Establishing Ancillary Services and Health Care Regulatory Implications

11 Establishing Ancillary Services and Health Care Regulatory Implications


Ann T. Hollenbeck and Richard A. Shapack


Abstract


Many physicians have expanded their traditional provision of physician services via the office and the hospital setting. Before the decision to include ancillary services, factors such as providing services that complement your practice, evaluating existing competition, and accounting for the costs involved in terms of investment, staff time, training, space, and billing have to be carefully considered. A comprehensive business plan with realistic projected volume data, contingency plans, and an exit strategy is highly suggested. This chapter covers those aspects along with presenting the dangers involved that could harm not only the ancillary services venture, but the initial practice, as well.


Keywords: ancillary services, the Stark Law, Anti-Kickback Statute, ambulatory surgery centers (ASCs), Safe Harbor regulations, designated health services, physician-owned device company (POD)


11.1 Introduction


During the past several decades, many physicians have expanded their traditional provision of physician services via the office and the hospital setting. In fact, 21 to 33% of neurology and orthopaedic practices offer ancillary services to their patients that benefit their patients and boost practice revenue and profitability.1 However, there are a number of vital aspects; the delivery of ancillary services must be legal, within quality-of-care standards, and appropriate for the needs of the patients. Similar to any business or investment decision, factors such as providing services that complement your practice, evaluating existing competition, and accounting for the costs involved in terms of investment, staff time, training, space, and billing have to be carefully considered. And, similar to any investment, a comprehensive business plan with realistic projected volume data, contingency plans, and an exit strategy is a prerequisite. As will be covered in detail later, understanding the potential grave dangers involved, an absolute essential will be to obtain expert advice and to take all actions necessary at inception and thereafter to insure that the practice, including the ancillary services, is and remains fully compliant with the Stark regulations and the Anti-Kickback statutes. And the very sage advice from the non–health care law co-author is that the ongoing involvement of a very knowledgeable health care attorney is an absolute necessity.


Physicians today are routinely involved as owners of ambulatory surgery centers (ASCs), provide surgery services in that setting, and have expanded the scope of care provided in their offices to include a variety of services (e.g., advanced imaging) that were traditionally performed in hospital-based settings (see “Ancillary Services” Box). A more recent trend is physician ownership in equipment distributorships. At issue with each of these activities is the often-debated controversy surrounding physician self-referral and its associated financial incentives. These matters are governed by federal and state laws and regulations. The focus of this chapter is limited to the federal Anti-Kickback Statute and the federal Stark Laws, each of which is described in general terms in the following. It is essential for any physician seeking to expand his/her practice offerings or pursue ownership in any health care venture to consult with counsel experienced in these health care regulatory matters. The ever-changing applicable laws and regulations and evolving state and federal enforcement activities require careful planning and ongoing compliance efforts on the part of physician, his/her group, and related accountants and legal advisors.



Ancillary Services


X-ray.


MRI.


CT.


Physical therapy.


Ambulatory surgical centers.


Diagnostic testing.


Sale of medical devices.


Point of care dispensing prescription drugs.


Laboratories.


11.2 Ambulatory Surgery Centers: Anti-Kickback Statute


The principal federal anti-kickback and abuse statute potentially applicable to the parties hereunder is the Medicare and Medicaid Anti-Kickback Statute.2 In pertinent part, the Anti-Kickback Statute prohibits the offer, solicitation, payment, or receipt of any remuneration, directly or indirectly, to induce a person to refer patients or to order, arrange for, or recommend ordering any goods, facility, service, or item for which payment may be made in whole or in part by the Medicare or Medicaid programs (or other federal health care programs, though for ease of reference this content refers to Medicare and Medicaid). The language of the Anti-Kickback Statute is very broad and is potentially applicable to any arrangement under which remuneration passes between providers who are in a position to make referrals to each other.


In the context of an ASC, the principal concern is whether a return on an investment in an ASC is actually a disguised payment for referrals. In this regard, to the extent that physicians who invest in an ASC acquire their investment interests for less than fair market value (FMV), an enforcement agency likely would view the “discount” as remuneration offered with the intent of inducing referrals to the ASCs by the physician investors. Thus, in order to support the validity of an ASC arrangement, the participants must document the FMV of the transaction, such as by engaging an experienced, independent valuation consultant, to establish the value of the ownership units.


Civil and criminal penalties under the Anti-kickback Statute are applicable to both parties to a transaction that is found to violate the Anti-kickback Statute.2 Each violation of the Anti-Kickback Statute is a felony punishable by a fine of not more than $25,000, imprisonment of not more than 5 years, or both.2 Conduct that violates the Anti-Kickback Statute could also lead to exclusion from the Medicare and Medicaid programs under Section 1128(a) of the Social Security Act and substantial civil monetary penalties under Section 1128A of the Social Security Act, and has the potential for providing the basis for civil suits by competitors and/or patients who believe they have been harmed by improper conduct.3 Such conduct may also expose the parties to civil and criminal sanctions under other federal statutes, including, without limitation, the Racketeer Influenced and Corrupt Organizations Act and the Mail Fraud Statute.4 Violations of the Anti-Kickback Statute also may serve as the basis for private or governmental suits and substantial penalties under state or federal False Claims Acts.


11.3 Safe Harbor Regulations


Because of the great uncertainty that existed concerning what was actually prohibited by the Anti-Kickback Statute, Congress directed the Office of Inspector General (OIG) to specify in regulations those practices that, although capable of being construed as falling within the prohibition of the Anti-Kickback Statute, will not serve as a basis for civil exclusion from the Medicare and Medicaid programs and will not give rise to criminal prosecution. In response to this mandate, the OIG5 published a number of final safe harbor regulations in the Federal Register on July 29, 1991, and again on November 19, 1999 (collectively the “Final Safe Harbor Regulations”). The safe harbors set forth specific conditions that, if met, assure that the parties to the transaction will not be prosecuted for an arrangement that qualifies for safe harbor protection. An arrangement will qualify for safe harbor protection, however, only if the arrangement precisely meets all of the conditions set forth in the safe harbor. Failure to fall inside of a particular safe harbor does not mean that the arrangement is per se violative of the statute, however.


Where a particular arrangement does not qualify for safe harbor protection (e.g., because a hospital participant may be deemed to be in a position to refer to the ASCs through its employed or affiliated physicians), this, by itself, does not mean that the arrangement necessarily violates the Anti-Kickback Statute. Rather, in such case, the analysis of the arrangement’s risk under the statute is a facts and circumstances inquiry, especially as to factors from which an enforcement agency potentially could infer that the parties to the transaction had the requisite intent to violate the statute. Further, while an arrangement failing to satisfy, to any degree, any condition of a safe harbor will not be afforded protection, in defending the arrangement, it nonetheless is constructive to establish that its structure substantially conforms with the safe harbor’s requirements.


11.3.1 Ambulatory Surgery Center Safe Harbor Requirements


The ASC Safe Harbor provides that “remuneration” under the Anti-Kickback Statute does not include any payment that is a return on an investment interest (such as a dividend) as long as6:


The investment entity is a certified ASC (i.e., under the Medicare program) whose operating and recovery room space is dedicated exclusively to the ASC (e.g., the space cannot be used by the hospital for the treatment of the hospital’s inpatients or outpatients).


Patients referred to the investment entity by an investor are fully informed of the investor’s investment interest.


All of the following standards are met for hospital- and physician-owned ASCs:


The physician investor class must comprise solely investors (1) who are not in a position to provide items or services to the entity or any of its investors, and are not in a position to refer patients directly or indirectly to the entity or any of its investors or (2) who satisfy the “1/3rd test,” meaning that at least one-third of each surgeon investor’s medical practice income from all sources for the previous fiscal year or previous 12-month period must be derived from the surgeon’s performance of procedures (i.e., any procedure or procedures on the list of Medicare-covered procedures for ASCs, which includes services that require an ASC or hospital surgical setting). In practice, therefore, to enable an ASC to fit within the safe harbor’s requirement, surgeons should be eligible to invest in the entity, provided they meet the 1/3rd test.


The terms on which an investment interest is offered to an investor must not be related to the previous or expected volume of referrals; neither the hospital nor the entity may loan funds to obtain the investment interest; and the amount of payment to an investor in return for the investment must be directly proportional to the amount of the capital investment.


The ASC and all investors (i.e., hospital and physician investors) must treat federal health care program beneficiaries (e.g., Medicare and Medicaid patients) in a nondiscriminatory manner.


All ancillary services for Medicare/Medicaid patients performed at the ASC must directly and integrally relate to primary procedures performed at the facility, and none may be separately billed to Medicare or other Federal health care programs.


The hospital may not include on its cost report or any claim for payment from a Federal health care program any costs associated with the ASC (unless such costs are required to be included by a Federal health care program).


The hospital may not be in a position to make or influence referrals directly or indirectly to any investor or the entity. As noted in the Commentary, “a hospital may be in a position to influence referrals when it employs physicians who make referrals.” As a practical matter, this requirement is likely to preclude many hospital/physician ASC joint ventures from qualifying for safe harbor protections, absent additional guidance.


In two advisory opinions (OIG Adv. Op. 01–17 and 01–21)7 in which the OIG determined that an ASC to be owned and jointly operated by a hospital and physicians (i.e., that did not qualify for the safe harbor on account of the “hospital nonreferral requirement”) did not violate the Anti-Kickback Statute, the determination was based, in significant part, on certain safeguards which the hospital investor agreed to implement in order to limit its ability to control referrals to the ASC and the physician-investors:


The hospital-employed physicians would not make referrals directly to the ASC, although they could refer patients to the physician investors.


The hospital would not take any actions to require or encourage hospital-affiliated physicians to refer patients to the ASC or any of the physician investors.


The hospital would not track referrals made by hospital-affiliated physicians to the ASC or any of the physician investors.


Compensation paid to hospital-affiliated physicians by hospital would not be related directly or indirectly to the volume or value of (1) referrals by such physicians to the ASC or any of the physician investors, or (2) business otherwise generated by such physicians.


Arguably, therefore, where a hospital adopts safeguards, such as the foregoing, it is likely that they would serve to substantially mitigate the risks of a proposed joint venture ASC as violating the Anti-Kickback Statute.


11.4 Imaging Centers: Stark Law


Implemented in the 1990s, these laws were designed to remove the financial conflicts of interest from physician decision-making for clinical laboratory tests (Stark I) and a variety of other ancillary services, including imaging (Stark II).8 To preserve the potential efficiency advantages of legitimate business arrangements, however, numerous exceptions were established. The most commonly cited of these is the “in-office ancillary services exception,” which permits self-referral to a physician-owned entity for certain services performed in the office. Although office-based care was initially designed for simple services, such as laboratory tests and chest radiography, this care setting has evolved to include expensive, high-end services, such as MRI, CT, and cardiac stress imaging.


11.4.1 The Stark Law


The Stark Law and its corresponding regulations prohibit, with certain exceptions, physicians from making referrals (see Text Box, 1) to an entity (see Text Box, 2) for designated health services (DHS) (see Text Box, 3) that would otherwise be paid under the Medicare or Medicaid programs, if the physician (or a member of the physician’s immediate family) (see Text Box, 4) has a “financial relationship” (as defined in the Stark Law) with that entity. A financial relationship includes both direct and indirect ownership and compensation relationships. The Stark Law also prohibits the entity providing the DHS from billing for any DHS that are furnished pursuant to a prohibited referral arrangement. An entity that collects payment for a DHS performed pursuant to a prohibited referral must refund amounts collected on a timely basis. Unlike the federal antifraud and abuse laws, the Stark Law does not focus on a party’s intent to induce referrals and, thus, a referral may be prohibited regardless of the parties’ intent.9


There are a number of exceptions to the Stark Law referral prohibition set forth in the Stark Law and in the Regulations. If an arrangement falls within one of these exceptions, it will not violate the Stark Law. On the other hand, if an arrangement fails to meet all of the requirements of at least one Stark Law exception, the referrals made pursuant to that arrangement will be prohibited referrals under the Stark Law.


The penalties for violating the Stark Law are potentially severe. All improperly collected monies must be returned and each instance of service arising from a prohibited referral is subject to civil monetary penalties of up to $15,000.9 Additionally, penalties of up to $100,000 may be imposed for certain referral arrangements and schemes. Finally, both the physician and the entity providing the DHS are subject to possible exclusion from the Medicare and Medicaid programs.9



 


1. A referral means the request by a physician for, or ordering of, or the certifying or recertifying of the need for, any DHS for which payment may be made under Medicare Part B, including a request for a consultation with another physician and any test or procedure ordered by or to be performed by (or under the supervision of) that other physician, but not including any DHS personally performed or provided by the referring physician. Note that a referral can be in any form, including, but not limited to, written, oral, or electronic.


2. An entity means a physician’s sole practice or a practice of multiple physicians or any other person, sole proprietorship, public or private agency or trust, corporation, partnership, limited liability company, foundation, non-for-profit corporation, or unincorporated association that furnishes DHS. An entity does not include the referring physician himself or herself, but does include his or her medical practice.


3. The Stark Law and Regulations define the term “designated health services” as the following items or services: clinical laboratory services; physical therapy, occupational therapy and speech-language pathology services; radiology and certain other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The Phase II Final Regulations include a list of CPT Codes used to describe these DHS. This list of CPT Codes is updated and published annually in the CMS physician fee schedule.


4. The term “immediate family member” is defined broadly to mean a husband or wife; birth or adoptive parent, child or sibling; stepparent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; and spouse of a grandparent or grandchild.

Only gold members can continue reading. Log In or Register to continue

Stay updated, free articles. Join our Telegram channel

Oct 17, 2019 | Posted by in NEUROSURGERY | Comments Off on Establishing Ancillary Services and Health Care Regulatory Implications

Full access? Get Clinical Tree

Get Clinical Tree app for offline access