The Road Ahead for Health Care Compliance

Kevin D. Lyles, Esq. [email_address] (614) 281-3821 Enforcement and Economic Challenges The Road Ahead and How to Navigate It Diane Meyer, CHC [email_address] (650) 724-2572 Frank E. Sheeder, Esq. [email_address] (214) 969-2900

Agenda Environment New legislation and initiatives Take-away: Responses and prevention

General Environment National debate over health care reform Reform passed March 21, 2010 Reconciliation bill passed days later Increased enforcement actions and recovery Whistleblower encouragement

The Private Practice of Medicine is Under Attack Physicians are experiencing financial pressures that make private practices increasingly difficult to sustain Overall downward pressure on physician reimbursement Growth in Medicaid and Medicare Increased malpractice, EHR and other operating costs

The Private Practice of Medicine is Under Attack The private practice of medicine is under attack by Congress, CMS, payors and hospitals Congress has implemented substantial reimbursement cuts Federal and state regulatory actions designed to eliminate the ability of physicians to profit from ancillary services Reform bill contains new models that create incentives for collaboration

Fraud Enforcement and Recovery Act of 2009 (“FERA”) Enacted May 20, 2009 Targets TARP and stimulus spending Extends to private transactions involving federal funds Expands False Claims Act liability generally Appropriates $490 million for anti-fraud enforcement Amends criminal code provisions regarding fraud and money laundering

FERA Amendments to the FCA Expand liability to indirect recipients of federal funds Expand FCA liability for the retention of overpayments, even where there is no false claim Add a materiality requirement to the FCA, defining it broadly (natural tendency to influence) Expand protections for whistleblowers Expand the statute of limitations Provide relators with access to documents obtained by government

After FERA, many indirect recipients of federal funds have FCA exposure FERA removes requirement that false claim be “presented to” the federal government FCA exposure if the money sought from a contractor or grantee is to be used “on the Government’s behalf or to advance a Government program or interest” Arguably now covers many private transactions involving federal money in some way

Intent to Obtain Government Money Eliminated Extends liability to false statements made to get a false claim paid, regardless of whether defendant intended government to rely on the claim Arguably extends FCA to false statement made to private parties, if federal funds are involved

Added language for claims to contractor, grantee, or other recipient If the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest, and if the United States Government-- (I) provides or has provided any portion of the money or property requested or demanded; or (II) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded. new 31 U.S.C. 3729(a)(2)

Expanded exposure for “reverse false claims” FCA has long applied to fraudulently failing to return money from the federal government Previously, FCA liability premised on false statements or other affirmative fraudulent acts FERA expands “reverse false claims” liability False records and statements made to grantees and contractors now covered “ Improperly” retaining overpayments violates FCA even when no false statement or record is used

Expands “reverse false claims” to liabilities that are not “fixed” A duty to repay the government need not be fixed for FCA liability to attach Accelerates the point at which recipients of federal funds must decide if a repayment is due For example, interim payments under Medicare Combined with “reckless disregard” standard, this amendment could spawn numerous suits Will turn on meaning of “improperly” retaining overpayments

Other Expansions “ Materiality” is defined broadly as having a “natural tendency” to influence the government Protected activity by whistleblowers is extended to pre-lawsuit activity Relators given access to defendant’s documents in government investigative files Sealed filings can be shared with state and local law enforcement authorities

How to respond to FERA Establish or update compliance programs and policies Beyond a general compliance program to “prevent and detect violations of the law” Review anti-retaliation policies Address possible new FCA exposure Examine all aspects of business that may involve federal funds or claims to agencies, contractors and grantees

Health Care Reform Patient Protection and Affordable Care Act (“PPACA”) Signed into law March 23, 2010 (HR 3590) Sidecar Bill (HR 4872) Executive Order re Abortion Manager’s Amendment (student loans, rural subsidies, lower tax on medical devices) Senate corrections (procedural issues) House vote (because of Senate corrections)

PPACA Expands access to coverage to 32 million individuals by 2019 through a combination of public program expansions and private sector health insurance reforms Beginning January 1, 2014, all US citizens and legal residents have to obtain coverage or face a tax penalty (though subsidies are available)

PPACA Medicaid expansion Beginning in 2014, all state Medicaid programs are required to cover individuals up to 133% of the federal poverty level States will receive federal funds to pay for the newly expanded populations

PPACA Funding reduced Medicare market basket reductions and productivity adjustments will result in approximately $160 billion in cuts to providers over 10 years Medicare and Medicaid DSH payments reduced

PPACA Health Insurance Exchanges States are required to establish health insurance exchanges through which individuals and small businesses can purchase qualified private health insurance coverage There is no government run program

PPACA Health insurance reforms Within 90 days of enactment, temporary mechanisms to provide coverage to individuals with pre-existing conditions and for non-Medicare eligible retirees over age 55 Within 6 months of enactment, prohibits insurers from setting annual and lifetime limits, dropping coverage, and excluding coverage to children based on a pre-existing condition. Also allows parents to include dependent children up to age 26 on their health insurance

PPACA Health insurance reforms (continued) Beginning in 2014: Health insurers are prohibited from excluding coverage based on pre-existing conditions for adults Limits imposed on premium ratings Health insurers must guarantee the issuance of coverage for anyone who seeks it

PPACA Individuals must maintain Minimum Essential Coverage by 1/1/2014 * This is the Constitutional fight Maximum monthly penalties for not doing so 2014: $23.75 2015: $87.50 2016 and following: $187.50 There are limits based on ability to pay

PPACA Demonstration Projects Adjust payment structure from fee-for-service to global capitated payment structure Bundling payments to providers Geographic variation Medical liability demonstrations National demonstration projects on nursing homes Extension of gainsharing demonstration

PPACA Prevention Services Smoking cessation Weight management Stress management Physical fitness Nutrition Heart disease prevention Healthy lifestyle support Diabetes prevention

PPACA Quality/Efficiency Measures Financial penalties imposed on hospitals for “excess” readmissions Value-Based Purchasing (VBP) program established for hospital payments 1 percent penalty will be added to hospitals in the top quartile of rates of Hospital-Acquired Conditions Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models

PPACA Quality/Efficiency Measures Independent Payment Advisory Board created that will make binding recommendations on Medicare payment policy and non-binding recommendations for changes in private payer payments to providers Effective for hospitals in 2020

PPACA Access to Care Provisions to encourage training of primary care physicians and general surgeons Sustains and improves access to care in rural areas Extends selected provisions for long-term care hospitals Additional requirements for charitable hospitals

PPACA Mandatory Compliance Plan All suppliers and providers enrolled in Medicare, and all providers enrolled in Medicaid, required to implement a compliance plan that contains core elements laid out by the Secretary of HHS

PPACA Fraud and Abuse Anti-Kickback Statute (AKS) Specific intent requirement relaxed A violation of AKS now constitutes a false or fraudulent claim under FCA Definition of remuneration is amended for the beneficiary inducement provisions to exclude any remuneration that promotes access to care and poses a low risk of harm to patients and federal healthcare programs

PPACA Fraud and Abuse False Claims Act Qui Tam Public Disclosure Bar FCA amended to provide that the public disclosure bar is not jurisdictional and does not require dismissal if the government opposes dismissal State proceedings and private litigation are not qualifying public disclosures Original source exception amended to eliminate direct knowledge requirement

PPACA Fraud and Abuse Overpayments and FCA liability Identified overpayments must be reported and repaid within 60 days Retention of overpayments after 60 days constitutes an “obligation” under the FCA

PPACA Fraud and Abuse Limitation on Stark Law Exception Limits Whole Hospital and Rural Provider exceptions to hospitals that have Medicare provider agreements and physician ownership or investment as of 12/31/2010 Limitation on expansion of facility capacity Additional disclosure requirements

PPACA Fraud and Abuse Stark Law Self-Disclosure Protocol Statutory disclosure protocol created for violations of the Stark Law Provides for agency discretion to resolve Stark violations and authorizes HHS to reduce the amount due and owing for all Stark violations, considering such factors as the nature and extent of the improper practice and timeliness of the disclosure

PPACA Fraud and Abuse Expanded RAC Activities RAC audits of providers will increase and expand to Medicare Part D and Medicare Advantage programs Prior to passing the reform bill, President Obama signed a presidential memorandum directing all federal departments to expand their use of RACs

PPACA Fraud and Abuse Healthcare Fraud Criminal Statute and US Sentencing Guidelines amended Expansion of administrative penalties, including exclusion Gov’t has new resources, including expanded subpoena power and additional funding

PPACA Program Integrity Screening and Disclosure Requirements Employee and vendor screening requirements Financial disclosure requirements Providers must include their national provider identifier on all applications and claims

PPACA Taxes Excise tax on high-cost health plans (2018) Medical device tax (2013) Assessment on health insurers (2014) Assessment on pharma (2011)

Information Technology HITECH Act Passed as part of the American Recovery and Reinvestment Act (ARRA) of 2009 Included about $20 billion to health IT projects Included incentive payments to eligible professionals and hospitals to become “meaningful users” of electronic health record (EHR) technology

HITECH Act In 2015, the incentives turn to penalties by way of reduced Medicare reimbursement if “meaningful use” is not demonstrated There will be significant activity in analyzing whether EHR’s are qualified and meet certification criteria, and whether eligible professionals or hospitals have demonstrated “meaningful use”

HITECH Act Also expanded the reach of HIPAA, extending it to business associates and imposing nationwide notification requirements for breach of unsecured protected health information Business associates now directly obligated to comply with the security rule of HIPAA and implement security policies to safeguard electronic health information New information security requirements under state laws

Tax exemption PPACA adds new requirements for tax exempt status of charitable hospitals Conduct community health needs assessments Meet financial assistance policy requirements Limits amounts hospitals can charge for emergency or medically necessary care to individuals qualifying for financial assistance to the amount generally charged to insured patients Make reasonable efforts to determine whether individuals qualify for financial assistance before engaging in extraordinary collection efforts

Tax exemption Tax exempt hospitals must fully complete Schedule H to Form 990 when filing their 2009 tax returns

Tax exemption Increased scrutiny of Non-profit Boards Regulators are increasingly evaluating the role of the board in connection with organizational noncompliance and preventable corporate harm AKS Safe Harbor for EMR donations Non-profit hospitals can give e-health records software and support services to staff doctors without jeopardizing their tax-exempt status

Medical Device and Pharmaceutical Companies: Physician Relationships PPACA mandates transparency in device and pharmaceutical company payments to physicians Transparency Reports Requires manufacturers of any drug, device, biological or medical supply that is eligible for Medicare, Medicaid, or SCHIP coverage to submit annual reports of payments or transfers of value to physicians

Accountable Care PPACA makes changes to the health care payment and delivery system Implications for Accountable Care Organizations

What is an Accountable Care Organization (ACO) Group of providers held jointly responsible for improving the quality and cost of health care of a certain population, with the opportunity to share in any financial benefits that result Combination of one or more hospitals, primary care physicians and possibly specialists Large enough to support comprehensive performance measurement Provide or effectively manage the full continuum of care as a real or virtually integrated local delivery system

Current and Future ACOs Potential Extended Hospital Medical Staff (EHMS) Multi-specialty group practice that is directly or indirectly affiliated with a single hospital Almost all physicians can be assigned to a single hospital based where inpatient care is provided Beneficiaries cared for by these physicians tend to receive most of their care from within the group and the affiliated hospital Current Large multi-specialty group practices that own or closely partner with a hospital (e.g., Dean Clinic) Integrated physician practice networks (e.g., Geisinger Health System, Mayo Clinic, Cleveland Clinic)

Advantages Most physicians already practice within real or virtual ACOs Effective performance measurement at the ACO level would be more readily accepted Measures and incentives could encompass total Medicare program payment ACOs would have the ability to invest in system improvement and are at the appropriate level to control cost Establish accountability for local decisions about capacity, and thus cost

Challenges/Barriers Difficult to reverse current market trends that disproportionately reward high technology procedures and providers who own these facilities Over-coming physician cultural barriers that reward a high degree of professional autonomy and individual responsibility Legal obstacles Variability in the degree to which physicians and patients are aligned with a single hospital medical staff

Accountable Care Organization Model Accountable Care Organization Medicare and Potentially Other Payors Physician Investors Hospital Payor Contracts Patients Equity Investment Equity Investment

Organizational Considerations Incentive Payment Qualification Report quality CMS-specified indicators Spending baseline most recent 3 years total per beneficiary spending (Parts A and B), adjusted by CMS expected national growth rate 50% savings shared

Other Legal Considerations Stark Law – Not likely to apply if incentives are structured appropriately Anti-Kickback Statute – Underscores need for fair market value analysis of available incentives CMP – Ensure incentives award quality of care, not reduction in necessary services Tax – Requires consideration of the powers reserved to the tax-exempt organizations involved State – Necessitates analysis of state fee-splitting, self- referral and kickback statutes Stark Law CMP Anti-Kickback Antitrust

Physician Practice Acquisitions Changes to reimbursement have increased interest in physician practice acquisition, particularly among cardiologists, orthopedists and other specialists Several models exist for acquiring physician practices that provide greater flexibility for both hospitals and physicians Each acquisition presents its own unique challenges, but many common issues exist

Common Issues in Practice Acquisitions Managing expectations, with respect to control, purchase price and compensation Fair market value for tangible and intangible assets Fair market value compensation methodology Allow physicians day-to-day control of practice Sufficient reserved powers Providing appropriate “outs” for each party Conducting thorough due diligence to identify potential pitfalls Be reasonable as process is likely new to physicians and staff

Common Issues in Practice Acquisitions Considering “provider-based” opportunities Potential Medicare reimbursement advantages Allows hospital to brand a seamless delivery of care Required reporting relationships may create issues with physician practice leadership Additional administrative and financial integration may be difficult to achieve Must consider life and safety code requirements Impact of potential negative publicity associated with facility fees

Service Line Co-Management Benefits Collaboration with physicians Building relationships, diversification of physician involvement Potential economic gain Adaptable, flexible Clinical and operational improvements Risks Must comply with Stark Law, Anti-Kickback Statute, Civil Monetary Penalties and corresponding provisions of state laws If applicable, requires sufficient control to protect hospital’s tax-exempt status Additional reporting requirements under Form 990 may generate inquiries by the IRS and, if basis of compensation is not adequately supported, could result in, among other penalties, imposition of excess benefit transaction taxes

Service Line Co-Management Model Management Company, LLC Appropriate equity split Hospital Governing Board Physician Investors Hospital Orthopedic/Cardiovascular Service Line Agreement to manage Service Line Management Fee – 50% fixed, 50% based on performance incentives Appropriate governance split Mgmt. Co. reports to Hospital Bd.

PPACA Implementation Timeline 90 days after enactment Temporary Retiree Reinsurance Program National High-Risk Pool 6 Months After Enactment Coverage for adult children up to age 26 Plans prohibited from rescinding coverage Restricts annual limits on coverage No preexisting limitation for coverage of children under age 19

PPACA Implementation Timeline Year 2010 Small employer tax credit Reporting on medical loss ratio Medicare beneficiaries who hit the doughnut-hole receive a $250 rebate Fraud and abuse provisions

PPACA Implementation Timeline Year 2011 Insurers must provide rebates to consumers based on amount spent Medicare Advantage payment freeze so system can be restructured Fee on Pharma begins Prohibition on physician ownership referral

PPACA Implementation Timeline Year 2012: Allow providers organized as accountable care organizations (ACOs) that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program Excess readmissions provision goes in effect Drug manufacturers must report information relating to drug samples

PPACA Implementation Timeline Year 2013 Transparency reporting begins Increase tax on investment income for high-income taxpayers Contributions to Flex Spending Arrangements capped at $2500 Medical device tax begins

PPACA Implementation Timeline Year 2014 No pre-existing condition exclusions or annual limits on coverage Individual and Employer mandate Employers with more than 200 employees must automatically enroll employees

PPACA Implementation Timeline Year 2014 (continued) Essential health benefits package established Expanded Medicaid eligibility Health insurance exchanges Annual fee on health insurance providers

PPACA Implementation Timeline Year 2015: Penalty to hospitals for not adopting EHR Establishment of Independent Payment Advisory Board to propose changes in Medicare payments

PPACA Implementation Timeline Year 2016: Interstate Health Choice Compacts Year 2017: Large employer participation in Exchanges

PPACA Implementation Timeline Year 2018 Tax on Cadillac plans

PPACA Fundamentally transforms America’s health care system Impacts providers, insurers, employers, individuals, states and localities

Responses and Prevention Get involved in new arrangements Establish or update compliance programs and policies Address possible new FCA exposure Understand risk of whistleblowers Reevaluate HIPAA privacy and security plans, and amend business associate contracts Scrutinize physician relationships

Kevin D. Lyles, Esq. [email_address] (614) 281-3821 Thank you. Questions? Diane Meyer, CHC [email_address] (650) 724-2572 Frank E. Sheeder, Esq. [email_address] (214) 969-2900

The Road Ahead for Health Care Compliance

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