The U.S. Department of Health and Human Services, Office of Inspector General (“OIG”), has made pursuing fraud in the personal care services (“PCS”) sector a top priority, including making it a focus of their FY2017 workplan.

Last week, OIG released a report, Medicaid Fraud Control Units Fiscal Year 2016 Annual Report,  which set forth the number and type of investigations and prosecutions conducted nationwide by the Medicaid Fraud Control Units (“MFCUs”) during FY 2016.  Overall, the MFCUs reported 1,564 convictions, over one-third of which involved PCS attendants; fraud cases accounted for 74 percent of the 1,564 convictions.[1]

Looking at data released by HHS, PCS was the largest category of convictions reported in FY 2016. Thirty-five percent (552 of 1,564) of the reported convictions were of PCS attendants, representatives of PCS agencies, or other home care aides. Of these 552 reported convictions, 500 involved provider fraud and 52 involved patient abuse or neglect.[2] Of the reported fraud convictions, PCS attendants accounted for the greatest number of fraud convictions (464 of 1,160).[3]

The emphasis on PCS is likely to not only continue, but increase in 2017.  Notably, recent high-profile investigations and prosecutions this year include the following cases:

  • Six Missouri home health and personal care aides and patients were charged on April 4, 2017, with making false statements to Medicaid. The aides and patients allegedly falsified documentation that claimed the aides were providing services to the patients at particular times when, in fact, no such services occurred. According to the indictments in the case, one defendant patient was vacationing in New Orleans and on a cruise during the times she supposedly received services. One aide was found gambling at a casino during the same time period she claimed to be providing services. The investigation was led by the Kansas City, Missouri office of the OIG and the MFCU of the Missouri Attorney General’s Office.
  • On March 30, 2017, Godwin Oriakhi, the owner and operator of five Texas-based home health agencies pleaded guilty to conspiring to defraud Medicare and Texas Medicaid programs. Oriakhi, along with his co-conspirators, pleaded to defrauding the state and federal governments of over $17 million, the largest home services-based (including both home health services and PCS) fraud in Texas history. Oriakhi admitted that he and several co-conspirators, including his daughter, paid illegal kickbacks to physicians and patient recruiters in exchange for patient referrals. The defendants also paid patients to receive services from Oriakhi’s agencies and in exchange for the use of the patients’ Medicare and Medicaid identification numbers to bill for home health and PCS services.

Given that HHS is securing large monetary recoveries in this space, there is clearly an incentive for HHS to focus on the PCS sector. Indeed, the recent HHS report notes that MFCUs recovered an average of over $7 for every dollar spent towards investigation and prosecution of healthcare fraud cases, including PCS cases, in FY2016.

EBG has been watching this trend and will update this blog with the status of OIG’s and DOJ’s continued focus on home health and PCS prosecutions. For more information on OIG’s investigations into PCS aides, please see our Law360 article “HHS Has Its Eye on Medicaid Personal Care Service.”

Endnotes:

[1] https://oig.hhs.gov/oei/reports/oei-09-17-00210.asp (hereinafter “Report”)

[2] Report at 6.

[3] Report at 7.

On April 14, 2017, CMS issued the FY 2018 Medicare Hospital IPPS Proposed Rule that includes numerous proposed changes.   However, there is a very small provision in this proposed rule that organizations may not be aware of …. especially those that are not hospitals and who normally would not look at the Hospital IPPS rule.

Within the rule, there is a section proposing to revise the application and re-application process for Accrediting Organizations so as to require them to post provider/supplier survey reports and plans of corrections on their website.   Although the survey results are currently available through a number of other methods, CMS states that they are proposing AOs be required to post this information on their websites “in order to advance the Department’s and Agency’s commitment to transparency in terms of patient access to quality and safety information. Access to survey reports and PoCs will enable health care consumers, in addition to Medicare beneficiaries, to make a more informed decision regarding where to receive health care thus encouraging health care providers to improve the quality of care and services they provide.”

In my communications and discussions with several AOs and health care providers, many are concerned that a requirement that AOs post this information on their websites will not achieve the desired result of providing consumers with more transparency, but instead will merely provide what otherwise might be considered confusing information.   Specifically, it has been advanced that requiring AOs to post these reports on their websites will not support the intent to help the public but instead will:

  • Jeopardize the necessary confidentiality of quality improvement work that takes place between organizations and accrediting bodies through the private accreditation survey to ensure quality outcomes that are already public through accreditation decisions;  and
  • Not produce meaningful information for patients or the public beyond extensive data already available through CMS, departments of health, and many other entities that report information to the public appropriate to their scopes and roles, but instead create confusion for the public and patients seeking valid quality data on a healthcare organization.

Comments are due to CMS no later than 5:00 pm EST on June 13, 2017.

As many pundits speculate regarding the future of the Yates Memo[1] in a Trump administration, on Wednesday, November 30, 2016, Department of Justice (“DOJ”) Deputy Attorney General, Sally Q. Yates, provided her first comments since the election.  The namesake of the well-known, “Yates Memo,” Yates spoke at the 33rd Annual International Conference on Foreign Corrupt Practices Act in Washington, D.C. and provided her perspective on the future of DOJ’s current focus on individual misconduct.

Yates, who has served at the DOJ for over twenty-seven years, stated that while the DOJ has endured many transitions in leadership during her tenure, the ideology of the DOJ with respect to general deterrence as well as enforcement of corporate misconduct has remained unchanged. Thus, Yates predicted that the incoming administration under President-elect Donald Trump will maintain the DOJ’s current commitment to pursing potential individuals while combating alleged cases of corporate fraud and wrongdoing, proclaiming:

In 51 days, a new team will be running the department, and it will be up to them to decide whether they want to continue the policies that we’ve implemented in recent years. But I’m optimistic. Holding individuals accountable for corporate wrongdoing isn’t ideological; it’s good law enforcement.[2]

Given the length of time that white collar investigations typically take, Yates noted there are a significant number of corporate investigations that began after the issuance of the Yates Memo in September 2015 that will not resolve until well after the new administration takes control. Yates also stated that she expects that the cases already in the pipeline will continue being pursued, and as a result, she anticipates that “higher percentage of those cases [will be] accompanied by criminal or civil actions against the responsible individuals.”[3]

In recent years, the Department of Justice has accelerated its emphasis on the investigation and prosecution of healthcare-related cases.[4]  In the civil realm, since release of the Yates Memo in September 2015, there has been a significant increase in False Claims Act[5] settlements containing cooperation provisions.[6] In the criminal side of the house, since the release of the Yates Memo, DOJ has brought high-profile indictments alleging violations of federal law including conspiracy to commit health care fraud, violations of the anti-kickback statute, money laundering, and aggravated identity theft, and involving a variety of health care-related services such as home health care, psychotherapy, physical and occupational therapy, durable medical equipment, and compounding prescription drugs schemes.  Most recently, on December 1, 2016, an indictment was unsealed in the Northern District of Texas charging 21 people, including the founders and investors of the physician-owned Forest Park Medical Center (“FPMC”) in Dallas, other executives at the hospital, and physicians, surgeons, and others affiliated with the hospital,[7]  with allegedly participating in a $200 million bribery and kick-back scheme focused on inducing surgeons to use the FPMC facilities.

Even before the Yates memorandum explicitly set forth guidance regarding parallel investigations, over the past few years DOJ already was increasing coordination between civil and criminal attorneys running parallel health care-related investigations with the goal of establishing collaboration at the very inception of an investigation. One U.S. Attorney’s Office, the District of New Jersey, even has co-located criminal and civil assistants dedicated to investigating health care fraud, who are supervised by the same AUSA to facilitate civil and criminal investigations, increase coordination and “maximize appropriate deterrence.”[8]

Notably, in June 2016, DOJ and the Department of Health and Human Services (HHS) announced a nationwide sweep of health care fraud civil and criminal cases.  Billed as the largest health care-related take-down in history, and led by DOJ’s Medicare Fraud Strike Force[9] in 36 federal districts, the takedown resulted in criminal and civil charges being filed against 301 individuals, including 61 doctors, nurses, and other licensed medical professionals, for their alleged participation in health care fraud schemes involving approximately $900 million in false billings.[10] [11]

Based on Yates’s comments on November 30, 2016, it can be anticipated that there will be a continued effort by the DOJ to combat corporate misconduct by focusing on individual accountability for alleged wrongdoers. Therefore, health care companies will need to remain diligent in maintaining sufficient compliance and corporate policies, including providing adequate training for executives and employees on the Yates Memorandum, as well as conducting thorough internal investigations, and to identify potential instances of corporate misconduct.[12] Since a centerpiece of the Yates Memo is the disclosure of individual wrongdoing in order to receive credit for cooperating with an investigation, health care-related companies must develop ways to identify individuals involved in potential fraudulent schemes, and the extent of each individual’s potential involvement in wrongdoing, to ensure they receive credit for cooperation. As Yates’s concluded on November 30th, “In the days ahead, this institution – and those who lead it – will continue the hard work of rooting out corruption here and abroad. And we will remain determined to protecting and strengthening our values of justice, fairness, and the rule of law. That has always been, and will always be, at the core of the DOJ.”[13] Thus, there is no indication of a DOJ slow-down any time soon, and based on recent high-profile DOJ enforcement efforts, the health care industry will not be excluded from DOJ’s focus on individual accountability any time soon either.

____

[1] Sally Quillian Yates, Deputy Attorney Gen., DOJ, “Individual Accountability for Corporate Wrongdoing,” (“Yates Memo”), (Sept. 9, 2015) The Yates Memo, released by the DOJ in September 2015, sets forth six specific steps for DOJ attorneys to focus on while assessing potential corporate wrongdoing:  (1) in order to quality for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct; (2) criminal and civil corporate investigations should focus on individuals from the inception of the investigation; (3) criminal and civil attorneys handling corporate investigations should be in routine communication with one another; (4) absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; (5) DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and (6) civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

[2] Sally Quillian Yates, Deputy Attorney Gen., DOJ, Remarks at the 33rd Annual Int’l Conference on Foreign Corrupt Practices Act (Nov. 30, 2016).

[3] Id.

[4] DOJ, Facts and Statistics¸ (June 9, 2015), https://www.justice.gov/criminal-fraud/facts-statistics.

[5] The False Claims Act, 21 U.S.C. § 3729(2)(B).

[6] Eric Toper, “DOJ Increasingly Demanding Corporate Cooperation in FCA Settlements After Yates Memo,” Bloomberg BNA, (May 25, 2016), https://www.bna.com/doj-increasingly-demanding-n57982072932/.

[7] Shelby Livingston, “Execs, Physicians at Doc-Owned Luxury Hospital Chain Indicted in Alleged Kickback Scheme,” Modern Healthcare (Dec. 6, 2016), http://www.modernhealthcare.com/article/20161206/NEWS/161209950/execs-physicians-at-doc-owned-luxury-hospital-chain-indicted-in. See https://www.justice.gov/usao-ndtx/pr/executives-surgeons-physicians-and-others-affiliated-forest-park-medical-center-fpmc (press release and indictment).

[8] Gabriel Imperator, Combating Healthcare Fraud in New Jersey: An Interview with Paul J. Fishman, Compliance Today 16-22 (Oct. 2015).

[9] DOJ, June 2016 Takedown, (June 22, 2016), https://www.justice.gov/criminal-fraud/health-care-fraud-unit/june-2016-takedown (The Medicare Fraud Strike Force are part of the Health Care Fraud Prevention & Enforcement Action Team (“HEAT”), a joint initiative announced in May 2009 between the DOJ and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Since its inception in March 2007 it has charged over 2,900 defendants who have falsely billed the Medicare program over $8.9 billion).

[10] Id.

[11] Id.

[12] For more information please view: EBG’s Individual Accountability in Health Care Fraud Enforcement: Thought Leaders in Health Law.

[13] Yates, supra note 2.

If your organization has missed an opportunity to participate in the voluntary Medicare Bundled Payments for Care Initiatives and/or the mandatory CJR program, CMS’ Centers for Medicare and Medicaid Innovation has issued a proposed rule introducing three new mandatory Episode Payment Models (EPMs) and a Cardiac Rehabilitation incentive payment model intended to be tested with a broad scope of hospitals which may not have otherwise participated in innovative payment model testing.

In the proposed rule issued August 2, 2016, CMS introduced EPMs for Acute Myocardial infarction (AMI), Coronary Surgery Bypass Graft (CABG) and Surgical Hip/Femur Fracture Treatment- Excluding Lower Joint Replacement (SHFFT) and a Cardiac Rehabilitation incentive model to be tested for five performance years, beginning July 1, 2017 and continuing through December 31, 2021. CMS estimates Medicare savings of $170 million over the five-year test period.

These new EPMs were selected to compliment care episodes addressed in other voluntary BPCI models and the mandatory Comprehensive Joint Replacement program with different patient populations due to the clinical conditions and non-elective treatment nature of the episodes chosen. As the clinical characteristics of these EPMs include both planned and unplanned treatment needs and underlying chronic conditions, the EPMs will be tested over a broader and complementary array of hospitals and MSA regions, to further promote care redesign models that focus on coordination and alignment of care in a largely fragmented acute to post acute care spectrum. It is hoped that with testing these new EPMs and the Cardiac Rehabilitation incentive model with a broader scope of hospitals with aligned post-acute providers will promote the rapid development of evidence-based knowledge CMS is striving to obtain.

These AMI, CABG and SHFFT EPMs were selected due to the high volume of these procedures among beneficiaries with common chronic conditions, such as cardiovascular disease, which contribute to the episode and impact high readmission rates. With these EPMs, CMMI is furthering its goals of testing innovative payment models to reduce cost and improve care transition efficiencies and long term outcomes throughout the care continuum. The same quality measures applied to Comprehensive Joint Replacement will be applied to SHFFT. The Cardiac Rehabilitation incentive model is designed to encourage treatment, reduce barriers to high –value care and increase utilization of cardiac rehabilitation and intensive cardiac services which have been shown to improve long term outcomes, but appear to be underutilized. (For example, CMS estimates that 35% of AMI patients older than 50 receive cardiac rehabilitation services). The Cardiac Rehabilitation incentive payment will be made to the selected hospitals with AMI and CABG EPMs for cardiac rehabilitation services provided during the EPM as they are already engaging in managing such episodes.

The EPM episodes will begin with acute admission at an anchor hospital for the applicable MS-DRG for the EPM upon discharge, and continue for 90- day period post discharge. Similar to CJR , acute care hospitals bear the financial risk for AMI, CABG and SHFFT EPMS, which include the inpatient admission(s), all related Medicare Part A and B services, including hospital, post-acute and physician services within the 90-day period. Eligible beneficiaries admitted to the anchor hospital for the applicable EPM will automatically be included within the applicable EPM. Hospitals and providers will be paid under Medicare FFS and after the first performance year, calculation of the actual episode payments will be reconciled against an established historical EPM quality adjusted target. Hospitals will bear upside and downside risk for the episodes after performance year two. The Cardiac Rehabilitation incentive will be paid to AMI and CABG EPM hospitals at a per cardiac rehabilitation/ intensive cardiac rehabilitation service level based on threshold treatments provided per AMI/ CABG episode post discharge.

While complementing current BPCI and CRJ programs, CMS is addressing potential advantages and disadvantages to certain overlapping of programs, geographic regions (MSAs) and hospitals. For example, acute care hospitals participating in BPCI Models 2 and 4 for hip and femur procedures and for all three BPCI cardiac episodes (AMI, PCI and CABG) will not be included for selection for the new EPMs. SHFFT EPMs will be implemented in the same 67 geographic MSAs where the CJR model is currently implemented. AMI and CABG EPMs will be implemented together in 98 MSAs selected based on specific criteria to avoid overlap with other payment initiatives such as BPCI models and AMI/ CABG procedure volumes.

Hospitals and certain ACOs may share gains with other providers under the AMI, CABG and SHFFT models as EPM collaborators. Similar to other model programs, the adoption of certain waivers are also proposed, such as adopting waivers of the telehealth originating and geographic site requirements and allowing for in-home telehealth visits for the three EPMs; EPM-specific limits for post-discharge home nursing visits and the SNF 3-day stay waiver, and expanding the practitioners allowed to perform certain cardiac rehabilitation services. Hospitals’ aligning with post acute providers and programs to effectively manage their EPM patients’ post acute transition and treatment adherence and monitoring will be critical to the EPM program success.

The selected MSAs and hospitals will be announced with the publication of the final rule. CMS is requesting public comment on the proposed rule and on any alternatives considered, by October 3, 2016.

On July 7, 2016, the Centers for Medicare and Medicaid Services (“CMS”) imposed several administrative penalties on Theranos, a clinical laboratory company that proposed to revolutionize the clinical laboratory business by performing multiple blood tests using a few drops of blood drawn from a finger rather than from a traditional blood draw that relies on needles and tubes. However, after inspecting the laboratory, CMS concluded that the company failed to comply with federal law and regulations governing clinical laboratories and it posed an immediate jeopardy to patient health and safety. CMS has revoked the CLIA certification of the company’s California lab, imposed a civil monetary penalty of $10,000 per day until all deficiencies are corrected, barred Medicare or Medicaid reimbursement for its services, and excluded its founder and CEO from owning or operating a clinical laboratory for two years.

Although Theranos’s history has received an outsize amount of media attention, its experience with regulatory agencies highlights several important issues for start-up and emerging health care entities:

What Do Regulators Want?

It is no surprise that health care is one of the most highly regulated sectors of the U.S. economy, and that noncompliance with health care laws and regulations can result in penalties that can cripple an organization or force it to shut down. As a result, even in an environment that encourages innovation, health care organizations must understand the scope of regulatory oversight at the federal and state levels, and the range of remedies available to regulators for noncompliance. Every organization should also have a protocol in place for responding to regulatory inquiries or inspections.

What Do Health Care Providers and Payors Want?

Adopting a new health care technology is an intensely data-driven process. This is especially the case with clinical laboratories, which are subject to rigorous requirements for proficiency, quality assurance, and training. This burden is greater for laboratory-developed tests, commonly known as “home brew” tests, because they are currently exempt from FDA oversight.

In most cases, the innovator sponsors clinical studies subject to peer review and publication to demonstrate the efficacy of the new technology. These trials can also generate the clinical and cost data needed to convince practitioners that the test has reliable diagnostic or clinical value, and to persuade payors that the test is medically necessary.

However, Theranos declined requests to sponsor studies or disclose data. This was a red flag for many clinicians. In the interim, a group of independent investigators published a study based on a small sample of patients and found that the Theranos’s results were more variable than the results obtained from the same blood samples sent to laboratories using standard equipment. These variations were significant enough that they had the potential to affect clinical decision-making and jeopardize patients.

Who Is Investing in the Venture?

For start-up companies, committed investors are indispensable. Although early-stage investors are accustomed to risk, they also depend on reliable data to gauge whether health care professionals will adopt a new technology, and whether health plans will cover and pay for that technology. In Theranos’s case, several investors with experience in health care start-ups did not invest in the company because it did not release data on its proprietary technology and did not conduct or sponsor well-controlled clinical trials.

Who’s on Board?

The critical role of health care regulations demands that a company’s management and board be familiar with the key challenges and potential barriers to entry under the applicable regulatory framework. Nevertheless, at the time of the CMS survey Theranos’s board reportedly lacked individuals with specific experience in health care operations or clinical laboratories; however, it included two former Secretaries of State (one of whom had also been the dean of a business school), two former U.S. senators, the CEO of a bank, and retired military officers. While it is unclear how much the board knew of potential regulatory risks, the fact that CMS determined that the company had not made a “credible allegation of compliance” in response to any of the deficiencies in the initial survey report is an indicator that CMS did not believe that the company’s management and directors may not have appreciated the regulatory requirements or how to avoid or minimize these significant risks.

In its Fiscal Year 2017 Private Insurance Legislative Proposals, President Obama’s Budget contains a provision seeking to “eliminate surprise out-of-network healthcare charges for privately insured patients.” Described as an attempt to “promote transparency on price, cost, and billing for consumers,” this measure requires hospitals and physicians to collaborate so that patients receiving treatment at in‐network facilities do not face unexpected charges from out‐of‐network practitioners. This provision could have far-reaching effects, potentially impacting enrollees in traditional commercial plans, Exchange plans and government plans (such as Medicare Advantage plans).

A surprise bill situation arises when patients incur unexpected, out‐of‐network charges when receiving health care services at an “in-network” or “participating” hospital. For example, a surprise bill may arise from a situation where certain physicians (e.g., anesthesiologists or emergency room physicians) who provide services to the patient during an episode of care are not participating with a health plan, even if other providers who see the patient and the hospital itself are participating. In such scenarios, the non-participating providers may charge patients for both cost sharing and any unpaid balances for those specific services, as if the patient had gone to an “out-of-network” or “non-participating” provider.

The proposal in the Budget would change that and require hospitals and physicians to “work together to ensure that patients receiving treatment at in‐network facilities do not face unexpected out‐of‐network charges from out‐of‐network practitioners that cannot be avoided by the patient.” This would be accomplished by requiring hospitals to take “reasonable steps” to match patients with providers who are considered in‐network for the patient’s plan. Also, all physicians who regularly provide services in hospitals would be required to accept the contracted, in‐network rate as payment‐in‐full, even though no actual contract is in place. Thus, in situations where a hospital failed to match a patient to an in‐network provider, safeguards would still be in place to protect the patient from surprise out‐of‐network charges. How such amount would be calculated and enforced is not yet clear at this stage.

On a state level, legislation has been passed that affords patients protections against surprise bills in California, Texas, Florida, Illinois, Colorado, Maryland, West Virginia and New Jersey, but the state with the most rigorous protections is New York. A New York law went into effect in March 2015, protecting patients from surprise bills when services are performed by a non-participating doctor at a participating hospital or ambulatory surgical center or when a participating doctor refers an insured patient to a non-participating provider (the law also protects consumers from bills for emergency services).

Many particulars regarding the proposal in the Budget remain unclear, as limited information was presented around the proposed provision. Besides the need for legislative action, specific questions exist around what standards would be used for calculating new payment rates, implementation and enforcement mechanisms, provider appeal and dispute resolution processes, managed care contracting implications, state versus federal jurisdictional issues and impacts on plan premium pricing. However, what is clear is that the federal government has begun to follow states’ leads in introducing protections for patients from unforeseen medical expenses.

The top story on Employment Law This Week is the unfolding Zika virus crisis.

For the fourth time in history, the World Health Organization has declared a global public health emergency, following the spread of the Zika virus throughout Latin America and the Caribbean. The disease can have harmful effects on fetuses, and the CDC has warned against travel for pregnant women and their partners. The Zika crisis has important implications for employers. Workers who travel for their jobs may request accommodations, and employers should make them aware of the risks if they aren’t already. Denise Dadika, from Epstein Becker Green, shares some advice for employers.

View the episode below, or read Amy Lerman’s earlier post on the Zika crisis.

 

 

We recently wrote about the many failures of health insurance co-ops created under the Affordable Care Act (“ACA”), and the impact of those failures on providers and other creditors, consumers, and taxpayers.

As we described, nonprofit co-op insurers were intended to increase competition and provide less expensive coverage to consumers; however, low prices, lack of adequate government funding, restrictions on the use of federal loans for marketing, and low risk corridor payments from the Centers for Medicare & Medicaid Services created financial challenges for these insurance plans. Facing insolvency, state regulators have ordered many plans to cease offering coverage and be wound down.

In New York, the largest co-op established under the ACA, Health Republic Insurance Company of New York (“Health Republic”), was ordered shut down by New York State regulators in September 2015 because of its poor financial condition.  Health Republic’s insolvency triggered a strong push by trade groups, legislators and other representatives for meaningful change in New York.

Various trade groups, including the Healthcare Association of New York State (“HANYS”) and the Greater New York Hospital Association (“GNYHA”), have been advocating for solutions, such as the establishment of a health insurance guarantee fund to protect consumers and providers in the event of a health insurer’s insolvency or liquidation.  Presently, New York is the only state that does not have an insurance guaranty fund. In other states, guaranty funds have been effective in protecting consumers and providers when co-op plans have failed.  Others proposed remedies include state funding of shortfalls through the budget process and reform of the insurance rate approval process.

On January 6, 2016, the New York State Senate conducted a hearing regarding Health Republic’s demise.  The Senators hosting the hearing sought to determine, among other things, whether new regulations, such as those with respect to rate setting, could prevent future insurer failures.

Recently, New York State Senate Health Committee Vice Chair David Valesky (D-Syracuse) introduced legislation that would establish a guaranty fund, financed by a temporary one-time assessment on the state’s health insurers, to reimburse doctors and hospitals if a health plan becomes insolvent. Health insurers would be barred from passing along the cost of the assessment to policyholders.  The bill is supported by HANYS and GNYHA.  The insurance industry, in contrast, opposes the bill.  [reported in Crain’s Health Plus Feb. 4 and http://www.nystateofpolitics.com/2016/02/valesky-bill-shores-up-medical-insurance/ ]

On Monday, the World Health Organization (“WHO”) declared the rise in birth defects linked to the Zika virus outbreak a public health emergency, marking only the fourth time that the WHO has made such a declaration. This announcement by the WHO underscores the seriousness of the Zika virus outbreak and, hopefully, will pave way for a coordinated and well-funded global response to this serious public health problem that may include intensified mosquito control efforts, expedited creation of a more rigorous diagnostic test to detect the virus, and development of a preventive vaccine.

Reports of the Zika virus first surfaced in the Western Hemisphere in May 2015. The Zika virus outbreak has now spread to 25 countries and territories worldwide. The U.S. Centers for Disease Control and Prevention (“CDC”) said no locally-transmitted cases have been reported in the continental United States. However, symptoms of the illness have been reported in travelers returning from affected countries, including a student at the College of William and Mary in Virginia who contracted the virus while traveling in Central America over winter break. That student is expected to recover.

Experts have suggested that the Zika virus, spread by mosquitoes, may explain a recent a surge in neurological disorders and the birth defect microcephaly, occurring when infants exposed to the virus are born with abnormally small heads and incomplete brain development. WHO officials have said that confirmed clusters of these problems, rather than exposure to the Zika virus itself (which usually causes very mild symptoms of illness), are what led to Monday’s declaration.

As elements of a global public health response are debated and take shape, health care providers must consider the various professional and business challenges associated with having to deal with infectious diseases such as the Zika virus. This may include health regulatory and risk management issues associated with developing a response strategy, and potentially labor and employment considerations facing health care employers.

EBG is carefully following the latest developments on the Zika virus and will provide updates on how it may impact your business.

 

Hospital-physician practice acquisitions represent a large segment of the very active healthcare mergers and acquisitions market, which will likely continue in 2016.[1]  In New York, an acquiring hospital often forms a new professional corporation owned by one or more hospital-based physicians to acquire the business and operations of a group physician practice in an asset purchase. The acquiring hospital will be able to exercise a level of management and control over the new professional corporation, often referred to as a “captive PC”, through a contractual arrangement with the captive PC.  This captive PC structure is used to comply with New York’s corporate practice laws as well as to allow the group practice to continue operations as a separate entity but with close business ties to the hospital, e.g. with respect to participation in the hospital’s managed care contractual arrangements and access to other resources of the hospital system.  Although the captive PC structure is conducive to allowing the physician practice to continue its day to day operations largely unchanged, the transaction parties need to be aware that any clinical laboratories that were owned by the group practice will need to comply with a much more robust set of regulations following the sale to the captive PC.[2]  These changes will affect clinical laboratories offering, among other services, bacteriology, endocrinology, genetic testing, oncology, toxicology, transplant monitoring, urinalysis, and urine pregnancy testing.

As a general rule, all clinical laboratories operating in New York State must be authorized by the Clinical Laboratory Evaluation Program (“CLEP”) unless they fall within one of the enumerated statutory exceptions of N.Y. Public Health Law § 579.1.  As is relevant here, clinical laboratories operated by a licensed physician who performs lab tests or procedures “solely as an adjunct to the treatment of his or her own patients” are exempt from CLEP certification.  Instead, such physician-owned labs are certified and inspected by the Physician Office Laboratory Evaluation Program (“POLEP”).  This exemption is applicable only to labs that are operated by an individual health care provider or an independently owned and managed partnership or group practice.[3]  Both CLEP and POLEP have advised that when a lab is purchased by a captive PC, that laboratory no longer qualifies for the exemption even though the captive PC would be owned by physicians and the lab would continue to be used as before by physicians in the treatment of their patients.  The agencies have advised that, instead, it would constitute a clinical lab because of the control that the agencies believe the hospital may exert over the lab through its control over the captive PC.[4]  Due to the change in status of the laboratory post-sale, the POLEP certifications held by the labs will not be transferable to the captive PC as part of the transaction.  Accordingly, a hospital[5] that intends utilize a captive PC model to purchase the assets of a physician practice which include one or more laboratories should consider beginning the lab certification process before the transaction is complete to ensure the correct licensure is in place. [6]

Labs that only perform tests classified by federal regulations as waived[7] or provider-performed microscopy procedures[8], and for which POLEP previously issued a Clinical Laboratory Improvement Amendments (CLIA) Certificate of Waiver, will need to obtain a Limited Services Laboratory Registration from CLEP once transferred to the captive PC.[9]  This process is relatively straightforward.  The main requirement is for the hospital to submit an application, which is available online, indicating its current CLIA number.[10]

If, however, a lab will perform moderate and/or high level clinical or forensic testing[11], the lab must obtain a valid clinical laboratory permit from CLEP which is a detailed process that can take a significant amount of time depending on the quality of the lab.  Before applying for a new permit, the director of the lab must obtain a valid certificate of qualification.[12]  To do so, the director must meet certain minimum qualifications in the applicable area of testing and must demonstrate to the department that he or she possesses the “character, competence, training, and ability to administer properly the technical and scientific operation of a clinical laboratory.”[13]  The required director qualifications differ for each category of service that the lab may offer.  For example, an applicant for a certificate of qualification in oral pathology must either be a physician who is currently certified by the American Board of Pathology in anatomic pathology, or a dentist who is currently certified by the American Board of Oral Pathology.[14]  Often, the applicable qualifications will require four years of experience in an acceptable laboratory, including two years of experience with the methods and techniques to be conducted under the director’s supervision.[15]  A laboratory director may be employed at multiple labs, however, the director must disclose all other employment on the permit application, and must accurately report the hours he or she will spend on-site in each lab for every day of the week.

Beyond the requirements for lab directors, an application for a CLEP permit requires a disclosure of ownership statement, a $1,100 registration fee, and creation of a Health Commerce System (HCS) account for access to the Electronic Proficiency Test Reporting System and CLEP’s online permit information management system, eCLEP.[16]  The disclosure of ownership statement requires that all direct and indirect ownership and financial interests in the facility be disclosed, which would require disclosure of an affiliated hospital buyer of the captive PC.[17]

POLEP and CLEP recognize that transitioning from once agency to another can be a lengthy and burdensome process.  Accordingly, under circumstances in which the CLEP permit application process is not completed before a lab is transferred to the captive PC, CLEP has advised that it will generally permit the captive PC lab to continue conducting operations under its prior POLEP certification post-transaction until CLEP certification is obtained, provided the POLEP certification does not expire in the interim.[18]  The captive PC lab must submit written notification on its letterhead to POLEP indicating that a change of ownership has occurred.[19]  However, continued operation under a prior POLEP certification post-transaction, even if temporary, is not without risk to the lab and the captive PC since they are technically operating without the required CLEP license.  Such risk includes the possibility of revocation or suspension of a certification or other disciplinary action.[20]  Additionally, if the POLEP certification expires during the pendency of the lab’s CLEP application, the lab must cease all operations until a valid permit is obtained.  The operation of a clinical laboratory without a valid permit is a misdemeanor, punishable by imprisonment of up to one year, a fine of up to $2,000, or both.[21]

It is imperative that any hospital utilizing a captive PC to acquire a physician practice with a lab begin the CLEP certification process outlined above as early as possible.  Since applications vary based upon the type of services the lab is seeking permission to perform, it is difficult to estimate the timeframe for completion of the CLEP application process.  However, given the risks associated with a lab not having adequate licensure in place, buyers should be incentivized to submit their CLEP applications well in advance of the anticipated closing date of the transaction.

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[1] See Molly Gamble and Benjy Sachs, Becker’s Hospital Review, “60 Statistics and Thoughts on Healthcare, Hospital and Physician Practice M&A,” July 22, 2015, available athttp://www.beckershospitalreview.com/hospital-transactions-and-valuation/60-statistics-and-thoughts-on-healthcare-hospital-and-physician-practice-m-a.html (last visited Jan. 11, 2016).

[2] See N.Y. Pub. Health Law § 579.1.  Although outside the scope of this blog article, the law also covers blood banks, defined as facilities that collect, process, store, and/or distribute human blood or its components or derivatives. N.Y. Pub. Health Law § 571.

[3] NYS DOH Wadsworth Center, Physician Office Laboratory Evaluation Program (POLEP), available at http://www.wadsworth.org/labcert/polep/ (last visited Jan. 11, 2016) [hereinafter POLEP website].

[4] Epstein Becker & Green, P.C. telephoned POLEP and CLEP on this topic in mid-January 2016 and was told by each agency that POLEP and CLEP are taking this position.

[5] This would also apply to a captive PC that is operated by a managed care organization (MCO) or consulting firm.

[6] “CLIA” stands for the Clinical Laboratory Improvement Amendments through which the federal Centers for Medicare and Medicaid Services (“CMS”) regulates lab testing. See CMS, “Clinical Laboratory Improvement Amendments (CLIA),” available at: https://www.cms.gov/Regulations-and-Guidance/Legislation/CLIA/index.html?redirect=/clia/ (last visited Jan. 11, 2016).

[7] A “waived” test is defined by CMS as a test that is easy to perform and has little to no risk to the patient if performed incorrectly, including tests performed using a kit, device or procedure, which has been specifically designated as waived by the Food and Drug Administration. Two common examples of waived tests are blood lead screenings and rapid HIV screenings. See “New York State Guidance for following Standard Practices in Laboratory Medicine,” CLEP: Limited Service Laboratories, available at http://www.wadsworth.org/labcert/limited/index.htm.

[8] Provider-performed microscopy procedures (PPMPs) are tests requiring use of a microscope and performed by physicians, dentists or midlevel practitioners (such as nurse practitioners, nurse midwives, physician’s assistants) during the patient’s visit. These include wet mounts, potassium hydroxide (KOH) preparations, pinworm examinations, fern tests, microscopic urinalysis, fecal leukocyte examination, and certain other tests. See id.

[9] See N.Y. Pub. Health Law § § 579.3, 580.

[10] NYS DOH Wadsworth Center, “Clinical Laboratory Evaluation Program, A Guide to Program Requirements and Services”, available at http://www.wadsworth.org/labcert/clep/ProgramGuide/CLEPGUIDE.pdf (last visited Jan. 11, 2016).  Registration as a Limited Service Lab costs $200.  Id.

[11] This is a broad category that includes all laboratory tests that are not exempt as “waived” or PPMPs.

[12] 10 N.Y.C.R.R. 19.2.

[13] N.Y. Pub. Health Law § 573.

[14] 10 N.Y.C.R.R. 19.2(a)(2), (b); 10 N.Y.C.R.R. 19.3(e)(8).

[15] 10 N.Y.C.R.R. 19.2(c)(2).

[16] NYS DOH Wadsworth Center, “Certificate of Qualification Instructions”, available at  http://www.wadsworth.org/labcert/clep/Administrative/CQ_Initial_App_Inst_final_0115.pdf  (last visited Jan. 11, 2016); see also NYS DOH Wadsworth Center, Clinical Laboratory Evaluation Program, “Disclosure of Ownership and Controlling Interest Statement Instructions”, available at http://www.wadsworth.org/labcert/clep/Administrative/OwnerDisc_Instruc_03_2015.pdf (last visited Jan. 11, 2016); see also NYS DOH Wadsworth Center, “Laboratory/HCS Affiliation Request”, available at http://www.wadsworth.org/labcert/clep/Administrative/hcs_affiliation_request_2015_distributed.pdf A full list of requirements is available in the N.Y. Pub. Health Law §§ 572, 573, 574, 575, and 10 N.Y.C.R.R. 58-1.1.

[17] NYS DOH Wadsworth Center, Clinical Laboratory Evaluation Program, “Disclosure of Ownership and Controlling Interest Statement Instructions”, available at http://www.wadsworth.org/labcert/clep/Administrative/OwnerDisc_Instruc_03_2015.pdf (last visited Jan. 11, 2016).  Registration as a clinical lab costs $1,100. Id.

[18] Epstein Becker & Green, P.C. consulted with POLEP and CLEP on this topic in mid-January 2016 and was advised by each agency that POLEP and CLEP are taking this position.

[19] See POLEP website, supra note 2.

[20] N.Y. Pub. Health Law § 577.

[21] N.Y. Pub. Health Law § 578.