1. Aligning Physician Compensation with Growth Strategies and Governmental Regulations Mid-Atlantic Physician Recruiter Alliance Annual Educational Conference October 2, 2014 Amy Dilcher, Esq. University of Maryland Medical System Emily Wein, Esq. Ober|Kaler

2. 2 “ Affordable Care Act Reduces Costs for Hospitals, Report Says” New York Times (9/24/14) “Interest surges in Medicare bundled-payment initiative” Modern Healthcare (7/31/14) “Bundled payments give surgeons a powerful new incentive to reduce costs” Modern Healthcare (3/1/14) “Yale New Haven Health System Teams with Conifer Health Solutions on Clinical Integration Network” New York Times (7/31/14) “Are There Enough Doctors For The Newly Insured?” Kaiser News (1/3/14) “Supply won't meet growing demand for primary care” USA Today (9/25/14)

3. 3 Departments of Justice and Health and Human Services announce record- breaking recoveries resulting from joint efforts to combat health care Government teams recovered $4.3 billion in FY 2013 and $19.2 billion over the last five years

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5. What the News Tells Us Dichotomies in physician alignment Physicians are the key to care and cost containment - but there are shortages where needs are high Government is beginning to see the need for flexibility in regulations – but not fast enough 5

6. Physician Industry Trends Continued trend of employing physicians Accountable care organizations Payor contracting models Clinically integrated networks (CINs) Alternative payment models Other physician joint ventures 6

7. Legal Considerations and Physician Alignment Self-referral law Anti-kickback statute False Claims Act Tax-exempt laws Anti-trust laws State laws (e.g., insurance laws) 7

8. Anti-Kickback Statute Prohibits the offer or receipt of any remuneration in exchange for referrals of Federal health care program business “Two-way” street The mere offer or request may constitute a violation Applies to all providers and suppliers The key element of a violation is intent 8

9. Anti-Kickback Statute Remuneration is anything of value. Examples include, without limitation: – Increased compensation – Free or below market value goods or services, e.g., free office space or equipment – Gifts, e.g., sporting event/entertainment tickets, dinners Federal health care programs include (without limitation) Medicare, Medicaid, TRICARE, CHAMPUS, SCHIP 9

10. Anti-Kickback -Intent The purpose of the offer or acceptance of remuneration is relevant in determining a violation Appropriate Purposes: – Improved quality of care – Improved patient satisfaction Inappropriate Purposes: – Inducement of referrals – The OIG and most Federal courts adopt the “one purpose test”: even if there are other legitimate reasons for the payment/benefit, if just one purpose is to induce referrals, it is illegal 10

11. Anti-Kickback Statute - Penalties Criminal – Criminal fines up to $25,000 per violation – Prison Sentences of up to 5 years per violation Civil – Civil penalty up to $50,000 per violation – Exclusion from participation in Federal health care programs – Often regarded as the “economic death penalty” – Liability under the Federal False Claims Act – Assessment of up to 3X the kickback 11

12. Stark Law Prohibits: – Physicians from referring Medicare patients for “designated health services” to entities with which the physician has a financial relationship – unless the relationship meets a statutory or regulatory exception – Billing for services provided pursuant to referral from physician with a noncompliant relationship Applies to physicians and their immediate family members Strict liability – intent does not matter 12

13. Stark Law “Designated Health Services” include: – clinical laboratory services – physical and occupational therapy – outpatient speech language pathology services – radiology and other imaging services – radiation therapy services and supplies – DMEPOS (durable medical equipment, prosthetics, orthotics and supplies) – parenteral and enteral nutrients, equipment and supplies – home health services – outpatient prescription drugs – inpatient and outpatient hospital services 13

14. Stark Law Referral is a physician’s request, order, certification, or re-certification of the need for any designated health service – Includes a request for a consult with another physician – A physician is considered to refer even if he/she does not direct a patient to a specific provider Financial Relationship is a direct or indirect ownership or investment interest or compensation arrangement 14

15. Stark Law -Exceptions Physicians may only refer to entities with which it has financial relationships if the relationship meets all of the elements of an applicable exception All elements of an exception must be met Commonly used exceptions include: – Employment compensation arrangements – Professional service arrangements – Lease arrangements – Nonmonetary compensation 15

16. Stark Law - Exceptions Common elements of exceptions – Written agreement, signed by the parties – Compensation is fair market value (FMV) – Arrangement is commercially reasonable, even in the absence of any referrals between the parties – Compensation does not take into account the volume or value of physician’s referrals – Compensation must be set in advance 16

17. Stark Law -Penalties Overpayment/Refund obligations – Refund all Medicare collections received in connection with prohibited referrals Federal False Claims Act liability Program exclusion for knowing violations – This is where intent does matter Civil penalty of $15,000 per service rendered pursuant to prohibited referral Assessment of up to 3X times the amounts billed as a result of prohibited referrals 17

18. Civil False Claims Act Prohibits : – Filing, or causing to be filed “false or fraudulent” claims. – Using false statement to “conceal, avoid or decrease” a government obligation. – Failure to return overpayments. Intent: – “Intent to defraud” not required. – Filing claims with “reckless disregard” of claim’s truth or falsity is sufficient.

19. Civil False Claims Act Liability: – 3x Damages (amount of overpayment) – $5,500 to $11,000 per claim penalties State FCAs: May be broader in scope such as: – Additional services beyond the Stark Law’s “designated health services” – Additional payors beyond federal insurers – Broader definition of who is immediate family

20. Physician Relationship Compliance Construct arrangement within a Stark law exception and an anti-kickback safe harbor, if possible Employee v. contractor arrangements Document the “why?” 20

21. Phyician Employment Models Consolidation within larger health systems Quality-based incentives Revenue minus expense models Consider separate physician entity model 21

22. ACO/Commerical Payor ACOs – Regulatory flexibility – Administrative burden – Limited success Payor Contracting – Medicare Advantage Plans – Risk-based contracts 22

23. Clinically Integrated Network 23 Clinically Integrated Network Legal structure: New entity owned by Health System Role: Physician Organization working together to improve quality,

24. Alternate Payment Methods Gainsharing Bundled Payments – Single payment for an entire episode of care – Contain costs and improve quality – Ability to handle multiple/chronic diseases? – Hinder innovation? Pilot programs 24

25. Other types of Physician Joint Ventures Management Service Models (MSOs) Ambulatory Surgery Centers – Employed physicians and equity ownership? – Revenue and volume requirements for anti- kickback compliance Sometimes simple contractual arrangements achieve same goal as creative joint ventures and more easily demonstrate compliance 25

26. Physician Recruiters and Post Recruitment Relationships Recruitment Process Engage physicians Educate physicians about institute or group Attract physicians to area Function as a resource as they consider options, including yours 26

27. Physician Recruiters and Post Recruitment Relationships Post Recruitment Institutions, large groups may designate contact person or a “liaison” for physicians Function as an informational resource Provide a platform for open communication Facilitate relationship development 27

28. Physician Recruiters and Post Recruitment Relationships Health care institutions, such as hospitals have a legitimate interest in maintaining positive relationships with physicians serving their patients Physicians are often “gatekeepers” of health care as they are often in the best position to evaluate patient need, patient satisfaction, opportunities for increased quality of care and improvements in operations Regular communication and interaction between hospitals and physicians can identify and address these issues 28

29. Physician Recruiters and Post Recruitment Relationships Relationships must be maintained within parameters of federal Fraud and Abuse Laws Stark statute exception for “nonmonetary compensation” Nonmonetary compensation may be provided to physicians, and their immediately family members, if it is: – Not determined in a manner that accounts for volume or value of referrals – Not solicited by the physician or physician’s practice – Not provided to induce or reward referrals – Not part of an arrangement that otherwise violates the anti- kickback statute 29

30. Physician Recruiters and Post Recruitment Relationships Examples include: Lunches, flowers, edible treats, tickets – No cash or cash equivalents Annual limit per physician (2014 limit = $385) All nonmonetary compensation should be tracked, typically on a “log,” per applicable policy 30

31. Physician Recruiters and Post Recruitment Relationships If possible, value is divided among physicians – $200 lunch to physicians and staff in 4 physician practice = $50 logged to each physician – $300 dinner for physician and spouse = $300 logged to the physician Indivisible value is allocated to each physician – $150 goodie basket to 3 physician practice = $150 allocated to each physician – $75 flower arrangement given to 4 physician practice = $75 logged to each physician – If an item with indivisible value is given to a specific physician within a practice, then the total value is only logged to the recipient physician 31

32. Physician Recruiters and Post Recruitment Relationships DO – Express appreciation for their high quality services provided to hospital patients DO- Discuss opportunities for service line development and community promotion DO – Ask why physicians may refer patients to other hospitals DON’T - Offer or suggest an offer of any value or benefit in exchange for referrals to an affiliated hospital or provider 32

33. Physician Recruiters and Post Recruitment Relationships DO – Discuss offering community outreach activities that benefit the hospital’s service area DO- Discuss opportunities for increased patient satisfaction DO- Discuss physicians’ ideas for increased efficiencies DON’T – Limit interactions to highest referring physicians or physicians from whom hospital wants referrals 33

34. Questions? Amy J. Dilcher, Esq. University of Maryland Medical System adilcher@umm.edu Emily H. Wein, Esq. Ober|Kaler ehwein@ober.com