Shared Savings Addressed in OIG’s Advisory Opinion No. 17-09

8Published by Becker's Hospital Review The Office of Inspector General (“OIG”) released a favorable Advisory Opinion (No. 17-09)1 on January 5, 2018 with regards to an arrangement (“Arrangement”) in which neurosurgeons (“Neurosurgeons”) will utilize cost-reduction measures for certain spinal fusion surgeries performed at a non-profit acute care hospital (“Medical Center”) and the resulting shared savings split between the two parties. Under the Arrangement, the Medical Center through a subsidiary (“Subsidiary”) will compensate the Neurosurgeons a portion of three years of cost savings attributable to changes the Neurosurgeons make when selecting and utilizing products during spinal fusion surgeries. The Advisory Opinion analyzed whether or not the OIG would pursue sanctions associated with: “the civil monetary penalty provision for a hospital’s payment to a physician to induce the reduction or limitation of medically necessary services to Medicare or Medicaid beneficiaries under the physician’s direct care, sections 1128A(b)(1)-(2) of the Social Security Act (the “Act”); or (ii) the exclusion authority at section 1128(b)(7) of the Act, or the civil monetary penalty provision at section 1128A(a)(7) of the Act, as those sections relate to the commission of acts described in section 1128B(b) of the Act, the anti-kickback statute.”1 According to the Advisory Opinion, the OIG would not impose sanctions for the Arrangement as the subject requestors certified that cost reduction measures will not reduce or limit medically necessary services for the spinal fusion surgery patients, and that the Arrangement is monitored by the program administer (“Program Administrator”) by analyzing and tracking quality of patient care, changes in cost/ resource utilization, and reports the findings quarterly to the program committee (“Program Committee”). In addition, the OIG noted that the methodology utilized to develop the cost-savings recommendations, the monitoring and documentation safeguards in place, and the methodology utilized to calculate each performance year’s cost savings are reasonable. Click to continue to the full article.

Three Strategies for Aligning With Physicians in a Value-Based World

physicians in a value-based worldPublished by HFMA Written by Jen Johnson, CFA and Alexandra Higgins Quality and efficiency have become paramount in health care as organizations move toward value-based payment models. Because physicians are integral to the provision of care, alignment strategies between health systems and physicians are evolving rapidly. Prior to aligning and ultimately compensating physicians for quality and/or cost savings, a health system must understand myriad factors, including what specific impact is being measured. Specifically, health system leaders should determine the extent to which each the following serve as the basis for the performance and anticipated quality and/or savings payments:
  • Personal performance of a single physician
  • Excellence achieved at a service-line level
  • Triple Aim success for an entire population through integrated care
Once the goal and alignment strategy are identified, a physician’s impact and contribution can be properly measured. As part of any value-based payment strategy, identifying each party’s responsibility and risk for both quality and financial outcomes is necessary to allow for monitoring progress and rewarding the appropriate party for results.

Alignment Strategies

Many health systems, looking to succeed in a value-based world, enter arrangements with a physician or physicians to improve quality outcomes and/or cost efficiencies. These alignment strategies often are referred to as “pay-for-performance” programs because the physicians are rewarded incentive compensation based on quality and/or cost metrics. In some cases, health systems are internally creating and self-funding these programs in anticipation of future changes to payment. In other cases, health systems are eligible for incentive payments in the form of health plan payment and want to share a portion that compensation with the physicians who helped the organization achieve this eligibility. The healthcare organization’s desired impact or scale will determine which specific pay-for-performance program it should utilize as an alignment strategy. Programs are variously designed to focus on individual performance, service-line performance, or population or systemwide performance. Click here to continue to the full article. Click here to download the pdf.

Important Considerations in Understanding Fair Market Value Opinions for Timeshare Arrangements

Published by ABA Health eSource Medical office timeshares (MOTs) refer to part-time medical office space lease arrangements between a licensor/landlord and a licensee/tenant (“Licensor” and “Licensee”). MOTs have become more prevalent as this type of arrangement between hospitals and physicians provides a cost-effective way for medical providers to serve surrounding markets and improve staff productivity. In the Proposed Policy, Payment, and Quality Provisions Changes to the Medicare Physician Fee Schedule for Calendar Year 2016, the Centers for Medicare & Medicaid Services (CMS) established a new exception under the Stark Law (411.357(y)) to permit timeshare arrangements for the use of office space, equipment, personnel items, supplies, and other services.1 In its most basic form, a MOT is generally structured as a combined lease of some or all of the following:
  • Medical office space
  • Medical and office equipment
  • Clinical and non-clinical staff
  • Medical and office supplies
  • Other items and services
MOTs typically utilize partial space, are part-time in nature and are frequently structured as leases of specified blocks of time. In general, the Stark Law prohibits a physician who has a financial relationship with an entity (i.e. ownership or investment interest or a compensation arrangement) from making a referral for any of 11 designated health services (DHS) unless one or more exceptions apply. The Stark law is a strict liability civil statute. Fortunately, it includes many available exceptions that can be used to protect a business arrangement between a physician and an entity that provides a DHS from violating its prohibitions. Yet the Stark law’s exceptions are quite exacting and not always easy to fully meet. Moreover, because the Stark law is a strict liability regime, the effect of not being able to fully meet an exception is critical, because, for liability purposes, a near miss is a complete miss. It is important therefore to be familiar with the Stark law’s many exceptions and their common features, such as the requirement of Fair Market Value (FMV). This article highlights important tips for determining and understanding FMV for MOT arrangements. The following describes the general structures of MOTs, important value drivers, and the key considerations that healthcare attorneys and executives who are tasked with reviewing a MOT FMV should consider. A comprehensive FMV opinion that properly considers all of the costs and terms of the arrangement is crucial in providing the necessary documentation to be compliant with the Stark law’s FMV requirement. Click here to continue to the full article on medical office timeshare arrangements.

Vascular Access Center Valuation Considerations in 2017

Vascular Access Centers (“VACs”) are outpatient facilities that specialize in access maintenance for patients with end stage renal disease (“ESRD”). ESRD patients that develop vascular access problems as a result of dialysis, such as prolonged bleeding, inadequate blood flow, or increased venous pressure may require treatment in a VAC. Approximately 80.3% of ESRD dialysis patients are treated via catheter, and as a result VACs also play a critical role in reducing the hospitalization of ESRD patients by allowing non-emergency interventional procedures to be performed in an outpatient setting. For patients who do not have ESRD, VACs may offer an alternative setting for other interventional vascular procedures including access for medical oncology, Peripheral Arterial Disease (“PAD”), and enteral nutritional and medicine delivery, among others. A vascular access center is frequently operated under an Extension of Practice (“EOP”) model whereby procedures are performed and billed as an in-office ancillary service of the physician practice and reimbursed under the Medicare Physician Fees Schedule (“MPFS”). Beginning January 1, 2017, changes in the MPFS resulted in significant reimbursement cuts for several commonly performed vascular access procedures, and as a result, a vascular access center operated under the EOP model will see profits decline significantly. As shown in the table below, the bundling of certain CPT codes and reductions in the fee schedule reduced reimbursement for certain VAC procedures by as much as 47%. Click here to view the full article on Vascular Access Center valuation considerations.

Call Coverage: Should independent contractors be compensated more than employed physicians?

Published by Compliance Today The Emergency Medical Treatment and Labor Act of 1986 (EMTALA) created a need for hospitals that participate in Medicare to have physicians available to provide emergent medical services to patients in the hospital’s Emergency Department (ED). Thus, hospitals are required to ensure their EDs are either staffed or have physicians available to respond to emergent cases within a predetermined time frame. As a result, there has been a proliferation of hospitals entering into agreements with physicians to provide both restricted (i.e., remain on-site) and unrestricted call coverage services. This trend continues today and has created the need for hospitals to understand both the financial and regulatory impact when determining the appropriate call coverage rates. In addition, one of the most commonly misunderstood concepts relates to the compensation that can be paid to physicians who are employed by a hospital/health system versus physicians who serve as independent contractors.

12 Key Questions and Value Drivers

Understanding the underlying value drivers of unrestricted call coverage is crucial for administrators and legal counsel who are involved in the call coverage agreement process. One should carefully evaluate and ask each of the following questions when determining the appropriate unrestricted call coverage rate:
  1. What is the required specialty of the physician and the type of coverage being provided? Surgical specialties are generally compensated at higher levels than non-surgical specialties.
  2. What is the burden (i.e., frequency of phone calls and in-person emergent responses) of the unrestricted call coverage? Higher volume typically warrants a higher rate.
  3. What is the time frame required to respond in-person for emergent cases/consults? This is normally 30-45 minutes, and instances involving a longer in-person response time may justify a lower rate.
  4. What is the patient acuity/difficulty of the case mix? The compensation rate normally increases with the difficulty of the cases/consults.
Click here to continue to the full article.

Home Health Business: Are You In or Out?

home health businessPublished by Becker's Hospital Review A frequently cited solution to reducing rising healthcare costs is to place patients in the lowest cost setting of care. Accordingly, the home health business has become at the forefront of many discussions within the healthcare industry. Health systems contemplate better ways to integrate home health services into their continuum of care offerings while home health operators are positioning themselves to financially benefit from increasing demand and interest in the space. Meanwhile, many health systems are exiting this business. In FYE 2016, there were approximately 55 announced home health transactions with an estimated value of $1.2 billion.1 Overall, there is a surge in market consolidation and / or strategic positioning in the home health space.

MARKETPLACE DYNAMICS

The home health services industry can be characterized as highly fragmented, where above-average growth potential is challenged by profit margin pressures. As broadly defined, the $88.8 billion home care industry is estimated to be growing 6.7% per annum2. With over 12,400 Medicare – certified home health agencies3, the top ten operators represent less than 21% of the market and the largest operator (Kindred Healthcare4) has a 5.8% market share5.

STRATEGIC DECISION CONSIDERATIONS

As with any major decision in the healthcare industry, financial trends and regulatory considerations for a home health business are critical. Whether the decision is to own/operate, JV, divest, or enter into a management agreement, there are important financial and regulatory considerations to each strategy. From a financial perspective, understanding reimbursement, competition and current multiples are important first steps. Subsequently, conducting thorough due diligence on the operations and any proposed partner is time consuming, but crucial. At the same time, the regulatory framework of healthcare must always be integral to a transaction decision. Numerous regulations surround healthcare covering everything from licensure to the price paid in a transaction or compensation arrangement. As it relates to the financial decision making process, one of the first metrics typically considered in the context of a transaction are current market multiples. The multiples for home health agencies continue to be strong, and trending upwards. Most industry participants analyze revenue and / or EBITDA multiples when evaluating potential acquisitions or joint ventures. Click here to view the full article.

VMG’s Healthcare M&A & Transactions Report: 2016 Trends & 2017 Expectations

Healthcare M&A activity continued its half-decade long growth trend in 2016. Though the dollar value of total deals decreased relative to 2015 due to a spike in managed care mega deals in 2015, when excluding 2015, the dollar value of deals has continued to increase annually since 2012. The increase in both volume and value of healthcare M&A activity is driven by changing technology, an aging population, an increase in the number of insured people through the Patient Protection and Affordable Care Act (ACA), and the implementation of value based payments and alternative payment models. Taken together, these factors have driven providers to consolidate in an effort to take advantage of the economies of scale necessary to meet the goals of the “triple aim,” namely, increase service offerings and access to care, decrease cost, and improve the quality of care. Leveraging VMG’s expertise as a leading provider of transaction health care valuation services, this article examines 2016 trends and 2017 expectations across seven prominent health care verticals. An overarching factor shaping the near-term future of healthcare M&A activity will be the effect of any changes to the ACA in 2017. While buyers tend to proceed cautiously in the face of uncertainty, large regulatory changes affecting health care providers has historically been accompanied by an increase in M&A activity. Click here to read the full article touching on trends and expectations for ambulatory surgery centers, diagnostic imaging centers, physician services, acute care hospitals, urgent care centers, freestanding emergency departments, and post-acute care. This article was published as a part of the AHLA Transactions Resource Guide.

4 Reasons to Joint Venture Your Behavioral Health Unit

Published by Becker's Hospital Review The behavioral health industry is undergoing a wave of consolidation with the emergence of multi-location chains and growth of for-profit operators. A major reason behind this growth has been regulatory changes including the 2016 revision of the Medicaid Institutions for Mental Diseases (“IMD”) Exclusion, the Mental Health Parity and Addiction Equity Act of 2008, and the Affordable Care Act of 2010. These legislative changes have expanded insurance coverage for mental health services, lifted restrictions on freestanding facilities, expanded the demand for behavioral healthcare in general and increased reimbursement. This along with a limited supply in the number of psychiatric beds nationwide has driven higher levels of private investment in the industry spurring consolidation trends. Although not as common as outright acquisitions, joint venture transactions between non-profit health systems and for-profit operators have started to become more prevalent. The two largest for-profit behavioral health companies are Universal Health Services, Inc. (“UHS”) and Acadia Healthcare Company, Inc. (“Acadia”). Recent examples of joint venture transactions with these operators include Acadia’s 2016 announcements of separate partnerships with Ochsner Health and Greenville Health System to build inpatient psychiatric hospitals. In addition, UHS announced joint ventures with Lancaster General Health and Providence Health Care to build inpatient psychiatric hospitals. Steven Filton, Senior VP and CFO of UHS, highlighted the joint venture trend on the latest UHS earnings call1: “We have talked a great deal of the last few quarters about the fact that we are having much more frequent conversations with acute care hospitals about, in some way, penetrating and sharing in the economics of their behavioral health facilities” “We probably have about a dozen other conversations that I would describe as likely resulting in some sort of arrangement but still a little too early to discuss them with any level of specificity.” Click here to continue to the full article and see the 4 reasons to joint venture your behavioral health unit.

6 Key Trends Affecting Healthcare Real Estate in 2017

Published by Becker's Hospital Review

1. Repeal of the Affordable Care Act

On January 20, 2017, President Trump signed an executive order indicating "prompt repeal" of the Affordable Care Act (ACA) and instructed federal agencies to use "all authority and discretion available to them to waive, defer…or delay the implementation of any provision … that would impose a fiscal burden on any State or … individuals." Republicans have made efforts to repeal the ACA since its enactment, but Congress has not yet acted in 2017 to make significant changes to the law. One may only speculate as to the extent to which the ACA will be unraveled and how it will be done. Republicans have circulated multiple plans to replace the law, and Republican leadership has indicated that a replacement plan should reverse the expansion of Medicaid, strengthen Medicare, and give taxpayers "more control and more choices" in selecting plans, while maintaining the ban on preexisting conditions. Rep. Tom Price, M.D. proposed a bill last year which would fully repeal the ACA and replace it with a plan which includes individual health pools, expanded HSAs and elimination of the healthcare exchange. This legislation passed in Congress under budget reconciliation rules but was vetoed by President Barack Obama. There is a wide range of forecasted financial impact related to repeal of the ACA that will also affect healthcare real estate trends in 2017. The American Hospital Association (AHA) commissioned a report which estimates the impact on hospitals if the ACA is repealed, using the Price bill as a model. Should Congress pass legislation similar to this bill, the AHA report estimates that healthcare coverage would return to pre-ACA levels and further suggests that the result would be a rise in uncompensated care and a decline in revenue for hospitals, as the number of uninsured patients would increase. Furthermore, a report released by the Robert Wood Johnson Foundation (RWJ) estimates that if a reconciliation bill similar to Price's was passed now, the result would be an increase in uninsured people by 29.8 million in 2019. The RWJ report suggests that even partial repeal of the ACA, which would eliminate the Medicaid expansion, the individual and employer mandates and the Marketplace tax credits, while maintaining the ACA's insurance reforms including prohibition on pre-existing conditions exclusions "could lead to a fourfold increase in the amount of uncompensated care providers finance themselves compared to current levels." Avalere Health has also released the results of its research on the effect of block grants and per capita caps which would decrease funding to states for Medicaid. Avalere projects that Medicaid spending would be lowered by $150 billion and per capita caps would lower spending by $110 billion. According to Avalere's President, block grants and caps operate to shift power from the federal government to the states in determining covered services and program eligibility. To date, the current climate of uncertainty does not appear to have significantly altered strategic planning on the part of health systems, as market participants indicate that real estate projects in planning phases continue to move forward. However, some caution within the industry is noted; for instance, Colliers International's 2017 Healthcare Marketplace Report predicts delayed decision making as healthcare providers grapple with implementation of site-neutral payment legislation and with potential repeal of the ACA. The potential repeal of the ACA and the implementation of site-neutral legislation will significantly impact inpatient hospitals. Instead of expanding existing inpatient facilities, we predict that acute care providers will continue to look for off-campus opportunities within their community. In particular, we predict an increase in the construction of micro hospitals and other ambulatory facilities.

2. Value Based Reimbursement and Changes to Healthcare Delivery Setting

As noted above, significant uncertainty exists surrounding the potential repeal of the Affordable Care Act. However, healthcare industry consensus is that the trend to value based reimbursement will continue to accelerate, regardless of what reform ultimately looks like. HHS' goal is to shift 50% of Medicare payments away from fee-for-service and to value-based payment models by 2018. This point was reiterated at the 2017 JP Morgan Healthcare Conference in January, where it was noted that the "focus on value – high quality affordable care and health for a population – has to continue." Executive pay is increasingly linked to quality metrics, as outlined in a February 2017 feature in Modern Healthcare. The drive to value has influenced the ongoing convergence of payors and providers, as evidenced by UnitedHealth Group's acquisition of Surgical Care Affiliates (SCA) for more than $2 billion, which will combine OptumCare and SCA to form a comprehensive ambulatory platform. Within the post-acute sector, programs such as the Quality Incentive Payment Program (QIPP) for nursing homes in Texas provide financial incentives for nursing facilities to improve quality. Given the market forces in motion which are driving the push toward value based reimbursement, what are the implications for healthcare real estate? For starters, outpatient migration will continue, as outpatient settings are generally lower in cost and preferred by consumers. However, the January 2017 implementation of the site neutral payment legislation may cause health systems to modify their real estate strategy to ensure the financial viability of proposed projects that will be subject to decreased reimbursement. Nonetheless, incentives and patient preference will continue the multi-decade shift away from the acute care setting. As of 2014, the national average occupancy for hospitals was 61%, per MedPac. This was down from 64% in 2008 and from 77% in 1980. Large, older hospitals can be outdated or oversized, requiring innovative real estate strategies to determine how best to utilize these structures. An increasing number of hospitals are seeking to use unused floors or wings by leasing this space out to another provider for uses such as long-term acute-care, inpatient rehab, skilled nursing, hospice, or behavioral health. These arrangements can be complex, as many factors outside of a typical real estate lease must be taken into account. The challenges facing the acute care industry have also contributed to consolidation, as hospitals seek greater negotiating power, scalability, and improved access to technology. A 2013 academic study found that 60% of hospitals are now part of larger health systems. Click here to read the full article and 6 healthcare real estate trends in 2017. This article was published on the Becker's Hospital Review website.  

On-campus Medical Office Building: Is a Premium Warranted? If So, When and Why?

Published by American Health Lawyers Association Healthcare real estate assets are often referred to as being located “on-campus” or “off-campus.” While real estate market participants may differ in their criteria for referring to a property as on- or off-campus, the Centers for Medicare & Medicaid Services (CMS) defines a hospital campus in the provider-based regulations at 42 C.F.R. § 413.65(a)(2) as follows: Campus means the physical area immediately adjacent to the provider’s main buildings, other areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings, and any other areas determined on an individual case basis, by the CMS regional office, to be part of the provider’s campus. Attorneys, health care providers, and valuation professionals have grappled with whether it is permissible from a compliance perspective to adjust pricing (for lease or for sale) for an on-campus location. Similarly, the real estate investment community has analyzed the potential value impact of on-campus locations, with increased recent interest driven by health care’s continued shift to outpatient settings. A variety of regulatory and analytical issues arise when evaluating the potential impact of a medical office building’s location on- or off-campus on fair market value (FMV). This article examines the on- versus off-campus FMV issue from a regulatory perspective, a sale perspective, and a leasing perspective.

Regulatory Overview: Proximity to a Referral Source

The Stark Law and the Anti-Kickback Statute often govern financial arrangements between health care providers, including arrangements for the sale or lease of a medical office building. If a proposed sale or leasing arrangement is subject to one or both laws, the parties must structure the arrangement in a manner that fits within the applicable Stark Law exception and Anti-Kickback safe harbor. In most cases, the arrangement must be structured in a commercially reasonable manner with a purchase price (in the sale context) or a rental rate (in the leasing context) that is consistent with fair market value. The definitions of fair market value under the Stark Law and the Anti-Kickback Statute share several similarities and several differences. Under the Stark Law, the term “fair market value” is defined in 42 U.S.C. § 1395nn (h)(3) as follows: The term “fair market value” means the value in armslength transactions, consistent with the general market value, and, with respect to rentals or leases, the value of rental property for general commercial purposes (not taking into account its intended use) and, in the case of a lease of space, not adjusted to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee. (emphasis added).1 Unlike the Stark Law, the Anti-Kickback Statute does not define “fair market value” in the general sense. Instead, “fair market value” is defined in the space rental safe harbor, 42 C.F.R. § 1001.952(b)(6), as follows: The term “fair market value” means the value of the rental property for general commercial purposes, but shall not be adjusted to reflect the additional value that one party (either the prospective lessee or lessor) would attribute to the property as a result of its proximity or convenience to sources of referrals or business otherwise generated for which payment may be made in whole or in part under Medicare, Medicaid and all other Federal health care programs. (emphasis added). Both definitions describe fair market value in terms of the value paid by parties involved in an arm’s length transaction. The definitions appear to focus on proximity in terms of leasing arrangements. However, providers should also be careful when establishing the purchase price in a sale transaction. If the Stark Law applies to a sale transaction, the parties would want the transaction to fit within the isolated transaction exception.2 One of the requirements of the isolated transaction exception is that the purchase price cannot be determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals or business generated between the parties.3 In other words, providers should avoid a situation where a premium is paid in a leasing or sale transaction solely because of proximity or convenience to a referral source. Doing so may be interpreted as remuneration in exchange for referrals. Click here to continue to the full article on Medical Office Buildings.