KSM Healthcare Blog

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!

Twain is attributed with a quote that goes something like this: "Rumors of my demise have been greatly exaggerated."  Although there is some debate whether this actually his quote, I cannot help but think of it when I hear people state that management arrangements are out of style. 

That is, I believe the demise of the management company / co-management arrangement has been greatly overstated. While there is a great deal of physician employment by health systems and hospitals, a number of my clients either cannot or strategically do not wish to employ physician specialists.  In many of these cases, utilizing a physician co-management arrangement is an efficient and effect method of clinical integration and physician alignment outside of the large run of healthcare mergers and acquisitions occurring in the marketplace. 

I am personally working on five active management arrangements in various forms of development / fair market value analysis. Additionally, my firm has proposed on valuing the compensation for several others in recent months.  So, based on my view of the market, clinical co-management arrangements are not only alive and well, but still a valuable tool for hospital-physician alignment.

Management arrangements are a much smaller capital investment commitment for hospitals and physicians and provide more flexibility in terms of terminating the relationship if results are not in line with expectations.  Although it may not be the right fit for your situation, I believe they still have their place in the hospital-physician alignment playbook.

If you see it differently, please leave a comment and share your perspective!

Recently, the Indianapolis Business Journal spotlighted a study on emergency room utilization patterns. The general conclusion was that there is much less loyalty towards one hospital or health system than previously assumed. 

The full article can be found here. 

What this story did not dwell on was the need for regional technology alignment for healthcare providers. Based on this study, I believe that vehicles such as health information exchanges ("HIE") are more important than previously believed in terms of saving lives and managing the total healthcare spend. 

The findings are evidence that HIEs can foster meaningful clinical integration across health systems and may be a cheaper, more efficient way to bend the cost curve and improve quality than all of the recent healthcare mergers and acquisitions.  

Much of the health reform legislation had staggered starts, including the so called "sunshine" provisions around disclosure of financial relationships. There are a number of interesting implications under the proposed rules around Stark and fair market value compliance.

A quick summary is that companies providing remuneration to physicians beyond very minor incidental benefits will have to make a public disclosure of the activity. Even for unintentional non-disclosure, fines range from $1,000 to $10,000 per incident and go up by a factor of ten for intentional non-disclosure.

A full write up can be found here.

You can expect hopeful qui tam relators, attorneys general and other enforcement agencies to be mining the data to see where compensation is out of line with the related activity. For instance, compensation of $3,000 for attending a local, half-day weekend seminar may actually be an activity designed to induce a referral and therefore a disguised kickback. Companies out there providing legitimate education might want to invest in a fair market value opinion or some other valuation to ensure compliance if scrutiny is applied to their business activities.

One of the key drivers of physician compensation and healthcare business valuation is future cash flows.  So, with an eye on valuation, we are always staying on top of the latest in Medicaid reimbursement news.

The bottom line is that MedPAC's latest proposal is an attempt to fix the sustainable growth rate (SGR) problem that has persisted for years in Medicare's formulaic reimbursement construct. We have mentioned this problem in the past during last year's SGR here and its potential successor here.

MedPAC's new plan is for primary care physicians to have flat reimbursement for the next 10 years. On a parallel track, specialists will have Medicare cuts of 5.9% for three years in a row and then have flat compensation for the next seven years after that.

Kaiser Health News has a nice roundup of articles here.

We will see if this has the political legs to actually come to pass--obviously the physician community isn't happy. If it does pass, it may spark increased urgency for physician integration with hospitals and health systems.

I look forward to any comments or questions or feel free to call me at 317.844.4851 to discuss.

On the fair market value of compensation webinar I led last week, a question was submitted regarding the use of compensation paid for on-call services on a WRVU basis. That is, would it be appropriate or acceptable to pay a physician based on a compensation rate per WRVU (essentially guaranteeing a fee for work performed).

Generally, my answer is no, a compensation rate per WRVU (as published by the Medical Group Management Association or other surveys) is not an adequate tool to compensate a physician for on-call services. Payment for on-call coverage relates to an inconvenience factor as well as to compensate for the risk of non-paying or partially-paying patients. So, while the WRVU rate may cover the clinical services that are for less financially lucrative patients, the WRVU rates (as published) do not contemplate payments for the inconvenience associated with on-call services.

The types of inconvenience factors one might use in preparing a fair market value analysis for on-call coverage might include:

• call rotation
• frequency of calls
• hospital trauma designation
• backup availability
• physician extender, fellow, or resident availability and utilization
• hospital's location relative to supply of physicians

Of course, fair market value opinions are facts and circumstances driven, but generally the use of a WRVU-based payment for on-call coverage is not likely to be a good tool for on-call coverage payments.

I look forward to any comments or questions or feel free to call me at 317.844.4851 to discuss.

In an effort to weed out physicians and other providers that are not eligible to participate in the Medicare program, over 1.4 million current enrollees will have to go through a re-enrollment process. The re-enrollment period is 60 days and revalidation requests will be issued continuously between now and March 2013.  A breakdown of the on number of various providers needing to re-enroll by provider type can be found here. 

The online edition of American Medical News had a nice write up here.

Clearly, Medicare and Medicaid reimbursement is a large part of many providers' business and failure to re-enroll timely in the Medicare program could have disastrous consequences.

From a practical standpoint, providers must not allow any delays, misunderstandings, and miscommunications to interfere with participation, as this would be damaging to revenue. This is another topic to the agenda for any physician practice strategic planning meeting.

As always, I look forward to any comments or questions.  Call me at 317.844.4851 to discuss.

The issue of "stacking" compensation comes up as discussion point on fair market value engagements routinely. 

Simply put, stacking generally means being paid for two different services at the same time. For example, if a spine surgeon is receiving compensation for providing restricted call coverage to a hospital, the hospital is advised to not also pay the physician separately for performing teaching duties or medical direction. 

The compensation for both services can create a "stacking" effect that can result in total compensation outside of the range of fair market value, creating Stark compliance problems.

For me, the best way to recognize the physician's teaching efforts while working on-call would be to clearly state the expanded scope of services in the call arrangement contract. This would allow an appraiser to capture the value of the teaching services in the on-call compensation. 

Typically, expanded scopes of service allow appraisers to increase the allowable amount of compensation relative to the market range of data. For example, a 15-hour per week teaching commitment included in an on-call arrangement may allow an appraiser to be comfortable that compensation at the median is appropriate, when, if the teaching was not included, the 25th percentile of market data may have otherwise been the high end of the range of fair market value.

Stacking can come in many forms, but it is always important to be careful that payments for any services do not overlap (are double counted) and do not stack.

As always, I look forward to any comments or questions.  Call me at 317.844.4851 to discuss.

Healthcare compliance is increasing in importance as the federal government is greatly ramping up. In a report out today, fraud prosecutions in 2011 are on pace to rise 85% over 2010.

Read the full USA Today Story here.

Initiatives such as the Medicare RAC program as well as other compliance programs are driving many of the recovery actions.

KSM routinely provides compliance checks for the full hospital revenue cycle. Call me to discuss how to get started - 317.844.4851.

A common question we get is whether or not a physician's clinical hourly rate is a valid starting point for determining the fair market value of medical direction services. 

The theory to support the argument is that a hospital needs to be competitive with the physician's other income producing activities to be able to attract the physician to do the work it needs a physician to do. This philosophy, of course, tends to resonate well with the physicians.

However, regardless of the type of hospital compensation study being performed, opportunity cost cannot be used as the beginning and end of a fair market value opinion.  It may in fact be that the physician's effective hourly clinical rate is similar to the medical direction rate being paid, but an appraiser will need to take the following into consideration when utilizing an opportunity cost approach:

1. Risk - Medical direction involves no direct life or death decisions and the odds of committing malpractice are slim to none. Because part of the compensation Medicare pays is tied to the cost of malpractice, it is hard to argue that the compensation for clinical work does not involve a direct reward for the risk of touching patients.
   
2. Complexity of Work - The more the specific medical director's duties replicate C-Suite activities, the more likely it is that the compensation should include data points for executive-type positions. However, when using clinical compensation as a starting point, it can be difficult to assess the relative complexity of one set of tasks versus another.
   
3. Scope of Work - The amount of time necessary to commit to a medical direction appointment also impacts the data that might be used. Specifically, one may include incremental data points that resemble the costs of employment if we find a physician is spending 500 or more hours a year on a medical direction arrangement.  In fact, if items such as on-call compensation are buried within a comprehensive medical directorship, one would certainly have to bring in other data points.

How to include compensation for non-clinical services in a way that meets Stark compliance is a key part of most physician integrations. However, I think there are generally better technical ways to prepare a strong fair market value opinion than to use the opportunity cost approach. However, there is certainly a way to consider the above three items to reconcile the reasonableness of the medical direction compensation relative to the physician's clinical compensation.

As always, I look forward to any comments or questions.  Call me at 317.844.4851 to discuss.

New information is out this week on malpractice claims from the New England Journal of Medicine and it shows that neurosurgeons are more likely to be sued than any other specialty. 

The Los Angeles Times "Booster Shots" blog has a nice write up on this matter here.  

I took the article as a reminder that appropriate malpractice coverage and how to deal with the stress and potential fallout of lawsuits is an important part of physician practice strategic planning. 

From the LA Times piece, here are the top five most likely to be sued specialties:

1. Neurosurgery
2. Cardiovascular surgery
3. General surgery
4. Orthopedic surgery
5. Plastic surgery

The other end of the spectrum had these least likely to be sued specialties:

1. Psychiatry
2. Pediatrics
3. Family medicine
4. Dermatology
5. Pathology

A final note on this subject is that lawsuits can be impactful in considering overall value in terms of potential or contingent liabilities for healthcare business valuation purposes.

For more information, contact Randy Biernat in Katz, Sapper & Miller's Healthcare Resources Group.

This week, the Medical Group Management Association (MGMA) released some data from its forthcoming 2011 Physician Compensation and Production Survey, one the largest physician compensation studies released each year. 

The data generally shows modest increases in median compensation from 2009 levels for primary care specialties. Results for specialists' median compensation were mixed with increases for specialties such as cardiology, dermatology, emergency medicine and nuerology and decreases for gastroenterology, ob/gyn, and urology.

You can read the MGMA's full release here and download the the actual schedule of increases and decreases here.

The full report will be available on June 21, 2011.

This survey is used for all types of planning and consulting, including establashing fair market value for regulatory compliance purposes.

For more information, contact Randy Biernat in Katz, Sapper & Miller's Healthcare Resources Group.

We just learned of some relief for healthcare tax compliance folks. The Internal Revenue Service just announced that, generally, hospitals are exempt from the requirement to complete Part V, Section B of Schedule H on the Form 990. 

The complete IRS announcement can be found here.

The information requested in this section of the Form 990 generally pertains to disclosure required under the Patient Protection and Affordable Care Act and relates to the following:

• Community health needs assessment
• Fees charged
• Financial assistance policies

We anticipate that completing the Form 990 is and will continue to grow as a regulatory headache for the hospital world as the scope of operations (such as all the physician integration activities) continues to expand and must be captured.

Contact Randy Biernat in Katz, Sapper & Miller's Healthcare Resources Group for more details about this issue and ask about a free healthcare tax consultation with respect to the Form 990.

Last week CMS issued its proposed 2011 Medicare Physician Fee Schedule for a comment period. The proposed rule implements key provisions of the Affordable Care Act of 2011. 

Among other things, the proposed rule provides:

• A 10% incentive payment for various primary care practitioners (where primary care services represent 60%+ of allowed Medicare charges in a prior period)
• A 10% incentive payment to surgeons performing major surgeries in health professional shortage areas
• Coverage for an annual wellness visit and eliminates out-of-pocket costs for most preventative services
• Providers must notify patients that in-office imaging services are available and may be received from other nearby vendors

The rule also contains a total reduction in Medicare rates between November and January of 24.9%. However, Congress has not allowed these reductions to occur in every year since 2003. Therefore, a fee schedule analysis may or may not be in order to anticipate the impact of this rule (depending on your faith in Congress to provide relief).

A Health Affairs article published last week indicated that only two percent of U.S. hospitals reported having electronic health records (EHR) that would meet the government's meaningful use standards.  Additionally, only 12 percent of hospitals in 2009 used any type of medical records, up from nine percent in 2008.

The full article can be found here.

Not surprisingly, the survey also indicated that small and rural hospitals have been slower to adopt electronic health records.  Our feeling is that many of the small hospitals see the trend of healthcare mergers and acquisitions as inevitable for them and their acquirers will need to inject capital to update their healthcare information systems as a part of any transaction. 


 

The jobs outlook for healthcare is improving, according to a recent report:

www.ama-assn.org/amednews/2010/07/26/bil20726.htm

Job growth is expected for both physician offices and hospitals, especially as demand is created for support staff as new medical school graduates enter the workforce.

I made a connection today between the commercial reasonableness analysis required for many healthcare transactions and something our cost reduction guru, Joe Scott, says to his clients and prospects:

"Lowest cost is not best cost."

I have been in several meetings where Joe has used this line and the result is always the same--all of the heads in the room nod simultaneously in agreement.

It's such a basic business concept that this comment is never challenged.  The reason is  simple; the whole experience of a purchase makes a difference in terms of perception of value.  The basis of our value perception includes the entire sales process, the follow up, etc.

I realized today that this is a useful framework for discussing commercial reasonableness of payments made in hospital and physician joint ventures.  That is, if it is clear that the arrangement extends beyond a sale of a commodity, the challenge in analyzing commercial reasonableness is to try to identify whether a rational relationship exists between cost and value. 

If there are no differentiating factors in terms of value, then lowest cost should be a driving force.  However, when there are differentiating factors, we typically see a premium price that comports with our understanding of commercial reasonableness.

Late last year we received a request for help from a hospital client for a healthcare business valuation. Basically, the request was for us to assist with Stark compliance in the procurement of a large, multispecialty physician practice. 

No problem, right? 

Well, there was a special concern that the valuation might produce a value different than the carefully negotiated value. Obviously, the biggest concern from a compliance standpoint relates to overpayment for the practice. However, from a political standpoint, the hospital was not excited about the potential prospect of the valuation indicating higher value than the negotiated rate.

Our solution -- we suggested issuing a "fairness opinion." This letter would indicate our agreement that the price paid was not in excess of the range of fair market value, but would not disclose our actual calculations.

This met the client's need to maintain control over the dispersal of the business valuation results, while still meeting its regulatory compliance requirements.

Sometimes things happen so fast, they are hard to remember. 

Late last week, I got a call from a hospital system looking to hire a world-renowned transplant surgeon.  The problem was that there was a short negotiation window and the client wanted to be sure not to exceed the range of fair market value for physician compensation. 

The hospital gave us the background information, contract, and negotiation terms very quickly.  This allowed us to provide the hospital with a preliminary healthcare compensation study within six hours of initial contact.  Our findings confirmed that the range of compensation being discussed was consistent with market compensation under the facts and circumstances present.

At KSM, we pride ourselves on solving problems and our team did a good job of handling a complex, high stakes employment arrangement on short notice. This is all a part of our commitment to being a premier service provider related to healthcare transactional services.

I was recently interviewed by Ed Rabinowitz of Physician's Money Digest to discuss physicians' struggles with rising costs in their practices. The point of the print article was to identify the sources of pain for practices as margins and, therefore, physician compensation, continue to be squeezed.

A copy of the full text article is here.

This article focused mainly on physician challenges. I thought I would take some space here to describe two of the ways in which we have helped physician practices meet some of the challenges posed by reductions in reimbursement and rising costs:

Physician Practice Billing Office Review - This is an engagement where we evaluate the billing office of a practice. This is a frequently overlooked area of a physician practice because many practices lack the resources to consistently stay on top of all the changes and trends in reimbursement. The billing office review engagement is one of our most value-added services and provides a thorough assessment and recommendations regarding industry best practices.

Cost Reduction Project - This is another special engagement we routinely perform to drive costs out of a business. We scour the markets to determine if lower costs exist for the exact same goods and services you are currently purchasing through negotiation, behind the scenes leveraging, and changes in purchasing habits. We then make recommendations regarding vendor contracting and assist with implementation and monitoring. We have had a tremendous amount of success with healthcare entities in this area.

If you would like to discuss these topics further or have questions regarding the Physician's Money Digest article, please contact me at your convenience.