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| Dear Friend,
Here's a kickback issue that most people miss.
On January 20, 2023, the U.S. Department of Justice announced a $9.75 million civil settlement with DePuy Synthes, Inc. (“DePuy”), a subsidiary of Johnson & Johnson, involving alleged kickbacks to a surgeon in the form of free spinal implants and tools for use in surgeries that the surgeon performed overseas.
Although it’s unlikely that you’re doing cases in Bahrain, Saudi Arabia, or the several other Middle Eastern countries listed in the settlement agreement, as did the unnamed surgeon, the settlement contains a lesson completely applicable to U.S.-based practice.
In the settlement, DuPuy admitted, among other things that:
- From at least July 2013 through February 2018 (the “Relevant Period”), it, through sales representatives, gave, in the U.S., implants and instruments, including cages, rods, screws, plates, and a modular access and retraction system (“products”) to a surgeon who used some of the products to conduct spinal surgeries overseas, including in Bahrain, the Kingdom of Saudi Arabia, Kuwait, Lebanon, the United Arab Emirates, and Qatar, for certain patients in the Middle East who were not Medicare or Medicaid beneficiaries.
- Those products were sometimes not available at the hospitals and/or with the third-party sales distributors in the countries where the surgeon operated overseas.
- The surgeon typically traveled with the DePuy products that DePuy, acting through sales representatives, gave to him. Neither the surgeon, nor the hospitals he operated at overseas, nor the third-party sales distributors, nor anyone else, paid DePuy for those products that the surgeon implanted into patients or otherwise used in surgery.
- During the Relevant Period, and continuing for at least a year, the surgeon used DePuy products in his spinal surgeries in Boston, Massachusetts, including surgeries for Medicare and Medicaid beneficiaries for which Medicare and Medicaid paid claims.
Although DuPuy admitted to the above facts and took responsibility for them, it must be noted that it did not admit to all of the allegations levied against it in the civil proceedings.
How This Relates to You Even if You Don’t Know the Middle East from the Midwest
The facts alleged in the DuPuy case are analogous to a rather common fact pattern and a common federal Anti-Kickback Statue (“AKS”) mistake.
The AKS prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare and other federally funded programs.
Note that nothing in the statute says that the remuneration has to be within the direct context of a referral of Medicare or other federally funded program patients. Rather, the remuneration, wherever it is, must simply be an inducement for the referral of those patients.
The mistake commonly made is that parties attempt to carve out Medicare or other federally funded program patients from their remuneration scheme. Examples might be:
- A group of surgeons controlling an ASC demand that the contracted anesthesia group provide nursing support at the ASC to help “care for the anesthesiologists’ non-Medicare or other federally funded patients.”
- A DME supplier offers free supplies to an orthopedic surgeon’s office, with the proviso that they cannot be dispensed to Medicare or other federally funded patients.
The remuneration is illegal, whether or not the channel of providing that inducement is within or without the context of providing services to Medicare or other federal health care program patients, if the remuneration is intended to induce the referral of those patients.
Of course, it goes without saying that other laws may be triggered by inducements of any kind, whether or not they relate to any third party payer of any sort, private or governmental.
As I often say, just like in carpentry, measure twice, cut once; that is, vet the deal at least twice before embarking in any healthcare related business arrangement, even with a giant multinational corporation.
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| | Wednesday - Bondholders, Docents and Hospital-Based Groups - Medical Group Minute
Watch the video here, or just keep reading below for a slightly polished transcript:
I recently read an article about a woman bemoaning the fact that she had been “cheated,” as her investment in General Motors bonds was about to become worthless. The system had failed her, she cried.
Later that week, there was an Easter Egg hunt at the Santa Barbara Botanical Gardens. As the hunt began, the docent announced to the throng of children that the eggs were well hidden in the thick brush and were hard to find. She then told them that they had hidden 8 eggs per child. “If you find any more,” she warned them, “you’ll have to give them to another child.”
The fact is that life is not “fair,” and we cannot make it so despite how much we “reallocate” from those who made different choices or from those who have better skills or a more attuned work ethic.
But when I thought of it a bit more, I realized that the attitude expressed by the bemoaning bondholder and the politically correct docent is not really that different from that of many hospital-based physician groups which view their continued ability to provide services at a facility as a right. In the same manner as the bondholder and the docent, they see fairness as requiring an equality of outcome, not simply of opportunity.
Life doesn’t work that way for physician groups, either. Focusing simply on doing the procedures (and “benchmarking to best practices in our specialty”) is no longer enough to assure success. Instead, a highly proactive approach is required to position your group for success. And the time to start is now.
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| | | Listen to the podcast here, or just keep reading for the transcript.
I pushed the wiring instructions over to him.
A few minutes later, I confirmed that close to $10 million was in the account of my client, the sole shareholder.
Then we all went to lunch.
Ah, the shiny object, the more or less instant gratification. The $10 million in your pocket. Or the won RFP and the new contract with St. Mark’s Community Memorial Health Center.
But what comes next? And, has your undivided attention on the shiny object created a gap in, or, perhaps worse, a blockade against, your future?
For example, consider the sale of a medical group that comes with an enforceable five year post-employment covenant not to compete. If you’re selling shareholder Dr. Smith, age 63, who’s retiring or moving from Bakersfield, California to Bangor, Maine, the covenant is a nonissue.
On the other hand, Smith’s partner, Dr. Jones, age 43, with a spouse whose job isn’t portable and with two kids in junior high school, has to stay local. As a result, the practical result of the covenant will likely be that Jones has no choice but to be forced into continued employment at reduced compensation with the group’s new owner for many years to come. What if Jones had focused so intently on the shiny object, the coming sales proceeds that were burning a million holes through her mind’s eye, and not given much, if any, thought as to what situation it would create five and more years out?
This situation is by no means limited to the medical group M&A market. It’s there in connection with “won” RFPs (the situation of the “winner’s curse”). It’s there in connection with employment agreements. It’s there in many, many instances.
Every deal, every arrangement, every contract has to be thought of both in the context of your tactical goals (maximizing the desired specific outcome) and in the context of your strategic goals (maximizing the desired long-term outcome.)
Most of us do well in terms of identifying tactical goals. It’s the two or three or more moves down the line into the future, the strategic goals, that generally get short shrift.
Then they come back and bite you in the ass.
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| | | 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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