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| Dear Friend,
Stark just became a little less stark.
A CMS advisory opinion [Advisory Opinion No. CMS-AO-2021-01] issued in June 2021 provides guidance that a parent-subsidiary medical practice entity structure in which the subsidiaries themselves don’t qualify as “group practices” under Stark can, in total, qualify as a “group”.
Some Background
The Stark Law and the regulations under it prohibit a physician from making a referral for certain designated health services, such as clinical laboratory services, DME, and imaging services, payable by Medicare to an entity with which the physician (or an immediate family member of the physician) has a financial relationship unless all requirements of an applicable exception are satisfied.
The exception for in-office ancillary services is available to a physician practice consisting of two or more physicians only if the physician practice qualifies as group practice.
Under the regulations a group practice must consist of a single legal entity operating primarily for the purpose of being a physician group practice. However, a group practice that is otherwise a single legal entity may itself own subsidiary entities through which it provides services to the group practice.
The Requestor
The entity requesting the Advisory Opinion (“Requestor”) is a single-owner (“Owner”) professional limited liability company operating as a physician group practice furnishing, in addition to physician services, designated health services to Medicare beneficiaries.
In simplified form, Requestor sought CMS’s opinion as to whether Requestor would fail to qualify as a group practice if it furnishes designated health services through a wholly-owned subsidiary entity that is a physician practice but does not itself qualify as a group practice.
Owner, in addition to being the sole owner of Requestor, also was the sole owner of (i) “Subsidiary A”, a professional corporation operating as a physician practice, and (ii) “Subsidiary B”, a professional limited liability company operating as a physician practice.
The Owner planned on having the Requestor acquire the Owner’s interest in Subsidiary A and Subsidiary B but continue to operate them as separate legal entities providing both physician services and designated health services because many payors and health plans prohibit assignment of their payor contracts to a successor organization. All of the Requestor and the Subsidiaries would be managed by the same management entity (“Manager”). Subsidiaries A and B would continue to remain credentialed and contract directly with payors and health plans, and use billing numbers assigned to the Subsidiaries to bill payors and health plans for items and services furnished to their enrollees. The Subsidiaries would also remain enrolled in Medicare under tax identification numbers assigned to the Subsidiaries, and use billing numbers assigned to them as participating suppliers to bill Medicare for items and services, including designated health services, furnished to beneficiaries.
Requestor certified that, following the acquisition: (1) Requestor would be the sole owner of the Subsidiaries; (2) all clinical employees and contractors of the Subsidiaries would become employed or contracted by Requestor; (3) all material assets and business functions of the Subsidiaries would be transferred to Requestor or Manager; and (4) Manager would continue to provide management and other non-clinical services to Requestor and the Subsidiaries.
In addition, under the Requestor’s structure, patients to whom health care services are furnished by the Subsidiaries would be considered patients of the Group Practice. The health care services furnished to Group Practice patients would be furnished or supervised by clinical personnel that are employed or contracted by Requestor and designated to work at the three sites, that is, as the Requestor’s original group practice site, at Subsidiary A’s site, and at Subsidiary B’s site. Manager would provide all nonclinical support personnel to the Group Practice and to the Subsidiaries under the terms of the management agreement among the parties. All revenues of the Subsidiaries would be remitted to and be treated as revenues of the Group Practice.
The Opinion
CMS began its analysis by referencing the fact that although a group practice must consist of a single legal entity, the regulations permit a group practice to own subsidiaries, and the law does not dictate or limit the types of subsidiaries a group practice may own.
CMS was persuaded by the specific facts certified by the Requestor that the subsidiary structure does not preclude Requestor from qualifying as a single legal entity if Requestor furnishes designated health services through the Subsidiaries, provided that Requestor is the sole owner of the Subsidiaries.
As set out above, the particular certified facts were:
1. All clinical employees and contractors of the Subsidiaries would become employed or contracted by Requestor.
2. Those personnel would be designated to work at either the initial Requestor office site or at a Subsidiary site
3. Although Subsidiary A and Subsidiary B would maintain their respective enrollments in Medicare, remain credentialed and contract directly with payors and health plans, and use billing numbers assigned to the Subsidiaries to bill Medicare and other payors and health plans for services furnished to their beneficiaries and enrollees, all revenues and expenses of the Subsidiaries would be treated as revenues and expenses of the group practice, that is, of Requestor.
Note that the opinion is limited to the question posed by the Requestor, which did not venture into issues related to the other “group practice” exception requirements.
Note also, extremely importantly, that CMS advisory opinions are binding only in regard to the particular Requestor. However, they provide insight into CMS’s analysis on the application of Stark. In the instance of Advisory Opinion No. CMS-AO-2021-01 we see regulatory flexibility in regard to parent-subsidiary structures in which the parent entity and the subsidiary entities are all physician practices.
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| | | Business Life in the Time of Coronavirus Mini-Series
The coronavirus crisis caused a short term economic crisis for many medical groups. Our mini-series shows you the way out. Plus, many of the concepts discussed are applicable during both good times and bad.
[If you haven't already seen them, follow this link to watch our entire series.] |
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This past Tuesday, we reposted one of our popular Success in Motion videos. You can watch the video here, or just keep reading below for an updated, more polished transcript:
I've been thinking more about the impact of "fair market value" on physician compensation, and how it's going to gut it. As more and more physicians become employed by hospitals and by large groups that use industry wide surveys to set compensation, whether or not it has anything at all to do with compliance, you’re going to see more and more references to things like "the 50th percentile of ENT compensation in the central region of the United States." And as more and more physicians become employed by organizations reducing compensation to fit within those narrow bands of from the 50th to the 75th percentile, you'll see the dollar amounts within those percentiles drop -- what was once the 75th percentile will become the 90th percentile and, with few exceptions, unacceptable to pay. As high pay is brought down to the median, the median will go lower and lower. If you don’t like that future you have to do several things. 1. You have to push back against the way compensation applied to you. Do you think you're a 50th percentile man or woman? If the answer is no, then why are you accepting 50th percentile compensation? 2. You have to push back against the use of surveys in general. How representative of reality are they? How can their inherent echo chamber of mediocrity be seen as valid. 3. You have to think about the fact that your future might not be within a large organization that is going to put a cap on your earning ability. It’s got to be outside of it. Fortunately, that ties in with the fact that, as I view the future of the world of healthcare, hospitals and many large physician employers don’t have a very bright future. Go to the Weiss PC website. Get a free download of my book, The Impending Death of Hospitals, and find out why. In the meantime, have a good day at work. Think about what you are being paid today, and think about whether you want it to be whittled down in the near future, or whether you want to find your own future and be the one who’s perhaps whittling down someone else. |
| | How to Deploy the Secret Sauce of Opportunistic Strategy
Webinar On Demand
They say that COVID-19 has changed the world, creating the "new normal." Many of your colleagues and many hospital administrators are running scared.
Others, leaders like you, know that crisis means opportunity.
Let me provide you with the strategic tools and insights that you need in order to seize opportunities, whether they’re in the context of your current business relationships, the expansion of your business activities, or the creation of new ventures.
You will learn:
•Defense as a defective default: It’s necessary, but not sufficient.
•Exploiting weakness: Drop the guilt and identify opportunity.
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Others see a crisis and freeze in fear. Learn how to see the opportunities and obtain the tools to increase your odds of obtaining them.
The price to attend is $479. The cost of not attending is astronomical. |
| | | Wednesday – Avoid This Error of Measuring Leadership Success – Medical Group Minute
Watch the video here, or just keep reading below for a slightly polished transcript:
In an organization we tend to be judged for what we do - not for the decisions that we make not to do something.
For example, consider the issue of responding to an RFP. If you respond and your organization is successful, you’ll tout your genius and the others will toast to it. Yet it’s very difficult to tout your genius in not responding and it’s not very likely that anyone would pop a cork in celebration.
We humans tend to place tremendous importance on what’s observable and to ignore that which cannot be seen or experienced.
Accordingly your supposedly rational colleagues will neither pat you on the back nor buy you a glass of bubbly for deciding to do nothing.
So we have what I call the yardstick problem. If there’s a decision that results around an observable event, it can be measured. If there is no observable event, then the heuristic yardstick is useless.
But the truth is that success is just as dependent upon what you pass up on — on what you decided not to do.
In this sense, saying “What gets measured, matters” is only partly true. A lot of what matters can’t be measured at all.
This disconnect between what is truly important and what is easily measured and therefore incentivized has a significant impact on medical group management and even more so on hospital management where success is measured and rewards are dispensed pursuant to the yardstick rule.
Consider this in terms of a hospital’s administrative decision to move ahead with the formation of an ACO.
Many other hospital executives at other facilities are pushing ahead with their ACOs. The CEO remembers the failures of the PHO movement in the 1980s but feels that unless she makes the decision to forge ahead she’ll be viewed as less than decisive. And, being decisive, she will receive a bonus for her strong leadership.
Yes it might cost millions to get an ACO off the ground but if it fails she will point to those other hospital CEOs and say that they couldn’t all have been wrong and it was the market that changed. Or she will argue that she cannot be blamed because forming an ACO was consistent with "best practices."
There are at least two important lessons here:
The first is that the leaders of the organizations with which you deal will sometimes make ridiculously stupid decisions because they are consistent with the way they are evaluated and rewarded.
The second is that your medical group must avoid the tendency to fall back upon the yardstick rule in measuring your own leader’s success or failure. You must develop a compensation formula consistent with the larger long-term success of your entity.
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| | | | | Listen to the podcast here, or just keep reading for the transcript.
Frédéric Bastiat, the 19th Century French political economist, saw it clearly in 1850. Today's politicians and so-called patient advocates, not so much.
In his famous essay, That Which is Seen, and That Which is Not Seen, Bastiat explained that governments legislate to correct a problem (and then bask in the glory of having taken action) but never truly consider what problems they create when they enact the legislation to correct the problem. In other words, politicians act based on what is seen (the initial “problem” and the easily seen “solution”) but do not pause to consider the potential damage that their actions will later cause, that which is not seen.
Over the past several years, so-called patients’ rights protestors, and, if anyone were looking, insurance companies, advocated against the claimed evils of “surprise medical billing” the situation in which, in its purest form, involves a patient's receipt of a full UCR bill from out-of-network hospital-based physicians in connection with surgery by an in-network surgeon at an in-network hospital.
The “solution”, which varies slightly state by state and is also the subject of federal legislation, is to impose a requirement on the out-of-network physicians to accept a purported “fair fee” arrived at by reference to average contracted rates.
But, of course, the devil is in the details.
As I pointed out years ago when legislation of this ilk first surfaced in California, there's nothing inherently fair in this notion of paying a purported “fair fee”. If there were, insurers would never have been in favor of it.
As I pointed out at the time, there are multiple reasons why a group might be out-of-network such as the fact that the carrier has narrowed their network and refuses to contract with them, or the rates that the carrier offers are so much lower than prior rates, that they are completely unacceptable. Additionally, as I've seen myself, in connection with contract renewal negotiations, carriers threaten groups to take significant cuts or they will be thrown out-of-network and forced them to accept “fair rates” which are even lower. Carrying though with that threat and generally narrowing networks seeds the data that will later be used to determine “fair rates”. In other words, if a carrier tosses every group with high rates out of its network, the geographic average rate becomes low, with a spiraling tail effect.
In fact, as I argued years ago and as I argue now, the entire point of surprise medical billing legislation, from the insurers’ point of view, likely unseen (but who knows) by the political class, was to force more physicians out-of-network, the very “wrong” that the legislation claims to cure.
Of course, life is even more complicated than this, as two lawsuits filed last week by U.S. Anesthesia Partners (“USAP”) against UnitedHealthcare (“UHC”) demonstrate.
Not only did UHC demand significant cuts from USAP in connection with contract renewal, UHC, through its various operating units, is itself in the anesthesia business.
USAP claims that UHC is squeezing them from all angles, “like a boa constrictor”. It claims that UHC is engaging in a group boycott and that it’s using unlawful tactics and pressure campaigns, even “bribing” surgeons to steer patients away USAP, which is now out-of-network in Texas and Colorado.
As might be expected, UHC, in statements reported by the New York Times, maintains that the suits are “just the latest example of the group’s efforts to pressure us into agreeing to its rate demands and to distract from the real reason that it no longer participates in our network” and that private equity backed groups “expect to be paid double or even triple the median rate we pay other physicians providing the same services.”
Interestingly, both USAP and UHC appear to be leveling antitrust type claims against one another. UHC’s statements include allegations that USAP is using its market power to demand outsized reimbursement. And USAP appears to be alleging that UHC’s horizontal structure (an insurer, a facility owner, and a physician practice owner), allows it to exert improper power over rates paid. Last but by far not least, both USAP and UHC might be courting potential danger. The Biden administration has signaled a much tougher stance in connection with both horizontal (same market consolidation, such as USAP’s market growth in anesthesia) and vertical (different market consolidation, such as UHC’s growth in health coverage, facilities, and physician services) antitrust enforcement. Their highly public spat is likely to draw enforcement attention. And, either or both might entertain “dropping the dime” on the other, only to have the call ring back on themselves. |
| | | Calibrate Your Compass
Read our exclusive RedPaper to guide you through this evolving situation.
The coronavirus crisis caused a short-term economic crisis for many medical groups. Our RedPaper shows you the way out. Plus, many of the concepts discussed are applicable during both good times and bad.
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| | Help Us Help You With Helpful Content
What tailored content would you most like to see during this
time? How can we focus on solutions to your most pressing strategic concerns?
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| | | | We all hear, and most of us say, that the pace of change in healthcare is quickening. That means that the pace of required decision-making is increasing, too. Unless, that is, you want to take the “default” route. That’s the one is which you let someone else make the decisions that impact you; you’re just along for the ride. Of course, playing a bit part in scripting your own future isn’t the smart route to stardom. But despite your own best intentions, perhaps it’s your medical group’s governance structure that’s holding you back.
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| In fact, it’s very likely that the problem is systemic. The Medical Group Governance Matrix introduces a simple four-quadrant diagnostic tool to help you find out. It then shows you how to use that tool to build your better, more profitable future. Get your free copy Free.
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| | | | Whenever you're ready, here are 4 ways I can help you and your business:
1. Download a copy of The Success Prescription. My book, The Success Prescription provides you with a framework for thinking about your success. Download a copy of The Success Prescription here.
2. Be a guest on “Wisdom. Applied. Podcast.” Although most of my podcasts involve me addressing an important point for your success, I’m always looking for guests who’d like to be interviewed about their personal and professional achievements and the lessons learned. Email me if you’re interested in participating.
3. Book me to speak to your group or organization. I’ve spoken at dozens of medical group, healthcare organization, university-sponsored, and private events on many topics such as The Impending Death of Hospitals, the strategic use of OIG Advisory Opinions, medical group governance, and succeeding at negotiations. For more information about a custom presentation for you, drop us a line.
4. If You’re Not Yet a Client, Engage Me to Represent You. If you’re interested in increasing your profit and managing your risk of loss, email me to connect directly. |
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