SZD Health Law Scan : Health Care Lawyers & Attorneys : Schottenstein Zox & Dunn Law Firm : Strategic Planning, Managed Care, Insurance : Columbus, Cleveland, Cincinnati, Central Ohio

On July 29, 2008, the U.S. Complaint in Intervention was filed in the U.S. District Court for the Southern District of Ohio alleging a kickback scheme among The Christ Hospital and certain cardiology groups.  The complaint  arises out of a qui tam action brought in 2003, in which the government intervened in March.  It alleges that The Christ Hospital allocated reading panel time at the hospital's "Heart Station" diagnostic testing facility among cardiologists based on their relative percentage of referrals and revenues generated from certain coronary arterial bypass graph (CABG) and catheterization procedures. 

No direct payment from the hospital to the cardiologists is alleged.  Rather, the kickback is alleged to arise from the "lucrative assignment" to the Heart Station panel.  This assignment is described as lucrative both because of the reimbursement the cardiologists received for their personal services in providing the test interpretations and because of opportunities the panel time afforded for obtaining new patients. 

The tie between the referrals to the hospital and amount of panel time allocated to the cardiologists is stunningly clear as alleged in the complaint.  Specifically, the hospital is alleged to have allocated panel time in direct proportion to referrals and revenues generated - if a cardiology group generated 70% of the CABG and cath revenues, it was allocated 70% of the panel time.  Worksheets filed as exhibits to the complaint are offered as illustrations of this calculation method.  The complaint asserts that cardiologists who failed to generate sufficient revenues were not given panel time regardless of their qualifications.

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As this writer discussed in more detail in a recent presentation, the law governing hospital programs to align physician incentives to improve quality and reduce costs continues to evolve.  Most recently, the Centers for Medicare and Medicaid Services (“CMS”) proposed a new exception under the Stark Law for “incentive payment” programs to improve quality and “shared savings” programs in the calendar year 2009 Medicare Physician Fee Schedule proposed rule.

CMS acknowledges that the new exception it proposes is narrow, and indicates that while it seeks to provide flexibility, new exceptions must be crafted in a way that avoids any risk of program or patient abuse. CMS specifically notes concerns that the programs not be used to disguise payments for referrals or compromise quality in order to increase profits. As a result, the proposed regulation includes 16 numbered paragraphs with conditions for satisfying the exception, and additional requirements discussed in the preamble without regulatory text.

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Certainly, one of the most significant developments in the tax-exempt organization sector has been the IRS' development of a redesigned Form 990.  According to the IRS, the 990 redesign is based on three guiding principles: (1) enhancing transparency; (2) promoting compliance; and (3) minimizing the burden on filing organizations.  Given the significant amount of detailed information regarding an exempt organization's activities the redesigned 990 requires, the IRS' first two guiding principles will likely be achieved.  Whether the redesigned 990 will minimize the burden on filing organizations remains to be seen.  To assist hospitals in this regard, a coalition has been formed of the American Health Lawyers Association, Catholic Health Association, Healthcare Financial Management Association and VHA, Inc.  This coalition has developed a website to provide a repository of information and resources to assist non-profit hospitals and their advisors in compiling and reporting accurate information on their 990s. 

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In what seems to be becoming a new tradition, CMS's proposed Medicare Physician Fee Schedule ("PFS") for calendar year 2009 revises more than the fee schedule. Among other things (like gainsharing), it proposes further changes to last year's changes to the Anti-Markup Rule. If you have not been following the saga of CMS's changes to the Anti-Markup Rule, hopefully this Health Law Strategist article will help you catch up. 

At this point, the changes from the 2008 PFS are scheduled to be effective as of January 1, 2009. The proposed 2009 PFS presents two alternatives (though CMS reserves the right to choose neither). One option is the obvious one: to let the 2008 changes go into effect as planned, using a site-of-service-based approach, with certain much-needed clarifications.

The second option is a new non-site-based approach where the Anti-Markup Rule would apply if the PC or TC is either purchased from an outside supplier or performed or supervised by a physician who does not "share a practice" with the billing physician or physician organization. A physician does not "share a practice" if he or she is employed or contracted by more than one physician or physician organization. 

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Politics aside, can anyone explain how a federal program only 43 years old came to be insolvent?  When Congress enacted the Medicare Act in 1965, the program was estimated to have an annual cost of under $10 billion for quite some time.  Indeed, contributions from Part A payroll taxes and premiums for Part B were designed to create a surplus that would be held in trust for use in the future when revenues might not cover costs.  In 2007, Medicare required an infusion of $178 billion of general revenues just to pay its current bills.  How can we have gotten so far off track?

"The Facts About Medicare," an article that appeared in the July/August 2008 issue of Contingencies, the journal of the American Academy of Actuaries, attempts to answer this question. Six factors are blamed for what might be the greatest forecasting error in history.  First, the Medicare population grew much faster than expected because of a marked increase in life expectancies (which means the program worked!).  Second, new benefits and new covered populations have been continuously added since the inception of the program, the most recent being Part D prescription drug benefits.  Third, medical costs have grown faster than wages  during the same period, both because of price inflation and the addition of new medical technologies (we can do much more today than we were able to do in 1965).  Fourth, the percentage of the program's cost shouldered by consumers has steadily fallen since inception.

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As many of you know, the Healthcare Simplification Act, one of the most significant managed-care laws in Ohio’s recent history, went into effect on June 25. From a legal perspective, this law is particularly significant because of the degree to which it directly affects the provider/payor contract terms, an area Ohio has previously been hesitant to legislate. 

The next step in the development of this law is for the Ohio Department of Insurance (“ODI”) to issue rules and regulations to address the questions and fill in some of the details under the new law.  ODI’s website has a page dedicated to the Healthcare Simplification Act, where you can link to the law, submit questions and suggestions for rule-making, and it even has a FAQ section where ODI answers common questions. If you are dealing with a Simplification Act issue, it is worth checking out here.

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The Department of Justice (DOJ) announced on April 24, 2008 that the parent of Memorial Health University Medical Center agreed to pay over $5 million to settle allegations that it violated the Stark Law in connection with its payment of compensation to physicians employed by its affiliate, Georgia Eye Institute. Memorial also entered into a Certification of Compliance Agreement with the Department of Health and Human Services Office of Inspector General. Memorial denied all allegations, and the settlement agreement specifies that it is not an admission of wrongdoing.

The qui tam complaint filed by Dr. Ryan Boland alleged both overpayment for acquisition of the physician practices and excessive compensation, but the DOJ press release only references the compensation issues. According to the initial complaint, some ophthalmologists were paid as much as $500,000 in compensation, and the relator believed there were emails indicating teaching stipend/indigent care payments were actually disguised payments for surgical referrals. The complaint alleges that the hospital formed a nonprofit ophthalmology practice and after transitioning compensation within the practice to a productivity model, provided the practice with teaching/indigent support payments that were funneled to a small number of the doctors in order to retain them. These doctors allegedly received compensation that was in excess of fair market value and that was not commercially reasonable because it did not take into account which doctors performed the teaching and indigent care services.

This settlement should serve as a reminder to hospitals pursuing physician employment strategies to carefully review their compensation methodologies, including the manner in which compensation is allocated among individual physicians in an affiliated practice. To comply with the Stark Law, employed physicians’ compensation must be consistent with fair market value and may not take into account the volume or value of referrals made by the physician. The arrangement with the employed physicians also must be commercially reasonable.

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A survey published this month in the New England Journal of Medicine tends to confirm what we have all generally suspected about the low rate of electronic health record (“EHR”) adoption by physicians in the United States. Although the number of survey respondents was small (2,758) in relation to the number of physicians in the U.S., the survey shows that only about 4% of the responding physicians reported having an extensive, fully functioning EHR system. About 13% of the physicians reported implementing at least a basic EHR system. Physicians who were younger, who worked in large groups, primary care groups, hospitals or medical centers or who practiced in the western part of the U.S. were more likely than other physicians to have implemented some form of EHR.
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This fall the United States Supreme Court will hear Wyeth v. Levine - a case that may close the loop on whether pharmaceutical manufacturers are immune from state law tort claims. The case is highly anticipated in the life sciences industry as it comes on the heels of two recent U.S. Supreme Court decisions regarding state law tort immunity for manufacturers in the industry.

In February, the Supreme Court heard Riegel v. Medtronic, Inc.  and determined that federal law preempts state law tort claims against medical device manufacturers. Just a few weeks after its decision in Medtronic, the U.S. Supreme Court heard Warner-Lambert, Co. v. Kent and, in a 4-4 deadlock, did not extend preemption immunity to pharmaceutical companies.

Based upon existing law in the medical device arena, the Court’s decision in Medtronic was not terribly unpredictable. The question of state law tort immunity for pharmaceutical companies, however, is a much more difficult issue as existing law in this arena is more ambiguous.
The life sciences industry will surely watch the Supreme Court this fall in anticipation of the Wyeth decision. 

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Final Medicare Conditions of Participation (“COPs”) for hospices were published on June 5, 2008. They will become effective on December 2, 2008.

The final rule is a follow-up to the proposed rule issued in 2005. The final rule does not contain any major surprises for the hospice community and appears to be largely perceived by providers as a positive development and much needed updated—this is the first major overhaul of the COPs since their inception in the 1980s.

The COPS contain more specificity on requirements for contractual arrangements between hospices and their vendors, as well as other medical providers, such as nursing homes. For example, there is a new COP detailing what must be in the contract between a hospice and a nursing home when the hospice provides care to nursing home residents.

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In St. Vincent’s Catholic Medical Centers of New York v. CMS, the HHS Departmental Appeals Board (DAB) addressed a decision by the CMS New York Regional Office determining that a cancer center located 327 yards from the provider’s main campus did not qualify for designation as “on campus” for purposes of determining provider-based status. The DAB remanded the case to CMS for further proceedings, in order to articulate its reasons for denying the center provider-based status as an on-campus facility.

The regulations governing provider-based status impose less stringent requirements on facilities that are on campus than on those that are off campus. The regulations define “campus” as “the physical area immediately adjacent to the provider's main buildings, other areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings, and any other areas determined on an individual case basis, by the CMS regional office, to be part of the provider's campus.”

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A recent story from Healthcare IT News presents an interesting intersection between the managed care and health information technology areas.  New Jersey's Horizon Blue Cross is apparently providing funding for electronic medical record implementation in network hospitals.  

For those of you thinking on a national scale, EMRs for eight hospitals may be a relatively small step, but one that may foreshadow more intriguing possibilities.  After all, who else has as much to gain from, and is in a better position to support electronic health information exchange, as the payors?  Not to mention the impact that a program like that could have on payor contract negotiations.

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