Little Health Law Blog

Letters of Intent: Framing the Sale/Purchase of a Medical Practice

November 27, 2013 | Little Health Law

The parties have talked in abstract terms and danced. There seems to be a deal in the making. Negotiating the particulars of a written purchase agreement for the sale/purchase of a medical practice – the real test to see if you have a deal — is time consuming and potentially expensive. Before you dive into that process, you want to know you have a deal and its specific parameters. A letter of intent is the tool that allows you to do just that. A letter of intent is, generally speaking, a non-binding way to see if you have a deal and establish a framework for the more involved process of negotiating a purchase agreement.

After initial discussions and meetings, the letter of intent is the first opportunity to commit specific thoughts and ideas to writing and bring the parties closer to committing. The letter of intent should set forth basic points of agreement that the seller and buyer want to cover in the purchase agreement. The shift from abstract talk to written words helps focus the parties on true terms and consideration, to see if they really want to commit. Once the basic terms of the deal are established by a letter of intent, the parties can more easily and with greater efficiency transition to the process of preparing a complete purchase agreement.

The letter of intent should cover all of the basic terms, including price and payment. Will the purchase price be paid in full at closing or paid in installments? If the payment will be made in installments, with what payment schedule, interest rate and security? The letter is also an opportunity to specify who is responsible for payment of expenses associated with the transaction. Usually, the seller and buyer are responsible for their own professional fees. There are instances when one party agrees to pay all or a portion of the other party’s expenses, however. Such details should be covered in the letter of intent.
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Good Physician Recruitment Agreements

November 27, 2013 | Little Health Law

The amount of attention that physician recruitment receives from government eyes warrants recruitment agreements that are, ideally, airtight. So, what are key criteria for a physician recruitment agreement that is compliant and will work for both parties? There are many important elements of a good physician recruitment agreement, including the following.

First, it is vital to show that a community need exists for the doctor’s services. A specific need for the physician’s specialty area or an opportunity to lower costs and improve access to care in that community, demonstrated with proper evidence (such as statistical or demographic studies), can lend strong support a physician recruitment agreement. It is a good idea to hire a third party to analyze supply and demand for specialties in the local community. Additionally, the recruitment agreement itself should spell out the need and demonstrate that an objective of the agreement and relationship is to serve community interests.

A hospital can provide subsidies to the physician for working in the local area such as reduced rent, a traditional net income guaranty, and payment of malpractice insurance premiums. No matter what type of benefits the hospital provides, however, the physician should sign a promissory note that requires repayment of all subsidies from the hospital. Generally speaking, this repayment obligation can only be waived if the physician remains in the local area for a period of two to three years after the end of the guaranty period. The waiver is to ensure the community’s need for that physician is effectively met through the recruitment agreement.

Any guaranty payments made to a group that employs the physician rather than to the physician directly should be with caution in light of the STARK Law, to avoid perceived abuse. Any portion of the guaranty payment made to the physician’s group that is not returned to the recruited physician must be accounted for. The physician group can only retain portions of the payment that directly go to additional expense that attends addition of the new physician. No portion of the guaranty payment can be withheld to pay for existing overhead costs that the medical group already incurs. For example, the medical group employing the physician cannot charge its rent costs to the new physician when he or she did not cause any increase to the expense. Both the hospital and practice should keep careful records that show what formulas are used to calculate the payment amount in order to prevent the use of expenses for preexisting medical group expenses.

Any formulas used for calculating the payments to the physician should be very specific. Avoiding vague language in the agreement will reduce the likelihood of disputes. The agreement should specifically state the salary, what expenses are included in the guaranty, and whether the collections of the recruited physician will be reconciled monthly or quarterly. Taking proper care of these specifics will reduce the chance of disputes and unnecessary headaches in calculating payments.
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THE INEVITABLE CHOICE for many primary care doctors: Direct Primary Care, a/k/a Concierge Medicine

October 12, 2013 | Little Health Law

Many doctors feel the involvement of an insurance company or other third party payer in the practice of medicine is a source of headaches for their medical practice. Nothing on the horizon seems to indicate that red tape, administrative burdens, and an arbitrary manner by which some insurers and other payers decide when and how claims get paid will abate. There seems to be no chance that a third party payer’s involvement in the practice of medicine will make rendering patient care better and easier. So what should doctors do to make a happy living providing care? How can patients afford and get the care and attention they need to protect their health?

The inevitable choice for many primary care doctors (and patients) is direct primary care, or “concierge” medicine. The driver of this model is obvious: no more insurance company (or, at least, a lot less third party payer involvement in medical practice). For consumers, concierge plans are no longer just for the wealthy, but are affordable for most individuals and families. For a direct monthly fee, often less than a cell phone bill, “members” get personalized, ready access to a doctor who can take the time to get to know them and help them stay healthy. Primary care physicians will see concierge medicine grow as an opportunity in coming years, particularly with the unavoidable commotion and difficulties the Affordable Care Act (ACA) will cause all providers and patients as myriad struggles in ACA implementation unfold.

Primary care doctors that get serious about evaluating a concierge business model will also realize, however, that this business model presents particular legal pitfalls that must be carefully dealt with to ensure the viability of the business over the long term. Some potential issues to be considered and addressed, for example, concern:

– the unlicensed practice of medicine in states where the “treating” doctor does not have a license (if, for example, the doctor is consulting by email with a patient who has moved his residence)

– compliance with HIPAA privacy and security rules in a practice that relies more heavily upon electronic communications Continue reading ›

Health Services Company Owners Plead Guilty to Healthcare Fraud

September 21, 2013 | Little Health Law

On September 5, 2013, owners of Trust Care Health Services, Inc. (Trust Care) pled guilty in a Florida federal court to federal healthcare fraud charges. Roberto Marrero, Sandra Fernandez and Enrique Rodriguez, owned and operated Trust Care. Trust Care was a Florida corporation, incorporated in 2005 that did business as a home healthcare services business in the Miami and South Florida area. Trust Care provided home health and physical therapy services to Medicare beneficiaries.

Trust Care was an authorized Medicare provider, approved to submit claims to Medicare. The Government’s allegations of Medicare fraud were based on the Government’s contention that physical therapy and home health services were billed to Medicare but not medically necessary, or not provided, or both.

According to the indictment, the defendants and co-conspirators paid patient recruiters to provide Trust Care with patients to whom defendants sold healthcare services that were not medically necessary and/or not provided. Kickbacks and bribes were also paid to obtain for Trust Care prescriptions, medical certifications and other documents needed to facilitate the scheme. Specifically, the government alleged:

It was the purpose of the conspiracy for the defendants and their conspirators to unlawfully enrich themselves by: (1) paying and accepting kickbacks and bribes for referring Medicare beneficiaries to Trust Care so that their Medicare beneficiary numbers would serve as the bases of claims filed for home health care; and (2) submitting and causing the submission of claims to Medicare for home health services that the defendants and their conspirators purported to provide to those beneficiaries.

Indictment, para. 3.
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WILL THE AFFORDABLE CARE ACT BE AFFORDABLE FOR EMPLOYERS?

August 31, 2013 | Little Health Law

The price Americans will pay for Affordable Care Act (ACA) changes may include lost wages and job benefits due to the price tag of ACA compliance for employers. It may seem to many like a good and noble thing to require insurers to insure everyone irrespective of health conditions and the attending financial risks and costs the insurer must assume; to make all individuals buy health insurance, irrespective of whether they want or need it; and to force employers to provide what the government decides says is the right kind of health insurance to employees. But nothing is free or without consequence, especially sweeping legislation intended to overhaul healthcare. Unfortunately, while the ACA will undoubtedly benefit many Americans, the true costs of the ACA will prove unaffordable for many employers and likely result in lost wages and job benefits for many Americans.

For example, the University of Virginia and United Parcel Service recently informed employees that it would no longer offer healthcare coverage to employee spouses able to obtain insurance from other sources. UVA announced what it described as “major changes” in their health plan options to employees and explained the changes were necessary based on UVA’s projections that the ACA will result in $7.3 million in additional costs associated with its health plans in 2014 alone. UVA is attempting to defray the cost of complying with the ACA by cutting health benefits to many spouses. UPS indicated that costs of complying with the ACA contributed to its need to drop spouse coverage, which will affect as many as 15,000 employees. UPS explained that due in part to the ACA, it is “increasingly difficult to continue providing the same level of health care benefits to our employees at an affordable cost.” Other employers have limited non-management workers’ hours to 29.5 for the purpose of circumventing ACA requirements that are triggered by having 50 or more “full time” employees (i.e. 30 hours or more, under the ACA). For example, Forever 21 recently announced to its employees that effective August 31 they would not be full-time employees.
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Medicare Fraud Strike Force Uncovers $2.6 Million Medicare Fraud Scheme by DME Owner

August 29, 2013 | Little Health Law

The Medicare Strike Force of the FBI and HHS-OIG continues efforts to eliminate fraudulent healthcare providers from the healthcare arena. The Strike Force recently obtained a guilty plea by the former owner of a California durable medical equipment supply company (DME) business based on an alleged scheme to defraud Medicare of millions. Akinola Afolabi, 54, of Long Beach, California, pled guilty to one count of healthcare fraud and now faces up to 10 years in prison and a $250,000 fine. Afolabi’s sentencing by the U.S. District Court in the Central District of California will take place on November 25, 2013.

According to the government’s allegations in that case, Afolabi owned Emanuel Medical Supply Company. Emanuel was a DME supply company that sold, among other things, power wheelchairs and related supplies. The federal government alleged that Afolabi used Emanuel to provide medically unnecessary power wheelchairs and other DME to Medicare beneficiaries in California, during a three year period. Afolabi is alleged to have used “marketers,” among other means, to obtain Medicare beneficiaries’ contact information, which Afolabi submitted to the government to make false Medicare claims. Afolabi paid the marketers to refer Medicare beneficiaries to Emanuel. Afolabi then falsely certified to Medicare that each claim submitted was for medically necessary DME that was actually provided to the beneficiary, according to the government. During the subject time frame, Afolabi submitted to Medicare approximately $2.6 million in alleged fraudulent claims for the wheelchairs and related services, and Medicare paid out almost $1.5 million.

The Medicare Strike Force continues to combat healthcare fraud. Eliminating healthcare fraud and obtaining recoveries from bad actors remain a major push for the federal government as a means of reducing the cost of healthcare for our Country. Since 2007, the Strike Force has charged over 1,500 defendants who have together submitted more than $5 billion in Medicare claims.
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WILL THE AFFORDABLE CARE ACT BE IMPLEMENTED?

July 31, 2013 | Little Health Law

The U.S. House voted recently to delay the so-called “individual mandate” of the Affordable Care Act (ACA). On July 17, 2013, the House passed the Fairness for American Families Act, H.R. 2668, sponsored by Rep. Todd Young (R-IN). Passage of H.R. 2668 sets the stage for a political show down about whether to implement some, all or none of the ACA. Swords are drawn. The ACA survived the political fight for its passage. It survived the legal fight about its constitutionality. But can it survive the fight about whether, or to what extent, to actually implement it?

The H.R. 2668 Digest expresses concern that implementation of the ACA will “have significant consequences on patients, our nation’s healthcare system, taxpayers, job holders, job creators, individuals, families, and the economy.” According to the Digest, “the 190 million hours per year that American families will be forced to spend complying with [ACA] requirements; the likelihood that seven million people will lose their employer based insurance, the increase in health insurance premiums by as much as 400 percent for individuals and 100 percent for the small group market; the $716 billion cuts to Medicare; the $628 billion expansion of Medicaid to mostly childless adults, the 159 new government boars, including IPAB, and the 800,000 job losses that the CBO anticipated.

According the supporters of H.R. 2668, the following are key points and dates on healthcare:

Higher Costs and Taxes

• Limitation on flexible savings account contributions to $2,500 per year (indexed to CPI)
• Imposition of a 0.9 percent Medicare Part A wage tax and a 3.8 percent tax on unearned, non-active business income for those earning over $200,000 or $250,000 for families (not indexed to inflation)
• Imposition of a 2.3 percent excise tax on medical devices • Increase in the income threshold for claiming tax deductions for medical expenses from 7.5 percent to 10 percent • Elimination of the existing deduction for employers who maintain prescription drug plans • Cuts to Medicare payments to hospitals for treating low-income seniors • Increase in Medicaid payment rates to primary care physicians for primary care services to 100 percent of the Medicare payment rate for 2013 and 2014 • Start of open enrollment in Health Insurance Marketplace – October 1, 2013
More Government, Higher Costs

• Implementation of Health Insurance Marketplace (Exchanges) – 17 states plus DC will implement their own exchanges, 7 in partnership with federal government, remaining 26 states will be run by the federal government – January 1, 2014 • Prohibition on annual limits or coverage restrictions on pre-existing conditions (guaranteed issue/renewability)
• Extension of prohibition on excessive waiting periods to existing health plans • Imposition of modified community ratings: family versus individual; geography; 3:1 ratio for age and 1.5:1 for smoking • Imposition of government-defined “essential benefits” and coverage levels on insurance plans • Limitation on out-of-pocket cost sharing (tied to limits in HSAs). Limits are $6,250 for individuals and $12,700 for families (indexed for COLA)
• Implementation of premium subsidies for insurance purchased in the Health Insurance Marketplace — amounts of subsidies are dependent on income and available up to 400 percent of the federal poverty line • Requirement that federal government offer at least two multi-state plans in every state
Higher Taxes

• Imposition of new health insurance industry tax (increase will be $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, and $14.3 billion in 2018 and indexed to medical cost growth afterwards • Imposition of individual mandate. Individuals who fail to obtain acceptable insurance will incur a penalty tax of the greater: $695 or 2.5 percent of income. For families without approved coverage, penalties are capped at $2,250 until 2016 and then indexed for inflation
Higher Costs/Lost Coverage/Lost Jobs/Employer Mandates
• Imposition of the Employer mandate. Employers with 50 full time employees or more who fail to offer “affordable” coverage must pay a $3,000 penalty for every low-income employee that receives a subsidy through the Exchange, even if coverage is already provided • Imposition of $2,000 tax penalty on employers who employ more than 50 full time employees and don’t provide insurance coverage. Penalty assessed for every full time employee. Up to 30 full time employees are exempt when calculating penalty • Require employers with more than 200 employees to auto-enroll employees in health coverage, with opt-out options Decrease Access/Weakened Safety Net • Continued cuts to Medicare home health reimbursement • Implementation of IPAB recommendations • Cuts to Medicare payments to Disproportionate Share Hospitals • Cuts to federal Medicaid payments for Disproportionate Share Hospitals from $18.1 billion to $14.1 billion • Expansion of Medicaid coverage to 22 million childless adults up to 138 percent of the federal poverty line – diminishing resources for vulnerable populations. States will receive 100 percent of the FMAP 2014-2016, 95 percent in 2017, 94 percent in 2018, and 90 percent after
See H.R. 2668 Digest.
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THE PHYSICIAN HIRE: EMPLOYEE OR INDEPENDENT CONTRACTOR?

July 20, 2013 | Little Health Law

The trend for physicians to work for a hospital or hospital system continues. Once a physician finds a job opportunity, one of the first details the physician and the hiring entity may discuss is the nature of the relationship. Will the doctor be an employee or an independent contractor?

Often the hiring entity desires to avoid certain burdens that typically attend employment, such as malpractice liability, employment benefits (e.g. pension, health insurance), and payroll taxes. There are certain reasons the physician may perceive his best interests are served by independent contractor status as well, such as (perceived) tax advantages to having his own corporation or a greater sense of independence in practicing his trade.

The hiring entity and the physician should be mindful, however, that establishing an independent contractor relationship is not automatic from legal standpoint, their desire and their written agreement notwithstanding. In fact, most doctors hired cannot be properly classified as independent contractors. Whether the relationship is “employment” or “independent contractor” must be determined ad hoc according to the particular, details of the relationship.

What determines the issue?

In the Joint Committee on Taxation’s publication Present Law and Background Relating to Worker Classification for Federal Tax Purposes (JCX-26-07), May 7, 2007, 20 factors the IRS analyzes to determine whether sufficient direction and control exist to support an employer-employee relationship are set forth. Those factors are:

1. Instructions: If the person for whom the services are performed has the right to require compliance with instructions, this indicates employee status.

2. Training: Worker training (e.g., by requiring attendance at training sessions)
indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates employee status).

3. Integration: Integration of the worker’s services into the business operations of the person for whom services are performed is an indication of employee status.

4. Services rendered personally: If the services are required to be performed personally, this is an indication that the person for whom services are performed is interested in the methods used to accomplish the work (which indicates employee status).

5. Hiring, supervision, and paying assistants: If the person for whom services are performed hires, supervises or pays assistants, this generally indicates employee status. However, if the worker hires and supervises others under a contract pursuant to which the worker agrees to provide material and labor and is only responsible for the result, this indicates independent contractor status.

6. Continuing relationship: A continuing relationship between the worker and the person for whom the services are performed indicates employee status.

7. Set hours of work: The establishment of set hours for the worker indicates employee status.

8. Full time required: If the worker must devote substantially full time to the business of the person for whom services are performed, this indicates employee status. An independent contractor is free to work when and for whom he or she chooses.

9. Doing work on employer’s premises: If the work is performed on the premises of the person for whom the services are performed, this indicates employee status,
especially if the work could be done elsewhere.

10. Order or sequence test: If a worker must perform services in the order or sequence set by the person for whom services are performed, that shows the worker is not free to follow his or her own pattern of work, and indicates employee status.
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RISING OPPOSITION TO ACA IMPLEMENTATION

July 17, 2013 | Little Health Law

Steve Brenton, President of the Wisconsin Hospital Association, released a forceful judgment of the Obama Administration’s decision to delay by at least one year implementation of the Affordable Care Act’s (ACA) employer mandate, calling it a “dogs breakfast.” As reported in the Milwaukee Business Journal, Brenton cited five very negative consequences he believes the delay will achieve:

– The delay energizes ACA opponents and reinforces to an already skeptical public the view that implementation will likely be uneven at best and a ‘third world experience’ at worst”;

– The delay “raises obvious questions” about the possibility of delaying other provisions, including the individual mandate, which Brenton said seems likely to be another casualty in the coming months;

– The delay will cost the federal treasury $10 billion in fines and penalties according to Congressional Budget Office projections;

– What he called a “meltdown of mandates” lessens the probability that new coverage will climb to anywhere near the numbers the Obama administration predicted in 2009 when touting the law and;

– The decision adversely impacts the viability of the insurance exchanges, which are foundational to the ACA.

The ACA requires companies that have 50 or more full-time equivalent employees to provide health insurance coverage that is “affordable” to their employees and meets minimum value standards. Under ACA rules, coverage is “affordable” if an employee’s share of premium costs for employee-only coverage is less than 9.5% of yearly household income. The minimum value standard is met if the health plan’s share of the total costs of covered services is at least 60%. The reporting requirements for employers (to demonstrate whether and how they meet these and other ACA requirements) have left company decision makers shaking their heads in frustration about how to meet the law’s requirements. The delay is intended to give government officials more time to sort it all out, apparently. According to Mark J. Mazur of the U.S. Department of the Treasury, by virtue of the delay, employers will not be required to make any shared responsibility payments until 2015.

Kathryn Johnson of the IRS Office of Associate Chief Counsel (Tax Exempt & Government Entities) authored a guidance document to provide “transition relief through 2014 for the information reporting and Shared Responsibility Provisions. The guidance document states that “proposed” rules for reporting requirements are expected to be published this Summer, and further explains:

This relief will provide additional time for time for dialogue with stakeholders in an effort to simplify the reporting requirements consistent with effective implementation of the law. It will also provide employers, insurers, and other reporting entities additional time to develop their systems for assembling and reporting the needed data. Employers, insurers, and other reporting entities are encouraged to voluntarily comply with these information reporting provisions for 2014 (once the reporting rules have been issued) in preparation for the full application of the provisions for 2015. However, information reporting under §§ 6055 and 6056 will be optional for 2014; accordingly, no penalties will be applied for failure to comply with these information reporting provisions for 2014.

July 16, 2013. Efficiency in practice, an InHealth Company, features Kevin Little’s Guidelines for Physician Review of Health Plan Contracts.

July 16, 2013 | Little Health Law

Efficiency in practice, an InHealth Company, features Kevin Little’s Guidelines for Physician Review of Health Plan Contracts.