Healthcare Accounting

After a four-week trial, a jury ruled in favor of the government finding that Tuomey Healthcare System inappropriately compensated 19 specialists and concurrently submitted over $39 million in fraudulent Medicare claims. The decision is based on a whistleblower lawsuit filed in 2005 by a physician who had been negotiating to join the other 19 specialists in employment with Tuomey.

The basis for the government’s case revolved around Stark violations, citing that the compensation arrangement between Tuomey and the physicians took into account the amount of referrals the physicians would generate for Tuomey. The government also successfully argued that since Tuomey knowingly violated Stark Law, all of the Medicare claims were fraudulent and thus they were also in violation of the False Claims Act.

A portion of Tuomey’s defense centered on following the advice of legal counsel when establishing the contracts. The government argued that while this is a valid defense, Tuomey had fired an outside attorney with an opposing view of the physician contracts in late 2005 and thus they were “opinion shopping.” 

Tuomey was found to have submitted 21,730 Medicare claims during the period that violated the False Claims Act. The Sumter, South Carolina-based hospital could face a potential liability in excess of $350 million. Tuomey has 28 days from the verdict to appeal the case.

The Tuomey verdict shows just how important establishing a compliant fair market value compensation plan is when exploring arrangements and that the fair market value be scrutinized by a qualified independent party.   

For more information on Stark compliant fair market value, and/or physician compensation arrangements, please contact Aaron Brezko, a manager in Katz, Sapper & Miller’s Healthcare Resources Group at 317.805.2380 or abrezko@ksmcpa.com.

Healthcare reform is coming! You might hear it referred to as the Patient Protection and Affordable Care Act (PPACA), or a host of other names. Regardless, it will be here before you know it. If you employ more than 50 full-time equivalent workers (FTEs), there are a few simple steps you can take to help you navigate healthcare reform:

• Establish an accurate way to keep track of all employees' hours in 2013.
• Determine whether it is better to "pay or play." In other words, it is more lucrative for you to pay a penalty under the employer mandate or to offer a benefit plan that meets the minimum requirements for affordability and coverage?
• Attend a conference or two. Many conferences are being held to help business owners understand the impacts of healthcare reform.
• Surround yourself with trusted advisors, from your benefits firm to your accounting firm and your attorney. And please get your staff involved in these conversations. 

As you already know, there is enough new regulation here to confuse even the most experienced benefit advisors, so speak with everyone you can and learn as much as you can. These steps will get started in the right direction.

While we are on the topic, there is a provision on the PPACA that will impact your bottom line in 2014:

In 2014, every employer – regardless of self-insurance – that has a healthcare benefit program will pay a "transitional reinsurance" fee. This fee will be assessed over every life that is insured on your policy and will be assessed at $6.00 per head, per month. That number decreases to $3.00 in 2015 and $1.00 in 2016. Consider an employer with 500 employees on a benefit program. The average household size is employee plus two, which totals 1,500 lives at $6.00 each per month. That amounts to $9,000 per month, or $108,000 in 2014. The proceeds of the “transitional reinsurance” go to commercial insurers to stabilize premiums in the individual market.

Again, reach out to your trusted advisors and seek their input. You won't regret it.

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

Indianapolis, Ind. (Feb. 1, 2013) - The certified public accounting firm of Katz, Sapper & Miller LLP (KSM) is pleased to announce that Michael Gizzi has joined the firm as a manager in its Healthcare Resources Group.

Gizzi contributes to the firm’s hospital and physician group consulting initiatives, including strategic planning, operational performance improvement and healthcare reform education.

“Mike’s experience in healthcare consulting makes him a great fit for KSM,” said David Charles, a partner in KSM’s Healthcare Resources Group. “He offers a unique perspective that can help our clients overcome industry challenges.”

Prior to joining the healthcare advisory practice of a Big Four firm, where he served both local and national healthcare clients, Gizzi played professional basketball in France, Greece and Italy for more than 12 years. He received a Bachelor of Science degree in finance from LaSalle University and is a member of the Medical Group Management Association as well as the American College of Healthcare Executives.

Mike Gizzi can be reached at 317.580.2010 or mgizzi@ksmcpa.com.

Accountable Care Organizations (ACOs), the subject of much speculation and debate, are officially a part of the ever-changing landscape of American healthcare. In July of 2012, the Department of Health and Human Services (HHS) announced that 89 healthcare organizations across the country qualified to become ACOs. For a little perspective on the scope of this development, the 89 newly announced ACOs will serve about 2.4 million Medicare beneficiaries, which is approximately five percent of the nation's 49 million total Medicare beneficiaries.

As ACOs continue to expand and new healthcare systems qualify to become ACOs, it is a fair question to ask whether the independent, physician-owned practice is a thing of the past. Independent physician practices and ACOs are both subject to the risks of rising malpractice costs and uncertain future reimbursement rates, yet ACOs are better able to tolerate such risks because they are larger in size. Depending on how the arrangement between the ACO and physician practice is structured, an opportunity exists for independent physicians to shift certain financial risks onto an ACO. 

There is a perception that an independent physician who joins an ACO must sacrifice the autonomy of private practice. However, the degree of independence maintained by a private practice joining an ACO is largely dependent upon how the arrangement with the ACO is structured. Legal counsel familiar with the applicable state and federal laws will need to provide guidance, but the regulatory guidance pertaining to ACOs provides flexibility to accommodate for the diversity of legal structures and contracted arrangements within the healthcare industry. Therefore, independent physician practices can become members of an ACO without having to make significant changes to their own legal structure or completely sacrificing their own independence. 

As the healthcare industry continues to evolve, it would be prudent for independent physicians to explore the opportunities and risks of joining and/or competing against an ACO in the years to come. 

Jimmy Wade is a staff accountant in Katz, Sapper & Miller's Healthcare Resources Group. For more information, contact Jimmy at jwade@ksmcpa.com.

For one reason or another, many physicians do not want to be employed by a hospital. For many, a co-management arrangement is the answer. The hospital and physician(s) enter into an agreement, where the physician(s) agrees to manage a specific department to improve performance. The co-management arrangement provides a formal structure to allow the hospital and physicians to work together to make operational decisions and improve performance. Hospitals are under pressure to respond to the economic incentives of healthcare reform.

The co-management model uses a business entity that is jointly owned by the hospital and the physician or physician group. A management agreement (contract) is established between the business entity and the hospital. A management fee associated with the contract is established for obtaining specific, measurable outcomes. The hospital pays the management fee to the newly formed entity in exchange for services delivered by the physician(s). It is important that the terms and conditions of the co-management agreement be reviewed by your accounting and legal teams prior to finalizing. 

Care must be taken in setting the fee structure of the co-management agreement. Stark laws and anti-kickback statutes must be taken into consideration. Careful attention must be paid to compliance issues. It is important that the fair market value (FMV) of the physician compensation and bonus structure be determined. Katz, Sapper & Miller’s healthcare team has expertise to assist with FMV issues.

Constance Runkel is a manager in Katz, Sapper & Miller’s Healthcare Resources Group. If interested in exploring the co-management model or setting up the legal entity, contact our healthcare team to discuss the specifics.

Big changes could be coming to Medicare reimbursement methodology and rates for 2013 according to the latest fee schedule released by the Centers for Medicare & Medicaid Services (CMS). While many of the changes appear to have slightly negative effects on reimbursements, the overall plan aims to incentivize the coordination of care among providers and ensure participation in quality of care reporting.

The most eye-catching aspect of the proposed fee schedule is the 14% pay cut to specialists in radiation oncology. Additionally, radiologists will see their reimbursement continue to decline by 4% this year. The winners of the proposed schedule are family medicine and internal medicine physicians, who are expected to see reimbursement increases of 7% and 5%, respectively. The elephant in the room, however, is the possibility of a 27% reduction in MPFS payment rates under the SGR methodology due to the expiration of the adjustment made for 2012. If Congress fails to extend the statute that has so far delayed the cuts, there will be a tremendous drop in reimbursement rates across all specialties.

To encourage providers to coordinate care, CMS has proposed reimbursing practices roughly $95 per encounter to follow-up with a recently discharged patient. This move looks to integrate hospital care with outpatient services in order to improve the patient’s transition back to normal life. In conjunction with the coordinated care measures, CMS is seeking to improve the reporting of quality measurements by slashing reimbursements by 1% to 1.5% for practices that do not adequately participate in quality of care programs such as the Physician Quality Reporting System (PQRS) or the Electronic Health Records (EHR) Incentive Pilot Program.

Together these rules attempt to continue the implementation of the physician value-based payment modifier (value modifier) and move providers towards to the ACO program contained within the Affordable Care Act (ACA).

To view a complete copy of the proposed 2013 fee schedule click here:

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/PQRS/Downloads/2013-PFS-Proposed-Rule-CMS-1590-P_2012-16814_PI.pdf

Bryce Woodyard is a staff accountant in Katz, Sapper & Miller’s Healthcare Resources Group. For more information contact Bryce at bwoodyard@ksmcpa.com.

Implementation and use of the International Classification of Diseases, 10^th Edition, Clinical Modification/Procedure Coding System (ICD-10) continues to be a controversy among health care professionals. This debate will only continue with the one year delay in implementation by the U.S Department of Health and Human Services. 

The ICD-10 controversy lies within the details; the sheer volume of codes can be overwhelming to coders and physicians. The current ICD-9 system has approximately 18,000 codes that will grow by more than seven times to 140,000 codes in ICD-10.      

Critics argue that the volume of codes and detailed reportable information will increase health care costs while yielding lower quality in patient care. It is certain that costs have risen and will continue to rise with increased IT demands and staff training expenses. Expert’s project implementation costs will approximate $27,000 per full-time physician. Furthermore, critics believe physicians will spend more time being compliant with ICD-10 and less time with patients, which will result in less quality of patient care.      

On the other hand, proponents argue the detailed codes will increase the quality of care in the long term and provide valuable data to researchers. Certainly, the level of detail captured by the ICD-10 will be of great value to public health and health care researchers. This data can be used to monitor and improve patient care.      

Arguments by critics and proponents raise the following questions. Do increased short-term costs to implement ICD-10 outweigh the potential long-term benefits of improved patient care due to better research data? Only time can answer this question. In the meantime, the controversy of ICD-10 will continue.

Eric Leafgreen is a staff accountant in Katz, Sapper & Miller’s Healthcare Resources Group. For more information, contact Eric at eleafgreen@ksmcpa.com.

 

 

As many physicians continue to migrate into hospital employment arrangements, administrators need to be aware of potential problems that may arise from production-based employment agreements. A well-executed employment contract is necessary for proper physician integration strategies by health systems.

In order to develop an appropriate structure for a production-based employment contract with an employed physician, many hospitals are relying on payment mechanisms focused primarily on physician work RVUs.  Although an accepted clinical standard of measurement for physician clinical productivity, here are a few items to consider when developing a compensation structure based on work RVUs that is to reflect fair market value:

• Is compensation being paid for clinical services that are not actually being performed by the physician or under the supervision of the physician? (An example would be mid-level provider services incorrectly attributed to physician productivity.)

• Are you currently utilizing a billing system that correctly captures work RVUs and the associated coding modifiers?  If incorrectly calculated, work RVU modifier multipliers, which range from 0 to 1.5, can significantly skew a physician’s actual productivity output figure. (Has the billing system being used to calculate work RVUs, been updated to match CMS’s current relative value figures?)

• Is the historical physician work RVU productivity baseline for the physician, accurate to a sufficient level that will translate to a reasonable and intended compensation once the physician becomes employed by the health system? (For example, if calculating a compensation per work RVU model and the physician’s historical work RVU figures were significantly misstated due to one or two major procedures being erroneously excluded/included, this would create a significant misstatement of compensation to the physician as his productivity would inexplicably change once employed.)

Production-based physician employment contracts are a great tool to ensure transparency and unify goals between physicians and hospital employers. The proper understanding of how work RVUs are calculated and reported, as well as the underlying compliance implications, becomes necessary information when putting together these types of arrangements.

For more information, read the full article "Developing Work RVUs for Production-based Physician Compensation Programs” in the June issue of HFMA magazine or contact Neil Giannini at ngiannini@ksmcpa.com. Neil is a staff accountant in Katz, Sapper & Miller's Healthcare Resources Group.

The individual mandate is a tax, not a penalty. That was, in effect, the synopsis of the majority opinion written by Chief Justice John Roberts regarding the landmark health care ruling on June 28, 2012.

In a close and controversial decision, the individual mandate, which requires Americans to buy health insurance was deemed constitutional by a slim 5-4 margin. The only part of the Patient Protection and Affordable Care Act (PPACA) that was struck down was a provision that penalizes states for refusing to participate in the proposed Medicaid expansion.

The Supreme Court’s ruling has cleared the way for full implementation of the PPACA which will bring many changes to the healthcare industry along with some major tax implications. The following are just a few of the new tax provisions: 

• Small Business Tax Credit for up to 35% of insurance premiums paid by companies with less than 50 employees

• 0.9% increase in Medicare tax for individuals earning over $200,000 ($250,000 married filing joint)

• Higher threshold for itemized medical expenses deduction (from 7.5% of AGI to 10% of AGI)

• 3.8% increase on “net investment income” for individuals earning over $200,000 ($250,000 married filing joint)

• $2,500 cap on Healthcare FSA Contributions

Barring anything extraordinary, the Supreme Court’s decision has made it certain that these changes will take effect. That said, it is important to begin planning now to take advantage of the credits provided by the PPACA and to avoid any nasty tax season surprises that new laws can bring.

For a complete summary of the law, go to: http://dpc.senate.gov/healthreformbill/healthbill65.pdf

Bryce Woodyard is a staff accountant in Katz, Sapper & Miller’s Healthcare Resources Group. For more information on the tax implications of the PPACA or for questions in general, contact Bryce at bwoodyard@ksmcpa.com.

Buy-in/buy-out agreements are key to any physician practice’s succession plan.  Without a buy-sell agreement, practices are destined to sudden death. 

The buy-sell agreement is the instruction manual for bringing new physician partners to the practice group or assisting with the departure of physician partners. The specific details regarding the structure, conditions and formulas for a buy-in or buy-out are contained in the agreement.  It is important that the agreement be unbiased, straightforward and affordable.  Buy-sell agreements should be created with the assistance and advice of your certified public accountant and legal counsel. The agreements should be reviewed periodically for necessary updates, as objectives do change over time.

A well-structured buy-in/buy-out agreement will contain details regarding the initial cash out-lay and/or promissory note options. Options should include the use of compensation formulas to assist with purchasing an interest in the practice. It is common practice to have life insurance on each partner to ensure cash flow in unfortunate times. The agreement must also address both voluntary and involuntary ownership transfers.

A buy-in/buy-out may in some cases be based on the fair market value of the practice. This methodology will take additional time to finalize as an independent party is contacted to assist with determining fair market value. It is common to include language in the agreement requesting ninety (90) days written notice be provided to the practice regarding intent to leave the practice. These and many more options must be considered and included in a well drafted buy-in/buy-out agreement.

Constance Runkel is a manager in Katz, Sapper & Miller's Healthcare Resources Group. For more information or to have a member of our healthcare team review or draft your buy/sell agreement, contact Constance at 317.844.4875 or crunkel@ksmcpa.com.

Five cardiologists are girding for a defense of their choices in practicing medicine around the use of stents for their patients. Specifically, a whistleblower lawsuit filed by a fellow physician states that these five physicians violated the False Claims Act by submitting claims to Medicare for services that were not medically necessary or in some way overbilled.

A link to the story can be found here.

The accusation in part stems from the relator's belief that there were a number of high volume referring physicians that the hospital (University of Pittsburgh Medical Center - Hamot) identified and paid significant fees under "sham" medical directorships. This obviously implies there was either no bona fide services performed under the medical directorships or there were no independent healthcare compensation studies ordered.

Stark compliance requires that compensation paid be established in a way that does not take into account the value or volume of referrals. Therefore, fees paid under medical directorships are typically awarded based on expected or actual hours of service a physician provides for which a hospital has a need and receives appropriate benefits. (Tripping up on the Stark rules brings in liability under the False Claims Act, which is why the medical director issue is tied into the whistleblower lawsuit.) 

If this matter gets litigated, I will be watching to see if any outside fair market value analysis was performed on the medical directorships or if any coding and billing reviews were performed as a part of the hospital's compliance program--that could make or break the case!

U.S. manufacturers face a steep hill to be competitive globally according to a recent report by The Manufacturers Alliances/MAPI and the Manufacturing Institute. The report, titled "The 2011 Structural Costs of Manufacturing in the United States," states that U.S. manufacturers are paying approx. 20% more in costs than nine of its largest competitors in the world (Canada, China, France, Germany, Japan, Korea, Mexico, Taiwan, and the United Kingdom). The impact on manufacturing profitability can be quite large.

The study looked at five key elements, which included corporate taxes, employee benefits costs (including health care costs), tort (legal costs for lawsuits) costs, pollution abatement compliance costs, and energy costs.
 

“The story of the structural cost gap boils down to two issues: health care and corporate taxes,” says Jeremy Leonard, author of the study and an economic consultant with MAPI via the MAPI website. “We have the policy tools to deal with them, but lack the leadership to bring them under control. Absent structural costs, U.S. manufacturers are broadly competitive with their international peers thanks to the tireless efforts to innovate and become more efficient. It is up to the policymakers to step up to the plate to ensure a vibrant manufacturing sector in the years ahead.”

The largest barriers noted in the study relate to corporate taxes and employee benefits, mainly health care costs. The U.S. pays approximately 8.6% more for corporate taxes and 5.7% more for employee benefits on average then their competitors abroad. This can have a dramatic impact on the pricing model of U.S. manufacturers, which will ultimately impact manufacturing profits in the U.S.

Stephen Gold, president and CEO of MAPI stated, “This report tells an important story, one in which the White House and Congress should be very interested. While we recognize American manufacturers face a myriad of challenges from overseas, these data demonstrate that domestically imposed costs further undermine our ability to compete. We hear a great deal from policymakers these days about the need to bring manufacturing back to America, yet these challenges continue to undercut American manufacturing competitiveness.”

Justin Hayes is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

The face of healthcare is changing. "Accountable Care Organization" is becoming a common term in the industry. What exactly is an accountable care organization? On March 23, 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act, which empowers the Secretary of Health and Human Services to create a shared savings program to promote accountability of patient care through Accountable Care Organizations (ACO). As defined by the Centers for Medicare and Medicaid Services (CMS), an ACO is an "organization of healthcare providers that agrees to be accountable for quality, cost and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.” Ultimately, Medicare is trying to create an incentive program to reduce its costs while increasing the quality of care provided to patients.

 

The regulations regarding ACOs are still in proposed form and 427 pages in length. At a very high level, these proposed regulations provide the following requirements of ACOs:

·          Provide care for at least 5,000 Medicare beneficiaries (based on their primary care physician)

·          Participate in the program for three years, beginning Jan. 1, 2012

·          Self-report 65 quality measures to the CMS

·          Meet various anti-trust regulations

 

Under the proposed rule, Medicare would continue to pay healthcare providers for specific services under the Medicare payment systems. The ACO would then receive a share of the cost savings based on their Medicare patient population spending compared to benchmarks determined by CMS. The concept is that by better coordinating patient care between the primary care physicians and the specialists, there will be more information sharing and quality of service will increase, thus reducing costs.

 

The proposed regulations require ACOs to notify their patients about their participation in an ACO. If they choose, the patients will have the ability to opt out of sharing their protected health information with the other ACO healthcare providers. Therefore, do not be surprised if you receive information in the mail or notice signs in your doctor's offices announcing their participation in an ACO.

 

Although ACOs, as defined in the Patient Protection and Affordable Care Act, only affect Medicare patients, it will have an effect on the entire healthcare system. Currently, many physician groups and hospitals are weighing the pros and cons of forming an ACO. CMS estimates there will be 75 to 150 ACOs formed by Jan. 1, 2012. Even with this relatively small number, a huge change in patient care is expected as a result of this Act.

 

Ellen Ferringer is a director in Katz, Sapper & Miller’s Healthcare Resources Group. For more information, contact Ellen at 317.580.2013 or eferringer@ksmcpa.com.

In a recent webinar presented by Business Valuations Resources (BVR) titled “Valuing Management Services Contracts between Physicians and Hospitals” Randy Biernat, a director in Katz, Sapper & Miller’s Healthcare Resources Group, shared with listeners the checklist he uses when starting these types of valuation engagements: 

1.     Determine FMV requirements

2.     Document jurisdictional exceptions to FMV

3.     Identify parties to agreement

4.     Document purpose of arrangement

5.     Identify method of compensation

6.     Consider and select valuation methodology

7.     Evaluate transaction from management services company perspective

8.     Evaluate transaction from hospital perspective

9.     Reconcile FMV findings

10. Provide conclusion of FMV range of compensation

Biernat documents the first five points in the engagement letter and processes points 6 -10 after receiving the information from the client. “The availability of information may limit the appraiser’s ability to complete each of the above steps,” he warns. “If we can’t assess some of these points we will work with counsel to identify those issues and come up with a reasonable course of action to account for information we can’t get access to.”  Biernat recognizes that appraisers frequently get bad data from hospitals and/or physicians.

The webinar training pack, filled with Biernat’s expertise on valuing physician management services contracts is available through BVR. To read this article and the full current issue of BVR's newsletter, click here.

For more information, please contact Randy Biernat.

Certified public accountants, appraisers and consultants are seeing physician practices being sold to hospitals with increasing frequency. If you’re considering selling your practice, here are the Top 5 considerations to have in mind before making your decision.

This article was excerpted from Physician’s Money Digest. For the full text, please click here.

Randy Biernat is a director with the Healthcare Resources Group.

An interesting bit of the Healthcare Reform Bill received some publicity this week in a Boston.com article. The key news is that corporations will no longer be exempt from 1099 reporting requirements.  This change is effective for transactions beginning January 1, 2012. 

This will no doubt be an administrative burden upon implementation and surely gives the IRS more tools to track the underreporting of income. 

This is another small, but important requirement for healthcare accounting / healthcare tax compliance personnel.  The onion that is the Healthcare Reform Bill continues to unfold.  A summary of the high points can be found on KSM's main Web page.  We will continue to outline some of the finer points of the Bill here as they come to light.