transforming the business of oncology through science and technology

Transforming the Business of Oncology through Science and Technology

Adria WarrenFoley & Lardner

[email protected]

Tynan OlechnyPYA

[email protected]

Curtis BernsteinPinnacle Healthcare Consulting

[email protected]

Oncology Business Transactional Issues – At the Point of Transaction and Over the Life

of an Affiliation

mailto:[email protected]




Adria WarrenFoley & Lardner

[email protected]

Fair Market Value –Why It Matters


Fair Market ValueIn the healthcare context, -- FMV is generally defined to mean FMV for actual and necessary items furnished or services rendered, based upon an arm’s length transaction, and without taking into account, directly or indirectly, the value of volume of any past or future referrals or the ability to influence the flow of business generated between the parties. (70 Fed. Reg., 4858, 4866 (2005))

-- Commercial Reasonableness is generally defined to mean a sensible, prudent business arrangement from the perspective of the particular parties involved, even in the absence of referrals (69 Fed. Reg. 16093 (2004))

FMV – Why It Matters Regulatory Framework

Federal Anti-Kickback StatuteFederal Stark LawFalse Claims ActCivil Monetary Penalty LawTax Exemption Issues

Private Benefit and Private Inurement Intermediate Sanctions

State Laws

FMV – Why It Matters Anti-Kickback Statute

Prohibits knowing and willful offer or receipt of remuneration intended to induce or arrange for referrals of business paid for by Medicare/Medicaid programs

Civil monetary and criminal penalties CMP of $50,000 per violation Criminal penalties: $25,000 per violation

and/or up to five years in jail Exclusion


Any purpose test and problem of mixed motives ACA § 6402(f)(2): violation does not require actual

knowledge of AKS or specific intent to commit a violation

ACA § 6402(f)(1): claim for items or services resulting from AKS violation constitutes a false claim under the False Claims Act

Safe Harbors provide immunity Safe harbors are not required Many safe harbors require FMV and commercially

reasonable remuneration


Is the purchase price a disguised kickback from the buyer (overpayment) or seller (underpayment) to induce post-deal referrals?

Valuation may help negate an adverse inference of improper intent

To the extent that a payment exceeds FMV, it can be inferred that the excess amount over FMV is intended as payment for the referral of health-program business. U.S. v. Lipkis, 770 F.2d 1447, 1449 (9th Cir. 1985)

FMV – Why It Matters Stark Law

In general, if a physician has a direct or indirect financial relationship with a DHS entity: The physician may not make a referral to that entity for the

furnishing of designated health services (DHS) for which payment otherwise may be made under Medicare

And the entity may not bill Medicare, an individual, or another payor for the DHS performed pursuant to the prohibited referral "Designated health services" include all inpatient and outpatient hospital

services; lab; imaging; pharmacy; DME; radiation therapy; PT; occupational and speech therapy; parenteral and enteral drugs, nutrients, and supplies; prosthetics; orthotics; and home health services

… unless a specific exception applies

FMV – Why It Matters Stark Law $15,000 civil monetary penalty assessed against physician for

each prohibited referral DHS entity must refund DHS billed pursuant to a prohibited

referral $15,000 civil monetary penalty assessed against DHS entity for

billing for service rendered pursuant to a prohibited referral, unless it can show that it did not have actual knowledge and did not act in reckless disregard or deliberate ignorance of the prohibited referral

$100,000 civil monetary penalty for circumvention schemes Requirement to report to HHS financial relationships with

physicians upon request; $10,000 penalty for failure to report Potential exclusion

FMV – Why It Matters Stark Law Strict liability/zero tolerance law Burden of proof is on defendant

Violations are not remedied until referring physician/DHS entity repays excess compensation or arrangement is terminated

Exceptions: Isolated Transactions Personal Services Arrangements Bona Fide Employment Rental of Space, Equipment Fair Market Value Compensation Indirect Compensation Arrangements

Multiple exceptions have fair market value requirement

FMV – Why It Matters Stark Law 2016 2016 MPFS Nov. 16, 2015 – Helped reduce technical violations Clarifications:

Existing policy Additional explanation where it appears stakeholders would benefit

from clarification New Exceptions:

Assistance to a physician to compensate a non-physician practitioner

Timeshare arrangements Revisions to existing definitions, exceptions, and other rules:

Signature requirement Unlimited holdover arrangements Renewing arrangements that qualify for the exception for FMV

compensation

FMV – Why It Matters False Claims Act Permits private persons -- “relators” or “whistleblowers,” to

recover damages on behalf of the United States from, any person who: Knowingly presents, or causes to be presented, a false or

fraudulent claim for payment or approval; Knowingly makes, uses, or causes to be made or used, a false

record or statement material to a false or fraudulent claim; Conspires to [defraud the government]; or Knowingly makes, uses, or causes to be made or used, a false

record or statement material to an obligation to pay or transmit money or property to the government or knowingly conceals… avoids or decreases an obligation to pay or transmit money or property to the government.

Violations of the FCA are punishable by up to $21,583 per claim, plus treble damages – more than doubled in 2016.

FMV – Why It Matters Tax ExemptionIRC § 501(c)(3) Entities tax-exempt under this section must operate exclusively for tax

exempt purposes and not engage in compensation practices that result in private inurement

Penalties for non-compliance Intermediate sanctions Loss of tax exemption

Many hospitals, health systems, academic medical centers are tax exempt

General guidelines Compensation to physicians should be FMV for services provided Total compensation paid should be reasonable for the market and

responsibilities IRC § 162 – “reasonable” compensation is the amount that would ordinarily

be paid for like services by like enterprises under like circumstances

FMV – Why It Matters State Laws

State Law Issues State self-referral laws

May apply to a broader scope of relationships than Stark (not just physician financial relationships)

May apply to a broader scope of services than “DHS” State anti-kickback issues

May apply with respect to all services, not just those payable by Medicare or other Federal healthcare programs

May include “fee splitting” prohibitions

FMV – Why It Matters

2005 OIG Supplemental Compliance Program Guidance for HospitalsArrangements under which hospitals (1) provide physicians with items or services for free or less than fair market value, (2) relieve physicians of financial obligations they otherwise would incur, or (3) inflate compensation paid to physicians for items or services, pose significant risk. In such circumstances, an inference arises that the remuneration may be in exchange for generating business. (70 Fed. Reg., 4858, 4866 (Jan. 31, 2005))

FMV – Why It Matters Enforcement2015 OIG Fraud Alert: Physician Comp Arrangements May Result in Significant Liability Physicians who enter into compensation arrangements, such as medical

directorships, must ensure those arrangements reflect FMV for bona fide services the physicians actually provide

Arrangement may violate AKS if even one purpose is to compensate the physician for referrals

Government recently reached settlements with 12 individual physicians who entered into questionable medical directorship and office staff arrangements

OIG believed it took into account referrals and did not reflect FMV because the physicians did not actually provide the services contemplated

The “Yates Memo” (September 9, 2015) DOJ policy seeks individual accountability in corporate wrongdoing

FMV – Why It Matters

Fair Market Value is central to the compliance analysis; payments must be FMV,

commercially reasonable, and cannot vary with anticipated

referrals.

Outpatient Hospital Site Neutrality

The Bipartisan Budget Act of 2015 (BiPA Section 603) Budget compromise of November 2015 contained key provision

excluding any new off-campus hospital outpatient department (HOPD) from Medicare’s outpatient hospital prospective payment system (OPPS)

CMS Final Rule November 1, 2016

Outpatient Hospital Site Neutrality Highlights of the Final Rule

Exempt (grandfathered sites): HOPDs in operation and billing Medicare under OPPS prior to

November 2, 2015

OPPS billing permitted for new off-campus departments that are “dedicated emergency departments”

Cancer hospitals

“Mid-build” protection

Minor protection for those few operational HOPDs that provided services but didn’t bill prior to November 2, 2015

Outpatient Hospital Site Neutrality Highlights of the Final Rule

Non-Exempt (non-grandfathered) off-patient sites: Will continue to be able to bill on an institutional bill Payment will be at 50% of OPPS rates, for now Lose outlier payments, SCH and other benefits Relocation kills exception!

For addresses with multiple units, unit # is part of address

Limited exceptions due to extraordinary circumstances (i.e., natural disaster)

CMS states that non-exempted off-campus HOPDs would continue to be considered as part of the hospital and deemed provider-based HRSA position still important

Repeal, Replace, or Retreat?Continuing relevance of the ACA?

Medicaid & coverage expansion

CMMI, other innovation models

ACOs

Other payment reform? MACRA?

Antitrust & Transactions

Enforcement

Tax Reform, Cash Repatriation

Curtis BernsteinPinnacle Healthcare Consulting

[email protected]

Issues in Transaction Valuation



Standard of Value Ancillary Services Personally Performed

Services Cash Flow v. Assets

Tynan OlechnyPYA

[email protected]

Issues in Compensation Valuation


Collaboration Opportunities Clinical Affiliation

Agreement for organizations to collaborate on an initiative or provide a specific service together that may involve local, regional, or national partners

Regional Collaborative Flexible umbrella structure for partnering on specific initiatives and building the foundation of

potential future integration; often encompasses many independent organizations in a common geographic area

Accountable Care Organization Independent entity formed for entering into risk-based contracts; owned by constituent

organizations; creates shared accountability among participating providers Clinically Integrated Healthcare Network

Collection of hospitals that enter into joint payer contracts to improve care coordination and clinical outcomes

Mergers & Acquisitions Formal purchase of one organization’s assets by another or the combination of two

organizations’ assets into a single entity

Multiple Models for Collaboration Employment Agreements Medical Directorship Agreements Educational Services Agreements Supervision Agreements On-call Agreements Consulting Agreements Professional Services Agreements Co-Management Agreements Quality Incentive Programs Shared Savings Arrangements Recruitment Incentive Programs Management Services

Physician Employment Considerations Base compensation wRVU or other productivity-based compensation model Professional net revenue model In-office ancillary services Quality/performance compensation Chemotherapy administration supervision compensation Mid-level supervision compensation Practices losses

Physician Employment (continued) Compensation level entirely disproportionate to productivity

level Example: productivity metrics (e.g., wRVUs) below median,

but total compensation exceeds 90th percentile Unusual compensation

Example: In addition to salary and incentive compensation, physician receives atypical forms of compensation (i.e., car payment paid by hospital)

Compensation exceeds collections Example: Physician is compensated at levels that far

exceed the collections associated with his/her personally performed services

Consideration of benefits

Physician Employment (continued)

Hematology/Oncology

Radiation Oncology

Source: Medical Group Management Association

Professional Services Agreements (PSA) Arrangements by which hospitals enter into agreements with

physicians to acquire necessary professional services Physicians retain practice entity Agreements for clinical services may include professional

staffing, call coverage, clinical and risk management leadership, infusion, and midlevel supervision

Agreements may also include administrative services such as medical directorships, service line development, and/or coordination

Other potential services may include clinical research, etc. Physicians provide professional services and hospital bills and

collect for professional and technical services Hospital hires or leases clinical staff and purchases or leases

space and equipment

Co-Management Agreement Hospital and physicians enter into an agreement where physicians are jointly

responsible with hospital for managing a defined service line Purpose is to recognize and appropriately reward achievement of defined

goals and responsibilities typically associated with developing, managing, improving service line quality and efficiency

Compensation may not take into consideration the volume or value of referrals

Benefits include Physician engagement Focus on quality, efficiency, and outcomes Physicians have authority to implement change Physicians may remain independent and collect professional fees Physicians have greater day-to-day oversight Potential of physicians to have ownership interest in management company

Co-Management Legal Structures Direct contract model

Agreement directly between physician/medical group and hospital

Separate company “NewCo” or management company formed to execute the

co-management agreement with the hospital and to manage the service line

May be physician-owned or a joint-venture with physicians/hospital

Physicians provide initial capitalization of NewCo (or physicians and hospital if management company is to be jointly owned)

Co-Management Services

Leadership

• Medical Director• Advisory

Committee• Coordinating &

reporting to hospital

Budget & Finance

• Budget development

• Financial oversight & monitoring

Strategic Planning

• Development/ implementation of service line

• New program development

• Strategic planning process

Co-Management Services (continued)

Operations

• Service line operations

• Staffing & scheduling

• Patient & staff work flow

• Equipment procurement & materials management

• Credentialing• Case

management• Policies &

procedures

Human Resources

• Review of staffing levels & recruitment & retention plans

• Input on the appointment & evaluation of clinical & non-clinical staff

Other

• Medical staff- related activities, including committee participation

• Patient & community outreach & education

• Assistance with accreditation

Co-Management Compensation Structures Base Compensation

Hospital pays a fixed base fee for provision of pre-defined management services or limits compensation to a maximum amount based upon actual hours worked at a pre-determined rate

Fee must be consistent with time and effort associated with the scope of services provided

Incentive Fee or Bonus Hospital pays an at-risk incentive bonus if the service line meets

pre-defined, mutually agreed upon, objectively measurable performance targets (quality, satisfaction, efficiency etc.)

Incentive Compensation Achievement of quality, operational efficiency,

patient/satisfaction goals Baseline levels determined using the facility’s historical and

clinical data and/or comparable national or regional data, with incentives paid to reflect incremental improvement

May be targeted toward identified areas of need Can be based on improvement or on achievement of specific

targets Incentives should be objective, verifiable, supported by

credible medical evidence, and individually tracked Provide for partial payment for attainment of incremental goals

Key Considerations

Common elements include: Base compensation Productivity threshold (i.e., wRVU level) Incentive compensation for productivity Incentive compensation for quality outcomes Sign-on or retention bonus Compensation for excess call coverage Compensation for supervision or teaching services Administrative compensation

Hospitals and other organizations continue to utilize complex compensation models, often with multiple layers of compensation for multiple services sometimes referred to as “stacking”

Assessing the Risk

• More moving parts

• Higher total compensation

• Ensuring the correct benchmarks are considered

• Assessing each part and the whole package

How risky is this agreement?

=

Employment Considerations Proper understanding and use of survey data (compensation per wRVU,

compensation-to-collections ratio, etc.) Reliance on data from one survey versus multiple surveys What data are represented/included in each survey? wRVU data and the “match” to compensation percentile Is there a “safe” percentile for compensation – 50th percentile/75th percentile?

(settlements of the last year say: perhaps not) Historical compensation--what does it mean for FMV? Commercial reasonableness

Compensation exceeds collections Ex: Physician is compensated at levels that far exceed the collections associated with

his/her personally performed services Unusual compensation

Ex: In addition to salary and incentive compensation, physician receives atypical forms of compensation (i.e., car payment paid by hospital)

PSA and Co-Management Considerations Ensuring that compensation matches duties (e.g., clinical versus

administrative) Increased demand on physicians The 80-hour work week Compensation for identifiable services Are we paying for the same thing twice? Survey data – do they include compensation for everything for which

we are planning to pay? Using the correct survey(s) Commercial reasonableness

Compensation for Research/Consulting Activities Sunshine reporting requirements when compensation originates from

a manufacturer (pharma, medical device, etc.) Importance of clinical research activities in the current world – e.g.,

to meet Cancer Center Standards Defining the scope of a physician’s activities - e.g., investigator

versus physician who merely identifies subjects for a study; speaker versus advisor on product development

Source of compensation affects the stakes– pharma funding, hospital/health system funding, laboratory service provider (registry study), etc.

Keeping in mind guidance from OIG advisory opinions and compliance guidance

Reasonable payment structure – e.g., annual or monthly stipend, per subject amount, percentage of research budget, fee for service, hourly compensation, etc.

“Top 10” Pitfalls for 2017

Alternative Payment Models (Oncology Care Model)

10

Task vs. Time-Based Valuations

Need to align incentives for providers Fee for service does not work in a world of bundled payment

reimbursement Quantifying actual time spent managing costs is

impossible Outside of meetings and other administrative-only time

Determining the ability to reduce cost has been studied by actuaries, regulators, hospitals, and providers Limited data on tying improved performance to reduced cost

9


9


Emergency Room Visits in Last 30 Days of Life

Metrics for improvement

Develop interventions to decrease ED usage Develop tools to analyze admissions within 21 days of

chemo Proper use of palliative care

910% 20%

Establishing Metrics Quality measures

CMS Specialty organizations (ACoS, ASTRO, ASCO, ACP) AMA – PCPI (Physician Consortium for Performance Improvement) NCCN NCQA NQF Private payers

Satisfaction measures Patient satisfaction survey results Staff satisfaction survey results

Program development Achievement of identified milestones (not measured by volumes) Process of care measurements

8

Midlevel Supervision Compensation

Considerations for midlevel supervision compensation Number of midlevels supervised (i.e., state requirements) Midlevel productivity Number of hours spent supervising Benchmark considerations

Prevalence of supervision Number of midlevels supervised Method of compensation

7

Infusion Supervision Compensation Considerations for chemotherapy administration supervision

Service providers (i.e., MDs or MLPs) Scope of practice requirements Oncology and non-oncology (i.e., rheumatology, GI) services Location and number of infusion centers supervised Infusion center hours Infusion center volumes Multiple groups providing services Benchmark considerations

6

How high is high?

5

Value of Data

Cost to compile reports Personnel/Staffing

Technology/Software Expenses Start-Up/Infrastructure Costs

Key Drivers of Value for Data Type of Data Providing – Breaking Down the

Record Aggregated Categorical Data Observation Variable Data

Amount of Data Provided

4

Valuing Other Intangible Assets

Work Force in Place Medical Records / Data Brand Names Licenses Non-Competes

3

Read the fine print

Valuation: Duration Assumptions

2

How does it all stack up?

1