- Email: [email protected]
Joint Ventures in Office-Based Endovascular Centers
CHAPTER 26
Joint Ventures in Office-Based Endovascular Centers NICOLAS J. MOUAWAD, MD, MPH, MBA, FSVS, FRCS, FACS • JESSICA L. BAILEY-WHEATON, ESQ • TODD A. ZIGRANG, MBA, MHA, FACHE, CVA, ASA • BHAGWAN SATIANI, MD, MBA, DFSVS, FACHE, FACS
While the hospital and physician healthcare sectors are massive ($1 trillion and $600 billion, respectively), they may be considered financially separate.1 Despite this, they are not only bound in a tight business relationship but have become increasingly more dependent on each other clinically. And while the power equation seems to be shifting to increasingly large health systems, hospitals cannot function efficiently without actively aligned physician groups. In this regard, outpatient joint ventures have been explored for several years to benefit both entities. Patient safety remains the overarching goal in healthcare delivery, including outpatient surgery centers. Compared with their inhospital counterparts, these outpatient surgery centers may include more efficient clinical operations and cost savings to the patient, surgeon, and payers. Furthermore, patients benefit from shorter wait times, easier scheduling, more convenient locations, and consistent on-time appointments, as well as more intimate surroundings and a more satisfying patient experience.2 The shift to outpatient care led to the establishment of ambulatory surgical centers (ASCs), renal dialysis centers, cardiac catheterization facilities, and now office-based endovascular centers (OEC). With decreasing reimbursement, physicians have resorted to forming larger single or multispecialty groups to better negotiate insurance contracts, as well as building hospital relationships while concurrently reducing overhead. Groups have also invested in ancillary services in order to receive global fees instead of just declining professional fees. Surgeons invested in ASCs for surgical procedures now increasingly work in the outpatient setting, offering convenience, efficiency, and cost-effective services compared with hospitals for payers interested in further savings.
Ownership and referral to an ASC does not necessarily implicate the Stark Law but does involve the Anti-Kickback Statute (AKBS) and state law. Whereas the federal Stark Law has “exceptions” to allow for legal activities, the AKBS have “safe harbors” (41 C F R. Section 1001.952(r)), which provide that any return on physician investment will not be deemed as remuneration that may have violated the AKBS if the arrangement falls within the safe harbor’s criteria. There are also “advisory opinions” issued by the Office of Inspector General (OIG); although these are not legal precedents, they offer guidance for forming or scrutinizing ASC investments. Specialties like vascular surgery then took this shift to outpatient care a step further by performing venous and arterial procedures such as angiography and endovascular procedures in OEC. Health systems had already started partnering with physicians in managing ASCs, but now are faced with increasing competition for endovascular procedures performed by independent vascular surgeons in their own OECs. Due largely to technologic advances, the shift to outpatient vascular procedures in the last decade has been striking.3
OEC LEGAL CONSIDERATIONS Please note that the information provided in this chapter does not, and is not intended to, constitute legal advice, instead, all information and content are for general informational purposes only.
Stark Law The Stark Law governs physicians (or their immediate family members) who have a financial relationship (i.e., an ownership investment interest or a compensation arrangement) with an entity and prohibits those
Office-Based Endovascular Centers. https://doi.org/10.1016/B978-0-323-67969-5.00026-5 Copyright © 2020 Elsevier Inc. All rights reserved.
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individuals from making Medicare referrals to those entities for the furnishing of designated health services (DHS).4 DHS encompasses the following items and services: (1) Clinical laboratory services; (2) Physical therapy services; (3) Occupational therapy services; (4) Radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; (5) Radiation therapy services and supplies; (6) Durable medical equipment and supplies; (7) Parenteral and enteral nutrients, equipment, and supplies; (8) Prosthetics, orthotics, and prosthetic devices and supplies; (9) Home health services; (10) Outpatient prescription drugs; (11) Inpatient and outpatient hospital services; and (12) Outpatient speech-language pathology services.5 OECs are generally not subject to Stark Law restrictions because they typically do not furnish DHS. However, in the event that the OEC is performing DHS (e.g., radiology services), and that DHS is not reimbursed by Medicare as part of a composite rate,6 then the financial relationship between the physicians and the hospital, and their connection to the OEC, may be subject to Stark, the application of which regulations (and any appropriate exceptions) will be determined by the structure of the financial relationship between the parties (e.g., direct/indirect, compensation/ownership investment).
Anti-Kickback Statute (AKBS) The AKBS makes it a felony for any person (not just a physician) to “knowingly and willfully” solicit or receive, or to offer or pay, any “remuneration,” directly or indirectly, in exchange for the referral of a patient for a healthcare service paid for by a federal healthcare program.7 Of note, interpretation and application of the AKBS under case law has created precedent for a regulatory hurdle known as the one purpose test, under which test healthcare providers violate the AKBS if even one purpose of the arrangement in question is to offer remuneration deemed illegal under the AKBS.8 Due to the broad nature of the AKBS, legitimate business arrangements may appear to be prohibited.9 In response to these concerns, Congress created a number of statutory exceptions and delegated authority to the HHS to protect certain business arrangements by means of promulgating several safe harbors,9 which set forth regulatory criteria that, if met, shield an arrangement from regulatory liability, and are meant to protect
transactional arrangements unlikely to result in fraud or abuse.10 In contrast to the Stark Law, failure to meet all the requirements of a safe harbor does not necessarily render an arrangement illegal.11 Under the AKBS, ASCs and OECs are treated differently. Specifically, ASCs meet AKBS safe harbor provisions, which state that “‘remuneration’ does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to an investor,” under certain circumstances. For example, the operating and recovery room space must be exclusively dedicated to the ASC, all patients referred to the entity by an investor must be fully informed of the investor’s ownership interest, and all of the following applicable standards are met within one of the categories set forth in Table 26.1.12 Additionally, the above safe harbors are only available to those ASCs that meet the following statutory definition: any distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization and in which the expected duration of services would not exceed 24 hours following an admission. The entity must have an agreement with CMS to participate in Medicare as an ASC. “DEFINITIONS” 42 U.S.C. x 416.213
Because no federal licensing is required to operate an OEC,14 they would not be considered an ASC under the AKBS. Consequently, the specific facts and circumstances related to the transaction, such as the structure of the hospital-physician joint venture and the various financial relationships included (e.g., OEC space rental, information technology) will guide the applicability of AKBS, and its associated safe harbors.
PARTNERSHIP MODELS Several functional models for OEC partnership do exist and are based primarily on the relationship among the stakeholders.15 Multiple combinations are feasible. 1. Physician-owned. This is the most basic of all models, where sole ownership of the endovascular center is held by the physicians, and they may or may not retain an outside management group to assist in business operations. In this model, the physicians gain all the returns from the venture. However, they also incur all the risk. Although the physician owners are educated clinically, physician leaders may not be well versed in making strategic business decisions, and therefore lack access to capital, management support, and managed care
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TABLE 26.1
Ambulatory surgical center (ASC) Exceptions to the Anti-Kickback Statute.
1
2
3
4
5
6
7
A
B
C
D
E
Category
Surgeon-Owned ASC
Single-Specialty ASC
Multispecialty ASC
Hospital/Physician ASC
Investor
General surgeons or surgeons engaged in the same surgical specialty, who can refer patients directly to the ASC and perform surgery on such referred patients Surgical group practices comprised exclusively of such surgeons
Physicians engaged in the same medical practice specialty who can refer patients directly to the entity and perform procedures on such referred patients Group medical practices composed exclusively of such physicians
Physicians who can refer patients directly to the entity and perform procedures on such referred patients
A hospital
Group medical practices composed exclusively of such physicians
Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors
Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors
Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors
General surgeons or surgeons engaged in the same surgical specialty, who are able to refer patients directly the ASC and perform surgery on such referred patients Physicians engaged in the same medical practice specialty who can refer patients directly to the entity and perform procedures on such referred patients
Physicians who can refer patients directly to the entity and perform procedures on such referred patients Surgical group practices comprised exclusively of such surgeons Group medical practices composed exclusively of such physicians Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence Continued
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TABLE 26.1
Ambulatory surgical center (ASC) Exceptions to the Anti-Kickback Statute.dcont'd A
B
C
D
E
Category
Surgeon-Owned ASC
Single-Specialty ASC
Multispecialty ASC
Hospital/Physician ASC referrals directly or indirectly to the ASC or any other investors
8
9
10
11
12
Standards
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior 12-month period must come from the surgeon’s performance of procedures Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior 12-month period must come from the surgeon’s performance of procedures Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the ASC and may not be billed separately to Medicare or other federal healthcare programs
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the ASC and may not be billed separately to Medicare or other federal healthcare programs
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior 12-month period must come from the surgeon’s performance of procedures At least one-third of the procedures performed by each physician investor must be performed at the investment entity;
Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
The ASC, the hospital. and any physician investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner The ASC may not use (1) space, including operating and recovery room space located in or owned by any hospital investor, unless the space lease complies with the space rental safe harbor; (2) equipment provided by any
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TABLE 26.1
Ambulatory surgical center (ASC) Exceptions to the Anti-Kickback Statute.dcont'd A
B
C
D
E
Category
Surgeon-Owned ASC
Single-Specialty ASC
Multispecialty ASC
Hospital/Physician ASC hospital investor, unless the equipment lease complies with the equipment rental safe harbor; nor (3) services provided by any hospital investor, unless the services contract complies with the personal services and management contracts safe harbor
13
Standards
The ASC and any investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner
The ASC and any investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner
14
15
contracting that may be available in the joint venture models described below. Physician-ownership of outpatient endovascular centers has resulted in an increase in outpatient surgical volumes.16 Many physicians confronting declining reimbursement from insurers have moved their work to such centers where they can exert control over the
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the ASC and may not be billed separately to Medicare or other federal healthcare programs The ASC and any investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the entity and may not be billed separately to Medicare or other federal healthcare programs The hospital’s report, or any other claim for payment from a federal healthcare program, may not include any costs associated with the ASC unless the federal healthcare program requires their inclusion The hospital cannot directly or indirectly make or influence referrals to any investor or entity.
entirety of the care provided during an interventional procedure. Since the physicians own a stake in the success of the center, this creates a potential conflict of interest between the physicians’ financial incentives and the patients’ clinical needs. Furthermore, hospitalphysician integration trends continue to increasedfrom July 2012 to July 2018, hospital-employed physicians
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increased by 55%.17 In fact, from July 2016 to January 2018, an additional 14,000 physicians became employed with an additional 8000 physician practices acquired. Therefore, other combined joint venture models may be more functional. 2. Physicians and management company. The demands of a successful practice render it nearly impossible to care for patients and simultaneously perform the administrative tasks of business operations. As such, physicians can partner with Management Services Organizations (MSOs) to assist with the nonmedical burdens of an endovascular surgical center. These include, but are not limited to, billing, coding, supply purchasing, inventory control, human resource management, collections, quality, marketing, accounting and bookkeeping, technological and informational support systems, and so forth. The added expertise of an MSO is advantageous in the physician-management company model. However, in such a venture, the physicians relinquish a certain portion of their equity. Traditionally, MSOs may own a greater than 50% share in the endovascular center. Arrangements between physicians and MSOs must be carefully crafted and implemented, due in part to the “Corporate Practice of Medicine” (CPOM) laws that most states have. The CPOM prohibition, which applies to MSOs, prohibits nonlicensed individuals or unauthorized entities from practicing medicine, or owning, investing in, or controlling professional medical practices; this is in contradistinction to physician practicesdwhich are typically structured as professional corporations and professional limited liability companies.18 Although such MSOs can provide administrative and other nonclinical support to physician practices, the CPOM prohibition forbids such an MSO from controlling or swaying a physician’s clinical judgment and independent medical decision-makingdwhich is reserved solely for the physician and the physician practice. 3. Physicians and hospital. An increasingly common structure in the industry is the joint venture structure involving joint ownership by physicians and hospitals. This type of venture is generally very popular with the hospital entity as it allows an opportunity for hospitals to provide a better coordination of care through rekindling relationships with physician investors who wish to remain independent.
The trend toward this model has been fueled primarily by the hospital’s more robust negotiating power and leverage to attract, engage, and maintain managed care populations. The hospital can command considerably higher rates than physician-owned centers. Although there exist large variations in which either the hospital or physicians own a majority share in the venture, when the hospital has a majority investment interest, it can increase the center’s reimbursement by negotiating stronger payer agreements. Furthermore, despite less overall control, this seems to be welcomed by physicians due to substantially higher per share returns on their equity.19 As with MSOs, this type of joint venture model should be structured and implemented carefully in order to ensure that the hospital and the endovascular center are not considered competitors where they are unable to coordinate their activities without violating antitrust laws (e.g., the Copperweld Doctrine). 4. Physicians, management company, and hospital. This joint venture model, while resulting in less equity per involved group, may produce a more successful venture overall, due to the economic inputs from each group (i.e., a smaller piece of a larger pie). For instance, the management company may provide the managerial and nonclinical aspects of daily tasks while the hospital partner may help the joint venture gain access to managed care contracts and diffuse tension in the community by recruiting other physicians or physician groups outside the venture. The management company and hospital partner may form a separate company for the purposes of their investment in the OEC joint venture. This separate “holding company” owns a majority share in the OEC joint venture, usually between 51% and 60%, with the physicians owning the remainder (either individually or through their own physician joint venture company). Within the holding company itself, however, it is the hospital partner that owns the majority (e.g., hospital 51% and management company 49%), as the management company’s primary motivation is the provision of management services, for which they are compensated a management fee. 5. Physicians and hospital-operated outpatient departments. The hospital-level reimbursement offered by the Outpatient Prospective Payment System (OPPS) fee schedule, along with the costefficiency of an outpatient center, offers increased reimbursement, which may go directly to the
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bottom line. Acquisition of off-campus surgery centers therefore became commonplace until reimbursement reductions introduced by the Balanced Budget Act of 2015, as well as subsequent OPPS payment update adjustments, slowed that trend. In such a venture, endovascular surgery center physicians function as independent contractors of the hospital, obtaining a flat-fee compensation with some bonuses, as their compensation cannot consider the value or volume of physician referrals. This arrangement is at the other end of the joint venture spectrum, as it is completely owned by the hospital, but managed as an outpatient center, and the hospital enjoys all the reward, but also bears all the risk.
TABLE 26.2
Pros and Cons of Hospital Partnership. Pros of Hospital Partnership
Cons of Hospital Partnership
Efficiency
Partly physician owned; quicker decision-making
More bureaucracy; multiple decision points
Financial
- Access to capital - More financing leverage with lenders - Favors investors if needed - Risk sharing - Cost sharing
- Size dependent - Easier for multispecialty or large numbers - Personal guarantees of physician - Profits must be shared with partner
Quality of care
Peer review required in hospital-owned facilities; quality important to hospitals
Peer review not required although most physicianowned officebased endovascular centers (OECs) would encourage it; physicianowned OECs are usually more focused on outcomes
Contracting
Hospitals with more managed care contracting and favorable reimbursement rates
Physician may have little control or input in this regard
Politics
More influence with regulators, legislators, hospital associations, and insurers
Hospital politics may slow down decision-making; if > 1 dominant health system in market area, physician group likely to be excluded from nonpartners
Technology
Infrastructural upgrades more affordable with “deep pockets”
All data available to the hospital administration
WHY FORM JOINT VENTURES? A joint venture involves two or more entities that enter into a formal agreement with one another for a specific business project or strategy. In the healthcare field, this can include physicians, physician groups, commercial outfits such as property developers (Surgical Care Affiliates, AMSURG, ASCOA), hospitals, hospital systems, and others. The benefits and risks depend on the parties involved. Clearly, the most difficult obstacle to overcome in having multiple parties involved is to come to an agreement on the strategic plan for the venture. For the hospital, the advantages are numerous. Hospitals, most of which are tax-exempt, have a mission to provide benefit to the community. Such ventures strengthen the surgeon (interventionalist)/hospital relationship and increase coordination of care, avoiding costly duplication of services. A joint venture also helps with appropriate use of inhospital resources; for instance, procedures that do not need to be performed in an inpatient hospital operating room, interventional radiology suite, or the cardiac Cath lab can be shifted to the lower-cost, OEC, freeing up these spaces for higheracuity cases. The OEC will provide the hospital with increased efficiency, high-quality, and low-cost capabilities. This is of specific interest to populations with costsensitive payers. Eventually, it should be of concern to all parties involved in healthcare to decrease the cost of providing healthcare. For the physicians, advantages include access to the available capital of the hospital, risk sharing, managed care contracting experience, technology infrastructure, and the fact that financial stability with hospital involvement may attract more investors (Table 26.2). With the trend toward increasing physician employment by hospitals, an OEC joint venture may increase
201
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physician participation. Notably, however, there are some risks associated with antitrust laws if the hospital is seen as coordinating activities including reimbursement with a competitor such as an OEC. Disadvantages of the joint venture include bureaucratic delays in decision-making, tension created by disputes in management decisions, reduced control and possible physician autonomy, hospital and community politics, divergent emphasis on quality issues, sharing any profits with the partner, and, if an MSO is involved, paying a management fee. Another joint venture result may be the status of physician independence, which may be questioned by the other hospitals and healthcare providers excluded from the joint venture. For interventionalists, a frustrating problem has been the inability to negotiate favorable managed care contracts for their OEC. They lack the market power (volume or exclusivity) to leverage payers to achieve the payment rates often given to hospitals for the same services. If a large health system or hospital has a major investment in the OEC, it is likely that much stronger payer agreements can be negotiated. Physician owners then must decide if the advantages for partnership are enough to make up for dilution of their interest in the OEC. Another problem for interventionalists may be dealing with noncompliant physician owners. What can be done if one or more physicians invest in, but fail to use and support, the venture? This often leads to resentment among fellow physician investors, especially those who actively support the endovascular center and feel as though they are subsidizing investment returns to physicians who choose not to do cases in the facility. While it is not advisable to simply require a physician to redeem his or her interests in the facility for a lack of referrals, it is possible to use the aforementioned extension of practice requirements to remove a noncompliant physician; in some cases (ASCs but not in OECs), this may be done by requiring physician investors to perform at least one-third of their outpatient cases at the center each year, and further, certify their compliance on a regular basis. Because the so-called “one-third test” is a safe harbor requirement for ASC ownership interests, an ASC is free to impose this obligation on each ASC physician investor. Failure to meet this requirement can be caused to repurchase any noncompliant physician investor’s interests in the ASC. This safe harbor is not available for OECs, however, and as such, specific contracting requirements should be discussed as well as ensuring that those involved have defined roles and responsibilities and whose business cultures match.
WHAT OPTIONS DO INTERVENTIONALISTS HAVE TO FORM AN OEC? There are several options, as noted previously, including an individual or group forming their own OEC, partnering with a management company experienced in OECs or ASCs, sharing ownership with a health system, or even in a tripartite structure with a hospital and management company, and health system investing in and owning the OEC but also accepting a contract to comanage the OEC. The latter may involve predetermined flat compensation for specified activities with or without incentive bonuses. Specifically, for physicians, forming an OEC with partners has a variety of benefits and risks, as noted in Table 26.3.
QUESTIONS TO ASK BEFORE ENGAGING IN A JOINT VENTURE Do Our Cultures Match? Any company’s culture is its personality and provides a clue to the interaction between the employees and the TABLE 26.3
Risks and Benefits of Partnering to Form an OEC. Benefits
Risks
Risk sharing Cost sharing Entering markets that previously had high barriers to entry Collective intelligence Collaboration with people with different perspectives Increased opportunities for growth Leverage existing technologies from partners Investment potential Governance Expansion of services Less initial financial capital Involved in strategic decisions Cost and risk sharing Leveraging hospital negotiations such as managed care contracts Leveraging hospital technology Equipment sharing Entering different markets
Coping with different organizational cultures and management styles Decreasing flexibility Bureaucracy Redundancy of management Risk of downsizing due to duplication of resources Lack of commitment or combined vision and mission Decreasing autonomy Navigating bureaucracy Decreased equity Potential conflicts of interest
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manner in which things get accomplished. Since a joint venture is essentially a merger of two different cultures, there are likely to be differences between leaders and employees of the two parties about the joint venture’s values. It may take time to merge the two cultures. Patient safety is one area which deserves the most emphasis and collaboration in the joint venture. The joint venture must emphasize patient safety and the quality irrespective of other considerations. Physician partners may address problems differently compared with hospital leadership. Hospital representatives may lean more toward innovation, external customers, and team performance metrics.20 Physicians may focus on internal operation, process improvement, and accountability. Regardless, staff must be fully cognizant of the organization’s values and safety principles, which must be repeatedly taught to all employees. A formal committee composed of employees from several disciplines should regularly meet and report to the board or executive committee.
Are Roles and Responsibilities Clearly Defined? An OEC’s facility operations may be defined as the “services, competencies, processes, and tools required to assure the built environment will perform the functions for” the OEC, including “the day-to-day activities necessary for the building . its systems and equipment, and . users to perform their intended function”.21 The rules setting forth those operations and assigning the party responsible for each of the delineated operations should be determined up front, and clearly defined in a written agreement (note that, both Stark Law and Anti-Kickback Statute exceptions/safe harbors require any arrangement to be set forth in writing and signed by the parties). The respective responsibilities of the physicians and the hospital (and even a third party) in operating the OEC will likely fall somewhere on a spectrum, ranging from no involvement in the day-to-day activities (i.e., functioning as a passive investor) to conducting the majority or all the facility operations. Often, the scope of each party’s responsibilities is codified in a management services agreement, wherein the hospital or a third-party management company assumes some (or all) of the nonclinical, administrative responsibilities, and the physicians undertake the clinical responsibilities (e.g., patient care, physician recruiting, etc.). Where each party falls on that spectrum of responsibility may be dictated by federal/state regulations, e.g., fraud and abuse laws (to ensure the arrangement complies with applicable exceptions/safe harbors),
203
and state corporate practice of medicine laws. These laws may dictate that certain tasks be conducted by licensed physicians, such as the recruitment and employment of medical staff. In addition to legal considerations, there may be practical issues requiring the delegation of duties, e.g., physicians may want to retain control over operations, in order to maintain their independence.22 Regardless of the delegation of responsibilities regarding facility operations, those determinations should be thoroughly considered and determined at the outset, and codified in a written agreement, in order to maintain regulatory compliance, and, if applicable, determine any fair market value remuneration for the facility operation services provided. The administrative structure, ideally a “dyad,” must be clearly enunciated with roles for the physician and administrator on an equal footing. Administrative and clinical employees should be similarly aware of their supervisors, and dispute resolution mechanisms laid out in formal written policies must be followed. Communication is an important part of the roles assigned to each of the joint venture partners. Regular and frequent methods of communication must be available to allow active participation by all physicians in the joint venture entity. Dispute resolution mechanisms such as arbitration must also be outlined in any agreement.
Are Governance Rules for Facility Operations Clear? A joint operating committee (board/executive committee) with a clearly designated governance structure is necessary. If possible, the interventionalist must be the chief executive, but if desired, a yearly rotating chairperson may be acceptable to both parties. Other officers can also be rotated. Financial information should be transparent to all partners and shared without restrictions. Buy and sell agreements should be part of the contract signed by both parties. Experienced legal consultations are mandatory due to the thicket of laws governing physician-hospital cooperative endeavors.
What Constitutes “Due Diligence” for Physicians Looking for a Partnership? It is imperative that physicians looking for a partnership evaluate both the mission and vision of the partnership, in addition to a discussion of strategic goals, the timeline to achieve these, and the metrics by which they can be evaluated. Ask questions and do not assume anything (Table 26.4). Due diligence can be separated into the following:
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TABLE 26.4
Due Diligence Topics to Consider Before Partnering. Corporate and general operations
- Description - Location - History
Financial
- Audited financial statements - Long-term financial projections - Assets and liabilities - Revenue cycle - Policies regarding bad debt and charity - Third-party payer mix and reimbursement cycle
Legal and compliance
-
Material contracts
- Existing and proposed contracts
Personal property
- Fixed assets - Maintenance contracts - Debts and obligations
Licenses and accreditation
- Planning permits and certificates of need - Copies of licenses and permits
Labor and employment
- Personnel policies - Employee handbooks and communication material - Employee terminations
Environmental compliance
- Solid and hazardous waste - Radioactive materials storage - Infectious material waste
Information technology
- Software licenses - Security breaches
Investigations Sanctions Risk management Worker’s compensation
Physician matters
VALUATION CONSIDERATIONS In addition to considerations for forming an organization, capitalization and ownership structure are subject to regulatory scrutiny. Capitalization, for the purposes of this discussion, is the acquisition of assets for the operation of the OEC. Capitalization needs for a startup venture may include build-out, equipment, supplies, and working capital, and such requirements may exceed
$1 million. The parties to the joint venture typically contribute capital to fund the start-up costs. These capital contributions define the ownership of each of the parties in the joint venture, i.e., capital contributions from each party toward the total capitalization of the project determine the ownership percentage of each party. Funding may come in the form of cash, assets, or services. Examples of assets contributed may include use of office space, equipment, and intangible assets, such as the use of a trade name or intellectual property. Examples of services contributed may include the use of personnel staff and management services. If capital contributions are in a form other than cash, a determination of the fair market value of those contributions is required to comply with several applicable AKBS safe harbors. If the OEC is already an ongoing business in operation at the time of the joint venture formation, ownership buy-in amounts are also determined by the fair market value of the existing OEC, using a highly specialized valuation technique. In this case, the OEC is part of an existing medical practice that, in most cases, does not have a separate legal entity or financial statements that isolate the in-office ancillary services provided by the soon-to-be joint venture OBL from the professional services (i.e., physician services not part of the joint venture OBL) of the medical practice. Therefore, a thorough analysis to properly isolate the revenues, as well as the operating and capital expenses of the OEC, from the rest of the practice must be performed. In addition, the fair market value determination must be calculated without the consideration of any increased volume and/or revenue that may be projected to result from the addition of the specific joint venture partners.
CONCLUSION The current healthcare environment has seen a dramatic shift toward outpatient care and the rendering of such services. In order to mitigate a variety of concerns, chiefly financial, vascular surgeons and others have looked to partner with larger organizations through a joint venture in order to achieve strategic goals of efficient healthcare delivery while concurrently containing cost and sharing risk. Multiple partnership models exist besides solo practice, and the success is based on a combined vision and mission among the stakeholders. Clearly there are benefits and risks to each opportunity, as well as specific legal implications. Ultimately, by reviewing such pros and cons, the vascular surgeon or other specialist will be
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Joint Ventures in Office-Based Endovascular Centers
able to make a comprehensive and informed decision, after appropriate due diligence, as to whether a joint venture opportunity is in his or her best interest.
11.
REFERENCES 1. Goldsmith J, Kaufman N, Burns L. The tangled hospitalphysician relationship. Health Aff. 2016. https://doi.org/ 10.1377/hblog20160509.054793. 2. Samson R, Nair D. Outpatient endovascular suites: are they good for the patient or the doctor. Vasc Specialist; 2012. www.mdedge.com/vascularspecialistonline/article/ 83856/outpatient-endovascular-suites-are-they-goodpatient-or. 3. Jain KM, Munn J, Rummel M, Vaddineni S, Longton C. Future of vascular surgery is in the office. J Vasc Surg. 2010;51(2):509e513. 4. Limitation on Certain Physician Referrals” 42 U.S.C. x 1395nn(a). 5. Limitation on Certain Physician Referrals” 42 U.S.C. x 1395nn(h)(6)(A). 6. The Regulations Specifically Note that “DHS Do Not Include Services that Are Reimbursed by Medicare as Part of a Composite Rate (For Example, SNF Part A Payments or ASC Services Identified at x416.164(a)), except to the Extent that Services Listed in Paragraphs (1)(i) through (1)(x) of This Definition Are Themselves Payable through a Composite Rate (For Example, All Services provided as Home Health Services or Inpatient and Outpatient Hospital Services Are DHS).” “Definitions” 42 C.F.R. x 411.351. 7. Criminal Penalties for Acts Involving Federal Health Care Programs” 42 U.S.C. x 1320a-7b(b)(1). 8. Re: OIG Advisory Opinion No. 15-10” by Gregory E. Demske, Chief Counsel to the Inspector General, Letter to [Name Redacted]; July 28, 2015:4e5. U.S. v. Greber” 760 F.2d 68, 69 (3d Cir. 1985) http://oig.hhs.gov/fraud/docs/ advisoryopinions/15/AdvOpn15-10.pdf. 9. Re: OIG Advisory Opinion No. 15-10” By Gregory E. Demske, Chief counsel to the Inspector General, Letter to [Name Redacted], July 28, 2015, http://oig.hhs.gov/ fraud/docs/advisoryopinions/15/AdvOpn15-10.pdf (Accessed 12/9/15), p. 5. 10. Medicare and state health care programs: fraud and abuse; clarification of the initial OIG safe harbor provisions and establishment of additional safe harbor provisions under
12. 13. 14.
15.
16.
17.
18.
19.
20.
21.
22.
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the anti-kickback statute. Final Rule Federal Register. November 19, 1999;64(223):63518e63520. Re: Malpractice Insurance Assistance. By Lewis Morris, Chief Counsel to the Inspector General. Letter to [Name redacted],. United States Department of Health and Human Services; January 15, 2003. http://oig.hhs.gov/fraud/docs/ alertsandbulletins/MalpracticeProgram.pdf. Exceptions: Ambulatory Surgery Centers” 42 C.F.R. x 1001.952(r). 2015. “Definitions” 42 U.S.C. x 416.2. See “facts about office-based surgery accreditation. Joint Commission; February 16, 2018. https://www. jointcommission.org/facts_about_office-based_surgery_ accreditation/. Becker S, Pallardy C. Surgery center joint venture models. Becker’s ASC Rev; 2013. www.beckersasc.com/asctransactions-and-valuation-issues/5-surgery-center-jointventure-models.html. Hollingsworth JM, Ye Z, Strope SA, Krein SL, Hollenbeck AT, Hollenbeck BK. Physician-ownership of ambulatory surgery centers linked to higher volume of surgeries. Health Aff. 2010;29(4):683e689. Cheney C. Hospital-physician consolidation growth trends moderate. HealthLeaders; 2019. www. healthleadersmedia.com/clinical-care/hospital-physicianconsolidation-growth-trends-moderate. Shtern Y, Lipsky L. Physician practice management. Phys Pract; 2017. www.physicianspractice.com/practice-models/ 5-things-know-about-physician-practice-management/ page/0/1. Strode RD. The resurgence of the ambulatory surgery center: seven considerations for ownership. Health Care Law Today; 2018. www.healthcarelawtoday.com/2018/05/24/ the-resurgence-of-the-ambulatory-surgery-center-sevenconsiderations-for-ownership/. Katzenbach J, Zhou A. You can’t benchmark culture. StrategyþBusiness; 2019. www.strategy-business.com/article/ You-cant-benchmark-culture?gko¼4e9e7&utm_source¼itw&utm_medium¼20190226&utm_campaign¼resp. Sapp D. Facilities operations & maintenance e an overview. Whole Building Design Guide; 2017. www.wbdg. org/facilities-operations-maintenance. Cross DS. Office-Based labs: getting started. Cardiac Interventions Today; 2018. https://citoday.com/2018/02/officebased-labs-getting-started/.
Joint Ventures in Office-Based Endovascular Centers NICOLAS J. MOUAWAD, MD, MPH, MBA, FSVS, FRCS, FACS • JESSICA L. BAILEY-WHEATON, ESQ • TODD A. ZIGRANG, MBA, MHA, FACHE, CVA, ASA • BHAGWAN SATIANI, MD, MBA, DFSVS, FACHE, FACS
While the hospital and physician healthcare sectors are massive ($1 trillion and $600 billion, respectively), they may be considered financially separate.1 Despite this, they are not only bound in a tight business relationship but have become increasingly more dependent on each other clinically. And while the power equation seems to be shifting to increasingly large health systems, hospitals cannot function efficiently without actively aligned physician groups. In this regard, outpatient joint ventures have been explored for several years to benefit both entities. Patient safety remains the overarching goal in healthcare delivery, including outpatient surgery centers. Compared with their inhospital counterparts, these outpatient surgery centers may include more efficient clinical operations and cost savings to the patient, surgeon, and payers. Furthermore, patients benefit from shorter wait times, easier scheduling, more convenient locations, and consistent on-time appointments, as well as more intimate surroundings and a more satisfying patient experience.2 The shift to outpatient care led to the establishment of ambulatory surgical centers (ASCs), renal dialysis centers, cardiac catheterization facilities, and now office-based endovascular centers (OEC). With decreasing reimbursement, physicians have resorted to forming larger single or multispecialty groups to better negotiate insurance contracts, as well as building hospital relationships while concurrently reducing overhead. Groups have also invested in ancillary services in order to receive global fees instead of just declining professional fees. Surgeons invested in ASCs for surgical procedures now increasingly work in the outpatient setting, offering convenience, efficiency, and cost-effective services compared with hospitals for payers interested in further savings.
Ownership and referral to an ASC does not necessarily implicate the Stark Law but does involve the Anti-Kickback Statute (AKBS) and state law. Whereas the federal Stark Law has “exceptions” to allow for legal activities, the AKBS have “safe harbors” (41 C F R. Section 1001.952(r)), which provide that any return on physician investment will not be deemed as remuneration that may have violated the AKBS if the arrangement falls within the safe harbor’s criteria. There are also “advisory opinions” issued by the Office of Inspector General (OIG); although these are not legal precedents, they offer guidance for forming or scrutinizing ASC investments. Specialties like vascular surgery then took this shift to outpatient care a step further by performing venous and arterial procedures such as angiography and endovascular procedures in OEC. Health systems had already started partnering with physicians in managing ASCs, but now are faced with increasing competition for endovascular procedures performed by independent vascular surgeons in their own OECs. Due largely to technologic advances, the shift to outpatient vascular procedures in the last decade has been striking.3
OEC LEGAL CONSIDERATIONS Please note that the information provided in this chapter does not, and is not intended to, constitute legal advice, instead, all information and content are for general informational purposes only.
Stark Law The Stark Law governs physicians (or their immediate family members) who have a financial relationship (i.e., an ownership investment interest or a compensation arrangement) with an entity and prohibits those
Office-Based Endovascular Centers. https://doi.org/10.1016/B978-0-323-67969-5.00026-5 Copyright © 2020 Elsevier Inc. All rights reserved.
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individuals from making Medicare referrals to those entities for the furnishing of designated health services (DHS).4 DHS encompasses the following items and services: (1) Clinical laboratory services; (2) Physical therapy services; (3) Occupational therapy services; (4) Radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; (5) Radiation therapy services and supplies; (6) Durable medical equipment and supplies; (7) Parenteral and enteral nutrients, equipment, and supplies; (8) Prosthetics, orthotics, and prosthetic devices and supplies; (9) Home health services; (10) Outpatient prescription drugs; (11) Inpatient and outpatient hospital services; and (12) Outpatient speech-language pathology services.5 OECs are generally not subject to Stark Law restrictions because they typically do not furnish DHS. However, in the event that the OEC is performing DHS (e.g., radiology services), and that DHS is not reimbursed by Medicare as part of a composite rate,6 then the financial relationship between the physicians and the hospital, and their connection to the OEC, may be subject to Stark, the application of which regulations (and any appropriate exceptions) will be determined by the structure of the financial relationship between the parties (e.g., direct/indirect, compensation/ownership investment).
Anti-Kickback Statute (AKBS) The AKBS makes it a felony for any person (not just a physician) to “knowingly and willfully” solicit or receive, or to offer or pay, any “remuneration,” directly or indirectly, in exchange for the referral of a patient for a healthcare service paid for by a federal healthcare program.7 Of note, interpretation and application of the AKBS under case law has created precedent for a regulatory hurdle known as the one purpose test, under which test healthcare providers violate the AKBS if even one purpose of the arrangement in question is to offer remuneration deemed illegal under the AKBS.8 Due to the broad nature of the AKBS, legitimate business arrangements may appear to be prohibited.9 In response to these concerns, Congress created a number of statutory exceptions and delegated authority to the HHS to protect certain business arrangements by means of promulgating several safe harbors,9 which set forth regulatory criteria that, if met, shield an arrangement from regulatory liability, and are meant to protect
transactional arrangements unlikely to result in fraud or abuse.10 In contrast to the Stark Law, failure to meet all the requirements of a safe harbor does not necessarily render an arrangement illegal.11 Under the AKBS, ASCs and OECs are treated differently. Specifically, ASCs meet AKBS safe harbor provisions, which state that “‘remuneration’ does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to an investor,” under certain circumstances. For example, the operating and recovery room space must be exclusively dedicated to the ASC, all patients referred to the entity by an investor must be fully informed of the investor’s ownership interest, and all of the following applicable standards are met within one of the categories set forth in Table 26.1.12 Additionally, the above safe harbors are only available to those ASCs that meet the following statutory definition: any distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization and in which the expected duration of services would not exceed 24 hours following an admission. The entity must have an agreement with CMS to participate in Medicare as an ASC. “DEFINITIONS” 42 U.S.C. x 416.213
Because no federal licensing is required to operate an OEC,14 they would not be considered an ASC under the AKBS. Consequently, the specific facts and circumstances related to the transaction, such as the structure of the hospital-physician joint venture and the various financial relationships included (e.g., OEC space rental, information technology) will guide the applicability of AKBS, and its associated safe harbors.
PARTNERSHIP MODELS Several functional models for OEC partnership do exist and are based primarily on the relationship among the stakeholders.15 Multiple combinations are feasible. 1. Physician-owned. This is the most basic of all models, where sole ownership of the endovascular center is held by the physicians, and they may or may not retain an outside management group to assist in business operations. In this model, the physicians gain all the returns from the venture. However, they also incur all the risk. Although the physician owners are educated clinically, physician leaders may not be well versed in making strategic business decisions, and therefore lack access to capital, management support, and managed care
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TABLE 26.1
Ambulatory surgical center (ASC) Exceptions to the Anti-Kickback Statute.
1
2
3
4
5
6
7
A
B
C
D
E
Category
Surgeon-Owned ASC
Single-Specialty ASC
Multispecialty ASC
Hospital/Physician ASC
Investor
General surgeons or surgeons engaged in the same surgical specialty, who can refer patients directly to the ASC and perform surgery on such referred patients Surgical group practices comprised exclusively of such surgeons
Physicians engaged in the same medical practice specialty who can refer patients directly to the entity and perform procedures on such referred patients Group medical practices composed exclusively of such physicians
Physicians who can refer patients directly to the entity and perform procedures on such referred patients
A hospital
Group medical practices composed exclusively of such physicians
Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors
Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors
Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors
General surgeons or surgeons engaged in the same surgical specialty, who are able to refer patients directly the ASC and perform surgery on such referred patients Physicians engaged in the same medical practice specialty who can refer patients directly to the entity and perform procedures on such referred patients
Physicians who can refer patients directly to the entity and perform procedures on such referred patients Surgical group practices comprised exclusively of such surgeons Group medical practices composed exclusively of such physicians Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence Continued
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TABLE 26.1
Ambulatory surgical center (ASC) Exceptions to the Anti-Kickback Statute.dcont'd A
B
C
D
E
Category
Surgeon-Owned ASC
Single-Specialty ASC
Multispecialty ASC
Hospital/Physician ASC referrals directly or indirectly to the ASC or any other investors
8
9
10
11
12
Standards
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior 12-month period must come from the surgeon’s performance of procedures Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior 12-month period must come from the surgeon’s performance of procedures Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the ASC and may not be billed separately to Medicare or other federal healthcare programs
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the ASC and may not be billed separately to Medicare or other federal healthcare programs
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior 12-month period must come from the surgeon’s performance of procedures At least one-third of the procedures performed by each physician investor must be performed at the investment entity;
Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor Neither the entity nor any investor can loan funds or guarantee a loan for an investor, if the investor uses any portion of the loan to acquire the investment interest An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested
The ASC, the hospital. and any physician investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner The ASC may not use (1) space, including operating and recovery room space located in or owned by any hospital investor, unless the space lease complies with the space rental safe harbor; (2) equipment provided by any
CHAPTER 26
Joint Ventures in Office-Based Endovascular Centers
199
TABLE 26.1
Ambulatory surgical center (ASC) Exceptions to the Anti-Kickback Statute.dcont'd A
B
C
D
E
Category
Surgeon-Owned ASC
Single-Specialty ASC
Multispecialty ASC
Hospital/Physician ASC hospital investor, unless the equipment lease complies with the equipment rental safe harbor; nor (3) services provided by any hospital investor, unless the services contract complies with the personal services and management contracts safe harbor
13
Standards
The ASC and any investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner
The ASC and any investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner
14
15
contracting that may be available in the joint venture models described below. Physician-ownership of outpatient endovascular centers has resulted in an increase in outpatient surgical volumes.16 Many physicians confronting declining reimbursement from insurers have moved their work to such centers where they can exert control over the
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the ASC and may not be billed separately to Medicare or other federal healthcare programs The ASC and any investors must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner
Ancillary services performed for beneficiaries of federal healthcare programs must be related to the primary procedures performed at the entity and may not be billed separately to Medicare or other federal healthcare programs The hospital’s report, or any other claim for payment from a federal healthcare program, may not include any costs associated with the ASC unless the federal healthcare program requires their inclusion The hospital cannot directly or indirectly make or influence referrals to any investor or entity.
entirety of the care provided during an interventional procedure. Since the physicians own a stake in the success of the center, this creates a potential conflict of interest between the physicians’ financial incentives and the patients’ clinical needs. Furthermore, hospitalphysician integration trends continue to increasedfrom July 2012 to July 2018, hospital-employed physicians
200
SECTION V
Various Models
increased by 55%.17 In fact, from July 2016 to January 2018, an additional 14,000 physicians became employed with an additional 8000 physician practices acquired. Therefore, other combined joint venture models may be more functional. 2. Physicians and management company. The demands of a successful practice render it nearly impossible to care for patients and simultaneously perform the administrative tasks of business operations. As such, physicians can partner with Management Services Organizations (MSOs) to assist with the nonmedical burdens of an endovascular surgical center. These include, but are not limited to, billing, coding, supply purchasing, inventory control, human resource management, collections, quality, marketing, accounting and bookkeeping, technological and informational support systems, and so forth. The added expertise of an MSO is advantageous in the physician-management company model. However, in such a venture, the physicians relinquish a certain portion of their equity. Traditionally, MSOs may own a greater than 50% share in the endovascular center. Arrangements between physicians and MSOs must be carefully crafted and implemented, due in part to the “Corporate Practice of Medicine” (CPOM) laws that most states have. The CPOM prohibition, which applies to MSOs, prohibits nonlicensed individuals or unauthorized entities from practicing medicine, or owning, investing in, or controlling professional medical practices; this is in contradistinction to physician practicesdwhich are typically structured as professional corporations and professional limited liability companies.18 Although such MSOs can provide administrative and other nonclinical support to physician practices, the CPOM prohibition forbids such an MSO from controlling or swaying a physician’s clinical judgment and independent medical decision-makingdwhich is reserved solely for the physician and the physician practice. 3. Physicians and hospital. An increasingly common structure in the industry is the joint venture structure involving joint ownership by physicians and hospitals. This type of venture is generally very popular with the hospital entity as it allows an opportunity for hospitals to provide a better coordination of care through rekindling relationships with physician investors who wish to remain independent.
The trend toward this model has been fueled primarily by the hospital’s more robust negotiating power and leverage to attract, engage, and maintain managed care populations. The hospital can command considerably higher rates than physician-owned centers. Although there exist large variations in which either the hospital or physicians own a majority share in the venture, when the hospital has a majority investment interest, it can increase the center’s reimbursement by negotiating stronger payer agreements. Furthermore, despite less overall control, this seems to be welcomed by physicians due to substantially higher per share returns on their equity.19 As with MSOs, this type of joint venture model should be structured and implemented carefully in order to ensure that the hospital and the endovascular center are not considered competitors where they are unable to coordinate their activities without violating antitrust laws (e.g., the Copperweld Doctrine). 4. Physicians, management company, and hospital. This joint venture model, while resulting in less equity per involved group, may produce a more successful venture overall, due to the economic inputs from each group (i.e., a smaller piece of a larger pie). For instance, the management company may provide the managerial and nonclinical aspects of daily tasks while the hospital partner may help the joint venture gain access to managed care contracts and diffuse tension in the community by recruiting other physicians or physician groups outside the venture. The management company and hospital partner may form a separate company for the purposes of their investment in the OEC joint venture. This separate “holding company” owns a majority share in the OEC joint venture, usually between 51% and 60%, with the physicians owning the remainder (either individually or through their own physician joint venture company). Within the holding company itself, however, it is the hospital partner that owns the majority (e.g., hospital 51% and management company 49%), as the management company’s primary motivation is the provision of management services, for which they are compensated a management fee. 5. Physicians and hospital-operated outpatient departments. The hospital-level reimbursement offered by the Outpatient Prospective Payment System (OPPS) fee schedule, along with the costefficiency of an outpatient center, offers increased reimbursement, which may go directly to the
CHAPTER 26
Joint Ventures in Office-Based Endovascular Centers
bottom line. Acquisition of off-campus surgery centers therefore became commonplace until reimbursement reductions introduced by the Balanced Budget Act of 2015, as well as subsequent OPPS payment update adjustments, slowed that trend. In such a venture, endovascular surgery center physicians function as independent contractors of the hospital, obtaining a flat-fee compensation with some bonuses, as their compensation cannot consider the value or volume of physician referrals. This arrangement is at the other end of the joint venture spectrum, as it is completely owned by the hospital, but managed as an outpatient center, and the hospital enjoys all the reward, but also bears all the risk.
TABLE 26.2
Pros and Cons of Hospital Partnership. Pros of Hospital Partnership
Cons of Hospital Partnership
Efficiency
Partly physician owned; quicker decision-making
More bureaucracy; multiple decision points
Financial
- Access to capital - More financing leverage with lenders - Favors investors if needed - Risk sharing - Cost sharing
- Size dependent - Easier for multispecialty or large numbers - Personal guarantees of physician - Profits must be shared with partner
Quality of care
Peer review required in hospital-owned facilities; quality important to hospitals
Peer review not required although most physicianowned officebased endovascular centers (OECs) would encourage it; physicianowned OECs are usually more focused on outcomes
Contracting
Hospitals with more managed care contracting and favorable reimbursement rates
Physician may have little control or input in this regard
Politics
More influence with regulators, legislators, hospital associations, and insurers
Hospital politics may slow down decision-making; if > 1 dominant health system in market area, physician group likely to be excluded from nonpartners
Technology
Infrastructural upgrades more affordable with “deep pockets”
All data available to the hospital administration
WHY FORM JOINT VENTURES? A joint venture involves two or more entities that enter into a formal agreement with one another for a specific business project or strategy. In the healthcare field, this can include physicians, physician groups, commercial outfits such as property developers (Surgical Care Affiliates, AMSURG, ASCOA), hospitals, hospital systems, and others. The benefits and risks depend on the parties involved. Clearly, the most difficult obstacle to overcome in having multiple parties involved is to come to an agreement on the strategic plan for the venture. For the hospital, the advantages are numerous. Hospitals, most of which are tax-exempt, have a mission to provide benefit to the community. Such ventures strengthen the surgeon (interventionalist)/hospital relationship and increase coordination of care, avoiding costly duplication of services. A joint venture also helps with appropriate use of inhospital resources; for instance, procedures that do not need to be performed in an inpatient hospital operating room, interventional radiology suite, or the cardiac Cath lab can be shifted to the lower-cost, OEC, freeing up these spaces for higheracuity cases. The OEC will provide the hospital with increased efficiency, high-quality, and low-cost capabilities. This is of specific interest to populations with costsensitive payers. Eventually, it should be of concern to all parties involved in healthcare to decrease the cost of providing healthcare. For the physicians, advantages include access to the available capital of the hospital, risk sharing, managed care contracting experience, technology infrastructure, and the fact that financial stability with hospital involvement may attract more investors (Table 26.2). With the trend toward increasing physician employment by hospitals, an OEC joint venture may increase
201
202
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Various Models
physician participation. Notably, however, there are some risks associated with antitrust laws if the hospital is seen as coordinating activities including reimbursement with a competitor such as an OEC. Disadvantages of the joint venture include bureaucratic delays in decision-making, tension created by disputes in management decisions, reduced control and possible physician autonomy, hospital and community politics, divergent emphasis on quality issues, sharing any profits with the partner, and, if an MSO is involved, paying a management fee. Another joint venture result may be the status of physician independence, which may be questioned by the other hospitals and healthcare providers excluded from the joint venture. For interventionalists, a frustrating problem has been the inability to negotiate favorable managed care contracts for their OEC. They lack the market power (volume or exclusivity) to leverage payers to achieve the payment rates often given to hospitals for the same services. If a large health system or hospital has a major investment in the OEC, it is likely that much stronger payer agreements can be negotiated. Physician owners then must decide if the advantages for partnership are enough to make up for dilution of their interest in the OEC. Another problem for interventionalists may be dealing with noncompliant physician owners. What can be done if one or more physicians invest in, but fail to use and support, the venture? This often leads to resentment among fellow physician investors, especially those who actively support the endovascular center and feel as though they are subsidizing investment returns to physicians who choose not to do cases in the facility. While it is not advisable to simply require a physician to redeem his or her interests in the facility for a lack of referrals, it is possible to use the aforementioned extension of practice requirements to remove a noncompliant physician; in some cases (ASCs but not in OECs), this may be done by requiring physician investors to perform at least one-third of their outpatient cases at the center each year, and further, certify their compliance on a regular basis. Because the so-called “one-third test” is a safe harbor requirement for ASC ownership interests, an ASC is free to impose this obligation on each ASC physician investor. Failure to meet this requirement can be caused to repurchase any noncompliant physician investor’s interests in the ASC. This safe harbor is not available for OECs, however, and as such, specific contracting requirements should be discussed as well as ensuring that those involved have defined roles and responsibilities and whose business cultures match.
WHAT OPTIONS DO INTERVENTIONALISTS HAVE TO FORM AN OEC? There are several options, as noted previously, including an individual or group forming their own OEC, partnering with a management company experienced in OECs or ASCs, sharing ownership with a health system, or even in a tripartite structure with a hospital and management company, and health system investing in and owning the OEC but also accepting a contract to comanage the OEC. The latter may involve predetermined flat compensation for specified activities with or without incentive bonuses. Specifically, for physicians, forming an OEC with partners has a variety of benefits and risks, as noted in Table 26.3.
QUESTIONS TO ASK BEFORE ENGAGING IN A JOINT VENTURE Do Our Cultures Match? Any company’s culture is its personality and provides a clue to the interaction between the employees and the TABLE 26.3
Risks and Benefits of Partnering to Form an OEC. Benefits
Risks
Risk sharing Cost sharing Entering markets that previously had high barriers to entry Collective intelligence Collaboration with people with different perspectives Increased opportunities for growth Leverage existing technologies from partners Investment potential Governance Expansion of services Less initial financial capital Involved in strategic decisions Cost and risk sharing Leveraging hospital negotiations such as managed care contracts Leveraging hospital technology Equipment sharing Entering different markets
Coping with different organizational cultures and management styles Decreasing flexibility Bureaucracy Redundancy of management Risk of downsizing due to duplication of resources Lack of commitment or combined vision and mission Decreasing autonomy Navigating bureaucracy Decreased equity Potential conflicts of interest
CHAPTER 26
Joint Ventures in Office-Based Endovascular Centers
manner in which things get accomplished. Since a joint venture is essentially a merger of two different cultures, there are likely to be differences between leaders and employees of the two parties about the joint venture’s values. It may take time to merge the two cultures. Patient safety is one area which deserves the most emphasis and collaboration in the joint venture. The joint venture must emphasize patient safety and the quality irrespective of other considerations. Physician partners may address problems differently compared with hospital leadership. Hospital representatives may lean more toward innovation, external customers, and team performance metrics.20 Physicians may focus on internal operation, process improvement, and accountability. Regardless, staff must be fully cognizant of the organization’s values and safety principles, which must be repeatedly taught to all employees. A formal committee composed of employees from several disciplines should regularly meet and report to the board or executive committee.
Are Roles and Responsibilities Clearly Defined? An OEC’s facility operations may be defined as the “services, competencies, processes, and tools required to assure the built environment will perform the functions for” the OEC, including “the day-to-day activities necessary for the building . its systems and equipment, and . users to perform their intended function”.21 The rules setting forth those operations and assigning the party responsible for each of the delineated operations should be determined up front, and clearly defined in a written agreement (note that, both Stark Law and Anti-Kickback Statute exceptions/safe harbors require any arrangement to be set forth in writing and signed by the parties). The respective responsibilities of the physicians and the hospital (and even a third party) in operating the OEC will likely fall somewhere on a spectrum, ranging from no involvement in the day-to-day activities (i.e., functioning as a passive investor) to conducting the majority or all the facility operations. Often, the scope of each party’s responsibilities is codified in a management services agreement, wherein the hospital or a third-party management company assumes some (or all) of the nonclinical, administrative responsibilities, and the physicians undertake the clinical responsibilities (e.g., patient care, physician recruiting, etc.). Where each party falls on that spectrum of responsibility may be dictated by federal/state regulations, e.g., fraud and abuse laws (to ensure the arrangement complies with applicable exceptions/safe harbors),
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and state corporate practice of medicine laws. These laws may dictate that certain tasks be conducted by licensed physicians, such as the recruitment and employment of medical staff. In addition to legal considerations, there may be practical issues requiring the delegation of duties, e.g., physicians may want to retain control over operations, in order to maintain their independence.22 Regardless of the delegation of responsibilities regarding facility operations, those determinations should be thoroughly considered and determined at the outset, and codified in a written agreement, in order to maintain regulatory compliance, and, if applicable, determine any fair market value remuneration for the facility operation services provided. The administrative structure, ideally a “dyad,” must be clearly enunciated with roles for the physician and administrator on an equal footing. Administrative and clinical employees should be similarly aware of their supervisors, and dispute resolution mechanisms laid out in formal written policies must be followed. Communication is an important part of the roles assigned to each of the joint venture partners. Regular and frequent methods of communication must be available to allow active participation by all physicians in the joint venture entity. Dispute resolution mechanisms such as arbitration must also be outlined in any agreement.
Are Governance Rules for Facility Operations Clear? A joint operating committee (board/executive committee) with a clearly designated governance structure is necessary. If possible, the interventionalist must be the chief executive, but if desired, a yearly rotating chairperson may be acceptable to both parties. Other officers can also be rotated. Financial information should be transparent to all partners and shared without restrictions. Buy and sell agreements should be part of the contract signed by both parties. Experienced legal consultations are mandatory due to the thicket of laws governing physician-hospital cooperative endeavors.
What Constitutes “Due Diligence” for Physicians Looking for a Partnership? It is imperative that physicians looking for a partnership evaluate both the mission and vision of the partnership, in addition to a discussion of strategic goals, the timeline to achieve these, and the metrics by which they can be evaluated. Ask questions and do not assume anything (Table 26.4). Due diligence can be separated into the following:
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SECTION V
Various Models
TABLE 26.4
Due Diligence Topics to Consider Before Partnering. Corporate and general operations
- Description - Location - History
Financial
- Audited financial statements - Long-term financial projections - Assets and liabilities - Revenue cycle - Policies regarding bad debt and charity - Third-party payer mix and reimbursement cycle
Legal and compliance
-
Material contracts
- Existing and proposed contracts
Personal property
- Fixed assets - Maintenance contracts - Debts and obligations
Licenses and accreditation
- Planning permits and certificates of need - Copies of licenses and permits
Labor and employment
- Personnel policies - Employee handbooks and communication material - Employee terminations
Environmental compliance
- Solid and hazardous waste - Radioactive materials storage - Infectious material waste
Information technology
- Software licenses - Security breaches
Investigations Sanctions Risk management Worker’s compensation
Physician matters
VALUATION CONSIDERATIONS In addition to considerations for forming an organization, capitalization and ownership structure are subject to regulatory scrutiny. Capitalization, for the purposes of this discussion, is the acquisition of assets for the operation of the OEC. Capitalization needs for a startup venture may include build-out, equipment, supplies, and working capital, and such requirements may exceed
$1 million. The parties to the joint venture typically contribute capital to fund the start-up costs. These capital contributions define the ownership of each of the parties in the joint venture, i.e., capital contributions from each party toward the total capitalization of the project determine the ownership percentage of each party. Funding may come in the form of cash, assets, or services. Examples of assets contributed may include use of office space, equipment, and intangible assets, such as the use of a trade name or intellectual property. Examples of services contributed may include the use of personnel staff and management services. If capital contributions are in a form other than cash, a determination of the fair market value of those contributions is required to comply with several applicable AKBS safe harbors. If the OEC is already an ongoing business in operation at the time of the joint venture formation, ownership buy-in amounts are also determined by the fair market value of the existing OEC, using a highly specialized valuation technique. In this case, the OEC is part of an existing medical practice that, in most cases, does not have a separate legal entity or financial statements that isolate the in-office ancillary services provided by the soon-to-be joint venture OBL from the professional services (i.e., physician services not part of the joint venture OBL) of the medical practice. Therefore, a thorough analysis to properly isolate the revenues, as well as the operating and capital expenses of the OEC, from the rest of the practice must be performed. In addition, the fair market value determination must be calculated without the consideration of any increased volume and/or revenue that may be projected to result from the addition of the specific joint venture partners.
CONCLUSION The current healthcare environment has seen a dramatic shift toward outpatient care and the rendering of such services. In order to mitigate a variety of concerns, chiefly financial, vascular surgeons and others have looked to partner with larger organizations through a joint venture in order to achieve strategic goals of efficient healthcare delivery while concurrently containing cost and sharing risk. Multiple partnership models exist besides solo practice, and the success is based on a combined vision and mission among the stakeholders. Clearly there are benefits and risks to each opportunity, as well as specific legal implications. Ultimately, by reviewing such pros and cons, the vascular surgeon or other specialist will be
CHAPTER 26
Joint Ventures in Office-Based Endovascular Centers
able to make a comprehensive and informed decision, after appropriate due diligence, as to whether a joint venture opportunity is in his or her best interest.
11.
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