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The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Presenting a live 90-minute webinar with interactive Q&A
Ambulatory Surgery Center Acquisitions:
Meeting Regulatory Requirements,
Conducting Due Diligence, Minimizing Risks
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, JUNE 7, 2017
Curtis H. Bernstein, CPA/ABV, ASA, CVA, MBA, Principal,
Pinnacle Healthcare Consulting, Denver
Melissa Szabad, Partner, McGuireWoods, Chicago
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FOR LIVE EVENT ONLY
www.mcguirewoods.com
Ambulatory Surgery Center
Acquisitions: Meeting
Regulatory Requirements,
Conducting Due Diligence,
Minimizing Risk
Presented by:
Melissa Szabad, McGuire Woods, LLP
Partner
Curtis Bernstein, Pinnacle Healthcare Consulting, LLC
Principal
6 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
I. The Transaction Process A. Non-disclosure/confidentiality agreement
1. Negotiation of NDA
2. Exchange of information and documentation
3. Commencement of negotiations
7 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
B. Letter of intent/term sheet 1. Continued due diligence
2. Negotiate material terms
3. Non-binding LOI
8 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
C. Definitive documents 1. Negotiate definitive documents
D. Closing 1. Execute and deliver transaction documents
2. Satisfy all “conditions to close”
9 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
II. Due Diligence A.Compliance with anti-kickback, self-referral
and fee splitting statutes and regulations: 1. Sale of Interests
a. Fair Market Value
b. Offering of Units based on value or volume of
referrals
c. Reallocating Units based on value or volume of
referrals
10 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
2. Redemption Issues a. Forced redemptions based on value or volume of
referrals
b. Litigation risk
c. Anti-Kickback risk
11 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
3. Safe Harbor Compliance a. Compliance with 1/3 tests and other requirements
b. Uniform enforcement
12 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
4. Compensation Arrangements with Physicians a. Anesthesia Arrangements
I. Federal Anti-Kickback: OIG Advisory Opinion No. 12-
06 (company and management fee models)
II. State Issues: anti-kickback, corporate practice of
medicine, fee splitting
13 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
a. Anesthesia Arrangements
I. Employment of Anesthesiologists
Number of
Providers
25th
Percentile Median
75th
Percentile
90th
Percentile
2016 Compensation per FTE 6,682 $364,785 $425,380 $489,966 $579,383
Average ASA Units 2,859 8,430 11,439 15,646 19,762
2016 Collections per FTE 2,227 $339,511 $476,808 $639,638 $831,569
Average Compensation per ASA Unit 2,754 $27.00 $36.69 $53.08 $65.07
Average Professional Collections per ASA Unit 999 $29.07 $40.96 $51.16 $59.97
14 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
b. Medical Director and other Personal Service
Agreements I. Safe harbor compliance
II. Time sheets
III. Fair market value
IV. Legitimate services actually rendered
V. Stacking
15 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
b. Medical Director and other Personal Service Agreements
III. Fair Market Value
i. Services rendered versus rendering physician
ii. Administrative compensation versus clinical compensation
IV. Legitimate services actually rendered
i. Time sheet review process
V. Stacking
i. Benchmark data includes all compensation at both the aggregate and
per wRVU levels
ii. Producing at 90th level productivity does not mean compensation for
clinical services is set at 90th percentile compensation per wRVU
16 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
II. Due Diligence (continued) c. Equipment and Real Estate Leases
I. Safe harbor compliance
II. Fair market value
III. Lithotripsy arrangements-per click, global billing,
different arrangements for Medicare/Medicaid and
commercial
IV. Femtosecond lasers—global billing, IOLs
17 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
c. Equipment and Real Estate Leases
II. Fair Market Value
i. Full time exclusive lease versus block lease
ii. Accounting for all services provided and risks taken
iii. Credit risk and term of lease
III. Lithotripsy Arrangements
i. Per click versus half day
ii. Mobile versus on-site
iii. Bilateral and multiple procedure issues (lithotripsy and lasertripsy)
18 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
d. Management Agreements I. Safe harbor compliance
II. Fair market value
19 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
d. Management Agreements
II. Fair Market Value
i. Services provided
ii. Rate of return to management company
iii. Time versus task
20 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
B. Billing and Coding Audit and Review
1. Medicare/Medicaid audits or reviews
2. Private payer recoupments, out-of-network issues
3. Private pay/non-covered procedures (ABNs,
physician global billing)
21 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
C. Anti-Trust 1. Review of payor contracts
2. Payor contracting negotiations post-closing
22 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
D. Compliance with conditions of participation 1. Look for other uses in the facility (physician office
space, shared common areas)
2. Disclosure of physician ownership
3. 23-hour stay, recovery care
23 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
E. Licensure, CON and Accreditation 1. Do the number of operating and procedure rooms
match what is on the license or CON?
2. Have prior changes in ownership been reported?
3. Is license and accreditation current?
4. Any survey issues or plans of correction?
24 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
F. Litigation and Liens 1. Run searches early
2. Need time to have liens removed
25 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
G. Medical Staff Issues 1. Healthcare Quality Improvement Act
2. Denials, revocations, suspensions, other
disciplinary actions
3. Were bylaws followed?
4. Proper reporting
26 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
III. Deal Structure A. Stock vs. Asset Transaction
1. CON, License and Permit Issues
2. Billing/Commercial Payor Issues
3. Tax Issues
27 | McGuireWoods
III. Deal Structure A. Stock vs. Asset Transaction
1. No change in value based on deal structure unless certain
assets excluded from transaction
a. Certain assets may not be transferrable
2. Value of equity = Value of assets – Debt
3. Multiple of earnings based on equity transactions
a. Real estate not included in quoted multiples but is
included in reported multiples
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
28 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
B. Acquisition by a Hospital and Conversion to
HOPD 1. Reimbursement (Section 603 of the Bipartisan
Budget Act of 2015)--Effective January 1, 2017,
off-campus provider based departments (PBD) first
billing Medicare after Nov. 2, 2015 are no longer
eligible to be paid under the outpatient prospective
payment system (OPPS)
29 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
2. Provider Based Regulations (42 C.F.R. § 413.65)--
The following PBDs are excepted from the new
payment rules (i.e., they still are still paid under the
OPPS): (a) on-campus PBDs; (b) dedicated
emergency departments; (c) remote locations of a
hospital (i.e., those located within 250 yards of the
hospital’s main buildings); or (c) off-campus PBDs
that were billing and operating as outpatient
departments prior to Nov. 2, 2015.
30 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
3. Stark Act and Anti-Kickback Statute
Considerations a. Isolated transactions or fair market value exceptions to
Stark Act
b. No applicable safe harbor under Anti-Kickback
31 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
4. Co-Management Agreements a. Fees: Annual Fixed Fee; Incentive Fee
b. Anti-Kickback (Advisory Opinion No. 12-22); Personal
Services and Management Contracts Safe Harbor
c. Stark Law; Personal Services Arrangements and Fair
Market Value Exceptions
d. False Claims Act
e. Civil Monetary Penalties
32 | McGuireWoods
4. Co-Management Agreements a. Time versus Value
b. Test of reasonableness
c. Stacking
5. Gainsharing and Bundled Payment a. Duplication of services
b. Time versus value
c. Test of reasonableness
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
33 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
GI Medical
Patient
Encounte
r: DRG
440
Cost
Quality
Cost
Target
Achieved
Cost
Target
Missed
No Shared
Savings
Quality
Goals
Achieved
Quality
Goals
Missed
Base
Compensatio
n: Hospital
and
Physicians
No Shared
Savings
Shared
Savings
• Review basis
for miss
• Geometric Mean
34 | McGuireWoods
Group Surgeon
TJR,
Cement, Bio Utilization
Total Direct
Savings
Rebate
Savings
Potential
Surgeon
Savings Vol Hip Vol Knee Vol REV
Kneeman 520$ 8$ 528$ 264$ 10
Cementman (2,292)$ -$ (2,292)$ 2,700$ 204$ 6 1
Hipman 17,500$ -$ 17,500$ 8,750$ 5 5 2
Crosby 64,561$ 80$ 64,641$ 32,320$ 7 21 2
Young 22,707$ 34$ 22,741$ 11,371$ 10 7 6
Nash 315$ 88$ 403$ 201$ 3 3 1
Shoulderman 1,200$ (50)$ 1,150$ 575$ 1 6
Group 1 Total 104,511$ 160$ 104,671$ 2,700$ 53,685$ 31 47 18
Exhibit 2 - Case Break out
Surgeon Estimated Pool - YTD - Month 2017
ASC
Savings Volume
GR
OU
P
1
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
35 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
5. CON, Licensure
36 | McGuireWoods
Ambulatory Surgery Center Acquisitions: Meeting
Regulatory Requirements, Conducting Due
Diligence, Minimizing Risk
C. Partial Acquisition by Management Company
and/or Hospital 1. Valuation Pricing Issues
2. Ownership Percentage
3. Other Arrangements
37 | McGuireWoods
Questions or Comments?
Melissa Szabad
www.mcguirewoods.com
Curtis H. Bernstein
www.askphc.com