Health Law Update—June 21, 2012

Alerts / June 21, 2012

Welcome to this week's edition of the Health Law Update. Topics covered today include:

We hope you find this information helpful. Please contact me or any member of Baker Hostetler's Healthcare Team with questions.


The Centers for Medicare and Medicaid Services (CMS) issued its final rule revising the Conditions of Participation (CoPs) for hospitals and critical access hospitals (CAHs) on May 16, 2012, in response to the President’s Executive Order instructing federal agencies to streamline the regulatory framework for hospitals. These regulatory reform initiatives are anticipated to achieve $940 million in savings per year. Although the expressed intent of the proposed rule, issued on October 24, 2011, was to simplify and clarify certain CoPs for the hospital industry, the final rule appears to have made what amounts to substantive changes that drew the immediate ire of the hospital industry.

In one of the most striking changes, CMS requires that a member or members of the hospital’s medical staff be included in a hospital’s governing body as a means of assuring communication and coordination between a single governing body and its medical staffs. This appears to be in response to several comments, as described in the preamble to the regulations, which request more medical staff membership representation on the governing body of hospitals and a need for greater communication. In addition to this new requirement, the preamble to the regulations muddied the water with regard to a provision that the hospital industry believed was settled, reinterpreting an existing medical staff provision to prohibit a health system from having a single and integrated medical staff serving more than one hospital.

Interestingly, CMS could have chosen to issue interim final regulations, allowing for at least some additional commentary with regard to such substantive changes, but they did not, opening the agency up, it seems, to some very threatening language from the American Hospital Association (AHA) regarding CMS’s alleged violation of the Administrative Procedures Act (APA). To that end, AHA submitted a strongly worded letter protesting both substantive changes in the final rule, indicating that they substantially changed the current practice in many hospitals around the country and, in some cases, could not be implemented due to existing state laws. Issuing such substantive changes in final form without the benefit of notice and comment would form the basis for an action under the APA.

Prompted by concerns raised by the AHA and other stakeholders, CMS issued a notice on June 15, 2012, to the State Survey Agency Directors referencing the "numerous questions and concerns raised by various stakeholders" relating to the requirement to include a medical staff member on the hospital’s governing body. Recognizing that the requirement could give rise to questions under federal, state and local laws, CMS wrote in its notice, "Given the complexity of the issues that have been raised, we are carefully reviewing comments and will reconsider this requirement in future rulemaking." In addition, the agency said CMS-approved hospital accreditation programs are not expected to revise standards or survey processes related to the requirement "until we have addressed the issue completely."

The final rule impacts several CoPs and makes changes including:

  • Changing requirements relating to restraint-related deaths;
  • Broadening the concept of a "medical staff," allowing hospitals the flexibility to include other practitioners as eligible candidates (drawing a significant letter-writing campaign in proposed form from the anesthesia community);
  • Allowing podiatrists to assume new leadership roles within the hospital, if so chosen;
  • Allowing hospitals to have a single nurse care plan;
  • Changing the self-administration policies as they apply to patients;
  • Eliminating the special training requirements for nonphysician personnel to administer blood transfusions and intravenous medications;
  • Making changes relating to orders by other practitioners;
  • Allowing for drugs and biologicals to be prepared and administered on the orders of practitioners (other than a doctor) in accordance with hospital policy and state law;
  • Making changes regarding proper use of standing and verbal orders;
  • Eliminating the obsolete requirements for a hospital to maintain an infection log;
  • Eliminating the requirement to have a separate outpatient services director;
  • Simplifying organ transplantation verification requirements; and
  • Eliminating the requirement that CAHs must furnish diagnostic and therapeutic services, lab and other services directly by CAH staff.

The final regulations should be reviewed by hospitals to ensure their continued compliance with the CoPs and to determine whether some existing processes can be modified to accomplish the intended goal of eliminating overly burdensome regulations.

In their verve to save hospitals time and money, however, CMS has created some controversial changes that have yet to be removed, but at least will not be implemented until a more thorough review and analysis can be conducted.

For more information, please contact Susan Feigin Harris at or 713.646.1307.

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Medicare and Medicaid providers across the country are facing an onslaught of audits and sanctions, civil lawsuits and criminal prosecutions as a result of recent federal healthcare legislation and regulations. From my experience as a federal healthcare prosecutor, it is clear that the first line of defense against these enforcement measures is a compliance program that is fully followed and enforced. Providers, whether large or small, should have a plan in place to both comply with laws and regulations and to respond to an investigation, in the event one arises. To that end, I have prepared the following "A to Zs of Healthcare Compliance and Enforcement" as a practical takeaway to share with your organizations.

A – Always comply with Medicare and Medicaid rules and regulations, HIPAA, HITECH and EMTALA, among other federal and state healthcare laws and regulations

B – Be prepared for random audits by Medicare and Medicaid investigators

C – "Credible allegation of fraud" is all it takes for Medicare or Medicaid to suspend payments under new regulations

D – Do not wait for the Medicare or Medicaid audit to establish a compliance program

E – Establish a compliance program and enforce it -- it should not just exist on paper

F – Fire or discipline employees who do not comply

G – Give rewards to employees who do comply

H – Hotlines OR OTHER REPORTING MECHANISMS for employees to report suspicious activity are critical

I – Investigate reports thoroughly and take immediate action if confirmed

J – Jurors take healthcare fraud allegations very seriously

K – Kickback payments -- whether paid, offered, solicited, or received -- constitute a federal felony
punishable by up to five years in federal prison without parole

L – Listen to your patients’ complaints about employees

M – Medicare Fraud Strike Force and other government enforcement initiatives are expanding throughout the country

N – Never alter or destroy records requested by a government healthcare agency or contractor

O – Obstruction of a healthcare investigation is a federal felony

P – Preexisting compliance programs are viewed favorably by prosecutors and the U.S. Sentencing Guidelines

Q – Quiz your employees from time to time about compliance procedures

R – Reputation of your organization is on the line

S – Submission of a false claim may result in criminal healthcare fraud charges

T – Ten years in prison is possible if convicted of healthcare fraud

U – U.S. Sentencing Guidelines were amended following the Affordable Care Act to provide for stiffer punishment for healthcare fraud

V – Violation of the Stark laws can result in triple damages and other civil penalties being assessed against you or your organization

W – Whistleblowers increasingly are bringing suit against healthcare providers under the False Claims Act

X – "X-clusion" authority of the government, if exercised, means that you or your organization can no longer be affiliated in any way with Medicare or Medicaid -- avoid the healthcare "death sentence" through effective compliance

Y – Your organization’s "tone from the top" is essential to an effective compliance program

Z – Zealously enforce your compliance program but consider changes to correspond with ever-changing healthcare laws and regulations

The A to Zs of Healthcare Compliance and Enforcement underscore the importance of maintaining an updated compliance program current with the law, government guidance and lessons learned from high-profile prosecutions and settlements. As a result, clients increasingly are requesting risk assessment audits to identify areas where deficiencies and gaps occur and additional policies or controls may be needed. The more organizations recognize that an effective compliance program requires continuous assessment and maintenance, the better equipped they will be to minimize the legal, reputational and financial risks of noncompliance.

Former federal prosecutor Greg Saikin recently joined the Houston office of Baker Hostetler LLP as counsel in the Healthcare and White Collar Defense and Corporate Investigations practice groups. For more information, please contact Greg Saikin at or 713.646.1399.

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The Office of Inspector General (OIG) recently issued an advisory opinion disapproving two related proposals regarding the provision of anesthesia services at physician-owned ambulatory surgery centers (ASCs) using variants of what is commonly known as the "Company Model."

A physician group wanted to continue providing anesthesia services on an exclusive basis to several physician-owned ASCs. Currently, the anesthesia group independently bills and collects its professional anesthesia services fees for services provided in the ASCs.

The ASCs, based upon competitor arrangements, were seeking alternative measures that would allow them to profit from the physician's provision of anesthesia services. Two potential anesthesia arrangements were proposed. Under the first alternative, the physician anesthesia service provider would pay the ASCs a per-patient fee for "Management Services," including a fee for services for which the ASCs already were reimbursed through the Medicare ASC facility fee. The fee was to be set at fair market value and would not take into account the volume or value of referrals or other business generated. Federal healthcare program beneficiaries would, however, be excluded from the management services fee.

Under the second alternative, the ASCs' physician owners would establish a separate professional entity to provide anesthesia services at the ASCs on an exclusive basis. The ASC subsidiary would, in turn, employ or contract with the anesthesia providers for the clinical services and nearly all other administrative, management and operational oversight services related to the provision of anesthesia services. The ASC affiliates would pay the anesthesia provider a negotiated rate for its services, and the ASCs' physician owners would retain the balance of the revenue received for anesthesia services.

The OIG’s reaction to the alternatives has application to many proposed arrangements including nonanesthesia arrangements:

  • First, because the anesthesia provider would be the exclusive anesthesia provider, the carve-out of federal program beneficiaries, according to the OIG, would not reduce the risk that the management fee payable under the first alternative would still serve as an inducement for referrals for federal beneficiaries. Consequently, carve-outs of federal patients from various arrangements may not fully mitigate inducement risks, as the OIG will view the arrangement holistically.
  • Second, as one would expect, the OIG jumped on the anesthesia provider’s statement that the ASCs would, in effect, be paid twice for the same service. Once as part of the facility fee and once as part of the anesthesia management fee. The OIG found that the redundant remuneration could be an improper inducement for federal program beneficiary referrals. Consequently, care must be taken when structuring remuneration arrangements to avoid "double remuneration" inducement risks.
  • With respect to the second alternative, the OIG found that the ASC safe harbor would not apply to the ASCs owners' anesthesia affiliates as they were not providing "surgical services." This, of course, highlights the importance of evaluating all the terms of a safe harbored arrangement to assure compliance, unless an affirmative decision has been made that a nonsafe harbored arrangement is appropriate.
  • Finally, the OIG also concluded that neither the employment safe harbor nor the personal services and management contracts safe harbor would protect the profits distributed to the physician owners of the anesthesia subsidiaries. The OIG found that the proposed venture was very similar to the types of "Contractual Joint Ventures" it warned against in its April 30, 2003, Special Advisory Bulletin. In particular, the OIG was concerned with: (1) the lack of involvement by the ASCs' physician owners in their new "anesthesia services business" as a result of the near-total contracting back of the services to the actual anesthesia provider and (2) the fact that the same parties would be providing nearly the same services as they did previously with the addition of a sharing of the revenue, in order for the contractor to maintain its income stream.

The OIG’s conclusions are consistent with its previous joint venture guidance. In short, a company model arrangement cannot be used to convert referrals into a revenue stream or to incentivize undue influence over choice of a contract services provider. Company model arrangements involve a significant element of risk and can be used for purposes such as quality of care improvement, if structured carefully and implemented appropriately.

The OIG’s analysis is equally applicable to many types of joint ventures and should be considered when structuring such arrangements between providers.

For more information, please contact Robert M. Wolin, or 713.646.1327.

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On June 18, the U.S. Department of Health and Human Services (HHS) OIG published a notice in the Federal Register announcing its intent to revise the Provider Self-Disclosure Protocol (Protocol) and seeking input from interested parties regarding changes to the Protocol. The Protocol was initially published by the OIG in 1998, and serves as a process for healthcare providers to resolve potential liability under the OIG’s civil money penalty (CMP) authorities relating to the Medicare and Medicaid programs. The Protocol has been supplemented by the OIG over the past fourteen years with three Open Letters to Health Care Providers that provide additional guidance to providers utilizing the Protocol. For example, in 2009, the OIG issued an Open Letter stating that it would no longer accept disclosure of a matter into the Protocol that involved only a potential violation of the physician self-referral law without a colorable anti-kickback law violation. This Open Letter also established a minimum $50,000 settlement for anti-kickback law disclosures.

The OIG is seeking comments on how best to revise the Protocol to provide meaningful guidance to providers. Comments are due August 17, 2012.

If you need assistance in preparing comments or for more information, please contact Donna S. Clark, or 713.646.1302; or Darby C. Allen, or 713.646.1311.

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Earlier this month, the HHS Office for Civil Rights (OCR) published the materials used in training the state attorneys general (AGs) last year on the enforcement of the Health Insurance Portability and Accountability Act (HIPAA) and Health Information Technology for Economic and Clinical Health (HITECH) Act. OCR has published video of the two-day training sessions along with the slides presented to AGs. A review of the training materials show that the state AGs were trained on the following:

  • State enforcement of HIPAA/HITECH;
  • HIPAA Privacy Rule;
  • HIPAA Security Rule;
  • Impact of HITECH;
  • Federal enforcement of HIPAA/HITECH;
  • Investigation and prosecution of potential violations of HIPAA/HITECH;
  • Preemption of state law; and
  • Resources for HIPAA enforcement.

The training sessions discussed issues that were identified by OCR in the first full year of HITECH’s implementation, including impermissible uses and disclosures; administrative, physical and technical safeguards; access to protected health information; compliance with minimum necessary requirements and patient complaints. These issues are consistent with those raised by the OCR in working with our clients. The training confirms that the AGs are expected to place increased scrutiny on healthcare providers for privacy violations.

If you have any questions regarding compliance with HIPAA/HITECH, the increased scrutiny by the state AGs, or if you receive any patient privacy complaints, please contact Lynn Session, or 713.646.1352 for assistance.

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Baker Hostetler will be presenting a webinar to help employers assess the Supreme Court’s forthcoming Affordable Care Act decision. The webinar will examine:

  • The impact the Affordable Care Act and the Court’s ruling will have on employers operating in various industries and businesses;
  • What employers need to do, and how quickly they may need to act, to avoid being caught out of position; and
  • A variety of policy considerations.

If the decision is published on or before Monday, June 25, the webinar will be held midday Friday, June 29.

If the decision is published after June 25, the webinar will be held midday Monday, July 2.

An e-mail invitation showing the webinar’s definite date and time will be sent to you as soon as the decision is published. Watch for it!

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Baker Hostetler will publish a special issue of the Health Law Update on the Supreme Court’s Affordable Care Act decision the week of July 9. As a result, our regular publication schedule will resume July 19.

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June 26



Houston partner Scott McBride will speak on "Medicare Audit and Appeals: Practical Advice for RAC, ZPIC and MAC Audits" at the HFMA ANI Healthcare Finance Conference in Las Vegas, Nevada.

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Baker & Hostetler LLP publications are intended to inform our clients and other friends of the Firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2012 Baker & Hostetler LLP

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