Category: Physicians Practice

We all know the threat of civil monetary penalties, audits, and the ever-increasing expense and headache of regulatory compliance has led many physicians to pack up and head for the security and predictability offered by larger group employment or hospital employment. Perhaps the most important consideration is income, and the ability to save for retirement.

I recently spoke with someone who deals with this every day, physician wealth management expert, Scott Wisniewski, founder and CEO of Dallas-based Arianna Capital Management.

Martin Merritt: What are some of the considerations in selling a practice?

Scott Wisniewski: Aside from the deeply personal choice, the biggest concern for anyone in business is how they’re compensated. An equal concern is how best to accumulate the assets that will support them in retirement. The sale of a private medical practice carries the potential of a large cash infusion that could be used to jumpstart the growth of retirement assets. Particularly in the early stages of a physician’s career, the ability to save may be impacted by a variety of factors: lack of time to address planning, paying off or down loan debt, or just simply not paying attention. Gaining access to a pool of cash can address these concerns early on. In a more mature practice, equity proceeds can ensure a comfortable retirement.

Compensation concerns range from the uncertainty of private practice revenue streams balanced against the ability to deduct ongoing expenses and if available, the potential to contribute large sums to tax-deferred retirement accounts such as SEP-IRAs, cash balance plans or a solo 401(k). As an employee of a corporation, you’ll be able to expect a stable, predictable income but your retirement account contribution options are significantly different. Contributions are limited by law at lower levels than for self-employed individuals, which if free cash flow was available previously, may become a constraint on effective savings.

MM: Do you feel that associating with a larger business or hospital will positively impact physicians’ abilities to prepare for retirement?

SW: Most physicians will see an improved ability to save due to the predictable nature of their compensation.  Much will hinge on the state of the practice and the amount of disposable income, but given the vehicles available to the self-employed, the potential for significant wealth accumulation is far greater than for an employee of a corporation. While private net income may be inherently volatile, it is likely that the long term average will exceed the compensation from a corporation.  

MM: So there is a trade off: “volatility” and “risk” for lower, but stable income?

SW: That is generally true for any investment. Depending on the particular specialty of the physician, generally speaking, income from an employer (W-2 income) can be expected to be lower than that of a self-employed individual or practice (1099 income). The inherently higher tax burden associated with 1099 income is offset to a degree by the ability to deduct certain business expenses.  These are not options a physician should consider without a trusted financial advisor. Based on our conversations with physicians, when prudent financial advice is considered, the trade-off of stability for lower income doesn’t make sense in a significant number of cases.

MM: Are there exceptions?

SW: The one exception is for those who can move from front-line practice with a larger group or corporation into a managerial position. In this situation, a reduced work load coupled with stability of income can be more attractive than long hours and volatile income. A hybrid solution we’ve also encountered is choosing to work occasionally (i.e. weekends or a few shifts per month) with a large group or corporation. This supplements income without incurring the negative aspects of moving completely out of private practice. It also may provide an exit ramp in the event a sale is eventually contemplated.

For most however, the positive perks from a corporate setting don’t fully compensate for the loss of a greater variety of opportunity that can result from obtaining excellent financial advice.

Here’s a real world example: Access to a 401(k) with a match provides an instant positive return, in some cases up to 6 percent but typically more in the 3 percent to – 4 percent range. The drawback to this is that the available mutual fund investment options most likely will be relatively expensive and can be expected to provide a limited range of market exposures. By contrast, an independent financial advisor with access to low cost, well-diversified mutual fund investment options can position the self-employed physician to receive a significantly greater return on the larger pool of assets they can contribute to the wider variety of vehicles available to them. Free matching is great but not if it comes at the expense of longer term returns and certainly wouldn’t be a great reason to accept lower overall compensation.

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I must give credit to the September edition of the American of American Physicians and Surgeons (AAPS) Newsletter, for directing me toward my new favorite “neologism,” which is in turn borrowed from an article in General Surgery News entitled, “Petting the Tiger: The Age of Regulopathy”:

“In the Age of Regulopathy, hospital routine must include exercises like daily Foley Rounds, writes assistant professor of surgery Peter K. Kim, MD, of Albert Einstein School of Medicine. Whenever one is found, ‘a cracker-jack team of simulator-trained and credentialed experts arrives to deactivate the Foley catheter before the clock strikes 48 hours post-op. Surgical Care Improvement Project(SCIP) triumphs again, and a potential UTI has been averted.’  

“But there are consequences. The urinary tract infection rate went down, but so did the Foley catheter day (FCD) denominator, so the UTIR/FCD rose and had to be reported, Kim writes. Also, central line infections went down because central lines were removed, but patients became malnourished and wounds dehisced [burst or opened at the incision site].”

The basic thrust of the article suggests perhaps it would be better to put doctors in charge of patient care, rather than paint-by-number regulations, which results in a daily catheter hunt, as if Foleys were pythons. So why do we have these SCIP regulations?

A good starting point is the Deficit Reduction Act of 2005 (DRA) which requires a quality adjustment in Medicare Severity Diagnosis Related Group (MS-DRG) payments for certain hospital-acquired conditions.(Translation: CMS announced it would no longer pay for hospital-acquired infections, so hospitals better think of something quick.) The Joint Commission sprang into action and determined hospitals could save as much as $1 million in unreimbursed costs due to infection, if all Foley catheters were removed within 48 hours post op, regardless of need, or even consideration of the actual patient’s condition.

The SCIP process was explained, according to the Joint Commission’s website. SCIP is a national quality partnership of organizations interested in improving surgical care by significantly reducing surgical complications, and was created in partnership with the Steering Committee of 10 national organizations who have pledged their commitment and full support for SCIP.  (Translation: The Joint Commission thinks “regulopathy,” or the loss of physician autonomy, should be much more acceptable because a group of 10 national organizations have pledged to create a system which they can present to CMS as the method which best strips physicians of their autonomy.)

It is normally about this time in a seminar presentation, I post on a PowerPoint screen the very first promise Congress made to physicians in the opening paragraphs of the Medicare Act. And I simply sigh, as further words seem superfluous:

42 USC § 1395 – Prohibition against any Federal interference

“Nothing in this subchapter shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.”

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If it seems as though investment opportunities are flying from the woodwork these days, there’s a reason. They are. Throughout most of the 20^th century, physicians earned and enjoyed the highest level of respect from both patients and members of the business community. Sadly, as reimbursements rates drop, investment and business brokers are becoming more unscrupulous in sales tactics which offer “risk-free” investments in ancillary services providers, such as compounding pharmacies, diagnostic laboratories, or more traditional passive investments in medical office buildings, real estate ventures, hospital ownership, and a whole host of other investments.

The trouble lies in the fact that a physician’s referral or signature is required for most any medical device, test, procedure, or service which is covered by governmental medical programs (Medicare, Medicaid, Tricare, Federal Employees Health Benefits, etc.) It would then make terrific business sense to involve in the joint venture a physician who is in a position to make referrals (thereby guaranteeing the success of the venture). While this makes sense, it is also potentially (but not always) highly illegal. Sometimes, safe harbors will protect a joint venture, depending upon the structure.

Because it is sometimes difficult to tell, the OIG originally published a Special Fraud Bulletin in 1994 titled “Suspect Joint Ventures: What To Look For,” updated in 2003 in a publication titled, “Contractual Joint Ventures.”

From the standpoint of the physician investor, the OIG warns physicians to be wary of the following:

• Investors are chosen because they are in a position to make referrals.

• Physicians who are expected to make a large number of referrals may be offered a greater investment opportunity in the joint venture than those anticipated to make fewer referrals.

• Physician investors may be actively encouraged to make referrals to the joint venture, and may be encouraged to divest their ownership interest if they fail to sustain an “acceptable” level of referrals.  

• The joint venture tracks its sources of referrals, and distributes this information to the investors.

• Investors may be required to divest their ownership interest if they cease to practice in the service area, for example, if they move, become disabled, or retire.

After 25 years of helping physicians in health law transactions, I would like to add several other items to the list of suspicious sales pitches:

• Pitch: “This is an LLC (limited liability company) the most you can lose is your $10,000 investment. “

My Advice: This is simply not true. The penalties and fines are for making illegal referrals. The liability is determined by multiplying anywhere from $11,000 to $50,000 by the number of claims submitted to the government.

• Pitch: “Don’t worry, our legal department has looked at this and has given the deal the green light.”

My Advice: Never trust a salesman who says, “Don’t worry.” Get your own legal opinion from a health lawyer who only has your best interests in mind.

• Pitch: “We have been doing this deal for years and never had any trouble.”

My Advice: This is exactly why the fines are so large. It is very easy to get away with Stark Law and Anti-Kickback Statute (AKS) violations, for many years. But if you are caught, the damages are catastrophic.

• Pitch: “We have “carved out” Medicare business, so you do not have to worry.

My Advice: Remember, it is the referral which triggers the liability. Many states have AKS statutes which apply to every kind of insurance, not just Medicare and Medicaid. The AMA Code of Ethics, particularly Opinion 8.0321 may also forbid physician self-referral. Also, as the OIG pointed out in Advisory Opinion 13-03, it is possible certain carve-outs do not provide protection from Medicare and Medicaid Fraud and Abuse laws.

In sum, be careful when approached by someone offering an investment opportunity. Always consult an experienced health lawyer if you have questions.  

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What is the point of medical malpractice tort reform, if the government is simply going to replace the danger of financial ruin with newerand more creative ways to fine doctors for conduct having nothing to do with patient outcomes?

If you believe the headlines published in a recent story by The Oregonian, “Doctors who get paid by makers of artificial implants for using their product must let patients know about it, according to a first-of-its-kind legal action by the Oregon Department of Justice.”

The actual story then begins to back away from the scandalous headline, “Two Salem doctors, Matthew Fedor and Kyong Turk, agreed to pay $25,000 each to settle [an Oregon] DOJ civil case concerning pacemakers, defibrillators and related devices. DOJ continues to investigate Biotronik, Inc., the German device-maker with U.S. headquarters in Lake Oswego.”

Read a little further and we arrive at the truth: “The doctors, who both performed surgeries at Salem Hospital, were part of a Biotronik program to train and certify sales representatives to assist other doctors in programming and calibrating their products.” The payments weren’t for buying the product, but for teaching others how to safely implant and calibrate the devices, not for actually selecting the brand of implant. But still the doctors were fined by the Oregon DOJ. Really? Do we now need government agents supervising how training programs function?

According to Policy and Medicine, Oregon’s DOJ is responsible for running the “Consumer and Prescriber Grant Program,” which funds projects such as “PharmedOut” to educate healthcare professionals and consumers about the “potential” conflicts of interest or bias that may come from industry payments or support.  I will translate: The state of Oregon is providing grants which encourage the DOJ to manufacture new and unknown offenses against doctors. Out of this, the best they could come up with is the allegation that doctors didn’t work for free when training people how to safely implant the devices.

The “nanny state” is a term of derision employed primarily by conservatives to describe the intrusion of government into every facet of our lives. Ordinarily, agents of the “nanny state” simply wish to tell us “what’s best for us,” whether or not we ask for, or even want advice.

 In the healthcare sector however, the “nanny” doesn’t simply tell us how to behave -“nanny” wants to “get paid.” “With money we will get men, said Caesar, and with men we will get money.”  Thomas Jefferson wrote these words in “Notes on the State of Virginia” to warn of the concentration of power in a single governmental branch., “The time to guard against corruption and tyranny, is before they shall have gotten hold on us. It is better to keep the wolf out of the fold, than to trust to drawing his teeth and talons after he shall have entered.”

At some point, this all has to stop. Imposing fines against the medical profession isn’t simply a passing fad, it is a way for government agencies to create and keep jobs for themselves. This will continue until ether we will have no one left to fine, or the medical profession will simply surrender out of frustration, handing over the keys to the government. 

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USA Today recently reported that people have been signing up for health insurance exchanges for in excess of expected levels.

Staff writer Kelly Kennedy reports that a survey of each of the 50 states yielded 19 states reporting estimates for how many of their uninsured residents they expect will buy through the exchanges. The reported 8.5 million would far outstrip the federal government’s estimate of 7 million new customers for all 50 states under the Affordable Care Act (ACA).

In the short term, this is great news for physicians’ practices. This statistic means there will be 8.5 million new paying customers. This is even better news for physicians in states which have refused to expand Medicaid to the level mandated by the reform law, commonly termed “Obamacare.”

Prior to the law, many states were permitted to set their own limits for Medicaid eligibility. Alabama, for example, reportedly disqualified a family from Medicaid eligibility if the family earned 25 percent of the federal poverty level (about $6,000 per year for a family of four). Under the reform law, states would have been required to expand Medicaid roles to conform to a new national standard of 133 percent of the federal poverty level (about $31,300 per year for a family of four). On June 28, 2012, the U.S. Supreme Court upheld the constitutionality of most of the ACA in the case National Federation of Independent Business v. Sebelius. However, the Court held that states cannot be forced to participate in the law’s Medicaid expansion under penalty of losing their current Medicaid funding. Therefore, patients in states which did not expand Medicaid roles to include these “newly eligible” patients are able to purchase federally subsidized private plans through health insurance exchanges, which is the subject of the USA Today article.

This is good news for physicians’ practices, because Medicaid simply doesn’t pay very well (so low in fact, about one-half of all physicians would refuse to accept a new Medicaid patient. Private plans which are subsidized by the government would almost certainly provide reimbursement rates which are above the rock-bottom rates for Medicaid patients. Open enrollment begins October 1, 2013, and coverage is set to begin January 1, 2014.

Before we all get too drunk on all this free government Kool-Aid, recall that the Kool-Aid isn’t “free.” The reform law was enacted because the Medicare trust fund could not afford to pay for all the aging baby boomers set to turn 65 in the next few years.

The idea behind the law was to save Medicare by forcing more healthy Americans into the system through individual mandates, employer mandates, expansion of Medicaid for the poorest Americans, and providing health insurance exchanges for those who are just above the level needed to qualify for Medicaid. But how is this supposed to help save the Medicare trust fund? Obviously, by cutting future Medicare reimbursement rates.  But on what part of “planet crazy” does it make sense for the government to pick up the tab of the cost for all the newly insured, (which was supposed to save the system from failing, because the government is broke)?

In her book, “Your Doctor is Not In,” Jane Orient draws the analogy between our nation’s healthcare model and the one created by Ptolemy, which contained multi-layered epicycles to explain the universe. “Wheeling and whirring, the Ptolemaic universe could be turned to predict almost any observed planetary motion – and when it failed, Ptolemy fudged the data to make it fit,” Orient writes.

Here, the Obama Administration is so desperate to make the healthcare reform law work, any solution that will keep the wheels whirring, is perfectly acceptable. By the time anyone figures out it is a bad model, the president will be working on a location for his presidential library, and paying for healthcare will be the next administration’s problem.

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Beginning August 1, 2013, applicable manufacturers and group purchasing organizations (GPOs) will be required to report all payments and transfers of value to physicians and teaching hospitals to CMS. An excellent article on the rules, can be found at the Policy and Medicine website:  “Physician Payment Sunshine Act: Final Rule Top 50 Things to Know.”

Although it took many stakeholders by surprise, a proposed rule published by CMS in December 2011 incorporated indirect commercial support payments for CME into the Act’s scheme for direct physician payments.  The final rule published February 8, 2013, however, CMS makes it clear that accredited CME is already held to high regulatory standards that prevent commercial supporters from influencing the curriculum, and that further regulation under the Sunshine Act is unnecessary.  

This about face naturally led to confusion. CMS has published several rounds of questions and answers for physicians.

Here’s two such questions and answers of note:

Q: Are payments provided to physicians for speaking at a continuing medical education event reportable?

A: Speaker compensation at continuing education event such as Continuing Medical Education (CME) conference is not required to be reported by an applicable manufacturer if all of the following criteria are met:

1.) the CME program meets the accreditation or certification requirements and standards of the Accreditation Council for Continuing Medical Education, the American Academy of Family Physicians, the American Dental Association’s Continuing Education Recognition Program, the American Medical Association, or the American Osteopathic Association;

2.) the applicable manufacturer does not select or suggest the covered recipient speaker nor does it provide the third party vendor with distinct, identifiable individuals to be considered as speakers for the accredited or certified continuing education programs; AND

3.) the applicable manufacturer does not directly pay the covered recipient speaker.

Q: What items or materials are considered education materials and are not reportable transfers of value?

A: Education materials and items that directly benefit patients or are intended to be used by or with patients are not reportable transfers of value. Additionally, the value of an applicable manufacturer’s services to educate patients regarding a covered drug, device, biological, or medical supply are not reportable transfers of value. For example, overhead expense, such as printing and time development of educational materials, which directly benefit patients or are intended for patient use are not reportable transfers of value.

This Q & A page contains a bounty of easily understandable information, assuming you can find it. In keeping with the government’s penchant for confusing precision, the term “Sunshine Act” appears nowhere on the page. The official title is: “National Physician Payment Transparency Program Subtopic: Open Payments.”

This is the main page for Open Payments (synonymous with “Sunshine Act”) which contains a link to the “Frequently Asked Questions Page.”  You must then click a third link to get to the link above and then the information should flow freely.

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A year ago, I wrote in this column an article discussing Stark Law/Anti-Kickback Statute (AKS) and AMA Ethics Implications that may not be obvious in forming ACOs. I warned, “The question under Stark Law and the Anti-Kickback Statute isn’t the referral or treatment of patients covered within the ACO. The question is the referral of everyone else.”

Last month, I wrote the problems inherent in the limited waivers of Stark Law, the AKS, and civil monetary penalties law applicable to ACOs and the Medicare Shared Savings Program. The waivers are “limited” because the waivers only protect physicians and other participants in an ACO from fraud and abuse enforcement for activities “reasonably related” to the ACO Medicare patients.  Most practitioners who join an ACO will treat both ACO patients and non-ACO patients.  The shared savings program only works because some members of the ACO are being paid less than the expected expenditures. (In other words, someone in losing money. That’s where the savings comes from.) The shared savings program itself creates a financial incentive to make up the loss in income through cross referrals of other patients covered by federal plans.  That’s a problem.

 On June 7, 2013, the HHS Office of the Inspector General (OIG) issued Advisory Opinion No. 13-3 which may render it all but impossible for ACO participants to refer “other patients” without fear of AKS liability. I would ask you to read Opinion 13-3 to get the facts, but essentially a “parent laboratory” offered “turn-key” laboratories to physicians groups (termed “physician group laboratories” ) managed by the Parent Laboratory, which also operated other labs in the area. The plan was to “carve out” federally insured patients from being referred by the physician group to the physician group laboratories. But the physician group could refer those federal patients to the parent company’s other labs.  The referrals wouldn’t be encouraged, but wouldn’t be discouraged.

Would these “other referrals” potentially violate the AKS?

The OIG answered “yes,” there is likely a violation.  As a threshold matter, “we must address whether the ‘carve-out’ of federal business is dispositive of the question of whether the proposed arrangement implicates the Anti-Kickback statute.” We conclude it is not.” In other words, “carving out” the federal business does not eliminate the AKS problem.

The OIG explained, although the physician group laboratories would bill only for services for non-federal healthcare program patients, participation in the proposed arrangement may increase the likelihood that physicians will order services from the parent laboratory for federal healthcare program beneficiaries. This may occur for reasons of convenience, to demonstrate commitment to the parent laboratory and potentially secure more favorable pricing on private pay services. “Thus, we cannot conclude that there would be no nexus between the potential profits the physician groups may generate from the private pay clinical laboratory business, on the one hand, and orders of the parent laboratory’s services for federally insured patients, on the other.” Finally the OIG expressed concern that the financial incentives offered through the private-pay clinical laboratory business under the proposed arrangement are likely to affect a physician’s decision making with respect to all of his or her patients, including federal healthcare program beneficiaries, potentially resulting in the overutilization of laboratory services generally and increased costs to the federal health care programs.

Reading Opinion 13-3, simply replace “proposed arrangement” with “ACO Shared Savings Program.”  The same reasoning applies. The problem isn’t the physician group’s referral of ACO Shared Savings Program beneficiaries (they are “carved out” by waivers). The problem is the referral of “everyone else.”  

I certainly cannot reconcile the shared savings program with the reasoning of Opinion 13-3.  Using the language of the opinion: “the Proposed Arrangement [is] likely to affect a physician’s decision making with respect to all of his or her patients, including federal healthcare program beneficiaries, potentially resulting in the overutilization of services generally.” Add to this, the fact that many states, including my home state of Texas, have enacted state AKS laws which apply to every person, not just federally beneficiaries. Simply put, there is no “carve out,” because federal waivers do not apply to state laws.

This is not to suggest the “sky is falling” on ACOs. The problem I am describing is really no different that the “cost shifting” which has taken place since the federal Emergency Medical Treatment and Active Labor Act (EMTALA) required hospitals to lose money by treating all emergency room patients regardless ability to pay. The government has always looked the other way as hospitals made up the difference in losses by overcharging everyone else. The OIG and CMS will review the waivers after 2014 to see what can be improved. I am suggesting that there must be some attempt to reconcile Opinion 13-3 with the reality of how the Medicare Shared Savings Program actually works.

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This week, preventive and climacteric medical specialist, author, and healthcare speaker Elizabeth Lee Vliet offers Physicians Practice readers insight into the real reason behind the delay of the employer health insurance mandate in the Affordable Care Act, which she will share in a much anticipated presentation at the International Health Strategies Conference 2013, held this year, October 6-10 in Tucson, Ariz.

Martin Merritt:

I previously wrote about the delay in the employer mandate in July. You suspect there is more to the delay than simply allowing employers time to adjust?

Elizabeth Lee Vliet:

The employer mandate requires that businesses with more than 50 full-time employees must provide health insurance for all employees, and that insurance must meet the new standards set forth in the new law. Businesses that do not comply must pay a financial penalty for each employee, which for large companies can run into the millions of dollars annually.

To understand the reason for this “selective enforcement,” we must first understand this fact: President Barack Obama wants a single-payer healthcare system in the U.S. This is not a secret. In 2003, he said: “I happen to be a proponent of a single-payer healthcare system for America, but as all of you know, we may not get there immediately.” In 2007, he said: “But I don’t think we will be able to eliminate employer-based coverage immediately. There is potentially going to be some transition time.”

MM:

So the Obama Administration’s hidden agenda in delaying the rollout of the employer mandate appears to be a ploy to move us even faster to a full government-run, single-payer medical system in the U.S.?

ELV:

Most definitely. By forcing individuals to purchase compliant healthcare plans but not forcing employers to provide those plans, Obama is creating a swell of 10 million to13 million workers that must enroll in health insurance, but cannot obtain it from their employers. These workers thus have no choice but to use the government-controlled health insurance exchanges, or else pay a financial penalty. This will double the number of workers forced to get health insurance on the exchanges. That, in turn, leads to massive cost-shifting onto the backs of taxpayers subsidizing the health insurance exchanges, rather than having businesses pay for employees’ health insurance.

Higher taxes are the result. Individuals are also facing 20 percent to 100 percent increases in their private health insurance premiums for 2014 to pay for the expanded mandates of Obamacare required coverage. That means workers no longer getting health insurance from their employer will be paying far more for individual coverage. Squeezed from both directions, it is obvious that all this will collapse on itself. At that point, there will be no other option but for the government to step in and save the day, which is what the Obama administration wanted all along.

MM:

It almost sounds like an episode of “I Love Lucy,” where Lucy wants to steal the show, but needs Ricky to think it was actually his idea to cast Lucy in the starring role. She prevails, not because she is best suited for the job, but because she is the only option left?

ELV:

Obama and his party advocates sold the healthcare “reform” to the public by saying “reform” would increase competition and patient choice. But the perverse incentives, draconian regulations, and massively complex and unworkable law is a clever disguise for the real goal: to drive people out of private, employer-provided insurance, as a stepping stone to a government-run, single-payer system. Once we know the ultimate goal, the purpose behind the delay of the employer mandate seems clearer — to hurry the “transition time” away from employer-based health insurance and push more workers into the arms of government control to reach their dream of a single-payer system.

For more from Vliet on this issue, read her recent post on the Association of American Physicians and Surgeons’ website, or go to Vliet’s educational website.

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If you have been approached by someone seeking your investment or participation in a group purchasing organization (GPO), be careful. Just because there is a “GPO Safe Harbor,” doesn’t mean all GPOs are safe.

Before you make any decisions, consider the HHS’ Office of Inspector General (OIG) Advisory Opinion 13-09  (July 23, 2013). There are as many ways to structure a GPO as there are restaurant napkins upon which to write business models.

Without delving too deeply into the mechanics, a group purchasing organization (GPO) is like a farmers’ cooperative. The idea is that a group of purchasers (members/hospitals) pool resources to buy in bulk from suppliers at a discount.  The GPO is funded by administrative fees that are often paid by the vendors not the buyers and usually limited to 3 percent of the purchase price, which cover’s administrative overhead. If there is any left over from this fee, it is distributed to the members. As explained in CMS guidance, when a GPO passes through a portion of its administrative fees to its members, those members are required to treat such distributions as “discounts” or “rebates.”  Two Anti-Kickback Statute (AKS) safe harbors are normally used to protect GPO activities: the GPO safe harbor, 42 C.F.R. § 1001.952(j), and the discount safe harbor, 42 C.F.R. § 1001.952(h). As a general rule, GPOs whose members are paid a flat rate, such as under a DRG system, usually have a low incidence of abuse.

As revealed in the recently released Advisory Opinion, the scheme at issue was slightly more creative: The GPO proposed to offer members an equity interest in the GPO’s parent organization in exchange for the member 1.) extending its contract with the GPO for five years to seven years; 2.) committing not to decrease purchasing volume; and 3.) relinquishing its right to a portion of the administrative fees that would otherwise have been passed through to the members. Also, the split of the “administrative fees” between members depended upon maintaining purchasing levels. Essentially, there are two potential problems here: one, the distribution of administrative fees; and two, the transfer of equity in the parent company to the members who promised to “keep up the good work” of buying from the GPO.

The OIG determined this could potentially violate the AKS, depending upon intent. The GPO safe harbor excludes from the definition of “remuneration” certain fees paid by vendors to GPOs. The proposed arrangement at issue, however, involves not only fees paid by vendors to the GPO, but also remuneration transferred between the requestor and the GPO members, which would not be included in the protection of the GPO safe harbor. When a GPO gives anything of value to its members to induce the members to order federally reimbursable products under the GPO’s contracts, the AKS statute is implicated. The equity interest is a form of remuneration that would not meet any safe harbor to the AKS. It is not a discount, because it is not a reduction in price on items or services. While administrative fees passed through to GPO members could be treated as discounts on the price of goods sold by the vendors, and the GPO and GPO members could meet the reporting and other requirements of the discount safe harbor, the same is not true of an equity interest in the parent company of the GPO.

According to the OIG, three other key elements, in combination, increase the risk of fraud and abuse posed by this particular proposed arrangement:
• First, the requestor would require members accepting an equity interest to extend their contracts by five years to seven years.
• Second, the equity interest offered would be tied to past purchases.
• Third, under this extended contract, members would not be permitted to decrease their volume of purchases under the GPO contracts.

Thus, members would be locked in to a contract for five years to seven years, regardless of whether the GPO is getting them the best prices.

In sum, not all GPOs are created equally, and not all schemes involving a GPO are protected by the GPO Safe Harbor. As with any AKS issue, each proposed arrangement must be scrutinized by an experienced health lawyer who can provide an opinion as to the legality of the arrangement.

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The Medicare Shared Savings program, Section 1899 of the Social Security Act, is designed to achieve three goals: Better health for populations, better care for individuals, and lower growth in expenditures.

Effective November 11, 2011, the agencies responsible for administering the law issued an Interim Final Rule containing five waivers related to accountable care organizations (ACOs), which at first blush, would appear to protect all activities related to the formation and operation of an ACO under the Shared Savings Program.

Each waiver contains a very detailed list of things which must be true for the waiver to apply:

1. An “ACO pre-participation”waiver of the Physician Self-Referral Law, the federal Anti-Kickback Statute, and the Gainsharing CMP that applies to ACO-related start-up arrangements in anticipation of participating in the Shared Savings Program;

2. An “ACO participation” waiver of the Physician Self-Referral Law, federal Anti-Kickback Statute, and the Gainsharing CMP that applies broadly toACO-related arrangements during the term of the ACO’s participation agreement under the Shared Savings Program and for a specified time thereafter;

3. A “shared savings distributions” waiver of the Physician Self-Referral Law, federal Anti-Kickback Statute, and Gainsharing CMP that applies to distributions and uses of shared savings payments earned under the Shared Savings Program;

4. A “compliance with the Physician Self-Referral Law” waiver of the Gainsharing CMP and the federal Anti-Kickback Statute for ACO arrangements that implicate the Physician Self-Referral Law and meet an existing exception; and

5. A “patient incentive” waiver of the Beneficiary Inducements CMP and the federal Anti-Kickback Statute for medically related incentives offered by ACOs under the Shared Savings Program to beneficiaries to encourage preventive care and compliance with treatment regimes.

These waivers add a second type of protection where fraud and abuse laws would otherwise be implicated: 1.) the arrangement could always fit within an existing safe harbor of the Anti-Kickback Statute or Stark Law; and 2.) failing that, a waiver could apply. The text of the rule makes clear, “The waiver authority under section 1899(f) is limited to sections 1128A  and 1128B  and title XVIII of the Act,  and does not extend to any other laws or regulations, including, without limitation, the Internal Revenue Code (IRC) or State laws and regulations.” 76 FR 67994.

Wait, wait, wait …these waivers actually have no effect on state laws, such as the Texas Illegal Remuneration statute (similar to the Anti-Kickback Statute), nor do they affect the AMA Ethics Opinions which might form the basis of a complaint before the medical board?

That means the waivers are virtually worthless as a defense to an ethics complaint that a hospital, for example, is paying a doctor not to treat his patient (that’s why there is a “Gainsharing CMP provision” in the first place,) nor to a state anti-kickback allegation that an ACO is providing free blood pressure cuffs to reduce the chance of hospitalization.  The waivers also have no effect on state laws which prohibit the corporate practice of medicine, or fee-splitting between say, an IT company who invests in the ACO and a group of physicians who control it.  Worse, in states which have anti-kickback statutes similar to the federal rule, ACO shared savings arrangements remain a crime in many states.

To be sure, the idea is “the sword of the parent is rarely stained with the blood of its child.” The CMS and Office of the Inspector General aren’t going to punish those ACOs who are making bona fide attempts to follow the law. But the feds have no control over state and federal False Claims Act Whistleblowers (the government can decline to participate, but that’s it), state attorneys general enforcing state laws, or state medical boards who are enforcing AMA ethics rules which form the basis for Stark Law and the Anti-Kickback Statute.

The closest analogy I might give would be the case of marijuana laws, where the roles are reversed: a state says it is legal, but the federal government says it isn’t. There is a certain comity between governments at the state and federal level in some cases, but the Affordable Care Act is so divisive, it is hard to know what will happen if a medical board were to enforce the AMA rules literally.

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