health law update june 2012

FEDERAL UPDATEOIG Disapproves of Proposed Anesthesiology Arrangements with ASCs

The United States Department of Health & Human Services Office of Inspector General (OIG) recently issued Advisory Opinion No. 12-06 addressing anesthesiology arrangements with ambulatory surgical centers (“ASCs”). The advisory opinion was in response to an anesthesiology group’s request for clarification concerning two possible contractual scenarios.

In Proposed Arrangement A, the anesthesiology group would enter into an arrangement with an ASC to bill and collect for the provision of anesthesia services for patients of the ASC. The anesthesia group would enter into a management agreement pursuant to which the anesthesia group would pay the ASC a management fee for providing pre-operative nursing assessments and assistance with transferring billing documentation to the anesthesia group’s billing office. The management fee would be in the form of a “per patient” fee for non-Medicare patients, which the group certified was set at fair market value.

The OIG advised that arrangements that “carve out” Medicare business/patients may be disguised revenues related to non-Medicare business. As a result, the OIG determined that there is risk that the anesthesia group would be paying the management fees with regard to non-Medicare patients to induce the ASC’s referral of all of its patients, including Medicare patients.

In Proposed Arrangement B, the physician-owners of the ASCs would form a separate corporate entity for the sole purpose of billing ASC patients for the provision of anesthesia services. The entity would engage the anesthesia group as an independent contractor to provide the following services: recruiting, credentialing and scheduling anesthesia personnel; ordering and maintaining supplies and equipment; assisting the entity in selecting and working with a billing company; monitoring and overseeing regulatory compliance; providing financial reports; implementing quality assurance programs; and providing logistics services.

The OIG declined to approve the arrangement, and expressed concern that the arrangement is a suspect contractual joint venture, exposing the group to potential violation of the anti-kickback statute. Citing its 2003 Advisory Bulletin concerning contractual joint ventures, the OIG determined that the proposed arrangement is “designed to permit the ASC’s physician-owners to do indirectly what

they cannot do directly; that is, to receive compensation in the form of a portion of the [anesthesia group’s] revenues, in return for the referrals.”

For additional information, contact:

John D. Fanburg | 973.403.3107 | [email protected] E. Manigan | 973.403.3132 | [email protected]

OIG Approves Supermarket and Pharmacy Rewards Program

The United States Department of Health & Human Services Office of Inspector General (OIG) issued Advisory Opinion No. 12-05 relating to a rewards program contemplated by an organization operating supermarkets and pharmacies. Under the proposal, the organization would provide customers a discount of 10 cents per gallon on gasoline purchases when they spend $50 in the supermarket or pharmacy on “allowable purchases.” The out-of-pocket costs (including deductibles and co-payments on federally reimbursable prescription items) would be eligible to earn the gasoline discounts.

The OIG determined that the arrangement would not violate the federal civil monetary penalty law (CMP) or anti-kickback statute.

With respect to the CMP, the OIG noted that many customers would receive discounts in excess of the CMP’s existing exception for nominal incentives valued at up to $10 per item or $50 per year. However, a new exception under the Affordable Care Act (6402(d)(2)(B)) allows for rewards offered by retailers. The OIG found that the arrangement satisfied the new exception because (1) the reward would consist of a coupon or rebate from the retailer; (2) the rewards were offered on equal terms regardless of health insurance status; and (3) the rewards were not tied to the provision of other items or services reimbursed by federal health care programs.

The OIG found minimal risk of fraud and abuse under the anti-kickback statute because customers would not be required to purchase prescription items or other federally-reimbursable products, they would not receive an incentive for transferring their prescriptions to the organization’s pharmacies and the arrangement was unlikely to result in overutilization or otherwise increase costs to federal health care programs.


Kevin M. Lastorino | 973.403.3129 | [email protected] Carol Grelecki | 973.403.3140 | [email protected]

In This Issue:

New OIG Opinion on Anesthesia/ASC Arrangements

CMS: Independence at Home Demonstration Project

CMS: Increasing Payment for Primary Care

Strike Force Take-Down Unparalleled

Brach Eichler in the News

HIPAA Corner

June 2012

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CMS Announces First Round of Participants for Independence at Home Demonstration Project

On April 26, 2012, the Centers for Medicare & Medicaid Services (CMS) announced that it has selected the 16 initial health care providers to take part in a demonstration project, created by the Affordable Care Act, allowing Medicare patients with chronic conditions to receive care at home. The project, called “Independence at Home,” with a start date of June 1 and an end date of May 31, 2015, is intended to test a service delivery model using physician and nurse practitioner-directed primary care teams to provide services to certain Medicare beneficiaries in their homes. In its press release, CMS states that the participants of this demonstration project “will test whether delivering primary care services in the home can improve the quality of care and reduce costs for patients living with chronic illnesses.” Up to 50 health care providers will ultimately be chosen to participate in the project, each of which must serve at least 200 Medicare fee-for-service beneficiaries with multiple chronic conditions and functional limitations.


Todd C. Brower | 973.403.3103 | [email protected]

Carol Grelecki | 973.403.3140 | [email protected]

Medicare Health Outcome Survey Open for Comments

On April 27, 2012, the Centers for Medicare & Medicaid Services (CMS) published a notice in the Federal Register that it is seeking to revise the Medicare Health Outcome Survey (HOS) to better identify possible fraud.

By way of background, the HOS is the first patient-reported outcomes measure used in Medicare managed care. The goal of the HOS program is to gather valid, reliable and clinically meaningful health status data in the Medicare Advantage (MA) program for use in quality improvement activities, pay for performance, program oversight, public reporting and improving health. All managed care organizations with MA contracts must participate. Additional information regarding the survey can be found at http://cms.gov/HOS.


Kevin M. Lastorino | 973.403.3129 | [email protected] Debra C. Lienhardt | 973.364.5203 | [email protected]

CMS Issues Proposed Rule on Increasing Payment for Primary Care

On May 9, 2012, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that seeks to increase Medicaid payments for certain primary care services. Among other changes, the proposed rule:

• Implements the Affordable Care Act’s requirement that Medicaid reimburse primary care physicians for services CMS designates as “primary care services” at Medicare rates instead of state-established Medicaid rates (which often are lower) in

calendar years (CYs) 2013 and 2014

• Grants states more than $11 billion in federal funds over two years to support Medicaid primary care delivery systems

• Applies to primary care services delivered by physicians specializing in family medicine, general internal medicine or pediatric medicine, and related subspecialists

• Provides guidance on identification of eligible primary care services and providers, implementation of increased payments and payment of vaccine administration fees under the Vaccine for Children program.

The temporary increase in payment for primary care services will be paid entirely by the federal government, with no state matching of payment required. In particular, states will receive 100% federal financial participation for the difference between the Medicaid state plan payment amount as of July 1, 2009, and the Medicare rates in effect in CYs 2013 and 2014 or, if greater, the payment rate that would be applicable using the CY 2009 Medicare conversion factor. The proposed regulations also note that, “[a]s we move towards CY 2014 and the expansion of Medicaid eligibility, it is critical that a sufficient number of primary care physicians participate in the [Medicaid] program,” and these rate increases “will encourage primary care physicians to participate in Medicaid by increasing payment rates.”


Joseph M. Gorrell | 973.403.3112 | [email protected] C. Lienhardt | 973.364.5203 | [email protected]

CMS Issues Rules Easing Regulations for Hospitals and Health Care Providers

On May 16, 2012, the Centers for Medicare & Medicaid Services published two final rules in the Federal Register, to eliminate rules that the U.S. Department of Health & Human Services (HHS) has determined are unnecessary, obsolete or burdensome on American hospitals and health care providers.

The first rule revises Medicare Conditions of Participation (CoPs) for hospitals and is anticipated to save $940 million per year. The revisions include:

• Allowing a single governing body for multiple hospitals in a multi-hospital system

• Broadening the concept of “medical staff” to allow hospitals to include other practitioners, such as advance practice nurses, physician assistants and pharmacists, on a hospital’s medical staff

• Allowing hospitals to have an optional program for patients to self-administer certain medications

• Allowing hospitals to use standing orders, order sets and protocols

• Eliminating the requirement for authentication of verbal orders within 48 hours and instead require that authentication occur in compliance with state laws

• Eliminating the requirement that hospitals maintain an infection control log

• Eliminating the requirement of a single director of outpatient services position.

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The second rule, the “Medicare Regulatory Reform” rule, seeks to promote efficiency by eliminating duplicative, overlapping and outdated regulatory requirements for health care providers. HHS anticipates savings of $200 million in the first year this rule is in effect. Provisions of the rule include:

• Eliminating outdated ambulatory surgical center infection control programs (a new CoP dedicated to infection control makes this requirement duplicative)

• Retiring older versions of e-prescribing truncations for Medicare Part D and adopting the newer versions to be in compliance with current e-prescribing standards

• Limiting mandatory compliance with the Life Safety Code to End Stage Renal Disease Facilities located adjacent to “high hazardous” occupancies and those facilities that do not have a readily available exit to the outside

• Removing outdated personnel qualifications for physical and occupational therapists in the current Medicaid regulations.


Lani M. Dornfeld | 973.403.3136 | [email protected] J. Roberts | 973.364.5201 | [email protected]

Strike Force Take-Down Unparalleled

A seven-city sweep last month resulted in the arrest of 107 defendants in the largest take-down since the establishment of the Medicare Strike Force. Medicare fraud schemes are alleged to have resulted in payments of over $452 million due to false billing. Payments have also been halted to more than 52 health care providers suspected of fraud before payments were made. More than 500 law enforcement agents participated in the take-down.

The strike force is a joint effort by the Department of Health and Human Services and the Office of Inspector General, designed to work together and weed out Medicare fraud. The defendants include physicians, nurses and health care company owners, charged with crimes ranging from money laundering to anti-kickback violations. Other charges include false billing for services that were either never provided or not deemed medically necessary. Various services were involved in the schemes, including home health care, mental health, psychotherapy, physical and occupational therapy, durable medical equipment and ambulance services. Charges were brought against defendants in Miami, Baton Rouge, Houston, Los Angeles, Detroit, Tampa and Chicago.


Keith J. Roberts | 973.364.5201 | [email protected] M. Gorrell | 973.403.3112 │[email protected]

STATE UPDATEHealth Care Disclosure and Transparency Act Appears Murky

On May 10, 2012, a bill was introduced in the New Jersey legislature entitled the Health Care Disclosure and Transparency Act (A.2751)

to clarify waiver, disclosure and payment issues for out-of-network (OON) benefits. While a laudable goal, the bill instead creates more problems than it seeks to resolve. Under the bill, if a provider furnishes OON services, the provider must make at least three documented good faith attempts to collect before waiving the patient’s financial responsibility. Waiver would then be permissible only if due to a medical or financial hardship, only if waivers are not routinely given, and only if the patient’s insurer is notified. This is generally consistent with current case law and regulatory guidance in New Jersey.

However, the bill also indicates that, if an OON provider furnishes services in an in-network licensed facility, the provider cannot bill the patient beyond the patient’s in-network co-payment, co-insurance or deductible. In essence, the OON provider would receive payment as if he was in-network. Moreover, it is unclear whether the OON provider who is paid based on in-network rates would have any contractual protections or rights against the insurer. Indeed, there would be no signed contract between the OON provider and the insurer. Additionally, it is unclear whether an OON provider can be forced to accept in-network rates that he never negotiated or agreed to. Furthermore, it is unclear whether the OON provider can bill, if at all, the in-network facility or the insurer for the difference between the in-network and OON rates.

If enacted, the bill would also lead to providers having less leverage in contract negotiations with insurers.

The bill is being watched closely by physicians, ambulatory surgery centers and hospitals, all of which have voiced opposition.


Mark E. Manigan | 973.403.3132 | [email protected] John D. Fanburg | 973.403.3107 | [email protected]

Christie Vetoes Bill to Create Health Care Exchanges Tied to Health Care Reform Law

New Jersey Governor Christie recently vetoed a bill (A-2171) that would have set up a statewide health insurance exchange in New Jersey as required by the Affordable Care Act (ACA), stating that it would be imprudent to create an exchange until the U.S. Supreme Court has ruled on the constitutionality of the ACA. Governor Christie is the second governor this year to veto a health insurance exchange bill.


Joseph M. Gorrell | 973.403.3112 | [email protected]

Todd C. Brower | 973.403.3103 | [email protected]

Brach Eichler In The News

John Fanburg presented a webinar, “What’s Happening in the New Jersey Medical Practice Acquisition Market?” for the Medical Society of New Jersey on April 25.

On June 14, Brach Eichler hosted the 4th annual NJ ASC Review, held at Ocean Place in Long Branch.

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Members Todd C. Brower | 973.403.3103 | [email protected] Lani M. Dornfeld | 973.403.3136 | [email protected] D. Fanburg, Chair | 973.403.3107 | [email protected] Joseph M. Gorrell | 973.403.3112 | [email protected]

Carol Grelecki | 973.403.3140 | [email protected] M. Lastorino | 973.403.3129 | [email protected] C. Lienhardt | 973.364.5203 | [email protected] E. Manigan | 973.403.3132 | [email protected] J. Roberts | 973.364.5201 | [email protected]

You have the option of receiving your Health Law Updates via e-mail if you prefer, or you may continue to receive them in hard copy.If you would like to receive them electronically, please provide your e-mail address to [email protected]. Thank you.

Health Care Practice Group | 101 Eisenhower Parkway, Roseland, NJ 07068 | 973.228.5700

Counsel Richard B. Robins | 973.403.3147 | [email protected]

Associates Lindsay P. Cambron | 973.364.5232 | [email protected] Jenny Carroll | 973.364.5223 | [email protected] T. Cohen | 973.403.3144 | [email protected] Ehrenkranz | 973.364.5234 | [email protected] M. Jennings | 973.364.5204 | [email protected]

Colleen McClafferty | 973.364.5210 | [email protected] F. Murphy | 973.364.5214 | [email protected] Senthil | 973.403.3150 | [email protected] J. Yun | 973.364.5229 | [email protected]

Attorney Advertising: This publication is designed to provide Brach Eichler, L.L.C. clients and contacts with information they can use to more effectively manage their businesses. The contents of this publication are for informational purposes only. Neither this publication nor the lawyers who authored it are rendering legal or other professional advice or opinions on specific facts or matters. Brach Eichler, L.L.C. assumes no liability in connection with the use of this publication.

On June 14, Todd C. Brower and Lani M. Dornfeld presented “Hot Button Areas in Compliance and How to Implement an Effective Compliance Plan” at the Annual Home Care Association Meeting in Atlantic City.

Brach Eichler is a sponsor of the New Jersey Healthcare Real Estate Summit, June 27 at the Newark Club. Alan Hammer will moderate the keynote panel discussion featuring industry leaders like Barry Ostrowsky, President & CEO of Barnabas Health System, and Barry Rabner, President & CEO of Princeton HealthCare System.

Jonathan Bick authored an article in the April 30 New Jersey Law Journal, Health Care Law, entitled Applying Technology to the Business of Health Care.

HIPAA CORNERNinth Circuit Court Finds that Knowledge Not Required for HIPAA Criminal Liability On May 10, 2012, the United States Court of Appeals for the Ninth Circuit held, in United States v. Zhou, No. 10-50231 (9th Cir. May 10, 2012), that HIPAA’s criminal misdemeanor provision, which penalizes the unauthorized access of patient health information, does not require a defendant to know that his or her actions were illegal under the statute.

By way of background, in October of 2003, the defendant, Huping Zhou, a research assistant at the University of California at Los Angeles (UCLA) Health System, received a notice of UCLA’s intent to dismiss him for poor performance. On that same evening, Zhou allegedly accessed the patient records of co-workers and well-known actors, including Tom Hanks, Drew Barrymore and Arnold

Schwarzenegger, without authorization. Soon thereafter, UCLA terminated the defendant after a formal internal grievance hearing.

In 2008, the United States Attorney’s Office for the Central District of California charged Zhou with a misdemeanor violation of HIPAA’s prohibition against “knowingly” obtaining individually identifiable health information in violation of HIPAA. Zhou moved to dismiss the charge on the basis that the word “knowingly” in HIPAA required that he have knowledge that it was illegal to obtain such protected health information. However, a federal magistrate judge denied the motion. Zhou entered a conditional guilty plea, reserving his right to appeal the denial of his motion to dismiss.

On appeal, Zhou claimed that the use of the word “knowingly” in the statute means that an individual could not be prosecuted for violating the statute unless he knew his actions were illegal. The Ninth Circuit rejected Zhou’s interpretation and held that, “as used in the statute, the term ‘knowingly’ applies only to the act of obtaining the health information,” and did not require an individual to know that his actions may have violated HIPAA. The Court’s upholding of the denial of the motion to dismiss made effective Zhou’s guilty plea, with a sentence of four months in prison and a fine of approximately $2,100.

Although not binding outside of the Ninth Circuit, this recent decision is significant because it emphasizes how easily individuals who do no more than access health information out of curiosity can be found criminally liable.


Todd C. Brower | 973.403.3103 | [email protected] Lani M. Dornfeld | 973.403.3136 | [email protected]

health law update june 2012

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