Many health care providers rely on a worked relative value unit (“wRVU”) based compensation model when structuring financial relationships with physicians. While wRVUs are considered an objective and fair method to compensate physicians, payments made on a wRVU basis do not always offer a blanket protection from liability under the Federal Stark Law.  As recent settlements demonstrate, wRVU based compensation arrangements that are poorly structured or improperly implemented can result in significant liability.

The wRVU physician compensation model is particularly favored for its low level of risk under the Stark Law, which prohibits physicians from making certain financially motivated referrals. While the Stark Law prohibits physician compensation based on referrals, it does permit physicians to earn certain productivity bonuses for personally performed services.  wRVUs are an accepted method in calculating performance or productivity bonuses for services personally performed by the physician.[1]

How wRVU based compensation can become problematic is illustrated by a recent $34 million settlement between the Department of Justice (“DOJ”) and defendants Mercy Hospital Springfield (the “Hospital”) and Mercy Clinic Springfield (the “Clinic”), an oncology infusion center. After the infusion center was transferred from the Clinic to the Hospital in order to take advantage of inpatient hospital reimbursement and 340B drug pricing, the physicians allegedly wanted to be “made whole” for the compensation they previously earned at the Clinic. The resulting contractual arrangements with the physicians contemplated the provision of a productivity bonus tied to the physicians’ drug administration wRVUs.

However, according to the complaint, “the new work RVU for drug administration in the hospital department” was not calculated based on physician work, clinical expense, or malpractice overhead, but rather was “solved for” by working backwards from a desired level of overall compensation.” Moreover, according to the complaint, the compensation amount for the physician supervision work at the infusion center was approximately 500 percent of the wRVU for in-clinic work where the physician was actively involved in patient care. The DOJ contended that this was a violation of the Stark Law, as the compensation was not fair market value, nor was it commercially reasonable. Additionally, the complaint included allegations of both Stark and Anti-kickback Statute violations for the funds transferred as “management fees” from the Hospital to the Clinic to fund the higher physician compensation amounts, as the fees also allegedly were not fair market value nor commercially reasonable.

The Mercy settlement is only the most recent example of a health system incurring liability for improper wRVU-based compensation arrangements. In an analogous settlement made in 2015, Broward Health in Florida agreed to pay $70 million to resolve a whistleblower lawsuit that alleged Stark Law violations.  In part, it was alleged that Broward Hospital permitted high-volume referring physicians to artificially inflate their wRVUs and, in turn, their compensation.[2]  Allegedly, this was accomplished through unbundling procedures, not considering modifiers that would reduce the compensation for multiple procedures performed, and giving wRVU credits for unsupervised PAs and NPs.  These tactics allegedly resulted in so-called “implausible” wRVU numbers for certain physicians.

These settlements are not an expression of the government’s disapproval of wRVU based compensation arrangements. Rather, these are examples of alleged arrangements that artificially increased a physician’s compensation for referrals, in a manner that is not consistent with fair market value and commercial reasonableness.  Thus, it is important to ensure that wRVU based compensation arrangements are properly structured as well as properly implemented.

Endnotes:

[1] See 42 C.F.R. § 411.352(i)(3)(i) (permitting group practice productivity bonuses based on a per-wRVU basis).

[2] See Relator’s Compl., United States ex rel. Reilly v. N. Broward Hosp. et al., No. 10-60590, ¶ 11 (S.D. Fla. Sept. 16, 2015), ECF No. 75.

Our colleagues James P. Flynn, Paul A. Gomez, Purvi B. Maniar and Yael Spiewak of Epstein Becker Green have published a blog post on the Trade Secrets & Noncompete Blog that will be of interest to our readers: “Assignment Lessons: 8th Circuit Finds Assigned Non-Competes Enforceable — Under Certain Facts.”

Following is an excerpt:

The 8th Circuit’s recent decision in Symphony Diagnostic Servs. No. 1 v. Greenbaum, No. 15-2294, __ F.3d __ (8th Cir. July 6, 2016), upheld the enforceability of non-compete and confidentiality agreements assigned by Ozark Mobile Imaging to Mobilex as part of Mobilex’s purchase of Ozark’s assets.  Although the 8th Circuit is careful to ground its analysis in that case’s specific factual and legal framework, this decision is helpful in providing some guidance to those dealing with the assignability of rights under non-compete and confidentiality agreements.

The non-compete and confidentiality agreements at issue were (1) “free standing” and (2) assignment did not “materially change the obligations of the employee” nor (3) were the agreements dependent upon “qualities specific to the employer.” Symphony Diagnostic Servs. It is also notable that the agreements contained no language regarding assignability, i.e. they did not expressly restrict or permit assignment. Symphony Diagnostic Servs. No. 1 v. Greenbaum, 97 F. Supp. 3d 1126 (W.D. Mo. March 16, 2015).  Under those factual circumstances, the 8th Circuit, applying Missouri law, concluded that a Missouri court would find the agreements assignable and enforceable.

There are lessons for both those seeking to enforce or to avoid enforcement of non-compete and confidentiality agreements following the acquisition of a business via an asset purchase.

Read the full alert here.

Our colleagues Kara Maciel, a Member of the Firm in the Labor and Employment, Litigation, and Health Care and Life Sciences practices, in the Washington, DC, office, Mark Trapp, a Member of the Firm in the Labor and Employment and Litigation practices, in the Chicago office, and Adam Solander, an Associate in the Health Care and Life Sciences practice, in the Washington, DC, office, wrote an article titled “The ACA Still Has Its Day in Court, Now Over Subsidies.” (Read the full version – subscription required.)

Following is an excerpt:

Challenges to the government’s health care reform implementation continue to make their way through federal courts, with rulings expected shortly. Employers are especially advised to monitor challenges to the federal regulations that authorized the federally facilitated exchanges (“FFEs”) to distribute tax credits and copayment subsidies (collectively, subsidies) to eligible persons.

By way of background, it was nearly two years ago when the U.S. Supreme Court ruled that the individual mandate at the heart of the Affordable Care Act could be construed as a tax, despite violating the Commerce Clause of the Constitution.

Read the full article here (subscription required).

Our colleague Stuart Gerson of Epstein Becker Green has a new post on the Supreme Court’s recent decisions: Divided Supreme Court Issues Decisions on Harris and Hobby Lobby.”

Following is an excerpt:

As expected, the last day of the Supreme Court’s term proved to be an incendiary one with the recent spirit of Court unanimity broken by two 5-4 decisions in highly-controversial cases. The media and various interest groups already are reporting the results and, as often is the case in cause-oriented litigation, they are not entirely accurate in their analyses of either opinion.

In Harris v. Quinn, the conservative majority of the Court, in an opinion written by Justice Alito, held that an Illinois regulatory program that required quasi-public health care workers to pay fees to a labor union to cover the costs of wage bargaining violated the First Amendment. The union entered into collective-bargaining agreements with the State that contained an agency-fee provision, which requires all bargaining unit members who do not wish to join the union to pay the union a fee for the cost of certain activities, including those tied to the collective-bargaining process. …

An even more controversial decision is the long-awaited holding in Burwell v. Hobby Lobby Stores, Inc. Headlines already are blasting out the breaking news that “Justices Say For-Profits Can Avoid ACA Contraception Mandate.” Well, not exactly. …

Both sides of the discussion are hailing Hobby Lobby as a landmark in the long standing public debate over abortion rights. It is not EBG’s role to enter that debate or here to render legal advice, but we respectfully suggest that the decision’s reach is already being overstated by both sides. In the first place, the decision does not allow very many employers to opt out of birth control coverage – only closely-held for-profit companies that have a good-faith ideological core, as clearly was the case for Hobby Lobby. That renders such companies functionally the same as non-profits that are exempted from the mandate by the government. Publicly-held companies are not affected by the decision (though some are likely to argue that Citizens United might require such an extension. Nor are privately-held companies that can’t demonstrate an ingrained belief system.

Read the full post here.

By Daniel G. Gottlieb

On April 2, the European Parliament voted overwhelmingly to repeal the current EU Directive on clinical trials of medicinal products for human use and replace it with a new Regulation.  The primary goals of the new Regulation are to:

  1. Streamline the approval process for studies conducted across multiple Member states;
  2. Harmonize the regulation of clinical trials throughout the Member states; and
  3. Increase transparency of Clinical Trial results.

It was the European Parliament’s hope that accomplishing the first two goals would increase the number of clinical trials being conducted in the EU.  The Regulation has streamlined the review and approval process by permitting sponsors to submit only one application using a central portal.  That one application will then undergo a two phase review, the first is the assessment of the clinical trial with respect to those aspects that have been harmonized, and is cooperatively reviewed by all Member States in which the study will be conducted. (Part I of the Assessment Report).  Once authorization is granted in Part I of the Assessment Report, the second phase of the review, which is the assessment of the aspects of the clinical trial that are “intrinsically national in nature,” begins.  This assessment is performed by each Member State separately, and includes the review and assessment by the Ethics Committee in the Member State (Part II of the Assessment Report).

In addition to this fully streamlined process, Article 11 of the Regulation establishes what I will call a split review process.  Under this process a sponsor can request a limited review of the application under Part I of the Assessment Report.  Then the sponsor has up to two years to request an assessment under Phase II of the Assessment Report in each of the countries in which the study will be conducted.

With one exception, in my opinion, the EU Parliament struck the right balance between harmonizing the regulation of aspects of the study that are appropriately standardized across the EU, and allowing Member States to retain control of those aspects of a study that are “intrinsically national in nature.”  However, it is this one exception, the lack of harmonization of the informed consent process, that may cause a significant number of sponsors to opt for the split review process under Article 11 as opposed to the fully streamlined pathway.  Specifically, the assessment of a sponsor’s proposed informed consent process is left to each Member State during Part II of the assessment. Although the Regulation establishes specific information that must be provided to potential subjects during the informed consent process and requires the information to be “comprehensive, concise, clear, relevant and understandable to a lay person” it leaves the Member States free to establish different requirements for how the required information is presented.

I recently assisted a client navigate the ethical review process for several Phase III clinical trials in the EU and some of the biggest challenges we faced were caused by the variability in each Member State’s requirements for how the required informed consent information should be presented to the subject (e.g., imposing page limits for consent forms, requiring certain information to be in an Annex attached to the consent form).  Responding to these divergent assessments can be a very time consuming process, especially if the sponsor does not have any internal local resources.  However, companies are generally able to respond to these assessments in a timely manner because, unless they hit the unlucky lottery, the assessments are not all provided at one time or within a few days of each other.  However, if a sponsor were to take advantage of the fully streamlined process, these assessments could all come within days of each other and the sponsor would have, at most, 12 days to respond or risk having the application deemed lapsed.

The European Parliament could have reduced this risk if it had done more to harmonize the assessment of the informed consent process.  I am not saying that it should have fully harmonized the informed consent requirements, as I agree that certain aspects of the informed consent process are “intrinsically national in nature,” such as consent requirements for incapacitated subjects or minor subjects.  However, I at least partially agree with the European Parliament’s Committee on the Environment, Public Health and Food Safety that:

Currently, the ethical review procedure varies greatly between Member States, often with various bodies at national, regional and local levels, and multiple procedures leading to divergent assessments. This is a source of delays and fragmentation. In the interests of European patients and public health, the procedures and principles of ethical review should be better harmonised [sic] through the sharing of best practices between ethics committees. To this end the Commission should facilitate the cooperation of ethics committees. [Proposed Amendment 27]

Alternatively, I may have pushed for more harmonization, with the sections of a sponsor’s proposed informed consent form template that do not relate to those aspects of the clinical trial that are “intrinsically national in nature,” being assessed during Part I.  Then, during Part II, each Member State would be responsible for assessing those sections that relate to aspects of the study that are “intrinsically national in nature” that the sponsor proposes for each Member State.

In light of the European Parliament’s decision not to further harmonize the assessment of the informed consent process, sponsors may want to consider taking advantage of the split review process under Article 11 as a way of mitigating the risk of having their applications deemed lapsed.  This would allow the sponsor to first obtain approval of the harmonized aspects of the Study under Part I of the assessment, and then stagger its submissions to the various Member States for an assessment under Part II.  Although this approach does not avoid the challenge of the divergent assessment from different member states, the split review process offers some of the benefits of the streamlined process while allowing the sponsor to better align the timing of their obligations to respond to member states’ requirements for revision with their available bandwidth.

The Regulation also includes new requirements for transparency of clinical trial data that have been the source of much debate.  Please stay tuned for my analysis of how different these new requirements actually are.

Now that we have sweeping new health care legislation, the Patient Protection and Affordable Care Act ("the Act"), let’s look at the rollout of the accountable care provisions–i.e., those changes to the payment and delivery system that hold the most long-term promise of improving quality and cost-efficiency. They are discussed in my most recent article: "The Timeline for Accountable Care: The Rollout of the Payment and Delivery Reform Provisions in the Patient Protection and Affordable Care Act and the Implications for Accountable Care Organizations," published last week in the BNA’s Health Law Reporter.  Click here to read the full article (PDF).

 

Much of the work of the Commonwealth Fund and others seems to presume that payors are a necessary intermediary and should be the entities doling out population prepayment (aka capitation before it was a nasty word). However, it need not work out that way – particularly with House Dems’ concern that Medicare Advantage was profiteering.

It would be a small step for the new public plan likely to be created to make “population prepayments” directly to integrated health systems particularly because the covered lives under such a plan are likely to have the benefit of public reinsurance. Also, since that coverage will not be employer based it will be easier for those integrated systems to assume risk for that plan’s lives (no need for national networks).

Through such direct health system participation those systems would be incented to create the high performance integration these studies suggest is desirable. The Commonwealth Fund is about to release its new blue print . It will be interesting to see if such an evolution is being thought about.