A large national dialysis services provider was renewing professional services agreements with physicians for the provision of dialysis medical director services. The provider was seeking a fair market value opinion to explore the specialized, complex nature of services for regulatory/compliance purposes and to aid in compensation negotiations.

Situation

The provider contracted directly with a physician group to provide dialysis medical director services to various provider-affiliated centers. The provider was seeking a fair market value analysis of the services prior to negotiating contract renewals to ensure compliance. In addition, the provider wanted to engage an independent third-party valuation firm with extensive experience surrounding dialysis arrangements and an understanding of the uniqueness of these arrangements. The medical director arrangements were provided to both dialysis centers along with skilled nursing facilities. In addition, the compensation structure was not hourly, but rather an annual stipend with 24/7 availability to meet the needs of the facilities.

Solutions

VMG Health conducted a fair market value analysis of the dialysis medical director services consisting of cost and market approaches which included: an analysis of local market dynamics affecting physician compensation, a review of the current agreement, an analysis of both dialysis clinical compensation and medical director services compensation market survey data, dialysis medical director stipend market comparables data, a review of VMG Health’s internal database of similar arrangements, and a review of the unique experience, qualifications, and expertise of the physicians providing the services. In addition, VMG Health conducted an in-depth review of the job duties and interviewed the physicians to obtain a clear picture of the intricacies of the services and to determine the appropriate split of active hours (hours spent taking calls, advising, making decisions, etc.) and inactive hours (hours where the physicians were available to respond to calls but were not actively providing services). This information was used to derive the final fair market value indications.

Success

VMG Health determined the fair market value compensation for the physician’s provision of dialysis medical director services by considering the specific details, facts, and circumstances of the arrangement. The deliverable was then used by the provider to aid in the contract renewal negotiation process and for regulatory and compliance purposes.

By: John Meindl, CFA

Academic Medical Centers (AMCs) are facing unique challenges and opportunities in the current environment. With healthcare systems becoming more complex and dynamic, AMCs are adapting their strategies to preserve their inherent strengths and capitalize on evolving industry dynamics. One of the main challenges facing AMCs is the shortage of physicians, which is predicted to become more acute in the coming years. At the same time, revenue from higher-margin care is eroding as new businesses are capturing market share. As AMCs play an outsized role in solving labor shortages, they have also been forced to adapt to the financial pressures. Here we examine some of the major financial and strategic opportunities available to AMCs.

1.) Academic Medical Center Partnerships

Many successful academic medical centers have adopted a hub-and-spoke model where the AMC serves as the hub and partners with community hospitals, medical complexes, for-profit hospitals, and pure-play service providers as the spokes. This model can improve care coordination to the appropriate site of care while expanding the population basis to support the growth or addition of specialty service lines.

AMCs entering new partnerships are doing so from a position of strength. Typical AMCs have a unique ability to effectively deliver highly complex care. Additionally, most AMCs have a strong and trusted brand in the communities they serve. However, access has long been a traditional weakness with patients struggling to access AMC facilities promptly. To address the access issue while capitalizing on strengths, AMCs are rethinking their approach to partnerships to provide easier channels for reaching their patients. Access to a more diverse population improves patient experiences, lowers cost structures, and provides revenue opportunities. Successful AMC partnerships may even end up being site-of-care agnostic, achieving the most optimum clinical outcomes while compensating all parties for their respective contributions.

However, partnering with non-academic medical centers poses some challenges. AMCs need to ensure that their partners provide the same quality of care and adhere to best practices, while also maintaining the AMC’s own high standards.

2.) Go At It Alone

Well-capitalized AMCs can invest individually in ancillary services to access additional revenue streams and expand their patient base. The right mix of ancillary service lines allow an AMC to expand its footprint, improve clinical offerings, and generate incremental revenue. AMC’s investing in ancillary service lines should consider whether or not to allow the ancillary to use the AMC’s brand name. As outlined below, AMCs typically have a trusted and strong brand name built on a history of excellence. Allowing the ancillary to use the brand can either 1) enhance the volume of ancillary services, 2) dilute the AMC brand name, or 3) a mix of both. Common ancillary services may include ASCs, imaging centers, urgent care, and other retail facilities. 

3.) Co-Branding

As mentioned above, AMCs often maintain a strong reputation and brand name. This intellectual property reflects valuable consumer trust built on a history of clinical excellence. With the right strategic partner, AMCs can capitalize on their individual brand to become market makers through brand licensing, co-branding agreements, care network subscriptions, or external affiliations.

Conclusion

By building hub and spoke partnerships with community hospitals and medical complexes, academic medical centers can leverage their inherent strengths to maintain their industry reputation for excellence. AMCs that prefer an individualized approach may choose to invest directly in ancillary services or develop branding or affiliation agreements in order to generate additional revenue streams and expand patient access.

Healthcare providers across the country are facing significant financial and operational challenges amid several competing trends such as losses in investment income, staffing shortages, increased inflation, increasing wage pressure, and the like. VMG Health’s Strategic Advisory Services Division works with hospitals, health systems, medical groups, and providers to take strategic steps that help move the system in the right direction.

Problem Statement

A myriad of 2022/2023 stewardship issues are confronting hospitals and health systems, and physician integration and relationship models are not immune to the underlying financial stress. As these challenges mount, there are alternative physician strategies developing in the market with a subset of physicians seeking greater independence and returning to private practice, dry capital investments from private equity including robust ambulatory assets, and clinical network solutions making a bolder step towards value.

Supporting Context

For many hospitals and health systems the value proposition of investing in an integrated delivery system with employed/contracted physicians has not been realized or accounted for in a way that feels economically sustainable. To this end, new platforms and strategies are emerging that health systems need to be aware of in the context of making sound strategic decisions.

VMG Health’s Solutions

VMG Health experts have developed a leading solution set to reposition physician practice alignment that is customized for your unique market and underlying facts and circumstances. A sampling of physician enterprise strategy offerings include:

1. Clinical Enterprise Assessment – Too many hospitals and health systems make uninformed business decisions based on antiquated methods. VMG Health has developed an enterprise-wide approach to physician practice benchmark testing the sustainability of physician practice investment.
2. Alternatives to Physician Employment – Too often the desire for standardization has impeded material service line expansion and growth. Clinical service offerings in orthopedics, cardiology, gastroenterology, urology, and other critical specialty areas now have alternative considerations with expansion of ambulatory surgery and/or office-based labs. If you employ a large cadre of providers in any of these areas, alternative joint venture models (as alternatives to employment) should be evaluated.
3. Ambulatory Investment Repositioning – ASC investments and joint ventures have long been a staple of hospitals and health systems looking to align with community physicians. Many of these multispecialty assets will migrate to a more directed service line (cardiovascular, musculoskeletal, etc.) over time. Growth opportunities exist across key product lines with a more specialized organizational model and structure.
4. Partnered Growth with Private Equity – Many health systems look at private equity as a significant competitor. VMG Health has developed leading strategies with private equity and health systems affording health systems opportunities to reposition certain physician assets, invest in a practice platform for growth, and materially migrate its ambulatory positioning with partner focused on growth.

Other ways VMG Health can help systems like yours during this tumultuous time in the healthcare industry:

• Health System Financial Repositioning
• Aligning Physician Compensation & Reimbursement Models to Maximize Revenue Opportunities

Healthcare providers across the country are facing significant financial and operational challenges amid several competing trends such as losses in investment income, staffing shortages, increased inflation, increasing wage pressure, and the like. VMG Health’s Strategic Advisory Services Division works with hospitals, health systems, medical groups, and providers to take strategic steps that help move the system in the right direction.

Problem Statement

For many health systems 2022 was one of most challenging years in recent memory. Labor costs, stagnant reimbursement, consumer preference, demographics, and increased competition from non-traditional organizations combined to negatively impact profitability and future sustainability.

Supporting Context

The factors contributing to a decline in operating performance are not likely to change in the coming years. Labor costs, demographics, and competition are likely to continue trending in ways that challenge performance.

VMG Health does not believe 2022 was an aberration, but rather portends what future clinical and operating performance will look like when absent of change and innovation. Organizations will need to maintain or improve patient access and quality but at a lower cost. How, where, and by whom care is provided will need to be evaluated and reimagined to achieve a sustainable operating platform.

VMG Health’s Solutions

VMG Health’s experts have partnered with health systems across the country to identify opportunities for improvement in clinical and operating performance. The work effort begins with understanding the current state of the organization and its operating environment. VMG Health then works with organization leadership to identify a short list of opportunities the organization can further explore and implement. At the conclusion of the work effort organizations will have a menu of strategies and tactics that can advance the organization towards clinical and financial sustainability when fully implemented.

Other ways VMG Health can help systems like yours during this tumultuous time in the healthcare industry:

• Aligning Physician Compensation & Reimbursement Models to Maximize Revenue Opportunities
• New Physician/Health System Models

Healthcare providers across the country are facing significant financial and operational challenges amid several competing trends such as losses in investment income, staffing shortages, increased inflation, increasing wage pressure, and the like. VMG Health’s Strategic Advisory Services Division works with hospitals, health systems, medical groups, and providers to take strategic steps that help move the system in the right direction.

Problem Statement

The varying types of physician compensation models being used by health systems today can result in a misalignment of physician and organizational incentives. This can limit the health system’s ability to maximize revenue opportunities as the industry moves towards empanelment and patient outcomes.

Supporting Context

With more of a health system’s revenue at risk for quality, panel management, and other non-productivity factors, aligning physician and health system incentives is key. These incentives help get the compensation formula right which is essential to the continued success of the health system.

As organizations continue to enter payor contracts with either partial or full risk (i.e., capitation), one key factor for organizations to understand is panel size and panel management. Accurately measuring and acuity adjusting primary care physician (PCP) panel size and implementing quality metrics tied to how well a PCP and the rest of the care team takes care of the patients on their panel, will drive organizational successes under these value-based reimbursement models.

VMG Health’s Solutions

VMG Health’s experts have helped numerous health systems design physician compensation plans that incentivize physicians to provide high-quality care for a strong panel of patients to ensure alignment of physician and organizational goals.

Through this body of work, VMG Health works with organizations to profile their reimbursement environment so organizations better understand how revenue flows into the system through payor contracts. VMG Health’s experts also help organizations learn which levers need to be pulled in order to maximize revenue under these value-based contracts. Once the reimbursement environment is fully understood by all parties, VMG Health works with organizational leadership to create a compensation model that incentivizes physicians to work in a way that maximizes revenue while providing high-quality care.

Other ways VMG Health can help systems like yours during this tumultuous time in the healthcare industry:

• Health System Financial Repositioning
• New Physician/Health System Models

A large, physician-owned behavioral health organization expressed a desire to expand its care model and services to new states. The current service portfolio includes outpatient behavioral health clinics, intensive outpatient behavioral health therapy, partial hospitalization, and inpatient behavioral health services.

Situation

A highly successful physician-owned behavioral health organization expressed a need to expand its service offerings to new markets. The leadership’s vision for their existing market had reached maturity and top line growth was projected to slow. The organization understood behavioral health services were in high demand nationally but needed assistance with developing an expansion plan. Leadership recognized there was an incomplete understanding of provider, competitor, payer, and population dynamics outside of their home market. There was a need for outside assistance in identifying growing markets that fit with the organization’s business model to offer the best opportunity for success.

Solutions

The behavioral health organization retained VMG Health to perform a national market assessment to educate leadership on key trends, to prioritize states and metropolitan statistical areas (MSA) for management review, and to recommend specific communities for expansion. Working with the organization, VMG Health experts developed a framework that identified and weighed factors most conducive to program expansion and tested the potential of individual MSAs.

A critical aspect of the process was understanding the key factors that are essential for a clinically and operationally sustainable behavioral health program. VMG Health performed a series of analytics to determine critical success factors and prioritize new markets.  Analytics included a review of patient access, reimbursement trends, provider economics, Medicaid policies, competition, and regulatory requirements.

Interviews and analytics identified numerous factors that are most critical for a sustainable program. One of the major considerations which required in-depth insight on physician alignment strategies was the need for a renewable source of physicians in a high demand specialty. In addition, having a full continuum of behavioral health services easily accessible to patients was highlighted as a critical factor for success. This includes not only convenient access points, but the full spectrum of services from inpatient services to home care, all supported by social programs.

Each of these factors were fully explored followed by VMG Health recommending three priority markets, potential partners and real estate opportunities.

Success

The behavioral health organization selected a preferred market based on VMG Health’s opportunity assessment and signed a definitive agreement to acquire a large behavioral practice in the market.  Today the organization is successfully operating in its second state and is leveraging the original market evaluation to guide decisions for the next market expansion.

A large, regional health system initiates to position itself strategically to offer the community a wide breadth of community cancer care programming but encounters issues.

Situation

Successful physician alignment with numerous oncologists is critical to experiencing regional growth, sub-specialization, and strategic differentiation. This regional health system was hampered by a lack of economic and strategic alignment with a large group of independent medical oncologists which is a common issue in this sector. Although the physicians fully participated in select cancer center programs sponsored by the health system, the lack of practice integration created conflict and competitiveness across infusion services, growth initiatives, and care model innovation. Further, most of the care delivery in the community did not maximize available drug purchasing programs under eligible 340B programs which resulted in raising the overall cost of care in the community.

Solutions

The regional health system retained VMG Health to perform a comprehensive service line assessment and recommend potential strategic affiliation options for the health system’s consideration and the independent medical oncology practice’s consideration. VMG Health completed various analytical frameworks to evaluate affiliation opportunities, including capacity planning, retail pharmacy sufficiency, value-based care and ACO waiver eligibility, combined growth opportunities, business combination models, and 340B cost savings.

Upon selection of a preferred practice affiliation model by the independent group practice and the health system, VMG Health completed several independent valuations connected to business enterprise value, provider compensation, assets, and value-based compensation programming.

Success

The parties signed a definitive agreement setting forth a plan for business combination and development of a single medical oncology group practice structure. A Professional Services Agreement (PSA) is the primary transaction vehicle to support the business combination strategy. The overall affiliation framework provides opportunities for community oncology providers to subspecialize, grow, and be remunerated for high-value care delivery. The regional health system has achieved greater scale to support growth and investment, full economic alignment across its oncology service, and an engaged group of providers co-leading medical administrative functions.

Written by Melissa Hoelting, CPA

The COVID-19 pandemic sent shockwaves throughout the urgent care industry and fundamentally changed the business of urgent care centers (UCCs). At the start of the pandemic, UCCs had to quickly adapt to offer a new service line and meet the high demand for COVID tests. As the pandemic has progressed and evolved, UCCs have had to continue to adapt to address the effects of vaccination, variants, and at-home testing to their volumes. In addition to this, they have had to adjust to the changing landscape around reimbursement in regard to government mandates on COVID testing and an increase in new patients. As the pandemic has evolved, the VMG Health Quality of Earnings team has been involved in urgent care transactions and has worked firsthand with our clients to quantify the effect of these changes on EBITDA.

COVID-19 History at Urgent Care Centers

Urgent care centers were at the forefront of treatment and testing services throughout the COVID-19 pandemic. After initial volume disruptions during the early onset of the pandemic, urgent care centers experienced significant increases in testing volumes and new patient visits. Average patient visits per clinic (“APVC”) reached record highs during the summer of 2020 when UCCs ramped up testing capabilities and adopted telehealth services. Overall, UCCs with COVID-19 testing capabilities retained more volume than those without testing capabilities.

In addition to the increased visit volumes, the patient mix between new and established patients shifted. Prior to April 2020, patient mix between established and new visits averaged approximately 60% established and 40% new patients. Following COVID spikes, new patient visits became a greater ratio of total visits and represented over 50% of patient visit mix after April 2020 and into 2021. This mix shift had an impact on reimbursement for many urgent care centers. Clinics saw an increase of 52.0% in average net revenue per visit in 2020 as new patients were reimbursed at a higher rate than established patients.  This was partially offset by a rise in “no-visit” patients where an E&M code was not billed (e.g., only testing services performed). 

During January 2022, through funding from the American Rescue Plan, at-home COVID testing kits were offered online for free. As of May 2022, over 70 million households have visited COVIDTests.gov to order free at-home tests and 350 million tests have been delivered through the program. The program has offered several rounds of free at-home testing mailed through USPS, and eight additional tests were approved for distribution as of May 17, 2022. In addition, pharmacies, online stores, (e.g., Amazon), and retail locations have expanded the accessibility of at-home testing kits.

Volume-Related Quality of Earnings Adjustments

To quantify the impact of these trends on an urgent care center’s quality of earnings, we must first distinguish between the three types of visits – asymptomatic COVID visit, symptomatic COVID visit, and traditional urgent care visit. Many UCCs now require an office visit whenever a COVID test is administered, therefore we cannot solely use CPT codes to separate between asymptomatic and symptomatic visits but instead must rely on the ICD-11 codes. Based on ICD-11 codes, asymptomatic COVID visits include patients who only have a COVID test code and, in some cases, a comorbidity code such as having high blood pressure, being a smoker, etc. Symptomatic COVID visits include both a COVID test code and symptom codes (i.e., cough, sneeze, sore throat, etc.). Finally, traditional UCC visits include all remaining visits. Once these visits have been categorized we can begin adjusting to expected go-forward volumes.

First, we evaluate the appropriate run-rate of asymptomatic COVID testing. At the start of the pandemic, few individuals received an asymptomatic COVID test since facilities often experienced shortages of tests and chose to prioritize symptomatic patients. In 2021, asymptomatic testing increased as individuals sought testing to meet requirements imposed for travel, employment, and other reasons. Recently, asymptomatic testing demand has fallen (decreased?) as many cities, states, and countries have either eliminated testing requirements or replaced them with vaccine requirements. Due to the changing landscape of asymptomatic testing, we use a narrow time frame of three to six months to determine the appropriate run-rate volume.

Next, we determine the go-forward state of symptomatic COVID testing. Before the prevalence of vaccines, symptomatic COVID testing dominated UCC volume. At this time, the only downward pressure on volume came from supply shortages. After widespread availability of vaccines in early 2021, UCCs began to experience periods of both high and low demand for symptomatic testing as new variants began to emerge. In addition to this more seasonal nature of demand, at-home testing became more prevalent, and was further accelerated by the funding from the American Rescue Plan in January 2022. Based on all these factors, we use a look back period of eight to 12 months for calculating average go-forward volume. This timeframe ensures we capture seasonality while only including months with similar circumstances regarding vaccinations and at-home testing.

Finally, we evaluate the expected recovery of traditional urgent care volume. During the period of stay-at-home orders in 2020, UCCs saw a large fall off in non-testing volume. This was especially prevalent as many facilities temporarily became COVID-only sites. After stay-at-home orders were lifted, facilities still saw lower non-testing volume due to other restrictions put in place such as mask mandates and social distancing. These restrictions resulted in a milder cold and flu season at the time. As traditional volumes remain depressed, 2019 represents the ideal benchmark for estimating future urgent care volume as it is the last year untouched by COVID.

However, relying on 2019 volumes to determine a new run-rate comes with its own challenges stemming from capacity constraints, hiring challenges, and volume trends. In 2019, most UCCs were ideally operating close to full capacity with only traditional visits. Thus, we need to balance expected COVID test volume with a return to normal to ensure we do not project total monthly volume beyond the capacity of a location. Additionally, many UCCs have reported hiring challenges due to the shortage of nurses and mid-level providers which make up the bulk of staff for most facilities. We address this challenge to our calculation by holding conversations with management to understand the specific facility’s hiring challenges and to determine if traditional capacity needs to be reduced. Finally, as of April 2022, Experity reported that non-COVID visit volumes were only at 72% of pre-COVID levels. This trend means we cannot peg a complete return to pre-COVID levels because volumes have not recovered despite life returning to normal in many states. With all these challenges, we can no longer use 2019 as a benchmark since the landscape of urgent care volume mix has changed dramatically over the last two and a half years. As a result, we elect to use the average of the last six to eight months to capture seasonality and current trends. Although these volumes trend lower than 2019, they reflect the changing reality of the volume mix and capacity concerns.

Once we have determined go-forward monthly volumes for the three test types, we can make the appropriate quality of earnings adjustments. We begin by creating cash waterfalls for each volume type to calculate accrual basis revenue. Using this revenue, we calculate the historical average reimbursement for each visit type. Due to changing reimbursement trends for COVID testing and office visits in recent years, we use the average of the last six months in our calculation of adjusted revenue.  Once we have determined the revenue adjustment, we estimate the associated variable expense impact for each visit type based on common size percentages, direct allocation, and invoice review. Volume estimates are the key to the calculation of both the revenue and expense adjustments, which emphasizes the importance of reasonable estimates.

Additional COVID-Related Quality of Earnings Adjustments

Besides impacting urgent care volume and mix, COVID-19 also impacted the ramp up of de novo facilities opened just before and during the pandemic. Average startup location volumes historically averaged between 10 to 20 visits per day in the first six months of operations for de novo locations opening between 2016 and 2019. Volumes for these locations stabilized at approximately 30 – 40 patients per day after 18 to 24 months. However, startup locations that opened in 2021 saw an average of 32 patients per day in the first month, and 60 visits per day after just six months.

For a quality of earnings analysis, the changes to the ramp up of de novo facilities create a challenge for quantifying a run-rate adjustment. First, there are concerns about sustainability of patient volume as COVID testing declines. In the beginning of the pandemic, shortages of tests meant individuals sought tests wherever possible even if it meant traveling to a further center. Some parent companies even made de novo locations into COVID-only sites to raise awareness of the new location. As a result, some patients may return to a different location for future visits which creates uncertainty when estimating the impact of a return of traditional urgent care volume. To combat this challenge, we engage in discussions with management to identify existing sites that serve a similar demographic and can be used as the volume being averaged to calculate run-rate.

The case mix changes also cause issues in conducting a revenue hindsight analysis. Due to government mandates around reimbursement for COVID testing, UCCs experienced higher reimbursements for patients getting a COVID test since many payors were obligated to pay all claims. Additionally, many COVID tests were administered either with no office visit or with an office visit of a lower E&M code level than typical. Furthermore, UCCs that did require an office visit often saw new patient visits becoming a greater ratio of total visits following COVID spikes and new patients represented over 50% of patient visit mix after April 2020 and into 2021. This patient mix shift drove an increase in average net revenue per visit for many UCCs. Finally, stay-at-home orders and people working from home have driven a slowdown in reimbursements from payors. As a result, historical collection trends were skewed during 2020 and into 2021. All these factors necessitate a close analysis of the revenue data for UCCs which often entails performing separate analysis by visit type (i.e., test vs. non-test) or CPT code (i.e., new patient vs. established). Due to the changing landscape of patient and visit type mix since the beginning of the pandemic, the revenue hindsight analysis has become a large area of focus for all parties to the transaction.

Typically, the last, most straightforward adjustments we perform in our analysis center on non-recurring COVID revenue and expenses such as CARES Act funding and rent abatement. Many UCCs participated in the various economic relief programs and received Paycheck Protection Program (PPP) loans, HHS stimulus grants, Economic Injury Disaster Loans (EIDL), etc. As these amounts were received or forgiven, many UCCs recognized the amounts as income. Additionally, UCCs often took advantage of temporary rent or payroll tax abatements that were recaptured or will be recaptured at a later date. These amounts represent non-recurring or temporary measures, and we always include adjustments to eliminate their impact from earnings.

Conclusion

With all these complications and uncertainties arising from COVID testing, both buyers and sellers in the UCC market need to engage a quality of earnings team for their transactions. Over the last two and a half years, the outlook of COVID and testing has changed week-to-week and month-to-month. During 2021, our team was engaged as a sell-side advisor and conducted an original analysis in addition to two roll forwards for one client. Each of our analyses was at a different point in 2021 and each analysis had unique trends around vaccination, variants, and seasonality. By engaging a quality of earnings team, our client was able to get a deeper analysis of its earnings to quantify the effects of this changing landscape on its EBITDA. From the expansion of at-home testing to the potentially permanent depression of traditional volume, quality of earnings will be crucial in analyzing the changing nature of the COVID and UCC landscape as we continue to return to normal.

By: Bartt Warner, CVA and Dane Hansen

The Office of Inspector General (OIG) and Department of Health and Human Services (HHS) released a Special Fraud Alert (Alert) on July 20, 2022 related to the inherent fraud and abuse risk associated with physicians or other health care professionals entering into arrangements with telemedicine companies (Telemedicine Companies).¹ Specifically, addressing fraud schemes related to telehealth, telemedicine, or telemarketing services based on dozens of civil and criminal investigations. The Alert identified seven characteristics that the OIG believes could suggest a given arrangement has potential risk for fraud and abuse. However, the OIG was cautious not to state that all Telemedicine Companies and arrangements are suspect, but rather to identify key characteristics in potentially problematic arrangements as the prevalence of telehealth services continually increases. In addition, the Alert was designed to provide practical compliance guidance and help establish guardrails with relation to telemedicine arrangements. Simultaneously, the OIG also updated its Telehealth Resource Page² which aggregates compliance and enforcement resources.

Kickbacks

The Alert provided a specific example of how Telemedicine Companies have utilized kickbacks to aggressively recruit and reward telemedicine practitioners to further their fraud schemes. According to the example:

“…in some of these fraud schemes Telemedicine Companies intentionally paid physicians and nonphysician practitioners (collectively, Practitioners) kickbacks to generate orders or prescriptions for medically unnecessary durable medical equipment, genetic testing, wound care items, or prescription medications, resulting in submissions of fraudulent claims to Medicare, Medicaid, and other Federal health care programs. These fraud schemes vary in design and operation, and they have involved a wide range of different individuals and types of entities, including international and domestic telemarketing call centers, staffing companies, Practitioners, marketers, brokers, and others.”

Based on the OIG’s experience with fraud and abuse in this realm, the Telemedicine Companies often work out an arrangement with the Practitioners to order and prescribe medically unnecessary items and services. Oftentimes, the Telemedicine Companies pay the Practitioners for prescribing items or various services to patients who have had limited interaction with the Practitioner and without regard to the medically necessity for this service or prescription. In addition, these kickbacks are routinely disguised as payment per review, audit, consult, or for the assessment of medical charts and are often tied to the volume of federally reimbursable items or services ordered or prescribed by the Practitioners. As a result, the fees associated with the problematic arrangements are being used as a mechanism to incentivize a Practitioner to order medically unnecessary items or services according to the Alert. Of additional concern, the OIG noted that in many cases the Telemedicine Companies sell the prescriptions that are generated by the Practitioners to other entities who in turn will fraudulently bill for the medically unnecessary items or services.

Compliance Risk

The OIG makes it clear in the Alert that these fraudulent telemedicine schemes pose a significant risk to the health care system and that both Practitioners and health systems should exercise extreme caution when entering into arrangements with Telemedicine Companies. Specifically, the Alert stated,

“These schemes raise fraud concerns because of the potential for considerable harm to Federal health care programs and their beneficiaries, which may include: (1) an inappropriate increase in costs to Federal health care programs for medically unnecessary items and services and, in some instances, items and services a beneficiary never receives; (2) potential to harm beneficiaries by, for example, providing medically unnecessary care, items that could harm a patient, or improperly delaying needed care; and (3) corruption of medical decision-making.”

These telemedicine schemes have the potential for violating multiple Federal Laws, but most specifically, the Federal anti-kickback statute. Violations of the Federal Anti-kickback statute ascribes liability to both sides of the arrangement and can potentially lead to criminal, civil, or administrative liability under other Federal laws as well.

Suspect Characteristics

Based on the OIG’s experience with various problematic telemedicine arrangements, seven “suspect characteristics” were identified that taken together, or separately, could suggest an arrangement presents a heightened risk for fraud and abuse. However, it should but noted that the list is not exhaustive, but rather illustrative and the presence or absence of these characteristics does not determine if a particular telemedicine arrangement would constitute grounds for legal sanctions.

Best Practices

Given the heightened regulatory scrutiny placed on telehealth service arrangements by the OIG and HHS, it is pertinent for health systems, hospitals, and Practitioners to employ certain best practices when considering, implementing, and operating any type of virtual care program. Many of the best practices for traditional face-to-face professional services arrangements are directly applicable to telemedicine arrangements. For example, a telehealth arrangement should be justifiable for all parties involved. From the perspective of a health system or hospital for example, the addition of a virtual care service line could be pursued to fill a highly desired gap in medical care, increase the quality of medical care currently available to its patient base, or alleviate overburdened Practitioners.

Prior to entering any business relationship for telehealth services, it is a best practice to consult with legal counsel. Telemedicine service contracts should be explicit in outlining the expectations of medical care and the structure and magnitude of remuneration. Further, it is particularly important to maintain ongoing dialogue with legal counsel throughout the life of a telemedicine relationship to ensure that a program that was once compliant does not break the bounds into non-compliance over time. Preserving a compliant telehealth business relationship is typically aided by a robust compliance program, created with the help of legal counsel, which outlines specific guidelines for professional examinations, prescribing and billing practices, administrative and record maintenance procedures. Compliance programs should be consistently reviewed and updated as regulatory bodies issue more literature on the subject matter. A static compliance program may quickly become inadequate as the virtual care regulatory landscape continues to evolve. Obtaining third party support of an arrangement is often a pillar of successful compliance programs. The arrangement should be commercially reasonable to all parties involved and any compensation should be directly attributed to services performed and have no consideration of referrals. Obtaining a third-party fair market value (FMV) review is a key best practice in maintaining regulatory compliance within the context of telemedicine arrangements. In addition, seeking a third-party commercial reasonableness assessment should also help mitigate compliance risk by documenting and assessing both qualitative and quantitative factors as to why the telemedicine arrangement is a sensible and prudent business decision without the consideration of referrals.

Conclusion

Although the Special Fraud Alert addresses that it is not intended to discourage legitimate telemedicine arrangements, serious compliance risk may occur if an arrangement has any of the seven “suspect characteristics” as previously discussed. In addition, the OIG made it clear that Practitioners have both legitimately and appropriately utilized telehealth services to provide medically necessary care to their patients during the current public health emergency. Best practices should include a cautious approach to telemedicine arrangements while ensuring there are specific guidelines and guardrails, determining and documenting the justification for the arrangement, ensuring the arrangement is commercially reasonable, and determining if the remuneration paid to the Practitioners is consistent with FMV.

Endnotes

¹ Special Fraud Alert: OIG Alerts Practitioners To Exercise Caution When Entering Into Arrangements With Purported Telemedicine Companies available at: https://oig.hhs.gov/documents/root/1045/sfa-telefraud.pdf

²Telehealth Featured Topic from HHS and the OIG available at: https://oig.hhs.gov/reports-and-publications/featured-topics/telehealth/