New Proposed Legislation Seeks To Restore Tax Exempt Status to Non-Profit Acute Care Hospitals In New Jersey and Implement Instead a Community Service Contribution Payment

by John W. Kaveney

In the wake of the 2015 court case challenging the tax exempt status of a nonprofit hospital here in New Jersey, the fight continues over this issue with many of the non-profit hospitals in New Jersey currently engaged in litigation before the Tax Courts and various bills having been proposed and debated in the Legislature. This past week a bill (A4985) was introduced in the Assembly of the New Jersey Legislature that seeks to restore the property tax exemption for nonprofit hospitals that operate with on-site for-profit providers. The bill was sponsored by Assemblyman Singleton and Assemblyman Troy. The Statement to the bill makes clear that the bill “would establish a clear and predictable system in which nonprofit hospitals make a reasonable contribution to their host communities.”

In addition to restoring the tax exempt status, the proposed bill requires these hospitals to pay community service contributions to host municipalities and it establishes a Nonprofit Hospital Community Service Contribution Study Commission.

With regard to the contribution, the community service contribution would be equal to $2.50 a day for each licensed bed at the exempt acute care hospital property except in the case of a satellite emergency care facility in which case the contribution would be equal to $250 a day. Following 2018, and for each subsequent tax year, the per day amount utilized for the calculation will be increased by two percent over the prior tax year.

Up to 75% of that annual community service contribution can be reduced by the amount of payments remitted to the municipality in which the acute care hospital or satellite emergency care facility is located pursuant to a voluntary agreement operative in the prior tax year to compensate for public safety services.  Similarly, up to 25% of the annual community service contribution can be reduced pursuant to any agreement to provide compensation for the provision of affordable housing in the municipality.

The municipalities will be required to utilize a portion of these contribution funds for police or fire protection; first aid, emergency, rescue, or ambulance services; any other public safety purpose; or to reduce the property tax levy and the remainder for affordable housing.

Acute care hospitals are permitted to apply to the New Jersey Health Care Facilities Financing Authority in the Department of Health for a certificate of exemption for a given tax year in the event the hospital is either in financial distress or at risk of being in financial distress. Such an application would require significant information including audited financial records. A response from the government will be promptly required within 60 days of receipt of the records.

Beyond the financial requirement, the bill also proposes the creation of the Nonprofit Hospital Community Service Contribution Study Commission. The Commission would consist of nine members made up of agency heads, members of the Senate and Assembly, mayors of municipalities and chief executive officers of nonprofit hospitals. The Commission will be tasked with studying the implementation of this bill and reporting on its financial impact on both nonprofit hospitals and the municipalities receiving the contributions. The report shall also include any recommendations to improve the administration, equity or other aspect of the nonprofit community service contribution system including the adequacy of the amount of the contribution.

Finally, the bill contemplates having exemptions for a large number of properties including buildings used for colleges, schools, academies, public libraries, asylums or schools for those with developmental disabilities, religious sites and many others.

While this bill will not eliminate the financial obligation nonprofit acute care hospitals are now faced with following the 2015 ruling, this legislation appears to at least help to alleviate the amount that will need to be remitted by these hospitals and provides oversight on how the money will be utilized by the municipalities. Time will tell whether this newest legislative effort will have more success than its predecessors and whether the Tax Courts will act prior to it having a chance to work its way through the Legislature.

Has the DOJ Investigation Into eClinicalWorks Opened a Can of Worms?

by Megan R. George

eClinicalWorks, a provider of electronic health record software (“Software”) to physician offices and hospitals nationwide, recently reached a settlement with the United States government for its alleged involvement in falsely certifying the capabilities of its Software.  After Brendan Delaney, a former employee of the New York City Division of Health Care Access and Improvement alerted the government of perceived issues with the Software, the Department of Justice brought suit against eClinicalWorks for violating the False-Claims Act, more specially for allegedly misrepresenting the capabilities of the software and for allegedly paying kickbacks to customers in exchange for those customers certifying its product.

The American Recovery and Reinvestment Act of 2009 established the Electronic Health Record Incentive Program, which offered incentive payments to health care providers that switched from traditional paper medical records to an electronic health record system. In order to obtain an incentive payment, the health care provider was required to switch from paper records to an electronic medical record system that had been certified as having met certain technological specifications.

eClinicalWorks has held itself out as having certification for its Software under the requirements set forth in the American Recovery and Reinvestment Act. The Department of Justice stated that when obtaining such certification for its Software, eClinicalWorks did not disclose all information to the certifying body, ultimately rending the certification null and void. By creating and selling non-compliant Software, it is also alleged that eClinicalWorks knowingly caused health care providers who purchased its software to submit unknowingly fraudulent claims seeking incentive payments under the Electronic Health Records Incentive Program. 

In explaining the deficiency with the Software, the Department of Justice alleges that the Software does not comply with data portability requirements. Data portability is essential in patient care because it allows health care providers to exchange data. The Department of Justice gave the following example of a deficiency in the Software, “in order to pass certification testing without meeting the certification criteria for standardized drug codes, the company modified its software by ‘hardcoding’ only the drug codes required for testing. In other words, rather than programming the capability to retrieve any drug code from a complete database, [eClinicalWorks] simply typed the 16 codes necessary for certification testing directly into its software. [eClinicalWorks’s] software also did not accurately record user actions in an audit log, and in certain situations did not reliably record diagnostic imaging orders or perform drug interaction checks.”

So what now? As part of the settlement, eClinicalWorks entered into a five-year Corporate Integrity Agreement, which requires that the company retain an independent software quality overseer, and provide semi annual compliance reports to the Office of the Inspector General. eClinicalWorks must also provide free software updates to the Software to all current customers. Current customers will also have the opportunity to transfer their patient data to another electronic health record provider. This data transfer will be free of charge to customers who make this choice. Customers choosing this option must be cautioned, while switching vendors free of charge may appear on its face to be the best solution, the provider has to consider the pitfalls associated with switching to a different electronic health record system, including but not limited to time and capital spent on training staff and physicians on the new system, any hardware or software upgrades to ensure compatibility with the new electronic medical record system, and the resources that will be needed to back up the current system prior to migration.

The investigation into eClinicalWorks also raises the question of whether other electronic health record software vendors will undergo heightened scrutiny when submitting for certification or if those vendors will be required to submit for recertification under a heightened set of security standards. If it is found that other vendors are also non-compliant, health care providers could be at risk of unknowingly violating HIPAA.

 

NJ Gainsharing Legislation Signed Into Law

by Glenn P. Prives

New Jersey Governor Chris Christie recently signed into law S-913/A-3404, which took effect on May 1, 2017.  This new legislation permits New Jersey hospitals to establish commercial gainsharing programs that meet certain requirements and amends the Codey Law accordingly.

A New Jersey acute care hospital may now establish a hospital and physician incentive plan, with a physician or physician group.  The hospital must contract with an independent party to administer the plan and establish a hospital steering committee, with physicians making up at least half of the committee membership.

The committee will be charged with establishing institutional and specialty-specific goals related to patient safety, quality of care and operational performance.  The committee must ensure that:

  1. no payments are made for reducing or limiting medically necessary care;
  2. the appropriate course of treatment for each patient is determined, in consultation with the patient or the patient’s representative, by the attending physician or surgeon of record;
  3. safeguards are in place to ensure that there are no incentives to avoid difficult or complex medical cases, or to withhold, reduce or limit quality care;
  4. no payment is made for exceeding best practice standards established under the plan;
  5. overall payments to individual physicians under a plan shall not exceed 50 percent of the total professional payments for services related to the cases for which that physician receives incentive payments under the plan;
  6. individual physician performance is objectively measured, taking into account the severity of the medical issues presented by an individual patient;
  7. payments objectively correlate with physician performance and are applied in a consistent manner to all physicians participating in the plan;
  8. participating physicians are treated uniformly relative to their respective individual contributions to institutional efficiency and quality of patient care;
  9. performance and best practice standards established under the plan are based primarily on local and regional data;
  10. the methodology recognizes both individual physician performance, including a physician’s utilization of inpatient resources compared to the physician’s peers, and improvements in individual physician performance, including a physician’s utilization of inpatient resources compared with the physician’s own performance over time; and
  11. the elements of the methodology are properly balanced to meet the needs of physicians, hospitals and patients.

The plan can include multiple hospital participants, provided that the plan utilizes a facilitator-convener who will coordinate with the plan administrator and the hospital steering committee to facilitate plan administration, disseminate information concerning best practices and serve as the point of contact for the New Jersey Department of Health (“NJDOH”).

Except for plans limited to specific clinical specialties or diagnosis related groups, the plan must apply to all admissions and all inpatient costs related to those admissions in a given program.  Plans are to be open to all surgeons and attending physicians of record and may, at the discretion of the hospital, include other physicians involved in the provision of inpatient care.  A physician must have been on the medical staff of the hospital for at least one year to participate in the plan, except for hospitalists and physicians who are new to the hospital’s geographic area.  The plan must include a mechanism to limit incentives attributable to year-to-year increases in patient volume for physicians on staff with multiple admitting privileges. Patients are to be notified of the plan in advance of admission to the hospital.

The plan must be filed with NJDOH by the hospital or facilitator-convener prior to the anticipated start date of the plan.  The filing must include the incentive methodology, institutional and specialty-specific goals, quality and cost performance standards, and any standards, programs or protocols designed to ensure that the plan meets the requirements of the legislation.  Annual reports must be submitted to NJDOH setting forth the distributions made to physicians, quality and cost performance standards, proposed revisions to the plan, if any, and such other information as NJDOH may require.  NJDOH will review the plan and shall notify the hospital if its plan does not meet the requirements of the legislation.  NJDOH will provide the hospital with a reasonable opportunity to remedy any deficiencies in the plan, and may terminate a plan that continues to fail to meet the requirements of the legislation.

With respect to the amendment to the Codey Law, the definition of “significant beneficial interest” now excludes “payments made by a hospital to a physician pursuant to a hospital and physician incentive plan.”  It is important to note that the definition under the Codey Law of a “hospital and physician incentive plan” is limited to a plan that meets the requirements of this legislation.

While gainsharing programs are not new to New Jersey, it is clear that the state government has recognized the trend of the expansion of such programs in health care and is supportive.  Providers may wish to seize this opportunity to explore affiliations that align their visions for health care, but preserve some independence between hospitals and physicians, which appears to have become a mutual goal after the most recent spate of acquisitions of physician practices.  Hospitals should also review their physician employment agreements and professional service agreements to ensure that such agreements allow the hospitals to develop these incentive plans with their physicians or prepare amendments for the next round of renewals.  Beware, though, of simply following the requirements of this new legislation, while ignoring federal law restrictions, which will still be applicable.

Corporations Cannot Practice Medicine in New Jersey, Part II – Is It A Sham Operation?

by Cecylia K. Hahn

Given the recent Supreme Court opinion in Allstate Insurance Company v. Northfield Medical Center, P.C., an update to our prior post on why “Corporations Cannot Practice Medicine in New Jersey” was timely and appropriate. In that prior blog post, we discussed the regulation guiding this prohibition, N.J.A.C. 13:35-6.16 (the “CPOM Regulation”).  The Supreme Court’s recent decision provides further guidance to providers and reemphasizes the care with which such arrangements must be structured.

Control, Ownership, and Direction of a Medical Practice

Under the CPOM Regulation, a plenary licensed health care professional and a lesser-licensed (allied) health care professional cannot together own a medical practice that results in its control and direction by the lesser-licensed health care professional.  Moreover, an unlicensed individual cannot own a medical practice with a health care professional.  The objective behind these prohibitions pertains to the medical judgment involved in the practice of medicine.  Essentially, cost considerations of a corporate partner should not interfere with a health care professional’s medical judgment and patient interactions.

For similar reasons, a general business corporation cannot employ or otherwise engage (e.g., through an independent contractor relationship) a health care professional.

One way that health care professionals and non-professional owners have structured relationships in an effort to stay within the parameters of the CPOM Regulation is to create two separate entities.  One entity is a management company that is owned by a lesser-licensed or unlicensed individual.  The other entity is a professional corporation with a sole shareholder who is a medical doctor.  A management services contract runs between the two entities.  The key question is: What do the terms of that management services contract and its implementation entail?

Following Allstate, especially, we caution interested stakeholders: Do not try to fit a square peg in a round hole.  In other words, if the purpose of the CPOM Regulation is to prevent control by a lesser-licensed or unlicensed individual over medical judgment, do not inject such control through a structure of interconnected contracts between a management company and a medical practice.

Some fear that, following Allstate, the management company/medical practice structure in and of itself is too risky and may even be illegal, but, if written and implemented properly, a clear delineation of roles may be achieved and would likely be upheld.  Indeed, the regulations permit administrative contracts between management companies and professional practices.  N.J.A.C. 13:35-6.17.

A Question of Fact

Allstate sued an attorney and a chiropractor involved in promoting a multi-disciplinary structure that resulted in payment by Allstate for patient services rendered.  The structure included three key types of contracts: (1) space rental leases, (2) equipment leases, and (3) management contracts.  The purpose of these contracts was to prevent a nominal doctor-owner of a medical practice from seizing control of the practice from the real investor, the chiropractor.  The contracts permitted the chiropractor-owned management company to extract profits from and maintain control over the affiliated medical practice through various means.

Although the majority of stock in the medical practice was owned by the doctor, the doctor did not participate in day-to-day patient care (other doctors would be employed by the medical practice to provide the care).  Profits made by the medical practice would be turned over to the management company in exchange for the provision of management services, leased space, and leased equipment.  The doctor-owner of the medical practice would be asked to sign an undated (1) resignation letter and (2) affidavit of non issued or lost certificate bearing an unexecuted notary attestation for the doctor’s signature and date; this would permit the chiropractor to remove the doctor from his or her position and have it appear that the controlling interest in stock certificates previously held by the doctor were being transferred by the departing physician to another physician.  Finally, the leases between the management company and the medical practice included a “break fee” of $100,000 to penalize the medical practice’s doctor-owner for breaking the lease.

Following a bench trial, the trial court found the defendants violated the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30, by knowingly assisting a New Jersey chiropractor in the creation of an unlawful multi-disciplinary practice, which submitted medical insurance claims to Allstate.  The trial court found that the practice structure, which the defendants promoted and assisted to create, was designed to circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.

The Appellate Division reversed the trial court’s ruling, finding a lack of evidence of intent.  The Supreme Court, however, disagreed with the Appellate Division, finding that a fact finder could reasonably conclude the structure was “little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and control of a medical practice by a non-doctor.”  The Court stated that considering the broad anti-fraud liability imposed by the IFPA, defendants should have anticipated being held responsible for “promoting and assisting in the formation of an ineligible medical practice” which was created to obtain reimbursement for the care provided at the practice.  Indeed, the Court reasoned that the defendants knew what the laws were and their purposes but nonetheless, in order to protect the investment, developed a structure to circumvent the law and cover up the circumvention.

Accordingly, the Supreme Court upheld the trial court’s finding of intent to circumvent the CPOM Regulation and remanded the case to the Appellate Division for further evaluation.

Factors to Consider in Future Arrangements

Below are some factors to consider when structuring future arrangements between plenary licensed and lesser or unlicensed individuals.  The factors are meant to place with the licensee complete discretion of his or her judgment in rendering health care services.  The list is not meant to be exhaustive nor applicable to every scenario.  Attorney advice should always be sought when assessing these factors and developing these types of arrangements.

  1. The physician owner of the medical practice should contribute startup capital to the entity.
  2. Any voting rights / shares in a medical practice should be divided with a majority of rights / shares to the physician.  (This factor would apply only if ownership in the medical practice was split between a physician and a lesser-licensed health care professional.  Direct ownership in a medical practice by an unlicensed individual is prohibited.)
  3. The physician owner of the medical practice should not be paid a salary (versus a profit distribution) while the management company sweeps the practice’s accounts of all remaining profits.
  4. A management company should not make above-market loans to the medical practice.
  5. The physician owner of a medical practice should have the right to terminate the management contract with a management company.
  6. The management contract should contain no provision (nor require the execution of documents) which would allow for the termination and replacement of the physician/medical director should there be a conflict of interests, e.g., medical judgment v. cost considerations.
  7. A medical practice should not contract with a management company that also leases space and equipment to the medical practice.
  8. The physician owner of the medical practice should either participate or oversee the day-to-day treatment of practice patients.  Supervision within the medical practice should not run to the management company.
  9. The medical practice should pay fair market value for services performed by the management services company.
  10. Monies earned for the provision of patient services should be kept within the medical practice to pay salaries, bills, etc.

In conclusion, when structuring a multi-disciplinary practice, do not try to fit a square peg into a round hole.  Control and direction over a medical practice and patient care must stay with the licensee at all times.

Hospitals Challenged by the Required Care to Undocumented Immigrants

by Brooks Evan Doyne

Medical institutions are facing a dilemma in providing care to undocumented immigrants. While being required to administer emergency care upon a patient’s arrival, once stabilized, providers are finding it difficult to place these individuals in long term care and other sub-acute care facilities. This is the result of their immigration status, which prevents many of the potential financial compensation that might otherwise be available via Medicare, Medicaid or private payor. Without any insurance, these sub-acute care facilities refuse to take the patients leaving the acute care facilities with patients that are unable to be discharged and have no source of funding for their care.

Undocumented immigrants typically have no insurance so they rely on emergency rooms. Federal and state laws require healthcare providers to provide care regardless of legal status and/or ability to pay. The New Jersey “Take all Comers” Statute (N.J.S.A. 26:2H-18.64) dictates that no hospital shall deny any admission or appropriate service to a patient on the basis of that patient’s ability to pay or source of payment. However, this does not require a hospital to perform non-emergency or elective services. Hospitals across the country find themselves in a mystified state and ask themselves “What can we do?”. In order to best accommodate the needs of undocumented individuals and protect the hospital it is vital to make sure ER physicians are appropriately triaging patients and only admitting those that need to be admitted. Additionally, social workers and staff must be diligent in determining elective medical requests.

Many health care providers are left with the difficult decision of whether to attempt to try and return the undocumented immigrant to their native land via coordination of a transfer to an appropriate sub-acute facility there. This is referred to as repatriation. This process is not regulated by the federal government and limited case law exists on the subject. Moreover, no New Jersey State agency has a policy in place on the practice. Hospitals willing to pursue this course of action must be mindful that many patients do not wish to voluntarily go. Thus, hospitals in those situations should consider seeking a court order to permit an involuntary transport. As in many areas of the law, litigation is a constant threat and predicting the outcome is difficult given the lack of precedent in this area of the law. As such, hospitals should proceed with caution and following consultation with counsel whenever met with resistance from an undocumented patient. Ultimately, coordination with families and social workers is critical in exploring all options for both the patient and the hospital before resorting to litigation. However, when faced with a patient that refused to cooperate and the threat of limitless uncompensated medical bills, repatriation may be a hospital’s only remaining option.

 

DC Circuit Rejects Attempt to Revive Anthem-Cigna Merger

by Paul L. Croce

On April 28, 2017 the United States Court of Appeals for the District of Columbia Circuit, in a split decision, upheld the District Court’s earlier ruling enjoining a merger between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”) based on the merger’s anticompetitive effects.  The proposed merger was described by the Court as being “the largest in the history of the health insurance industry, between two of four national carriers.”

The appeal had been pushed mostly by Anthem with the Court noting that Cigna was a “reluctant supporter.”  Anthem did not challenge the anticompetitive effects of the increased market share created by the merger which would reduce the number of insurers in the relevant market from four to three.  Rather, Anthem argued that those anticompetitive effects would be outweighed by the efficiencies resulting by combining Cigna’s superior product with Anthem’s lower rates.

Anthem argued that the merged company would realize $2.4 billion in medical cost savings through its ability to (1) rebrand Cigna customers as Anthem to access Anthem’s existing lower rates; (2) exercise a clause in some of Anthem’s provider agreements to permit Cigna customers to obtain Anthem rates; and (3) renegotiate lower rates with providers. Anthem claimed that 98% of these cost savings would be passed through to its customers. The District Court rejected Anthem’s efficiencies defense finding each strategy cited by Anthem to obtain these efficiencies was either likely to fail in the face of business reality or could be achieved by each company without the merger.

Writing for the divided three judge panel, Judge Rodgers found the District Court did not abuse its discretion in rejecting the proposed merger.  Judge Rodgers noted that the evidence presented by Anthem did not support a conclusion that any efficiencies obtained through rebranding were merger specific because they were based on the application of rates that each of the companies had already earned on their own.  Additionally, Judge Rodgers indicated that the ability to obtain lower rates through the renegotiation of provider contracts was speculative and therefore could not outweigh the anticompetitive effects of reduced competition.

Judge Millett issued a concurring opinion which attacked Anthem’s claim of lowered costs to its consumers claiming such decreases would come at the cost of lesser services, stating “[p]aying less to get less is not an efficiency; it is evidence of the anticompetitive consequences of reducing competition and eliminating an innovative competitor in a highly concentrated market.”  Judge Millett also dismissed Anthem’s claim that the merged entity’s ability to negotiate lower rates with providers was procompetitive.  In this regard, Judge Millett indicated that “securing a product at a lower cost due to increased bargaining power is not a procompetitive efficiency when doing so ‘simply transfers income from supplier to purchaser without any resource savings.’”

Judge Kavanaugh in dissent looked at the weight of the evidence differently.  While the majority concluded that Anthem’s ability to negotiate lower rates indicated an ability for Cigna to do the same, the dissent found that Cigna’s inability to do so to date demonstrated that any ability to do so in the future would be caused solely by the merger.  Judge Kavanaugh also rejected the majority’s conclusion that the merged entity’s ability to renegotiate provider rates was speculative. Based on those determinations, Judge Kavanaugh concluded that the consumer would obtain significant procompetitive benefits in the form of lower costs which sufficiently outweighed any anticompetitive effects of decreased competition.

The fact that the Circuit Court issued a divided decision would lead one to conclude Anthem will seek further review from the United States Supreme Court.  However, the Court’s description of Cigna as a “reluctant supporter” may indicate that conflicts between the companies will prevent them from seeking further review.  Only time will tell.

 

The Office of Inspector General and the Health Care Compliance Association Collaborate to Provide Guidance on Effective Compliance Programs

by John W. Kaveney

On March 27, 2017 the Department of Health and Human Services Office of Inspector General (“OIG”) and the Health Care Compliance Association (“HCCA”) released a document called Measuring Compliance Program Effectiveness: A Resource Guide (the “Guide”). The Guide is the collaboration of forty compliance professionals and OIG staff that met in January 2017 to discuss ways to measure the effectiveness of a compliance program. Given the historically limited information provided by the OIG regarding compliance programs this document provides important insight to the industry regarding how to assess the effectiveness of a compliance program.

The Guide takes the basic seven elements of a compliance program and provides lists of individual compliance program metrics to consider in implementing each item. The areas addressed in the Guide including the following:

  1. Standards, Policies and Procedures, including policy/procedure access, accountability for their update and the quality of their content
  2. Compliance Program Administration, including the roles of those responsible, the culture fostered by the compliance personnel, incentives, evaluations and risk assessment based on staffing/knowledge base
  3. Screening and Evaluation of Employees, Physicians, Vendors and other Agents, including accountability, potential conflicts of interest, disclosures and proper screening protocols
  4. Communication, Education and Training on Compliance Issues, including proper training, communication and accountability
  5. Monitoring, Auditing and Internal Reporting Systems, including proper processes, risk assessments, proper monitoring and auditing and timely corrective action plans/remediation
  6. Discipline for Non-Compliance, including consistency, awareness and documentation
  7. Investigations and Remedial Measures, including proper guidelines, consistency, quality, process, documentation, timeliness, communication and competency

The Guide is cautious to point out that it is not a “checklist” of required items to be applied wholesale in assessing the effectiveness of a compliance program. Rather, the items are intended to serve as broad ideas of metrics for health care organizations to choose based upon which best fit their needs. The Guide even states that an attempt to use all or even a large number of the items in the Guide would be impractical and is not recommended. Thus, it is important for health care organizations to consult with their compliance department and legal counsel to assess which best fit their needs and assist in advancing the effectiveness of their compliance program. Factors such as the organization’s risk areas, size, resources, industry segment, etc. are all critical to the analysis of which items to utilize.

Potential Pitfalls For the Health Care Private Equity and Family Office Investor

by Glenn P. Prives

Despite the uncertain reimbursement environment and the strict regulatory scheme, health care remains an attractive industry for private equity and family office investors.  On the other side, health care providers facing a murky future and looking for capital to expand their platforms are looking for the opportunities presented by private equity and family office investors.  The resulting marriage can prove fruitful for both parties.

Investors are typically aware of the tough regulatory environment in health care, but are not necessarily up to speed on what they should be looking for when conducting due diligence on potential provider partners.  Here are a few topics to keep in mind:

  1. Coding:  Providers have been scrutinized in recent years for improper coding, upcoding and insufficient documentation in the medical record to support the code provided for the service rendered.  The code directly corresponds with the reimbursement provided to the provider for the service.  Improper coding, whatever the reason for it, can result in recoupment of payments, civil penalties and criminal penalties.  An investor should engage a qualified and experienced coding consultant to audit the potential partner’s coding practices.
  2. Compliance:  Some providers are required by law now to have robust compliance programs in place while others are not required, but it is strongly recommended and may become required for all sometime in the near future.  Compliance programs consist of more than just a binder of policies and procedures collecting dust on the shelf; they include regular audits and risk management programs.  Experienced counsel should be engaged to review and audit a potential partner’s compliance program.
  3. Self-Referral and Anti-Kickback Laws:  These laws place strict limitations on relationships between providers and other potential referral sources.  What may be the valuable keys to the success of a provider (and, ultimately, an investor’s returns) exists in a dangerous minefield and tangled regulatory maze.  This goes beyond the well-known federal Stark Law and Anti-Kickback Statute and extends to various state versions of those laws, some of which mimic their federal counterparts and others which are completely different.  Experienced counsel should be engage to evaluate all relationships which may implicate these laws.
  4. Corporate Practice of Medicine Doctrine:  See Cecylia Hahn’s March 13, 2014 post on this blog for a complete explanation of this concept, but also be aware that many states have some form of this doctrine.  Of course, the doctrine is not identical across the states that employ it.
  5. Licensing:  Many states require that certain types of health care facilities be licensed and, in some instances, obtain a certificate of need before getting licensed.  It is vital to ensure that the facility has all of the licenses and permits that it needs as penalties for non-compliance can range from daily monetary penalties to complete shutdown of a facility.  Requirements vary from state to state.  Additionally, an investment, depending on the structure, may trigger a change of ownership or control that requires notice or consent of a licensing authority in connection with the investment.
  6. HIPAA:  For many years, HIPAA existed with little enforcement.  The regulatory scheme was out there, but a violation did not appear to lead to any consequences.  No more.  Heavy penalties for violations have been publicized in recent years, from hundreds of thousands of dollars to tens of millions of dollars, from small practices to large institutions.  When a breach happens, the government has seized upon that opportunity to examine whether the provider is strictly following HIPAA, including have the required policies and procedures in place and conducting risk assessments.  Experienced counsel should be engaged to review and audit a potential partner’s HIPAA compliance program.

The above are just a few of the areas that a potential investor should evaluate when exploring a transaction with a potential provider partner.  The rewards may be achievable in the partnership, but it is important to conduct the appropriate due diligence to avoid the possible penalties.

Value-Based Reimbursement for Care through a Clinical Integration Network

by Cecylia K. Hahn

The current environment in health care reimbursement is causing providers to reassess the way in which they are reimbursed for services. For many years now, reimbursement has been moving away from fee-for-service and toward value-based reimbursement, and most notably alongside the implementation of the Affordable Care Act. Implementing models for such reimbursement, however, has had a certain lag time.  Among other reasons, change is time-consuming, expensive, and uncomfortable. However, over time, factors such as competition have encouraged providers to dip their toe in the value-based reimbursement for care model.  This article discusses a particular type of model that reimburses for value-based care, that is, the clinically integrated network.

Most commonly, a clinically integrated model brings together hospitals and physicians in a newly formed entity known as a clinically integrated network.  A CIN may take on a few different forms. One form may involve a hospital (or its captive professional corporation if we are in a corporate practice of medicine state) as the sole member of the CIN, with participating physician agreements running to the CIN.  The physicians would have a strong presence on the governing board of the CIN. Physician empowerment is a key component of the CIN as the physicians are the front line to the provision of and reporting on care.  Structuring the CIN this way alleviates the regulatory issues (e.g., the Stark Law) that physician ownership in the CIN would present.  Another form of CIN may involve physician ownership (in addition to physicians provider agreements) running to the CIN.  The hospital (or its captive PC) would also have equity in the CIN.  Board membership in this scenario would likely be based on percentage of ownership in the CIN. The physician equity model would require fitting the arrangement into a Stark exception, which may be challenging.

Once formed, a major value proposition of a CIN is to leverage the network with governmental and commercial payers in contracting for payment arrangements, particularly given the CIN is now in a position to receive payment based on performance for quality and efficiency metrics.

In setting quality metrics, a CIN may borrow from the Medicare Accountable Care Organization Shared Savings Program model.  (Both the CIN and the ACO strive for quality care and reward participants for the resulting shared savings.)  Those metrics fall into one of the following four domains: (1) Patient / Caregiver Experience, (2) Care Coordination / Patient Safety, (3) Preventive Health, and (4) At-Risk Population.

Patient / Caregiver Experience measures may include timely care, appointments and information; doctor/patient communication; patient rating of doctor; access to specialists; health promotion and education; shared decision making; and health/functional status.

Care Coordination / Patient Safety measures may include readmissions; admissions for certain conditions (e.g., asthma, heart failure); percentage of primary care physicians who qualify for EHR incentive payments; medication reconciliation; and falls and screening for fall risk.

Preventive Health measures may include influenza immunization; pneumococcal vaccination; adult weight screening and follow up; tobacco use assessment and cessation intervention; depression screening; colorectal cancer screening; mammography screening; and blood pressure screening.

Finally, At-Risk Population measures would address chronic conditions such as diabetes and hypertension.

Physician participants in the CIN, guided in their care of patients by these measures, would then also report on the data they have gathered for each measure, the idea being that savings to payers stemming from positive results would be shared with the CIN and trickle down to the physician participants.

The CIN is just one model that encourages value-based care to obtain value-based reimbursement.  Other models for the provision of medical care that consider value-based measures include integrated physician associations, physician-hospital organizations, and patient-centered medical homes.  Whether or not a new health care law is passed (or the ACA is amended) in the near future, it appears that value-based reimbursement for care is here to stay.

Governor Christie Signs Bill Aimed at Combating Opioid Abuse

by Paul L. Croce

On February 15, 2017 Governor Christie signed into law P.L. 2017, c. 28, Senate No. 3 designed to curb the ongoing opioid abuse epidemic facing the State of New Jersey.  The scope of the overwhelming opioid epidemic facing the State was demonstrated by the bipartisan support the bill received.  Indeed, the bill passed with virtually no opposition, passing with a Senate vote of 33-0 and an Assembly vote of 64-1 with 5 abstentions.

The bill takes a multipronged approach to combating the ongoing opioid crisis by: (1) requiring insurance companies to provide coverage for both inpatient and outpatient substance abuse treatment; (2) limiting the amounts of opioid medications practitioners can prescribe; and (3) imposing additional continuing education requirements on the medical community.

In regard to insurance coverage, the bill requires insurers to provide 180 days per plan year of inpatient and outpatient treatment of substance abuse disorders when determined to be medically necessary by the patient’s physician, psychologist or psychiatrist without the need for any prior authorization.  The bill further prohibits any retrospective or concurrent review of medical necessity for the first 28 days of inpatient or intensive outpatient substance abuse treatment.

Thereafter, inpatient treatment may be subject to concurrent review which cannot be initiated more frequently than two week intervals.  However, the law provides the patient with both internal and external review processes on an expedited basis if the insurer’s review determines treatment is no longer medically necessary.  Moreover, even if the insurer’s determination is upheld on appeal, the patient cannot be discharged until after all appeal rights have been exhausted and the insurer must provide benefits through the date following the final determination.

Conversely, outpatient treatment after the initial 28 days may be subject to retroactive review of medical necessity by the insurer.  Nevertheless, it is not until the first 180 days of either inpatient or outpatient substance abuse treatment has passed that further treatment can be subject to preauthorization by the insurer.

The bill further limits initial prescriptions of opioid medications to a five day supply which shall be for the lowest effective dose of the immediate-release opioid medication.  Prior to issuing an initial prescription a practitioner is required to: (1) take and document a thorough medical history, including the patient’s past experience with non-opioid medication and pain management techniques, and the patient’s substance abuse history; (2) conduct and document a physical examination of the patient; (3) develop a treatment plan focused on determining the cause of the patient’s pain; and (4) access relevant information from the Prescription Monitoring Program.

Four days after the issuance of an initial opioid prescription, a practitioner may issue a subsequent prescription for up to a thirty day supply. However, such prescriptions may be written only if: (1) the patient’s prior prescription for the opioid drug was given within the last year; (2) the practitioner determines the subsequent prescription is necessary and appropriate to the patient’s treatment needs and documents his or her rationale for that determination; and (3) the practitioner determines and documents that the subsequent prescription does not present an undue risk of abuse, addiction or diversion.

Moreover, if a third prescription for opioid medication is given the practitioner must enter into a “pain management agreement” with the patient.  The “pain management agreement” is a written contract executed between practitioner and patient which is designed to: (1) prevent the development of physical or psychological dependence; (2) document both the practitioner’s and patient’s understanding of the pain management plan; (3) establish the patient’s rights in regard to treatment  and obligations associated with the use and storage of opioid medications; (4) identify the specific medications and other modes of treatment that are included in the pain management plan; (5) specify the measurers the practitioner may employ to ensure the patient’s compliance, including random specimen screens and pill counts; and (6) establish the process for terminating the agreement, and consequences if the practitioner has reason to believe the patient is not complying with the agreement.

Furthermore, the bill attempts to ensure that patients taking these medications are doing so with informed consent.  To do so, prior to issuing the first and third prescriptions of an opioid drug a practitioner is required to discuss with the patient, or the patient’s parent or guardian if under 18 years of age, the risks associated with the drugs being prescribed.  This discussion must include, but is not limited to: (1) the reasons the prescription is necessary; (2) alternative treatments that may be available; and (3) the risks of addiction and overdoes associated with the drugs being prescribed, including that: (i) opioids are highly addictive, even when taken as prescribed; (ii) that there is a risk of developing physical of psychological dependence on the drug; and (iii) that taking more opioids than prescribed, or mixing opioids with alcohol, sedatives or benzodiazepines can result in fatal respiratory depression.  A record of these discussions must be documented in the patient’s chart.

There are additional requirements on practitioners treating patients requiring long term treatment, exceeding three months, from opioid medications.  Under those circumstances, the practitioner must: (1) at a minimum of every three months, review and document the course of treatment, any new information regarding the source of the pain and the patient’s progress toward treatment objectives; (2) determine and document whether the patient is experiencing problems associated with physical and psychological dependence prior to each prescription renewal; (3) periodically make and document reasonable efforts, unless clinically contraindicated, to stop the use of opioid medications by attempting other medications or treatments to reduce the potential for abuse or dependency; (4) review Prescription Drug Monitoring information; and (5) monitor compliance with the pain management agreement.

Finally, the bill adds additional continuing education requirements on practitioners.  Specifically, to meet their continuing education requirements practitioners are now required to complete at least one credit per compliance period of educational programs on topics or issues concerning prescription of opioid medications including responsible prescribing, alternatives for managing and treating pain and the risks and signs of opioid abuse, addiction and diversion.  These continuing education requirements apply to physicians, physician assistants, nurses, advanced practice nurses, optometrists, dentists and pharmacists.

The new bill is a significant attempt to curb the opioid epidemic facing New Jersey.  While it remains to be seen how effective these attempts will be, if success is shown, given Governor’s Christie’s recent appointment by President Trump as the chairman to the White House’s commission to combat America’s opioid problem, this bill may form the basis for federal attempts to combat this nationwide epidemic.