Representing Physicians: Potential Perils & Pitfalls – Life Cycle of a Physician-Practice
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Representing Physicians:Potential Perils & Pitfalls –Life Cycle of a Physician-Practice
Fundamentals of Health LawChicago
October 29, 2012
Michael F. Schaff, [email protected]
Kim Harvey Looney, [email protected]
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Overview
General Considerations Who is Your Client? Who Can Employ a Physician?
Basic Issues in Employment Contracts The Buy-In: Becoming an Owner in a Medical Practice Retirement Issues Sale of Practice Post Termination Restrictions Physician-Hospital Integration Models
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Who Is Your Client?
The medical practice itself (“Practice”)
The physician being admitted to the Practice
A younger owner
An older owner
The President of the Practice
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Understand Your Client
Advise each owner to have his or her own counsel, accountant and other necessary professional(s)
Know who you are dealing with “Who are the parties and the professionals?”
Accountant
Attorney
Outside practice management consultants
What are your client’s goals?
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Who Can Employ A Physician?
Corporate Practice of Medicine Doctrine
Prohibits unlicensed individuals or entities from practicing medicine or employing healthcare professionals
Regulates who can employ physicians in some states
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Who Can Employ A Physician?
Check Current State Laws
Physicians cannot be employed by unlicensed entities, general business corporations, or general business limited liability companies (LLCs)
Many states allow physicians to form a professional corporation or LLC
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BASIC ISSUES IN PHYSICIAN
EMPLOYMENT CONTRACTS
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Term
Commencement Date: When does employment start?
Conditions Precedent vs. Conditions Subsequent
Examples:
Receipt of State License
Receiving Hospital or other privileges
“The Employee’s first day of employment is contingent on the Employee’s receipt of his/her [State] medical license and obtaining [provisional or attending] staff status at _________ hospital(s), however, the actual first day of the Employee’s employment shall be the “Commencement Date.” If the Commencement Date has not occurred by _________ ___, 201_, the Employer may terminate this Agreement.”
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Termination Date
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Renewal Terms: Automatic Renewal (Evergreen Clause)
“ The Employee's employment under this Agreement shall commence as of ____________ , 201_ (the “Commencement Date”) and shall continue thereafter until _______________ __, 201_. Thereafter, this Agreement shall automatically renew itself for successive ______ (__) year terms unless either party gives the other party at least ___ days notice of its intent not to renew. This Agreement may be terminated prior to the end of its terms pursuant to the provisions of Paragraph __ below.”
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Duties
Time Commitment
Full time? Define?
Part time?
Work schedule (days/hrs)
Night, weekend and holiday call schedule
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Locations (limit?)
Time Commitment for Administrative Matters
Moonlighting? Ability to work outside Physician Organization
Practice may want to restrict since it may affect Group Practice definition under Stark (75% test)
Does Practice’s Malpractice Insurance Cover?
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Duties
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Compliance with Ethical Standards of Medical Profession
Compliance with Other Documents of the Practice, including:
Employers’: Ownership Agreement, Bylaws, Rules and Regulations, Compliance Plans, HIPAA
Hospitals’ or other Facilities’ where Physician is on staff: Bylaws, Rules and Regulations.
Duties
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Required Licenses, Hospital Privileges and Board Certification.
Requirement for Continuing Medical Education
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Duties
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Inclusion or exclusion of income/revenue generated from sources “outside” practice
Define outside sources, i.e., expert testimony, lectures, medical director fees, other…..
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Duties
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Fee schedules
Assignment of fees
Completion of medical records and reports
Responsibility for accuracy in billing
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Duties: Billing Issues
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Compensation: Overview
What does the Practice wish to reward?
Reward should encourage specific behavior
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1. Equal Compensation
2. Productivity Formulas: must understand
Stark Law
Fraud & Abuse Laws
Applicable State Laws
Medicare Reimbursement Rates
IRS Unreasonable Compensation Issues
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Compensation: Overview
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3. Combination of Equal and Productivity
4. Point System ( or Relative Value Method (“RVUs”))
5. Fixed Base Periodic Salary + Bonus
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Compensation: Overview
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Severance/Deferred Compensation on termination
Disability Compensation
Definition of disability Offset for disability insurance
payments Accrual of time off during
disability?
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Other Compensation Issues
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Benefits
It’s not all about money
Vacation (scheduling issues)
Sick days
Seminars, conventions, and continuing medical education
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Automobile payments, gas, tolls & parking
Cell phone & beeper, dues & staff fees (hospital, MCOs, IPAs, ACOs, societies)
Moving expenses
Maternity leave
Subscriptions and journals
Pension plan & 401(k)
Entertainment & other fringe benefits
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Benefits: Expense Reimbursement
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Disability Insurance
Medical Insurance
Dental Insurance
Vision Insurance
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Benefits
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Malpractice Insurance Crisis?
Occurrence Policy vs Claims Made Policy (Need for Tail)
Amount?
Cancellation of policy, refund entitlement
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Malpractice Insurance
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Termination
Mutual Agreement
Death
Disability
Breach
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By the Employee or the Employer without cause (for any reason or no reason) on at least __________________ (___) days advance written notice to the other party, provided that upon receipt of notice by the Employee, the Employer shall have the right to terminate the employment of the Employee prior to the expiration of the notice period and pay the Employee only through his/her last day of employment.
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Termination: Without Cause
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Recurring absence
Failure to abide by the terms of employment, after notice and a ten (10)-day opportunity to cure
The loss of license or suspension or the right to dispense or prescribe narcotic drugs
The suspension, revocation, or curtailment of privileges to practice at necessary facilities
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Termination: With Cause
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Fraud, misappropriation, embezzlement, theft, dishonesty or similar actions
Intoxication while on duty
Illegal use or possession of drugs
Act or omission constitutes an indictable criminal offense
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Termination: With Cause
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Sale of [stock / membership interests] of the Employer, if an owner
Failure to maintain or qualify for malpractice insurance at standard rates (Malpractice Insurance Crisis?)
Failure to obtain (or maintain) board certification within the time period
Exclusion from Medicare, Medicaid and other federally funded healthcare programs
Violation of AMA Code of Ethics
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Termination: With Cause
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If a hospital-based practice (i.e., radiology, anesthesia, or pathology), the termination or non-renewal of the exclusive agreement with Hospital.
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Termination: With Cause
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Catch all provision: “any other conduct of Employee which the Employer deems detrimental to its practice or which constitutes cause for termination in the Employer's reasonable discretion, it being impossible to specifically enumerate all events, conduct, and occurrences which would be injurious to the Employer and which would constitute cause”
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Termination: With Cause
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State specific Post-employment practice of medicine Solicitation of:
Patients Employees Referral sources
Conflicting economic interests Medical directorships Investments Moonlighting
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Restrictive Covenants:Prohibited Activities
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1. Restrictive covenant must be necessary to protect a legitimate business interest of the employer. Patient lists
Ongoing patient relationships
Value of physician’s training and experience
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Restrictive Covenants:Reasonableness/Three-Pronged Test
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2. Restrictive covenant must not impose an undue hardship on the employee.
Cannot deprive an employee/member from earning a living in his/her profession
Mere adverse financial consequences or personal hardship imposed as a result of a restrictive covenant do not rise to level of undue hardship
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Restrictive Covenants:Reasonableness/Three-Pronged Test
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3. Restrictive covenant must not be injurious to the public at large.
Right of public to consult physician or health care professional of choice
Cannot prohibit patients from independently seeking out employee’s services
Cannot restrict so as to cause a shortage of medical professionals in either a particular area of specialty or geographic region
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Restrictive Covenants:Reasonableness/Three-Pronged Test
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Restrictive Covenants
Liquidated damages vs. injunction
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Patient Records and Files
Ownership of Patient Records by Employer
Right to Copies of Patient Records and Charts
Local Laws
Costs
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Ownership Opportunity
When will Employee be eligible to be an Owner?
Firm Offer
Nonbinding Intent
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Ownership Opportunity
Typical to have waiting period
2 -5 years to become eligible
Better to manage expectations at beginning of employment
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BUY-IN TO A MEDICAL PRACTICE
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The Buy-In: Due Diligence
Documents, agreements and contracts relating to the Practice should be reviewed
Certificate of Incorporation / FormationBylawsOperating/Stockholder AgreementOrganizational MinutesTax ReturnsPayor Agreements Hospital Agreements
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Property leases and subleases
Equipment leases
Employment, consulting, management and other service agreements (owners and non-owners)
Agreements with respect to shared facilities and functions
Purchase and supply contracts
Licenses
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The Buy-In: Due Diligence
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Lines of credit Loan and credit agreements, mortgages, promissory
notes, security agreements and other evidences of indebtedness
Accounts payable Deferred Compensation Agreements Policies and procedures, including employment
manuals and compliance plans Employee benefits agreements 401(k) plan and other pension plans Health, accident, life and disability insurance policies
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The Buy-In: Due Diligence
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Are there any arrangements Are there any arrangements between an owner and the between an owner and the Practice? Are they at fair Practice? Are they at fair market value?market value? Real estate (the medical Real estate (the medical
office)office) EquipmentEquipment Employment of relativesEmployment of relatives Loans from / to related Loans from / to related
partiesparties
The Buy-In: Related Party Transactions
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Anatomy of a Purchase or Subscription Agreement
Ownership Percentage Purchased
How will the Practice be valued?
Representations and Warranties
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Ownership Agreements
1. Control and Management
Minority Protection Rights & Supermajority
2. Transferability of Ownership Interests
Triggering Events
Valuation
Tax Considerations
Funding Buy-outs
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PHYSICIAN-HOSPITALINTEGRATION MODELS
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Physician-Hospital Alignment – Why Now?
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Types of Integrated Models
1. Hospital (or hospital subsidiary) employment of physicians / sale of practice
2. Physician-Hospital Organizations/Accountable Care Organizations
3. Clinical Integration
4. Foundation Model
5. Professional Services Agreements/Physician Enterprise Model
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7. Clinical Co-Management Arrangements
8. Equity and Non-Equity Joint Ventures
9. Gainsharing
10. Independent Practice Associations (IPAs)
11. Medical Directorships
12. Call Coverage Arrangements
Types of Integrated Models
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IRS 501c(3) Regulations
Medicare & Medicaid (M/M)Anti-Kickback Law
Civil Monetary Penalties Statute
Stark Regulations
Other Pertinent Regulations
Prohibits potential private inurement and/or benefit from tax-exempt funds Scrutinizes FMV and self-interest relationships with “insiders” (e.g.,
physicians, etc.) Further implications re: restricted uses of tax-exempt financing (e.g.,
bond) funds
Prohibits payments for M/M referrals Civil and criminal penalties Increased scrutiny/enforcement via “whistle-blower” suits
Prohibits financial incentives to reduce care to M/M patients Limits “gainsharing” between physicians and hospitals May affect incentive programs for Medical Directors and other
compensated leaders
Developed to reduce financial incentives based upon physician “self-referrals” to entities with which they have a financial relationship
Prohibits referrals of certain M/M “designated health services” including inpatient and outpatient hospital services
Compliance with state insurance regulations re: Risk Share, IPA, MSO compliance Compliance with other state laws and regulations (e.g., corporate practice of medicine) Compliance with other federal laws and regulations (e.g., antitrust)
Legal & Regulatory Compliance Considerations and Risks
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Model 1: Employment / Sale of Practice Conduct due diligence of own medical practice to
confirm that purchase price is adequate
Liabilities post closing
Understand decision-making hierarchy
Assess current agreements
Review and assess goals and objectives of physicians and the hospital
Assess financial impact, especially ancillary revenue
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No safe harbor for the acquisition by a hospital
Total arrangement (acquisition costs plus subsequent compensation) may be subject to scrutiny to determine whether there are “disguised” payments for referrals
Problem areas: payments reflecting goodwill, covenant not to compete; patient lists; patient records; other “intangibles”
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Model 1: Employment / Sale of Practice
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Model 2: Accountable Care Organizations
What Are They?Derive from PPACA Shared Savings ProgramDefined: Generally, a group of healthcare providers who are jointly responsible for quality and cost for a patient population“Triple Aim”
Better care for individuals Better health for populations Lower growth in expenditures
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Who May Participate?Hospital that employs ACO professionalsPhysicians/practitioners/ACO professionals in a group practiceNetwork of individual practices of ACO professionalsJoint ventures or partnerships among hospitals and ACO professionalsFQHCsRHCsCritical Access Hospitals (CAH)
Model 2: Accountable Care Organizations
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Overview
Providers continue to submit individual claims and are paid separately
If targets are met, ACO receives back-end percentage of the shared savings that are shared across providers
Division of savings between ACO and Medicare is unspecified
ACOs responsible for determining how savings are to be split among participants
Model 2: Accountable Care Organizations
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It’s all about “Quality”
ACOs are expected to meet third party (i.e., Medicare) performance standards
The bar is not static. ACOs are expected to improve the quality of care furnished over time by meeting ever-increasing standards for purposes of assessing quality of care
To earn incentive payment, ACO is expected to meet certain quality thresholds
Model 2: Accountable Care Organizations
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It’s all about “Quality”
Quality is measured and assessed by:
Clinical process and outcomes
Patient and caregiver perspectives on care
Utilization and costs (such as rates of ambulatory-sensitive admissions and readmissions)
Model 2: Accountable Care Organizations
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Model 2: Accountable Care Organizations
CMS/OIG Waivers ACO Pre-Petition Waiver ACO Participation Waiver Shared Savings Distribution Waiver Stark Waiver Patient Incentive Waiver
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Providence Health & Services: $30 M, two-year contract with public employee benefits board
BCBS Illinois: Shared savings contract with Advocate Health Care
BCBS Massachusetts’s Alternative Quality Contract: Annual global budget, quality incentives for participating providers
Blue Shield California: Two ACOs in Northern California
BCBS Minnesota: Shared savings contract with five providers
UnitedHealth Care: ACO with Tucson Medical Center
Maine Health Management Coalition: Multi-stakeholder group supporting ACO pilots
Humana: ACO pilot with Norton Healthcare
Anthem Blue Cross: ACO pilot with Sharp HealthCare medical groups
Not Just for Medicare – Private Market ACOs are Developing Nationwide
Model 2: Accountable Care Organizations
CIGNA: Medical home contract with Piedmont Physicians Group
Aetna: ACO pilot with Carilion Clinic
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Model 3: Clinical Integration
What is it?
Much like ACOs, but not Medicare specific
Clinical integration is an effort among physicians (often with a hospital partner) to develop active and ongoing clinical initiatives that control costs and improve quality
Two primary purposes of clinical integration are measurably to improve care while reducing costs
Old PHOs may serve as good foundation for newer clinically integrated PHOs (PHO on steroids)
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Model 4: Foundation Model
Used in corporate practice of medicine states
Hospital creates non-profit medical foundation
Foundation owns physician practice assets
Hospital usually controls foundation’s board
Foundation contracts with physician practices that employ physicians
Also a type of “synthetic” employment arrangement
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Model 5: Professional Services Agreements Types of PSAs:
Generic term usually used to refer to arrangements where physicians provide services to a hospital and get paid for those services
PSAs may be on the low end of integration, such as on-call pay, medical directorships, or hospital-based agreements
More integrated PSAs include leased employee arrangements and “synthetic employment” arrangements
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“Synthetic Employment” Arrangements
Physicians may retain their own practice and be compensated by a hospital on a productivity (or wRVU) basis for clinical services
wRVU rate paid to physicians typically includes cash compensation, retained practice expenses (e.g., med mal insurance), taxes and benefits; however certain payments may be fixed rather than part of wRVU rate (e.g., med mal insurance, hospital’s portion of Medicare and social security taxes)
Model 5: Professional Services Agreements
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“Synthetic Employment” Arrangements
May include leased employee component
Hospital becomes billing provider in accordance with Medicare reassignment rules
Hospital may contract with the practice for administrative services such as non-physician staff, equipment and space leases, and other non-clinical administrative duties
Model 5: Professional Services Agreements
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Legal Issues
Must meet Stark and AKS fair market value requirements for personal services arrangements. May be able to fall under Stark personal services, fair market value, or indirect compensation exceptions
Strong need for fair market value analysis prepared by qualified, independent healthcare valuation firm with extensive knowledge/experience in valuing physician compensation and hospital-physician transactions
Model 5: Professional Services Agreements
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Legal Issues
Many times, a PSA cannot meet an AKS safe harbor if compensation is not a fixed amount. For example, wRVU compensation is not deemed to be “set in advance.”
If hospital bills, Medicare reassignment rules require joint and several liability for Medicare overpayments and physician assignment form
Model 5: Professional Services Agreements
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Other PSA MattersEnsure that the contract addresses:
Addition of new physicians, advanced practice nurses, or physician assistants
Exclusivity Staffing issues Unwinding/termination Non-compete and other restrictive covenants Consider including compensation incentives such as
payment for quality and cost savings to influence desired physician behavior
Model 5: Professional Services Agreements
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Model 6: Clinical Co-Management Arrangements
What Are They?
Contracts between hospitals and physicians, or physician-owned entity, or hospital-physician-owned entity to engage physicians as business partners in overseeing and managing a service line or a department.
Two types:
1. Clinical Co-Management of Hospital Service Line or hospital department; or
2. Other Management Services Agreements (“MSAs”)68
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MODEL 6: Common Structure for Clinical Co-Management Arrangements
Dr. OwnerDr. OwnerDr. Owner
Management Company
Board of Directors
FinanceCommittee
QA Committee
Exec. Committee
Hospital
Co-Mgmt. Services
$-Fixed and Incentive
Comp.
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Structure of Management Company
Hospital may be an owner
Delegate governance to management board or executive committee with both hospital and physician representatives
Board forms committees, such as quality assurance and finance committees
Customary form of entity is LLC
Start-up capital (legal, consulting fees) paid by physicians unless management company is also owned by hospital
Model 6:Clinical Co-Management Arrangements
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Compensation
Hospital usually pays fixed compensation monthly to management co., typically to pay company’s operational expenses (e.g., staff salaries and benefits) and pays physicians for administrative duties on an hourly basis for committee and medical director time
Hospital usually pays incentive or bonus compensation quarterly or annually based on pre-established amount conditioned upon meeting certain quality and efficiency goals
Model 6:Clinical Co-Management Arrangements
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Physicians compensated for management of a hospital’s service line or department (such as cardiology, oncology, orthopedics, outpatient surgery)
Management company is a separate entity (LLC is most common) formed and owned by physicians, or the entity may be owned jointly by the hospital and physicians
Fixed monthly payment and incentive payments for meeting quality and efficiency goals
Model 6:Clinical Co-Management Arrangements
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Compensation
Quality measures include:
Operational process improvements
Baseline levels determined by using facility’s historical data or comparable regional or national data
Should include incentives for efficiency that do not result in reductions in care, such as start times, wait times
Reductions in infections or complication rates
Satisfaction levels such as patient and staff satisfaction surveys
Model 6:Clinical Co-Management Arrangements
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Compensation
Need to have qualified, independent healthcare valuation firm establish metrics, ranking, weighting, and compensation amounts
Model 6: ClinicalCo-Management Arrangements
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Duties
Duties of manager typically include these items, but if you have seen one co-management agreement, you have seen one co-management agreement:
Operational and financial oversight Consulting and making recommendations as to space,
personnel and equipment Adopting uniform clinical standards Participating in committees Hiring and firing On-site management UM and Quality Reviews Compliance
Model 6: Clinical Co-Management Arrangements
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Legal Restrictions
Under AKS, equity returns to owners must be proportionate to ownership and incentives should not be structured in a way that rewards physicians for increased volume
Under CMP, cannot make payments for reducing or limiting medically necessary services to Medicare beneficiaries or for reducing length of stay
IMPORTANT: Qualified, independent healthcare valuation firm must establish metrics, ranking, weighting, and compensation amounts
Model 6: Clinical Co-Management Arrangements
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Query
Do clinical co-management arrangements constitute a meaningful move toward fuller integration and the goals of integration, or are they arguably a way for physicians to “partner” with a hospital to capture additional income for quality improvement by doing what they should be doing anyway for the benefit of patient care in the hospital department or service line?
Model 6:Clinical Co-Management Arrangements
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Federal Anti-Kickback Statute Stark Law Tax-Exemption Laws State AKS laws State “Mini-Stark” laws State fee-splitting State corporate practice of medicine Medicare reassignment rules Medicare Anti-Markup Rules IRS requirements for bond-financed hospital facilities
Primary Laws that Affect Integrated Models
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Top 10 Sources of Conflictsbetween Physician and Practice
1. Compensation – expense allocation
2. Departing physician – income continuation payment -- A/R collection efforts by Practice
3. Departing physician – tail coverage/other benefit payout
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4. Departing physician – non-compete
5. Departing physician – medical records / patient list
6. Departing physician owner – buy-out calculation (my accountant vs. Practice accountant)
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Top 10 Sources of Conflictsbetween Physician and Practice
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7. On-call responsibilities
8. Productivity – bonus calculations
9. Outside income / activities
10. Support staff – personality conflicts
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Top 10 Sources of Conflictsbetween Physician and Practice
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Questions?
Michael F. Schaff, Esq.732.855.6047
Kim Harvey Looney, Esq.615.850.8722
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