False Claims Act (FCA) Liability for Physician Compensation Exceeding Fair Market Value (FMV)

When negotiating physician compensation issues, hospitals frequently rely upon the premise they must pay fair market value compensation in order to comply with the provisions of the Stark Act prohibiting referrals in exchange for compensation, and sometimes non-profit inurement issues.

Although the prohibitions are clear, determining what constitutes fair market value is often not.  Provisions allegedly enforcing fair market value by limiting compensation to the 75th percentile of some national study are clearly inapplicable; obviously, somebody is legitimately being paid in the top quartile. 

The issue is often not the amount of the compensation, but how it is determined.

The recent settlement by Indiana Health Network with DOJ, announced by DOJ in a Press Release on December 19, 2023 identifies some clear problems, or at least warning signs. 

  • A compensation system where bonuses were linked to referrals rather than productivity
  • Compensation that was allegedly double what was being earned by the physician in private practice prior to the recruitment
  • Allegedly falsifying or manipulating the data used by a consultant to determine fair market value

A lesson learned from this case is not new.  Intentional disregard and even manipulation of the process can lead to significantly liability; in this case–$345 million.

2024 Medicare Physician Fee Schedule

CMS issued the Final Rule for the 2024 Medicare Physician Fee Schedule (PFS) on November 2, 2023, for payments to be effective on or after January 1, 2024.

Fee Schedule Link

The overall payment rates under the PFS will be reduced by 1.25% in calendar year 2024.

The final PFS conversion factor will be $32.74, which is a decrease of 1.15 of dollar and 15% (or 3.4%) from the 2023 conversion factor of $33.89.

Biden Administration to Appeal Surprise Billing Defeat

As reported earlier in the MedLaw Blog (August 9, 2023), a federal District Court vacated portions of the No Surprises Act federal regulations.  Thereafter, CMS halted the arbitration process for resolving disputes regarding out-of-network surprise bills.

On October 20, 2023, HHS, Treasury, and the US Office Personnel Management submitted a notice indicating their attempt to file a consolidated appeal in the US Court of Appeals for the Fifth Circuit, challenging the August decision in the US District Court for the Eastern District of Texas.

FTC Sues Anesthesiology Provider and PE Firm Over Anticompetitive “Roll Up” Scheme

As Mike Cassidy and Adam Appleberry discussed during their presentation at PBI’s A Day in Health Law earlier this month, private equity’s involvement in healthcare will be an interesting item to watch over the next few years. Just last week, the FTC sued the U.S. Anesthesia Partners, Inc. and their private equity backer Welsh, Carson, Anderson & Stowe, alleging a “multi-year anticompetitive scheme to consolidate anesthesia practices in Texas, drive up the price of anesthesia services provided to Texas patients, and increase their own profits.” (Click here to read the article)

Private equity arrangements in health care can provide great rewards for physicians seeking to increase their capital for whatever reason, be it to grow their practice or simply develop an exit strategy for retirement, but these deals do not come without risk. There is a growing trend amongst courts and regulators to view these arrangements with increased scrutiny. Recent studies have suggested that private equity’s involvement in healthcare could result in an overall higher cost to patients and payers while possibly providing a worst patient outcome (read one of those studies here). As these deals continue, the best interest of the public will remain the top priority in the eyes of regulators.

In the situation surrounding U.S. Anesthesia Partners, Inc. and Welsh, Carson, Anderson, & Stowe, after each acquisition, patient prices increased for using the same physicians for the same services as before. The FTC determined that this was an attempt to “unlawfully undermine fair competition and harm the American Public.”

Allegheny County Medical Society Bulleting Article on Contracting Essentials for all Physicians, Especially Residents and Fellows

Michael A. Cassidy and Adam J. Appleberry co-wrote an article titled “Contracting Essentials for All Physicians, Especially Residents and Fellows”. This article will appear in the Legal Summary section of the August 2023 Allegheny County Medical Society (ACMS) Bulletin. The ACMS Bulletin is the Allegheny County Medical Society’s signature publication which reaches over 2,000 physicians in Southwestern Pennsylvania each month.

In summary, when negotiating a physician contract, it is important to pay attention to the restrictive covenants, contract term and termination, malpractice coverage, compensation, and plan for the worst-case scenario. It is necessary to take the time to carefully review and negotiate your physician contract. This is a critical document that will set the terms of your employment for years to come. To read the full article that appeared in the ACMS bulletin, click here.

For assistance with reviewing your physician contract, contact Mike Cassidy at mcassidy@tuckerlaw.com, (412) 594-5515 or Adam Appleberry at aappleberry@tuckerlaw.com, (412) 594-5532.

To keep apprised of the latest legal news in healthcare, subscribe to receive regular updates on the side of the page by simply entering your email address.

CMS Halts “No Surprises Act” Arbitration

CMS has halted the arbitration process for “Surprise Billing” established by the “No Surprises Act” for the second time, stating as follows:

UNPLANNED OUTAGE

“On August 3, 2023, the U.S. District Court for the Eastern District of Texas issued a judgment and order in Texas Medical Association, et al. v. United States Department of Health and Human Services, Case No. 6:23-cv-59-JDK (TMA IV), vacating certain portions of 45 C.F.R. § 149.510, 26 C.F.R. § 54.9816-8T, and 29 C.F.R. § 2590-716-8.  As a result of the TMA IV decision, effective immediately, the Departments have temporarily suspended the Federal IDR process, including the ability to initiate new disputes until the Departments can provide additional instructions.”

The Federal arbitration process for handling out-of-network medical bill disputes has not been operating smoothly or timely.  The primary reason for this is that CMS has received more than 300,000 disputes during the first year of the arbitration process, which is almost 14 times what had been estimated during the rulemaking process. For more information with respect to the problems of surprise medical billing, log into the website of the “Coalition Against Surprise Medical Billing” at this link.

2024 Medicare Physician Fee Schedule

The 2024 Medicare Physician Fee Schedule proposes a 3.34% decrease in the 2024 PFS conversion factor.  It’s currently $33.89 and is proposed to be reduced to $32.75.

CMS is also proposing the following:

  • An additional add-on code (G2211) to existing evaluation and management visits for complex patients to better recognize the resource costs
  • A delay in the implementation of the “substantive portion” definitions for shared evaluation and management visits
  • Additional telehealth services

Attached is the Fact Sheet released by CMS on July 13, 2023.

Private Equity: Investigation and Enforcement

Since the private equity issue was last addressed in the Bulletin in the Summer of 2022, the volume of healthcare private equity deals has subsided somewhat, according to statistics presented at the March 2023 Pennsylvania Bar Institute Health Law Conference, and that has generally been attributed to unfavorable market conditions affecting investments of all types. 

However, although the volume has leveled off or in some cases subsided, enforcement and investigation activity appears to be ramping up.  In March 2023, the House Ways and Means Committee hosted an investigative hearing on “private equity’s expanded role in the US healthcare system”.  As you might expect from a federal investigation, conducted by politicians with media present, the tone of the meeting was more hostile rather than supportive.  Two quotes will set that stage: 

“It’s past time for a bright light to be shined on how private equity ownership in our healthcare system affects patient safety, costs and jobs.  Private equity’s influence stretches like an octopus arms through the American healthcare system and born heavily by the most vulnerable:  communities of color, rural underserved areas, the elderly, people with disabilities…private equity’s expansion into healthcare is troubling because private equity’s focus on profits is often at odds with what is best for patient care.  Private equity’s business involves buying companies, saddling them with debt, and then squeezing them like oranges for every dollar.” 

  • House Committee on Ways and Means Sub-Committee on Oversight Chair Rep. Bill Pascrell

“I’m so concerned about the increasingly outsized influence of private equity on our healthcare system.  Private equity firms are investment firms set up to increase profits for their shareholders, not to provide better quality medicine.  We saw that issue up close last year as the committee considered the role of PE firms in the increase of patients receiving surprise medical bills.” 

  • House of Representatives Judy Chu (D-CA)

This concern for suspected ulterior financial motives behind these clinical investments is not unfounded, because the healthcare business system is drastically different from most other business environments, in that professional fees paid from government third party payers cannot be raised unilaterally at all, payments from large third party commercial insurance systems are very difficult to raise, if at all.  This leaves revenue enhancement possibilities limited to situations in which the private equity roll ups have created leverage, which is one of the goals, or situations in which there is significant self-pay patient activity, i.e. aesthetics, dermatology, rehabilitation, and specialties that have significant ancillary revenue opportunities such as ambulatory surgery centers.  Revenue can only be increased in most instances by increased volume, not increased charges.  This “fee obstacle” was what precipitated many of the bankruptcies in the 1990s physician practice management ventures, as mentioned in my prior article.

Please note that the potential for ulterior financial motives does not automatically presume that the intent is somehow suspect, in the same way that potential medical malpractice concerns does not legitimately question the clinical motives of all other providers.  These are simply potential risks involved in the transactions, and they should be evaluated appropriately. 

Similar issues were raised with respect to the private equity acquisition of Hahnemann Hospital.  In the article entitled “The Death of Hahnemann Hospital” published in the New Yorker magazine in May 2021.  The author, Chris Pomoroski, speculates that the PE acquisition of Hahnemann Hospital was always, at least partially, a real estate play.  Senator Bernie Sanders was quoted in the article as saying:

“If an investment banker like Joel Freedman is able to shut down Hahnemann and make a huge profit by turning this hospital into luxury condos, it will send a signal to every vulture fund on Wall Street that they can do the same thing, in community after community after community”.

Just from a historical perspective, it should be noted that Hahnemann has had an illustrious clinical history but a recently troubled financial history.  Hahnemann was acquired by AHERF, the forerunner of Allegheny Health Network, in 1993.  Tenet Healthcare bought Hahnemann out of the AHERF bankruptcy in 1998.  Tenet went through its own bankruptcy difficulties and, in 2018, sold its remaining Philadelphia assets, i.e. Hahnemann Hospital and St. Christopher’s Hospital, to American Academic Health System, which then closed Hahnemann Hospital in June of 2019.

Additional Investigative and Enforcement Activity

In 2017, a whistleblower suit was filed against Surgery Partners, Inc. in United States ex rel. Cho and Baker v. Surgery Partners, Inc. alleging liability on behalf of the private equity managers because of their management control and direction.  However, federal appeals court recently upheld the dismissal of the whistleblower suit against the private equity firm, HIG Capital.

In February of 2021, the National Bureau of Economic Research published a paper by Atul Gupta, Sabrina T. Howell, Constantine Yannelis and Abhinav Gupta positing that their research shows that “PE ownership increases short term mortality of Medicare patients by 10%, in nursing homes”.

In November of 2022, the Office of the Attorney General of the State of New York and the NY Medicaid Fraud Control Unit filed an action against Comprehensive at Orleans LLC, d/b/a The Villages of Orleans Health and Rehabilitation Center, alleging inadequate care at the facility and naming not only the nursing home facility, i.e. “The Villages”, but the real property holding company, the management company, an entity identified as the pass-through entity “Villages of Orleans LLC” and various other investors. 

Conclusion

Multiple sources, including CMS, have reported that healthcare spending in the USA exceeded $4 trillion in 2022, and constituted almost 19% of USA GDP.  Therefore, it is obvious that the healthcare sector will provide massive investment opportunities.  Those of us who “advise” healthcare clients obviously must recognize all points of view.

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