Written by Taryn Nasr, ASA and Madeline Noble
The following article was published by Becker’s Hospital Review.
The demand for lithotripsy procedures is expected to increase in the coming years. This expected increase is supported by a review of the Global Lithotripsy Devices Market. It is forecasted to grow at a 5.5% CAGR and is expected to be valued at $2.03 billion by 2027. [1] While several factors have contributed to this rising demand, the primary drivers are the increasing incidence of kidney stones among the geriatric population and the advancements in lithotripsy technology. Healthcare systems and facilities must meet increasing patient demands for lithotripsy services.
Industry Background
The most common lithotripsy procedure is referred to as extracorporeal shock wave lithotripsy (ESWL). ESWL is a noninvasive procedure that uses high-intensity acoustic pulses, or shockwaves, generated by a lithotripter machine to break up kidney stones that are too large to pass through the urinary system. Another common lithotripsy procedure is ureteroscopy with laser lithotripsy which utilizes a ureteroscope and laser fibers to break up the kidney stones. ESWL is typically used for stones inside the kidneys while ureteroscopy is typically used for stones inside the ureter.
Lithotripsy procedures can be performed on an outpatient basis in a variety of formats such as fixed-site, transportable, and mobile. While there are many providers of lithotripsy services throughout North America, the two most recognized names in the mobile lithotripsy space are NextMed and United Medical Systems (UMS). In addition to these nationwide providers, there are smaller, physician-owned providers that service healthcare facilities on a geographic/regional basis.
Service Agreements
One approach for facilities to meet the increasing demand for lithotripsy services is to enter into arrangements with lithotripsy providers through professional service agreements. Oftentimes, healthcare facilities find it to be financially prudent to purchase lithotripsy services on an as-needed basis rather than purchase equipment, employ dedicated staff, and fund other expenses associated with the service. In those instances, the hospital or ambulatory surgery center (ASC) will contract with a lithotripsy provider to assume responsibility for all costs related to the operation of the lithotripsy service. In return, the hospital or ASC will pay a predetermined fee to the provider for the services rendered.
The contracted fees are structured to compensate the lithotripsy providers for equipment, personnel, and other costs related to the lithotripsy service. The agreements are usually structured on a mutual, nonexclusive basis with key responsibilities delegated between the facility and the provider. Typically, the provider is responsible for transporting and maintaining the lithotripsy equipment, training and licensing the technician to assist with the procedure, and providing the supplies required to support the procedures.
The most common fee structure consists of a price per lithotripsy procedure. In addition, many agreements consider a maximum annual payment for lithotripsy services to determine the commercial reasonableness of the services agreement. In other words, it must be financially prudent for the facility to purchase lithotripsy services on an as-needed basis rather than purchasing the equipment,
employing the staff, and funding the other operating costs associated with the provision of the services. Other fees that may be included in a lithotripsy services agreement include cancellation fees, minimum on-site charge fees, and after-hours/holiday fees. Regardless of the fee structure of the agreement, the arrangement between the facility and the provider must be understood and followed by both parties for regulatory compliance.
Compliance Considerations
For lithotripsy and similar equipment-based arrangements to maintain compliance, the compensation stated in a service agreement between a facility and a provider must be set at fair market value (FMV). To determine the FMV of service agreements, the environment surrounding healthcare must be considered. The bodies of law often considered include the federal Anti-Kickback Statute and the Physician Self-Referral Law (Stark Law). These statutes provide guidance in determining whether service agreements between facilities and providers, such as lithotripsy service agreements, are compliant and based on FMV.
The Stark Law prohibits physicians from ordering designated health services (DHS) for Medicare patients from entities with which the physician has a financial relationship. However, lithotripsy services are not considered DHS for purpose of the Stark Law. Therefore, lithotripsy services agreements are not governed by regulations regarding per-click leasing arrangements. It is important to note the lithotripsy services agreement must be structured to provide full-service lithotripsy services, and not just a lease of the lithotripsy equipment.
Valuation Considerations and Conclusions
When completing an FMV analysis of lithotripsy services agreements, one must consider the rising cost of equipment and technology advances, staffing pressure causing rising labor costs, requests for quality assurance programs, and market-specific trends such as volume trends and service areas. As the demand for lithotripsy services continues to rise, it will become increasingly important for healthcare facilities to execute proper due diligence and ensure regulatory compliance. To avoid violations of the federal Anti-Kickback Statute and the Stark law, parties must document why an agreement for lithotripsy services is at fair market value.
