manufacturer, or a sham entity designed to provider remuneration to referring physicians), and creates a near-absolute prohibition on physicians capitalizing on their intellectual property while continuing to practice in their field of specialty.

Opponents of the bill include the New Hampshire Medical Society, which questions the need for the legislation as no PODs currently exist within the state, and is concerned about the effect the law may have on medical innovation and legitimate cost savings vehicles, including ACOs and other payment/purchasing modalities. The Medical Society has further questioned whether the bill is necessary given developments in Federal law, and whether the legislature would be better off amending the bill to include the guidelines adopted by the AMA instead of a wholesale restriction on such activities.

To date, the legislative passage of New Hampshire's HB 1725 has not been widely publicized. The next significant legislative step occurs on April 19, 2012, when New Hampshire Senate Committee on Health and Human Services has scheduled a hearing on HB 1725.

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