SZD Health Law Scan

Resource Allocation and Health Care Enforcement

jhunter@szd.com (Jarad Hunter) — Mon, 10 Nov 2008 07:56:21 -0600

The OIG recently released a report that was critical of the oversight and enforcement by CMS with respect to the HIPAA Security Rule. The report included the following remarks: “CMS had taken limited actions to ensure that covered entities adequately implement the HIPAA Security Rule. These actions had not provided effective oversight or encouraged enforcement of the HIPAA Security Rule by covered entities.” The report notes that CMS primarily relied on complaints to identify non-compliant covered entities that it might investigate and recommends that CMS establish policies and procedures for conducting HIPAA Security Rule compliance reviews of covered entities.

The report raises an interesting topic that should receive more scrutiny in upcoming years: Resource allocation for enforcement of Federal health care laws and regulations. OIG indicates that CMS could be more effective in its oversight and enforcement of the HIPAA Security Rule by conducting compliance reviews. But, this begs the question: Why did CMS not conduct compliance reviews during the period under review?

If the answer is that CMS allocated significant resources to compliance reviews and simply failed to execute, then a critique on this failure may be justified. But, if CMS chose not to engage in compliance reviews during the period under review, relying on other (perhaps, less expensive) methods of enforcement and allocating resources to achieve other objectives on its agenda, than the assessment should focus on the decision not to allocate significant resources to compliance reviews.

And, if this latter statement is true, that CMS chose not to allocate significant resources to compliance reviews during the period in question, to analyze this decision, one should look at the opportunity cost of compliance reviews, i.e., the CMS projects that could have been given less attention in order to direct more resources to compliance reviews.

CMS’s response to the report is marked by its disagreement with OIG’s conclusions on the complaint-driven enforcement process. Is CMS saying, with the hand we are dealt, we believe our complaint-driven enforcement model is appropriate?

In reviewing performance, the reviewer should consider the resources available to the performer. Allocation of Federal government resources, already a topic of mainstream discussion, will continue to be dissected heavily in upcoming years given the capital that has been infused into the economy and the likelihood for increased dedication of resources to regulation of the financial industries. Of course, how this resource allocation will affect enforcement in the health care industry remains to be determined.

Ohio Appellate Court Affirms Dismissal of Uninsured Patient's Claims

skleinman@szd.com (Stephen Kleinman) — Tue, 21 Oct 2008 08:51:00 -0600

In the latest in a long line of cases in Ohio and elsewhere involving uninsured patients who sued hospitals alleging excessive and unconscionable charges, on September 30, 2008, the Court of Appeals of Ohio, Sixth Appellate District, issued a Decision and Judgment in Firelands Regional Medical Center v. Jennifer R. Jeavons, 2008-Ohio-5031, affirming the trial court’s dismissal of the defendant’s counterclaims.

The case started as a simple collection matter. Firelands Regional Medical Center (“FRMC”) brought a claim against an uninsured patient seeking compensation for services rendered on three separate dates of service. Thereafter, FRMC amended its claim to add two additional dates of services and sought a total of $2,878.96, plus interest.

In response to FRMC’s complaint, the defendant admitted she received services but claimed that the rates charged were “far in excess of the reasonable, usual and customary rates for the services rendered.” The defendant also filed a purported “class-action counterclaim” alleging that she is a member of a class of uninsured patients that received care at FRMC from 1989 to present that were all charged excessive rates by FRMC. The claims alleged in the counterclaim include: (1) declaratory and injunctive relief claims; (2) breach of contract; (3) unjust enrichment; (4) breach of duty of good faith and fair dealing; and (5) violations of the Ohio Consumer Sales Practices Act (“OCSPA”).

The trial court granted FRMC’s Motion to Dismiss. On appeal, defendant raised two assignments of error asserting that the trial court improperly dismissed the counterclaim and improperly denied defendant’s motion for reconsideration of the same.

With respect to the breach of contract claim, the defendant alleged on appeal that FRMC engaged in an anticipatory breach of the contract when it filled in the price term of the contract with an unreasonable sum. The Court of Appeals rejected this argument and refused to engage in any determination of what constitutes a reasonable fee. Citing the decision of the United States Third Circuit Court of Appeals in DiCarlo v. St. Mary Hosp. (3rd Cir 2008, 530 F.3d 255), the court stated “[A] Court could not possibly determine a “reasonable charge” for hospital services without wading into the entire structure of providing hospital care and the means of dealing with hospital solvency.” In addition to rejecting the idea that a court could or should determine what constitutes a reasonable charge for hospital services, the court also noted that defendant never offered any evidence regarding what she considered a reasonable charge.

Because defendant failed to demonstrate that FRMC breached any contractual duty it owed to her, defendant’s claim for breach of duty of good faith and fair dealing also failed as a matter of law.

Dismissal of defendant’s unjust enrichment claim was affirmed because the Appellate Court concluded the claim was too speculative. Defendant paid nothing for the services rendered. The sole basis for the unjust enrichment claim was an account receivable owed to FRMC. The potential that FRMC might eventually get paid some amount was insufficient to support a claim for unjust enrichment.

Lastly, the Appellate Court rejected Defendant’s claim for violations of the OCSPA. The Appellate Court reasoned that the mere fact that defendant believed the charge was unfair does not demonstrate an unfair or deceptive act under the OCSPA. Finally, with respect to Defendant’s claim that the charges were unconscionable, the Appellate Court noted that unconscionability applies to “similar” transactions by “like” customers. Because uninsured patients are not like insured patients, the Appellate Court concluded that Defendant’s unconscionability claim under the OCSPA failed as a matter of law.

The Appellate Court’s decision leaves unanswered the question of what constitutes a reasonable charge to uninsured patients. While many hospitals have voluntarily adopted discounts from full charges for uninsured patients, many hospitals have elected not to adopt mandatory uninsured discounts. The Appellate Court’s reluctance to attempt to delve into what a reasonable charge should be is consistent with a growing number of courts that have simply refused to attempt to answer the question while suggesting that the question is better left to State and Federal legislatures and regulatory agencies. As a result, in those States where legislatures and regulatory bodies have not set forth parameters for permissible charges to uninsured patients, similar lawsuits will likely continue.

Bailout Brings Mental Health Parity

chelmick@szd.com (Chad Helmick) — Wed, 15 Oct 2008 16:13:51 -0600

On October 3, 2008, Congress passed and President Bush signed the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 as part of the Emergency Economic Stabilization Act of 2008 (the bailout bill). It amends the Mental Health Parity Act of 1996 (29 U.S.C.A. § 1185a).

According to the new legislation, if an employer’s group health plan provides mental health and substance use disorder benefits (“mental health benefits”), then it may not discriminate in its coverage between those benefits and the medical and surgical benefits. The plan may not have higher deductibles, copayments, coinsurance, or out-of-pocket expenses for mental health services. Neither may the plan have more restrictive treatment limitations, such as limitations on the frequency of treatment, number of visits, days of coverage, or other limits on the scope or duration of treatment. Also, if the plan provides coverage for medical and surgical benefits provided by out-of-network providers, then it must similarly cover mental health benefits provided by the out-of-network providers. The law applies to employers health plans with more than 50 enrolled employees.

Congress had previously tried to pass this legislation on multiple occasions in 2007 and 2008, but had yet to overcome disagreements between the House and Senate versions, partly revolving around paying for the costs of the legislation. In the end, the new legislation contains no provision to directly pay the estimated $3.4 billion dollar cost of the new legislation. In the context of a $700,000,000,000 bailout, however, Congress was apparently no longer concerned.

Ten Things About Health Care Reform Obama and McCain Can Agree To

ppavarini@szd.com (Peter Pavarini) — Tue, 14 Oct 2008 14:41:03 -0600

In the heat of a Presidential Campaign, especially one of this historical importance, it is not surprising that political commentators focus on the differences between the candidates' views. But when it comes to health care reform, especially now that the economy will make it harder for the victor to fix the financial part of the problem, it might make sense to consider what Democratic candidate Barack Obama and Republican candidate John McCain can agree to.

At a recent Washington, D.C. program, Peter Leibold, Executive Vice President/CEO of the American Health Lawyers Association, identified 10 areas of agreement among the candidates when seeking solutions to the problems of cost control and increased quality:

1. Governmentally supported pooling mechanisms for catastrophic illness

2. Payment mechanisms that encourage quality of care

3. Support for information technology use by health care providers

4. Promoting coordinated care and disease management

5. Increased funding for research and public health

6. Provider cost transparency

7. Promoting healthy lifestyles

8. Allowing re-importation of drugs and quicker release of generics

9. Portable health insurance

10. Greater attention to treatment of cancer and autism

Putting aside philosophical differences between the Presidential candidates and their respective parties, the forgoing list is not a bad place to begin any debate on comprehensive reform. No matter who wins the November 4 election, the country is desparately seeking solutions to a health care stalemate that has been with us for decades. The new Administration and the next Congress can begin this discussion around the "common ground" and work out from there. It won't be easy, but as any skilled negotiator knows, it's always best to begin with anything the parties can readily agree to.

OIG Issues Supplemental Compliance Program Guidance for Nursing Facilities

ekastner@szd.com (Elizabeth Kastner) — Tue, 30 Sep 2008 15:52:23 -0600

On September 20, 2008, the Department of Health and Human Services, Office of Inspector (the "OIG") published in the Federal Register a supplemental compliance guidance for Nursing Facilities ( the "Guidance"). The purpose of the Guidance is to supplement its prior compliance program guidance for nursing facilities issued in 2000. According to the OIG:

"The new CPG emphasizes the importance of submitting accurate claims and discusses issues related to reporting resident case-mix data, therapy services, screening for excluded individuals and entities, and restorative and personal care services. The guidance also urges nursing facilities to consider the risks of improper kickback payments associated with their business arrangements including those involving free goods and services, as well as those with physicians and suppliers."

The OIG's expanded discussion in the Guidance of fraud and abuse risks present in a nursing facility environment illustrates its increased enforcement focus on relationships between nursing homes and their referral sources, such as hospices. The Guidance includes, for example, a list of questions for a nursing home to ask itself when identifying potential kickback risks. The Guidance also contains a list of "potentially aggravating considerations" for a nursing home to look for when trying to determine arrangements at greatest risk of prosecution, such as whether the arrangement has a "potential to interfere with, or skew, clinical decision-making."

New HIPAA Guides on Communicating with a Patient's Family and Friends

jhunter@szd.com (Jarad Hunter) — Sat, 27 Sep 2008 11:41:43 -0600

The U.S. Department of Health and Human Services, Office for Civil Rights, recently released guides to providers and patients on when health care providers may communicate with a patient's family, friends, or others involved in the patient's care under the HIPAA privacy regulations. The guides include frequently asked questions on this subject. The provider's guide also notes that it is intended to clarify HIPAA requirements so that health care providers do not unnecessarily withhold a patient's health information from family, friends, and other health care providers.

Vaccine Act Pre-empts State Tort Claims

ahaque@szd.com (Asim Haque) — Tue, 16 Sep 2008 16:01:24 -0600

A Philadelphia Common Pleas judge has ruled that the Vaccine Act, a federal law that governs the liability of pharmaceutical companies for drug vaccines, pre-empts state law tort claims that a vaccine design was defective or that there was a failure to warn the patient of risks associated with the vaccine.

In Wright v. Aventis Pasteur, Jared Wright, an eleven year-old boy with autism, was administered vaccines during his infancy that contained "thimerosal," a mercury-based preservative that Wright's parents contend was the cause of Wright's autism.

Wright argued that Aventis Pasteur Inc., Merck & Co. Inc., and Wyeth were negligent because they failed to warn the medical community about the potential hazards of mercury in the vaccines, and also argued that the defendants failed to use ordinary cases in designing the vaccines because of the risks toxic mercury poses to infants and children.

Judge Arnold L. New, however, ruled that the Vaccine Act pre-empts Wright's state law tort claims. Specifically, Judge New discussed Congress' intent to avoid instability in the vaccine market that would result from state-law tort liability for vaccine injuries. Judge New also cited Congress's actions in creating the National Vaccine Injury Compensation Program as evidence that Congress intended the Vaccine Act to pre-empt state law tort claims.

FDA Proposes National Database of Orthopedic Implant Registries

ahaque@szd.com (Asim Haque) — Tue, 16 Sep 2008 15:58:42 -0600

The FDA, as part of its Sentinel Initiative to better monitor FDA approved medical products, has announced its intention to create a national database of orthopedic implant registries. This database would track and monitor the progress of various orthopedic implants in an attempt to detect early troubles with the implants. The FDA proposes to create its database through the use of, and by querying, government databases, private and public medical claims databases, and electronic health record systems.

The following article provides a good summary of the FDA's proposed registry:

www.govhealthit.com/online/news/350502-1.html

FDA To List Drugs Under Review

ahaque@szd.com (Asim Haque) — Tue, 16 Sep 2008 15:44:11 -0600

The FDA recently announced that it will begin posting a list of approved drugs that it is investigating due to safety concerns. The list will be available on the FDA's website, and the FDA will update it on a quarterly basis.

The FDA receives, through its Adverse Event Reporting System, thousands of complaints each year about FDA approved drugs. The list that the FDA will post, however, will feature only those drugs that the FDA has chosen to investigate from the numerous complaints submitted.

While the FDA acknowledges that the list may create a type of false panic among consumers, the list may also serve to protect and inform conscientious consumers who are experiencing health complications from drugs that are on the FDA's quarterly list.

Why Aren't the Candidates Talking About Health Care?

ppavarini@szd.com (Peter Pavarini) — Fri, 12 Sep 2008 13:27:10 -0600

This may well be the strangest Presidential Election Campaign in U.S. history, but excuse me, what happened to any meaningful discussion of health care reform? Obviously, the economy and energy issues have caused health care to drop below the radar screen (see Modern Healthcare, Sept. 8, 2008, page 9), but how can this really be an election about "change" if we sweep health care under the rug? Neither of the major candidates gave any prominence to this issue in his acceptance speech. Does that mean we have to wait another four years to begin an honest discussion about something as vital as the health and well being of our citizenry?

While others may be tuned into the Gaffe of the Day, it is worth studying what the candidates (or more accurately their campaigns) have said about health policy reform. This entry and the next two will focus on three aspects of reform: 1) cost, 2) quality and 3) fairness. Let's begin with cost.

Barack Obama proposes to lower costs by modernizing the U.S. Health Care System. John McCain proposes to lower costs by restoring control of the system to patients and their families.

Obama's proposal involves four major components: 1) moving the cost of underwriting the risk of catastrophic illness from the private sector to the public sector, e.g., a universal risk pool for the most costly cases; 2) requiring providers to participate in a new public disease management plan, 3) supporting programs that improve the coordination and integration of care for those with chronic illnesses, and 4) requiring of providers full transparency about the quality and cost of the services they provide, and requiring payers to show how much of the premiums they collect go to administrative costs.

McCain's proposal primarily uses marketplace forces to drive down prices. His plan uncouples health insurance from employment and in so doing intends to make it easier for patients to buy affordable coverage and take it with them wherever they go. Refundable tax credits fo $2500 for individuals and $5000 for families, which would be sent directly to the insurer, would be the primary means to do this, along with expanded Health Savings Accounts. The McCain plan would also work with the states to establish guaranteed access plans as well financial incentives to foster disease management and preventive care programs.

Both candidates have additional action plans to implement these concepts (which are generally described at their websites). Not surprisingly, they share some of the same tactics but approach reform from different directions. The Obama plan expects the federal governement to play a bigger role than it already does. The McCain puts most of the burden on individuals and state governments. Neither plan is what anyone would call universal health care, but clearly the Obama plan moves closer to that objective.

What these proposals mean for the health care industry is difficult to determine without much more detail. Obama's plan would certainly result in greater regulation of providers than McCain's, but neither would leave the industry unchanged. This is something the American people need to hear much more about in the coming weeks. We can only hope that the candidates will seriously address this important topic in their series of debates.

Ohio HealthCare Simplification Act

lhan@szd.com (Lisa Han) — Fri, 29 Aug 2008 13:15:50 -0600

Ohio HealthCare Simplification Act creates a new Chapter 3963 in Ohio Revised Code. ORC 3963.04 is the provision governing material amendments to a health care contract. Under ORC 3963.04, if an amendment to a health care contract is not a material amendment, the contracting entity is only required to give providers a notice of amendment at least 15 days prior to the effective date of the amendment.

For a material amendment, the contracting entity must provide the participating provider the material amendment in writing at least 90 days prior to the effective date of the material amendment. The notice shall be conspicuously entitled “Notice of Material Amendment to Contract.”

The provider must object within 15 days if it does not accept the material amendment. If the parties cannot resolve the objection, either party may terminate the health care contract. If the participating provider does not object to the material amendment in the manner described above, the material amendment shall be effective.

The issue is whether the material amendment will become effective if the parties cannot reach a resolution on the provider’s objection.

Some payors have taken the position that if the parties cannot resolve their differences, the proposed material amendment becomes effective.

This has caused confusion to some providers. In some cases, it has even taken away the benefit of providers' original contract provision. Nor is it clear if this interpretation is consistent with the legislative intent of ORC 3963.04. Many in the industry agree that this issue would benefit from clarification from the Ohio Department of Insurance.

DOJ Revises Guidelines for Prosecuting Corporate Fraud

rcochran@szd.com (Robert Cochran) — Fri, 29 Aug 2008 09:09:54 -0600

The Department of Justice announced changes to its corporate charging guidelines for federal prosecutors. The new guidance revises the Department's Principles of Federal Prosecution of Business Organizations, which governs how federal prosecutors investigate, charge, and prosecute corporate crime. The changes address issues concerning the attorney-client privilege and cooperation credit.

First, the revised guidelines state that credit for cooperation will not depend on the corporation's waiver of the attorney-client privilege or attorney work product protection. Rather, credit will depend on a corporation's timely disclosure of relevant facts. Corporations that timely disclose relevant facts may receive due credit for cooperation, regardless of whether they waive attorney-client privilege or work product protection in the process.

Second, prosecutors are instructed not to consider a corporation's advancement of attorneys' fees to employees when evaluating cooperativeness. In addition, the mere participation in a joint defense agreement will not render a corporation ineligible for cooperation credit.

The revised guidelines are located here.

Voluntary Disclosure Survey Results

rcochran@szd.com (Robert Cochran) — Fri, 29 Aug 2008 07:51:40 -0600

The American Health Lawyers Association recently released the results of its Voluntary Disclosure Survey. The Survey provides data and observations regarding the experience of healthcare organizations with the government voluntary disclosure process. There were 195 respondents. Some of the important findings include:

71% of respondents had been involved in a voluntary disclosure to the government.
70% of the disclosures involved overpayment or billing/coding errors and 28% involved Kickback or Stark violations
70% of the disclosures were made by outside counsel.
Most of the disclosures were made to OIG, followed by government contractors (e.g., fiscal intermediaries) and U.S. Attoney's Offices.
Almost half (49%) of the disclosures were resolved within a year of the disclosure.
46% of the disclosures were resolved with a full overpayment refund; 12% resulted in a corporate integrity agreement.

The complete survey results are located here.

GAO Report Suggests CMS Allow Part C, Part D Plans to Bill Beneficiaries

chelmick@szd.com (Chad Helmick) — Thu, 28 Aug 2008 14:08:32 -0600

An interesting Government Accountability Office report was posted recently regarding the problems that CMS and the SSA (Social Security Administration) have had with implementing systems to withhold Medicare Advantage ("MA") and Part D Plan ("PDP") premiums from social security checks.

Amidst a chronicling of the difficulties and problems encountered, and the efforts of the government to address them, are the executive recommendations. One of the GAO's suggestions is that CMS consider allowing plans to bill beneficiaries directly until the premium withholdings are processed. If this suggestion is implemented, it could have a significant impact on managed care providers operating MA or PDP plans.

OIG Advisory Opinion Indicates Block Lease Raises Significant Risk

cdunlay@szd.com (Catherine Dunlay) — Wed, 27 Aug 2008 17:37:26 -0600

Advisory Opinion 08-10, posted by the OIG on August 26, addresses a proposal for a physician group practice to provide space, equipment and personnel to another physician group practice through a block lease, and concludes that there is a "significant risk" that the arrangement would be an improper contractual joint venture that would reward the leasing group for referrals.

The opinion addresses a block lease of space, personnel and equipment from oncologists to urologists for IMRT, combined with use of contracted radiologists to supervise the procedures. The urologists bill all payers for the services, including Medicare. The OIG's rationale is that of its 2003 contractual joint venture advisory bulletin, but it is notable that in the arrangement discussed in this Advisory Opinion, the blocks of time are fixed, as is the compensation, and there is a one-year term. Thus, although the OIG refuses to address the question, it appears that all of the components may have been designed to satisfy a safe harbor. The OIG doesn't address the safe harbor issue because the remuneration it is concerned about is the opportunity for the urologists to make a profit. The OIG emphasizes that the oncology group is agreeing to provide services it could provide in its own right for less than the available reimbursement.

A key point that may distinguish this from many physician block leases is that the urologists do not participate in performing the IMRT, but contract out substantially all the services, including the professional services. The opinion states that the urologists contract with individual radiologists (who also provide services to the oncologists) to supervise the IMRT procedures. Thus, the OIG goes on to note that the urologists commit little financial, capital or human resources.

Like the recent changes to the Stark Law regulations, this opinion provides indication of continually increasing government scrutiny of physician ventures.

IRS Releases Final Instructions for New 990

khilvert@szd.com (Kevin Hilvert) — Fri, 22 Aug 2008 13:37:07 -0600

The Internal Revenue Service (IRS) has completed its revision of the Form Instructions for its newly redesigned Form 990 and posted them, along with various background materials explaining the new 990 and its revisions, here. The IRS extensively revised the format and content of the 990 based on three guiding principles: enhancing transparency, promoting tax compliance, and minimizing burden on the filing organization. While transparency and compliance are likely outcomes of the new 990, the extent to which the extensive, detail probing document will minimize an organization's burden remains to be seen.

Some of the major features of the new form include a new summary of activities and finances page, a new governance section, enhanced reporting of executive and key employee compensation, and an organization's relationship with insiders and other organizations. Of significance to tax-exempt hospitals is the new Schedule H to the 990, which requires substantial detail with regard regarding the community benefit the hospital provides and the facilities it operates. For tax year 2008, however, hospitals will only have to complete the portion of the Schedule H relating to their facilities. Thereafter, all portions of Schedule H will have to be completed.

To prepare for completing the new 990 for the 2008 tax year, the IRS recommends the following: (i) identifying "related" organizations required to be listed on Schedule R; (ii) identifying key employees and the organization's five highest compensated employees; (iii) reviewing the new governance questions on the 990, which must be answered based on policies and practices in place on or before the last day of the 2008 tax year; and (iv) identifying the schedules the organization will be required to complete.

Compliance Issues in the Hospice/Nursing Home Relationship

jhunter@szd.com (Jarad Hunter) — Mon, 11 Aug 2008 22:47:02 -0600

Beth Kastner and I recently authored an article for Compliance Today discussing compliance-related issues in relationships between hospices and nursing homes.

Shortly after we sent the article to the editors, CMS released the revised conditions of participation (COPs) for hospices, which includes a final COP for hospices that provide hospice care to residents of a SNF/NF or ICF/MR.

Fortunately, we were able to update the article in time to reference this final COP. The CMS preamble discussion on this COP is another starting point worthy of review in analyzing these types of relationships.

Thanks to the folks at the Health Care Compliance Association for granting us permission to link to the article on this website.

The article, published in the August 2008 issue of Compliance Today, appears here with permission from the Health Care Compliance Association. Call HCCA at 888/580-8373 with reprint requests.

U.S. Complaint Alleges Kickbacks to Cardiology Groups

cdunlay@szd.com (Catherine Dunlay) — Tue, 29 Jul 2008 17:35:31 -0600

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.

The government asserts that every claim filed by the hospital for the cardiac services that were used as a basis for allocating the Heart Station panel time, every claim filed by a cardiologist for performance of those cardiac procedures at the hospital, and every claim filed by a cardiologist for services performed at the Heart Station was tainted by an illegal kickback and was filed in violation of the False Claims Act. The complaint indicates the total amount of tainted claims is at least $140 million. Relief is sought for damages under the False Claims Act, trebled as required by law, together with civil penalties, as well as for relief on the grounds of mistake and unjust enrichment, and for disgorgement of illegal profits.

This case is particularly interesting as the government seeks to establish that the opportunity to provide services, and thus generate revenues, serves as the basis for an kickback violation. It undoubtedly will be watched closely.

CMS Proposed Exception for Gainsharing and Quality Incentive Programs

cdunlay@szd.com (Catherine Dunlay) — Wed, 23 Jul 2008 19:00:00 -0600

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.

Generally, CMS’ proposal addresses the same elements that have been considered in OIG advisory opinions to be critical in avoiding abuse in gainsharing programs – transparency, quality controls, and safeguards against payments for referrals. The criteria proposed by CMS address the design of the incentive or cost sharing program, impose limitations and conditions on payments made under the program, and specify criteria for the terms of the arrangement between the hospital and physicians. Some of the requirements include review by an independent medical reviewer prior to commencement of the program and annually during the term of the program (which may not exceed 3 years), provision of written notice to affected patients describing the program, limitations on the manner in which payments are calculated, and limitations on the physicians that may receive payments, including a requirement that only physicians on the medical staff at the commencement of the program may participate.

CMS solicits comments in a variety of areas, and hospitals have an opportunity to present their views on ways to provide further flexibility under the regulations. The comment period ends August 29, 2008.

Significantly, in issuing this proposed regulation, CMS acknowledges that aligned incentives between hospitals and physicians can be beneficial in enhancing quality and saving costs. While it is an indication of increasing governmental acceptance of hospital-physician collaboration in cost saving and quality initiatives, this proposal addresses only the Stark Law. A primary legal impediment to gainsharing and other cost savings programs is the civil monetary penalty statute, which the OIG has interpreted to prohibit “any hospital incentive plan that encourages physicians through payments to reduce or limit clinical services directly or indirectly.” Hopefully, further guidance on application of the civil monetary penalty statute will be forthcoming.

Coalition Assists Hospitals with New 990 Reporting Requirements

khilvert@szd.com (Kevin Hilvert) — Wed, 23 Jul 2008 18:55:00 -0600

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.