Legal Landmines in Collaborative Oncology Ventures

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(No Transcript)
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Legal Landmines in Collaborative Oncology
Ventures

• Presented by Michael L. Blau, Esq.
• Foley Lardner LLP
• 617.342.4040
• MBlau_at_foley.com

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Collaborative Ventures

• Hospital-Physician Collaboration
• Appendix Physician-Physician Collaboration

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Principal Legal Landmines

• Stark Law
• Anti-Kickback Statutes
• Civil Monetary Penalty Law
• False Claims Act
• Reassignment Rules
• Purchased Diagnostic Test/Anti-Mark-Up Rules
• Provider-Based Status Rules
• 340B Drug Pricing
• Tax-Exemption Requirements
• State Law Issues (License, CON, corporate
  practice, fee-splitting, etc.)
• HIPAA, HITECH Act, and privacy/security rules
• Antitrust/Unfair Competition Laws

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Impact of Recent Legal Developments on
Collaborative Ventures

• Stark Law
• Phase III rule (effective December 4, 2007)
• Additional proposed rules Incentive Payment and
  Cost Savings Exception
• Additional final rules (effective Oct. 1, 2008
  Oct. 1, 2009)
• OIG Advisory Opinion 8-10 (August 19, 2008)
• OIG Advisory Opinion 8-16 (October 14, 2008)
• Anti-mark-up rules
• Stimulus and Budget Bills

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Multiple Models for Successful Collaboration

• Contracts
• Physician Employment
• Leased Employee Arrangements
• Recruitment Agreements
• Professional Service Agreements
• Practice Acquisition Agreements
• Practice Support Agreements
• Clinical Research Agreements
• Contractual Venture Models
• Block Leases
• Service-Line Co-Management
• Gainsharing Arrangements
• Center of Excellence Model
• Modified Under Arrangements Model (Hospital
  Outpatient Facilities)
• Practice Lease and Management Arrangements
• Non-Clinical Joint Ventures
• Ambulatory Center Facility Development
• Equipment Leasing Companies
• Management Companies

• Clinical Joint Ventures
• Cancer Centers
• ASCs
• Ambulatory Clinics
• Foundation Model Arrangements
• Hospital-Affiliated Group Practices
• 2nd Generation Practice Management Organizations
• Seeding Practice Integration
• Participating Bond Transactions
• Physician-Hospital Organizations (PHOs)
• Payor and P4P Contracting
• Risk Contracting
• Clinical Integration
• Captive Insurance Arrangements

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Hospital-Physician Collaboration
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Trends in Hospital-Physician Collaboration

• Employment
• Practice acquisitions and charitable
  contributions
• Community oncologists moving on-campus or into
  hospital-affiliated groups
• Integration and alignment for quality and
  efficiency improvement and for multi-disciplinary
  care
• Legal developments narrow somewhat options for
  collaboration

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Physician Employment

• Increase in employment by hospitals
• Shortage of oncologists by 2010
• Change in attitude of younger physicians toward
  employment
• 8/9 of 10 graduating residents prefer employment
• Financial distress of community medical
  oncologists
• Integrate, align and control destiny
• Less legal risk

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Example 1 Leased Physicians Enhanced Rates

• Remain in community
• Enhanced RVU-based compensation
• Enhanced benefits

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Example 2 Addressing Town/Gown Issues
ChiefofMedicine
Chief ofOncologyDivision
Academic Hospital/HealthSystem
CommunityOncologists
ASTSupport(Subsidy)

• Board
• Majority community
• oncologists
• Concurrent reserved powers
• AMC reserved power over
• amendments/budgets in
• extraordinary circumstances

Leaseassets
New OncologyFoundation(Exempt)

CommunityOncologyGroup

CommunityOncologists
Lease ortransferemployees

• 1 year guaranteed comp _at_ enhanced
• rate (based on base-line RVUs)
• Productivity-based comp thereafter _at_
• enhanced, bracketed RVU rates
• Cap at 90th percentile MGMA

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Impact of Recent Legal Developments on
Collaborative Arrangements

• Affects space, equipment and block lease/sharing
  arrangements
• Stark prohibition of percentage based space and
  equipment leases (411.357(a), (b) and (p),
  effective October 1, 2009)
• Stark prohibition of per unit service (per
  click) arrangements (411.357(a), (b) and (p),
  effective October 1, 2009)
• No more FMV exception for space leases
  (411.357(a) and (p), effective December 4, 2007)
• Affects next available room shared space
  arrangements
• Space lease must include period of exclusive use

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Example 3 Private Practice Moving on-Campus
HighlandHospital
SpaceLease
MOA
Payors
MO/InfusionServices

• Professional Services

CommunityCancerCenter
RO (Pro Fee)Services
Payors

• Employee Lease

Lab Equipment

• RT Technical
• Component
• Ancillaries
• Hospital
• services

MOMedical Director
ROA
Ancillaries(Lab, Imaging)
ROMedical Director

• Legal Issues
• MOA space lease not percentage-based or fee per
  use
• Lab equipment should be valued on a cost basis,
  not business enterprise basis
• All agreements must be fair market value
• No CON, but facility license
• Outpatient facility
• Linear accelerators
• Imaging (MRI, PET/CT)

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Impact of Recent Legal Development on
Collaborative Arrangements

• Affects investment in under arrangements
  entities and turn-key management or leasing
  companies
• Stark prohibition on ownership interest in entity
  that performs the DHS (411.351, definition of
  entity, effective October 1, 2009)
• Exception for ownership interests in rural
  providers and public companies
• CMS declines to provide guidance on what it means
  to perform the service (i.e., what combination
  of providing space, equipment, supplies,
  non-physician clinicians, administrative staff,
  executive services)
• Modified under arrangements ventures permitted

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Example 4 Hospital (Modified) Under Arrangement
Model
Payors

• Hospital provides
• License
• Provider-based status
• Equipment or mid- levels

Hospital FacilityFees

• Site of servicedifferential

ProFees

• Group provides
• Space
• Equipment or mid-levels
• Non-clinical staff
• Medical directorship
• Physician staffing services
• Management services

OncologyGroup
Hospital
Lease and Services Agreement
Medical Directorand Physician Staffing
CommunityCancer Center

• Notes
• Space and equipment provided on fixed fee or cost
  plus basis (cannot be per click or percentage
  based)
• Medical directorship services provided on fixed
  fee basis
• Physician staffing and management services
  provided on
• Budget-based guarantee
• Fee for service
• Cost plus, or
• Fixed fee basis
• Must be fair market value (independent appraisal)
• Financial terms can be adjusted annually or
  periodically within decision-making/deadlock
  resolution framework
• Site of service differential for physician
  services provided in hospital space and billed by
  oncology group

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Example 5 Hybrid (Modified) Under Arrangement
Model
Payors
HospitalFacility Fees

ProFees
Hospital
CommunityOncologyGroup
Lease andServices Agreement
Medical Directorand physician staffing
CommunityCancerCenter(Hospital)
PrivatePracticeSpace

• Notes
• Same as Example 4, except
• - Oncology Group retains private practice
  space in Cancer Center
• - Oncology Group is responsible for practice
  overhead in private practice space
• - No site of service differential for
  private practice services in private practice
  space

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Impact of Recent Legal Developments on
Collaborative Arrangements

• Affects turn-key management contracts and
  contractual joint ventures
• OIG Adv. Op. 8-10 Block Lease of IMRT equipment
  by oncology group to urologists, together with
  turn-key support services on a fixed, FMV basis,
  constitutes impermissible contractual joint
  venture that may violate anti-kickback statute
• Providing opportunity for urologists to profit
  may be improper remuneration that is not safe
  harbored
• Implications for turn-key block leases of imaging
  or IMRT services by hospital to oncologists (or
  vice versa)

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Example 6 Leased Practice/Practice Management
Hospital/Health System
AffiliatedGroup(Exempt)
Payors
LeasedPhysicians Techs
PracticeMgmt Services


CommunityOncology Group (Division)
CommunityCancer Center(Hospital)
PracticeSpace

• Nonclinical Staff

Lease Assets

• Legal Issues
• Oncology group cannot perform the services
• Asset lease cannot be on a percentage or per
  click basis

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Impact of Recent Legal Developments on
Collaborative Arrangements

• New opportunities for quality and efficiency
  improvement ventures
• Proposed Stark Law exception for Incentive
  Payment and Shared Savings Programs (411.357(x))
• Service Line Co-Management, gain sharing,
  pay-for-performance, pay-for-quality arrangements
• OIG Adv. Op. 08-16

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Service Line Co-Management Arrangements

• The purpose of the arrangement is to recognize
  and appropriately reward participating medical
  groups/physicians for their efforts in
  developing, managing, and improving quality and
  efficiency of the hospitals cardiology service
  line

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Service Line Co-Management Arrangements

• There are typically two levels of payment to
  oncologists under the service line contract
• Base fee a fixed annual base fee that is
  consistent with the fair market value of the time
  and efforts participating oncologists dedicate to
  the service line development, management, and
  oversight process
• Bonus fee a series of pre-determined payment
  amounts contingent on achievement of specified,
  mutually agreed, objectively measurable, program
  development, quality improvement and efficiency
  goals
• Pays participating oncologists 4-7 of service
  line revenues

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Example 7 Hybrid with Service Line
Co-Management Agreement
Payors
Hospital Facility Fees
ProFees

Hospital
CommunityOncologyGroup
Lease and Services Agreement
Service Line Co-Management Agreement
PhysicianStaffing Agreement
CommunityCancerCenter(Hospital)
PrivatePracticeSpace

• Notes
• Same as Example 5, plus
• Service Line Co-Management Agreement (4-7 of
  Service Line revenue, which can be of both cancer
  center and hospital)
• - Medical director component fixed fair
  market value fee
• - Co-management component fixed fair
  market value fee
• - Incentive component contingent on meeting
  specified quality and efficiency improvement
  standards fixed FMV fee per
• standard

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Regulatory Considerations

• Must be fair market, fixed fee arrangement
  independent appraisal required
• Proposed Stark Law exception for Incentive
  Payment and Shared Savings Programs (411.357(x))
• Aimed at permitting appropriate quality
  improvement and cost savings programs while
  guarding against
• Stinting
• Steering
• Cherry-picking
• Gaming
• Paying for referrals/volume increase
• Quicker-sicker discharges
• 16 detailed standards

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Regulatory Considerations

• Key Constraints of Proposed Exception
• Quality measures must be listed on CMS
  Specification Manual for National Hospital
  Quality Measures too limited?
• Applies to cost savings resulting from reduction
  in waste or changes in physician or clinical
  practices
• Efficiency gains (e.g., turn-around times,
  on-time starts) that reduce unit cost, but not
  overall costs?
• Performance measures to be judged against
  Hospitals baseline historic and clinical data
  Hospital may not have baseline information for
  some key measures

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Regulatory Considerations

• Key Constraints (Cont.)
• Targets developed by comparing to
  national/regional performance norms may not be
  available benchmarks
• At least 5 physicians must participate in each
  performance measure service line may have less
  than 5 physicians
• Independent medical review prior to commencement
  and annually thereafter
• Physicians must have access to same selection of
  items as before commencement of program
• Implications for standardization initiatives

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Regulatory Considerations

• Key Constraints (Cont.)
• Term of no less than 1 nor more than 3 years
  implications for attractiveness, durability and
  continuous quality improvement
• Re-basing cannot pay for maintenance of
  quality/efficiency gains
• Remuneration set in advance and cannot change
  during term no opportunity to set new
  performance standards and reappraise during
  multi-year agreement

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Regulatory Considerations

• Cost savings metrics/incentives implicate Civil
  Monetary Penalty Law
• Hospital cannot pay a physician to reduce or
  limit services to Medicare/Medicaid beneficiaries
  under the physicians care
• Cannot pay for reduction in LOS or overall budget
  savings
• Can pay for cheaper not fewer items of equivalent
  quality1?
• Potential to incent verifiable cost-savings from
  standardizing supplies or reducing administrative
  expenses as long as quality is not adversely
  affected and volume/case mix changes are not
  rewarded

1 See OIG Special Advisory Bulletin on
Gainsharing (July 8, 1999) and Clarification
Letter (Aug. 19, 1999) See also OIG Adv. Ops.
01-1, 05-01-5, 06-22, 07-21, 07-22, 08-09, 08-15,
08-21, and 09-06
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Regulatory Considerations

• Volume/revenue based performance measures
  implicate the Anti-Kickback Statute and Stark law
• Cannot reward increase in utilization, revenue,
  profits (or change in acuity)

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Service Line Co-Management

• Other Considerations
• Commits 4-7 of service line revenues
• Requires active participation and real time and
  effort by busy physicians
• Durability need to periodically adjust
  performance standards and targets?
• Cost of independent appraisal and clinical
  monitor
• Some irreducible legal risk

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Advisory Opinion 08-16 Pay-For-Quality Arrangement
Payor
P4P
MDs
Hospital
Medical Staff Entity
P4P Contract
Up to 50 of P4P Dollars

• OIG Adv. Op. 08-16
• Participating physicians are members of Medical
  Staff for at least one year
• Participating physicians equally capitalize
  Medical Staff Entity
• Quality Targets are measures listed in CMS
  Specification Manual for Hospital Quality
  Measures
• Payments to Medical Staff Entity are caped at
  50 of base year P4P dollars (with inflation
  adjuster)
• Quality targets and payments renegotiated
  annually
• Monitoring to protect against inappropriate
  reduction or limitation in patient care services
• Termination of physicians who change referral
  patterns (e.g., cherry pick patients) to meet
  targets
• Maintain records of performance
• Patients informed of Program in writing

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Joint Ventures
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Joint Ventures

• Existing vs. new services
• Joint ventures that cannibalize existing services
  rarely make it up
• on volume!

Kaufman Strategic Advisors, LLC
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Joint Ventures

• Typical Hospital Joint Venture Strategies
• Defensive
• Free-standing cancer centers
• 50 of high-end imaging in free-standing setting
  (30 margin)
• 40 of outpatient surgery in non-hospital
  settings (20 margin)
• Offensive
• Market capture and growth
• Win-Win ventures

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Example 8 Equity Joint Venture
ProFees
ROA
MOA
HighlandHospital

• HospitalOutpatient Rates

Payors

DevelopCoLLC
CancerCenter

• RT/Infusion equipment
• Leasehold improvements
• Non-clinical staff

• Hospital licensed MO/RO services
• Non-physician clinicians (Infusion nurses, RTs)

LeaseAgreement

• Legal Issues
• New or upgrade vs. existing service
• DevelopCo cannot perform the technical
  component of the RO/MO services
• Lease agreement cannot be percentage-based or
  per-click for equipment or leasehold improvements
• Lease agreement must be fair market value
• Site of service differential on pro fees if
  professional services provided in hospital space

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Example 9 Mid-West MO Group RT Facility Joint
Venture
Hospital
MO Group

• Leasehold improvements
• IMRT Equipment
• PET/CT Equipment
• Nonclinical Staff
• Supplies

SpaceLease
MOGroup
RT FacilityDevelopmentLLC

Payors
Lease Service K
Global
95/read
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RadiologyGroup
ROGroup

• Notes
• MO group can have ownership interest if LLC does
  not perform RT services
• Equipment lease can be on percentage or
  per-click basis if aggregate compensation to MOs
  does not vary with or reflect volume or value of
  referrals to Hospital

• Purchased professional services

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Other JV Compliance Considerations

• Anti-Kickback Statute OIG Special Fraud Alert
  on Joint Venture Arrangements (Dec. 19, 1994)
  Suspect features include
• Investors are chosen because they are in a
  position to make referrals
• Physicians who are expected to make a large
  number of referrals may be offered a greater
  investment opportunity in the joint venture than
  those anticipated to make fewer referrals
• Physician investors may be actively encouraged to
  make referrals to the joint venture, and may be
  encouraged to divest their ownership interest if
  they fail to sustain an acceptable level of
  referrals
• The joint venture tracks its sources of
  referrals, and distributes this information to
  investors

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Other JV Compliance Considerations

• Investors may be required to divest their
  ownership interest if they cease to practice in
  the service area, for example, if they move,
  become disabled or retire
• Investment interests may be nontransferable
• One of the parties may already be engaged in the
  particular line of business, and the joint
  venture is a shell
• Investment returns are disproportionately high
  relative to typical investment in a new business
  enterprise
• Physician investors invest only a nominal amount
  (500-1,500)
• Physician investors borrow money for the
  investment from the joint venture (or from
  co-venturers) and repay out of joint venture
  distributions

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Other JV Compliance Considerations

• Non-Profit/For-Profit JVs Preserving Tax
  Exemption
• Where substantial charitable assets/activities
  are contributed by an exempt hospital
• Hospital must have majority control of board
• Charitable purposes must take priority over
  profit opportunities
• JV should not be managed by the for-profit
  investor on a long-term, lock-in basis
• Transactions with for-profit investor must be at
  arms-length and FMV
• Private use of tax exempt space must meet Rev.
  Proc. 97-13 durational limits (i.e., generally
  2-3 years)

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Permissible Collaborative Ventures

• Employment/Leased Employee Arrangements
• Block Lease Arrangements (e.g. Chesapeake Potomac
  Regional Medical Center)
• Joint Venture ASCs (e.g. Clarian Health System)
• Equipment Joint Ventures (e.g., Center for Cancer
  and Blood Disorders Green Bay Oncology)
• Hospital/Clinic-Based Staffing Agreements

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Permissible Collaborative Ventures

• Foundation Model Arrangements (e.g., Palo Alto
  Medical Foundation)
• Modified Under Arrangements Model (e.g.,
  Hematology Oncology Patient Enterprises)
• Physician Lease/Management Arrangements (e.g.,
  New England Hematology/Oncology Associates)
• Quality and Efficiency Improvement Ventures
  (Service Line Co-management, Gainsharing, P4P,
  Pay for Quality Arrangements) (e.g., Baycare
  Hospital Parkview Health System)

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Impermissible Joint Venture
Oncologists
Hospital
PET/CT Provider (IDTF)
Payors

• May violate Stark Law
• May violate Anti-Kickback Statute

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Top 5 Reasons to Redouble Your Regulatory
Compliance Efforts

• 5. If it makes sense in any other industry, it is
  probably illegal in healthcare
• 4. If you are sure you have it legally right,you
  have probably overlooked something
• 3. As soon as you truly have it right, the law
  can and will change
• 2. Just because everyone else is doing it doesnt
  mean you wont get caught
• 1. I can assure you that you do not want to do
  time cleaning toilets with Bernie Madoff at San
  Quentin

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Appendix
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Practice Consolidation
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Who is Consolidating?

• Surgical oncology supergroups (e.g., Integrated
  Medical Professionals)
• Medical oncology supergroups (e.g., State
  society projects)
• Medical oncology/Radiation oncology (e.g., Center
  for Cancer Blood Disorders USON groups)
• Urologists (e.g., Cancer Care Northwest)
• Gynecologists (e.g., Prevea)
• Breast surgeons (e.g., Florida Institute for
  Research, Medicine and Surgery)
• Primary care/multi-specialty groups (e.g., New
  Mexico Oncology Hematology Consultants)

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Why Consolidate?

• Percentage Radiation Oncologist Referrals by
  Physician Specialty

Source The Advisory Board
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Why Consolidate?
TYPICAL MEDICAL ONCOLOGIST

• Number of new cancer cases per medical oncologist
• 60 of new cancer patients will receive RT
• 50 of RT referrals come from medical oncologists
• Average of 23 treatments per RT course
• Convert treatments per year into patients per day

Bottom Line Two to three medical oncologists
support a linear accelerator
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Why Consolidate?

• Revenue enhancements
• Bargaining power with payors and vendors
• Access to clinical trials
• Access to capital/capital reserves
• Economies of scale
• Technology deployment and ancillaries
• Quality improvement
• Quality of life
• Affiliations and joint ventures
• Captive insurance arrangements
• Legal advantages

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Fully Integrated Group
Stockholders

• Governance
• Democratic vs. founders reserve powers
• Income partners
• Part-timers
• Compensation
• Equal or productivity
• By specialty
• Profit centers?
• Revenue/expense allocation
• Buy-In/Buy-Out
• Transfer events
• Cross purchase vs. redemption
• Liquidation value vs. goodwill
• Succession planning
• Restrictive Covenants

NewGroup
Services
Real Estate
RT
Infusion
Imaging
Lab
ASC

• Stark Law In-office ancillary services and
  employment exceptions - DHS technical revenue
  cannot be allocated based on referrals
• Anti-Kickback Statute Group practice and
  employment safe harbors

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Group Practice Without Walls

• Members
• Each Member receives 1
• Class A Unit Class B Units based on relative
  value of contributed practice
• Member Actions
• Supermajority voting
• Board
• Representative of constituent interests
• Central authority
• Board Voting
• Routine-majority
• Major Actions supermajority
• Divisions
• Profit center accounting
• Delegated authority for day-to-day operations
• Cross-indemnity for divisional deficits?
• Departing physicians responsible for guaranteeing
  pro rata share of divisional long term debt?
• Commitment window and unwind rights

Class B Non- Voting
Class A Voting

• co-equal
• voting

NEWCO, LLC
MOA Division
ROA Division
Surgical Division
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Legal Considerations

• Stark II Phase III Rules In-Office Ancillary
  Services Exception
• Joint use of shared office space, facilities,
  equipment, and personnel
• Unified business test - - Permits profit center
  accounting
• Centralized decision making by a body
  representative of the group that maintains
  effective control over the groups assets and
  liabilities
• Consolidated billing, accounting and financial
  reporting
• Centralized utilization review
• Common billing number

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Legal Considerations

• Stark II, Phase III Rules In-Office Ancillary
  Services
• Methods of compensation set in advance
• Profit distributions and productivity bonus
• Cannot distribute technical component of DHS to
  individual physicians based on their referrals
• Productivity bonus personally performed
  (including incident to services) directly
  related to DHS referrals, or based on patient
  encounters, RVUs
• Profits generated by 5 or more physicians can be
  pooled and distributed per capita, or based on
  non-DHS productivity
• Other reasonable and verifiable methods not
  directly related to DHS referrals

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DHS Revenue Allocation Within Medical Group
Consolidated Group
DHSRevenuePool
Payors
MOADivision
Imaging RevenueAllocation
ROADivision
RT RevenueAllocation
IndividualROs
IndividualMOs

• Pool allocated to Divisions based on referrals
• Individual allocation not based on number of
  DHS services ordered by individual

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Specialist Collaboration
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Professional Service Contract Options

• Employ specialists (full-time or part-time)
• Independent contractor arrangements
• Specialists assign revenue to oncology group and
  receive set payment for professional services
• Pay for multi-disciplinary conference
  participation
• Service line medical director agreement
• Service line co-management agreement

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Embedded Practice
Space Lease
Urologist(s)
Payors
OncologyGroup
Pro Fees
BreastSurgeon(s)

Space Lease

• Notes
• Space lease/FFE lease cannot be on percentage or
  per click basis
• Period of exclusive use of space
• Separate provider numbers, medical records,
  signage

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Block Lease

OncologyGroup
Urologist(s)/Surgeon(s)
Payors
Global

• Space
• Equipment
• Non-clinical staff
• Supplies
• Management services

Block Lease

• Employ own Techs

IMRT or PET/CT
ROs
Radiologist(s)

• Purchased professional component?

• Notes
• Urologists/surgeons pay FMV for block lease
• Space/equipment cannot be leased on percentage
  or per click basis
• Urologists/surgeons need to perform clinical
  component (e.g., employ techs) and bear financial
  risk to avoid being an impermissible contractual
  joint venture
• Specified period of exclusive use of space
• Urologists/surgeons must provide some services
  other than just IMRT or PET/CT in same building
  as oncology group
• Avoid anti-mark-up rules share a practice or
  perform in same building

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Joint Venture/Lease
OncologyGroup
Urologist(s)/Surgeon(s)

• Space
• Leasehold improvements
• Equipment
• Non-clinical staff
• Supplies
• Management services

Urologists/Surgeons
NewCoLLC
Payors

• R/E venture
• IMRT venture
• PET/CT venture
• Other equipment venture

Lease

• Employs clinical personnel (techs, nurses)

• Notes
• Can be located at any site if lease is
  full-time/exclusive otherwise same building rule
  applies
• Joint venture legal guidelines
• Otherwise same as Block Lease Arrangement