Between healthcare reform, increased enforcement under the Anti-Kickback Statute, less patience on the part of physician leaders for underperforming ambulatory surgery centers, reduced reimbursement from Medicare, increased interest in pathology and anesthesiology relationships, and increased pressure from payors on out-of-network arrangements, it is a very interesting time to write about the legal issues facing endoscopy centers.
Barry Tanner, the Chief Executive Officer of Physicians Endoscopy www.endocenters.com indicates that there are approximately 800 single-specialty endoscopy centers in the country and likely another 1,000 centers that perform endoscopy procedures. Mr. Tanner also notes that there is an increased interest in joint venture endoscopy centers, often with both hospitals and professional management companies.
The following provides a brief overview of some of the key legal issues facing endoscopy centers and other ASCs.
1. Anti-Kickback and Stark issues. The government over the last few years has initiated huge increases in the funds allocated to healthcare fraud enforcement [1]. In the past, fraud enforcement focused heavily on billing and collections issues. Now, however, significant fraud and abuse resources are also being put towards the review of relationships between hospitals and physicians. The ASC industry has begun to see some level of investigation of fraud and abuse on the physician relationship side, and the ASC industry is ripe for more investigative resources to be directed toward it.
ASCs continue to see the evolution of different types of possible situations which could run afoul of the fraud and abuse laws. Such situations often relate to circumstances where parties are trying to sell ASC shares to physicians at prices that may be below fair market value, circumstances where ASCs are leasing equipment on a per-click basis from physicians [2], and circumstances where parties want to sell different quantities of ASC shares to different physicians or pay different types of medical director fees to different physicians.
Over the next few years, as the government allocates more money to anti-fraud initiatives, it will be increasingly important to keep an eye on what types of activities ASCs, physicians and hospitals are engaging in and what types of activities the government is particularly targeting.
(a) Safe harbors — non-compliant physicians. Over the past few years, parties have become more aggressive in trying to redeem physicians who are not safe-harbor compliant under the Anti-Kickback Statute. Existing compliant physician owners have increasingly become less patient with non-safe harbor compliant physician owners.
To redeem a party for non safe harbor compliance, the center’s operating agreement must require such compliance. In many situations, the parties are advised to offer non-compliant physician owners full value for their shares, even if such full value is not required under the ASC’s operating agreement. The parties may also give such non-compliant physician owners a long notice period in which the non-compliant physicians may come into compliance with the safe harbor. In addition, it is important that safe harbor concepts generally not be applied in a discriminatory manner. Rather, the safe harbor concepts should be consistently applied to all physician owners if the center is going to enforce the concepts and use them to redeem parties. Further, there are cases where the use of the safe harbor concepts have been challenged by physicians. It is critical that redemption be truly based on safe harbor compliance.
The safe harbor for single specialty centers does not require that a physician perform 1/3 of his or her cases at the center he or she is invested in.
(b) Safe harbors — indirect referrals. The government continues to express great discomfort with indirect referral sources and non–safe harbor compliant physician owners. That said, the government is very cautiously addressing cross-referral relationships as evidenced by the Office of Inspector General issuing a positive advisory opinion to a hospital-physician joint venture where only a small number of the orthopedic physicians were not safe harbor compliant (i.e., four out of eighteen physicians were not safe harbor compliant). There, in fact, the OIG prohibited the referral of cases from the non-compliant physicians to parties that could receive such referrals and then use the surgery center for those cases. In reaching its conclusion, the OIG said:
The arrangement at issue did not meet every requirement of the safe harbor in question. However, certain other factors led the OIG to conclude that, although the arrangement posed some risk, the safeguards put in place by the parties sufficiently reduced the risk of illegal kickbacks to warrant granting the positive advisory opinion.
(c) Buy-in pricing for junior physicians and new physicians. Parties continue to look for ways to reduce buy-in amounts for junior physicians. Increasingly, there are arguments for lower valuations based on the impact of the changing economy on endoscopy centers and the uncertainty of profits going forward. It is also possible for junior physicians to buy fewer shares, to obtain loans from third-party lenders (provided such buy-ins are not guaranteed or supported by any other investor or the ASC), and to engage in opportunities like recapitalizations to further reduce the cost and value of the center. Again, a key issue is ensuring that the ASC is not selling shares to junior physicians at below fair market value to induce the referral of cases or the retention for cases.
While it is not uncommon for practice buy-in prices to be set at relatively low amounts, the price of shares at the endoscopy center level should be set at fair market value.
(d) Sale of additional shares to highly productive physicians. Endoscopy centers often see situations where a physician who produces proportionately more than he or she owns wants to buy additional shares in the center. In general, it is very hard to facilitate this. It is possible for that physician to try to buy additional shares from other partners. However, the other partners cannot sell their shares to the high producing physician simply to help keep his or her cases at the center. If existing partners want to sell shares for reasons unrelated to retaining volume, then it is not illegal for them to sell shares to such high producing physicians. The sale of such shares should always be made at fair market value, and not preferentially to high producing physicians.
Gastroenterology practices often seek ways to distribute an endoscopy center’s profits based on referrals. There is no clear safe way to accomplish this.
(e) Profiting from anesthesia and pathology. Increasingly, endoscopy centers and physicians are looking for ways to profit from ancillary services such as anesthesia or pathology. There are certain ways in which an ASC can lawfully profit from anesthesia services in a legal manner. However, there are certain other ways, which are of more significant concern with respect to the legality of profiting from anesthesia services. This area has recently come under attack by the American Society of Anesthesiology. Alexander A. Hannenberg, MD, president of the ASA, wrote the following in his June 16, 2010 letter to the Inspector General of the United States:
(f) "Per-click" relationships. There have traditionally been several different types of "per-click" arrangements for such items as gamma knives, lithotripters, lasers, CT and MRI scanners and other types of equipment. However, the government has now outlawed most per-click relationships (at least in the Stark Act context). Although the changes to the Stark Act and the accompanying regulations do not necessarily apply to ASCs, the analysis and concerns are applicable under the Anti-Kickback Statute to ASCs. Centers for Medicare & Medicaid Service offered an explanation of its position in the commentary to the new rules:
2. HIPAA. The Health Insurance Portability and Accountability Act continues to be updated in a manner that adds additional burdens. One of the biggest burdens in the most recent HIPAA amendments requires that a patient be notified of any sort of inadvertent breach of disclosure of confidential information. Previously, centers and healthcare providers could decide, on a case-by-case basis, whether or not to notify the patient of an inadvertent breach. Now, patients must be notified of any breach. Further, under the newly revised HIPAA, patients have the right to receive medical records with little cost even if the center must incur costs to provide the medical records.
3. Antitrust issues. There are two antitrust issues that are most prevalent in the ASC industry. First, there is a question as to whether a hospital and physicians can jointly contract to try to obtain better rates from managed care payors. Here, the key issue is ensuring that the two entities can be considered as one entity for purposes of the antitrust laws, which makes them legally incapable of conspiring with each other. There is a significant difference in legal interpretations on this issue across the country. For example, if a hospital owns 80 percent or more of an ASC and has substantial control of the ASC, there are very strong arguments that conspiring together is not possible from an antitrust law perspective (i.e., the hospital and endoscopy center are effectively one entity). However, when the ownership is between 50 percent and 80 percent, the determination differs by region of the country. Further, the amount of control the hospital has over the ASC is a critical component of the ultimate determination. Where a hospital owns less than 50 percent of the ASC, it may still be possible for the hospital and ASC to effectively be considered one entity, but the hospital must have very substantial control of the ASC. Mr. Tanner notes that a key issue in bringing a hospital into a joint venture relates to what positive impact the hospital can have on endoscopy center pricing.
The other common antitrust issue facing ASCs arises when an ASC is excluded from certain payor contracts due to aggressive hospital competition. Here, the challenge for the ASC is showing that the hospital does not merely provide simple competition, but rather that it has conspired to harm the physician-owned ASC or made an effort to monopolize the market. This can be a very expensive process of gathering facts to prove such a conspiracy exists.
4. Medical staff bylaws. Medical staff bylaws issues constantly arise in the ASC context in several distinct situations. One such situation is the issue of determining whether or not to waive a provision of the medical staff bylaws in order to allow a physician to remain on or join the medical staff even though he or she does not technically meet a specific prerequisite qualification. There are pros and cons to granting periodic waivers of such provisions for specific physicians. A second situation is the issue of how to remove a physician from the medical staff due to some sort of medical conduct issue or other issue. In such a situation, to obtain the protections of the Healthcare Quality Improvements Act, it is critical for an ASC to precisely follow its medical staff bylaws procedures and also follow the rules of HCQIA.
A third situation related to medical staff bylaws is the issue of how the removal of a physician from the medical staff under the bylaws impacts the redemption of such physician from the ASC as an owner. Here, there is commonly a requirement in the ASC’s operating agreement that a physician member must be on the medical staff in order to be an owner in the ASC. It is critical that the two components of such requirement be somewhat divided from each other. In essence, this means that an effort must be made first to make sure that the decision under the medical staff bylaws is handled separately and is not a sham or trumped up to force a buy back. Then, once the medical staff issue is resolved, redemption pursuant to the ASC’s operating agreement may be addressed. [4]
5. Hospital outpatient department transactions and "under arrangements" deals. Over the last few years, “under arrangements” — a type of transaction where an infrastructure company provided all ASC services to a hospital — became very popular. This was because it allowed the hospital to continue to charge hospital outpatient department rates and allowed the physicians, in part, to own the infrastructure company and stay aligned with the hospital. In addition, physicians were getting paid as well as they would typically be compensated in an ASC (i.e., billing their professional services). In essence, this type of structure abrogated the benefit to CMS of the lower payment rate for ASC services. The Department of Health and Human Services changed a number of related Stark Act provisions and specifically outlawed this type of arrangement.
ASCs are now examining situations in which an ASC sells its assets to a hospital and develops what is titled a “co-management” relationship. Such a relationship provides the physician or physician group compensation for managing the service of the hospital, but allows the hospital to really be the owner and provider of the services and to provide the services at hospital outpatient department rates. The great challenge in these relationships is assuring that they proceed at fair market value and that physicians are compensated for reasonably needed services and not just in exchange for generating business. Another substantial challenge posed by these relationships will be maintaining success three to five years after a transaction is completed. Because such "co-management" relationships are not as congruent in terms of interests as a true joint venture, there is an increased challenge to the long term success of such relationships.
6. Out-of-network reimbursement.The ability to profit substantially from out-of-network patients is continuing to decrease. While many parties profit from out-of-network payments, payors are being increasingly aggressive regarding recoupment, collection of appropriate co-payments from patients and increasing co-payment and deductible responsibilities. Thus, the ability to make substantial profits or have serious negotiation leverage through the use of out-of-network arrangements continues to be hampered.
On the out-of-network side, ASCs are seeing increasing situations where payors are issuing audit letters to centers, developing no pay policies on out-of-network consultations or services, or paying ASCs just a fraction of what they would generally expect to be paid. ASCs, on their end, are increasingly making efforts to work with State departments of insurance to explain how the cutting off of out-of-network reimbursements precludes patients from accessing true PPO benefits. There are a few cases that discuss whether or not payors have responsibilities to pay providers when providers are serving patients out-of-network and in some situations reducing co-payments. This is an evolving area that is expected to become combative.
7. Physical plant relationships. Increasingly, third-party accreditation firms and CMS surveyors are taking a much stricter approach towards grandfathering in outdated physical or non-compliant plant conditions. In many situations, these physical plant conditions may have pre-existed certain changes in certification rules that now require different structures, sizes and other types of accommodations. Notwithstanding the fact that many older facilities pre-dated such rules, surveyors are sometimes demanding that such facilities be brought up to code immediately. This can provide real challenges and significant expenses to existing ASCs.
8. Quality and safety issues. With the focus on the improper use of syringes at one center and quality and infection control generally, it is critical that endoscopy centers focus heavily on proper clinical procedures. The hepatitis outbreak, for example, at the Endoscopy Center at Southern Nevada has led to class actions and investigations as to that center and the closure of that center.
9. Healthcare reform. No one knows exactly what the ultimate impact of healthcare reform will be on endoscopy centers and other ASCs. However, in the short term, it does not appear that healthcare reform will have an immediate negative impact on endoscopy centers. In fact, because the reform legislation mandates certain incentives for certain preventative care, such as requiring new insurance plans (i.e., plans established on or after September 23, 2010) to cover and eliminate co-pays, deductibles and co-insurance amounts for preventative treatments such as colonoscopies, and because there is no public option, it is not clear that there will be an immediate negative impact at all.
However, in the long term, healthcare reform raises concerns for endoscopy centers and other ASCs. First, although healthcare reform is expected to expand insurance coverage, it is widely anticipated that a substantial number of such newly insured people will be added to the coverage pool at low rates. A second concern is that healthcare reform will put pressure on commercial payors to further reduce costs, which would likely lead to lower reimbursement for endoscopy centers. A third-long term concern is the extent of the impact healthcare reform will have on the independent practice of medicine. Certain of the concepts set forth in the healthcare reform initiatives involve integrative efforts between hospitals and physicians to develop accountable care organizations and other efforts that allow for the joint packaging of care. These efforts, together with other payment incentives for hospitals, are leading to more employment of physicians by hospitals. This reduction in the pool of physicians means a reduction in the lifeblood of endoscopy centers and other ASCs.
It should be noted that certain of the leading professionals in the endoscopy arena, such as Mr. Tanner, believe that the impact of healthcare reform on endoscopy centers will be muted.
[1] See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Departments of Justice and Health and Human Services Team Up to Crack Down on Health Care Fraud (Nov. 5, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-ag-1256.html
[2] While not necessarily illegal, the lease fees must be fair market value and there must be very strong arguments to defend the practice as not intended to induce referrals under the Anti-Kickback Statute.
[3] 73 Fed. Reg. 48713-48714 (August 19, 2008).
[4] 45 C.F.R. §147.130 (2010)
Barry Tanner, the Chief Executive Officer of Physicians Endoscopy www.endocenters.com indicates that there are approximately 800 single-specialty endoscopy centers in the country and likely another 1,000 centers that perform endoscopy procedures. Mr. Tanner also notes that there is an increased interest in joint venture endoscopy centers, often with both hospitals and professional management companies.
The following provides a brief overview of some of the key legal issues facing endoscopy centers and other ASCs.
1. Anti-Kickback and Stark issues. The government over the last few years has initiated huge increases in the funds allocated to healthcare fraud enforcement [1]. In the past, fraud enforcement focused heavily on billing and collections issues. Now, however, significant fraud and abuse resources are also being put towards the review of relationships between hospitals and physicians. The ASC industry has begun to see some level of investigation of fraud and abuse on the physician relationship side, and the ASC industry is ripe for more investigative resources to be directed toward it.
ASCs continue to see the evolution of different types of possible situations which could run afoul of the fraud and abuse laws. Such situations often relate to circumstances where parties are trying to sell ASC shares to physicians at prices that may be below fair market value, circumstances where ASCs are leasing equipment on a per-click basis from physicians [2], and circumstances where parties want to sell different quantities of ASC shares to different physicians or pay different types of medical director fees to different physicians.
Over the next few years, as the government allocates more money to anti-fraud initiatives, it will be increasingly important to keep an eye on what types of activities ASCs, physicians and hospitals are engaging in and what types of activities the government is particularly targeting.
(a) Safe harbors — non-compliant physicians. Over the past few years, parties have become more aggressive in trying to redeem physicians who are not safe-harbor compliant under the Anti-Kickback Statute. Existing compliant physician owners have increasingly become less patient with non-safe harbor compliant physician owners.
To redeem a party for non safe harbor compliance, the center’s operating agreement must require such compliance. In many situations, the parties are advised to offer non-compliant physician owners full value for their shares, even if such full value is not required under the ASC’s operating agreement. The parties may also give such non-compliant physician owners a long notice period in which the non-compliant physicians may come into compliance with the safe harbor. In addition, it is important that safe harbor concepts generally not be applied in a discriminatory manner. Rather, the safe harbor concepts should be consistently applied to all physician owners if the center is going to enforce the concepts and use them to redeem parties. Further, there are cases where the use of the safe harbor concepts have been challenged by physicians. It is critical that redemption be truly based on safe harbor compliance.
The safe harbor for single specialty centers does not require that a physician perform 1/3 of his or her cases at the center he or she is invested in.
(b) Safe harbors — indirect referrals. The government continues to express great discomfort with indirect referral sources and non–safe harbor compliant physician owners. That said, the government is very cautiously addressing cross-referral relationships as evidenced by the Office of Inspector General issuing a positive advisory opinion to a hospital-physician joint venture where only a small number of the orthopedic physicians were not safe harbor compliant (i.e., four out of eighteen physicians were not safe harbor compliant). There, in fact, the OIG prohibited the referral of cases from the non-compliant physicians to parties that could receive such referrals and then use the surgery center for those cases. In reaching its conclusion, the OIG said:
“In the circumstances presented, notwithstanding that four Inpatient Surgeons will not regularly practice at the ASC, we conclude that the ASC is unlikely to be a vehicle for them to profit from referrals. The Requestors have certified that, as practitioners of sub-specialties of orthopedic surgery that require a hospital operating room setting, the Inpatient Surgeons rarely have occasion to refer patients for ASC-Qualified Procedures (other than pain management procedures, which are discussed below). Moreover, like the other Surgeon Investors, the Inpatient Surgeons are regularly engaged in a genuine surgical practice, deriving at least one-third of their medical practice income from procedures requiring a hospital operating room setting. The Inpatient Surgeons are qualified to perform surgeries at the ASC and may choose to do so (and earn the professional fees) in medically appropriate cases. Also, the Inpatient Surgeons comprise a small proportion of the Surgeon Investors, a majority of whom will use the ASC on a regular basis as part of their medical practice. This Arrangement is readily distinguishable from potentially riskier arrangements in which few investing physicians actually use the ASC on a regular basis or in which investing physicians are significant potential referral sources for other investors or the ASC, as when primary care physicians invest in a surgical ASC or cardiologists invest in a cardiac surgery ASC.” Advisory Opinion No. 08-08 (issued July 18, 2008).
The arrangement at issue did not meet every requirement of the safe harbor in question. However, certain other factors led the OIG to conclude that, although the arrangement posed some risk, the safeguards put in place by the parties sufficiently reduced the risk of illegal kickbacks to warrant granting the positive advisory opinion.
(c) Buy-in pricing for junior physicians and new physicians. Parties continue to look for ways to reduce buy-in amounts for junior physicians. Increasingly, there are arguments for lower valuations based on the impact of the changing economy on endoscopy centers and the uncertainty of profits going forward. It is also possible for junior physicians to buy fewer shares, to obtain loans from third-party lenders (provided such buy-ins are not guaranteed or supported by any other investor or the ASC), and to engage in opportunities like recapitalizations to further reduce the cost and value of the center. Again, a key issue is ensuring that the ASC is not selling shares to junior physicians at below fair market value to induce the referral of cases or the retention for cases.
While it is not uncommon for practice buy-in prices to be set at relatively low amounts, the price of shares at the endoscopy center level should be set at fair market value.
(d) Sale of additional shares to highly productive physicians. Endoscopy centers often see situations where a physician who produces proportionately more than he or she owns wants to buy additional shares in the center. In general, it is very hard to facilitate this. It is possible for that physician to try to buy additional shares from other partners. However, the other partners cannot sell their shares to the high producing physician simply to help keep his or her cases at the center. If existing partners want to sell shares for reasons unrelated to retaining volume, then it is not illegal for them to sell shares to such high producing physicians. The sale of such shares should always be made at fair market value, and not preferentially to high producing physicians.
Gastroenterology practices often seek ways to distribute an endoscopy center’s profits based on referrals. There is no clear safe way to accomplish this.
(e) Profiting from anesthesia and pathology. Increasingly, endoscopy centers and physicians are looking for ways to profit from ancillary services such as anesthesia or pathology. There are certain ways in which an ASC can lawfully profit from anesthesia services in a legal manner. However, there are certain other ways, which are of more significant concern with respect to the legality of profiting from anesthesia services. This area has recently come under attack by the American Society of Anesthesiology. Alexander A. Hannenberg, MD, president of the ASA, wrote the following in his June 16, 2010 letter to the Inspector General of the United States:
“First, under the ‘company model,’ since the owners of the facility also own the anesthesia company and have a stake in the profits of this separate company, they have an incentive to increase utilization of anesthesia services, which will result in an increase in federal health care costs. When the surgeons or gastroenterologists performing procedures in the facility are the owners, they are making clinical judgments about the necessity of anesthesia services for their procedures in the context of a financial interest in the volume of anesthesia services provided in the facility. It is hard to imagine a more obvious conflict of interest or illustration of the hazards of self-referral. Such hazards obviously include the costs of care but also the potential for subjecting patients to unnecessary anesthesia. In addition, under the “company model,” anesthesia providers are required to pay remuneration to the facility for their services. These profits distributed to the facility owners are estimated to be as high as 40% of the anesthesia fees. The fees paid to anesthesia providers are often less than what they would have earned under a fee-for-service model where they would bill directly. Anesthesia providers are unable to economically compete with the ‘company model’ and are forced to provide an illegal kickback to the facility should they accept pressures from facilities to contract accordingly. Because of the continuing increased pressures that anesthesiology group practices face in complying with the ‘company model’ . . ., we respectfully request the Office of Inspector General to issue a Special Advisory Bulletin regarding this model.The laws with respect to profiting from pathology services are less clear. There is an ability often for gastroenterology practices related to endoscopy centers to perform pathology services in their own offices and to profit from such services. However, there is a whole range of analysis that must be performed to ensure that such efforts comply with the Anti-Kickback Statute, the Stark Act, and the Anti-Markup Provisions.
(f) "Per-click" relationships. There have traditionally been several different types of "per-click" arrangements for such items as gamma knives, lithotripters, lasers, CT and MRI scanners and other types of equipment. However, the government has now outlawed most per-click relationships (at least in the Stark Act context). Although the changes to the Stark Act and the accompanying regulations do not necessarily apply to ASCs, the analysis and concerns are applicable under the Anti-Kickback Statute to ASCs. Centers for Medicare & Medicaid Service offered an explanation of its position in the commentary to the new rules:
"At this time we are adopting our proposal to prohibit per-click payments to physician lessors for services rendered to patients who were referred by the physician lessor. We continue to have concerns that such arrangements are susceptible to abuse, and we also rely on our authority under sections 1877(e)(1)(A)(vi) and 1877(e)(l)(B)(vi) of the Act to disallow them.(g) Medical directorships. Medical directorships should be used only if the medical director is providing true medical direction. An endoscopy center should generally only have one medical director unless there is a legitimate reason for the need for multiple medical directors. The fees paid to medical directors must be fair market value, and such arrangements must not be intended to provide kickbacks in exchange for the referral of cases.
We are also taking this opportunity to remind parties to per-use leasing arrangements that the existing exceptions include the requirements that the leasing agreement be at fair market value (§411.357(a)(4) and §411.357(b)(4)) and that it be commercially reasonable even if no referrals were made between the parties (§411.357(a)(6) and §411.357(b)(5)). For example, we do not consider an agreement to be at fair market value if the lessee is paying a physician substantially more for a lithotripter or other equipment and a technologist than it would have to pay a non physician-owned company for the same or similar equipment and service. As a further example, we would also have a serious question as to whether an agreement is commercially reasonable if the lessee is performing a sufficiently high volume of procedures, such that it would be economically feasible to purchase the equipment rather than continuing to lease it from a physician or physician entity that refers patients to the lessee for DHS. Such agreements raise the questions of whether the lessee is paying the lessor more than what it would have to pay another lessor, or is leasing equipment rather than purchasing it, because the lessee wishes to reward the lessor for referrals and/or because it is concerned that, absent such a leasing arrangement, referrals from the lessor would cease. In some cases, depending on the circumstances, such arrangements may also implicate the anti-kickback statute." [3]
2. HIPAA. The Health Insurance Portability and Accountability Act continues to be updated in a manner that adds additional burdens. One of the biggest burdens in the most recent HIPAA amendments requires that a patient be notified of any sort of inadvertent breach of disclosure of confidential information. Previously, centers and healthcare providers could decide, on a case-by-case basis, whether or not to notify the patient of an inadvertent breach. Now, patients must be notified of any breach. Further, under the newly revised HIPAA, patients have the right to receive medical records with little cost even if the center must incur costs to provide the medical records.
3. Antitrust issues. There are two antitrust issues that are most prevalent in the ASC industry. First, there is a question as to whether a hospital and physicians can jointly contract to try to obtain better rates from managed care payors. Here, the key issue is ensuring that the two entities can be considered as one entity for purposes of the antitrust laws, which makes them legally incapable of conspiring with each other. There is a significant difference in legal interpretations on this issue across the country. For example, if a hospital owns 80 percent or more of an ASC and has substantial control of the ASC, there are very strong arguments that conspiring together is not possible from an antitrust law perspective (i.e., the hospital and endoscopy center are effectively one entity). However, when the ownership is between 50 percent and 80 percent, the determination differs by region of the country. Further, the amount of control the hospital has over the ASC is a critical component of the ultimate determination. Where a hospital owns less than 50 percent of the ASC, it may still be possible for the hospital and ASC to effectively be considered one entity, but the hospital must have very substantial control of the ASC. Mr. Tanner notes that a key issue in bringing a hospital into a joint venture relates to what positive impact the hospital can have on endoscopy center pricing.
The other common antitrust issue facing ASCs arises when an ASC is excluded from certain payor contracts due to aggressive hospital competition. Here, the challenge for the ASC is showing that the hospital does not merely provide simple competition, but rather that it has conspired to harm the physician-owned ASC or made an effort to monopolize the market. This can be a very expensive process of gathering facts to prove such a conspiracy exists.
4. Medical staff bylaws. Medical staff bylaws issues constantly arise in the ASC context in several distinct situations. One such situation is the issue of determining whether or not to waive a provision of the medical staff bylaws in order to allow a physician to remain on or join the medical staff even though he or she does not technically meet a specific prerequisite qualification. There are pros and cons to granting periodic waivers of such provisions for specific physicians. A second situation is the issue of how to remove a physician from the medical staff due to some sort of medical conduct issue or other issue. In such a situation, to obtain the protections of the Healthcare Quality Improvements Act, it is critical for an ASC to precisely follow its medical staff bylaws procedures and also follow the rules of HCQIA.
A third situation related to medical staff bylaws is the issue of how the removal of a physician from the medical staff under the bylaws impacts the redemption of such physician from the ASC as an owner. Here, there is commonly a requirement in the ASC’s operating agreement that a physician member must be on the medical staff in order to be an owner in the ASC. It is critical that the two components of such requirement be somewhat divided from each other. In essence, this means that an effort must be made first to make sure that the decision under the medical staff bylaws is handled separately and is not a sham or trumped up to force a buy back. Then, once the medical staff issue is resolved, redemption pursuant to the ASC’s operating agreement may be addressed. [4]
5. Hospital outpatient department transactions and "under arrangements" deals. Over the last few years, “under arrangements” — a type of transaction where an infrastructure company provided all ASC services to a hospital — became very popular. This was because it allowed the hospital to continue to charge hospital outpatient department rates and allowed the physicians, in part, to own the infrastructure company and stay aligned with the hospital. In addition, physicians were getting paid as well as they would typically be compensated in an ASC (i.e., billing their professional services). In essence, this type of structure abrogated the benefit to CMS of the lower payment rate for ASC services. The Department of Health and Human Services changed a number of related Stark Act provisions and specifically outlawed this type of arrangement.
ASCs are now examining situations in which an ASC sells its assets to a hospital and develops what is titled a “co-management” relationship. Such a relationship provides the physician or physician group compensation for managing the service of the hospital, but allows the hospital to really be the owner and provider of the services and to provide the services at hospital outpatient department rates. The great challenge in these relationships is assuring that they proceed at fair market value and that physicians are compensated for reasonably needed services and not just in exchange for generating business. Another substantial challenge posed by these relationships will be maintaining success three to five years after a transaction is completed. Because such "co-management" relationships are not as congruent in terms of interests as a true joint venture, there is an increased challenge to the long term success of such relationships.
6. Out-of-network reimbursement.The ability to profit substantially from out-of-network patients is continuing to decrease. While many parties profit from out-of-network payments, payors are being increasingly aggressive regarding recoupment, collection of appropriate co-payments from patients and increasing co-payment and deductible responsibilities. Thus, the ability to make substantial profits or have serious negotiation leverage through the use of out-of-network arrangements continues to be hampered.
On the out-of-network side, ASCs are seeing increasing situations where payors are issuing audit letters to centers, developing no pay policies on out-of-network consultations or services, or paying ASCs just a fraction of what they would generally expect to be paid. ASCs, on their end, are increasingly making efforts to work with State departments of insurance to explain how the cutting off of out-of-network reimbursements precludes patients from accessing true PPO benefits. There are a few cases that discuss whether or not payors have responsibilities to pay providers when providers are serving patients out-of-network and in some situations reducing co-payments. This is an evolving area that is expected to become combative.
7. Physical plant relationships. Increasingly, third-party accreditation firms and CMS surveyors are taking a much stricter approach towards grandfathering in outdated physical or non-compliant plant conditions. In many situations, these physical plant conditions may have pre-existed certain changes in certification rules that now require different structures, sizes and other types of accommodations. Notwithstanding the fact that many older facilities pre-dated such rules, surveyors are sometimes demanding that such facilities be brought up to code immediately. This can provide real challenges and significant expenses to existing ASCs.
8. Quality and safety issues. With the focus on the improper use of syringes at one center and quality and infection control generally, it is critical that endoscopy centers focus heavily on proper clinical procedures. The hepatitis outbreak, for example, at the Endoscopy Center at Southern Nevada has led to class actions and investigations as to that center and the closure of that center.
9. Healthcare reform. No one knows exactly what the ultimate impact of healthcare reform will be on endoscopy centers and other ASCs. However, in the short term, it does not appear that healthcare reform will have an immediate negative impact on endoscopy centers. In fact, because the reform legislation mandates certain incentives for certain preventative care, such as requiring new insurance plans (i.e., plans established on or after September 23, 2010) to cover and eliminate co-pays, deductibles and co-insurance amounts for preventative treatments such as colonoscopies, and because there is no public option, it is not clear that there will be an immediate negative impact at all.
However, in the long term, healthcare reform raises concerns for endoscopy centers and other ASCs. First, although healthcare reform is expected to expand insurance coverage, it is widely anticipated that a substantial number of such newly insured people will be added to the coverage pool at low rates. A second concern is that healthcare reform will put pressure on commercial payors to further reduce costs, which would likely lead to lower reimbursement for endoscopy centers. A third-long term concern is the extent of the impact healthcare reform will have on the independent practice of medicine. Certain of the concepts set forth in the healthcare reform initiatives involve integrative efforts between hospitals and physicians to develop accountable care organizations and other efforts that allow for the joint packaging of care. These efforts, together with other payment incentives for hospitals, are leading to more employment of physicians by hospitals. This reduction in the pool of physicians means a reduction in the lifeblood of endoscopy centers and other ASCs.
It should be noted that certain of the leading professionals in the endoscopy arena, such as Mr. Tanner, believe that the impact of healthcare reform on endoscopy centers will be muted.
[1] See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Departments of Justice and Health and Human Services Team Up to Crack Down on Health Care Fraud (Nov. 5, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-ag-1256.html
[2] While not necessarily illegal, the lease fees must be fair market value and there must be very strong arguments to defend the practice as not intended to induce referrals under the Anti-Kickback Statute.
[3] 73 Fed. Reg. 48713-48714 (August 19, 2008).
[4] 45 C.F.R. §147.130 (2010)