Transcript CardiacAssist, Inc. - Dickson Consulting

Dickson Consulting
Medical Device Industry Update
Overview of the Stark Laws
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Purpose of Stark Laws
Doctor
Hospital
Device
Compan
y
The Stark Laws address consulting and professional
relationships among doctors, hospitals and
companies.
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Additional Information
• The Stark Laws and the business relationships
between doctors, hospitals and medical device
providers are complex. Accordingly, appropriate
legal counsel should be consulted for opinions on
specific situations.
• Interim Final Rule-Federal Register; Friday, March 26,
2004;16054 – 16146
• Correction of Errors to Interim Final Rule-Federal
Register; April 6, 2004; 17933
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Helpful Websites
• www.complianceland.com
• www.amda.com/federalaffairs/stark2.htm
• www.starkcompliance.com (for fee web site)
• Law firms with health care practices web sites
frequently contain newsletters and/or other
information.
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Stark Laws History
• Stark Law I
– Enacted in 1989 and effective January 1,
1992
– Self referral ban for clinical laboratory
services
– Prohibited entities from a making a claim
for payment under the Medicare program
for clinical laboratory services furnished
pursuant to a prohibited referral.
• Stark Law II
– 1993 expansion of Stark Law I, effective
January 1, 1995
– Expanded to cover additional health care
services
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Stark Laws History
• Stark Law II, Phase II
– Addresses comments received on phase I and
provided final regulations
– Interim Final Rule issued March 26, 2004
– Effective July 26, 2004
• Stark Law II, Phase III
– Final rules required within three years of Phase II
rules
– Will address comments on Phase II
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Stark Laws Basic Prohibitions
(A Physician Cannot)
•
•
•
•
Make a referral
To an entity
For the furnishing of “designated health services”
The may be payable by Medicare or Medicaid (or
insurance companies in some states)
• If the physician (or the immediate family member of
the physician)
• Has a direct or indirect financial relationship with the
entity
• Unless an exception to the Stark laws applies
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What Is A Referral?
• A physician’s request for, ordering of, or certifying
the need for, any “designated health service”…,
• A physician’s request that includes the provision of
any designated service, the establishment of a plan
of care that includes the provision of a designated
health service or the certifying or recertifying of the
need for such a designated health service.
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Examples of Designated Health
Services
• Clinical laboratory services
• Physical therapy, occupational therapy and speech
language pathology
• Radiology and certain other imaging services
• Radiation therapy and supplies
• Durable medical equipment and supplies
• Prosthetics, orthotics and prosthetic devices and
supplies
• Home health services
• Inpatient and outpatient hospital services
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What is a Direct or Indirect Financial
Relationship?
• A direct or indirect “ownership or investment
interest” in the entity that furnishes designated
health services
• A “compensation arrangement” between the
physician and the entity
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Requirements for “Personal
Services Exemption”
• Requirements for personal services exemption =
provisions of an agreement with a physician that
must be included.
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Requirements for “Personal
Services Exemption
•
Cover all of the services to be furnished and be in writing, be
signed by the parties to the agreement and specify the
services covered by the agreement.
•
Cover all of the services to be furnished by the physician
under the arrangement. If some services are covered in
another agreement, the agreements must cross-reference
each other or the entity furnishing the designated health
service must maintain a master list of agreements.
•
Cover aggregate services that do not exceed those that are
reasonable and necessary for the legitimate purposes of the
arrangement.
(Requirements continued)
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Requirements for “Personal
Services Exemption”-Continued
•
Be for a term of at least one year. If the agreement
terminates before the end of the first year, the
parties cannot enter into another arrangement for
the substantially same services during the first
year of the original term of the agreement.
•
Provide for compensation to be set in advance,
does not exceed “fair market value,” and not be
determined by the volume or value of any referrals
or other business generated between the parties.
•
Not involve counseling or promotion of a business
arrangement or other activity that violates any
state or federal law, such as the federal Antikickback Statute.
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What is “Fair Market Value”
• The value in arm’s length transactions, consistent
with the general market value”.
• General market value means “the compensation that
would be included in a service agreement as the
result of bona fide bargaining between well-informed
parties to an agreement who are not otherwise in a
position to generate business for the other party” at
the time of the agreement.
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FMV of Hourly Payments
• An hourly payment for personal services is
considered to be “fair market value” if the payment
is established using either of the following two
methodologies:
– The hourly rate is less than or equal to the
average hourly rate for emergency room
physician services in the relevant physician
market, provided that there are at least three
hospitals providing emergency room services in
the market.
– The hourly rate is determined by averaging the
50th percentile national compensation level for
physicians with the same physician specialty in a
survey divided by 2,000 hours.
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Physician Compensation Surveys
• Sullivan, Cotter & Associates, Inc.-Physician Compensation
and Productivity Survey-www.sullivancotter.com
• Hay Group-Physician Salary Survey Report-www.haygroup.com
• ECS Watson Wyatt-Hospital and Health Care Management
Compensation Report-www.watsonwyatt.com
• William. M. Mercer-Integrated Health Networks Compensation
Survey-www.mercer.com
• Hospital and Healthcare Compensation Services-Physician
Salary Survey Report
• Medical Group Management Association-Physician
Compensation and Productivity Survey
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Stock Options and Stock Ownership
• Options received as compensation are compensation-and not
an ownership interest-until they are exercised.
• The past granting of options is not a problem if the entire
compensation arrangement fits within the exception applicable
to personal service exemption.
• Once the options become exercised, they become an
ownership interest.
• The only Stark exceptions for ownership are:
– Publicly traded securities.
– Mutual funds.
– Certain providers (rural providers, a hospital in Puerto Rico,
and a whole hospital-not a department or part thereof.
– In-office ancillary services.
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FMV of a Stock Option
• Difference between FMV and exercise price.
• Black-Scholes and similar methodologies are difficult to apply
for nonpublic companies
• Annual report footnote on accounting policies- Weighted
average fair value of options granted during the year for
employees=$.xx for 200x and 200x.
• Annual report footnote on stock option plans-At December 31,
200x, the fair market value was less than the exercise price (of
$.00) and, therefore, no compensation expense was recorded
for options.
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Situations Where Stock Options Are
a Problem
• Physicians total compensation from the company,
including the stock options, is not at fair market
value.
• Valuation does not take into consideration all
relevant factors-for example, granting stock options
if the Board has recently approved a plan to go
public can affect the value of an option.
• A physician whose hospital is a larger customer is
granted stock options, while a physician whose
hospital is a smaller customer does not receive
stock options, even though the physicians perform
the same consulting work for the company.
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Reporting Requirements
• Information that can be requested (by CMS or OIG):
– The name and identification of each physician
who has a reportable financial relationship with
the entity
– The name and identification of each physician
who has an immediate family member who has a
reportable financial relationship
– The covered services furnished by the entity
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Documentation Requirements
– Entities and physicians relying upon the fair
market value safe harbors for payment for a
physician’s personal services should document
compliance with the safe harbor.
– Parties entering into personal service
arrangements must be documenting all separate
arrangements between the parties either by
incorporation by reference or maintaining a
master list of the contracts.
– Parties that fall out of temporary compliance with
and exception should document the reasons for
the temporary non-compliance3 and the actions
taken to rectify the situation
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Penalties Associated With
Violations
• Repayment of all amounts billed to the Medicare
and Medicaid program that violate the Stark Law
• Civil penalty of $15,000 for each claim submitted
plus two times the reimbursement claimed
• Monetary penalties up to $100,000 per scheme if
an arrangement is found to have its principal
purpose the intent to ensure physician referrals
• Exclusion from the Medicare and Medicaid
programs
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Penalties Associated with Violating
the Federal Anti-kickback Statute
• Civil penalties
– Monetary penalty of $50,000 per violation
– Assessment of up to three times the remuneration involved
– Exclusion from participation in all Federal healthcare
programs
• Criminal violation
– Five years in prison
– Fine up to $25,000
– Mandatory exclusion from participation in all federal health
care programs
– Criminal violation
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Other Risks
• Liability under the U.S. False Claims Act
• Liability under states “mini Stark Laws”, which
prohibit self-referrals for reimbursements by any
payer, not just the Medicare and Medicaid
programs
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Tips On Complying
• Consult your legal counsel
• Key company personnel should have an
understanding of Stark Laws
• Executive management should evaluate all business
relationships with health care professionals
• Company should adopt a Code of Ethics on
interactions with health care professionals
• Documentation policy should be established
• Establish a program for monitoring compliance
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Disclaimers
• The information in this presentation is
believed to be correct but no
assurances are provided that the
information is correct.
• Issues may exist that are significant
that are not mentioned in this report.
• This information is not intended to
provide legal advice.
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