Month: May, 2017

NJ Gainsharing Legislation Signed Into Law

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?

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

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

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.