Sleep Services Mergers, Acquisitions, Sales & Management

Sleep Services Mergers,
Acquisitions, Sales & Management
Contracting in 2014
Jayme R. Matchinski
Date: Friday, May 16, 2014
Location: Orlando, Florida
This presentation and outline are limited to a discussion of general principles and Should not be interpreted to express legal advice applicable in specific circumstances.
Key Regulations Which Impact Mergers,
Acquisitions, Sales and Management Contracts
Stark III Rules
Anti-Kickback Statute
Anti-Markup Rule
2014 Physician Fee Schedule (PFS)
DME Regulations
Key Compliance Issues For Contracts:
Medicare Coverage and Payment
Billing and Reimbursement
National Coverage Determination (NCD)
Local Coverage Determination (LCD)
OIG Work Plan for FY 2014
Expanded Enforcement Activities
Joint Ventures
Regulatory Compliance
Stark Law
Anti-Kickback Statute
Scope of Licensure
Medical Practice Act
(i) Revisions to Fee-Splitting Provisions
Stark III
Stark Law prohibits a physician from making a referral for a
designated health service (DHS) to an entity in which the physician
(or the physician’s immediate family member) has a financial
relationship, including a compensation arrangement, if the DHS is
reimbursed by a governmental program (42 U.S.C. § 1395 nn(a)(1)).
Bottom Line: Only referrals for DHS are prohibited.
Outpatient and Inpatient Hospital Services = DHS
Stark Self-Referral Laws
Is the medical test or equal test a “Designated Health
Is supplying the medical equipment or supplies a
“Designated Health Service?”
State self-referral laws often are more restrictive
than the federal Stark Law.
• Make sure your sleep lab and/or DME company
complies with all state and federal regulations.
Stark Self-Referral Laws (continued)
Penalties / Sanctions
— denial of payment
— refunds of amounts collected for services performed in violation of the
— civil money penalty of up to $15,000 for each bill or claim for a service a
person knows or should know is for a service for which payment may
not be made under the statute.
— civil money penalty of up to $100,000 for each arrangement or scheme
which the physician or entity knows or should know has a principal
purpose of assuring referrals which, if directly made, would be in
violation of the statute.
— exclusion from the Medicare, Medicaid and/or other federally funded
health care programs
Impact of the Anti-Markup Rule
Before January 1, 2009, the “Purchased
Diagnostic” Rules prohibited a physician from
purchasing the Technical Component of a test
from an outside supplier and “marking up” the
price the physician billed Medicare for the test.
Anti-Markup Rule
Starting January 1, 2009, the Anti-Markup Rule
places a limit on the amount that a physician group or
physician-owned IDTF may bill for either:
• The technical component (TC) of a diagnostic test; or
• The professional component (PC) of a diagnostic
The Anti-Markup Rule Only Applies if the Physician Performing the TC
or PC Does Not “Share a Practice” With the Ordering Physician
Alternative 1 – “Shared Services” Test. If the performing physician, who is
the physician that supervises the TC or performs the PC or both, furnishes
substantially all (at least 75%) of his or her professional services through
the billing physician or other supplier, none of the physician’s diagnostic
testing service will be subject to the anti-markup payment limitation.
Alternative 2 – “Site of Service” Test. If the arrangement does not meet the
“Share Services” test, then the physician performing the TC or the
diagnostic test will be deemed to share a practice with the billing entity if
the performing physician (who is the supervising physician in the case of
the TC) supervises the test in the “office of the billing physician or other
Anti-Markup Rule
“Office of the billing physician or other supplier”
means any medical office space in which the
ordering physician or other ordering supplier
regularly furnishes patient care (which may
include space where the billing physician or other
supplier furnishes diagnostic testing) if the space
is located in the same building in which the
ordering physician or other ordering supplier
regularly furnishes patient care.
Anti-Markup Rule
If the Anti-Markup Rule applies, then Medicare will pay the billing
physician or other supplies (less applicable deductibles and coinsurance) for the TC or PC billed by the billing physician at the
lowest of:
the performing supplier’s net charge to the billing physician
or other supplier; or
the billing physician’s or other supplier’s actual charge; or
the fee schedule amount for the test that would be allowed
if the performing supplier billed directly.
(42 CFR §414.50(a)(1))
Anti-Kickback Law
• It is unlawful for anyone to knowingly and willfully solicit
or receive any payment in return for referring an
individual to another person or entity for the furnishing,
or arranging for the furnishing, of any item or service
that may be paid in whole or in party by any federallyfunded health care program.
(42 U.S.C. § 1320a-7b(b)(1)).
Anti-Kickback Statute Prohibits
Knowingly and willfully
Offering or receiving
Remuneration (including any kickback, bribe or rebate)
To induce
Of federal health care program or business
(42 U.S.C. § 1320a-7b(b)(1)).
Anti-Kickback – Fraud &
Prohibits payment for referrals
Safe harbors
Criminal statute – up to five years in prison and/or $25,000 fine
Intent-based statute
Applies to both physicians and hospitals
Government priority for enforcement – use of wires for immunity
Exclusion from the Medicare, Medicaid, and/or other federallyfunded health care programs
Fraud alerts
Scope of Practice – Mergers, Acquisitions, Sales
and Management Contracts
History of professional licensure must be taken into account to
understand the current regulatory system that governs scope of
Scope of practice → defined in each State’s laws in the form of
practice acts.
State legislatures have authority to adopt or modify practice acts.
* Changes in education, practice, research, technology, and
health care demands determine scope of practice.
Changes in Scope of Practice
Revisions to practice acts sometimes pit one profession against
For example, one profession may perceive another profession as
“encroaching” into their area of practice.
Economic factors often drive opposition to legislative efforts to
change scope of practice.
“Turf Battles” are often costly and time consuming for the
regulatory bodies, professionals, and legislators.
Purpose of Regulation
Why do we Regulate Health Care and Scopes of Practice?
Protect the public health, safety, and welfare
Provide assurance to the public that the individual providing
care is competent and has the requisite background, expertise,
and education
Provide a means to discipline the professional who fails to
comply with the practice act and related scope of practice →
probation, suspension, or revocation of licensure
The Impact of Health Care Policy
on Scopes of Practice
Framework for Scope of Practice:
• Collaboration between health care providers → professional
• Changes in scope of practice are inherent in our health care
• Public protection = purpose of regulation → should be top
priority in scope of practice decisions
The Impact of Health Care Policy
on Scopes of Practice (continued)
Framework for Scope of Practice:
• Overlap among professions is necessary → No one
profession actually owns a skill or activity and one activity
should not define a profession. Entire scope of activities
within the practice makes a particular profession unique
• Practice acts should require licensed professionals to
demonstrate requisite training and competence to provide a
Medical Practice Act and Fee-Splitting
Provisions Example
The Illinois General Assembly has written new legislation that amends the Medical Practice Act of 1987,
and alters the rules regarding the splitting of professional fees between physicians and physician
practice groups and third-party billing and collection companies. Public Act 096-0608 was signed into
law by Governor Quinn on August 24, 2009, and the Act is effective as of that date. The legislation
repeals ILCS 60/22 (14), and adds a new section, 225 ILCS 60/22.5.
225 ILCS 60/22.2(c)(d) (new)
Nothing contained in this Section prohibits a licensee under this Act from paying a fair market value
fee to any person or entity whose purpose is to perform billing, administrative preparation, or
collection services based upon a percentage of professional service fees billed or collected, a flat fee,
or any other arrangement that directly or indirectly divides professional fees, for the administrative
preparation of the licensee’s claims or the collection of the licensee’s charges for professional
services, provided that: (i) The licensee at all times controls the amount of fees charged and collected;
and (ii) All charges collected are paid directly to the licensee of the licensee’s practice or deposited into
a “trust” account by a licensed collection agency in accordance with the requirements of Section 8 (c)
of the Illinois Collection Agency Act.
Physician Joint Venture
Possible reasons for joint venturing with another sleep lab,
DME company or other facility:
Decreasing reimbursement/income
Expenses are increasing faster than revenue and income
Complex regulatory environment
Proposed cuts to 2014 Medicare Part B Physician Fee
 Shortages for specialty practices in certain geographic
Joint Venture (JV) Considerations:
Compensation models/structure
Patient Care
Quality Assurance/Incentives
Regulatory Compliance
Cost and Expense Savings
Profits/Revenue Flow
OIG Special Advisory Bulletin
Contractual Joint Venture – April 23, 2003
JV defined by OIG as “contractual
arrangement between two or more
parties to cooperate in providing
services or the creation of a new legal
entity by the parties to provide such
OIG Identified Problematic Arrangements
that Included Common Elements
(1) Owner expanded into a related line of business which is
dependent on referrals from or other business generated
by the owner’s existing business.
(2) Owner does not operate the new business itself nor
commits substantial financial, capital or human resources
to the venture.
(3) The manager/supplier is an established provider of the
same services as the owner’s new line of business.
(4) The owner and manager/supplier share in the economic
benefit of the owner’s new business.
Fair Market Value is the Key to
• FMV = The value in arm’s length transactions consistent with
the general market value.
• General Market Value = Compensation that would be included
in a service agreement as a result of a bona fide bargaining
between well-informed parties who are not otherwise in a
position to generate business for the other party at the time of
the agreement.
FMV should not be determined in any manner that takes into
account volume or value of actual or anticipated referrals.
Physician Alignment Options
Joint Ventures
practices, space, equipment
Management Services Agreement
Gainsharing and other pay for performance initiatives
Exclusive Provider Agreements
Medical Director Agreements
Networks and managed care contracting (IPA)
Possible Signs of a Suspect
New Line of Business. Owner seeks to expand into a health care
service that can be provided to the owner’s existing patients.
Captive Referral Base. The newly-created business predominately or
exclusively serves the owner’s existing patient base.
Little or No Bona Fide Business Risk. Owner’s primary contribution
to the venture is referrals.
Status of the Manager/Supplier. The manager/supplier is a would-be
competitor of the owner’s new line of business and would normally
compete for the captive referrals.
Possible Signs of a Suspect JV:
Scope of Services Provided by the Manager/Supplier. The
manager/supplier provides all or many of the key services.
Remuneration. The practical effect of the arrangement, viewed in its
entirety, is to provide the owner the opportunity to bill insurers and
patients for business otherwise provided by the manager/supplier.
Exclusivity. The parties agree to a non-compete clause, barring the
owner from providing items or services to any patient other than those
coming from owner and/or barring the manager/supplier from
providing services in its own right to the owner’s patients.
Anatomy of a Joint Venture
Sleep Lab
Two owners are reaching retirement age
Sleep labs revenues are decreasing
Possible JV Options
Merging with another sleep lab or health system
Seek support from health system (medical director agreement, management services
agreement, exclusive provider agreement)
JV Issues
Acquisition of sleep labs’ assets; ancillary service line
Patient care and measured outcomes
Group pooled compensation or individual compensation model
Sleep lab governance
FMV – not based on value or value of referrals
Legislative History of PPACA
March 2009: Senate Finance Committee met over a period of several
months to design a bipartisan health reform plan.
November 7, 2009: House passed health reform bill.
January 20, 2010: Republican Scott Brown’s upset victory in
Massachusetts for the Senate.
February 2010: White House hosts bipartisan health reform summit.
March 2010: March 21, 2010 → House passes PPACA and
Reconciliation Act. March 23, 2010 → President Obama signs PPACA
into law. March 25, 2010 → Senate passes Reconciliation Act and
House passes Reconciliation Act with Senate’s changes. March 30,
2010 → President Obama signs Reconciliation Act into law.
Health Care Reform Goals
Universal Coverage
Improve the Quality of Health Care and Public Health
Lower the Cost of Health Care Coverage
Establish Accountability Measures → Accountable Care Organizations
Minimize the Inefficiency of Physicians and Hospitals
Move from Government Reimbursement Towards Value-based Purchasing
Developing a Payment System based upon Outcomes and Reward a
Coordinated System of Care with Emphasis on Quality
Health Care Reform Patient Bill of Rights
No lifetime or Annual Limits, §2711
Prohibition on Rescission, §2712
Coverage of Preventative Health Services, §2713
Extension of Dependent Coverage, §2714
Development and Utilization of Uniform Explanation of Coverage
Documents and Standardized Definitions, §2715
Appeals Process, §2719
Patient Protections, §2719A
Physician Shortage
DHHS Projects a Shortage of 55,000 by 2020.
Health Affairs Projects 200,000 by 2020.
Bottom Line = Not Enough Physicians Which
Impact Sleep Labs, Patients, Hospitals, and
Health Care Reform
The Balance Between Clinical Efficiency and Operational
Health Care Reform Focuses on patient-centered Care and
 Quality
 Outcomes
 Safety
 Efficiencies
Health Care Reform Hospital-Sleep Labs
Past models losing favor because compensation was based on
volume of patients:
• Joint ventures
• PHOs
• MSOs
• Gainsharing
• Recruitment assistance from independent groups
Hospital-Sleep Labs Collaboration
New forms of collaboration based on value and quality:
Co-management of Sleep and DME/service lines
Physician compensation for hospital leadership
EHR integration
Medical Homes
Examples of Collaboration
Clinic, Foundation, IHO
Employment – Direct,
Affiliated Group Practice
(HAGP), Single or MultiSpecialty
Clinical Integration
Participating bond
Equity Joint Ventures (E.g.:
ASCs, Imaging Centers,
Radiation Centers, Whole
Under Arrangements
(E.G.:Cath Las, Imaging
‘suites, Operating Rooms)
Clinical Service Line coManagement Arrangements
Equipment Leasing
11. Gainsharing Programs
12. PHO/Managed Care Risk
13. Hospitalists, Intensivists,
Laborists, Surgicalists, Etc
14. Physician Coverage
Agreements (Cal Coverage)
15. Professional service Contracts
(E.G.: pathology, emergency,
Anesthesiology, Radiology,
16. Medical Directorship Stipends &
17. Physician Leadership
18. Physician Leadership
Development & raining
19. Malpractice Insurance Captive
20. Physician portals
Examples of Collaboration (continued)
IT connectivity (hospitalpractice)
Private Practice Support / MSO
/ MSO Services
VO Medical Affairs
Physician Board Membership
Joint Conference Committees
Physician Liaison Program
Centers of Excellence,
Marketing / Joint Marketing
Clinical Informatics / IT
Informal Arrangements –
Scheduling in procedure
rooms, Ors, etc.
Physician-Centric Retreats
Physician Advisory Groups (:PAG)
Clinical Councils
Collaborative Strategic & Capital
Planning, Budgeting
Meeting stipends
Hospital Committees
Physician only lounges, dining
rooms, parking
Business Loans
Practice Start-Up Support
Relocation Assistance
Physician Recruitment
Staff Privileges
CRI – Stephen Gelineau
Co-Management Benefits
 For Sleep Labs:
• Control over quality
• Increased compensation at various levels for various types of
• Management of day-to-day operations
• Increased reimbursement for clinical services
Co-Management Benefits (continued)
For hospitals:
• More efficient medical management
• Improved quality of care
• Higher reimbursement
• Sought after alignment with physicians, sleep labs, and DME
Example of Co-Management Model
Hospital engages independent sleep lab or DME company to provide clinical
oversight of hospital-based program
More than just a directorship and coverage
Truly a shared management of a given program
Multiple tiered directorship of categories of cardiovascular program
Oversight of Sleep Medicine Program
Concrete administrative/management duties
Intensive peer review program
Public promotion of health initiatives
Strategy for referrals among other specialties
Mentoring/teaching for residents of new attendings
Non-physician staff management
Gainsharing for product standardization; cost-savings
Business plan input
Quality Improvement initiatives/incentives
Takeaways on the Impact of Health Care Reform, on Sleep Services
Mergers, Acquisitions, Sales Management Contracting
• Reform and healthcare in general is a multi-faceted,
complex issue. This does not lend well to mass-media
• Very few parties are actually informed on the actual
components of Reform.
• Stakeholders are still exploring the potential impacts on
themselves, let alone on others.
• We need the regulations! Notice and comment periods
may be the most active ever.
• Get used to this topic- It is not going away anytime soon.
Jayme R. Matchinski
(312) 985-5940
[email protected]

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