Wachler & Associates Health Law Blog

On June 14, 2011, the Office of Inspector General (OIG) issued an unfavorable advisory opinion addressing an existing and a proposed arrangement involving contracts between a durable medical equipment (DME) supplier and several independent diagnostic testing facilities (IDTF). The DME supplier (Requestor) provides continuous positive airway pressure supplies (CPAP), which may be prescribed by a physician for patients diagnosed with obstructive sleep apnea. The study may be performed at the IDTFs, and a patient must select a DME supplier to supply the equipment after being prescribed the CPAP.

The existing arrangement involves contracts between Requestor and several IDTFs, some of which have physician investors, where the IDTFs are permitted to display and provide equipment from multiple DME suppliers. The patients are given a list of local DME suppliers, and are advised by IDTFs their right to select which supplier will provide them with the equipment. The contracts only apply to non-federally insured patients. If a non-federally insured patient chooses Requestor’s DME, an IDTF staff member will prepare the CPAP for the patient, along with educating the patient on how to properly use the equipment. For completing these tasks, Requestor pays the IDTF a per-patient fee. Each contract between Requestor and IDTF is non-exclusive and is set for a term of at least one year. Furthermore, Requestor may only terminate the contract for breach or for cause, but the IDTF may terminate the contract at any time.

The proposed arrangement would be similar to the existing arrangements, except for the following three elements: (1) the proposed arrangement would include federally-insured patients; (2) IDTF would be paid a flat monthly/annual fee; and (3) Requestor would have the ability to terminate the contract if it is unsatisfied with the number or patients receiving the services.

The Centers for Medicare & Medicaid Services (CMS) recently issued an advisory opinion stating that a physician recruitment arrangement including a non-competition provision meets the requirements of the physician recruitment exception under the Stark law. The approved non-compete arrangement restricts the physician from establishing, operating, or providing professional medical services at any location within a twenty-five-mile radius of the hospital for one year.

Under the Stark law, the original Stark physician recruitment exception required that a practice not impose additional restrictions on a recruited physician other than conditions related to the quality of care. However, in Stark III, CMS stated that it now believes that categorically prohibiting non-compete provisions from recruitment arrangements makes it difficult to recruit physicians, and that practices may be unable to hire physicians despite receiving a hospital’s financial assistance in compliance with the Stark physician recruitment exception. CMS provided several factors that determine whether a non-competition provision imposes practice restrictions that “unreasonable restrict” a physician’s ability to practice medicine in the geographic service area. In Advisory Opinion 2011-01, CMS found that: 1) the time period restriction of one year was reasonable, 2) the distance requirement was reasonable based on the hospital’s geographic service area, 3) the physician would still be permitted to practice at certain hospitals both within and outside the hospital’s service area during the one year period, and 4) the non-competition provision complies with state a local laws.

The advisory opinion provides health care entities with a framework for structuring non-competition provisions under the requirements of the Stark law physician recruitment exception. Wachler & Associates regularly advises clients on Stark, fraud and abuse, and the anti-kickback law. If you have any questions regarding the physician recruitment exception, the Stark law in general, or other Stark exceptions please contact a Wachler & Associates attorney at 248-544-0888 or visit www.wachler.com

A group of U.S. senators is seeking an inquiry into the expansion and potential abuse of physician-owned distributorships (PODs). PODs are entities that allow doctors to purchase ownership shares in an organization that buys products used in surgery. In separate letters to the Centers for Medicare & Medicaid Services (CMS) and the U.S. Department of Health and Human Services (HHS), the report states that the Senate Finance Committee has received “numerous allegations” of physicians who performed more surgeries than medically necessary, or who used implants that were of “inferior quality or not best suited for the procedure,” due to their financial interest in PODs.

The Report asks each department to review the POD industry’s compliance with fraud and abuse and anti-kickback laws. Physicians who control the choice of medical devices may use their ability to generate referrals for hospitals in order to induce them to buy medical devices from companies in which the physicians have ownership. Further, the committee believes that the recently released regulations for accountable care organizations may “provide an inadvertent loophole allowing less reputable POD models to fall under the Stark and anti-kickback law waivers envisioned for ACOs.”

Physician-owned distributorships, according to a 2006 OIG opinion, carry “the strong potential for improper inducements.” The Senate committee noted that hospitals, physicians and medical device manufactures would benefit from “clear legal guidance.” For more information regarding PODs and their compliance with fraud and abuse and anti-kickback laws, please contact a Wachler & Associates attorney at 248-544-0888 or visit our website at www.wachler.com

On June 8, 2011, the Health Information Technology Policy Committee (“HITPC”) advised the U.S. Department of Health and Human Services (“HHS”) to push its deadline for Stage 2 meaningful use requirements to 2014. The current deadline is 2013 for providers who achieve Stage 1 meaningful use requirements in the 2011 payment year. Upon reviewing the Meaningful Use Workgroup’s recommendations, HITPC acknowledged that requiring providers who achieve Stage 1 requirements in 2011 to meet Stage 2 requirements in 2013 can be seen as penalizing early adopters. Therefore, as a way to prevent providers from delaying Stage 1 attestation, HITPC urged HHS to allow those who meet Stage 1 in 2011 an additional year to meet the requirements of Stage 2.

The American Hospital Association (“AHA”), one of the organizations that provided comments to the Meaningful Use Workgroup, proposed that Stage 2 be pushed back until three-fourths of eligible providers are compliant with Stage 1. In addition, AHA recognized that less than 2% of responding providers confirmed that they were able to meet the minimum meaningful use requirements when the initial incentive payments became available. The organization also noted that initiating Stage 2 requirements too quickly may cause providers to become overwhelmed and decreases their ability to properly comply.

If you need help understanding the meaningful use requirements or assistance with negotiating EHR contracts, please contact a Wachler and Associates attorney at 248-544-0888.