LEGAL CHALLENGES IN THE CREATION OF INTEGRATED …

presented at the

Gerry Haggerty Annual Leadership Institute

of the Northeast Ohio Chapter

of the Healthcare Financial Management Association

May 18, 2016Thomas J. Onusko, Esq.

Bricker & Eckler LLP

1001 Lakeside Avenue East, Suite 1350

Cleveland, OH 44114

216.523.5471 / [email protected]

LEGAL CHALLENGES IN THE CREATION OF

INTEGRATED DELIVERY SYSTEMS

OVERVIEW OF PRESENTATION

• Just as the Federal Government and the

marketplace are incentivizing health care

systems to form integrated delivery networks,

enforcement entities are stepping up their legal

challenges to the strategies healthcare systems

typically employ to form such networks,

especially with respect to mergers and

acquisitions, and compensation of employed

physicians.

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ANTITRUST ISSUES

• Antitrust issues arise when competing

health care entities combine through

merger or acquisition, either horizontally

(e.g., hospital with hospital) or vertically

(e.g., hospital with physician group).

3

Antitrust Issues

Merger analysis involves:

– The relevant product market is defined.

– The relevant geographic market is defined.

– From this market determination, competitors in the market are identified.

– Market shares of each firm in the relevant market are calculated.

– The merging firms’ post-merger market share and the level of post-merger concentration in the relevant market are determined (Herfindahl-Hirschmann Index (“HHI”).

4

ANTITRUST ISSUES (cont’d)

• The antitrust analysis becomes a balance of the pro-competitive benefits versus the anticompetitive effects of such collaboration (the “rule of reason” test), i.e., whether the anticipated joint price negotiations and any competitive restrictions within the network are “ancillary” to and “reasonably necessary” to further the legitimate purpose the network, i.e., to achieve cost efficiencies and increased quality of care that benefits patients and payers.

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ANTITRUST ISSUES (cont’d)

• Any market share of more than 30 percent will invite a closer initial antitrust review to determine any possible anticompetitive impact. Obviously, the higher the market share the greater the need for antitrust guidance.

• The higher the degree of clinical and financial integration in the network, the less risk of being viewed as an illegal combination of competing providers.

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Antitrust Issues (cont’d)

Just discussing a potential merger with a

competitor can violate the antitrust laws.

Important to avoid premature sharing of

sensitive data: prices, salaries, market

share, terms of managed care contracts,

etc.

Use of Joint Defense Agreements and

Antitrust Protocols to minimize legal risk.

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Federal government lost 8 consecutive

antitrust actions against healthcare entities

from 1995 to 2001.

Federal government subsequently

increased the number of challenges and

has not lost one since then.

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ProMedica/St. Luke’s (Ohio) Case

FTC successfully blocked ProMedica’s merger

with St. Luke’s by showing that their combined

post-merger market share in (1) the inpatient

general acute-care hospital services market

was around 58% and that the merger increased

the HHI from 1,078 to 4,391, and (2) the

separate relevant market for obstetrical services

went from 71% to 81% and increased the HHI

by 1,323 to 6,854.

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St. Luke’s/Saltzer (Idaho) Case

– Largest hospital in Idaho (St. Luke’s) with

numerous hospitals and employed physicians,

acquired largest independent multi-physican

specialty group in Idaho.

– Competing hospitals filed legal challenge

– Court holds (affirmed on appeal) that acquisition

likely to result in post-merger dominant share of

primary care physician market.

– St. Luke’s ordered to unwind the merger and pay

plaintiffs’ $8.4 Million in legal fees.

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Antitrust Issues (cont’d)Advocate HealthCare/North Shore University

Hospital (Illinois) case

Proposed merger of two Chicago area

hospitals challenged by FTC.

Hospitals proposed a settlement limiting

annual price increases to CPI or 1 percent,

whichever is greater, plus regular audits by

FTC for 7 years.

FTC rejected and case went to trial on

April 18, 2016.

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Antitrust Issues (cont’d)Penn State Hershey Medical Center/Premier

Health System (Pennsylvania) case FTC and Pennsylvania Attorney General jointly

filed sealed merger challenge to hospitals located in Hershey and Harrisburg.

Sealing antitrust court filings intended to protect commercially sensitive information of merging parties as well as information FTC obtains from other area hospitals whether proposed merger will have anti-competitive effect.

Court ordered that filings be unsealed since the case is “a matter of enduring interest to all Pennsylvanians.”

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Antitrust Issues (cont’d)Premier Health Partners (Ohio) Case

Physician-owned hospital (Medical Center at Elizabeth Place) challenged a “virtual merger” by four other Dayton area hospitals via a joint operating agreement.

District had dismissed the lawsuit, ruling the operations of the 4 hospitals were sufficiently integrated so that Premier was one entity for antitrust purposes and therefore could not conspire with itself.

Court of Appeals reversed, and ordered that case should go to trial.

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STARK / ANTI-KICKBACK ISSUES

Stark Law Prohibition

1. Entity cannot bill a federal program

2. For a “designated health service”

3. Provided to a patient referred by the

physician to the entity

4. If the physician has “Financial Relationship”

(compensation or ownership)

5. With the billing entity

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STARK / ANTI-KICKBACK ISSUES (CONT’D)

Anti-Kickback Statute Prohibition

• Payment or receipt

• Of any form of remuneration

• In return for

• Referral / arranging referral

• Of item / service to be reimbursed by a

federal health program

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Penalties for Violation:

• Denial of reimbursement

• Civil monetary penalties of $25,000 per

violation plus 3X amount billed

• Jail terms up to 5 years

• Exclusion from Medicare/Medicaid

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Stark Exceptions / AKS Safe Harbors:

• Employment

• Personal service contracts

• Leases

• Fair Market Value transactions

• Practice acquisitions

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• Shift in physician compensation from

productivity model (e.g., RVUs) to pay-for-

performance model (e.g., incentive

payments for meeting quality, cost, and/or

wellness matrix) presents new fraud and

abuse issues relative to calculating fair

market value

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Tuomey Case:

• $277M awarded against Hospital due to

excessive compensation paid to part-time

employee physicians

• Payment for non-compete clause

constituted illegal remuneration for

anticipated referrals

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Tuomey Case (cont’d):

• Full-time compensation/benefits paid to

part-time physician employees (base

salary plus productivity/quality incentives)

• Hospital went “attorney shopping” until it

obtained favorable opinion

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Halifax Case:

• Qui tam case brought by director of physician services whose concerns were ignored

• Hospital’s tracking of referrals by employee-physicians is indicator of value-based compensation

• Total compensation (salary & bonus) exceeded FMV

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Halifax Case (cont’d):

• Bonuses paid to oncologists were based

on percentage of revenues from hospital’s

oncology program to which oncologists

referred

• Government demanded $500M / hospital

settled for $85M

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• Takeaways:

• Still illegal to tie to hospital revenues generated from physician referrals

• Not enough to show compensation paid to physician is within MGMA ranges

• Must tie level of compensation paid to physician to level of professional fees they actually generate

• What about situations where community hospital has to subsidize salary to attract needed doctor to the community?

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