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Health care moving back under physician control

As the initial article in this series, it is important that physicians understand the basic rules that govern their existence.

The Federal Stark law prohibits a physician from making a referral to an entity for the furnishing of certain designated health services (“DHS”) to a patient if the physician (or a member of the physician’s immediate family) has a financial relationship with the entity furnishing the DHS, unless an exception applies. Stated simply, a physician cannot refer certain laboratory services or imaging services or other enumerated services paid by Medicare to an entity owned by the physician unless an exception exists.

Similarly, the Federal Anti-Kickback statute is a broadly phrased criminal and civil statute that prohibits the payment or receipt (offering or solicitation) of any remuneration, in any form, if such remuneration is intended to induce or reward the referral, recommendation, or arrangement for the provision of any goods or services that are reimbursable, in whole or in part, by the Medicare or Medicaid programs. Thus, if there is a financial relationship (compensation arrangement, office lease) between two health care providers and a Medicare patient is referred by one provider to the other, the government will evaluate whether the financial relationship between the parties created an illegal inducement for that referral.

A third key regulatory issue affecting physicians is the Federal Anti-Trust law. The Anti-Trust law as described in the movies is where an organization becomes so big that it creates a monopoly and stifles competition. However, for physicians the price-fixing restrictions under the Anti-Trust law are most frequently violated. The price-fixing rules state that if any two competing physicians groups in a marketplace collectively go to a third-party payor (insurance company or self-insured employer) and demand that both physicians groups receive the same or similar pay (“fix the price”) or the groups won’t provide services to patients covered by the payor, a pricefixing allegation will be made.

The price-fixing rules are what have greatly diminished the utilization of IPAs. Historically, unrelated physicians would form an entity (the IPA) and an individual hired by the entity would go to the insurance companies or other payors and demand a specific fee schedule. If the payor did not agree to that fee schedule the physicians in the IPA would refuse to provide services for the patients of the Payor. If any of the physician groups in the IPA are competitors, arguably there has been a direct violation of the price-fixing rules.

Fortunately, there are ways to structure arrangements to avoid all the problems set forth above. The Federal Stark laws have a list of “exemptions” that will enable physicians to refer DHS to an imaging center or a laboratory owned by that physician if certain requirements are met. There are “safe harbors” which will allow a physician to refer patients to another physician where a financial arrangement exists between the physicians so long as all the elements of the financial relationship are set at fair market value and certain other specific criteria are established. The price-fixing problems under the Anti-Trust laws can be avoided if the physicians satisfy certain “anti-trust safety zones” provided by the Federal Trade Commission.

Most physicians have heard the term Accountable Care Organization (“ACO”). The federal government has stipulated that if physicians enter into appropriately structured ACOs, the ACO structure contains specific exemptions from the Stark, Anti-Kickback and Anti-Trust regulations so that providers of various types can share referrals and profits from those referrals without violating federal law. In fact, many organizations established ACOs not to make any money from the Medicare Program, but to simply receive advance payments from Medicare which would enable the providers to build a “clinically integrated network” that will enable physicians to avoid the regulatory problems where Medicare is not involved. Again, most physicians have been approached about joining a “clinically integrated network” through which an electronic medical record can be shared and other administrative efficiencies obtained in an attempt to obtain market share while mitigating regulatory risk. Future articles will cover each of these topics in more detail and describe specific strategies used by physicians to avoid legal pitfalls and to form clinically/financially integrated relationships.

We will also discuss strategies physicians use to remain independent. Although many physicians are looking to hospitals for employment or to join national physician organizations, changes in the “provider based status” regulations and two federal cases that were featured in the press in 2015 will greatly mitigate the appetite that hospitals have to acquire physician practices.

A future article will go into the detail of how the “provider based status” rules have changed and how these two cases limit the amount of compensation that hospitals can offer to employed physicians. Therefore, given that the number of hospital acquisitions of practices is diminishing and that the federal government is developing new programs to utilize “bundled payment” strategies and other shared savings arrangements; it is time for physicians to re-engage in the “business” of health care.

Hopefully these articles will give physicians insight into how to take advantage of the current regulatory environment and what appears to be a shift in reimbursement allocation away from hospitals and back to physicians. This author believes that if properly informed, the future of independent physicians can be very bright and physicians currently employed by hospitals may be getting back into private practice.

 Schultz, Randal LThis is the first of a series of columns in the Missouri Medical Law Report by attorney Randal L. Schultz of Lathrop & Gage that will attempt to give physicians insight on legal developments directly affecting their medical practices while exploring new business opportunities for physicians based upon current legal developments.

 This author has represented physicians across the country for more than 30 years and is involved with the creation of most types of physician owned and operated entities and delivery systems. The purpose of this column will be to make physicians aware of changes in the law and provide insight into strategies available to physicians to achieve success in the “business” of medicine.

Randal L. Schultz can be reached at Lathrop & Gage LLP, 913-451-5192

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