The Health Law Advisor - Summer 2006
MICHIGAN SUPREME COURT EMPOWERS PHYSICIANS
TO CHALLENGE PRIVATE HOSPITAL STAFFING DECISIONS
In the recent decision of Feyz v. Mercy Memorial Hospital, No. 128059 (July 24, 2006), the Michigan Supreme Court significantly changed over twenty years of prior case law by empowering physicians to challenge private hospital staffing decisions in ways previously barred. Specifically, the Michigan Supreme Court overturned the common-law doctrine of judicial non-intervention of peer-review decisions, and physicians who have been the victims of adverse actions against their medical staff privileges may now pursue certain causes of action against the hospital as part of their challenges to such adverse actions. For example, a physician may now bring a claim for breach of contract, tortious interference with contract, tortious interference with business relations, invasion of privacy, and/or a claim for civil rights violations against a hospital as part of his challenge to an adverse action against his staff privileges.
Additionally, as part of its decision, the Michigan Supreme Court analyzed the immunity provisions of the Michigan peer review statute (MCL 331.531). The Michigan peer-review statute establishes qualified immunity from liability for individuals, organizations and entities involved in peer review activities. The Feyz decision held that this immunity will be lost if the individuals, organization or entity has acted with “malice” in carrying out its peer review activities. The Michigan Supreme Court found that “malice” can be established when a “person supplying information or data [to a peer review entity] does so with knowledge of its falsity or with reckless disregard of its truth or falsity. Similarly, a review entity is not immune from liability if it acts with knowledge of the falsity, or with reckless disregard of the truth or falsity, of information or data which it communicates or upon which it acts.”
A complete copy of the Feyz decision can be accessed from the following link: http://courtofappeals.mijud.net/documents/OPINIONS/FINAL/
SCT/20060724_S128059_60_feyz5may06-op.pdf.
PHYSICIAN OWNERSHIP IN AMBULATORY SURGERY CENTERS
Ownership and operation of ambulatory surgery centers (ASCs) are subject to regulation by various federal and state laws, including the Federal Anti-kickback Statute. ASCs with physician-investors in a position to generate business can be vulnerable to fraud and abuse risks. However, despite these risks the federal government recognizes that some physician-owned ASC ventures can be beneficial. Therefore, certain “safe-harbors” were created to protect physician-owned ASCs that meet specified criteria designed to mitigate the risks of fraud and abuse.
Although in previous years there has been little scrutiny of ASCs by the federal government, scrutiny in this area appears to be increasing. Therefore, ASCs are well advised to mitigate certain risks by following the guidance issued by the OIG in connection with ASCs and joint venture arrangements.
The Federal Anti-kickback Statute (AKS) makes it a criminal offense to knowingly and willfully offer, pay, solicit, receive any remuneration to induce or reward referral of items or services reimbursable by a federal health care program. Where remuneration is paid purposefully to induce or reward referrals, the law is violated. For purposes of the AKS, “remuneration” includes the transfer of anything of value, directly, indirectly, overtly, covertly, in cash or in kind. Generally, in the ASC setting concerns under the AKS may include: (1) selling or offering shares to physicians based on the volume or value of referrals; (2) forced buy-outs of physicians based on the volume or value of referrals; and (3) payments above or below fair market value for certain medical services or rental payments.
The AKS has been interpreted broadly to capture any arrangement where one purpose is to obtain money for the referral or to induce further referrals. Because of the expansive reach of the AKS, the federal government has promulgated safe harbor regulations that define practices that are not subject to AKS. Meeting a safe harbor will protect an arrangement from prosecution under the law, provided that the arrangement meets all of the conditions of the safe harbor. However, just because an arrangement does not meet a safe harbor does not make it per se illegal; the facts and circumstances behind an arrangement must be carefully reviewed. The safe harbors set forth specific criteria that, if met, assure entities involved of not being prosecuted or sanctioned.
In the ASC context, there is an ASC safe harbor that covers four categories of ASC investment. These categories are: (1) surgeon-owned ASCs; (2) single-specialty ASCs; (3) multi-specialty ASCs; and (4) hospital-physician owned ASCs. With respect to physician investment in an ASC, safe harbor protection is directed to apply to physicians who are unlikely to use the investment as a vehicle for profiting from their referrals to other physicians using the ASC. The focus of the ASC is limited to physician-investors who actually use the ASC on a regular basis as an extension of their medical practice, or who practice the same specialty as other physician investors and are thus not likely to refer a significant amount of business to competing physician investors when they can earn the fee on their own.
Among other requirements, for single specialty ASCs, the physician investors must all be engaged in the same specialty and at least one-third of their medical practice income must be derived from the performance of procedures on the list of Medicare covered procedures for ASCs. With regard to compliance with the multi-specialty ASC safe harbor, the physician investors must: (1) derive at least one-third of their medical practice income from performing procedures on the list of Medicare covered procedures for ASCs; and (2) perform at least one-third of their ASC procedures at the at-issue ASC. The one-third-income test and the one-third practice-location test are designed to ensure that the ASC is an extension of the physician investor’s practice rather than a means for profiting from their referrals to other surgeons who utilize the ASC. ASCs also should be mindful that the ASC safe harbor requires that the terms on which an investment interest is offered to an investor must not be related to previous or expected volume of referrals, services furnished, or the amount of business otherwise generated from that investor to the ASC.
In light of the above, there are provisions that an ASC may want to incorporate into its governing documents (e.g., operating agreement or shareholders agreement) in order to protect the ASC when physician investors are involved.
LEGAL ISSUES IMPACTING PHYSICIAN PRACTICES
PROVIDING PHYSICAL THERAPY SERVICES
There are several legal issues of which all physician practices providing physical therapy services must be aware. These legal issues include, but are not limited to: the requirements and prohibitions of the Federal Stark law and the Michigan version of the Stark law, as well as third party payor billing and reimbursement issues.
Federal Stark Law: Whenever a physician orders designated health services (“DHS”) within his or her practice, the Federal Stark law is implicated. Physical therapy is a DHS for the purposes of Stark. Therefore, a physician planning to provide physical therapy services through his or her practice must be aware that this implicates both the Federal Stark law and the Michigan version of Stark.
The Federal Stark ban on physician self-referral generally makes it unlawful for a physician to refer Medicare or Medicaid patients for DHS to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. If an arrangement falls squarely within an exception, the referral is not prohibited under the law.
In most instances of physicians providing physical therapy services through their offices, the applicable exception will be the in-office ancillary services exception. The in-office ancillary services exception applies to services truly ancillary to the medical services being provided by a physician’s practice. The in-office ancillary services exception includes supervision, location, and billing requirements. Notably, a physician practice must satisfy the definition of a “group practice” under Stark in order to utilize the in-office ancillary services exception.
Physicians providing physical therapy services within a practice also must be aware that the Federal Stark law contains specific requirements regarding physician compensation. Therefore, physicians providing physical therapy within a practice must keep in mind that compensation to the physicians in the practice also must comply with Federal Stark. Notably, the Federal Stark law includes a specific set of rules applicable only to group practices. The Stark law favors group practices by allowing group practices to compensate physicians (1) directly for “incident to” services; (2) indirectly for other DHS referrals; and (3) by productivity bonus based upon personally performed services. These rules are not afforded to employed or contracted physicians outside of the group practice context.
Michigan Stark Law: Michigan’s version of the Stark prohibition against physician self-referral is contained in the health professions licensing statute. The licensing statute provides that a physician who makes a referral in violation of the Federal Stark law and its regulations is committing unprofessional conduct. Notably, in contrast to the Federal Stark law, in determining whether a referral violates the Michigan Stark law, the source of payment is irrelevant, despite the fact that Federal Stark applies only to Medicare and Medicaid. Therefore, regardless of the source of payment (even if the source of payment is cash), the provision of physical therapy services through a physician’s practice implicates the Michigan Stark law. Generally, if an arrangement is structured to comply with the Federal Stark law it will also comply with the Michigan law.
Billing and Reimbursement Issues: Physician practices providing physical therapy must be aware of all coverage rules and policies of the third party payors with which the practice participates, including Medicare, Medicaid, BCBSM, or any other payor. Not only is it important for a physician to be aware of the coverage rules and policies of third party payors for the purposes of compliance with the third party payors’ policies and procedures, but also compliance with the third party payors’ coverage rules and policies is integrally related to the Federal Stark law and regulations and the corresponding Michigan statute. Third party payors do not have identical requirements regarding billing and supervision of the services provided with respect to the provision of physical therapy services. Therefore, a physician providing physical therapy through his or her practice must understand each payors’ policy regarding the provision of physical therapy services. For example, while some payors require a supervising physician to be present in the same facility where the physical therapy services are performed at the time the services are performed, other payors only require the physician to be continuously available by telephone or other means at the time the services are performed and do not require the physician to be physically present.
COMPLIANCE CORNER:
Prescribing Controlled Substances: What Every Physician Should Know
As more criminal prosecutions and state licensure cases are emerging involving the prescription of controlled substances for pain management patients, it is essential for physicians to proactively understand the rules and laws applicable to this area of practice. Many physicians are fearful to treat pain patients, as there appears to be unclear guidance in addition to an emergence of federal prosecutions of for violations of the federal Controlled Substances Act (“CSA”) and other drug related laws (e.g., drug trafficking laws) as well as state prosecutions involving drug trafficking and other laws.
The lack of clarity was highlighted when the DEA issued a frequently asked questions and answers document in August 2004 regarding the prescription of pain medications, and then several months later retracted the document in a November 2004 Interim Statement. On August 26, 2005, the DEA issued a third document, a Clarification Statement, to clarify those issues raised by its Interim Statement. Pursuant to this Clarification Statement:
- Under federal law, physicians must prescribe controlled substances only when “acting in the usual course of medical practice” and only for “a legitimate medical purpose.”
- No prescription for a schedule II controlled substance may be refilled. For a physician to prepare multiple prescriptions for a schedule II controlled substance on the same day with instructions to fill the prescriptions on different dates is tantamount to writing a prescription authorizing refills, which is in conflict with the CSA.
- There is no requirement in either the CSA or DEA regulations that chronic pain patients visit their physician’s office every month to pick up a new prescription. What is required is that the physician properly determines there to be a legitimate medical purpose for the patient to be prescribed the controlled substance, and the physician must be acting in the usual course of professional practice in issuing his prescription. Notably, by definition schedule II substances have the highest potential for abuse and are most likely to cause dependence. Therefore, physicians must use the utmost care in determining whether they should see a patient each time a prescription is issued.
The State of Michigan also has issued guidelines with regard to the prescription of controlled substances for the treatment of pain. In 2003, both the Michigan Board of Medicine and Michigan Board of Osteopathic Medicine and Surgery formally adopted the guidelines. The Michigan guidelines are not intended to define complete or best practice, but rather communicate what the Boards consider to be within the boundaries of professional practice. The guidelines are accessible from the following website: http://www.michigan.gov/mdch/0,1607,7-132-27417_27648---,00.html.
This compliance corner offers 3 tips to assist physicians in their compliance efforts in the area of prescribing controlled substances:
-
Tip 1: Review the Michigan Guidelines. Although not inclusive, the guidelines set forth key areas of physician focus, including but not limited to issues surrounding: patient evaluation; the development of a treatment plan; informed consent to treatment; physician periodic review of treatment; consultation and referrals; and documentation issues.
-
Tip 2: Develop Appropriate Forms and Enter Into Pain Medication Agreements. Because documentation is a crucial area of protection for physicians, physicians who prescribe narcotics for pain patients should develop forms to assist in documentation and should enter into pain medication agreements with patients. Pain medication agreements typically include provisions requiring a patient to (a) obtain medications from the same pharmacy; (b) agree to random and unannounced drug tests; (c) not seek the same or similar medications from other physicians; (d) not participate in diversion of the medications for illegal use or sell or give the medications to others; and (e) maintain appointments. The Agreement should also include a provision wherein the patient acknowledges that she/he may be discharged for failure to comply with the Agreement. In Michigan, the pain medication agreement should also include a provision that the practice utilizes the Michigan Automated Prescription System (MAPS) to monitor patient compliance with controlled substances prescriptions.
Once you determine to utilize pain medication agreements in practice, it is essential to actually require compliance with the agreement. A physician will have greater exposure to compliance risks by merely having patients execute such agreements but ignoring the requirements of the agreement.
- Tip 3: Do Not Ignore Problematic Issues or Behaviors. It is essential for physicians to be proactive and not to ignore patient behaviors that could indicate a substance abuse problem or diversion problem. Physicians are well advised to use the MAPS program when problems are suspected. Physicians can obtain information on the MAPS program by visiting the State of Michigan website: http://www.michigan.gov/mdch/0,1607,7-132-27417_27648---,00.html.
RECENT AND UPCOMING EVENTS AT WACHLER & ASSOCIATES, P.C.:
- Abby Pendleton will present on Fraud and Abuse Compliance Issues to the United Communications Group Physicians National Summit on September 14-16, 2006.
- Andrew Wachler will present on the new Medicare appeals process at the Annual Meeting of the Health Care Compliance Association on October 1-3, 2006.
- Abby Pendleton will speak on the new Medicare appeals process at the Annual Meeting of the Medical Group Management Association (MGMA) on October 22-25, 2006.
- Andrew Wachler and Robert Iwrey will present to Michigan physicians as part of a 5/3 Bank series of presentations in October 2006.
- Andrew Wachler will speak on the new Medicare appeals process at the Annual Meeting of the American Academy of Ophthalmology on November 11-24, 2006.
- Andrew Wachler will speak on the new Medicare appeals process at the Annual Meeting of the American Society of Abdominal Surgeons on March 3-4, 2007.
CONTACT US:
For questions regarding any of the information contained in this newsletter, or if we can assist you with any of your legal needs, please contact the attorneys at Wachler & Associates, P.C. at (248) 544-0888:
For more information, please visit our website at www.wachler.com/.
