The Weekly Scenario
The Weekly Scenario: Uncertainty and Opportunity in 2021
Is Now the Time to Make a Substantial Gift? As I reported last week, we may soon see a rollback in the ‘Trump’ tax cuts. Such a roll-back might even be made effective retroactively to January 1, 2021. Most of the changes made by the Tax Cuts and Jobs Act of 2017, as related to individuals, are already set to expire after 2025. Under this act, we now have an estate, gift, and generation-skipping transfer tax exemption amount of $11,700,000 per person. This exemption amount is up from $5,490,000, where it stood in 2017 prior to the ‘Trump’ tax cuts taking effect. This means that until the end of 2021, an individual dying or making a large gift can pass up to $11,700,000 free of any federal transfer tax. Thereafter a roughly 40% tax on the fair market value of the estate or gift would be paid. For married couples, they can now pass up to $23,400,000 (federal estate/gift/generation-skipping). The individual exemptions may likely roll back soon to around $5 million per donor or even $3.5 million per donor. On November 26, 2019, the IRS issued a regulation under IR-2019-189 that there would have been no “clawback” for any gifts made in 2020. Thus, if an individual had given up to $11.5 million in 2020, and the related exemption amount was reduced in 2021 to something less than that, then the difference between those amounts would not have been added back when computing the value of the taxable estate when the donor later dies. This is the “use it or lose it” approach that many people talk about in trying to figure out whether to make a large gift. While it is likely the IRS would do this again; there are no guarantees. The analysis to figure out whether a gift might be beneficial to a family is difficult and requires many different factors. Some of the factors include the total estate value, the health of the family member, the income tax basis of the estate assets, the charitable giving goals, prior gifts, the desire to retain control over the use of assets, and the readiness of beneficiaries to receive a large gift. Keep in mind that a gift doesn’t have to be made directly to an individual beneficiary. It can be made in trust, for example, given a person access to the property but not ownership or control. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
April 28, 2021
The Weekly Scenario
The Weekly Scenario: What is a Spendthrift Provision?
One of the best forms of asset protection we can provide is through a trust that contains a spendthrift provision. The general idea behind a spendthrift trust is to prevent certain beneficiaries from receiving their inheritances all at once. The risk is that the ‘spendthrift’ beneficiary will end up blowing through the money in a short period of time. The process of establishing a spendthrift trust is nearly identical to creating any other trust, except the trust instrument must contain a spendthrift provision. So what exactly does a spendthrift provision do? A spendthrift provision is a provision within a trust that limits the beneficiary’s access to trust. This restriction protects the trust property in two ways: First, it prevents a beneficiary from selling his or her interest in the trust property as a beneficiary to a creditor, and second, it prevents the beneficiary’s creditors from compelling the trustee to satisfy a debt by making a distribution except where this would void public policy like in the case of alimony, child support and some civil judgments. So, for instance, creditor X demands that Beneficiary 1 use the money to pay his debt of $20,000. Even if the beneficiary cannot pay off his debt, creditor X cannot compel the trust to pay a debt directly to creditor X if the trust is discretionary and contains such a spendthrift provision. However, once the trustee has made a distribution to a beneficiary, the creditor may then take the distributed assets from the individual beneficiary. In a discretionary spendthrift trust arrangement, the beneficiary's inheritance is, therefore, distributed in portions over an extended period of time. The beneficiary has no right to the money and can't spend it before actually receiving any of these distributions, and creditors and others can only reach the money that the beneficiary has actually received—not the portion of the inheritance that remains in the trust. The trustee would have discretion to decide when and why payments are made, or the creator of the trust can set these terms in the trust documents when the trust is created. There are some debts that courts do not allow spendthrift provisions to protect due to public policy concerns. For instance, a spendthrift provision will not apply to claims for alimony, child support, and back taxes. The courts favors these debtors because it is public policy to keep families from relying on support from the state when there are other resources that could provide support. If such great protection from creditors exists, why not simply create a spendthrift trust and name yourself a beneficiary? The reason is that most states won't allow this for public policy reasons. However, there are some exceptions where certain states allow something called ‘self-settled’ asset protection trusts where the person setting up the spendthrift trust can also be a beneficiary. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
April 22, 2021
Labor and Employment
Now Hiring: Getting Back to Work Amid the COVID-19 Pandemic
For much of 2020, my conversations with employers were around layoffs, furloughs, and terminations. With the uncertainty of the pandemic, many companies moved forward with mass layoffs and terminations. With businesses opening back up, individuals getting vaccinated, and more information about the virus, employers are bringing employees back and making new hires. With these are overall positive changes, there are also challenges with hiring or rehiring during a global pandemic. While there are the obvious complications associated with safety and COVID-19 compliance, many employers face complaints around who they rehired and who they didn't. Though employers are not required to reinstate employees they have laid off or terminated due to the pandemic; if they reinstate some employees and terminate others, their actions could come under scrutiny if they reflect a potentially discriminatory pattern. For example, suppose an employer laid off similarly situated men and women of all ages but only brings back the young men under forty. In that case, the company could face age and sex discrimination claims. Employers are particularly susceptible to these claims when they do not bring back otherwise qualified candidates without any history of poor performance or misconduct. Accordingly, employers should be mindful of who they are bringing back and why and look for potential problematic patterns that could appear discriminatory. Also, as a practical matter, in addition to avoiding a potential claim of discrimination, bringing back employees who are already trained and ready to hit the ground running can provide businesses with a leg up and allow a business to scale back up quickly. However, many individuals companies laid off have found other jobs. With many companies hiring simultaneously and many individuals still being cautious because of COVID, many employers are struggling to find qualified candidates. This is particularly true in the hospitality industry, where many employees, still reeling from the industry uncertainty caused by the pandemic, have left the industry in favor of jobs that are more likely to withstand the ebbs and flows of crisis. Main Takeaway: As many employers go into hiring mode, they should think strategically regarding whether they rehire, who they rehire, and how they attract new talent. Former employees who were laid off or terminated and aren't rehired may challenge the company's hiring decisions and claim they were discriminatory or retaliatory.
April 15, 2021
Labor and Employment
All of My Employees are Vaccinated. Can We Ditch the Masks?
Not Yet. Over the last three months, many employers, including large employers like Aldi, Amtrak, Instacart, McDonald’s, and Target, have been hard at work motivating employees to get vaccinated through incentive programs and education campaigns. Many businesses, especially small businesses with small workforces, wonder when they can start to lift COVID-19 safety protocols, such as mask-wearing in common areas and limiting in-person meetings. While we are the closest we have ever been since the start of the pandemic to scaling back these restrictions, in most states, we aren’t there yet. While the CDC has given vaccinated individuals the green light to visit with other fully vaccinated people indoors without wearing masks or distancing, a review of the CDC’s guidance is the start of the analysis, not the end. Many states, including the State of Maryland, still have mask mandates in place that impact employers. For example, in Maryland, Governor Hogan’s statewide mask mandate from July 2020 is still in place and requires that individuals wear a mask when “engaged in work in any area where…interaction with others is likely, including without limitation, in shared areas of commercial offices…” (View the Governor’s Order here: Executive Order 20-07-29-01) Governor Hogan’s Order does not contain any exceptions for vaccinated individuals, and willfully violating the Order is a misdemeanor punishable by up to a year in jail or up to a $5,000 fine or both. While changes to the Maryland mask mandate are likely in the months to come as more individuals are vaccinated, employers must continue to abide by the current order. Additionally, even when the rules on the federal and state levels loosen, employers will need to consider what makes the most sense for their workplace based on vaccination rates and the realities of their physical workplace to continue to keep employees safe. While restrictions are lifted nationwide, employers should be mindful of the risks associated with prematurely lifting restrictions in the workplace and continue to review their policies and procedures to ensure their employees are safe and comfortable coming to work. Main takeaway? Employers should continue to encourage their employees to get vaccinated, as vaccination is the best way for employees to stay safe and avoid contracting the virus. However, it is too soon to start removing other safety procedures in the workplace. Employers should continue to utilize COVID safety protocols, including liberal use of remote work, where possible, and mask and distancing mandates. Questions about this or any other legal matter, please contact Sarah at Sarah.Sawyer@offitkurman.com.
April 15, 2021
The Weekly Scenario
The Weekly Scenario: What to Know About the “For the 99.5% Act” and the “Sensible Taxation and Equity Promotion (STEP) Act"
There are many potential tax law changes that may be coming to a theatre near you. I can’t get too far into the weeds in this blog, but I’ll address two current proposals that may be of interest. About three weeks ago, Senators Bernie Sanders (D-VT) and Sheldon Whitehouse (D-RI) introduced what they refer to as the “For the 99.5% Act.” As the name implies, the Act is focused on the top 0.5% of Americans. Under current law, the estate and gift tax lifetime exemption amount is $11.7 million per person (indexed for inflation), with amounts transferred in excess of this amount (this does not include annual gift tax exclusion gifts of $15,000 per person) subject to a 40% tax. The estate and gift tax exemptions are currently unified, meaning amounts not used via gifts during one’s life can be applied to offset estate tax upon death. The current exemption levels were doubled by the Tax Cuts and Jobs Act (TCJA) of 2017 and are expected to “sunset” or return to pre-TCJA 2017 amounts at the end of 2025. Some of the most significant provisions of the 99.5% Act are as follows: Reduces the estate tax exemption amount to $3.5 million per person but continues to index it for inflation. Reduces the gift tax exemption to $1 million per person (the system would no longer be unified). Increases the estate and gift tax rate (40%) to: 45% of an estate between $3.5 million and $10 million. 50% of an estate between $10 million and $50 million. 55% of an estate between $50 million and $1 billion. 65% of an estate over $1 billion. Eliminates valuation discounts for non-business assets. Eliminates the use of “Defective (for income tax purposes) Trusts.” Restricts the funding of Grantor Retained Annuity Trusts (GRATs) and imposes a minimum term of 10 years. Limits on "Generation-Skipping” while also imposing a maximum term of 50 years. Reduce the annual gift tax exemption (as mentioned above) from $15,000 per donee per year to $10,000 per donee per year. About the same time, Senators Chris Van Hollen (D-MD), Corey Booker (D-NJ), Elizabeth Warren (D-MA), Bernie Sanders (D-VT), and Sheldon Whitehouse (D-RI) introduced what they call the Sensible Taxation and Equity Promotion (STEP) Act. Under the current law, when an individual dies, the cost basis of property would receive a cost basis adjustment being adjusted to its Fair Market Value (FMV) at the date of death. When gifting appreciated property, the cost basis would carry over to the recipient. Some of the most significant provisions of the STEP Act are as follows: Property transferred by gift or bequest is treated as sold for its FMV, with the gain (or loss, but only if transferred via bequest) being recognized currently. There would be a $100,000 exclusion for gifts and a $1 million exclusion for transfers at death. There is a deferral period of 15 years built in to pay the tax. The exclusion of up to $250,000 per person on the sale of a principal residence would continue. All ‘non-grantor' trusts would have to pay tax on unrealized gains every 21 years (although trusts created in 2005 or earlier would have their first “deemed realization” in 2026). Gifts or bequests to spouses or charities would be exempt. The effective date of these proposed changes would be January 1, 2022. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
April 15, 2021
Real Estate
This Week in Real Estate: LLC and LLP Asset Protection
Pursuant to most LLC and LLP statutes, there are three types of asset protection provisions— a liability shield provision, “pick-your-partner” provisions, and charging order provisions. Essentially: Liability shield provisions protect the personal assets of partners, members and managers (except contributions to the entity) from liability for claims by third parties against their LLC or LLP. “Pick-your-partner” provisions protect the management rights of members and partners from the members' or partners’ creditors. Generally, charging order provisions limit a judgment creditor’s recourse to a members' or partners’ basic economic rights, in other words, their right to allocations of income and losses and their right to distributions of cash and other assets. As This Week in Real Estate has discussed numerous times, the Delaware LLC Act is the preeminent act in the country. Section 18-303 of the Delaware LLC Act provides in its entirety as follows: 18-303 LIABILITY TO THIRD PARTIES (a) Except as otherwise provided by this chapter, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company. (b) Notwithstanding the provisions of subsection (a) of this section, under a limited liability company agreement or under another agreement, a member or manager may agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company. See 6 Del. C. § 18-303. Similarly, for LLPs, Section 15-306 of the Delaware RUPA. This provision provides in its entirety as follows: 15-306 PARTNER’S LIABILITY (a) An obligation of a partnership arising out of or related to circumstances or events occurring while the partnership is a limited liability partnership or incurred while the partnership is a limited liability partnership, whether arising in contract, tort or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for such an obligation solely by reason of being or so acting as a partner. (b) Notwithstanding the provisions of subsection (c) of this section, under a partnership agreement or under another agreement, a partner may agree to be personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for any or all of the obligations of the partnership incurred while the partnership is a limited liability partnership. See 6 Del. C. § 15-306. Here are the most important things regarding statutory liability shields: Statutory liability shields do not confer limited liability on LLCs or LLPs themselves, but only on their members or partners. In any claim against an LLC or an LLP, all of its assets will be at risk, and the most important way for an LLC or LLP to protect against this risk is by acquiring and maintaining adequate liability insurance. Statutory liability shields do not protect LLC members or managers or LLP partners from liability for personal misconduct. LLC members or LLP partners may be personally liable for claims against their entity on veil-piercing grounds. Liability shields do not protect partners, members and managers from claims by members that they have breached their fiduciary or contractual duties to the entity. Under many acts, including the above Delaware LLC Act § 18-303(b) and Delaware RUPA § 15-306(e), members and partners may waive their limited liability in their operating or partnership agreements or otherwise.
April 9, 2021
The Weekly Scenario
The Weekly Scenario: Designating a Beneficiary on a Vehicle Title
Like an individual retirement account or life insurance policy, a vehicle owner can designate a beneficiary to receive ownership of a Maryland titled vehicle upon their death. Since the designation is made prior to the death of the individual, the vehicle will not be considered part of the estate; therefore, Letters of Administration (obtained as a result of opening a probate estate matter) will not be required for transfer. What are the requirements (and clarifications): The vehicle must be solely owned and currently titled in Maryland; Only one beneficiary can be named; which can be either an individual or a business entity; A beneficiary must be designated prior to the death of the vehicle owner; A beneficiary may be added, even if the vehicle is subject to a lien. When the vehicle is transferred to the beneficiary all liens must be satisfied, or a letter of permission from the lien holder must be provided to change ownership to the beneficiary; The designation of a beneficiary does not affect the ownership of the vehicle until the death of the vehicle owner; The owner of the vehicle may choose to delete or change the designation of a beneficiary or sell the vehicle at any time prior to their death without the consent of the beneficiary. Once a beneficiary is designated, a corrected title will be delivered to the vehicle owner. All previously issued titles will be voided. In addition, no inspection is required if the beneficiary is an immediate family member (spouse, child, or parent of the deceased). In addition: The vehicle registration may be transferred if the vehicle is transferred to a member of the immediate family. All other transfers will require the purchase of new registration plates; At the time the transaction is submitted for processing a death certificate must accompany the title. If the MVA has received notification of the vehicle owner’s death from the Department of Health and Mental Hygiene, the death certificate would not be required; There is a fee to add, delete or change a beneficiary to a vehicle title record. The beneficiary designation form is available on the MVA’s website. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
April 8, 2021
Healthcare
The Difference Between Non-Solicitation and Abandonment Of Patients
The time for doctors and other healthcare providers to review their employment relationship and their duties to their patients isn’t when the doctor is about to leave a medical practice. The time to conduct these reviews is before the doctor joins a new medical practice. Physicians generally enter into written employment contracts with a medical practice, unless the physician is just a sole practitioner. Doctors who are joining a medical practice are focused on making the new employment relationship work. New doctors often fail to anticipate that the relationship may not work. The doctor may be fired from the practice. The doctor may want to go out on his/her own. The doctor may want to join a new practice. Doctors need to understand that in many cases, the best time to discuss what happens when the employer/employee relationship ends or a partnership relationship ends is right when the relationship begins. An experienced healthcare lawyer can explain the main factors in end-of-employment contracts that need to be reviewed upfront. These main factors are: Non-solicitation clauses in the contract. Covenants not to compete with the medical practice when the doctor leaves. The duty to provide the best care possible for the patient. In California, the covenant not to compete clause has generally become unenforceable due to legislation passed in 2018. As always, there are exceptions. The net result is that the main balances that need to be reviewed in the employment contract are the right of the medical practice to keep its patients, the right of the new doctor to develop his/her new practice, and the need to service the patient. In general, doctors can’t become so focused on avoiding contact with a patient – so as to avoid non-solicitation complaints – as to forget about their patient. When and why should a healthcare lawyer review the employment contract for solicitation issues? A lawyer should review the employment relationship at the following times: Before the contract is signed. Before the doctor is thinking of leaving or immediately after the doctor is terminated If the physician is considering accepting a severance agreement. The need to review non-solicitation and abandonment issues involves medical centers, wellness centers, integrated medical centers, and other medical employment relationship. The issues apply to physicians, chiropractors, and other healthcare providers. The aim of legal review is to avoid lawsuits by: The employer The patient Regulatory enforcement agencies such as local and state medical boards A skilled legal review of your employment contract, before you sign it, will: Include an explanation of what actions constitute a breach of the contract Explain what the consequences of a breach may be Explain what practical issues may arise such as the withholding of your pay by the medical practice if the employer thinks there is a breach Review what your ethical duties to your patients are The lawyer will then work to redraft the contract to remove, limit, or provide clarity as to your legal rights and obligations and how practical attempts to enforce the agreement such as withholding payments can be addressed. What is a non-solicitation agreement? The non-solicitation clause is generally a broad promise by the doctor not to solicit patients AND not to solicit employees from the first medical practice so that the patients or employees will follow the doctor into his/her new medical practice. Non-solicitation agreements may also apply to people and companies that do business with the medical practice. For example, common language in a medical employment contract states: “Physician Employee acknowledges that any solicitation he makes of any patients or employees of Medical Practice will involve misappropriation of Medical Practice’s confidential information, and constitute a breach of this agreement.” Unless the contract specifically defines non-solicitation, just sending a postcard that you’ve left the practice could constitute solicitation – and lead to a lawsuit for breach of the contract. A breach of contract claim can involve demands for hundreds of thousands of dollars and the cost to pay a lawyer to defend you in court. How a healthcare lawyer can help A skilled attorney can help define the definition of non-solicitation to limit its scope and to clarify any ambiguities. The lawyer will also work to limit the penalties for non-compliance with the non-solicitation agreement. For example, the contract should detail what actions constitute solicitation and what actions will NOT be considered solicitation. Some of the language that explains what acts are NOT solicitation could include: Initiation of contact by the employee or the patient with the physician Instances where the employee or patient knew or worked with the physician before the employment relationship with the first medical practice began Contact initiated by a patient or employee in response to a notice in a newspaper on an online website that the doctor has opened a new practice Covenants not to compete Employers, including medical practices, generally argue the medical practices put a lot of money and time into training doctors and helping them develop their skills and their practices. The non-compete clause, the medical practices assert, protects their investment so the doctor doesn’t leave as soon as a better offer comes along. Non-compete clauses generally must be limited in time and geography. The medical practice can’t prevent the employee/doctor from competition forever. The medical practice also can’t prevent the doctor from competing in a location that isn’t direct competition. For example, non-compete clauses are generally invalid if the clauses prevent a doctor from working in another state. California has clarified the non-compete issues by effectively declaring that all non-compete clauses are invalid. The California Business and Professions Code Section 16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” As always, there are exceptions and unique situations that may apply – which you should review with an experienced healthcare lawyer. Even though California’s non-compete law is active, it is still best to remove any non-compete clause from an employment contract. The California law may also help limit or remove the employer’s request for a non-solicitation clause. The argument is that California courts may consider non-solicitation clauses as non-compete clauses in disguise, so it’s in the best interest of the employer to be reasonable. Abandonment of patients Physicians who begin to treat a patient owe that patient a duty of competent medical care. That duty generally includes properly informing the patient that the physician can no longer treat the patient. Patients, especially patients who have a continual treatment plan with their physician, rely on that continuity. Delays in finding out the doctor can no longer treat the patient and the time needed to find a new physician can be harmful or even deadly. To avoid the time needed for new oral examinations and medical tests, patients need to have access to their medical records. The California Medical Board provides the following minimal requirements for termination or ending the physician/patient relationship: “Terminating/Severing Physician/Patient Relationship” “Although a physician is allowed to sever or terminate the patient/physician relationship, in order to avoid allegations of patient abandonment (unprofessional conduct), a physician should notify patients of the following in writing when the physician wishes to discontinue care: The last day the physician will be available to render medical care, assuring the patient has been provided at least 15 days of emergency treatment and prescriptions before discontinuing the physician’s availability. Alternative sources of medical care, i.e., refer patient to other physicians, by name, or to the local medical society’s referral service. The information necessary to obtain the medical records compiled during the patient’s care (whom to contact, how and where).” Doctors do have the right to terminate the relationship for many reasons including: Non-payment of bills The need to have the patient treated by a specialist because the doctor doesn’t have the necessary skills and training Not having the necessary medical equipment Any situation where continued treatment would violate the doctor’s code of ethics or duty of competent medical care Doctors who abandon a patient may be subject to: A lawsuit for negligence if the patient suffered injury because he/she couldn’t find a suitable replacement doctor in time. Disciplinary action by the state or local medical board The intersection of non-solicitation and abandonment It can be quite confusing for a doctor who is leaving a practice or is fired from a medical practice to know how the doctor is supposed to inform their patients. If the doctor doesn’t properly inform their patients, the doctor can be sued for negligence and be faced with disciplinary action by the appropriate medical boards. On the other hand, if the doctor does inform their patients of their new status, the employer may claim that the contact constitutes solicitation and a breach of the employment contract. It’s a real Catch-22. Doctors who are leaving a medical practice or are fired will naturally wonder: When can I tell my patients I’m leaving? What can I tell my patients? Who should control the patient records? Can I take the original records with me? Can I take copies of the records? There may also be issues involving HIPAA that need to be addressed when electronic patient information is exchanged. Whether a patient is abandoned may also depend on whether the patient has finished his/her treatment or is still receiving treatment. Some of the factors that may favor a settlement of the non-solicitation and abandonment issues Unless there is a negotiated agreement between the physician and the medical practice, the decisions about solicitation and abandonment will depend on many ambiguous factors. It helps to detail what solicitation means. Generally, broad appeals such as newspaper ads, mailings to people in a certain zip code, and broad website postings are less likely to be considered solicitations than targeted specific mailings such as direct letters mailed to each patient’s address. Letters mailed to each patient advising the patient the doctor is leaving the old practice and giving the address of the new practice are likely to be considered solicitation. There are solutions which depend on the original contract and the desire of the employer and employee to resolve their differences. Just as the employee has a duty not to abandon a patient, the employer has a duty not to abandon their patient. While employees can’t be solicited, employers generally don’t function well when employees are unhappy. The employer may not be able to handle the caseload of the doctor who left and may not be interested or have the time to find a replacement. The solutions may include having the employer send out the notice that the employee is leaving. This notice, depending on the terms of the negotiation, may/may not include the location of the doctor’s new practice. Another factor is the view of the courts. Because the position of a judge is uncertain, employers and employees may both benefit from reaching a settlement rather than risk having a judge decide whether the solicitation does or doesn’t constitute abandonment. Physicians need to work with experienced health care lawyers before they sign any employment or severance contracts and before they are considering leaving a medical practice. Doctors need to understand they have the right to negotiate the terms of non-solicitation agreements. They need to properly balance their duty to comply with non-solicitation agreements and their duty to prevent patient and regulatory complaints that the non-solicitation constitutes abandonment of the patient.
April 8, 2021
Business
The Terrifying New York Definition of a Franchise
As Published in the New York Business Law Journal Licensing is big business. Brand owners may license selected product lines, create brand extensions, enter new markets or simply enhance their brands through licensing. But few brand owners know that the New York Franchise Sales Act (“NYFSA”), by its terms, regulates licensors who provide no marketing assistance and impose no requirements other than quality control. The definition of a “franchise” under the NYFSA is extremely broad.[1] It covers far more business arrangements than anyone would reasonably consider to be a franchise. This anomaly puts New York franchise law in “left field” as the late Rupert Barkoff noted in his excellent article published in the New York Law Journal on May 1, 2012.[2] This is an understatement. The NYFSA, which has not been revised since it went into effect in 1981, is not even in the same ballpark as similar legislation in other jurisdictions. Barkoff called this anomalous New York definition of a franchise “terrifying.” In order to sell franchises anywhere in the U.S., a franchisor must prepare a detailed franchise disclosure document that includes audited financial statements. A franchisor located in New York, or a franchisor that intends to sell franchises to buyers in New York, must register the offering with the state Attorney General’s Office before the franchisor may lawfully sell franchises from or in the state. The franchisor must then make the required disclosures to each prospective franchisee and wait 10 business days (or 14 calendar days in the other dozen or so states that regulate franchise sales) before entering into the agreement or accepting any payment. Failure to comply with the NYFSA can result in enforcement action by the New York State Attorney General’s Office and private actions by franchisees for rescission, damages, injunctive or declaratory relief, attorneys’ fees, and costs. Willful violation of the NYFSA can lead to punitive damages and criminal liability. Not only can a simple trademark license agreement be a franchise in New York. A marketing consulting agreement can also be a franchise. So can a distribution arrangement where the distributor must pay an initial fee to the supplier to gain the right to distribute in a specific market or territory. To put this another way, outside of the business arrangement that we all know as a franchise is a large “gray” area in which the arrangement is at risk of being a franchise under New York law. In short, the NYFSA is a trap for the unwary. Most people would not think of consulting with a franchise lawyer before entering into a trademark license agreement or a marketing agreement. Yet failure to comply with the NYFSA can give ammunition to an aggrieved licensee in a dispute with its licensor or result in prosecution of the licensor by the New York State Attorney General’s office. The broad definition of a franchise cries out for change in the law. A Two-Prong Definition Impedes Business in New York The definition of a franchise under most franchise sales laws contains three elements: a fee, a trademark and a marketing plan prescribed in substantial part by the franchisor. The franchise sales laws of Maryland and Virginia are typical examples.[3] These definitions, unlike the New York definition, are also similar to the definition of a franchise under the Federal Trade Commission’s trade regulation rule on franchising (the “FTC Rule”), which also contains three elements.[4] The New York definition of a franchise has just two elements.[5] One element is either a trademark or a marketing plan prescribed in substantial part by the franchisor. The second element is a fee. Each of the franchise sales laws, of course, has various exemptions and exclusions from the definition of a franchise.[6] Both prongs of the NYFSA’s definition of a franchise raise issues. Starting with the first prong, what does it mean to grant “the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor” without a trademark? A marketing consultant may provide a marketing plan to a client to enable that client to launch a business. Certainly, the client will pay a fee. Is this a franchise? When does such an arrangement constitute a “grant” of the “right” to engage in a business? The statute is not at all clear on what type of arrangement this prong of the definition is intended to cover. The second prong is easier to understand but is extremely broad. The plain language of the statute covers many license and distribution arrangements that would not be considered franchises in other states. Any trademark license granting someone a right to engage in a business in consideration for a royalty would fall within the definition of a franchise under the NYFSA. So would a distribution arrangement with no grant of trademark rights in which the distributor pays a one-time fee to the supplier to purchase the distribution rights. These are not the types of business arrangements that anyone unfamiliar with New York law would expect to be franchises. For licensors who receive proper legal advice, this broad definition is an impediment to doing business in the state of New York or with a person located in New York. The proper advice in many of these cases is that the broad scope of the New York law creates risk and imposes a degree of uncertainty. This advice would discourage some from locating their business in the state. Why would a licensor choose to be subject to the extensive franchise registration and disclosure requirements in New York when the company can avoid these requirements by locating in or licensing into any other state? Why would a consultant based in New York or working with a New York client provide a marketing plan to enable the client to launch a business? For Traditional Franchisors, New York’s Broad Definition of a Franchise is a Non-Issue Companies that offer traditional franchises have no issue with the broad definition of a franchise under the NYFSA. Franchisors know that they must prepare franchise disclosure documents in accordance with the FTC Rule and, when necessary, also in accordance with the requirements of the NYFSA and the franchise laws of other states. Franchisors register their franchise offerings in New York as they do in other states and they make the required disclosures to prospective franchisees. The broad definition of a franchise under the NYFSA also does not adversely affect franchisees or prospective franchisees in traditional franchise arrangements. They receive the required disclosures from their franchisors regardless of the law’s overly broad definition of a franchise. The “terrifying” aspects of the New York definition apply only to those who would not be considered franchisors under the FTC Rule or the franchise sales laws of any other state. Narrowing New York’s broad definition of a “franchise” to conform to the definition in other states would have no effect on franchisors or franchisees as those terms are commonly understood. Does the Broad Definition Serve a Useful Purpose? In practice, relatively few litigants raise the issue of noncompliance with the NYFSA against trademark licensors or marketing consultants. The Attorney General’s Office seldom prosecutes business arrangements that are not commonly understood to be franchises. The reason may be that these business arrangements do not require the protections that the NYFSA affords to prospective franchisees. Maybe we should view trademark licensors and certain marketing consultants in New York as we do drivers who speed on a highway. Drivers often speed. Only a small number are prosecuted. But speeding is dangerous. A simple trademark license agreement or marketing consulting agreement is not. The sparse enforcement of the NYFSA does not change the fact that the threat is always there. An enforcer can arbitrarily decide at any time to enforce it. Why should a licensor or consultant have to run this risk? The fact that the Attorney General’s Office does not apply the law to arrangements that are not commonly understood to be franchises also indicates that the Attorney General’s Office may not view the broad definition as a necessity. Cutting back the definition so that it conforms to the laws of other states would not significantly change the enforcement activity at the Attorney General’s Office. Nor would it change the way private litigants behave. A revised NYFSA could eliminate the registration and disclosure requirement for businesses that lie in the “gray” area of the New York definition today while retaining the Attorney General’s broad anti-fraud jurisdiction for these businesses. If necessary, the state might even consider enacting a “business opportunity” law, as roughly half of the states have done, which would regulate some business arrangements in the “gray” area but have far less onerous registration and disclosure requirements than a franchise law. The broad definition of a franchise has been a part of the NYFSA since it became effective in 1981. New York was the last state to enact a franchise sales law, and that law has never been amended. One commentator noted in 2012 that the NYFSA “was crafted to attack a vast criminal invasion of the franchise arena which transpired in the 1960s and 70s (including significant organized crime involvement) and to safeguard New York’s reputation as the financial capital of the world.”[7] In other words, the NYFSA was written expansively in order to give the Attorney General broad latitude to prosecute bad actors who might run off with initial franchise investments of would-be franchise buyers. The same author noted in 2020 that on its 40th anniversary, the NYFSA “achieved its intended purpose – the eradication of massive fraud and criminality that had permeated the then-nascent franchise arena.”[8] Even if there was a need for a franchise law with such broad application in 1981, there is no such need today. Undoubtedly, the FTC Rule, which went into effect in 1979, also played an important role in cleaning up an industry that was riddled with fraud, as did the franchise laws of other states, which were all enacted in the 1970s before the FTC Rule became effective. Time for Change Most business owners want to comply with applicable laws. If by chance or good fortune a business owner based in New York or planning to do business in New York happens to consult with a franchise lawyer before entering into a trademark license agreement or a market consulting agreement, that business owner might be advised either to seek a discretionary exemption or to locate the business outside the state of New York and to consider not entering into the contract with anyone who is located in New York. This sounds extreme because it is. Franchising is a respected way of doing business. Franchising is also an important part of the U.S. economy.[9] With some careful revising, the NYFSA can make franchising a far more important part of the New York economy than it is today. The broad definition of a franchise under the NYFSA today is the single most important reason to change this law. It is high time for New York State to change its definition of a “franchise” to conform more closely with the franchise sales laws of other states. [1] N.Y. General Business Law (GBL) Article 33, Section 681.3 defines a franchise as follows: "Franchise" means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (a) A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor, and the franchisee is required to pay, directly or indirectly, a franchise fee, or (b) A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate, and the franchisee is required to pay, directly or indirectly, a franchisee fee. [2] “New York Franchise Act: Out in Left Field,” by Rupert M. Barkoff, NYLJ 5/1/2012. [3] Section 14-201(e)(1) of the Maryland Business Regulation Code provides as follows: “Franchise” means an expressed or implied, oral or written agreement in which: (i) a purchaser is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; (ii) the operation of the business under the marketing plan or system is associated substantially with the trademark, service mark, trade name, logotype, advertising, or other commercial symbol that designates the franchisor or its affiliate; and (iii) the purchaser must pay, directly or indirectly, a franchise fee. Section 13.1-559(A) of the Code of Virginia (the Retail Franchising Act) defines a “franchise” as follows: "Franchise" means a written contract or agreement between two or more persons, by which: 1. A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services at retail under a marketing plan or system prescribed in substantial part by a franchisor; 2. The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and 3. The franchisee is required to pay, directly or indirectly, a franchise fee of $500 or more. [4] 16 CFR Section 436.1(h) provides as follows: Franchise means any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the franchise seller promises or represents, orally or in writing, that: (1) The franchisee will obtain the right to operate a business that is identified or associated with the franchisor’s trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark; (2) The franchisor will exert or has authority to exert a significant degree of control over the franchisee’s method of operation, or provide significant assistance in the franchisee’s method of operation; and (3) As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate. [5] Note 1 supra. [6] See Exemptions and Exclusions Under Federal and State Franchise Registration and Disclosure Laws, Leslie D. Curran and Beata Krakus, Editors (ABA Forum on Franchising, 2017). [7] “In Defense of the New York Franchise Act,” by David Kaufmann, NYLJ June 26, 2012. [8] “New York Franchise Act Turns 40 – A Look Back,” by David Kaufmann, NYLJ June 25, 2020. [9] See, e.g., https://www.franchise.org/franchise-information/franchise-business-outlook/franchise-business-economic-outlook-2020
April 6, 2021
Intellectual Property
Is Genericide Still A Thing? Maybe We Worry Too Much About 'Proper Use Of Trademarks'
As Published in The Legal Intelligencer – Special Section March 2021: Intellectual Property By: Laura Winston Earlier this year, the comedian Seth Meyers was making a joke about a politician on his talk show "Late Night with Seth Meyers." In doing so, he referred to a well-known brand of popular plastic building bricks as “Legos.” Mr. Meyers was immediately flooded with online comments telling him that the plural of Lego is Lego. He took to the airwaves again on the topic, thanking the commenters but adding, “It’s too late for me…I’m not going to walk home and tell my kids `Clean up your Lego’”. Not long after, the owner of the world-famous LEGO trademark got into the act via a tweet, saying, “Hey @SethMeyers, let us blow your mind...the plural is not `Legos.’ It’s not even `Legos.’ It's actually `LEGO BRICKS!’" @LEGO_Group, Twitter (February 11, 2021), https://twitter.com/lego_group/status/1359856214591627269. If you have questions about this or any other legal matter, please feel free to contact Laura Winston at 347.589.8536 Reprinted with permission from the March 30, 2021 issue of The Legal Intelligencer. © 2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
April 5, 2021
Business
Avoiding an Adverse Tax Impact on Death of an S Corporation Shareholder
As Published on American Bar Association – ABA Tax Section I. Introduction One of the main reasons to consider a partnership for owning a business rather than an S Corporation is the adverse impact upon death if the business is held by an S Corporation. Now there are solutions to this problem for S Corporation shareholders that tax advisers need to add to their toolbox. These solutions convert the tax status of the business from an S Corporation to a partnership for federal tax purposes, in a federal income tax-neutral manner. This can be accomplished through liquidation in the case of a deceased shareholder or reorganization prior to death of a shareholder. A. Upon the Death of an S Corporation Owner Specifically, upon the death of an S Corporation owner, the heirs are denied the benefits of receiving a step-up in bases in underlying corporate assets to fair market value. In a partnership, the heirs receive a full income tax-free step-up in basis for all of the underling partnership assets and the benefits of obtaining the income tax shelter from new large depreciation deductions. However, in an S Corporation when the owner dies, the shareholder heirs only receive a step-up of basis in the corporate stock equal to the fair market value of the company at the date of death. The underlying S Corporation assets retain the same pre-death tax bases even though the decedent estates in both cases have the same federal estate tax implications and costs. Therefore, the S Corporation heirs should consider promptly liquidating the corporation to also achieve an income-tax neutral stepped-up basis for the company’s assets. This same technique can also be considered if a surviving shareholder buys out the estate of a deceased shareholder. If you have questions about this or any other legal matter, please feel free to contact Herb Fineburg at 267.338.1376 or Charles McCauley, III at 484.531.1712. Read the full article below.
April 1, 2021
Healthcare
Legal Compliance Issues for American Medical Tourism Health Practices
American physicians are among those who are trying to determine how to take advantage of foreign medical tourism. The National Institutes of Health recently studied how medical tourism works abroad by examining some of the issues involved with foreign health care in Guatemala. While the study focuses on Guatemala, the study also indicates many of the concerns that may apply if an American physician wants to encourage foreigners from around the world to come to the US for American medical care and an American vacation. Are medical tourism legal questions variations on MSO-Physician arrangements? Are medical tourism legal questions variations on MSO-Physician arrangements? The study focused on Americans seeking healthcare based on their health needs while living in America – and not because the American became ill or injured while vacationing in Guatemala or because the American was living mostly abroad. Foreign countries are encouraging Americans to seek medical help in foreign countries and adding a vacation in that country while they recuperate. American doctors are encouraging foreign patients to come to America for treatments and care. The study found the following concerns: The education and regulation of the health providers is a major concern The accreditation of the physicians and the health facilities is another concern. While Americans traveling abroad need to be concerned with substandard care, American physicians who offer medical services to foreigners need to ensure that their accreditations are current for the types of medical services they provide. Medical providers in America need to understand when services in the US might be illegal if the services were performed abroad. As medical tourism expands, there will be additional American regulations that regulate “medical tourism brokers, on-line sites, or specialized training programs or certifications in medical tourism.” The rights and duties regarding patient privacy and security of medical records needs to be addressed. Many foreign patients who receive treatment in America will want to take their medical records with them. The FDA and FTC may have concerns about which medications, cosmetics, medical devices, and other medical products are used on foreign patients Many other regulatory and safety issues may apply to medical practice by American physicians. Corporate practice of medicine Many states regulate the corporate practice of medicine. “No matter how many times we address corporate practice of medicine and fee-splitting, they keep coming up in our practice, because in the arena of health and wellness services, non-doctors ultimately want to bring doctors into their venture.” The two laws that govern the corporate practice of medicine in California are: The Medical Practice Act, Business and Professions Code. This law requires that anyone who practices or tries to practice (or holds themselves out as practicing) medicine must have a valid certificate to practice medicine that hasn’t been suspended or revoked. The Business and Professions Code, within the Medical Practice Act, requires that “Corporations and other artificial entities shall have no professional rights, privileges, or powers.” This means that when a California medical practice sets up a second business to encourage foreign patients to come to the US for treatment and for foreign doctors to recommend patients to come to California, that these second businesses may be practicing medicine without a license and may be engaging (along with the California medical practice) in the corporate practice of medicine. An experienced healthcare attorney will explain that medical and clinical activities must be kept separate from the business of the non-medical company. The attorney may offer alternative arrangements such as the creation of a management services organization so that the business and medical practices can be separated. Fee-splitting California medical practices that work with other companies may be at risk for Stark Law violations and Anti-Kickback statute violations – especially if the physician has a financial interest in the related company. Stark Law protects patients by requiring that physicians not refer patients to designated health companies (such as other medical providers, testing services, therapy services, and medical device companies) if the physician or an immediate family member has a financial interest in the designated health service. The Anti-Kickback Statute (AKS) provides that physicians cannot offer or receive remuneration (cash payouts, expensive vacations, sham directorships) in order to refer patients to the entity providing the inducement/kickback. The purpose of both Stark Law and the AKS is to ensure physicians advise patients based on the patients’ best interests and not the financial interests of the physicians. The laws also help to preserve the integrity of the healthcare system among other healthcare providers who play by the rules. Regulators of medical tourism ventures need to ask: Whether there were any improper referrals Whether the entity used to market and promote foreign patients is a designated healthcare facility Whether such items as travel arrangements qualify as inducements/kickbacks Whether the designated health facility or secondary company is receiving part of the patient fee Marketing and advertising These days, much of the advertising that a medical practice does involves the Internet. Internet marketing can generally be read anywhere in the world. The Federal Trade Commission (FTC) is a federal agency which monitors most forms of advertising, including website and social media advertising, to ensure that the representations are honest and that consumers/patients are not deceived. The FTC has the power to take enforcement actions against any medical practice that engages in dishonest marketing. When necessary, the FTC may employ translators to determine the meaning and veracity of advertising in foreign countries. Physicians and medical practices that target foreigners who might want to come to the US for medical treatment need to review their online (and offline) advertising with an experienced FTC healthcare lawyer. A main condition behind the enforcement authority of the FTC is that the FTC can require that each and every claim be substantiated. The physicians and medical practices that make claims need to have a reasonable basis for those claims. For example, if physicians assert that their treatments are only available in the US or only work well in the US, they need to have a reasonable basis for implying those treatments aren’t available or effective in other countries. “A firm’s failure to possess and rely upon a reasonable basis for objective claims constitutes an unfair and deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act.” “Absent an express or implied reference to a certain level of support, and absent other evidence indicating what consumer expectations would be, the Commission assumes that consumers expect a “reasonable basis” for claims. The Commission’s determination of what constitutes a reasonable basis depends, as it does in an unfairness analysis, on a number of factors relevant to the benefits and costs of substantiating a particular claim. These factors include: the type of claim, the product, the consequences of a false claim, the benefits of a truthful claim, the cost of developing substantiation for the claim, and the amount of substantiation experts in the field believe is reasonable. Extrinsic evidence, such as expert testimony or consumer surveys, is useful to determine what level of substantiation consumers expect to support a particular product claim and the adequacy of evidence an advertiser possesses.” FDA Regulatory Compliance The Federal Drug Administration has authority to regulate American drugs, medical devices, dietary supplements, biologics, and cosmetics. A major incentive for foreigners to come to the US is that these medical products aren’t available in their home country. Likewise, Americans often travel abroad to obtain access to drugs and other products and devices that haven’t been FDA approved. FDA has the authority to inspect practices, inspect products, and inspect online and offline marketing materials to ensure that the products FDA regulates aren’t adulterated, that there aren’t misrepresentations about the products, that products haven’t been improperly classified, and to ensure other safety issues regarding the products. Physicians who work in the field of medical tourism need to review with experienced healthcare lawyers when the products the physicians use on behalf of foreign patients may violate FDA rules and regulations. Physicians also should review with the attorney if and how FDA can expand its regulatory powers outside the United States. In addition to compliance issues in the medical tourism sector, experienced attorneys can also help with issues of corporate structure, physician contracts, and many other business matters. Practical considerations An experienced healthcare lawyer will review the medical tourism practice of a California doctor by examining many issues such as: Identifying which bills should be paid to the professional medical corporation Identifying which bills the patient should pay to the medical tourism company for travel and related services Helping to ensure that the American medical practice isn’t paying any third-party medical practice (especially one that the physician has a financial interest in) for giving referrals or receiving referrals When and how the medical tourism company might be able to charge either the California medical practice or a foreign medical practice for management and marketing services so that the company would likely meet the requirements of the California law against the corporate practice of medicine, and also meet Stark Law exceptions or the AKS safe harbor. For example, written contracts based on fair market value and commercial practices that are not based on the amount or quantity of referrals may be valid if other conditions are also met. American physicians who want to encourage foreigners to come to the US for medical treatment need to be very careful of how they set up their medical practices and their relationships with any other companies such as a marketing or advertising company. If there are questions about whether any company is practicing medicine without authorization, that company may be charged with corporate practice of medicine. If the relationship between the physician practices and the management practices or other medical practices revolves around the payment of any fee, discount, or monetary matter, everyone involved may be subject to Stark Law and the Anti-Kickback Statute. All claims by the medical practice and the business practice may be reviewed by both the FTC and the FDA.
February 22, 2021
Healthcare
Ambulatory Surgery Center (ASC) Compliance Issues
Ambulatory surgery centers (ASCs) are often used in place of having a surgery in a hospital. There are many advantages that the owners of these facilities tout and the doctors and patients who have surgeries there praise. These benefits include: Better outcomes. Generally, the surgeries are shorter, the recovery times are faster, and the rate of infections as compared to hospitals is almost twice as low when the ASC is used for the operation. As a general rule, patients who have a surgery at an ASC also do not need as much hospital follow-up. More practical. The waiting time and processing time at an ASC is usually shorter than for hospital surgeries. Lower costs. The cost of an ASC surgery is half as much as a hospital procedure. These savings help not only the patient but private insurers and taxpayers who help fund public health programs such as Medicare. DHHS estimates that taxpayers save $15 billion and Medicare patients save $3 billion from ASC use. While the costs are lower, the quality of care is generally comparable to hospital surgeries. Better individual service. Since the focus of an ASC is just on the surgery, the time to schedule appointments is generally much better. In many cases, the doctors and staff provide more personalized care and follow-up than hospitals do. In 2014, surgeries at ASCs accounted for nearly 66% of all surgeries. ASCs are subject to regulations by the federal and state agencies especially when the ASCs treat patients who use Medicare or Medicaid – which is virtually true for all ASCs. Some of the compliance issues which an experienced healthcare lawyer can explain and can help you prepare compliance for are the following: The Anti-Kickback Statute and Stark law The federal Anti-Kickback Statute and Stark law both regulate the ways in which doctors and medical practices can make referrals of patients and also receive referrals. The aim of both is to ensure that referrals are based on what is best for the patient and not what is best for the financial well-being of the doctor/medical practice. The Anti-Kickback Statute prohibits doctors from receiving, offering, paying, or accepting any form of remuneration in return for obtaining a referral. Remuneration includes financial payments, sham directorships, expensive lunches and vacations, paying for medical equipment, or most anything of value. Stark Law provides that doctors cannot refer patients to any designated medical health service in which the doctor, medical practice, or immediate family members has a financial interest in. An ambulatory surgery center is a classic example of a designated medical health service. The AKS allows for safe harbors which can reduce the risk of an AKS complaint. Similarly, Stark Law has a list of predefined exceptions which, if properly created, can work as a defense to any claim the medical provider violated Stark Law. At the core of these safe harbors and exceptions are that the relationships: Should be in writing Should be based on fair market value Should not be based on the volume or quantity of referrals Other factors that depend on the type of business relationship EXCEPTIONS TO THE STARK LAW PROHIBITION OF MEDICAL REFERRALS The Stark Law governs what types of referrals doctors can make if they bill for Medicare and Medicaid. The presumption is that that referrals made by a doctor to a designated health service are […] The government is spending more money and time on prosecuting medical fraud. Violations of the AKS and of Stark Law are also considered violations of the False Claims Act (FCA). The FCA encourages employees, vendors, contractors, and partners to disclose kickbacks and illegal referrals. In return, these whistleblowers are paid a percentage of the recovery. The penalties for violating these laws can result in severe civil penalties, statutory fines, orders that the medical practice be prohibited from billing Medicare and other federal health care agencies, interest, and legal fees. The AKS is a criminal statute which means violations can result in prison time. Doctors, labs, testing facilities, ASCs, and other healthcare providers and health companies need to consult with experience AKS and Stark Law attorneys who can give advice on the legal issues and the ways to reduce the risk of criminal and civil charges. Some of the areas that are red flags for ASCs include selling shares in the ASC to doctors at below fair market value, leasing equipment at below fair market value or an a per-click basis, and the use of sham directorships, and other types of misconduct. Additional ASC financial relationship concerns that may run afoul of the AKS or Stark Law include: Junior physicians. Care is required in distinguishing the rights of junior physicians to buy into an ASC. Some of the factors that need review are the number of shares, the justification for lower valuations, and the ability to obtain loans. A major requirement is that the transactions be at fair market value. If a lower value is used for a junior doctor than a senior one, that lower valuation should be justified. Buy outs of doctors who fail to use the center. Generally, since the investments are not tied into the quality and quantity of referrals, neither the medical practice nor the ASC should be able to terminate a doctor’s right to perform surgeries at the ASC. Purchases of additional shares in the ASC. In the same way that doctors who underperform cannot be terminated, medical relationships can be hard to qualify for a safe harbor or a Stark Law exception when a doctor who uses the ASC a lot wants to buy additional shares in the surgery center. It may be feasible, depending on the circumstances which the doctors should review with experienced counsel, to buy shares from other physicians – provided the reason for selling the shares does not relate to the volume of the referrals and the sales are at fair market value. The use of ancillary services such as anesthesia and pathology. There are safe harbors and Stark Law exceptions for ancillary services. There are a variety of legal and medical issues that must be addressed for both anesthesia and for pathology which need to be reviewed with experienced healthcare lawyers. Per-click relationships. According to Becker’s ASC review:“There have traditionally been several different types of “per-click” arrangements for such items as gamma knives, lithotripters, lasers, CT and MRI scanners and other types of equipment. However, the government has now outlawed most per-click relationships (at least in the Stark context). Although the changes to the Stark Act and the accompanying regulations do not necessarily apply to surgery centers, the analysis and concerns are applicable under the Anti-Kickback Statute to surgery centers.” CMS has provided some guidance on this issue as well – which generally prohibits the use of per-click payment arrangements. Medical directorships. The critical factor is that medical directorships are generally permissible – only if the physician is providing a valuable medical service and only if the payment for those services is based on fair market value. Generally, ASCs have at most a physician medical director and an anesthesiologist medical director. If there are medical directorships for each specialty, that raises a red flag. HIPAA compliance The ASC centers and the physicians often trade electronic medical health records. The exchange of the records must comply with HIPAA requirements. Often, a key danger when electronic records are being shared is that there is data breach of confidential information which requires that the patient be notified. A skilled healthcare lawyer can review the HIPAA compliance requirements and the protocols to help address breaches. Additionally, HIPAA now requires that patients have the “right to receive medical records with little cost even if the surgery center must incur costs to provide the medical records.” GOT HIPAA? GET HIPAA? JOYCE EXPLAINS WHY AND HOW Interview with an expert in healthcare privacy and security, both on the federal side with HIPAA, and the state side, especially California law. Medical bylaws The bylaws generally cover what the bylaws are, if and how the bylaws can be waived or changed, how a doctor can be removed from the medical staff, and how “removal from the medical staff under the bylaws impacts redemptions from the surgery center as an owner.” The use of out-of-network reimbursement Generally, the “ability to profit substantially from out-of-network patients continues to decrease. While many parties profit from out-of-network payments, payors are increasingly aggressive regarding recoupment, collection of appropriate co-payments from patients and increasing co-payment and deductible responsibilities. Thus, the ability to make outsized profits or have serious negotiation leverage through the use of out-of-network continues to be hampered.” Physician-owned equipment companies “One of the interesting new scenarios is where physicians own an equipment company and sell equipment to the surgery center. In essence, the physicians become a middleman between the surgery center and the equipment provider. This allows the physicians to profit on the sale of equipment used in any cases that the physicians perform. ASCs should be cautious regarding these relationships.” Additional ASC legal issues Doctors who operate in ASCs and the ASCs must also be prepared to address any issues if the doctor advises patients through the use of telemedicine. All medical staff members must be properly licensed and certified. Only qualified medical personnel are allowed to perform medical procedures. Violations may result in charges of the unauthorized practice of medicine and state and local medical society complaints. Additional issues include: Medicare and Medicaid coding and payment compliance issues Contracts between the doctors and the ASCs Corporate governance requirements Other applicable healthcare laws The purchase and sale of the membership interests and the purchases and sale of the ASC Overall compliance plans While ambulatory surgery centers are becoming the norm for the fairly routine surgery, there are dangers that the relationship between the ASC and the doctors who use the ASC may violate the AKS and Stark Law. Skilled healthcare lawyers can explain when ASC safe harbors and Stark Law exceptions may apply.
February 15, 2021
Healthcare
Who Wants to Be a Physician Pharmacy Owner?
In today’s video, we discuss whether physicians something that many of our physician clients have asked us about, namely, whether they can operate and open their own pharmacies or even have ownership interest in a pharmacy. Many of our physician clients have indeed asked us this very question, and it’s quite understandable that medical doctors who have their own healthcare businesses would think of branching out into a pharmacy. By the end of this video, you’ll be familiar with some of the kinds of regulations facing physicians who want to start pharmacies. I’m Michael H. Cohen. We’ve advised hundreds and hundreds and hundreds of healthcare industry clients on healthcare and FDA legal issues, including many physician clients just like you. To start examining this issue of physician pharmacy ownership, let’s take a look at Texas law just for example. Texas law does not specifically prohibit physician ownership in pharmacies, however, if the physician owner is a referral source, then the Texas Anti-Solicitation Statute will apply, making it illegal. In order to determine then whether this is allowed in Texas, we need to analyze whether being a physician and sharing in the profits or making referrals from your company or practice falls under an exception or safe harbor. The statute is not limited to Medicare and Medicaid but it applies equally to private insurance and cash payers. Go figure, it’s a state statute. The next thing to note is that there are some states, and Texas was one of these, where physicians are not allowed to dispense medicines onsite. These states may have an “immediate need exception” allowing the physician to dispense for example 3 days of medication, or permit dispensation for rural areas with few pharmacies. However, under these exceptions medications generally must be sold at-cost. An experienced healthcare attorney can help explain the legal and regulatory environment in your state to you. And again, states do differ but there are some common realities which is why we go through these in the video. Another issue that has to be considered is the type of prescriptions that will be offered. Prescriptions for controlled substances or compounded prescriptions require further analysis since they have different requirements. Texas and other states have increasingly been scrutinizing physician investment in compounding pharmacies with expanding investigations into kickbacks and referrals. So, after considering the state-level regulations and how those could affect you, as we just did for some of the Texas ones, this is the next one you’ve got to consider. Testimonials
February 9, 2021
Healthcare
The FDA Provides New Guidance on the “Minimal Manipulation and Homologous Use” of Cell and Tissue Products.
The Food and Drug Administration (FDA) recently issued a set of regulatory guidelines setting forth their thoughts on: The criterion for minimal manipulation and The criterion for homologous use of human cells, tissues, and cellular and tissue-based product (HCT/P): The guidelines should help stem cell and tissue manufacturers, healthcare providers, and FDA staff. The definitions of these terms are critical factors in determining whether a product is more than minimally manipulated. Exceeding the minimal manipulation threshold and the homologous use standard can mean millions of dollars. Products that exceed the minimally manipulated threshold (or the homologous use test) are generally required to apply seek approval from the FDA as a drug. This means the manufacturer will need to spend time and money: Applying for an IND (Investigational New Drug Application) Conducting clinical trials Investing a lot of money Taking 10-15 years for final approval HOPING TO TAKE ADVANTAGE OF THE NEW MEDICAL POSSIBILITIES WITH STEM CELL THERAPIES? BE INFORMED. The FDA has developed new guidelines that expand the safety requirements and manufacturing standards for stem cell treatments. Background The FDA regulations explain the types of HCT/Ps that do not require premarket approval and the registration, manufacturing, and reporting steps that must be taken to prevent the introduction, transmission, and spread of communicable disease by these HCT/Ps. The FDA authority for regulating human cell and tissue products is based on the Federal, Drug, and Cosmetic Act (FD&C Act) and the Public Health Service Act (PHS Act). “HCT/Ps are defined in 21 CFR 1271.3(d) as articles containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient. “ PHYSICIAN STEM CELL THERAPIES LEGALLY AMBIGUOUS, WHILE REGENERATIVE CLINICS PROSPER Recent press calls into question widespread “regenerative” and anti-aging medicine, and physician practices that use stem cell therapies. The FDA has the authority to define and regulate HCT/Ps as drugs, biological products, or medical devices using a tiered, risk-based approach which was implemented by the FDA in 2005. HCT/Ps that meet specific criteria or fall within detailed exceptions do not require premarket review and approval. The FDA considered the following factors in the development of its tiered, risk-based approach (commonly called the “tissue rules”): Public health and regulatory concerns, including how transmission of communicable disease can be prevented What processing controls are necessary to prevent contamination that could result in an unsafe or ineffective product, and to preserve integrity and function so that the products will work as they are intended How clinical safety and effectiveness can be assured DOES FDA DEEM MY PRODUCT TO BE A MEDICAL DEVICE? Does FDA deem your product to be a medical device, or is it just a consumer product that would not be regulated by FDA? Here are basic steps you can take to work through the puzzle. When HCT/Ps qualify for the FDA exceptions HCT/P Products will be regulated as a drug, device, and/or biological product pursuant to the FD&C Act (or the PHS Act) – and will require premarket approval – unless the product meets all following conditions: The HCT/P is minimally manipulated The HCT/P is intended for homologous use only, as reflected by the labeling, advertising, or other indications of the manufacturer’s objective intent The manufacture of the HCT/P does not involve the combination of the cells or tissues with another article, except for water, crystalloids, or a sterilizing, preserving, or storage agent, provided that the addition of water, crystalloids, or the sterilizing, preserving, or storage agent does not raise new clinical safety concerns with respect to the HCT/P Either: The HCT/P does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function or The HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its primary function, and:Is for autologous use; Is for allogeneic use in a first-degree or second-degree blood relative; or Is for reproductive use. The new guidelines are in response to numerous requests for guidance as to what these definitions mean. The minimal manipulation standard The FDA defines minimal manipulation as: For structural tissue, processing that does not alter the original relevant characteristics of the tissue relating to the tissue’s utility for reconstruction, repair, or replacement; For cells or nonstructural tissues, processing that does not alter the relevant biological characteristics of cells or tissues. The homologous use standard Homologous use means: “The repair, reconstruction, replacement, or supplementation of a recipient’s cells or tissues with an HCT/P that performs the same basic function or functions in the recipient as in the donor. “This criterion reflects the Agency’s conclusion that there would be increased safety and effectiveness concerns for HCT/Ps that are intended for a non-homologous use, because there is less basis on which to predict the product’s behavior, whereas HCT/Ps for homologous use can reasonably be expected to function appropriately (assuming all of the other criteria are also met).” The FDA position is that it will look at the intended use of the HCT/P based on: Labeling Advertising Other manufacturer intent indicators This means companies involved with making and developing HCT/P products should be especially careful about how they promote their products. An experienced FDA HCT/P lawyer can help will review your marketing and promotional materials along with the evidence needed to qualify for exception to a drug/device/or biological product classification. Key features of the new guidelines for HCT/P products Some of the many useful features, of the new FDA guideline, according to Stem Cell Assays, include: A helpful feature is the inclusion of a Questions and Answers section – with numerous examples and explanations of confusing issues. It’s the bulk of the document. The difference between structural and non-structural tissues is explained The discussion of adipose tissue – a “highly controversial and poorly understood type of HCT/P,” is explained. The FDA considers the default position to be “more than minimally invasive,” which means manufacturers and others have the burden of showing their product is minimally invasive. The guidance document will be modified after comments from readers are analyzed. A few of the Q and As Question: Why is there a different definition of minimal manipulation for structural tissue and for cells or nonstructural tissue? Answer: Under the regulations, HCT/Ps are considered either structural tissues or cells/nonstructural tissue, based on the characteristics of the tissue in the donor…Structural HCT/Ps generally raise different safety and efficacy concerns than do cells or nonstructural tissues. Question: How do I determine whether an HCT/P is structural tissue or cellular/nonstructural tissue for purposes of applying the minimal manipulation criterion? Answer: To apply the minimal manipulation criterion, you first determine whether the HCT/P is structural or cellular/nonstructural. This determination is made based on the characteristics of the HCT/P in the donor, before recovery and before any processing that takes place. Then, you apply the appropriate definition to determine whether the HCT/P has been minimally manipulated. Question: What if the HCT/P provides dual functions? Answer: HCT/Ps may perform multiple functions and the FDA acknowledges that structural tissues contain cells. FDA also acknowledges that some manufacturers assert that an HCT/P has both a structural and cellular/nonstructural function. However, under the regulations, HCT/Ps are considered either structural tissues or cells/nonstructural tissues. HCT/Ps that physically support or serve as a barrier or conduit, or connect, cover, or cushion are generally considered structural tissues for the purpose of applying the HCT/P regulatory framework. Examples of structural tissue are provided in question 6 (see section III.B. of this document). HCT/Ps that serve metabolic or other biochemical roles in the body such as hematopoietic, immune, and endocrine functions, are generally considered cells/nonstructural tissues for the purpose of applying the HCT/P regulatory framework. Question: If my HCT/P is a structural tissue, how do I determine whether it is minimally manipulated? Answer: To evaluate whether processing of a structural tissue would meet the regulatory definition of minimal manipulation, you should consider whether the processing alters an original relevant characteristic of the tissue, relating to the tissue’s utility for reconstruction, repair, or replacement as structural tissue. There are many more useful Qs and As in the new guidance document Examples from the new FDA minimal manipulation and homologous use guide Examples of structural tissue and cells or nonstructural tissues are provided in the document. Two of the example Q and As are: Example 1. What types of tissues are considered structural tissues? “Tissues that physically support or serve as a barrier or conduit, or connect, cover, or cushion in the donor are generally considered structural tissues for the purposes of determining the applicable regulatory definition.” Examples of structural tissues include: Bone Skin Amniotic membrane and umbilical cord Blood vessel Adipose tissue Articular cartilage Non-articular cartilage Tendon or ligament Example 2. What types of tissue are considered cells or nonstructural tissues? “Cells or nonstructural tissues are generally those that serve predominantly metabolic or other biochemical roles in the body such as hematopoietic, immune, and endocrine functions. Examples of cells or nonstructural tissues include: Reproductive cells or tissues (e.g., oocytes) Hematopoietic stem/progenitor cells (e.g., cord blood) Lymph nodes and thymus Parathyroid glands Peripheral nerve Pancreatic tissue. Secreted body fluids (e.g., amniotic fluid) are generally not considered HCT/Ps. Cells from secreted body fluids are generally considered HCT/Ps, and the definition of minimal manipulation for cells or nonstructural tissues would apply.” Regulatory scope and additional information There are exceptions to these FDA requirements. For example, There are surgical procedure exceptions. There are exceptions for products that don’t meet the CFR definition of HCT/P. Platelet rich plasma (PRP – blood taken from an individual and given back to the same individual as platelet rich plasma) is not an HCT/P under the Code of Federal Regulations (CFR) because it is a blood product. FDA compliance consideration considering new guidance regulation The FDA, to give manufacturers time to submit an IND or marketing application after reviewing the new guidance document, states it will be using enforcement discretion during the first 36 months following the issuance of the guidance document – unless there are reported safety concerns or safety concerns that are potentially significant. In response to numerous questions about the FDA rules on when human cell and tissue products qualify for an exception for the need to seek approval as a drug, biological product, or medical device – the FDA recently announced new guidelines. These guidelines will be amended after a sufficient review period. The guidelines seek to answer many questions including when HCT products meet the minimal manipulation and the homologous use steps. HCT/Ps that don’t qualify for an exception will need to be approved as IND for drugs or will need to meet the FDA approval requirements for medical devices and biological products.
December 8, 2020
Healthcare
Do Telemedicine Laws Require a Minimum Number of In-Person Visits?
In today’s video, we discuss what are the minimum number of times per year and that a physician must see a patient, in-person, prior to treating the patient via telehealth? By the end of today’s video, you’ll have a deeper understanding of telemedicine legal requirements regarding the physician-patient relationship. You’ll also separate myth from fact when it comes to having the MD or DO see the patient physically, in-person, prior to further digital, online, or mobile health treatment. Telemedicine is one of our core areas; we were early pioneers as telehealth, also known as digital health, e-health, and/or mobile health, began to catch on. We recognized that telemedicine was the future of medicine, as professional relationships move from physical to digital and virtual space. Along the way, we heard many myths about telemedicine law. For example, “you’re okay so long as you have at least one visit in person a year with the patient.” That’s a myth, nobody knows where it started, but somehow it feels self-soothing to say, “I’m legally ok as long as” dot-dot-dot is the case. And healthcare companies believe the myth because, like the song goes: “I heard it from a friend who … heard it from a friend who … heard it from a friend.” We lawyers call that quadruple hearsay. It doesn’t matter that one of the friends in the chain was a lawyer. Let’s dispel the myth and get to the law. When the technology began to evolve to allow effective video communication between doctors and patients, states at first were slow to catch up. Many state laws, and medical board regulations and policy statements, required a “face-to-face” visit between doctor and patient, the idea being that these faces had to be in the same room, physically, at the same time. In fact, the statutes, regulations, policy statements, medical board disciplinary cases, and judicial opinions, often said that, for example, telehealth treatment and prescription based on an online questionnaire were not standard of care, and, were prohibited by law. Sometimes the rules were stricter for prescribing than diagnosis and treatment. Over time, a patchwork of laws formed across states. Then, lawmakers and regulators opened up a more liberal pathway for telehealth. In this new version, they did not require the physical exam and in-person encounter, but rather, allowed telemedicine, provided that the physician first “established” the physician-patient relationship. The physician-patient relationship could be “established” in a variety of ways, including not only the in-person, “good faith” exam or clinical encounter, but also by an audio-visual encounter, augmented by an effort to ensure that the patient was really who they claimed to be. Among other things, the audio-visual connection had to be sufficiently reliable. Once this physician-patient relationship was established, the physician then would be subject to certain professional obligations and liability. This is pretty much the current trend. Remember, though, that the telehealth encounter still has to meet the standard of care, and that the technology used has to be sufficient to allow for accurate treatment and diagnosis in accordance with that standard of care. Depending on the state, the community standard, and the type of condition involved, standard of care might or might not require a medical history and physical examination. Standards of care evolve over time. In dermatology, for example, video technologies can provide high levels of accuracy in diagnostic imaging. In other situations, medical boards might want the doctor to see the patient in person, and, could use standard of care as an enforcement hammer, depending on the situation, even if the statute is liberal. This happened recently in one case involving a physician named Dr. Holmes, who was prescribing for ED, based on an Internet questionnaire. To the extent the prescription involves a controlled substance, the federal Ryan Haight Act requires, with few exceptions, that the physician conduct an in-person evaluation of the patient before issuing the prescription. At this point, many law firms have jumped into giving legal advice in the telemedicine space. Some even claim to have a “secret sauce” with extensive, and expensive, multi-state surveys of state law. We can address that more fully in a legal strategy session. Let’s just say that we still have our edge, with strategic advice tailored to the client. Let’s face it: some lawyers are dream-killers: they just say “no” to everything. That way they’re a hundred percent safe, you’re pretty much assured of zero compliance battles, and, no one takes a risk. And some are “yes men” (and women): they’ll give all the assurances for a buck (or a hundred thousand, plus greenbacks). We prefer the goldilocks territory, somewhere in between. That’s where the subtle lies, the strategy lives. Thanks for watching. Here’s to the success of your healthcare venture, we look forward to speaking with you soon. Testimonials
October 3, 2020
Healthcare
Red Flags that Leads to FDA Warning Letters
The FDA regulates dietary supplements, cosmetics, medical devices, and many other products. It’s essential to consult with an experienced FDA warning lawyer before developing and marketing these products. Establishing proper compliance protocols and understanding the common violations the FDA looks for as early as possible can help minimize the odds of a warning letter. The FDA doesn’t give companies or individuals much time to reply to a warning letter. The consequences for failure to comply can be extremely expensive. There are usually substantial fines. In some cases, the FDA may order that development and distribution cease. FDA or other agencies might even file criminal complaints. HOW TO RESPOND TO AN FDA WARNING LETTER ABOUT DIETARY SUPPLEMENTS OR COSMETICS The United States Food and Drug Administration (FDA) regulates much more than food and drugs. It regulates dietary supplements, cosmetics, medical devices, tobacco products, animal food, […] Dietary supplements The FDA regulates both dietary supplements and dietary ingredients. Unlike other foods and drugs, dietary supplements are regulated pursuant to the Dietary Supplement Health and Education Act of 1994 (DHSEA). The DHSEA precludes manufacturers and distributors of the dietary products from marking products that are misbranded or adulterated. Makers and distributors of dietary supplements and ingredients have a duty to study the safety of the products and how they’re labeled to make sure they comply with FDA and DHSEA regulations. The FDA will pursue companies and individuals if these adulterated or misbranded products reach the market. The Food, Drug, and Cosmetic Act defines a dietary supplement as: “A vitamin; mineral; herb or other botanical; amino acid; dietary substance for use by man to supplement the diet by increasing the total dietary intake; or a concentrate, metabolite, constituent, extract, or combination of the preceding substances.” A major red flag for drug supplement companies is that they should NOT qualify as drugs. This means that supplements shouldn’t make claims that they can treat, diagnose, prevent, or cure diseases. Statements such as “this product reduces pain” or “treats cancer,” are likely to result in an FDA warning letter. FDA ISSUES WARNING LETTER TO DIETARY SUPPLEMENT COMPANY FOR INCLUDING CANCER OR DIABETES IN SEARCH FIELD The FDA issued a warning letter citing a dietary supplement company for its online content.In its warning letter to dietary supplement manufacturer M.D.R. Fitness Corp., the FDA warned that […] Examples of FDA warning letters for dietary supplements Adulterated dietary supplement – Avalon Packaging On November 8, 2018, the FDA issued a warning letter to Avalon Packaging, a Utah company. The FDA inspected the company’s facility and collected samples containing kratom. The FDA warning letter asserted the following violations: Adulterated dietary supplement. The samples were found to be adulterated because they contained 13 strains of the human pathogen Salmonella. Healthy people who contract salmonella can develop severe diarrhea, fever, chills, abdominal pain, and other complications. For less healthy individuals, salmonella can be fatal. The FDA warning letter identified the 13 strains. CGMP violations. The FDA also found that the company violated Current Good Manufacturing Practices (CGMP). The FDA asserted that it was the violation of these safety practices that allowed the dietary supplements to become adulterated. The warning letter further indicated that the company was made aware of its defective practices and had failed to properly establish and follow written safety procedures. The letter added: “… failed to establish specifications for any points, steps, or stages in the manufacturing process where control is necessary to ensure the quality of the dietary supplement and that the dietary supplement is packaged and labeled as specified in the master manufacturing record, as required by 21 CFR 111.70(a).” The FDA warning letter said that it reviewed the company’s response to early letters but that the company had not properly detailed its corrective actions. The FDA said that Avalon Packaging had failed to “prepare and follow a written master manufacturing record (MMR) for each unique formulation of dietary supplement that you manufacture, and for each batch size, to ensure uniformity in the finished batch from batch to batch as required by 21 CFR 111.205(a).” New Dietary Ingredient. The warning letter also addressed the dietary ingredient “kratom”. The letter cited the relevant law in stating that a dietary supplement that has a dietary ingredient that wasn’t marketed in the US before October 1, 1994 is adulterated unless: The dietary supplement with the new ingredient has been present in the food supply as an article used for food in a form in which the food has not been chemically altered or There is proper evidence of its safety The FDA found that the company has yet to show its supplement, with “kratom”, meets either of these requirements. The FDA warning letter gives the dietary supplement maker (name the company) 15 days to identify what corrective steps will be taken. Misbranding – Dietary supplement is a drug – DynaPro International On October 31, 2018, the FDA issued a warning letter to a co-owner of DynaPro International, Inc. located in Utah. The FDA warning letters stated that the agency found violations after inspecting the company facility, reviewed the product labels, and reviewed the company website. The FDA found that: “The company labels and website establish that one company product is a drug because it is ‘intended for use in the cure, mitigation, treatment, or prevention of disease.’” The product is misbranded because there are improper claims that the product can help people with ulcers and diabetes. The FDA found that the product is not safe and should be qualified as “new drugs” which need to be verified based on scientific data. The drug is also misbranded because it doesn’t have “adequate directions for intended use.” The warning letter also found that the dietary supplement products were adulterated because they didn’t meet Current Good Manufacturing Practice. The FDA further found that the dietary supplements (with names such as DynaPro Vanilla Supreme, DynaPro Stress Remeday, and DynaPro Berry Supreme) are misbranded because: The products doesn’t declare the necessary nutrition information Doesn’t declare the quantity of certain ingredients Improperly list dietary ingredients that aren’t present or have zero amounts Doesn’t properly state that they are dietary supplements Other violations Further, one product that was listed as a dietary supplement was also labeled “Use it as a snack or a full meal replacement.” Dietary supplements can’t be labeled as both a dietary supplement and a conventional food. 10 LEGAL TIPS TO STOP FDA FROM CLASSIFYING YOUR DIETARY SUPPLEMENT AS A DRUG Your dietary supplement products could be regulated as a new drug by FDA, unless you pay attention to these regulatory fundamentals. Misbranding – Dietary Supplement as Drug – Teeter Creek Herbs, Inc. On May 21, 2013, the FDA issued a warning letter to the owners of Teeter Creek Herbs, Inc. The letter was issued base on an investigation of their Missouri facility. CGMP violations. The facility inspected noted significant violations of the Current Good Manufacturing Practice regulations for dietary supplements. Some of the CGMP violations included claims that the dietary supplement manufacturer: “Failed to qualify a supplier of a component by establishing the reliability of the supplier’s certificate of analysis (COA) through confirmation of the results of the supplier’s tests or examinations, as required by 21 CFR 111.75(a)(2)(ii)(A). “ “Failed to establish a specification for any point, step, or stage in the manufacturing process where control is necessary to ensure the quality of the dietary supplement and that the dietary supplement is packaged and labeled as specified in the master manufacturing record, as required by 21 CFR 111.70(a).” “Failed to prepare a written master manufacturing record (MMR) for each unique formulation of dietary supplement that you manufacture, and for each batch size, to ensure uniformity in the finished batch from batch to batch, as required by 21 CFR 111.205(a). “Failed to include the strength, concentration, and weight of the dietary supplement to be manufactured, and the measure of each dietary ingredient for each batch size [21 CFR 111.210(a)]. “ Unapproved New Drug. The FDA also reviewed samples of the labels for the dietary supplements (with names such as Lymphaid, Sheep Sorrell, and Blood Build). The review indicated that the products are drugs because they are “intended for use in the cure, mitigation, treatment, or prevention of disease” Some of the claims that indicate the dietary supplements are drugs included: Featured Herb: Astragalus [an ingredient in your Immunaid and Astragulus products]:“They should be considered for those with cancer, those who have had long-term infections like Hepatitis, as well as by those with auto-immune and allergic … disorders … The herbs include Astragalus, Maitake, Shiitake, Reishi and Turkey Tail mushrooms, Elecampane, and Ginseng.” “Astragalus is … for those with chronic immune deficiencies leading to re-current infections; including viral infections.” “It is also a valuable aid in recovery from infectious diseases.” “Astragalus and the mushrooms … valuable for those with any form of chronic Hepatitis or … for those who have been taking chemo or other drug therapy.” Featured Herb: Dandelion [an ingredient in your Blood Build product]:“The leaves have … relieve high blood pressure.” “It is an aid in…hepatitis, gall bladder…formation of stones…” “[A]n aid in food allergies.” “A preventative in high cholesterol and arteriosclerosis.” “Dandelion … A blood purifier for the toxins that aggravate arthritis, rheumatism and gout.” “Used … for chronic metabolic disorders; … cirrhosis, both high and low blood sugar, anemia.” “[O]ther uses … for Dandelion include breast conditions (mastitis, breast tumors and cancer) …” The FDA found that the above products: “The products identified above are not generally recognized as safe and effective for the above referenced uses and therefore, the products are “new drugs” under section 201(p)(1) of the Act [21 U.S.C. §321(p)(1)]. New drugs may not be legally marketed in the U.S. without prior approval from FDA as described in section 505(a) of the Act [21 U.S.C §355(a)]. FDA approves a new drug because of scientific data submitted by a drug sponsor to demonstrate that the drug is safe and effective.” The FDA also found that since these products aren’t amenable to self-diagnosis and treatment by non-medical practitioners – that adequate directions couldn’t be written. The lack of adequate directions means the products are misbranded. Labeling violations. The FDA further stated that even if the dietary supplements didn’t have disease claims, they would still be misbranded because the labeling requirements of the Code of Federal Regulations (CFR part 201) were not met. These violations included failing to list quantities of the ingredients, failing to include a domestic address or domestic phone number through which the responsible person may receive a report of a serious adverse event with such dietary supplement, and other failures. The FDA has the authority to issue warning letters for violations of their regulations and violations of many federal laws including the Dietary Supplement Health and Education Act of 1994 (DHSEA) and the Food, Drug, and Cosmetic Act. Some of the products the FDA regulates include dietary supplements, cosmetics, and medical devices. Dietary supplement manufacturers and distributors need to understand that the FDA will examine their facility, their products, their labels, their websites, and their marketing. The FDA will almost certainly look for claims that the dietary supplements can be used to diagnose, treat, and cure diseases. The FDA also regularly reviews labels. Common violations include new drug violations, adulteration, misbranding, and failure to follow current good manufacturing processes. If the recipient of the FDA warning letter fails to properly comply with the terms of the letter, the company could face civil and criminal penalties, the seizure of their assets, and an injunction to cease making and distributing their products. FDA warning letters are published online. The best legal protection is legal prevention—i.e., the best remedy is to establish procedures that minimize the likelihood a warning letter will be issued. If FDA has issued a warning letter with respect to your dietary supplement or cosmetics product, you need to properly respond to the warning letter. Experienced FDA lawyers understand why FDA dietary supplement, cosmetic, or other warning letters are issued. FDA attorneys help companies review their claims and labeling, and respond to the FDA warning letter.
September 1, 2020
Healthcare
Physician Recruitment Agreements Obligate the Hospital, Medical Practice and the Physician – Make Sure You Know What Your Obligations Are
Hospitals and medical practices need quality physicians to do necessary research and to treat their patients. Getting new talent includes hiring existing physicians – who often work for other hospitals and other practices. It also includes hiring newly trained doctors. Most hospitals and practices need a combination of experienced specialists and newly trained physicians. There are usually three sides to a physician recruitment agreement: The existing medical practice The hospital The physician Each party to the agreement needs to understand more than just the financial and medical benefits. The parties need to understand what laws regulate physician recruitment agreements. Violations of Stark Law and Anti-Kickback laws can result in heavy fines, civil and criminal actions, and even the loss of a medical license and operating privileges. Other laws can affect the enforcement ability of the agreement which is a legal contract. There are also business and tax considerations that must be evaluated. PHYSICIANS SHOULD REVIEW THEIR EMPLOYMENT AGREEMENT OR RISK VIOLATING FEDERAL AND STATE LAW Physicians who fail to consult with legal counsel before signing an employment contract often lose more than just money, benefits, and the freedom to leave on their terms. They may be putting […] What the Agreements Typically Provide Recruiting new doctors takes a lot of time and costs a lot of money. There’s no guarantee that the doctor will have the necessary medical, business, and personal skills. In large measure, the hospital (which usually funds the practice’s recruitment efforts) agrees to also pay the new doctor’s base salary for a limited time period. The limited time frame that the medical practice and hospital guarantee is usually one year. The hospital often agrees to pay the difference between the negotiated salary and the money the doctor brings into the practice. The hospital benefits by having a doctor nearby who will ideally “refer” patients to the hospital if surgeries or more advanced care is required. Typically, the doctor will do the medical work at the hospital or refer the patient to other doctors at the hospital – if other types of care (than the one the new doctor does) are needed. Referrals must be done correctly though so they don’t violate the Anti-Kickback Statute, Stark Law, or any state laws. The medical practice benefits by having a doctor on staff who can treat patients while the practice gets the fees for services – and ideally referrals of new patients from satisfied patients. The medical practice also gets to test how good or bad a fit the doctor is. The doctor benefits by having a base fee until he/she can build up their medical practice. He/she also gets to see if they’re a good fit with the medical practice that hires them and the hospital. Some of the concerns each side may have to a physician recruitment agreement Experienced healthcare lawyers review the following rights and duties of each of the three signers to the agreement. The geographical pledge. The physician agrees that if he/she moves out of the geographical area for a predefined period (such as 2-4 years), that the doctor will be in breach of the contract and must pay a penalty or some sum set forth in the contract. A promissory note is often used to guarantee payment if the doctor breaches the contract. Because the doctor will absorb financial damages if he/she leaves the geographical area, it is important that the doctor review with legal counsel and with his/her own medical and family needs – their commitment to the geographical region. The geographical portion of the physician recruitment should be drafted to address external contingencies such as the need to move due to a death in the family or the needs of a child. The compensation. Agreements should detail whether the pay is based on hours of service, a yearly salary, productivity factors such as the number of patients treated, or other factors. The physician’s duties. The agreement should detail what services the physician will perform for the medical practice and, when needed, for the hospital. For example, it should be clear when a doctor is – on call. The length of the agreement. The guaranteed base salary usually covers a year or two. The agreement will also normally detail how long the doctor agrees to work for the medical practice and how many years he/she will commit to working for the hospital – after the guaranteed period has expired. The agreement will detail what happens if there is a breach. What happens includes more than just the financial damage. It can include many issues such as whether the case is arbitrated or can be heard in court and other matters. The loan. The agreement by the hospital to pay the salary or part of the salary is considered a loan. The loan is essentially repaid by the physician and or the practice through performance of medical duties or by cash – depending on the contract terms. The loan is normally accompanied by a note which can be used to obtain a legal judgment if the doctor breaches the agreement. Covenants not to compete. Physicians should review with experienced healthcare contract lawyers their rights if the contact ends – due to either their desire or needs or the desire or needs of the hospital (or medical employer). Hospitals and employers may try to restrict the right of the doctor to practice in the same geographical region – for the term of the guarantee or the full term of the contract. Generally, covenants not to compete are not enforceable in California. A doctor will still likely to have pay any amount due on the loan. Additional contract terms. Other items that an experienced healthcare lawyer will review in physician recruitment agreements are:The tax consequences. The timing and length of payments may be subject to adjustments to limit the federal and state taxes due The requirements for terminating the contract The consequences for terminating a contract Additional contract terms All parties to the agreement should review the agreement before signing it. Once the agreement is signed, it becomes very hard to overturn the contract unless fraud was involved. The Anti-Kickback Statute (AKS) and Stark Law The AKS and Stark Law are two separate federal laws that seek to protect patients and consumers. Stark Law prohibits certain types of referrals. The idea behind the law is that patients have the right to trust that when a physician makes a recommendation – that the recommendation is based on merit and not because the physician has a financial stake in the referral. Stark prohibits self-referrals by doctors who bill Medicare or Medicaid if the referral is to an entity that provides “designated health services.” – if the doctor has a financial relationship with that entity. Stark Law defines the types of designated health services (DHS). DHS services includes such things as physical therapy, occupational therapy, radiology services, ultrasound services, different types of medical supplies, clinical laboratory services and other services. A financial relationship includes investment interests, ownership, and compensation agreements. Stark also forbids referrals to entities the provide the designated health service – if an immediate family member has a financial interest in that entity. On the surface, physician recruitment agreements raise the possibility of violating Stark Law if the hospital is seeking referrals from the physician or some financial benefit due to the doctor’s working relationship with the hospital. However, Stark Law does have exceptions. One specific exception is for recruitment services if all the conditions of the law are met. Some of the key details of the Stark Law exception for physician recruitment include the following: The physician recruitment exception: Stark law permits a hospital to induce a doctor to “relocate his or her medical practice to the geographic area served by the hospital in order to become a member of the hospital’s medical staff, if all of the following conditions are met: The arrangement is set out in writing and signed by both parties. The arrangement is not conditioned on the physician’s referral of patients to the hospital. The amount of remuneration under the arrangement is not determined in a manner that takes into account (directly or indirectly) the volume or value of any actual or anticipated referrals by the physician or other business generated between the parties and The physician is allowed to establish staff privileges at any other hospital(s) and to refer business to any other entities (except as referrals may be restricted under an employment or services arrangement that comply with other parts of Stark Law. EXCEPTIONS TO THE STARK LAW PROHIBITION OF MEDICAL REFERRALS The Stark Law governs what types of referrals doctors can make if they bill for Medicare and Medicaid. The presumption is that that referrals made by a doctor to a designated health service are […] Additional exception requirements for the physician recruitment exception: A physician will be considered to have relocated his or her medical practice if the medical practice was located outside the geographic area served by the hospital and –The physician moves his or her medical practice at least 25 miles and into the geographic area served by the hospital; or Other factors based on the geographical area such as the source of revenues for three years prior to the signing of the physical recruitment agreement The relocation requirement may not apply if the doctor had limited experience, worked in a federal or state bureau of prison, or for other listed agencies or services. The conditions generally indicate that the doctor wouldn’t be able to refer many patients because of his/her background. Where payments are made by the hospital directly or indirectly through another physician practice:The physician practice also signs the physician recruitment agreement Except for actual costs incurred by the physician practice in recruiting the new physician, the remuneration is passed directly through to or remains with the recruited physician. Many other specific and precise conditions an experienced Stark law attorney an explain Additional rules for rural hospitals apply Other conditions for non-rural hospital may also apply The core idea behind the exception is that the new doctor should fill a need (specialty) and add to the hospital’s service. Generally, the terms of the recruitment contract can’t be varied after it is signed. Other Stark problems and exceptions may be needed for recruiting and hiring non-physician staff. An experienced Stark law attorney can explain how the conditions may vary if a medical practice (without using a hospital) hires a doctor as an employee or as an independent contractor. The payment should be based on fair market value and not the amount or worth or any referrals. The Anti-Kickback Statute forbids the payment, solicitation, offering, or receiving of anything of value for the purpose of inducing referrals or the generation of health care business through federal agencies. The AKS uses voluntary safe harbors instead of mandatory exceptions. Generally, most of the requirements for meeting the Stark Law exception will also qualify for the AKS safe harbor. 42 CFR § 1001.952 Section n. The AKS uses the term “practitioner recruitment” instead of “physician recruitment.” A skilled physician recruitment lawyer an explain and negotiate any differences between the AKS and Stark that may apply. Physician recruitment agreements should also comply with any IRS 501(c) (3) requirements. Skilled healthcare lawyers represent one of the three signers to the physician recruitment. They focus on: Any laws or regulations that might result in the violation of Stark, the AKS, or other federal or state laws The terms of the loan, promissory note, salary benefits, and the benefits and obligations of each signer Related medical issues such as when a physician must be on-call Any other relevant legal, business, medical, and business issues
May 8, 2020
Healthcare
Concierge Medicine – Membership Model & Consent
In this video, we talk about some of the foundational legal documents you will need when you decide to implement a membership model for your medical practice or other healthcare clinical operation. We’ve advised over a thousand healthcare industry clients on healthcare and FDA legal issues. Among our clients are many medical doctors, chiropractors, dentists, psychologists, and other licensed healthcare professionals. Many of our physician clients are overwhelmed by the demands of their patient population and simply want a more streamlined, fulfilling medical practice. To that end, they work to implement more of a concierge model. When it comes to concierge medical practice, we’ve been around the block, so to speak—we’ve done quite a few rodeos ever since the earliest days of concierge medicine. Some folks still call it concierge medicine; some say VIP medical care; we’ve even seen some journals in the literature refer to “retail” medicine, “boutique medicine” and other mysterious sounding names. In terms of the legal work, we’ve worked on the agreement foundationally between the medical doctor or medical practice on one hand, and the patient or the member on the other—the contract for, let’s call it, concierge medical services. Again, this agreement can go by many names, but it’s essentially a rose by other names, the same document. Some call it a concierge medical services agreement; some call it a Subscription Agreement; we like keep it simple these days, we call it a Membership Agreement – just like what you get from your gym. The reason is, fundamentally this is like the agreement you have with your gym in some respects. For example, typically, you go month to month; you pay a certain fee; and for that monthly fee, you (the patient) get some things and use the doctor to deliver some things and not other things. For example, you might get an initial doctor’s visit and some follow-up visits included, but you won’t get medications and supplements covered by your membership fee, and all of that is spelled out in your contract. Also, there are important things we need to say in that agreement—for example, we will want to say that this is an agreement for medical services, and not it’s healthcare insurance. We’re just going to spell that out. There are some other nuances to the membership agreement for a concierge medical practice. For example, if you’re going to do recurring charges, which are also known as auto-payments or a subscription, then in most states, there are laws that require you to make special disclosures, which let the patient know that you’ll be auto-debiting their card at regular pre-schedule intervals, unless, prior to that within a certain interval, the customer ends the contract. Note, we have two options here for you – we can customize the concierge membership agreement for you, which we like to do as your legal counsel– or you can buy our form agreement online on a separate website, www.healthcarelegaladventures.com. The other key form we like to work on for a specialized medical practice—whether it’s functional medicine, integrative medicine, conventional care, or something else in a subscription, medical membership, concierge model—is the Consent to Medical Treatment. Here’s what you, as the doctor, should have at the very top of your consent form, as one example of some language: “TO THE PATIENT: You have the right, as a patient, to be informed about your condition and the recommended surgical, medical, or diagnostic procedure to be used so that you may make the decision whether or not to undergo the procedure after knowing the risks and hazards involved. This disclosure is not meant to scare or alarm you; it is simply an effort to make you better informed, so you may give or withhold your consent to the procedure.” See the way I talked about it, I just made it very, very friendly. That pretty much announces, in plain English, what the Consent form, which is a legal and ethical requirement, is all about. Now, the Consent should also have a couple of other provisions, and let’s talk about what they are. First, a description of your practice. If your practice, for example, involves integrative medicine or functional medicine, you can describe what this means and how it’s different than a regular healthcare practice, and thereby you are putting in marketing emphasis on legal language as well. Second, a disclaimer of the physician’s role by limiting the role to specialized care, and, for the most part (but not all) of our medical clients, they want to disclaim primary care and put themselves in that specialist role. Third, and this is most important, you want to describe the anticipated benefits of the designated diagnostic and therapeutic approaches; a discussion of the clinical risks involved; and your disclosure in very clear clinical terms of reasonable and feasible alternatives. For our specialized medical practices, such as those working in integrative and functional medicine, we recommend at least mentioning the conventional alternatives. We’ve seen very little case law in which a patient claimed that a complementary and alternative medical approach was available but not disclosed, or that a functional medicine approach should have been recommended. We do believe that case law, in that case will show up in the courts, someday soon, but it has not yet shown up, as of today’s taping. Next, we might have some additional consent language, such as, for example, consent to follow-up care by telemedicine. Here, we will want to first check compliance with existing telemedicine laws and regulations, and then, we will want to embody appropriate language into the Consent form. Last, we will incorporate some important protective language for the clinician, such as a provision for dispute resolution by arbitration. Thank you so much for watching. Here’s to the success of your medical practice or healthcare venture, we look forward to speaking with you soon. Testimonials
May 8, 2020
Healthcare
Legal Issues When Leaving a Medical Practice: Navigating Non-Solicitation vs. Abandonment
In today’s video, we talk more about what to do and what to do and NOT to do, if you’re a physician who is leaving someone else’s medical group, or medical practice, where you’ve been happily employed until you decide to no longer be employed there. We’ve seen litigation scenarios played out between departing physicians as well as chiropractors on the one hand, and the medical groups, practices, and centers where they had been affiliated as employees or even co-founders on the other. Today, we’ll just talk about the employment role. We’ve helped these physicians and chiropractors navigate their exit, whether they’ve been at a conventional medical practice, or in an integrative medicine center, functional medicine center, or health and wellness group of any other sort. I’m Michael H. Cohen. We’ve advised over a thousand healthcare industry clients on healthcare and FDA legal issues. These clients include physicians in all types of medical practices and healthcare centers, as well as chiropractors, nurses, dentists and many other practitioners. We’ve helped our clients navigate the legal landscape so they can avoid or at least mitigate the risk or severity of patient lawsuits, litigation from former medical employers, and, regulatory enforcement. Recently, the common scenario came to light when a medical doctor left a practice, and, sent a postcard to his patients from the practice, letting them know where they could find him in his new practice. It sounds pretty innocuous, right? The medical practice found out, and wrote the physician a demand letter, alleging that he had violated the non-solicitation clause in his employment agreement, which prohibited him from soliciting patients for up to a year following his exit from the medical practice. The demand letter cited a breach of the employment agreement; HIPAA violations from accessing the medical records; and misappropriation of trade secrets. This is a common deadly combo that plaintiffs’ lawyers will fire off to try to chill the departing MD and exact a six-figure settlement. What’s the best legal advice when you’re hammered by plaintiff’s demand letter? Again, these issues are best navigated at the START of the employment relationship, when all the goodwill is there and the parties still have their heads on their shoulders about how to work things out amicably, should the professional association not work out. Call it a business prenuptial, that’s where we like to intervene. The fact is that medical practices are highly competitive, and, former medical employers are likely to be zealous and jealous of attempts to take patients with you to your new medical practice. That’s just a fact of life, just like these planes flying overhead. If you download patient names and contact information before you go, this can be legally problematic – and, you’re also giving legal ammunition to your former employer even if you think you should have the right to do so. Now bear in mind that your former employer has obligations too – both sides have a duty to not abandon patients. The ideal solution at this late stage is a communication from both the medical group and the departing doctor, that tells patients where the doctor is going and how that doctor could be reached in the future. A joint announcement is more neutral and it can help the departing physician ease the suspicion that they are trying to steal away, or in the words of your employment agreement “solicit”, the existing practice’s patients. A joint announcement also can help quell the concern that either or both are abandoning these patients. You don’t want to be involved in an ethical no-no. Ideally, the medical practice will cooperate in transferring files of those patients that decide to migrate to the departing doctor (which could be you) at their new location. On the other hand, should those patients decide to stay with the medical practice, the medical practice will provide a list of alternative physicians at the practice who can continue care. Please, do yourself a favor and think through these issues and discuss them with legal counsel, BEFORE you sign any employment agreement to join a medical practice. We can help you, we can give you solid advice at that stage and when you’re contemplating an exit, but the best thing to do is negotiate ahead of time, so when the time comes for separation, you can make it smooth and protect your interest in continuing with the patients who choose to stay in with you, while not provoking a costly and unnecessary lawsuit with your former employer. As John F. Kennedy said: “Let us never negotiate out of fear, but let us never fear to negotiate” Here’s to the success of your healthcare venture, old or new, we look forward to speaking with you very soon. Testimonials
April 23, 2020
Healthcare
Medical Practice Departure: Non-Solicitation vs Abandonment vs Non-Compete
In today’s video, we talk to the physician or chiropractor some more about what to do and NOT to do when you are leaving someone else’s medical group, medical practice, integrative medicine center, functional medicine center, health and wellness group, whatever it’s called, where you’ve been, up until now, gainfully employed. By the end of today’s video, you’ll be able to think much more clearly about three different legal issues you might face as that physician or chiropractor: the risk of getting sued for violating the non-solicitation clause in your employment agreement, the risk of violating a non-compete, and the ethical obligation of non-abandonment. In fact, all three might hit at once. Navigating among these three hazards can be tricky, but we’ve helped physicians and chiropractors and other providers stare down the dragon before, without getting fried by fire. I’m Michael H. Cohen. It’s been our distinct pleasure to serve hundreds and hundreds if not thousands of clients on healthcare and FDA legal and regulatory issues. These include physicians in all types of medical and healthcare centers, as well as chiropractors, nurses, dentists, psychologists, life coaches, other practitioners. We’ve helped our clients navigate so they can avoid the multi-headed Hydra of patient lawsuits, litigation from medical employers, and, regulatory enforcement – that might be three heads there. The first tip is to have your healthcare lawyer review (yes, actually review) your employment agreement (don’t just sign it) and laser focus in on the promises that you are making in that contract, NOT to do certain things. More specifically, there are two different provisions in the physician employment agreement we’re going to talk about. One is called Non-Solicitation and the other is called Non-Compete or Non-Competition. The non-solicitation clause typically is a very broad promise. Typically it spells out that you cannot solicit employees from your medical group or medical practice employer; and also, importantly, that you cannot solicit patients. Here is some typical language: “Physician Employee acknowledges that any solicitation he makes of any patients or employees of Medical Practice will involve misappropriation of Medical Practice’s confidential information, and constitute a breach of this agreement.” You don’t want to do that: liability. What that means is that if you simply send your existing patients, we talked about a little post card – “Hey I’ve left my medical practice employer”, the Medical Practice could sue you for violating the non-solicitation clause. We’ve seen demand letters and claims going into the hundreds of thousands of dollars and it costs a lot to get out of. The non-solicitation provision could be paired with provisions prohibiting theft of trade secrets and other confidential information. The non-compete typically generates a lot of attention, because employers are quick to insert it and just as fast to lawyer up and get a demand letter out when you, as the departing clinician, decide to open a practice in violation of the non-compete, whether that is enforceable or not. So even if that non-compete appears overly broad and unreasonable, and even if your lawyer or best friend or best friend physician colleague’s son’s, wife’s lawyer told you the clause is unenforceable, still, if you agree to such a provision, you won’t be surprised if and when you receive a nasty demand letter alleging that you breached the non-compete. So let me be very clear, you can get advice, but there’s still practical realities. And then there is your ethical obligation, the third regulatory triangle to not abandon your patients. Here you are under scrutiny from the medical board. The Board wants you to notify patients that you’re leaving; and if you do, then you can get blowback from the medical practice … and, it could hurt. So, there’s a kind of catch-22 here. Now here’s another thing to consider, too: as you’re giving notice, the medical practice might suddenly start withholding payment, arguing that there is some issue with collections from your patient. Alternatively, you might be giving notice BECAUSE the medical practice has been monkeying with your paycheck for months, causing financial hardship. So now you are tens of thousands of dollars in the hole and to quote a kid’s book I’m reading, the anger spot in your brain is telling you that you want to lawyer up yourself and sue. But then again, it can cost a lot of money to sue and your employer will lawyer up to the hilt. They probably have greater resources, and you know they probably will, because otherwise they would not have been so bold as to monkey with your checks in the first place. Check. It’s your move. What do you do? For one thing, it would be better to handle some of these issues before, perhaps by making an agreement as to how existing patients of the practice will be notified when an upcoming physician departs from the practice. So, getting work ahead of time here in better shape. We’ll have more tips ahead in the coming video and other videos we’ve done. Thanks for watching. Here’s to the success of your healthcare venture, we look forward to speaking with you soon. Testimonials
March 22, 2020
Healthcare
Why the FDA Won’t Approve Your Regenerative Medicine Practice
The Food and Drug Administration does have Congressional authority to investigate and regulate a wide variety of medical products and services. It’s crucial for doctors, researchers, medical device companies, and other health providers to speak with an experienced FDA approval lawyer before working with any type of regenerative medicine. If the FDA has authority to regulate a practice’s regenerative medicine products or treatments, and the health business fails to follow their requirements, the business could be subject to warning letters, seizure of the products, injunctions against further work, fines and even criminal penalties. Stem Cell products and therapies Stem cells use the patient’s own cells to help repair tissues, blood, muscles, bones, and other parts of the body. Cells are usually taken from the hip or a person’s bone marrow. The cells are injected into the damaged part of the part with the aim of regenerating that part of the body. One concern is that the cells may mutate which could cause tumors. The Food and Drug Administration does regulate stem cell therapies but it doesn’t regulate the practice of medicine. States regulate the practice of medicine. For this reason, physicians often, usually without success, try to argue that their stem cell treatments are just the practice of medicine. The FDA recommends that consumers check that the stem cell therapies being offered by their physicians are FDA approved or are part of a clinical study that has been given the green light by the Food and Drug Administration. Patients need to check for FDA approval even when their own stem cells are being used – which is often the case as there are safety concerns and dangers involved. PHYSICIAN STEM CELL THERAPIES LEGALLY AMBIGUOUS, WHILE REGENERATIVE CLINICS PROSPER Recent press calls into question widespread “regenerative” and anti-aging medicine, and physician practices that use stem cell therapies. Stem cell products are treated like biological drugs. This means they are regulated through the FDA’s Center for Biologics Evaluation and Research (CBER). The National Institutes of Health states that, in 1997, the FDA began a “risk-based, tiered approach to regulating cellular and tissue-based products. As a result, human cells, with the exception of those deemed minimally manipulated and used for autologous treatments, would be subject to FDA premarket approval as biologics.” To date, the FDA has been slow to place products in the “minimally manipulated category.” “Regulating stem cell therapies is a challenge. The FDA has sent warning letters to several clinics that claim to offer treatments, prevention, or even cures using stem cell therapies that are not approved. For example, the FDA took action against Regenerative Sciences, LLC, which manufactured a product called Regenexx™, which consisted of autologous mesenchymal stem cells that were manipulated outside of the body and injected back into patients with orthopedic injuries.” In addition to regulation by the FDA, state medical boards: Can regulate experimental stem cell therapies Do regulate the practice of medicine States are helping to fund regenerative medicine research because it has the potential to help make so many people’s lives better. Along with this research, states, such as California, are also creating laws and regulates to monitor regenerative medicine products and therapies. CALIFORNIA STEM CELL REGULATIONS GUIDE THE EMERGING STEM CELL RESEARCH EFFORT AND INDUSTRY California stem cell laws boost the stem cell industry by funding stem cell research, but the product side of industry is largely in the hands of the FDA. As we’ve pointed out, the bottom line for physicians practicing regenerative and anti-aging medicine is that: FDA maintains that a stem cell product cannot get to market unless it is either approved by FDA or studied under a clinical investigation that has been submitted and allowed to proceed by FDA. FDA has approved relatively few stem cell products. Stem cell products must comply with the HCT/P regulations, which among other things, require registration and listing. Culturing stem cells constitutes more than “minimal manipulation” (i.e., FDA approval as a biologic drug is required). PRP products and therapies Platelet rich plasma (PRP) is a regenerative medical procedure that uses your own blood. PRP uses a solution of platelet cells, proteins, and other growth factors. The platelets are rich with substances which help rebuild tissue and help the body heal. An advantage of PRP is that because it uses your own blood – there aren’t any foreign or synthetic chemicals that can cause damage. Additionally, because a patient’s own blood is used, there’s minimal chance of an allergic reaction. In a PRP procedure, the platelets are injected in the part of the body that isn’t working correctly. Basically, the medical staff draws your blood and then prepares it. The staff uses a centrifuge to separate the platelets from your red blood cells. The platelets are then injected. Normally, patients need several procedures. When PRP works, the repair to the damaged tissue or body part is usually long-term. Patients normally see quick results. PRP is used for many different types of health problems such as sports injuries. Dangers include nerve damage, infections, and bleeding. The FDA regulates two parts of the PRP process FDA Approval of the PRP device The first part of the FDA approval process is the device used to separate the platelets from the red cells. Generally, medical devices can be approved in several different ways. These include: Premarket Approval. Premarket approval (PMA) is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. PMA is the most stringent type of device marketing application required by FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. PMA approval is based on a determination by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). An approved PMA is, in effect, a private license granting the applicant (or owner) permission to market the device. 510 (k) clearance. Section 510(k) of the Food, Drug and Cosmetic Act requires device manufacturers who must register, to notify FDA of their intent to market a medical device at least 90 days in advance. This is known as Premarket Notification – also called PMN or 510(k). This allows the FDA to determine whether the device is equivalent to a device already placed into one of the three classification categories. Thus, “new” devices (not in commercial distribution prior to May 28, 1976) that have not been classified can be properly identified. Specifically, medical device manufacturers are required to submit a premarket notification if they intend to introduce a device into commercial distribution for the first time or reintroduce a device that will be significantly changed or modified to the extent that its safety or effectiveness could be affected. Such change or modification could relate to the design, material, chemical composition, energy source, manufacturing process, or intended use. Generally, FDA approval of the PRP device is sought through the 501(k) clearance process because it is generally cheaper and quicker. Essentially, a 501 (k) clearance is given because the device is substantially similar to a device that has already been approved. This type of clearance only authorizes the device itself – not the treatments based on using the device. FDA approval of the platelet injections Generally, physicians can use the PRP device for its indicated usage. If the doctor uses the device for a use that isn’t indicated, that’s considered an off-label use. An off-label use requires that the doctor be well informed about the device and that its use be based on sound medical evidence and scientific principles. The doctor must keep records on the use of the device. Doctors should review with experienced regenerative medicine lawyers when they are practicing medicine (which is generally regulated by state medical boards) and when the use of the device may be regulated by the FDA – for example, when there is a non-indicated use. Gene therapy The US Food and Drug Administration (FDA) in November 2017, as reported in a BioNews release, indicated that the FDA is working to fast-track gene therapies, another form of regenerative medicine. The US National Institutes of Health states that: “Gene therapy is an experimental technique that uses genes to treat or prevent disease. In the future, this technique may allow doctors to treat a disorder by inserting a gene into a patient’s cells instead of using drugs or surgery. Researchers are testing several approaches to gene therapy, including: Replacing a mutated gene that causes disease with a healthy copy of the gene. Inactivating, or “knocking out,” a mutated gene that is functioning improperly. Introducing a new gene into the body to help fight a disease. Although gene therapy is a promising treatment option for a number of diseases (including inherited disorders, some types of cancer, and certain viral infections), the technique remains risky and is still under study to make sure that it will be safe and effective. Gene therapy is currently being tested only for diseases that have no other cures.” As of 2017, the FDA had only approved two gene therapy treatments for leukemia and lymphoma. FDA fast-track guidelines The new FDA faster-track guidelines generally apply to regenerative medicine advancements such as stem-cell therapies, PRP, and gene therapy. Treatments will be labeled high-risk will require a high degree of pre-market regulations or low-risk which requires less regulation. Therapy developers and researchers need to review these new guidelines (mentioned at the start of the first article) with experienced regenerative medicine lawyers. The new guidelines have support from developers who want to get their products to market faster but raise concerns that the rush to market could be very dangerous. Clinical trials will still be an essential part of any FDA approval process. Stem cell therapy, platelet rich protein therapy, and gene therapy are just three types of regenerative medicine. The FDA has strict regulations and new guidelines for how to bring regenerative medicine products and treatments to market. There are other federal laws and state laws that regulate regenerative medicine. Doctors who use regenerative medicine must also comply with state medical practice laws. The consequences for failing to follow FDA rules are severe. Health companies, researches, and practitioners may be enjoined from using unapproved treatments. The produces may be seized. Criminal prosecutions may be initiated by the FDA. To understand which laws apply to your regenerative medicine practice, you need the help of an experienced stem cell and regenerative medicine lawyer. We serve a broad range of medical practices including hospitals, doctors, biotechnology and life science providers, and many other types of medical companies and individuals.
March 1, 2020
Healthcare
Recent Stark Law and Anti-Kickback Statute Cases
Stark Law and Anti-Kickback Statute Cases That Can Kill Your Healthcare Venture Several recent announcements by the US Department of Justice confirm that medical practices will pay a heavy price for illegal-self referrals. The announcements confirm settlements for violations of the Stark Law, a federal anti-self-referral law and the Anti-Kickback Statute (AKS). The purpose of Stark Law is to ensure that patients will receive medical advice and will treat with physicians based on their medical needs and not on what profits the doctors or medical practices involved. Experienced Stark Law attorneys explain to physicians and practices when Stark Law and a similar law, the Anti-Kickback Statute (AKS), apply to their medical relationships. Doctors and practices need to understand that many referrals may be legal – if the referral is covered by the Stark Law exceptions of AKS safe harbor. The healthcare lawyer can explain what documentation and what steps need to be taken to convince the government that their medical relationships comply with these exceptions or safe harbor rules. Improper billing and Stark Law referrals harm anyone who uses Medicare or other federal healthcare services – in addition to hurting the patent by not providing the best medical care possible. Firms that violate Stark Law and the AKS will be subject to criminal and civil prosecution which can result in substantial economic penalties, the cessation of the medical practice, and possible imprisonment. DO YOU KNOW THE KEY DIFFERENCES BETWEEN THE 4 AMBULATORY SAFE-HARBORS TO THE FEDERAL ANTI-KICKBACK STATUTE (AKS)? There are four types of ambulatory safe harbors in the federal Anti-Kickback Statute. We explain the key differences between the ambulatory safe harbors to the federal anti-kickback statute (AKS) Orthopedic surgery and physical therapy practice agree to pay $1.25 million to settle Stark Law claims The US Attorney for the Southern District of Alabama announced in 2019 that Baldwin Bone & Joint, had agreed to settle claims it violated the False Claims Act, a law designed to help the government recover funds for illegal transactions involving the government. The illegal transactions, in this case were violations of the Physician Self-Referral Law, also called Stark Law. The agencies that were the subject of the alleged fraud were Medicare, a healthcare program from seniors, and TRICARE, a healthcare program for retired veterans and their families. The lawsuit was brought pursuant to the qui tam provisions of the False Claims Act which reward individual whistleblowers for disclosing fraud by paying the whistleblower a percentage of any recoveries. In this case, the whistleblower was a former employee of the medical practice. The OIG office of the US Department of Health and Human Services and the Defense Criminal Investigative Service brought the legal actions on behalf Medicare and TRICARE. The basis for the False Claim Act claim was that the orthopedic practice billed for services for physical therapy that were performed by unauthorized athletic trainers and an exercise psychologist. The basis for the Stark Law claim was that the practices’ “direct compensation arrangements with its shareholder physicians, violated Stark Law because the medical providers: payments “to its shareholder physicians directly or indirectly related to the volume of each shareholder physician’s referrals for designated health services such as physical therapy, X-rays and MRI’s.” Stark Law forbids doctors from referring patients to specific designated health facilities in which the doctors have a financial relationship – where the patients bill Medicare or other federal healthcare programs. The term “financial relationship” is interpreted fairly broadly. It generally includes referrals that are based on the volume of the referrals. The law applies if the physician or a doctor has the financial relationship. Stark Law is a civil law, unlike the AKS which allows for criminal prosecution. Physicians and medical practices that violate Stark Law can be required to pay fines up to $15,000 for each billed service in addition to being required to return to Medicare any payments improperly received. In addition, the doctors and providers may be subject to triple damages on the overpayment. There are specific exceptions to Stark Law which allow for certain types of referrals under certain conditions. An experienced healthcare lawyer can explain when exceptions apply (for example – for in-house ancillary services or services based on fair market value) and what document (usually a written document) is required. The Anti-Kickback statue is similar to Stark Law but there are key differences. Specific intent is required for AKS violations but not for Stark Law violations. The AKS, as mentioned, includes criminal sanctions. The AKS applies to Medicare – and Medicaid and TRICARE. Stark Law involves referrals between a doctor and another entity. Stark Law lists specific exceptions. The AKS relies on the concept of a safe harbor. If an arrangement does not meet a Stark exception then the arrangement is non-compliant; on the other hand, the safe harbor elements need not necessarily be strictly met. As of this blog post, the whistleblower employee above will receive $200,000 for his work in obtaining the settlement. The claims were settled without a determination of liability. WHAT MEDICAL PRACTICES SHOULD KNOW ABOUT THE STARK LAW The Stark Law is named after California U.S. Congressman, Peter Stark. It seeks to regulate how physicians refer Medicare and Medicaid patients. The law is part of the Omnibus Budget […] Several Medical Facilities Agree to Pay $35 million to settle False Claims Act Charges based on Stark Law – involving Kickbacks to a Maryland cardiology practice. The US Department of Justice announced in 2019 the terms and basis of the settlement. DOJ stated that the kickbacks are alleged to be in return for patient referrals by the cardiology group – through a series of professional services contracts. “Kickbacks give doctors an incentive to pursue unnecessary treatments that are costly and sometimes even dangerous to patients,” said U.S. Attorney Robert K. Hur. “We will not tolerate medical care providers who put their patients at risk and waste taxpayers’ dollars in order to line their own pockets.” “Patients rightly expect their doctors will make recommendations based on sound medical practice – not payoffs that too often result in needless and sometimes even harmful procedures,” said Maureen R. Dixon, Special Agent in Charge for the Office of Inspector General of the U.S. Department of Health and Human Services. “We will continue to protect patients and taxpayer-funded government health programs from these unnecessary services, as the government contended in this case.” The kickbacks were in “guise of professional services agreements” in return for “lucrative cardiovascular procedures, including cardiac surgery and interventional cardiology procedures, from Jan. 1, 2006, through July 31, 2011. The litigation was brought by several cardiac surgeons who practice together asserting violations of the Anti-Kickback Statute and the False Claims Act. The False Claims Act was involved because some of the cardiac procedures were billed to Medicare. A second whistleblower lawsuit was brought by patients of one medical doctor and several other medical facilities that some of the procedures weren’t medically necessary. KICKBACKS, FEE-SPLITTING, CORPORATE PRACTICE OF MEDICINE, STARK, MSOS: GUIDING HEALTHCARE VENTURES THROUGH THE MAZE Fundamentally, you’re worried about legal rules prohibiting kickbacks, fee-splitting, corporate practice of medicine, as well as Stark law; you don’t know whether the MSO or management structure […] A Capital Management Company and Its Affiliate Agree to Pay $3.6 Million to Settle Stark Law, AKS, and False Claim Act Allegations Doctors Referred Patients to Them Illegally The Department of Justice announced in 2019, that Rialto Capital Management LLC (Rialto) and a former affiliate agreed to the $3.6 million payment based on claims they and a hospital in Indiana entered into illegal financial arrangements with two doctors who referred patients to the Indiana hospital. “When doctors refer patients for tests and medical procedures, they must do so based on their own professional judgment and the medical needs of their patients, not personal financial benefits,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division. “Illegal financial arrangements between health care providers undermine the integrity of our health care system, and we will continue to pursue those who engage in such conduct.” The settlement was based on claims the hospital, under the direction of the capital management company, made personal loans to the two doctors who referred patients and then “repeatedly forbore from requiring repayment of those loans.” The government claimed that the failure to make the effort to collect on the loans was “remuneration” in return for referrals – which is prohibited by both Stark Law and the AKS. “The AKS prohibits the provision of remuneration to induce the referral of services or items that are paid for by a federal health care program.” “Stark Law restricts financial relationships that hospitals may enter into with physicians who refer patients to them.” “The False Claims Act prohibits the submission of claims to Medicare for items or services that are tainted by financial arrangements that violate the AKS or the Stark Law.” “Rialto, through RL BB, acquired KMC as part of KMC’s bankruptcy reorganization in 2013. As part of that reorganization, KMC and Rialto initially offered to award partial ownership in the hospital’s real estate to certain physicians who had been important referral sources for KMC, but those offers were challenged in the bankruptcy proceedings. Instead, Rialto approved personal loans from KMC to two of the hospital’s key referral sources, and Rialto and KMC then allegedly repeatedly forbore from requiring repayment of those loans for more than two years after each loan matured and became due in full.” “Healthcare entities need to ensure that financial arrangements with physicians are clear and appropriate,” said Lamont Pugh III, Special Agent in Charge for the Office of Inspector General of the U.S. Department of Health and Human Services (OIG). “The practice of providing any kind of remuneration in exchange for the referral of Medicare patients is a violation of the Anti-Kickback Statute. OIG will continue to examine and investigate those relationships that violate federal statutes in an effort to protect vital taxpayer dollars.” The whistleblower in this case was a doctor who was awarded $612,000 for disclosing the alleged fraud. The settlement is not an admission of liability. As these cases, and many other DOJ cases indicate, the consequences for violations of Stark Law and the Anti-Kickback Statute are quite severe. Often medical practices can be named as defendant. In the last two cases, they may not have been named defendants because the whistleblowers were physicians in the practices or related somehow to the practices. There are often correct ways to establish referral arrangements that an experienced healthcare lawyer can explain.
February 22, 2020
Healthcare
How the New California Department of Managed Health Care Regulations Affect Your Healthcare Practice
The California Department of Managed Health Care’s (DMHC) passed a new regulation, effective July 1, 2019 that expands the types of healthcare companies that must be licensed. The regulation is a response to failures of companies that contract with Knox-Keene licensees who provide health care services through subscription plans. The licenses, typically HMOs, provided service to subscribers through: Agreements with doctors, hospitals, and other health providers to accept a regular fee (often a monthly fee) to provide medical services to patients Agreements with subscribers to pay a monthly subscription/fee The new licensee agreement will give the DMCH oversight over the financial stability of these healthcare companies (often called restricted licensees or risk bearing organization). The History of Knox-Keene Act The Knox-Keene Health Care Services Plan Act of 1975 (Knox-Keene) was passed to help protect consumers who enrolled in medical health care service plans. These plans, according to the Knox-Keene Act define these plans as “any person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees.” The main targets of the Knox-Keene Act were and are health maintenance organizations, more commonly called HMOs and other organizations that provide or arrange for health care services – in return for payment on a capitated basis. Generally, the health care service plan company is required, under Knox-Keene, to obtain a license from the California Department of Managed Health Care (DHMC). The reason Knox-Keene was enacted was to help protect against the possibility members of the HMO or other plans would be left without access to care if the health plan became insolvent and couldn’t cover the cost of future healthcare services. Capitation agreements Capitation payments are agreed payment arrangements (contracts) between a health insurance company and a medical care provider. The payments are paid to physicians, medical practices, clinics, and hospitals – generally on a per-patient or per capita basis. The payments are normally fixed, monthly payments calculated 12 months in advance – regardless of how many times the patient needs medical services. Payments usually reflect the subscriber’s age and /or types of ailments. Rates can vary from one part of the country to another. Capitation plans generally identify which services must be proved to patients. There is a balance of risk between the insurance company and the medical provider. Typical medical services include: “Preventive, diagnostic, and treatment services Injections, immunizations, and medications administered in the office Outpatient laboratory tests done either in the office or at a designated laboratory Health education and counseling services performed in the office Routine vision and hearing screening” In simpler terms, a capitation plan is a per-member, per-month payment. The payments are made in advance, not after the services have been provided. PACKAGING MEDICAL SERVICES – IS IT A LEGAL CONCIERGE ARRANGEMENT, OR AN ILLEGAL KICKBACK? If you’re a medical doctor, dentist, acupuncturist, chiropractor, or other licensed healthcare provider, and you offer your patients “9 sessions, get 1 free,” have you violated kickback laws? Licensing requirements under Knox-Keene Knox-Keene § 1349 provides that: “It is unlawful for any person to engage in business as a plan in this state or to receive advance or periodic consideration in connection with a plan from or on behalf of persons in this state unless such person has first secured from the director a license, then in effect, as a plan or unless such person is exempted by the provisions of Section 1343 or a rule adopted thereunder. A person licensed pursuant to this chapter need not be licensed pursuant to the Insurance Code to operate a health care service plan or specialized health care service plan unless the plan is operated by an insurer, in which case the insurer shall also be licensed by the Insurance Commissioner.” Generally, there are two types of plans that seek licenses under Knox-Keene: Fully-licensed plans. These plans enroll groups and individuals directly. They either provide or arrange to provide medical services to the members in exchange for a premium or subscription payment. Normally, the plan will provide a set of services such as primary care, inpatient hospital care, and other services. Some licenses who provide just one basic health service such as mental health may obtain a specialized Knox-Keene license instead of a full license. Restricted plans are plans where a company contracts with a Knox-Keene licensee to provide or arrange for services to the members of the plan. Prior to the new regulation, restricted plans did not require a license. Now, as a result of the new DMHC regulations, restricted plans will require a license. The 2005 DMHC regulation which expanded Knox-Keene licensing requirements Historically, some independent physician associations (IPAs) and hospitals took part in restricted plans and/or global capitation agreements. The risk was passed from the insurance plan to the IPAs and hospitals who took part in these global capitation agreements. The health plan would create the arrangements to pay the providers a fixed monthly sum and assign a set of patients to the providers. If the patient group remained healthy – meaning they didn’t seek much use of the provider’s medical services – the providers could make a nice profit. On the other hand, if the patient group used a lot of medical services, the providers could lose a lot of money and time treating the patients in this group. This technique didn’t work too well because it was hard for the hospitals and IPAs to analyze the risk factors. So, in 2005, the DMHC created regulations that required “Risk Bearing Organizations (RBOs)” that contracted with the licensed insurers to provide financial metrics to the DMHC – so the DHMC could determine the financial health of the RBOS – and in turn, help the hospitals and IPAs better assess their risks. The law did not require that the RBO obtain their own license. Without the requirement to obtain their own license, the DHMC could only direct the licensed health insurance plan – not the RBO. The new DMHC regulation A new regulation approved by the DHMHC expands the types of organizations that must obtain a Knox-Keene license. In essence, the new regulations will require that the RBOs and restricted plans will now need to obtain a license. The current requirement to obtain a full-service Knox-Keene license or a specialized Knox-Keene license is expanded to include many types of health companies including the RBOs, the IPAs, hospitals, and other health plans that engage in global risk. The regulation becomes effective on July 1, 2019. Any health care organization that bears the financial risk of providing medical services to subscribers will need to review the new licensing requirements with an experienced California healthcare lawyer. THE MANY WAYS YOUR NEW MEDICAL BUSINESS CAN GET INTO TROUBLE IF YOU DON’T CONSULT WITH AN EXPERIENCED HEALTHCARE LAWYER Healthcare startup lawyers advise new medical business on FTC law, FDA law, marketing regulations, purchasing practices, nanotechnology, contract negotiation, and a range of business issues. The new regulations are being phased in. Health insurance plan companies and the medical practices and hospitals that contract with them should review with their healthcare lawyer: The timing of the new regulations Which arrangements will require a license. Some payment arrangements may be exempted, for now, from the requirement to obtain a license. Part of the focus of the new regulation, in addition to focusing on licensing requirements for restricted licensees, are arrangements with employers who self-insure without having a license. The newest DHMC regulation expands the definition of “Prepaid or periodic charge” to include any entity/individual that contracts to assume the risk/costs of various types of hospital services, physician services, pharmacy services, and other identifiable medical services – whether in a fixed amount or a percentage of shared profits and losses. More formally a “prepaid or periodic charge” is defined as “(a)ny amount of compensation either at the start or end of a predetermined period, for assuming the risk, or arranging for others to assume the risk, of delivering or arranging for the delivery of the contracted-for health care services for subscribers or enrollees that may be fixed either in amount or percentage of savings or losses in which the entity shares” (28 C.C.R. 1300.49 (a)(4)). Other key definitions in the new regulation include: “’Global risk’ means the acceptance of a prepaid or periodic charge from or on behalf of enrollees in return for the assumption of both professional and institutional risk.” “’Restricted health care service plan’ means a person with a health care service plan license issued by the Department for the provision of, or the arranging, payment, or reimbursement for the provision of, health care services to subscribers or enrollees of another full service or specialized health care service plan under a contract or other arrangement whereby the person assumes both professional and institutional risk but does not directly market, solicit, or sell health care service plan contracts.” The regulation adds teeth to the 2005 regulations by requiring that RBOs become licensed and thus subject to regulation by the DHMC under the Knox-Keene Act. The regulation will require these new licensees provide evidence of working capital and other financial measurements – and to show the entity/person is meeting the metrics they report. The regulations also govern the ability of the RBO to pay claims, provide medical care, and provide case management. This means RBOs need to consult with experienced healthcare lawyers now. RBOs need to know if they are required to comply with the new regulation, when they must seek a license, and how they can obtain a license. In some cases, exemptions may be available – mainly if the exemption would be in the best interests of the subscribers to these plans. For example, some hospitals and organization that participate in these capitation plans may be exempt if they are already regulated through a state or federal Medicare plan. HMOs and current licensees should also review if the organizations they work with need to be licensed. In response to numerous failures of health care plans that contracted for services through periodic/subscription payments, the California Department of Managed Health Care’s (DMHC) passed a new rule. This rule means that many health care plans (whether through an employer or through an independent business) are now required to obtain a state license. The licensees will be governed by the Knox-Keene Act. Plans that are covered by Knox-Keene must: Provide specific services and access to those services Comply with the Patient Protection and Affordable Care Act Create a utilization review process Create a dispute resolution process Licensees may be required to provide financial reports and verifications to help insure their solvency. Plans that aren’t covered by Knox-Keene may still be governed by other agencies and laws – both at the state and federal level. For example, the California Department of Insurance (DOI) regulates insurance plans. The US Department of Labor has regulatory authority over ERISA plans. Knox-Keene plans may also be governed by these additional agencies and regulations.
January 22, 2020
Healthcare
California Anti-Kickback and Fee-Splitting Law for Smarties
California Anti-kickback and Fee-Splitting Law for Smarties is the subject of today’s video. That’s right, we’re talking to the smarties, not the dummies. Dummies don’t hire lawyers—well, not at first; they just copy stuff off the Internet and then wonder how they got in so much trouble, and then after that they hire lawyers. Smarties read statutes and they have a sense of what the law says; the problem, though, is that the law isn’t written in English, it seems to be some code that you have to figure out, and even then. That’s where attorneys come in. We read the fine print, the big print, and everything in between, as well as the print that sends you all over the law looking for related legal rules and other content that interface with the rule of law that you’re reading for reference. And in the case of California’s anti-kickback and fee-splitting laws, the rules can seem crazy-quilt, nonsensical, upside-down, or just plain contradictory. As someone once put it, “the Lord giveth, and the Lord taketh; but with lawyers, the one hand giveth, and the other hand taketh.” Well, I don’t know if that’s exactly true, but let’s go a little bit deeper into this anti-kickback law. I’m Michael H. Cohen. In this video, I’d like to clarify for you, California Business & Professions Code 650, the main anti-kickback and fee-splitting rule that California applies, as a state, to questions involving payments and compensation between medical doctors (or other licensed healthcare providers) and businesses, where the healthcare practitioner might have a financial interest in the referral. We’ll focus on three important sections of Business & Professions Code Section 650: subsection (a), (b), and (c). Subsection (a) contains the prohibition—or as I like to say, in biblical language: Thou Shalt Not. During my first year of law school, my Criminal Law Professor, used to refer to this as “TSN” for short: TSN, Thou Shalt Not. As in, for example, TSN (Thou Shalt Not) eat the fruit from the Tree of Life in the Garden of Eden. Many statutes are framed this way, for example, section 650(a) says, essentially, Thou Shalt Not offer or receive a kickback nor split the professional fee of a healthcare licensee (such as a medical doctor). That’s it in a nutshell. Here are the actual words of Business & Professions Code Section 650(a): “… [The offer, delivery, receipt, or acceptance by any person licensed under this division or the Chiropractic Initiative Act of any rebate, refund, commission, preference, patronage, dividend, discount, or other consideration, whether in the form of money or otherwise, as compensation or inducement for referring patients, clients, or customers to any person, irrespective of any membership, proprietary interest, or coownership in or with any person to whom these patients, clients, or customers are referred is unlawful.” Unlike federal anti-kickback law, this provision applies to “any person licensed” (as a healthcare licensee); however, there are other provisions under California law that mirror this basic anti-kickback provision and are broader, sometimes more specific. Now, Section 650(b) is the section I call, “Thou Mayest.” So, for example, “thou mayest eat any fruit in the Garden of Eden other than the fruit from the Tree of Life.” Section 650(b) provides an allowance—the thou mayest—for arrangements at fair market value: “The payment or receipt of consideration for services other than the referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement shall not be unlawful if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payer.” The idea here is that, if say the MD is paying your company a fee for management and marketing, and this fee is not based on the number of value of patients referred, then that is not a kickback or fee-splitting. And under California law, that fee can be based on a percentage of gross revenue. For example, the medical practice has gross revenues of a million dollars a year, and pays the MSO (or management services organization), 25% of its gross revenues on a monthly basis for management and marketing services. Here, clients often come to us with a proposed business structure and compensation arrangement, and they ask us whether, in our view, the proposed model is more likely to fall within 650(b), the allowance, or 650(a), the prohibition. Now there’s one more section I’d like to talk about. California Business & Professions Code Section 650(d) provides that, with specified exceptions: “It shall not be unlawful for any person licensed under this division to refer a person to any laboratory, pharmacy, clinic … or health care facility solely because the licensee has a proprietary interest or coownership in the laboratory, pharmacy, clinic, or health care facility, provided, however, that the licensee’s return on investment for that proprietary interest or co-ownership shall be based upon the amount of the capital investment or proportional ownership of the licensee which ownership is not based on the number or value of patients referred.” In other words, if say you’re a licensed medical doctor, if you refer your patient to a clinic or similar healthcare entity in which you have a financial interest, this is not necessarily a prohibited kickback (it might be prohibited under self-referral law), it’s not a kickback as long as your financial interest is simply that of an investment, and you’re getting paid not for the referral, but in accordance with your percentage investment. Section 650(d) adds another sentence: “Any referral excepted under this section shall be unlawful if the prosecutor proves that there was no valid medical need for the referral.” So, your referral has to be based on medical necessity. Note that there is a whole separate statute which deals with the question of self-referral. Self-referral means you refer to an entity where you have a financial interest. Under federal law, we call that Stark. So we have to consult this statute as well: in California, it’s called the Physician Ownership Referral Act, or PORA, and it’s the California counterpart to the Stark law on the federal side. But at least on the kickback front, a passive investment in a healthcare entity where you have a financial interest, is not automatically prohibited. From here, we get lots of deep-in-the-weeds questions on specific arrangements. Because lots of healthcare entrepreneurs have creative ideas about arrangements where they want to recruit doctors to share in profits from an overarching enterprise that also sends back referrals, and that inevitably raises PORA and Business & Professions Code 650 issues. We may address these in subsequent videos. For now, we wanted to give you the rudiments of 650(a), (b) and (d) as your basic building blocks in the world of California’s prohibition against kickbacks and fee-splitting. Thanks for watching. Here’s to the success of your healthcare venture, we look forward to talking with you soon. Testimonials
January 15, 2020
Healthcare
Examples of Medical False Claims Act Violations That Will be Prosecuted
Examples of Medical False Claims Act Violations That Will be Prosecuted The False Claims Act was enacted during President Abraham Lincoln’s administration. The initial aim of the act was to help the government recoup false billings involving the Department of Defense. The scope of the Act has since been expanded to include many types of government claims – especially healthcare fraud claims. False Claims Act cases that affect the medical sector include: Fraudulent medical claims. False claims involving medical care, medical diagnosis, medical treatments, medications, medical supplies, and medical equipment Violations of the Stark self-referral laws and the Anti-Kickback Statute. These violations include improper payments for referrals and non-cash payments. Many types of acts may violate Stark or Anti-Kickback laws. There are exceptions and safe harbors to Stark and the Anti-Kickback Statute respectively that an experienced healthcare lawyer can explain.Under Stark Law, physicians (and immediate family members) who have a financial relationship with an entity that provides “designated health services” can’t refer patients to that entity and the entity can’t bill Medicare or Medicaid – unless an exemption is allowed. Medicaid and Medicaid rely on medical services being based on the legitimate needs of the patient and not the profit incentive of the physicians. Examples of Stark violations include interest-free loans, medical directorship pay that is more than the value of the medical advice provided, improper discounts, and other improper transactions. The Anti-Kickback Statute is also aimed at making sure referrals are based on the needs of the patient and not the financial interests of the physicians making the referrals. The Statute makes bribes illegal. It also makes it illegal to offer inducements to obtain referrals for medical services and treatments that will be reimbursed by a federal health care program. Both the person encouraging the referral and the person making the referral can be held liable. Improper inducements include almost anything that encourages a referral based in return for some type of remuneration. There are safe harbors which define practices the Department of Health and Human Services allows – based on the idea that they won’t affect the needs of the patient. Experienced health care lawyers can explain what safe harbors are available and what steps should be taken to meet the formal safe harbor definition. For example, a safe harbor applies to renting office space and equipment provided the lease agreements are in writing, reflect fair market value, and aren’t based on the volume or the value of the referrals. Doctors, hospitals, pharmacists, and other health providers generally must certify that they are in compliance with Stark Law and Anti-Kickback Statute before the can submit claims to Medicare, Medicaid, TRICARE, CHAMPVA, and other federal health programs. The certification requirement means that bills submitted to federal health care programs where the health provider violated Stark or the Anti-Kickback Statute are deemed false claims under the False Claims Act. Lots of types of fraud Medicare fraud which generally involves treatment of patients that are 65-years old and up and people with disabilities. It also includes Part D fraud. Medicaid fraud which generally involves people with federal health insurance because of low income. The False Claims Act also applies to hospital fraud, pharmaceutical fraud, medical spa fraud, and other types of medical fraud To prove a violation of the False Claims Act, the Department of Justice or an individual must generally show that the defendant knew he claim for payment was false and used false records or materially false statements. Types of medically-related false claims acts in the healthcare sector include: False billing Billing for services never rendered Billing for services that weren’t necessary Improper coding for services Several cases show that the hospitals, doctors, and other health providers will be prosecuted if they provide medical services that are deemed medically unnecessary or if fraudulent claims are submitted. Department of Justice Settles False Claims Act Charges for More Than $15.6 Million Against 16 Hospitals On May 7, 2015, the Justice Department announced that a settlement was reached in the Eastern District of Arkansas for charges that 16 hospitals submitted false claims for Medicare payments. The principal deputy assistant attorney general for the Civil Division of the Department of Justice said, when announcing the $15.69 million settlement that: Hospitals that participate in the Medicare program must ensure that the services they provide and bill for are based on the medical needs of patients rather than the desire to maximize profits. The Department of Justice is committed to ensuring that those who seek to abuse the Medicare program will be held accountable for their actions. The lawsuit, which was brought by a whistleblower, involved claims for “Intensive Outpatient Psychotherapy.” This therapy should be aimed at helping people with mental disorders after they have received ambulatory psychiatric services. Medicare does pay for IOP treatment provided the services are “reasonable and necessary for the diagnosis and treatment of the patient’s condition.” The lawsuit claimed that the hospitals, between 2005 and 2013, knowingly submitted false claims. The claims were improper because: The patient’s condition did not qualify for IOP; The patient’s treatments were not provided pursuant to an individualized treatment plan designed to help the patient address specific mental health needs and reach achievable goals; The patient’s progress was not being adequately tracked or documented; The patient received an inappropriate level of treatment; The therapy provided was primarily recreational or diversional in nature, and not therapeutic. Allegiance Health Service, located in Shreveport, Louisiana, provided the IOP services on behalf of the providers. The providers who were the defendants in the False Claims Act lawsuit were Health Management Associates Inc. (HMA), and 14 hospitals that Health Management Associates, Inc. owned and operated. The 14 hospitals were located in Mississippi, Texas, North Carolina, Georgia, Florida, Oklahoma, and Arkansas. Another medical center based in Texas was also a defendant. Similar allegations against “LifePoint Hospitals Inc. and two of its subsidiaries, PHC-Minden L.P., doing business as Minden Medical Center, and PHC-Cleveland Inc., doing business as Bolivar Medical Center” were settled for $4,672,469.80 in October 2013. A representative of the US Department of Health and Human Services-Office of Inspector General added that Our agency is dedicated to investigating health care fraud schemes such as this, which divert scarce taxpayer funds meant to provide for legitimate patient care, including services for the often underserved mentally ill population. The whistleblower, more formally called a relator, was awarded $2,667,300. Between January 2009 and the date of the press release, May 7, 2015, the Justice Department has used the False Claims Act to recover $24 billion. More than $15.3 billion of that $24 billion were recoveries that involved allegations of “fraud against federal health care programs.” 24 Defendants Charged with Schemes Involving Distribution of Opioids and Dangerous Narcotics The Department of Justice announced on July 13, 2017, that 24 defendants were charged, after the unsealing of three indictments, with schemes intended to divert pharmaceutical pills to the streets. The unsealing of the indictments is part of a broad health care fraud enforcement action by the Medicare Fraud Strike Force that involves 412 charged defendants across 41 federal districts. The defendants include 115 doctors, nurses, and other licensed professionals. The fraud involves $1.3 billion in false billing mostly for the roles of the defendants in prescribing and distributing opioids and other dangerous narcotics. The Acting US Attorney for the Eastern District of Arkansas said that The abuse of prescription medication, particularly opioids, is one of the largest health and crime problems Arkansas is facing, Harris said. This epidemic must be attacked on multiple fronts—by stopping the criminal doctors and medical professionals from writing medically unnecessary prescriptions, and by preventing the common drug dealers from diverting these pills to the hands of other addicts and dealers, either by writing fraudulent prescriptions or stealing dangerous drugs from pharmacies. The defendants in the cases announced by my office today illegally put hundreds of thousands of pills on the streets, and they must be stopped. The three indictments were based on the following: Indictment number one. Four defendants were charged with conspiracy to break into a business premises registered with the DEA to dispense controlled substances. The DEA uncovered a string of related pharmacy burglaries. Indictment number two. A federal grand jury charged three defendants with conspiracy charges based on fabricating prescriptions to obtain oxycodone worth more than $150,000. Indictment number three. A defendant was charged with creating fraudulent prescriptions using computer templates that were then filled at local pharmacies. The press release stated that the charges were aimed at targeting schemes involving false claims with Medicaid, Medicare, and TRICARE. The opioid epidemic is continuing to take lives. The CDC data states that approximately 91 Americans die every day of an opioid related overdose. Married Physicians Indicted for Healthcare Fraud On April 2, 2014, the US Attorney for the Eastern District of Arkansas, announced that two married doctors were indicted by a federal grand jury for conspiring to commit healthcare fraud and for six acts of healthcare fraud. The male doctor was also charged with four acts of making false healthcare statements. The indictment asserts that the married doctors worked with a massage therapist who billed health insurers for physical therapy. The fees were then split between the therapist and the doctors. The male doctor was also charged with billing for therapeutic ultrasounds – even though that test was never conducted. The false claims to Medicare and Arkansas’s Blue Cross and Blue Shield totaled more than $1.2 million. The penalties could include up to 10 years in jail on each of the six healthcare fraud counts and another 10 for the conspiracy. While settlements are not an admission of liability, the amounts of the payments are quite substantial. In addition to restitution for improper payments. Healthcare providers need to review with experienced lawyers the federal and state laws that regulate how bills and requests for payments are submitted. They need to understand what acts constitute violations of billing, self-referral, and kickback laws. Skilled healthcare lawyers can explain when exemption and safe harbors may apply. They can help craft a compliance program. Failure to comply with these can be quite severe: False Claims Act payments include civil fines and penalties. Federal penalties can amount to three times the amount of the claim. Additionally, health providers can be precluded from working with Medicare and Medicaid in the future. Stark Law violations can result in a restitution requirement, denial of the requested payment, and additional civil fines. Anti-Kickback Statute penalties include substantial fines and up to five years in prison for each violation. WHAT HEALTHCARE COMPLIANCE PROGRAM POLICIES AND PROCEDURES SHOULD BE INCLUDED IN HEALTHCARE COMPLIANCE PROGRAM? Health care governing boards can look to “Practical Guidance for Health Care Governing Boards on Compliance Oversight” for advice in designing a compliance program. For a thorough review of the laws and regulations that affect your type of medical practice, speak with an experienced healthcare lawyer – one who has advised a broad range of clients.
January 1, 2020
Healthcare
Stark vs Anti-Kickback vs Fee-Splitting
In today’s video, I’m going to speak extemporaneously about Stark Law and Anti-Kickback Law. Why? Because Stark and anti-kickback and fee splitting, also known generally as fraud and abuse, these issues come up again and again and again with every single healthcare venture. Let’s take Stark. So the Stark Law deals with self-referral… Oh, if you could please hold my helicopter up there. I guess it’s going to pass overhead and land. Anyway, we’ll just keep going. Stark generally deals with self-referral. For example, my financial interest in that helicopter, not an issue. But if you’re a physician and you send somebody to a clinical lab or a certain other designated health services, also known as DHS, where you have a financial interest, that’s a self-referral. That’s what Stark Law prohibits. Typically where you have that kind of financial interest, you also have a kickback scenario. A kickback involves giving or receiving a thing of value. In exchange, there’s a referral. Now this gets very, very tricky. So let’s say for example that you hire a marketing company and the marketing company does this job and they send you dozens of good referrals, good leads a month, and you’re paying them. You’re paying this marketing company $2,500 a month to generate leads and essentially send you patients. Is that a kickback? Well, probably not. It’s a flat fee. So flat fees are typically safer. And the thing is you’re not paying for the referral. You’re paying for the marketing company to do its services. Now, what if every time the marketing company sends you a patient, now you give them $100, they send you $25 a month, that same $2,500 but it’s $25 times 100 patients. That’s a kickback. I mean, that’s the essence of a kickback. You’re actually paying for the referral. You’re not paying necessarily for performance or for production. And what’s happening is, another way of phrasing this is that the revenue fluctuates or varies by value or volume of referral. That’s another way the kickbacks are typically defined. Now if you’ve watched other of our videos, you’ll notice that self-referral or Stark and the Anti-Kickback Statute, they have parallels in state laws. So I got this question just yesterday. What if there’s no Medicare involved? What if there’s no federal moneys being reimbursed? Well, then we’re not under Stark and the federal Anti-Kickback Statute. However, you are going to fall within state law statutes, whether those are California or New York or Texas or some other states. Just look and you’ll find these statutes and regulations that prohibit referrals where the physician and sometimes other healthcare licensees have a financial interest in kickbacks. Now the next question we get is, what’s fee-splitting? Fee-splitting is literally you take the professional fee, the $100 that the physician gets from the patient. You split it, some of it goes to the physician, some of it goes to the business person. So how do you stop fee-splitting? Well, you have to be careful that you’re not splitting the professional fees. This can get very nuanced, especially in the age of digital healthcare, the age of internet Madison, the age of telehealth and telemedicine, e-health, mobile health, connected health, whatever name you give it. Basically what you’ve got is you’re moving out of the brick and mortar where you go and visit your medical doctor in the office and you’re paying somebody online for service and that service connects you to a medical professional. In the old days, we were especially concerned about flow of payments because if the payment goes from the patient to the company and then to the physician, that can look like it’s a kickback to the physician or it can look like moneys are coming and going one way and the referral is going in the opposite direction. So this triangular relationship between the three is very important. Nowadays, we have different kinds of financial systems that can segment the payment. Maybe the payment goes there and then gets split up. We’ve got a lot more digital health, so the flow of payments I would say in my judgment is not in and of itself a red flag typically, the red flag is something else, but it can be an issue. And sometimes we try and structure these arrangements so they look more like MSO arrangements, like a business arrangement where the patient is essentially paying for the professional service and the professional service provider is paying the software company, the software platform, the app, the business provider for a management and marketing service. That’s what we call legal fiction. We’re actually stretching the law. We’re not breaking the law. It’s like Silly Putty. Like we’re moving the boundaries of the law as industry continues pushing the envelope and that’s what makes fraud and abuse so fascinating. When you’re dealing with physicians and Medicare and Stark, that case, it behooves us to pay attention to all of the exceptions and be extremely meticulous. Of course we’ll be meticulous on the fee splitting and anti-kickback side as well, I would say though that when we’re not dealing with Medicare, we’re dealing with an internet startup, we’re dealing with software. We’re going to be looking at it with a somewhat different lens so that we can understand this place where you have compliance on one hand, the industry on the other. So that’s the last topic I’d like to address because people say, “Well, what do you do? Do you do compliance?” I suppose we do. I’ve said in the past that I find compliance a little bit less than exciting because compliance sounds like just checking the boxes in you. You have to comply. But what I would say is that you have this relationship between what you want to accomplish on one hand, and the compliance and the exactitude of the regulation on another. And somewhere in the middle, somewhere in between, you have to figure out your business model. You can’t be 1,000% percent compliant and not doing anything that’s innovative. On the other hand, you can’t play fast and loose with legal rules. So it takes a good savvy lawyer with good long run of healthcare law experience, especially in fraud and abuse, to understand how to structure these deals for digital health. We can talk more about these structures in another video, but for now I just wanted to give you that extemporaneous view of how industry is pushing the envelope and the law is not necessarily well pushing back in some places and other places. It’s more about stretching the paradigm to accommodate the vicissitudes and the transformations in the industry. I’m Michael H. Cohen, I hope you’ve enjoyed this video. Thanks for watching. We look forward to your healthcare venture success and to helping you with that success. Testimonials
December 22, 2019
Healthcare
FAQs About How California and New York Regulate Telemedicine
FAQs About How California and New York Regulate Telemedicine Each state has its own set of telemedicine laws and medical society requirements. The rules, definitions, and penalties for non-compliance vary from state to state. The laws are being constantly amended or updated. Medical societies and boards are continually making changes to their telemedicine standards. California and New York are two states that are forcefully addressing the do’s and don’ts of telemedicine practice. In this post, we answer some common questions about the status of the law regarding telemedicine. Note that this is a general description that may not necessarily reflect the latest developments, as telemedicine, mobile health, and digital health law is constantly changing. For the latest legal and regulatory telemedicine developments, and to understand how telemedicine law might apply to your healthcare business or practice, consult an experienced telemedicine lawyer. What is the History of Telemedicine Law in California? California’s initial telemedicine law was the Telemedicine Act of 1996. This law required, among other duties and obligations, that patients sign a written consent form before telemedicine services could be provided. The next law was the Telehealth Advancement Act of 2011 (AB 415). This law provided that: Store-and-forward technologies should be reimbursable when provided by a health care provider. Mandated that private payers (insurance companies) reimburse health providers for telemedicine services. Removed the requirement that the telemedicine appointment take place in a licensed healthcare facility. Many patients are more comfortable and find it more convenient to communicate with a doctor from their home. Telemedicine interactions do require that the patient’s information be kept confidential and that his/her rights be protected Health care service plans and health insurance companies including Medi-Cal should adopt payment policies (that also meet the Business and Professional Code) so that doctors, hospitals, and other authorized telehealth providers can be properly compensated for telemedicine services. Assembly Bill 1733 of 2013 provided $200 million for telemedicine education programs and new high-tech approaches. The bill provided that private healthcare plans could not mandate that there be an initial face-to-face visit before telemedicine could be used. The bill also provided that private healthcare plans couldn’t limit reimbursement if patient-site visits weren’t used. Assembly Bill 809 of 2015 provided that written patient consents for telemedicine were not required. Verbal and written consents, properly documented, are sufficient to provide telehealth services. It also deleted the rule that the health care provider be at the originating site when the consent to provide telemedicine services is obtained. What Standard of Care Must Physicians Follow When Providing Telehealth Services in California? The Medical Board of California states that: The standard of care for telemedicine is the same as for in-person visits. Physicians can provide telehealth services from out of state – provided they have a current valid California medical license Telemedicine typically includes videoconferencing or store-and-forward technology. It’s not talking on the telephone or sending emails and faxes back and forth. How Does California define “telehealth?” Section 2290.5 of the California Business and Professions Code defines “telehealth” as: “… the mode of delivering health care services and public health via information and communication technologies to facilitate the diagnosis, consultation, treatment, education, care management, and self-management of a patient’s health care while the patient is at the originating site and the health care provider is at a distant site. Telehealth facilitates patient self-management and caregiver support for patients and includes synchronous interactions and asynchronous store and forward transfers.” How is the doctor-patient relationship established? While some states require an initial in-person visit, California does not. In California, the initial consultation between doctor and patient can be through telemedicine. Additionally, non-controlled substances can be prescribed through telemedicine. To prescribe “dangerous drugs or devices,” an initial in-person office visit is required. California Code, Business and Professions Code – BPC § 2242 specifically provides that: “(a) Prescribing, dispensing, or furnishing dangerous drugs as defined in Section 4022 without an appropriate prior examination and a medical indication, constitutes unprofessional conduct.” Your quote: “In-person examinations not only enhance the opportunity to confirm if a patient needs the identified medication or to rule out other medical conditions, but ensures the patient is advised of alternative treatment options and is aware of potential side effects. For some patients, certain drugs are contraindicated and serious injury, including death, can follow.” On its webpage describing telemedicine, the California Medical Board (CMB) appears to default to the standard of care as the test as to whether telemedicine is permissible; however, on its webpage concerning Internet prescribing, CMB states that the law prohibits prescribing, without an “appropriate prior examination,” notwithstanding that standard of care may be satisfied or that it might be considered within the range of acceptable professional practice by peers not to have an in person exam (for example, in some tele-dermatology). On this page, CMB cites California Business & Professions Code, Section 2242. Notably, as of October 11, 2019, the California legislature amended and liberalized Section 2242 via AB 1264, to provide that an appropriate prior examination does not require a synchronous interaction between the patient and the licensee and can be achieved through the use of telehealth, as specified, provided that the licensee complies with the appropriate standard of care. Thus, 2242 now provides: “Prescribing, dispensing, or furnishing dangerous drugs as defined in Section 4022 without an appropriate prior examination and a medical indication, constitutes unprofessional conduct. An appropriate prior examination does not require a synchronous interaction between the patient and the licensee and can be achieved through the use of telehealth, including, but not limited to, a self-screening tool or a questionnaire, provided that the licensee complies with the appropriate standard of care.” Cal. Bus. And Professions Code § 2242. Yet even so, there are also standard of care concerns, as noted in a 2019 disciplinary action by the Medical Board of California entitled, In re Richard J. Holmes, M.D ESTABLISHING THE PHYSICIAN-PATIENT RELATIONSHIP: TELEMEDICINE LAW OFTEN REQUIRES IT, BUT WHAT DOES THIS MEAN? Establishing the physician-patient relationship is often a requirement of state telemedicine law, but what does it mean that the physician has in fact “established” the physician-patient relationship? Which California health care providers can offer telemedicine services? Anyone licensed under Division 2 of the state’s Healing Arts statute are able to provide telemedicine care to patients. This includes, but not limited to, physicians, nurses, dentists, chiropractors, speech pathologists, registered dietitians, occupational therapists and licensed midwives. How do hospitals, physicians, and other telemedicine get paid/reimbursed in California? Payment in California generally follows the following principles: Medicaid (Medi-Cal). Medi-Cal only reimbursees for synchronous videoconferencing. It doesn’t reimburse for store-and forward, remote patient monitoring, and for telephone care. There are no limits on the patient site or on the patient’s location. Medicare. Doctors and other medical practitioners should review Medicare reimbursement with an experienced telemedicine lawyer. Generally, the patient site and geographical location are not factors. There are specific requirements though that need to be reviewed. Medicare does encourage telemedicine for people with multiple chronic conditions. Private payors. Generally, private insurers should pay for videoconferencing. They are not required to pay for other telemedicine methods such as store-and-forward or remote patient monitoring. What services does Medi-Cal Cover? The California Department of Health Care Services states that the following telemedicine services should be covered by Medi-Cal: Selected Evaluation and Management (E&M) services for patient visit and consultation. Selected psychiatric diagnostic interview examination and selected psychiatric therapeutic services. Store-and-forward tele-dermatology. Store-and-forward tele-ophthalmology. Teledentistry. Transmission costs (up to 90 minutes per patient, per day). Originating site facility fee. Interpretation and report of X-rays and electrocardiograms performed after telehealth transmission. Are there unlicensed practice of medicine and corporate practice of medicine issues in California? Doctors and health care providers do need to understand who is using their telemedicine technology. Policies should be in place so that only providers authorized by California’s telemedicine laws can provide telehealth services. If an unauthorized or unlicensed person provides telemedicine service, the medical practice may violate several laws and professional requirements including: Violating the telemedicine laws for that state Be seen as “aiding and abetting unlicensed medical practice” Be engaged in the corporate practice of medicine Telehealth includes telemedicine, digital health, and mobile health. Desktops, laptops, cellphones, smartphones, iPads, tables, and any type of mobile device should be monitored so that only authorized personnel can speak to or help patients. 3 WAYS HEALTHCARE & TELEMEDICINE COMPANIES CAN TRIGGER UNLICENSED AND CORPORATE PRACTICE OF MEDICINE LEGAL TRIPWIRES Healthcare startups, including telemedicine and mobile health startups, can unwillingly trigger unlicensed and corporate practice of medicine legal tripwires. How does the use of a questionnaire affect the issue of the unlawful practice of medicine? One of the very early legal rules you will see around telemedicine in many states is the general statement that sending a questionnaire over the Internet and using that to make a medical recommendation, is unlawful. While the law is being made more liberal, medical providers should review with experienced telemedicine lawyers whether the submission of a questionnaire through electronic means may be seen as an unlicensed diagnosis. Does California provide telehealth parity? Parity is essentially paying doctors for telemedicine services that are essentially the same as in-person services. A telemedicine parity law requiring private payers reimburse providers for telemedicine services does exist in California. Does New York provide telehealth parity? New York has provided telehealth parity since 2014. Telehealth parity covers Medicaid, state employee health plants, and private payors. It doesn’t require coverage for store and forward telemedicine nor for remote patient telemedicine monitoring. What is New York Medicaid’s Telemedicine Policy? eVisit, a major telemedicine provider in New York, states that Medicaid in New York does cover live videoconferencing, store-and-forward technology, and remote monitoring of patients through telemedicine. Medicaid does limit which health care providers can offer telehealth. Approved providers include: Asthma Educators Clinical Social Workers Dentists Diabetes Educators Genetic Counselors Home care services agency Hospice Hospital Midwife Nurse practitioner Optometrist Or any other provider as determined by the Commissioner Physician Physician assistant Physician specialists, including psychiatrists Podiatrist Psychiatric Nurse Practitioners Psychologists Registered professional nurse Speech language pathologist or audiologist “Medicaid managed care plans can choose whether to cover telehealth.” Again, please note that the laws concerning telemedicine are constantly in flux and that even as we read these laws and regulations or visit secondary sources describing them, you should only look for legal advice for your situation from an experienced telemedicine lawyer in the course of an attorney-client relationship. Covered services Under New York’s parity law, private health plans cannot exclude coverage for any telemedicine service that would be covered if delivered in-person. New York Medicaid reimburses for medically necessary services over live video. It also reimburses for specialty care such as dermatology and ophthalmology for store-and-forward telehealth. What restrictions to prescribing medications apply in New York? Legal limits on prescribing medication through telemedicine are constantly changing. Consult with your telemedicine lawyer. Remember that medical doctors must comply with other laws such as DEA requirements. What are the informed consent requirements in New York? The only type of approved telemedicine services which requires informed patient consent is telepsychiatry. What are the eligible originating sites in New York for telemedicine services? In New York, patients can originate their telemedicine care in the following sites: Their home A doctor’s office A hospital or hospice care A mental health facility such as a psychiatric center An adult care facility A child day care facility A school What is the Interstate Medical Licensure Compact? The interstate medical licensure compact is a way for qualified licensed physicians to practice medicine and thus to offer telemedicine services in multiple states. The tradeoff for allowing physicians to obtain licenses in multiple states is that the states can also “share investigative and disciplinary information.” “The IMLC is an agreement between 24 states and 1 territory and the 31 Medical and Osteopathic Boards in those states and territory. Under this agreement licensed physicians can qualify to practice medicine across state lines within the Compact if they meet the agreed upon eligibility requirements. Approximately 80% of physicians meet the criteria for licensure through the IMLC.” Questions to review with your telemedicine attorney The National Telecommunications and Information Administration – suggests doctors review the following telemedicine issues for the states where the doctor is licensed with their telemedicine attorney: Which healthcare providers can provide telemedicine services? What state legal and medical requirements apply? Can telemedicine services be offered across state lines? Where must the patient be when the telehealth services are offered? Where must the physician be when the telehealth services are offered? Must a physician be physically present when another health provider is working with the distant patient? Must the physician see the patient in the office first before telemedicine can be used? Can prescriptions be offered using telehealth? How and when can the health provider be reimbursed for the telemedicine services. Doctors, hospitals, and others health professionals should ask what laws and rules apply for the state where the physician offers the telemedicine advice. Doctors who fail to follow state telemedicine laws may lose their license and may not qualify for medical payments. To learn more about how telemedicine works and what the rules are in your state, a conversation with an experienced telehealth lawyer is a must.
December 22, 2019
Healthcare
What Physicians and Investors Must Know About California Medical Corporations
What Physicians and Investors Must Know About California Medical Corporations Physicians can operate their practice as a sole proprietorship or as a partnership with other doctors. While these business structures have some advantages, doctors should understand the many advantages of forming a medical corporation. A medical corporation can help to limit liability, provide a vehicle for tax savings, make control and success of the practice easier, and create other opportunities and risk management benefits. Unlike many other states, California does not give physicians the option of forming a standard C-Corporation or other common professional corporations such as an S-Corporations or an LLC (Limited Liability Corporation). Physicians who incorporate must create a California professional medical corporation. The medical corporation must be formed pursuant to the Moscone-Knox Professional Corporation Act. Benefits of a Professional Medical Corporation Some of the many benefits of a professional medical corporation are: Limitation of liability. One of the key reasons for professionals to incorporate is to limit their liability if debts can’t be paid. Debts can include office rental, equipment leasing, and a full range of business obligations. Sole proprietors are personally liable for all debts the proprietor/doctor incurs. Partners are “jointly and severally liable” for their debts in accordance with the written partnership agreement. Medical corporations are separate entities therefore if the physician did not personally guarantee or sign contracts personally, only the medical corporation is liable for the business debts. If the Professional Medical Corporation is forced to close because it can’t pay the debts, the creditors normally can’t collect from the individual doctors – provided specific formalities are met such as the doctor didn’t personally guarantee any contracts. One major exception is that physicians in California can’t use the cover of a professional medical corporation to protect the negligent doctor from medical malpractice lawsuits. The corporation status can be used, however, to protect the other doctors if they didn’t contribute to the malpractice. The corporate benefit is an advantage over partnerships. If three doctors operate a partnership and one doctor commits medical malpractice, the other doctors will likely be held jointly liable Tax benefits. A second major benefit of a Professional Medical Corporation is that it can help the physicians save on taxes. A Professional Medical Corporation can elect to be taxed the same way as an S-Corporation is taxed. Taxes in S-Corporations can be passed through to the shareholders so that there isn’t a double taxation like there normally is with an C corporation. An experienced medical corporate attorney can explain what other tax benefits are available to professional medical corporations. Medical corporations typically allow for higher contributions to 401(K)s than physicians could make on an individual basis There is a counter tax concern though. Corporations normally pay a higher tax rate than individuals. This means corporations need to work with their accountants and tax professionals to pass the income down to the physicians instead of keeping the income in the practice. California medical corporations also do have to pay different state income taxes, fees, and other taxes such as a franchise tax. Continuity. A Professional Medical Corporation also helps with the continuity of the medical practice. If a doctor who practices on his/her own dies, the practice ends. If the doctor works with a partner, the partner must look for a new partner. With a professional medical corporation, the practice continues. The corporate by-laws dictate how much the spouse or family receives. Control issues are spelled out which should make the transition much smoother. California Professional Medical Corporations can also be used to provide tax deductible health insurance, life insurance, and disability insurance. Physicians can also generally use the Professional Medical Corporation for retirement plans and benefits. Key terms and provisions of the Professional Corporation Act Some important definitions found in the Moscone-Knox Professional Corporation Act are: Professional services. These are professional services that generally require a “license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.” Who can own shares in the Professional Medical Corporation? California professional medical corporations (Professional Medical Corporations) must have one or more physician owners. While non-physicians can have a partial ownership interest, the majority interest in the Professional Medical Corporation must be held by licensed doctors. The Act also regulates the number of non-physicians that are allowed. Permissible non-physicians in a medical corporation (provided they don’t have a majority interest) include:“Licensed doctors of podiatric medicine. Licensed psychologists Registered nurses Licensed optometrists Licensed marriage and family therapists Licensed clinical social workers Licensed physician assistants Licensed chiropractors Licensed acupuncturists Naturopathic doctors Licensed professional clinical counselors Licensed physical therapists Licensed pharmacists Licensed midwives There are separate permitted non-physician interests for podiatrist medical corporations, psychological corporations, and many other licensed health professionals. All non-physicians must be licensed to practice their profession in California. Concerns and Restrictions There are some issues for anyone considering a professional medical corporation must evaluate: The Corporate Practice of Medicine. When physicians contract with non-physicians or allow non-physicians to invest in their practice (through the purchase of stock for example), an immediate red flag arises. Contracts, investments, and other transactions with non-physicians may be considered a corporate practice of medicine. In California, the Medical Board of California directly warns doctors that the corporate practice of medicine is a violation of state law. Specifically, “The Medical Practice Act, Business and Professions Code section 2052, provides: ‘Any person who practices or attempts to practice, or who holds himself or herself out as practicing…[medicine] without having at the time of so doing a valid, unrevoked, or unsuspended certificate…is guilty of a public offense.’ Business and Professions Code section 2400, within the Medical Practice Act, provides in pertinent part: “Corporations and other artificial entities shall have no professional rights, privileges, or powers.” One of the key reasons California prohibits the corporate practice of medicine “is to separate medical from business decision-making.” The prohibition includes non-physicians and “lay corporations (corporations that are not medical professional corporations), and limited liability companies. In short, in California, a non-physician can’t own (have a majority interest in) a medical corporation. Non-physicians also cannot hire physicians as either an employee or independent contractor. CORPORATE PRACTICE OF MEDICINE: MEDICAL MANAGEMENT ORGANIZATIONS AND PROFESSIONAL MEDICAL CORPORATION–WHO CONTROLS WHAT? The Corporate Practice of Medicine (CPM) doctrine continues to befuddle, beleaguer, and bewilder healthcare companies seeking to venture with physicians and non-physician entrepreneurs. The MSO alternative. One possible alternative to reduce the risk of corporate practice of medicine complaints is that non-physicians can own a management service organization (MSO) which is specifically designed to run the administrative and non-medical parts of the medical practice. Transfer of corporate shares. There are restrictions on who a shareholder can sell his/her interest to and how proxies or other stock arrangements can be handled. The transfer, sale, or arrangement must not violate the Moscone-Knox ownership requirements. The transaction also can’t result in corporate practice of medicine. Generally, the shares can only be transferred to an existing shareholder or to someone who is licensed in California to practice the same profession as the shareholder who is making the transfer. Unlicensed professionals. The California professional medical corporation must buy back the shares of any health provider who loses his/her license, certification, or is otherwise disqualified from the further practice of medicine or from providing licensed healthcare services. An experienced California medical corporation lawyer will explain the time limits for buy-backs. The lawyer will also explain why the terms of buy-sell agreements should be negotiated before any disqualification occurs. Deceased Professionals. The California Professional Medical Corporation must buy back the deceased provider’s shares in accordance with any buy-sell agreements. Compliance with federal and state laws. Professional medical corporations and the physicians who work for or have an ownership interest in the Professional Medical Corporation cannot violate Stark Law, the Anti-Kickback Statutes, HIPAA, professional codes, and any other federal or state laws that regulate their practice, billing, marketing, services, or operations. The officers and directors of the professional medical corporation must also comply with all applicable federal and state laws. Fictitious name approval. The California Professional Medical Corporation should also review whether any pre-approvals are needed before the practice uses a fictitious name to run the medical practices. An experienced corporate practice of medicine lawyer in California can explain how an MSO can also be used to help protect against Stark, Anti- Kickback, and state fee-splitting laws – in addition to using the MSO to protect against corporate practice of medicine complaints. A Managed Service Organization can be used to provide an exception to Stark Law, a safe harbor to the Anti-Kickback Statute, and a defense to California’s fee splitting lawyer. A skilled MSO and medical corporation lawyer will explain how the MSO must be formed and operate to qualify for these exceptions, safe harbors, and defenses. For example, the fee the MSO charges must be the fair market value for these services. MSOs can be used for “a conventional medical practice, a medical spa, an aesthetic medicine practice, integrative medicine, functional medicine, concierge medicine … or even a psychology practice or behavioral medicine group.” Doctors should review what other restrictions and duties may apply when forming a professional medical corporation – with their California Professional Medical Corporation lawyer. CORPORATE PRACTICE OF MEDICINE ON STEROIDS: HOW YOUR MSO AND PROFESSIONAL MEDICAL CORPORATION COULD WORK TOGETHER WITHOUT COURTING LEGAL DISASTER You, MSO is my own variation on I Claudius. Poor Uncle Claudius, everyone said. Ended up becoming Emperor of Rome. Through craft and careful strategy. So you have an MSO and want to operate […] Additional concerns and requirements Generally, the physicians will employ an experienced healthcare Professional Medical Corporation lawyer to form the medical corporation. The articles of corporation must comply with California law and with the rules and regulations of the particular practice area professional boards. The attorney will also prepare the bylaws which set forth how the corporation will function, how disputes are handled, and how the corporation can be dissolved. Speak with an experienced healthcare lawyer to understand when, how, and why to form a California medical corporation. Some of the key considerations the lawyer will review are: The requirements for physician ownership and control. The advantages to using a Professional Medical Corporation including liability benefits, tax benefits, retirement benefits, and the ability to control the Professional Medical Corporation when physicians leave the practice or when disputes arise. How to protect against the risk of being charged with the corporate practice of medicine, fee-splitting and other federal and state laws, transfer of ownership issues, fictitious name registration, and many other legal concerns. Before starting a new medical practice or agreeing to participate in an existing practice, physicians in California and elsewhere need to review the pros and cons of forming a professional medical corporation. Understand the professional and legal obligations as well as the financial issues. We have helped many physicians form professional medical corporations and work with managed service organizations (MSO), so they can focus on helping their patients and growing their healthcare venture.
November 8, 2019
Healthcare
When Using a Management Services Organizations (MSO) Is the Right Choice for Your Medical Practice
When Using a Management Services Organizations (MSO) Is the Right Choice for Your Medical Practice Seymour Heart, MD runs a successful medical practice and would like to expand to a second office. Dr. Heart is a renowned plastic surgeon (or functional medicine doctor specializing in helping patients with obesity, reverse diabetes, or autoimmune disorders, or something like that)—and it turns out he is also successful at building a brand. Dr. Heart’s brother, Samuel, is a marketing guru whose SEO strategies have placed Dr. Heart’s medical group at the top of the search rankings for various treatments. Dr. Heart is looking for a way to collaborate more deeply with his brother and, share in the profits from the business side of his expanding medical ventures. Dr. Heart also wants to brand a line of dietary supplements and cosmetics that will further establish him as the premiere authority for patients, and, add revenue streams so that he can spend more time with his family and less time doing medical procedures. The MSO Advantage Recently a medical doctor contacted our healthcare legal team with this kind of scenario, and reported that a senior medical colleague… who heard it from another senior medical colleague… was told by his lawyer … that his compensation arrangements were violating Stark and anti-kickback laws… but… he thought MSOs were antiquated and no longer worked. This is the kind of heard-it-from-a-friend who heard-it-from-a-friend strategy that is almost inevitably based on faulty hearsay like the old game of “telephone.” In fact, the MSO model is alive and well and deeply useful for healthcare clients like Dr. Heart. Managed Service Organizations (MSOs) are designed to help physicians and other health providers with the non-clinical, administrative part of their medical practice—and to grow the business side of healthcare. Often, MSOs supply the business side of the medical or healthcare practice with human resources, payroll and benefits, compliance, and other non-medical matters. While MSOs mainly provide services for physicians, MSOs can help hospitals and other medical ventures. MSOs can be owned by different entities including hospitals, physician groups, investors, and others. According to Healthlawyers.org, MSOs can do more than provide management services. They can also buy the assets of a practice (to provide capital) and then offer the practice essentials such as equipment or space. Generally, while the idea of an MSO owning of assets allows the physician or medical practice to focus more on the medical practice, MSO ownership also can carry more risk that the arrangement might violate federal or state laws. This depends a lot on the compensation arrangements, as we will discuss below. The Healthcare Business Services an MSO can provide According to Physicians Practice, MSOs perform the following tasks: Educating and training medical staff – including compliance training and education about various diseases Medical coding for payment, billing, and collection actions – hiring coding personnel, making sure the billing doesn’t violate the False Claims Act or other federal and state laws, filing claims in a timely manner, managing accounts receivable, creating customize billing reports for the patients Managing and even providing office space – choosing the location, drafting and negotiating leases, and reviewing options to buy office space Managing equipment – determining what equipment is needed and where and how to acquire/lease the equipment Regulatory compliance with federal and state laws such as HIPAA (Health Insurance Portability and Accountability Act), OSHA (Occupational Safety and Health Administration) regulations, FMLA (Family and Medical Leave Act), CLIA (Clinical Laboratory Improvement Amendments of 1988), and state laws Credentialing staff and hiring clinical and administrative staff, credentialing health plans, and managing enrollment Information technology – managing networks, evaluating and buying software and hardware, providing support services, document management, database management, scanning, and integration of technology Procurement of supplies and medications Auditing Financial management Payroll and benefits such as health and retirement benefits Scheduling Financial statements Transcription of medical records Marketing Sales Public relations Disaster management Quality assurance Negotiating and managing contracts Managing risks and insurance Managing inventory Maintenance of electronic health records (EHR) Managed care Strategic management Legal Issues involving MSOs – Stark Law MSOs can be particularly effective at helping medical practices comply with various federal laws including Stark Law. This law covers self-referrals. Medical doctors, unless approved exceptions apply, cannot buy “designated health services (DHS)” for patients who use Medicare or Medicaid – if the physician (or an immediate family member) has a “financial relationship” with the DHS. Some financial arrangements may not violate Stark law. Often, an experienced MSO healthcare lawyer will recommend using the MSO to meet one of the approved exceptions. HOW TO HANDLE STARK AND ANTI-KICKBACK LEGAL BARRIERS WHEN PHYSICIANS INVEST IN AN MSO This is a story about how Harry, a healthcare entrepreneur, worked through a proposed arrangement that was raising Stark and Anti-Kickback issues. Financial relationships include various ownership, investment, and compensation arrangements. Referrals are “the request or establishment of a plan of care by a physician which includes the provision of the designated health service.” For an MSO arrangement to meet the financial relationship and self-referral definitions, it is crucial to create the MSO so that it meets one of the listed exceptions. These exceptions include: Personal Service Arrangement. This exception applies to physicians who are independent contractors and not employees. An MSO healthcare attorney can explain the requirements to meet the exception including reviewing that: The agreement to provide services is in writing The agreement covers all the medical services the doctor will provide to the DHS The arrangement’s duration is for one year or longer The total services aren’t more than are “reasonable and necessary for the legitimate business purposes of the arrangement.” The compensation is set in advance, isn’t more than the fair market value, and isn’t based on the value or volume of the referrals or any other business between the physician and the entity The services that will be provided can’t involve any business activity the violates federal or state law The Fair Market Value Exception. This exception applies to many different types of items and services (other than renting office space which has its own set of requirements to qualify for an exception). The key requirements that a Managed Service Organization lawyer will review to help show the compensation for providing these items and services meets the fair market value exception are:The agreement is written down, signed by the parties, and covers specifically named items and services The length of the agreement and means of termination are set forth – provided there is one agreement yearly – though agreements that are less than a year can be repeatedly renewed on the same terms Any compensation must be preset, must meet the fair market value, and can’t take volume or value of referrals into account The compensation for renting equipment cannot be based on:“A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated through the use of the equipment; or Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee. “ The agreement is commercially reasonable The arrangement doesn’t violate federal or state billing law including the Anti-Kickback statute – or any federal or state regulations. This exception permits fair market value compensation to and from DHS entities by physicians. Rental of Office Space and Equipment. If an MSO leases property, equipment or office space to a physician so the doctors don’t need to locate or maintain these items – the MSO arrangement needs to meet the relevant Stark exceptions. The main exception requirements are thatThe lease is put in writing, signed, identifies the property being leased, indicate that the property will be used only be the lessee, and show that the lease term is at least one year. The office space should meet what is “reasonable and necessary” for the practice The common area payments should reflect the lessee’s pro rata share The rental amounts should be preset, conform with fair market value, and should not be based on the value or volume of referrals or other business generated between the parties Payments by a Physician for Items and Services. This is a catch-all exception that applies if no other exceptions apply Other Stark exceptions may apply. Some of these exceptions that your managed service organization (MSO) lawyer will explain are: The isolated transaction exception – used when the MSO wants the medical practice’s practice assets. This can infuse the practice with needed capital. The isolated transaction exception can also be used for a sale of the practice provided additional terms are met. Indirect compensation. Certain hospital arrangements Group practice arrangements with a hospital Non-monetary compensation Medical staff incidental benefits Risk-sharing arrangements Compliance training Other exceptions Legal Issues involving MSOs – The Anti-Kickback Statute The Federal Anti-kickback statute applies to individuals and entities that receive payments through any federal healthcare program including Medicare and Medicaid. The law makes it illegal to “willfully offer, solicit, pay, or receive compensation in return for referring business.” Compensation includes bribes, kickbacks, and rebates. There are civil and criminal penalties that can result in jail time for physicians and closure of the medical practice. The payment method includes indirect payments as well as direct payments. The AKS covers cash and payments in kind. “Prohibited conduct includes not only remuneration intended to induce referrals, but also remuneration intended to induce the purchasing, leasing, ordering, or arranging for any goods, facility, service or item paid for by a federal healthcare program. “ The AKS does provide for safe harbors which protect legitimate arrangements from both civil and criminal liability. Each arrangement is judged on a case-by-case basis. MSO arrangements need to comply with the Anti-Kickback Statute Some of the safe harbors allowed by the Office of Inspector General which your MSO lawyer will review include the following: Space rental Equipment rental Personal service and management contracts The common threads to these safe harbors are: The MSO relationship should be in writing The relationship term should be a year or more The total amount of payments including for the office space, equipment, and services, should be established in advance If the relationship contract doesn’t anticipate “full-time services,” the agreement must properly address the part-time arrangement. The payments should be based on the fair market value of the space, equipment, or services and can’t change based on the value or volume of “Medicare or state health care program-covered referrals or business generated between the parties.” Another safe harbor your MSO healthcare attorney can explain is investment interest. He’ll review how this safe harbor is used and what the requirements are when a medical practice and a hospital are considering a joint venture. This safer harbor applies to investment interests: In large, publicly held companies; In smaller healthcare companies; In healthcare entities that are located in Medically Underserved Areas. Additional legal issues involving Managed Service Organizations Some additional concerns your MSO healthcare attorney will review are: The corporate practice of medicine. States are concerned about the unauthorized practice of medicine including a non-licensed individual “owning, maintaining, or operating a place of business in which an individual is employed or otherwise engaged to practice medicine”. MSOs should not be too involved in the daily practice of medicine. Contract law. At the heart of every MSO relationship is the written agreement. The terms need to be carefully negotiated and drafted. The rights and duties of the MSO and the medical practice need to be set forth in detail. The ability to terminate the contract should be precise. How disputes are handled should be identified. The consideration should be clearly identified. Compliance issues should be spelled out. Many other provisions need to be reviewed. Your MSO lawyer may also need to review antitrust laws, tax exempt organization issues, and other matters CORPORATE PRACTICE OF MEDICINE: MEDICAL MANAGEMENT ORGANIZATIONS AND PROFESSIONAL MEDICAL CORPORATION–WHO CONTROLS WHAT? The Corporate Practice of Medicine (CPM) doctrine continues to befuddle, beleaguer, and bewilder healthcare companies seeking to venture with physicians and non-physician entrepreneurs. Managed Services Organizations (MSOs) are a popular and useful tool for physician medical practices and other healthcare ventures. The advantages of an MSO are that they assign administrative tasks such as billing, compliance issues, electronic health records, leasing of office space and equipment, training and other services and items to an outside agency. There are numerous legal risks. MSO arrangements must be reviewed with an experienced management service organization lawyer. Most MSO arrangements will be considered violations of Stark anti-referral law and the Anti-Kickback statute unless the arrangements qualify for an exception or a safe harbor. MSO arrangements may also violate state laws on the corporate practice of medicine. Creating an MSO requires thinking through a wide variety of business and medical terms and considerations. MSO arrangements need to be properly negotiated and set forth in writing so that the rights and duties of the medical practice and the MSO are clear, so that disputes can be addressed, and financial benefits are maximized. MSOs that violate federal or state law can result in civil and criminal penalties. Our MSO attorneys have extensive experience drafting MSO arrangements with sensitivity to the business, financial, and legal needs of healthcare practices.
October 8, 2019
Page 42 of 44
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