Presented byBarbra Z. Nault, Esq. | bnault@hallrender.comStephen D. Rose, Esq. | srose@hallrender.com

Health Care Contracting Best Practices Toolkit and Three Tenets of Defensibility

Presented at The Alaska State Hospital and Nursing Home Association

Annual Conference · September 27, 2017

Agenda• Part I: Introductory Concepts

– The Road to Compliance– The Enforcement Environment

• Part II: Overview of the Regulatory Standards– Anti-Kickback – Stark Law – False Claims Act– Yates Memo

• Part III: Case Studies• Part IV: Best Practices Toolkit

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Part I: Introductory Concepts

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The Road to ComplianceThe Current Climate:

– More integration and financial relationships with referring physicians

– More physician compensation arrangements that are tied to quality and/or value metrics

– More alternative payment models (e.g., CJR, BPCI, MIPS and APMs, etc.) in the market

– Despite reforms, the health care industry must still comply with a rigid and technical (mostly Stark Law) regulatory framework

– Recent enforcement + disproportionate penalty structure = Enterprise Risk

"Toolkit" of Considerations for Managing Risk:– Financial relationships must be defensible under the all applicable health care laws

– Must focus on demonstrating the 3 Tenets of Defensibility: Fair market value ("FMV"), commercial reasonableness ("CR") and not taking into account ("TIA") referrals

– Documentation and governance processes (e.g., business planning, valuation, etc.) should support defensibility

– For CMS Innovation Models (e.g., ACOs, BPCI, CCJR, etc.) focus on meeting the applicable technical requirements and the fraud and abuse waiver requirements

– For cost-control models, must also focus on building in safeguards to ensure the models do not incentivize reductions in medically necessary services

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Enforcement Environment: A Bit Hostile?

• Enforcement (on both federal and state level)– IRS, DOJ, CMS, OIG, state AG, HRSA, OCR, ZPIC, MAC, MIC, etc.

• Whistleblowers/qui tam relators• Civil claims, criminal liability, stiff penalties• Media and public scrutiny• Political focus on health

care reform

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Part II: Overview of the Regulatory Standards

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Regulatory Framework• Federal Health Care Programs

– Anti-Kickback Statute– Federal Stark Law– False Claims Act– Civil Monetary Penalties Law

• EMTALA• HIPAA• Non-Profit and Tax Exemption Issues• Antitrust Compliance• State Law Issues

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The Anti-Kickback Statute• Criminal Statute:

– Prohibits paying "compensation" to induce items or services payable under federal health care programs

– Intent is required (case law allows for inference of intent)– Broad and subjective statute

• Safe Harbors: – Protection requires strict compliance with all conditions of the applicable safe

harbor– Safe harbor compliance is voluntary – Failure to comply with a safe harbor does not mean an arrangement is illegal– Arrangements that do not fit in a safe harbor must be evaluated on a case-by-

case basis 8

Stark's General Framework• If a Physician has a Financial Relationship with an Entity:

– Then the Physician may not make a referral to that Entity for the furnishing ofdesignated health services ("DHS") for which payment may be made under Medicare;and

– The Entity may not bill Medicare, an individual, or another payor for the DHS performedpursuant to the prohibited Referral…

... unless the arrangement fits squarely within a Stark exception

• Threshold Compliance Statute:– Strict liability – no intent required. Civil (non-criminal statute)– Triggered by "technical" violations, inadvertence and error– Your regulatory "Litmus Test"

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False Claims Act

• Liability for Certain Acts:– Knowingly presents, or causes to be presented, a false or fraudulent

claim for payment or approval– Knowingly makes, uses or causes to be made or used, a false record or

statement material to a false or fraudulent claim– Knowingly avoids or decreases an obligation to pay or transit money or

property to the government • Knowingly means there is actual knowledge; acts in deliberate

indifference to the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information –requires NO proof of intent to defraud

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The Yates Memo• Guidelines issued September 9, 2015 by Deputy A.G. Sally Yates• Stressed focus on individual accountability in DOJ prosecutions• Identified several changes to DOJ policy, including:

– To be eligible for any cooperation credit, corporations must provide all relevant facts about individuals involved in misconduct

– Corporate investigations should focus on individuals from beginning– Absent extraordinary circumstances, a corporate resolution will not

provide protection to individuals– Attorneys should consider factors beyond an individual's ability to pay

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Part III: Case Studies

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Recent Cases and Settlements

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• New York Heart Center $1.33 million • Infirmary Health System $24.5 million • All Children's Health System $7 million • Halifax Hospital $85 million • King's Daughters Medical Center $40.9 million• Memorial Health $9.8 million• Tuomey Healthcare System $72.4 million• Adventist Health System $115 million • North Broward Hospital District $69.5 million• Columbus Regional Health $35 million• Dr. Andrew Pippas $425 thousand • Westchester Medical Center $18.8 million• Citizens Medical Center $21.8 million• Lexington Medical Center $17 million• Tenet Healthcare Corp. $513 million

Focus on 3 Tenents of Defensibility

• The Tuomey Case

– FMV– CR– TIA

• The Halifax Case

– FMV– CR– TIA

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Focus on Defensible Business Planning

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Focus on Defensible Valuation

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Focus on Penalties and Enterprise Risk

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Emanuele v. Medicor Associates: Facts• Private cardiology group joined a tertiary care facility to form a heart

institute, including 6 Medical Director Agreements– Agreements automatically terminated Dec. 31, 2006; parties did not

renew until Nov. 29, 2007• Memo from SVP, Medical Director: "It is my understanding that the first 5

of these contracts officially expired on December 31, 2006; however, we have continued to operate under these agreements…It is our suggestion that contracts be prepared to cover the period from January 1, 2007 until December 31, 2007"

– This occurred again in 2008 and 2009 with the parties entering into backdated addenda until the agreements expired in 2010

• Further, beginning in 2008, one of the physicians was receiving pay for administrative duties without a documented, formal arrangement 18

Emanuele Practical Takeaways• Providers must exercise caution in documenting physician arrangements• Any "collection of documents" relied upon must contain at least one

contemporaneous writing, signed by the parties• Contemporaneous writing signed by the parties must have key terms in

order to satisfy goal of transparency embodied in Stark Law's writing requirement

• The collection of documents must also describe:– Identifiable services;– A timeframe; and– A rate of compensation

• Unsigned drafts, emails, memos are unlikely to be sufficient19

Hammett v. Lexington Medical Center• New Settlement: $17 million; Dr. Hammett: $4.5 million• The absence of the directed referrals language, combined with

counseling to refer, used as allegation to question CR– Narrow rule allowing directed referrals in 411.354(d)(4) – Includes: in writing, must state carve-outs: patient's, insurer's,

physician's judgment; only to advance legitimate business purposes of the compensation arrangement

• If referral counseling is to occur, documenting the directed referrals rule may offer some protection

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Part IV: Best Practices Toolkit

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Key Tool: Contracting and Compensation Audits

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Phase III: Compliance Education

Physician Contracting Staff Members Management Governing Board

Phase II: Process Development

Revise and/or develop specific policies and procedures

Phase I: Contracting and Compensation Process Review

Review current policies and procedures Onsite review of current processes

Key Tool: The Anti-Kickback Safe Harbors

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Key Tool: The Stark Exceptions• Common Stark Exceptions:

– Rental of Office Space or Equipment – Physician Recruitment– Personal Service and FMV Exceptions– Isolated Transactions– Bona Fide Employment– In-Office Ancillary Services– New in 2016 - Assistance to Compensate an NPP– New in 2016 - Time Share Arrangements

• Common Elements of the Stark Exceptions:– The arrangement must be set out in writing and signed by the parties– The arrangement must be commercially reasonable, and compensation must be consistent with fair

market value– Compensation must be set in advance and not take into account the volume or value of referrals

generated between the parties

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Key Tool: The 3 Tenets of Defensibility• Fair Market Value

– Narrow Regulatory Definition – 42 CFR § 411.351– Best Regulatory Position: FMV should be determined based on services that are personally

performed and based on the quantity and intensity of the physician's own work effort– Reference multiple, objective, independently published salary surveys

• Commercial Reasonableness– No statutory or regulatory definition– Document the appropriate subjective and objective non-referral based supporting

business factors

• The "Taking into Account" Prohibition– Compensation cannot be calculated in a manner that takes into account a physician's DHS

referrals– Document the non-referral based business factors that support the arrangement– Avoid actions that may be misconstrued as taking into account referrals (e.g.,

documentation referencing anticipated referrals, processes, projections, etc.) 25

Key Tool: Compensation Processes• Initial and periodic reviews

– Commencement of the arrangement– Periodically (e.g., quarterly, annually)– Prior to material changes

• If compensation exceeds (or likely will exceed) established thresholds– Suspension of contracting processes– Payment withhold– FMV and commercial reasonableness analysis– Development of supporting documentation before payment

• Ongoing reviews of compliance with existing supporting documentation and written FMV opinions26

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Key Tool: CMS Fraud and Abuse Waivers• Current Issued Waivers

– Pioneer Accountable Care Organization (ACO) Model– Bundled Payment for Care Improvement (BPCI) Models– Health Care Innovation Awards (HCIA) Round Two– Comprehensive ESRD Care (CEC) Model– Comprehensive Care for Joint Replacement (CJR) Model– Next Generation ACO Model– Medicare Shared Savings Program

• Caution from CMS– Eligibility – Individuals or entities seeking waiver protection should keep in mind that a

waiver will apply to their arrangement(s) only if the are eligible to use the waiver and all conditions of the waiver are met.

– Legal Counsel – Consult with legal counsel as necessary to ensure that waivers are available and that arrangements for which you seek waiver protection meet all required conditions. 27

Key Tool: Gainsharing Models• The CMP Law Prohibits:

– A hospital or critical access hospitals from knowingly making payments, directly or indirectly, to a physician as an inducement to reduce medically necessary services provided to Medicare (Parts A or B) or Medicaid beneficiaries under the direct care of the physician

• Penalties– CMP of $2,000 per patient covered by the arrangement– Both the hospital and the physician receiving payment are subject to

liability• Blending of Co-Management/Gainsharing Standards

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Key Tool: Gainsharing Safeguards• OIG Statement (10/03/14): "OIG would be unlikely to bring a case against

a hospital or physician for a gainsharing arrangement that included patient and program safeguards such as those identified in our advisory opinions"

• Example Safeguards from OIG Advisory Opinion 12-22:– Cost savings measures based on evidence & clinical outcomes– An external valuation regarding the FMV of the fixed and performance-based

components of compensation– An independent third party review of performance fee factors and clinical

outcomes– Performance fee structures with safeguards that addressed historic concerns:

Conditioned on the physician not: (i) stinting on care; (ii) increasing referrals to the hospital; (iii) cherry picking patients or those with desirable insurance; or (iv) accelerating patient discharges29

Key Tool: Performance Categories

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Key Tool: Compliance Program• Office of Inspector General's seven elements for an effective

compliance program:1. Standards of Conduct/Written Policies and Procedures2. Compliance Officer and Committee3. Effective Training and Education4. Effective Lines of Communication (Reporting)5. Auditing and Monitoring6. Enforcing Disciplinary Guidelines7. Responding to Detected Offenses and Taking

Corrective Action

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Recap: Tools and Takeaways• Compensation arrangements must be defensible under the all applicable health

care laws (e.g., Anti-Kickback, Stark Law, CMP, etc.)• Focus on demonstrating the 3 Tenets of Defensibility: Fair market value,

commercial reasonableness and not taking into account referrals• Documentation and governance processes (e.g., business planning, valuation, etc.)

should support defensibility from inception through performance• For gainsharing models, also focus on safeguards that ensure gainsharing models

do not incentivize reductions in medically necessary services• For CMS Innovation Models (e.g., ACOs, BPCI, CCJR, etc.) focus on meeting the

applicable technical and fraud and abuse waiver requirements• Closely scrutinize any quality metrics • New models should align with payor arrangements and evolving reimbursement• Critical to monitor the evolving enforcement environment33

Please visit the Hall Render Blog at http://blogs.hallrender.com for more information on topics related to health care law.

Barbra Z. Nault, Esq. bnault@hallrender.comStephen D. Rose, Esq. srose@hallrender.com

Anchorage | Annapolis | Dallas | Denver | Detroit | Indianapolis | Louisville | Milwaukee | Philadelphia | Raleigh | Seattle | Washington, D.C.

This presentation is solely for educational purposes and the matters presented herein do not constitute legal advice with respect to your particular situation.