Health Law Vantage Point - Summer 2007Summer 2007 | Vol. 2, Issue 2
It has been a busy summer for federal health care regulators.
We lead this issue of the Godfrey & Kahn Health Law Vantage Point
with an overview of the provisions of the Medicare Physician Fee Schedule Proposed Rule affecting the Stark Law, reassignment rules, anti-markup rules, in-office ancillary services exception, purchased diagnostic test rule, per-click leases, percentage compensation arrangements, independent diagnostic testing facilities, block leases, and services furnished to hospitals “under arrangements.” The proposed rule appeared in the Federal Register on July 12. If the rules change as CMS would like, many business arrangements in health care will need to be restructured, or will be unwound.
Then on July 19, the IRS issued its interim report on the responses received to its questionnaire to tax exempt hospitals on how they provide and report their delivery of community benefits and uncompensated care. Also on July 19, the minority staff of the U.S. Senate Finance Committee released a discussion draft report on tax-exempt hospitals that can be described as a proposal for radical reform. We include a short summary of these developments.
This issue also includes articles for health care employers on the risks associated with sharing wage information with competitors and discriminating against employees who have care giving responsibilities. For construction managers, we include an article on the risks of hospital building codes applying to the construction or remodeling of physician clinics. For medical and compliance officers, we include articles on how poor quality care can lead to the filing of false claims, an update for hospitals on physician authentication of verbal orders, and Medicare’s plans to profile physicians for quality and efficiency of care.
As always, feel free to contact any of our attorneys in our health care practice
with questions or needs for assistance.
By Chuck Vogel
On July 2, the Centers for Medicare and Medicaid Services (CMS) issued its Medicare Physician Fee Schedule Proposed Rule (proposed rule), which appears at 72 Fed. Reg. 38122 (July 12, 2007). Buried in the 924 pages of the proposed rule are proposed changes, comments, and requests for comments affecting the Stark Law, reassignment rules, purchased diagnostic test rule, independent diagnostic testing facilities (IDTFs), and services provided “under arrangements.”
If the rules proposed by CMS become final in the proposed form or as contemplated by CMS, many existing arrangements structured to comply with current law would be affected and require change. Providers with shared laboratory and imaging facilities, per-click leasing arrangements, IDTFs, percentage compensation arrangements, block leases, under arrangement service agreements, and those who utilize the in-office ancillary services exception under the Stark Law, need to review their activities and arrangements in anticipation of the changes forecast by CMS.
What follows is our overview of the major proposed changes and concerns announced by CMS in the proposed rule.
1. Reassignment; Purchased Diagnostic Test Rules (Anti-Markup Provisions); Stark In-Office Ancillary Services Exception.
Medicare rules currently prohibit the markup of the technical component of certain diagnostic tests that are performed by outside suppliers (i.e., someone other than a full-time employee of the billing physician or medical group) and billed to Medicare by a different individual or entity.
CMS now proposes a revision to the anti-markup rule that would extend the prohibition on markups to the interpretation or professional component of diagnostic tests provided by outside suppliers. This proposed rule would apply whether a component is purchased outright, or the physician or other supplier performing the technical or professional component reassigns his or her right to bill to the billing physician or medical group purchasing the component. The only exception would be reassignment from a full-time employee of the medical practice.
Under the anti-markup rule, the billing physician or medical group cannot bill to Medicare more than the lowest of: (1) the “supplier’s net charge” to the billing physician or group, (2) the billing physician’s or group’s actual charge; or (3) the fee schedule amount for the test that would be allowed if the supplier billed Medicare directly. To prevent gaming, CMS proposes to define the “supplier’s net charge” to be an amount determined without regard to any charge that is intended to reflect the cost of equipment or space leased to the outside supplier by or through the billing physician or medical group.
CMS recognizes that its proposed rule change to the anti-markup rule described above would not cover the technical component of diagnostic tests performed by part-time or leased employees of the billing physician in a centralized building that are billed to Medicare in reliance on the in-office ancillary services exception. CMS also notes that the in-office ancillary services exception increasingly is being used by physician groups for ancillary services provided in a centralized building, but which are not as closely connected to the physician group’s practice as CMS says was the historical reason for the exception. In particular, CMS expresses concern about arrangements where non-specialists use the exception to bill for specialized services, and cites as an example, an entity with its own staff located in a medical office building that furnishes an array of diagnostic services, including clinical laboratory services and radiology services, to patients of physicians who practice in the building and own either the equipment or the entity providing the diagnostic services.
In response to these concerns, CMS invites comments (but does not at this time make a proposal) as to whether an anti-markup provision should be applied to technical components that are performed in a centralized building and billed to Medicare in reliance upon the ancillary services exception.
One of the targets of CMS concerns are the pathology pod labs that through contractual arrangements with physician groups, give such groups the shared use of equipment, technologists and interpreting pathologists. Physician groups that utilize pathology services can bring these services in-house in reliance on the Stark in-office ancillary services exception for centralized buildings, and bill for such services at a markup. However, CMS indicates that its concerns do not extend to professional components ordered by independent laboratories.
Taken together, these proposed rule changes and changes on which comments are invited would result in the closure of numerous centralized building facilities for the shared provision of diagnostic tests to physician groups using the in-office ancillary services Stark Law exception, and would apply to the full range of diagnostic imaging tests in addition to the pathology pod lab, which has been a central focus of CMS concern. It also would eliminate the economic incentive for medical practices to bill Medicare for the professional component of diagnostic tests not performed by full-time employees of the billing practice, resulting in the unwind of many current arrangements with part-time or independent contractor physicians engaged by billing physician groups to provide interpretations of diagnostic tests.
2. Per-Click Leases; Stand in the Shoes.
Under current law, a physician may lease space and/or equipment owned by the physician to a hospital or other entity that provides Stark Law designated health services (DHS), pursuant to which the hospital or other DHS provider pays rent to the lessor physician based on each use it makes of the leased space or equipment (referred to as “per-click” payments). Such leases are permitted under the Stark Law (even if the physician refers patients to the hospital for services using the equipment) so long as the unit of payment per click is consistent with fair market value, is set in advance, and does not change during the term of the lease in a manner that takes into account the referrals of designated health services.
CMS is now proposing language to the Stark regulations for space and equipment leases that bars payment of rent to a leasing physician that is calculated on a per-click basis for services provided to patients referred by the lessor physician to the lessee hospital or other DHS provider.
The proposed rule change would only apply when the lessor is an individual physician, and would not apply to lessors that are entities owned by physicians who make referrals to the lessee. Such per-click lease arrangements by physician entities would continue to be subject to the indirect compensation analysis under the Stark Law. However, CMS commentary states that it is considering additional rule changes that would have individual physicians “stand in the shoes” of their practice groups and other entities in which they have an interest, presumably including entities formed to acquire and lease space and/or equipment to hospitals and other DHS providers. If and when such further changes are made, numerous per-click leasing arrangements will need restructuring to comply with the Stark Law.
Finally, CMS asks for comments on whether it should also prohibit per-click leases where the physician is the lessee of equipment. CMS cites as an example a physician who rents an MRI machine from a hospital only when the physician refers a patient to the hospital for an MRI scan and then provides the facility portion of the MRI service “under arrangements” with the hospital. Such a lease, CMS believes, could provide an incentive for over-utilization.
3. “Set in Advance” and Percentage-Based Compensation Arrangements.
Several of the compensation exceptions to the Stark Law require that compensation be “set in advance,” including the space and equipment lease exceptions, the personal service arrangement exception, the fair market value exception, and the academic medical center exception. Under current law, compensation is considered set in advance if the aggregate compensation, a time-based or per-unit-of-service-based amount, or a specific formula for calculating the compensation, is set forth in an agreement.
Now CMS says that despite its intent that percentage compensation arrangements be used only for compensating physicians for the physician services they perform, CMS has learned that percentage compensation arrangements are being used for the provision of other services and items, such as equipment and office space that is leased on the basis of a percentage of the revenues raised by the equipment or in the medical office space. CMS expresses its concern that percentage compensation in the context of equipment and office space rentals is potentially abusive.
So, CMS proposes additional language to the Stark regulations setting forth special rules that limit permissible percentage-based compensation to compensation based on revenues directly resulting from personally performed physician services. CMS notes that this proposed limitation would preclude the use of other factors for percentage compensation, such as a percentage of the saving by a hospital department (which is not directly or indirectly related to the physician services provided), in addition to percentage compensation in the context of space and equipment leases described above.
4. Stand in the Shoes; Indirect Compensation Exception.
As discussed above, CMS is considering additional rule changes that would have individual physicians “stand in the shoes” of their practice groups and other entities in which they have an interest. This presumably would include entities formed to acquire and lease space and/or equipment to hospitals and other designated health entities. The effect of the change would be that the Stark Law exemption used for such arrangements would be the space and equipment lease exceptions rather than the indirect compensation exception. In effect, a physician rather than his or her practice group would be treated as the direct lessor of the space or equipment.
CMS in its comments states that it also wishes to focus on the DHS provider side of these relationships, such as hospitals. Accordingly, CMS proposes a rule that when providers of DHS own or control another entity to which physicians refer Medicare patients for DHS, the DHS entity would stand in the shoes of the entity that it owns or controls. As such, the DHS entity would be deemed to have the same compensation arrangements with the same parties and on the same terms as does the entity that it owns or controls. For example, a hospital would stand in the shoes of a medical group that it owns or controls, such that if the medical group contracts with a physician to provide physician services at a clinic owned by the medical group, the hospital would stand in the shoes of the medical group. The hospital therefore would be deemed to have a direct compensation relationship with the contractor physician, and would need to use the direct compensation exception for the relationship with the physician.
CMS has not proposed specific language for the rule revision to accomplish this, but invites comments on its desired change. Could this concept apply to joint ventures between hospitals and physicians, and if so, what level of control is required before the proposed rule would apply? If CMS adopts the changes it either proposes or discusses on per-click leases, percentage arrangements, and “stand in the shoes” proposals, many existing hospital-physician joint ventures and lease and management arrangements would need restructuring.
5. Services Furnished “Under Arrangements.”
In unusually strong language, CMS expresses its concern in the proposed rule over DHS furnished “under arrangements” by physician-owned entities to hospitals and other DHS entities. CMS’ concern arises when DHS are provided by entities in which a referring physician has a financial interest, but which are provided to patients of hospitals and other entities that directly bill Medicare for them. Under current Stark Law regulations, entities that provide DHS to hospitals and other DHS entities under arrangements are not deemed to be furnishing DHS. Rather, only those entities to which CMS makes payment for the DHS, i.e. the hospital or other entities that bill for those services, are considered to be the service provider. This allows physicians to have an ownership interest in these entities without qualifying for one of the Stark ownership exceptions.
CMS believes that such arrangements provide an incentive for physicians to over-utilize DHS. CMS cites as an example hospital outpatient services for which Medicare pays separately for each clinical laboratory test, for each therapy service, and for the vast majority of radiology and other imaging services. According to the commentary, CMS believes that there is no legitimate reason for these arranged-for services other than to allow referring physicians an opportunity to make money on referrals for separately payable services.
CMS also cites services furnished under arrangements to a hospital that are provided in a less medically intensive setting than the hospital (i.e. an ambulatory surgery center, an independent diagnostic testing facility, or a physician office), but billed at higher outpatient hospital system rates.
CMS is trying to determine the best approach to resolving its concerns. It says that one alternative is to adopt the March, 2005 recommendation of the Medicare Payment Advisory Commission (MedPAC) that CMS “expand the definition of physician ownership in the physician self-referral law to include interests in an entity that derives a substantial proportion of its revenue from a provider of designated health services.” CMS asks for comments on the MedPAC approach, but indicates that it takes a different approach to the issue that it believes may be more straightforward. CMS proposes to change the definition of DHS “entity” that would include in the definition not only the entity that presents a claim or causes a claim to be presented for Medicare benefits for DHS, but also the person or entity that has performed the DHS. Today, under arrangements services agreements between physicians and hospitals are analyzed as indirect compensation arrangements. Assuming CMS modifies the definition of DHS “entity” as suggested in the commentary, a physician ownership interest in an entity that furnishes DHS to a hospital under arrangements would be analyzed, in effect, as though the physician has an ownership interest in the hospital itself, and the physician would have a prohibited ownership interest in the entity that has contracted with the hospital to provide DHS under arrangements.
The CMS approach has some ambiguities. How will CMS deal with services that are not DHS when directly furnished, such as most cardiac catheterization procedures, endoscopy or lithotripsy, but which become DHS hospital services when furnished under arrangements? The proposed rule applies to an entity that performs DHS, even if it does not bill for them. But many under arrangements entities provide hospitals certain management services, supplies, and staff to enable hospitals to perform DHS. Hospital outpatient surgery departments are a good example. At what point will such entities be deemed to “perform the DHS” under the proposed rule?
If CMS instead adopts the MedPAC approach and expands the definition of physician ownership to include interests in an entity that derives a substantial portion of its revenue from a provider of designated health services, the ambiguity described above would be resolved. However, the MedPAC approach would affect many arrangements now in place structured to comply with current law. These would include, for example, equipment leasing companies owned by physicians that lease an MRI to a hospital, or a management services company owned by physicians that manage a hospital service line, where such companies derive a substantial portion of their revenue from a provider of DHS. The MedPAC approach would end physician investment in any entity that derives a substantial portion of its revenue from the provision of services or items to a DHS entity.
CMS disregards any positive benefits of services provided under arrangements. Many existing arrangements have been formed for appropriate reasons, and in fact result in higher quality care, improved access, new services, and lower costs to Medicare. Given CMS’s strong language indicating its belief in the potential for abuse, and its apparent disregard for the potential positive benefits of services provided under arrangements, change in the rules is likely. Hospitals and physicians will need to review the services under arrangements they now have in place and decide how they will restructure, or unwind them if the changes CMS proposes are made.
6. Independent Diagnostic Testing Facilities.
CMS is proposing several changes and additions to the performance standards governing independent diagnostic testing facilities (IDTFs). One in particular, a ban on shared arrangements, was attempted by CMS in CMS Transmittal 187 issued in January 2007. CMS rescinded the transmittal due to concerns expressed by the imaging industry. The current proposal will elicit renewed expressions of concern from the industry, and if enacted as proposed, will likely have significant impact on the industry and arrangements established under current law.
CMS proposes a new standard that would require an IDTF to certify that it “does not share space, equipment, or staff or sublease its operations to another individual or organization.” In its comments in the proposed rule, CMS states that the commingling by an IDTF of office space, staff, and equipment, or the subleasing of its operation to another presents a significant risk to the Medicare program because it prohibits CMS and its contractors from ensuring that each IDTF establishes and maintains Medicare billing privileges as required.
CMS amplifies its proposed new standard by identifying shared space as including shared waiting rooms, shared staff as including supervising physicians, non-physician personnel and receptionists, and shared equipment as including equipment subleasing agreements. These types of arrangements, it concludes, also raise concerns because they may implicate the physician self-referral prohibition and the anti-kickback prohibition.
Will this standard apply to an IDTF wholly owned by a physician practice? No carve-out of these IDTFs appears in the proposed rule. Will the prohibition on subleasing be limited to concurrent use of the IDTF, leaving participants free to sublease in discrete periods such that one participant’s use can be distinguished from that of another sublessee? How these questions are resolved will affect block leasing and other shared arrangements. Those involved in shared use of IDTF space, staff, and equipment should have these arrangements reviewed now in anticipation of the new and revised IDTF performance standards.
Other changes proposed by CMS to the IDTF standards affect the responsibilities of the supervising physician, maintenance of liability insurance coverage, the effective date of billing privileges, notification of enrollment changes, and handling of patient questions and complaints.
7. Other Topics Addressed in the Proposed Rule.
In addition to the topics discussed above, CMS proposes to clarify that, when claims are denied based on a Stark law prohibition, the burden of proof will be on the entity submitting claims that the service was not furnished pursuant to a prohibited referral. CMS also seeks comments relating to the period of payment disallowance resulting from a Stark Law violation as well as on alternative criteria for satisfying Stark Law violations where the noncompliance is self-disclosed, only procedural or form requirements are violated, the failure to meet requirements was inadvertent and other criteria.
CMS’ proposals and requests for comment in the proposed rule reflect its nagging concerns about program abuse by many of the business arrangements that have been put into place in recent years. CMS seems determined to close the loopholes in current law that have allowed these arrangements. Taken in the aggregate, the changes in the proposed rule would require the restructuring or unwinding of many existing business arrangements, particularly between hospitals and physicians.
For further information or assistance regarding the proposed rule, contact a member of Godfrey & Kahn Health Care Team.
by Melissa Auchard Scholz
On July 19, 2007, the Internal Revenue Service released an interim report summarizing responses to the questionnaire it distributed to tax-exempt hospitals in May 2006. The interim report summarizes responses from 487 hospitals to questions on how the hospitals provide and report benefits to the community. Although the questionnaire included executive compensation issues, the report does not cover executive compensation because examinations are ongoing in that area. The Interim Report is available at http://www.irs.gov/charities/charitable/article/0,,id=172267,00.html.
The primary conclusion of the report is that hospitals report similar information in different ways, which makes it difficult to draw summary conclusions about the community benefit expenditures by tax-exempt hospitals. In particular, the report notes considerable variation in how hospitals report uncompensated care. For example, the researchers found significant differences in how hospitals measured income and assets and accounted for bad debt expense and shortfalls between actual costs and Medicare/Medicaid reimbursement rates. 97% of the respondents reported making uncompensated care available to least some persons; however, the report emphasizes that more analysis will be required to “accurately portray the community benefit actually provided by the respondent hospitals.” To address the limitations of the study, the researchers intend to do additional analysis and research and to test their findings by performing compliance checks or examinations of individual hospitals.
Revision of Form 990
On June 14, 2007, the IRS released a draft of a redesigned Form 990, the annual information return for tax-exempt organizations. The draft is available at http://www.irs.gov/charities/article/0,,id=171216,00.html. The proposed draft presents a substantially revised form, the first such significant revision since 1979. The revised form now includes a 10-page core form that all organizations must complete and 15 schedules to be completed if relevant to the organization. Of particular interest to hospitals, the form introduces a Schedule H entitled “Hospitals.” Schedule H includes five parts: Part I – Community Benefit Report; Part II – Billing and Collections; Part III – Management Companies and Joint Ventures; Part IV – General Information (questions on assessment of community need, ways that patients are informed of their eligibility for government assistance or charity care, emergency room policies, and ways that hospital’s facilities are used for exempt purposes); and Part V – Facility Information. Schedule J, which requests additional compensation information, will also be of interest to hospitals. The IRS is accepting comments on the proposed draft until September 14, 2007. They intend to require use of the new form to report information on 2008 (i.e., to be filed in 2009).
Minority Staff Report
As we have reported in past issues of our Health Law Vantage Point, Senator Grassley and his staff have taken particular interest in reviewing the standards currently applicable to hospitals that are recognized as tax-exempt under § 501(c)(3). As part of this ongoing project, on July 19, 2007, the Finance Committee Minority Staff issued a report entitled “Tax-Exempt Hospitals: Discussion Draft.” You can find the report at http://finance.senate.gov/press/Gpress/2007/prg071907a.pdf. The staff report makes specific recommendations, which, in brief, suggest that Congress legislate special rules for tax-exempt hospitals. These recommendations for § 501(c)(3) hospitals include: requiring a minimum amount of charity care and publicity of the hospital’s charity care policy; adopting special rules with respect to joint ventures involving patient care services between for-profit entities and §501(c)(3) hospitals; requiring § 501(c)(3) hospitals to conduct a community needs assessment every three years with “a particular emphasis on vulnerable populations” and prohibiting tax-exempt hospitals from charging rates that exceed the lower of (i) the lowest rate that would be paid by Medicare/Medicaid or (ii) the actual cost to the hospital for such service. The staff is seeking comments on its recommendations.
We will continue to monitor this activity. Feel free to contact Melissa Auchard Scholz (608-284-2610 or firstname.lastname@example.org) or any other member of our Health Care Team for more information on community benefit and charity care requirements for hospitals.
by Sean Bosack
Despite a doctor’s early attestation to “do no harm,” mistakes happen and the quality of health care is not always optimal. Traditionally, patients could seek redress for poor care through a private cause of action against a provider for medical malpractice. In recent years, an increasing number of cases are being brought against providers claiming that poor quality of care or lack of medical reasonableness for the care provided has triggered false claims for reimbursement under the False Claims Act. This newer level of exposure for providers requires that they use increased caution and oversight when certifying regulatory compliance or face the very real threat of litigation or government enforcement action.
Health Care and the False Claims Act
The False Claims Act (FCA) was passed by Congress in 1863 and signed into law by President Lincoln during the Civil War. This specialized statue was designed to punish profiteers who were defrauding the Union Army. The FCA empowered citizens to act as a “private attorney general” and file suit against any party found committing fraud while retaining a portion of the funds recovered.
In 1986 the FCA was substantially amended to combat fraud in the fields of defense and health care. As it stands today, the FCA imposes civil liability on any person who submits a claim (i.e. reimbursement, approval or payment) to the federal government and knows (or should know) that the claim is false. The FCA continues to authorize claims brought by private citizens, known as qui-tam realtors or colloquially as “whistle-blowers.”
In recent years this long-standing act has gained new traction and become a significant mechanism for penalizing Medicaid and Medicare fraud. In 1998, 61% of all qui-tam realtor cases under the FCA involved health care fraud. This percentage continues to increase, especially in light of the Deficit Reduction Act of 2005, which created financial incentives for states to enact their own false claim statutes covering Medicaid claims. As a result of this new and expanding legislation, individual actions, which would not constitute medical malpractice, could result in civil and criminal liability under the FCA and similar state statutes.
The authorization of qui-tam plaintiffs also increases the potential for health care claims under the FCA. These actions are often brought by former hospital employees and medical professionals who have an in-depth knowledge of the defendant hospital. This greatly increases the chance that a small departure from Medicare or Medicaid regulations, such as a testing procedure or an inaccurate treatment code, will be caught and prosecuted under the FCA. As a result, health care providers may find they have to impose a higher level of oversight on medical professionals to decrease the risk of civil and potentially criminal liability.
Legal Theory Behind Liability
Liability under the FCA derives from the regulatory certifications made by physicians and hospital administrators. Typically, physicians make the primary decisions as to what health services are reasonable and necessary for a patient. Such decisions are supervised by hospitals through utilization review mechanisms in conjunction with Quality Improvement Organizations. However, such mechanisms are no longer enough to prevent civil and criminal liability to the government and potentially private individuals.
Liability under the FCA can derive from a health care provider’s certification of compliance with Medicaid and Medicare regulations when they submit claims for reimbursement. For example, the Medicare statute states that “no payment may be made under [the Medicare statute] for any expenses incurred for items or services which …are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” Because payment is expressly conditioned, a hospital impliedly certifies that treatment is “reasonable and necessary” when seeking payment or reimbursement. These certifications constitute a “claim” that is being made to the federal government.
Courts have found that signing a Medicaid or Medicare certification, as a precondition to payment, without regard to its truth renders it a “false” claim under the FCA. Specifically, claims have been found “legally false” when a party inaccurately certifies compliance as a condition to government payment. Claims have been found “factually false” when they include an incorrect description of goods or services provided, or when they request payment for goods or services that were never provided. Thus, a failure to meet the required procedure or standard of care at any point in the health care process (from the reception room to the administrative review) could technically violate federal regulations and potentially the FCA.
For example, in Illinois v. ex. rel Raymer v. The University of Chicago Hospitals, a qui tam action was brought by two former neonatal intensive care unit (NICU) nurses. The plaintiffs alleged that the hospital was knowingly “double-bunking” newborns in violation of state health and safety regulations. Thus, the hospital’s certification of compliance with all such laws and regulations for Medicaid payment allegedly violated the False Claims Act. The court analyzed the plaintiff’s claim and denied the hospital’s motion to dismiss.
Similarly, in Mikes v. Straus, a qui tam action was brought by doctor who was formerly a partner in the defendant’s medical practice. The plaintiff alleged that the defendants were inadequately calibrating spirometers, thus rendering the results so unreliable as to be false. The plaintiff contended that as a result of the unreliable tests, any forms submitted for Medicare reimbursement for spirometry services constitute a violation of the False Claims Act. The court, however, concluded that because the Medicare statute at issue did not “condition payment on compliance with its terms, defendants’ certification on the forms was not legally false.”
Important Policy Considerations
As FCA litigation continues to increase, competing policy concerns are evident. On one hand, there is a need to enforce Medicare regulations and ensure that the federal government is not being defrauded. In addition, allowing qui-tam claims provides doctors and nurses the opportunity to file suit when hospital administration won’t listen, therefore ensuring that patients receive the requisite and necessary level of health care.
On the other hand, the regulation of health and safety matters is primarily, and historically, a matter of local concern. Some argue that permitting qui-tam realtors to assert that the quality of care failed to meet medical standards would promote federalism and criminalization of medical malpractice, as the federal government or the qui-tam realtor would replace the aggrieved patient as a party to a legal proceeding. Beyond that, courts have expressly stated that they are not the best forum to resolve medical issues concerning levels of care. State, local or private medical agencies, boards and societies are better suited to monitor quality of care issues.
Moving forward, this new level of enforcement will require health care providers to use increased caution when certifying regulatory compliance, especially with Medicaid and Medicare regulations. In addition, health care providers will need to use additional oversight when monitoring quality of care and the medical necessity of procedures to reduce the chance of liability under the False Claims Act.
If you have any questions regarding the False Claims Act or other issues, please contact a member of Godfrey & Kahn Health Care Team.
by Sean Bosack
The False Claims Act has been one of the federal government’s most powerful weapons in its effort to combat fraud in the health care industry, as discussed in the preceding article in this issue of Health Law Vantage Point. More recently, the federal government has determined that its enforcement efforts could be more effective, and that more money could be saved and/or recovered if states increased the intensity with which they pursue actions against those who may be defrauding Medicaid programs.
In furtherance of this goal, the 2005 Deficit Reduction Act includes incentives designed to induce the states to pass their own False Claims Acts that would allow private citizens to bring lawsuits in the name of the state when they are aware of conduct under which health care providers receive payments from state Medicaid programs by submitting false claims. At least twenty states have enacted such legislation, and Wisconsin may be soon to follow. Passage of such legislation could have wide-ranging implications for Wisconsin’s health care industry.
Section 6032 of the Deficit Reduction Act, provides incentives for states to pass their own False Claims Acts. According to this section, states that enact a False Claims Act satisfying certain requirements will receive a 10% increase in their share of Medicaid recoveries.
Before a state is awarded this special treatment, its False Claims Act must meet four conditions. First, the statute must establish liability to the state for false or fraudulent claims. Second, it must be at least as rewarding for qui tam actions as its federal counterpart. Specifically, it must contain a qui tam provision, or in other words create a process by which relators may file suit on behalf of the government and be awarded a portion of the proceeds of any recoveries. Third, it must require that the action be filed under seal for sixty (60) days to be reviewed by the State Attorney General. Finally, the civil penalty must not be less than the amount of the civil penalty authorized in the Federal False Claims Act. Currently, twenty states have passed False Claims Acts which satisfy these requirements.
In states where false claims acts have been adopted, the results have, at times, been significant. For example, in 1996, the state of Florida entered a judgment in the amount of $1.75 million against CareFlorida Health Plan Inc. for submitting fraudulent Medicaid enrollments in violation of Florida’s False Claims Act. www.taf.org. Similarly, in Texas in 2001, Driscoll Children’s Hospital Foundation was fined $14.5 million for filing false expense reports, reporting inflated charity work, and engaging in kick backs. www.taf.org. Also in Texas, Roxane Laboratories, Dey Inc., and Schering-Plough Inc. were charged $10 million, $18.5 million, and $27 million, respectively, for marketing the spread providers could earn by falsely reporting their wholesale drug prices to the Medicaid program. www.taf.org. These are just a few of the millions of claims brought under state False Claims Acts each year.
In April 2006, former Wisconsin Attorney General Peg Lautenschlager and State Senator Jeff Plale announced plans to develop a False Claims Act for Wisconsin. The proposed legislation was officially included in Wisconsin’s Executive Budget Bill of 2007. Currently, Wisconsin receives 42.5% of False Claims Act recoveries. If the proposed legislation passes, that percentage will increase to 52.5%, a 23% increase.
We will advise our clients on the potential impact of this legislation and how they might prepare for the new regulatory and enforcement challenges. If you have any questions regarding a possible new Wisconsin False Claims Act or related false claims concerns, please contact Sean Bosack (email@example.com or 414-287-9431); Mike Wittenwyler (firstname.lastname@example.org or 608-284-2616) or another Godfrey & Kahn Health Law Team Member.
by Kevin O’Connor
Recent cases underscore the risk related to the exchange of wage and price information by competing health care providers. On March 28, 2007, the court in one such case, Reed v. Advocate Health Care, ruled that a hospital employer is not immune from antitrust liability when it shares nurse wage information with other hospital employers outside the context of a collective bargaining agreement. In Reed, the plaintiffs alleged that several Chicago-area hospitals conspired to depress nurses’ wages in violation of the Sherman Antitrust Act. One of the hospitals, the University of Chicago Hospitals, argued that it was immune from such suit because nurse wage rates, along with other terms, are determined by collective bargaining agreements between particular hospitals like the University of Chicago Hospitals and the Illinois Nurses Association. The court disagreed with that argument, stating that wage fixing among competitors outside the collective bargaining process is not in furtherance of the goals that are protected by the national labor laws.
In general, federal antitrust laws prohibit agreements that restrain competition. Agreements among competing businesses, including health care providers, that limit price competition or allocate markets are particularly suspect under the antitrust laws and can create substantial risk to the individuals and organizations engaged in such activities. Sharing current or prospective employee wage and salary information with competing employers, at a minimum, raises a possible inference that the employers intend to coordinate the amounts they will offer employees for these services.
With that cautionary note in mind, it should be noted that there are ways in which competing employers may share wage and price information with each other with far less antitrust risk. As noted in Reed, groups of employers who negotiate jointly in a collective bargaining context with a union representing all of the group’s employees may share wage information because of a non-statutory exemption from the antitrust laws when union activity is involved. The Reed court concluded that the University of Chicago Hospitals were sharing wage information with hospitals that were not parties to the collective bargaining agreement with the nurses’ union. Consequently, the hospital’s activity was subject to antitrust exposure.
Even where the labor exemption does not apply, competing health care providers may be able to exchange price and wage information with minimal risk of antitrust exposure if it is done in a way which does not raise the inference that the purpose of the exchange is to coordinate actual prices. For example, the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) will not challenge, absent extraordinary circumstances, provider participation in written surveys of the prices for health care services or wages, salaries or benefits of health care personnel where certain conditions are satisfied. These conditions include:
- The survey is managed by a third party, such as a consultant;
- The information provided by survey participants is based on data more than three months old; and
- There are at least five providers reporting data upon which each disseminated statistic is based, no individual provider’s data represents more than 25% on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider.
According to the FTC and DOJ, exchanges of price and cost information that fall outside this safety zone will not necessarily be labeled “anticompetitive” or illegal. Rather, the government will weigh the anti-competitive effect with any pro-competitive justification for the information exchange. “Depending on the circumstances, public, non-provider initiated surveys may not raise competitive concerns. Such surveys could allow purchasers to have useful information that they can use for procompetitive purposes.” However, the FTC and DOJ are very likely to view the sharing of current or future price or wage information as anticompetitive, especially if the exchange results or even appears to result in an agreement among competitors as to the prices for health care services or wages to be paid to health care employees.
Sharing wage and price information can be interpreted as anti-competitive conduct under the antitrust laws, which can expose the organization to significant criminal and civil penalties. Health care organizations that want to share wage or price information with other organizations for purposes of a survey or otherwise should carefully consider the adverse inferences that can be drawn from such sharing. If it appears that such sharing would make sense from a business perspective, competent antitrust counsel should be sought so as to minimize antitrust risk.
If you would like additional information relating to collective bargaining and/or the sharing of wage and other employee information with other providers, contact a member of Godfrey & Kahn Health Care Team.
Historically, there was a clear distinction between clinics and hospitals. Recently, the line between these two types of facilities has begun to blur, with clinics and clinic-like facilities providing many of the services that were formerly available only at hospitals. Operators of these clinic-like facilities need to be mindful of the fact that if their facilities are too much like a hospital, they may become subject to stringent (and costly) hospital building codes (see Example A and Example B below).
In Wisconsin, health care building codes are a maze of complex and interrelated requirements imposed by Wisconsin law, the International Code Council’s International Building Code (the IBC), and the National Fire Protection Association’s Life Safety Code (the LSC). The purpose of this article is to help health care providers navigate this maze.
In determining which building codes apply to a health care facility, the first step is to determine whether or not the facility is a “hospital” under Wisconsin law. If the facility is a hospital, it is subject to both the LSC and the IBC. If the facility is not a hospital, it is only subject to the IBC.
Generally, clinics and physicians’ offices are exempt from the definition of hospital, but as clinics and clinic-like facilities begin to resemble hospitals, they risk becoming subjected to hospital building codes. The Wisconsin Administrative Code (refining the statutory definition) defines a hospital as: [A]ny building, structure, institution or place that does all of the following:
In addition, hospitals may also include “related facilities such as outpatient facilities.”
If a health care facility falls within the statutory definition of hospital, it must comply with the applicable provisions of the LSC. Compliance as a hospital under the LSC can be complicated and costly.
Whether or not a heath care facility falls within the definition of a hospital, the facility must still comply with building codes established for health care facilities by the state of Wisconsin and by the IBC. Regulations under the IBC are not “one size fits all” and can vary for different types of health care facilities. Depending on the services to be provided in the facility, applicable building codes can be more or less stringent. As building codes become more stringent, construction and renovation costs tend to increase.
During the development stage of a new or renovated health care facility (or when planning a shared operations agreement), a health care operator should consult a knowledgeable architect to determine the applicable building codes and an experienced attorney to evaluate how to structure the project to achieve the operator’s business goals and avoid unexpected costs due to building code issues. By making this determination early, the health care provider can avoid making costly renovations later.
The following examples illustrate how with a little advance planning, there are steps that health care providers can take to avoid unfortunate results.
Company A operates an 18-hour urgent care facility, and is acquired by Company B, which proceeds to operate the facility as a full-service 24-hour hospital. A building inspection determines that the building does not comply with the more restrictive building codes applicable to hospitals, and Company B is faced with the decision of whether to update the facility in compliance with such codes or reduce the offered services.
In this example, before expanding the urgent care clinic into a hospital, Company B should investigate whether the existing facility is in compliance with the stricter building codes applicable to hospitals, and if not, whether there is a way to expand the services of the urgent care facility without causing it to be subject to the more restrictive hospital code requirements.
Company X operates a physical therapy clinic. Company Y in the neighboring building operates a hospital. The companies desire to connect their buildings and share certain equipment/facilities. If the buildings are subsequently viewed as one facility, the physical therapy clinic could become subject to hospital building codes, potentially requiring costly renovations.
In this example, before constructing a physical connection between their buildings, Company X and Company Y should evaluate whether the building connection taken together with the shared equipment/facilities is likely to be viewed as one facility for purposes of building code compliance. If this is a significant risk, they can investigate ways to share equipment and facilities without constructing a physical connection that triggers the building code issue.
Physicians and those entities that work with them be warned: The Centers for Medicare and Medicaid Services (CMS) is ready to start profiling individual physicians for inefficient practices.
On May 10, the Subcommittee on Health of the House Committee on Ways and Means held a hearing during which the acting deputy administrator for CMS revealed that as early as 2008, CMS may start using Medicare claims data to measure individual physician resource use that links quality in the provision of care to Medicare beneficiaries and encourages physicians to focus on efficiency. Through this measurement, CMS believes it will be able to compare and contrast individual physician resource use, including the number of services a physician orders, such as laboratory and diagnostic tests, as well as hospital and other services. Although couched as a quality initiative, such information could also reveal potential fraud, such as Stark and Antikickback violations. For example, a physician who shows an unusually high number of claims for certain laboratory or diagnostic tests may spark additional questioning of his or her financial arrangement with the entities that furnish those tests. A direct correlation between diagnostic test referrals and the entity that provides such tests may constitute a Stark or Antikickback violation, resulting in potential civil and criminal penalties.
This profiling initiative comes on the heels of other federal initiatives to reduce Medicare costs and improve overall health care quality. We noted another such initiative in our March 13, 2007 client alert regarding the Medicare Pay-For-Performance: 2007 Physician Voluntary Reporting Program. A third initiative, the Recovery Audit Contractor (RAC) Program, was instituted in Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and is a program under which CMS pays RACs contingency fees for identifying Medicare overpayments using Medicare claims data. The RAC Program is currently operating in New York, California and Florida, but pursuant to Section 302 of the Tax Relief and Health Care Act of 2006, the program will be permanent and operate nationwide by 2010. To learn more about the RAC Program, see: http://www.cms.hhs.gov/RAC.
Physician profiling, along with the RAC Program, will help CMS identify Medicare overpayments because of lack of medical necessity, incorrect coding, duplicate payments or payments for which another insurer was responsible. Identifying these overpayments will place physicians and hospitals at risk of owing the Medicare program money and being accused of fraud. In fact, in 2006, of the $3.1 billion in settlements and judgments in cases involving allegations of fraud against the government, 72% of those recoveries were attributable to health care fraud. SeeUnited States Department of Justice, “Justice Department Recovers Record $3.1 Billion in Fraud and False Claims in Fiscal Year 2006” (Nov. 21, 2006).
In anticipation of this forthcoming profiling and RAC Program, physicians should review their practice procedures and make sure those joint ventures and payment mechanisms are in compliance with federal and state laws.
Contact a member of Godfrey & Kahn’s Health Care Team to assist you in achieving compliance and for more information on these programs.
by Margaret Kurlinski
On May 23, 2007, the U.S. Equal Employment Opportunity Commission (EEOC) issued enforcement guidance entitled, “Unlawful Disparate Treatment of Workers with Caregiving Responsibilities.” This guidance does not create a new protected category of “caregiver” however, it highlights how stereotypes associated with caregivers may form a basis for liability under current equal employment opportunity laws, including Title VII and the Americans with Disabilities Act (ADA). The guidance provides information regarding various forms of caregiver discrimination, including sex-based disparate treatment of female caregivers, pregnancy discrimination, discrimination against male caregivers, discrimination against women caregivers of color, unlawful caregiver stereotyping under the ADA, hostile work environment claims and retaliation.
The courts have been addressing employee discrimination claims involving caregiving responsibilities for many years, most frequently in the context of sex-based discrimination associated with pregnancy and motherhood. It is unclear whether the publication of this guidance, which categorizes and explains how various discrimination laws can be used to address caregiver responsibility discrimination, will increase the number of discrimination claims brought by caregivers. However, with a workforce that is increasingly being populated with working mothers, employees caring for baby-boomer parents and employees responsible for caring for family members with disabilities, employers should be familiar with the protections that the various laws provide employees with caregiving responsibilities.
Who is a caregiver?
The EEOC guidance explains that “caregivers” are employees who are primarily responsible for the care of another. Caregivers include employees with childcare responsibilities as well as employees who provide care to elderly family members and individuals with disabilities. While caregiving responsibilities disproportionately affect working women generally, the guidance acknowledges that these effects may be more pronounced among African-American women, who have a long history of working outside the home. Although women primarily shoulder the caregiving burden, men are increasingly taking on caregiving roles.
Examples of unlawful discrimination against employees with caregiving responsibilities:
- Firing employees because they are pregnant or will take maternity leave;
- Giving promotions to women without children, or fathers rather than more qualified mothers;
- Assigning women with caregiving responsibilities to less prestigious or lower-paid positions;
- Giving parents work schedules that they cannot meet for childcare reasons while giving non-parents flexible schedules;
- Harassing and penalizing workers who take time off to care for their ageing parents or sick spouses; or
- Terminating an employee after she reports unlawful discrimination based on gender stereotypes of working mothers.
The FMLA as a vehicle for caregiver claims
The EEOC enforcement guidance mentions that employers might also have specific obligations toward caregivers under other federal statutes, such as the Family and Medical Leave Act (FMLA) or other state laws, such as the Wisconsin Family and Medical Leave Act (WFMLA). These laws prohibit the interference by employers with their employees’ qualified family and medical leave and prohibit discrimination against employees who take such qualified leave. A caregiver responsibility claim may arise under these statutes if an employer denies a qualified employee’s request for time off to care for an ill or dying parent, requires an employee to return from leave early or penalizes an employee who takes leave by demoting or harassing the employee.
What employers can do to prevent caregiver claims.
Employee caregiver responsibility claims arise as a result of discriminatory personnel policies and practices or through daily interactions between employees and management. The following are some steps to take to ensure that employees are being treated fairly without regard to caregiver-based stereotypes:
- Examine attendance, leave and compensation policies to make sure they are free from biased standards;
- Review criteria for hiring and promoting to see if they disadvantage employees with family caregiving responsibilities;
- Review which employees within your company are assigned desirable work. (Is it only employees without caregiving responsibilities, such as women without children or men who have someone at home to provide care to children or family members?); and
- Consider the implementation of alternative work arrangements that will allow employees with caregiving responsibilities to customize their work schedules.
For more information, contact a member of the firm’s Health Care or Employment Law Teams.
On November 27, 2006, the Centers for Medicare and Medicaid Services (CMS) issued four final conditions of participation for hospitals, one of which included a revision to the condition pertaining to physician authentication of verbal orders (CoP). The key changes to the CoP included adding a requirement that verbal orders be timed and expanding the category of practitioners who may authenticate verbal orders. The CoP took effect on January 26, 2007.
Under the final CoP, all verbal orders given by a medical professional must be dated, timed and authenticated promptly by the ordering practitioner.
For the next five years, however, CMS will also permit another practitioner who is responsible for the care of the patient and authorized to write orders by hospital policy in accordance with state law to authenticate the verbal order. Essentially, this exception creates a five-year trial period during which hospitals are permitted to allow practitioners other than the ordering practitioner to authenticate verbal orders. According to CMS, the purpose of the exception is to create flexibility by allowing practitioners responsible for the care of the patient also to authenticate the order. The exception recognizes that ordering practitioners are not always available to authenticate their orders. After the five- year trial period, CMS will evaluate whether the provision should be made permanent after considering factors such as any advancements in health information technology that would allow ordering physicians to authenticate all of their orders in a more efficient manner.
In CMSs’ regulatory comments, it also discussed the “read-back” verification process. As the name suggests, this process involves the practitioner who accepts the verbal order reading it back to the physician to verify the accuracy of the order. CMS acknowledged that the “read-back” verification process is not part of the regulatory text of the CoP, but pointed out that it is part of nationally accepted practices and guidelines, including the Joint Commission’s National Safety Patient Goals. In its regulatory comments, CMS clarified that it expects hospitals to comply with the “read-back” standard regardless of whether it is in the regulatory text. Therefore, the read-back verification process should be included as part of the process of authenticating a verbal order.
Accordingly, in order to fully comply with the CoP, all verbal orders should be dated, timed, read back, and authenticated by either the ordering practitioner or another practitioner who is responsible for the care of the patient and authorized to write orders by hospital policy in accordance with state law.
Finally, the final CoP expanded the types of practitioners who can write verbal orders to include physician assistants, in addition to advanced practice nurse prescribers.
Under the final CoP, all verbal orders must be authenticated in accordance with the requirements under federal and state law. If there is no state law that designates a specific timeframe for the authentication of verbal orders, verbal orders must be authenticated within 48 hours.
Previously, Wisconsin law required that all verbal and telephone orders be authenticated within 24 hours of receipt, which was inconsistent with the final CoP. For this reason, the Wisconsin Department of Health and Family Services granted a variance on March 13, 2007 in the form of a memorandum addressed to all hospitals. The variance extended the 24-hour requirement to 48 hours and added the requirement that all verbal orders be dated and timed in order to bring Wisconsin law in line with the final CoP.
While the final CoP has been in effect for some time, and physicians have undoubtedly implemented these changes into their practices, hospitals are required to amend their medical staff bylaws, as well as policies and procedures, to reflect these changes.
If you would like assistance with amending these documents or for additional information, contact a member of Godfrey & Kahn’s Health Care Team.