Category: Private Equity

Dying with Dignity in New Jersey: New Jersey’s Aid in Dying for the Terminally Ill Act

New Jersey residents should be aware that on August 1, 2019, New Jersey’s Aid in Dying for the Terminally Ill Act went into effect.  The Aid in Dying for the Terminally Ill Act permits qualified terminally ill patients to self-administer medication to end their life in a humane and dignified manner. Both patients and physicians are protected by several safeguards built into the recently enacted New Jersey statute.

The patient must be a New Jersey resident who is at least 18 years of age and can document his or her residency with a driver’s license or identification card issued by the New Jersey Motor Vehicle Commission; a New Jersey resident gross income tax return filed for the most recent year; or other government record that demonstrates residency. The patient must be able to communicate health care decisions and be capable of making informed decisions. The patient’s attending physician and consulting physician will make the determination regarding a patient’s mental capacity.  Finally, the patient must be terminally ill, as defined in the statute. If a patient is in the terminal stage of an irreversibly fatal illness, disease, or condition with a prognosis, based upon reasonable medical certainty, of a life expectancy of six months or less, he or she will be considered “terminally ill” under the statute.

Some of the requirements for the attending physician include: (i) examining the patient and confirming that the patient is terminally ill; (ii) informing the patient of the feasible alternatives to taking the life-ending medication, including, but not limited to: concurrent or additional treatment opportunities, palliative care, comfort care, hospice care and pain control; (iii) referring the patient to a consulting physician for medical confirmation of the diagnosis and prognosis and a determination that the patient is capable of decision-making and is acting voluntarily; (iv) referring the patient to counseling with a mental health care professional; and (v) recommending the patient participate in consultation regarding the alternatives to self-administering the life-ending medication. 

Prior to providing a prescription for the medication, the physician is required to recommend that the patient notify their next of kin. Whether the patient decides to withhold notice to their next of kin is left entirely up to the patient. The patient must make two oral requests and one valid written request, in the written form set forth in the statute, to their attending physician to receive a prescription for the life-ending medication.

The State of New Jersey is now the 8th state in the United States to enact a compassionate death with dignity statute. Presently, each of California, Colorado, District of Columbia, Hawaii, New Jersey, Maine (will be effective in September 2019), Oregon, Vermont, and Washington have death with dignity statutes. The State of Montana relies on case law to permit physician-assisted deaths.

Should you wish to receive additional information, or if you have any questions relating to this topic, we invite you to contact our firm’s Private Clients Services and/or Health Care Practice Groups for further discussion.

CONSIDERATIONS FOR THE HEALTH CARE PROVIDER IN A PRIVATE EQUITY DEAL

As private equity investors continue to survey the market for health care deals, providers who were uncertain about their strategic plans or who had no plans are finding partners out there.  Entering into a private equity transaction may be a once-in-a-career move for a health care provider.  However, it is important for providers to give some thought to what they want to negotiate in such a deal before signing on the dotted line.

Here are some considerations for the health care provider in a private equity deal:

  • Type of Partner:  some private equity firms will be very hands-on managing the health care provider while others will provide capital, but otherwise play the role of passive investors.  Some firms will bring in a very experienced operations team to supplant or support current management.  Which type of partner do you want?
  • Strategic Plan:  some private equity firms may seek to use the platform to add on other providers of a similar nature to the platform provider, while others set their sights on multi-specialty platforms.  What is your strategic plan?
  • Liquidity Event:  the initial liquidity event may be structured to have a cash component and a rollover equity component.  There is no one-size-fits-all split between the two components.  While the firm may make an initial offer on such a split, the target provider needs to consider what split best suits its needs and desires.  That may start a debate amongst the various owners of a provider if the owners are in different stages of their careers.  Early and mid-career partners may want to put more into rollover equity including some, if the deal allows, into a “parent entity” that may have different strategic plans.  Late career partners may want a higher upfront cash liquidity event.
  • Post-Closing Compensation:  compensation post-closing for providers will undoubtedly look different.  Like the liquidity event, there is no one-size-fits-all approach to compensation.  These days, some compensation is likely to be productivity-based, and that is not unique to private equity backed transactions.  Once again, the split between productivity-based compensation and fixed compensation may spark a debate.  Early and mid-career partners may want more productivity-based compensation.  Late career partners may want a higher base salary.
  • Governance:  the platform provider will have representation on the governing board of the management company, but how much representation and voting rights depends upon the particular provider.  “Add on” providers may have to work harder to negotiate for board representation if that is important to the provider.

These are just a few of the considerations for health care providers exploring a private equity deal.  Certainly, there’s much more to be done before a deal can be struck.  It is, therefore, important for a provider to contemplate what is most important to the provider as this may be one of the provider’s biggest strategic moves in his or her career.

DOJ Files Suit Against Private Equity Firm That Owns and Manages Compounding Pharmacy For Kickbacks

The United States recently filed a complaint in intervention against Diabetic Care Rx LLC d/b/a Patient Care America (“PCA”), a compounding pharmacy alleging that the pharmacy paid illegal kickbacks to induce prescriptions for compounded drugs reimbursed by TRICARE.  The government has also brought claims against two pharmacy executives and Riordan, Lewis & Haden Inc. (“RLH”), a private equity firm, which manages both the pharmacy and the private equity fund that owns the pharmacy, for their involvement in the alleged kickback scheme. PCA is a portfolio company of RLH.

The government alleges that the defendants paid kickbacks to marketing companies to target TRICARE beneficiaries for prescriptions for compounded pain creams, scar creams and vitamins that were not medically necessary.  Additionally, the defendants and marketers are further alleged to have paid telemedicine physicians to prescribe the creams and vitamins without seeing the patients, and also paid the patients themselves to accept the prescriptions. Moreover, the formulations of the creams allegedly were manipulated to ensure the highest possible reimbursement from TRICARE irrespective of patient need.

The complaint outlines RLH’s involvement in PCA. RLH has a controlling investment in PCA, and two RLH partners are officers of PCA. In addition, PCA is managed by another company controlled by RLH. The complaint alleges that the two RLH partners guided the strategic direction of PCA and knew and approved of the potentially problematic marketing arrangements.

The lawsuit was originally filed by two former employees of PCA under the qui tam or whistleblower provisions of the False Claims Act. The government then chose to intervene in the suit.

Despite a strict regulatory scheme, health care is an attractive industry for private equity and family office investors.  Experienced investors are typically aware of the tough environment in health care, but are not necessarily up to speed on how they should be managing their portfolio companies given all of the applicable laws. As the government works harder to prosecute health care fraud, it has made an increasing effort to go after parties who are typically not top of mind in terms of responsibility.  RLH may not be the party that was billing for services, but the government believes that it should be accountable for how it managed PCA.  Consequently, private equity firms should ensure that they understand the regulatory requirements to which their portfolio companies are subject. Additionally, while compliance due diligence prior to investment is critical, just as important is a focus on compliance throughout the term of investment.

The facts alleged in this complaint appear to be quite egregious, so one cannot jump immediately to the conclusion that this is the start of a government health care fraud crusade on private equity firms. Nonetheless, firms should exercise caution in light of the complaint as they continue to investment in the health care industry.

Surgical Practices Must Now Be Licensed as Ambulatory Surgical Centers in New Jersey

Surgical practices in New Jersey will now be required to become licensed by the New Jersey Department of Health (“DOH”) as ambulatory surgical centers, with existing ones required to do so by January 16, 2019.  Previously, surgical practices had to be registered with the DOH, and oversight was jointly shared by the DOH and the New Jersey Board of Medical Examiners.  Now, oversight will be the sole province of the DOH.

Surgical practices that are certified by the Centers for Medicare and Medicaid Services (“CMS”) will be exempt from the physical plant and functional requirements set forth in the New Jersey licensing regulations for ambulatory surgical centers.  Existing surgical practices not certified as such, but which are accredited by an accrediting body recognized by CMS, will also be exempt.  Those surgical practices that do not fall in one of the foregoing categories will have to comply with the requirements.

Surgical practices will also be exempt from the New Jersey ambulatory care facility assessments unless they expand to include any additional room dedicated for use as an operating room.

Surgical practices may now also combine with each other or with ambulatory surgical centers to form a larger licensed ambulatory surgical center consisting of an aggregate number of operating rooms up to the total number of operating rooms that both facilities contained prior to the combination.

These changes mean more for surgical practices than the mere language of the law would suggest.  As licensed facilities, anyone, not just New Jersey licensed physicians, can now be an owner of a one room facility.  This will make it easier for outside investment directly in one room centers.  Those who are not New Jersey licensed physicians and who are currently managing one room facilities can now seek to become direct owners of those facilities, which was previously prohibited.  Additionally, any New Jersey licensed physician will now be able to perform a procedure at a one room center, not just owners of the center.

Outside investment and mergers and acquisitions in the New Jersey ambulatory surgical center market have been active for years, with recent increased movement due to the influx of private equity dollars into health care.  The level of activity will now increase even more.

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

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.