Provider Partnerships: Surviving the
Change
Robert W. Markette, Jr. CHC Of Counsel
Hall Render Killian Health & Lyman, P.C. One American Square, Suite 2000
Indianapolis, IN 46282 317-633-4884 Rmarkette@hallrender.com
WHY THERE WILL BE CHANGE –
HEALTH CARE REFORM
Health care reform includes a number of initiatives aimed at controlling costs:
ACOs
Bundled Payments
These concepts look to build on either projects already in place:
Pay for performance Value based purchasing
REFORM
The ACO and Bundled payment initiatives are leading to more “integration.” ACO’s and bundled payment providers will look at add the continuum of care, but to focus on a few providers.
REFORM
The integration allows the providers to have better control in order to achieve certain objectives.
Issues:
Outcomes Readmissions Care coordination
REFORM
ACO regulations are the best example. ACO’s are scored on 33 metrics.
REFORM
CMS will choose the measures from five “domains”
1. Patient/Care giver experiences
2. Care coordination
3. Patient Safety
4. Preventative health
5. At-Risk/Frail/Elderly health
REFORM
Domain Number of Individual Measures Total Measures forScoring Purposes Total Possible Points Domain Weight
Patient/Caregiver
Experience 7 7 individual survey module measures 14 25%
Care Coordination/ Patient
Safety 6 6 measures, plus the EHR measuredouble‐weighted (4 points) 14 25%
Preventive Health 8 8 measures 16 25%
At‐Risk Population 12 7measures, including5‐component diabetes composite measure and 2‐ componentcoronaryartery disease composite measure
14 25%
Total in all Domains 33 28 58 100%
Understanding how these categories apply is important when discussing potential
partnerships.
For an ACO, the ROI should encompass some of these metrics.
REFORM
However, of the 33 metrics in these 5
categories, only a handful are relevant to home health and hospice.
Knowing these, and how your agency performs
Some of the metrics a home care provider can address:
REFORM
Domain Measure Description
Patient/Caregiver Experience ACO #1 Getting Timely Care, Appointments, and Information Patient/Caregiver Experience ACO #5 Health Promotion and Education Patient/Caregiver Experience ACO #6 Shared Decision Making Patient/Caregiver Experience ACO #7 Health Status/Functional Status Care Coordination/Patient Safety ACO #8 Risk Standardized, All Condition Readmissions Care Coordination/Patient Safety ACO #12 Medication Reconciliation Care Coordination/Patient Safety ACO #13 Falls: Screening for Fall Risk Preventive Health ACO #14 Influenza Immunization Preventive Health ACO #15 Pneumococcal Vaccination
Preventive Health ACO #21 Proportion of Adults who had blood pressure screened in t 2 At‐Risk Population Diabetes Diabetes Composite ACO #22 – 26 ACO #22. Hemoglobin A1c Control (HbA1c) (<8 percent) ACO #23. Low Density Lipoprotein (LDL) (<100 mg/dL) ACO #24. Blood Pressure (BP) < 140/90 ACO #25. Tobacco Non Use ACO #26. Aspirin Use
At‐Risk Population Diabetes ACO #27 Percent of beneficiaries with diabetes whose HbA1c in poor control (>9 percent)
At‐Risk Population Hypertension ACO #28 Percent of beneficiaries with hypertension whose BP < 140/90
At‐Risk Population IVD ACO #29 Percent of beneficiaries with IVD with complete lipid profile and LDL control < 100mg/dl
At‐Risk Population IVD ACO #30 Percent of beneficiaries with IVD who use Aspirin or other antithrombotic
At‐Risk Population HF ACO #31 Beta‐Blocker Therapy for LVSD
At‐Risk Population CAD CAD Composite ACO #32 – ACO #32. Drug Therapy for Lowering LDL Cholesterol ACO #33. ACE Inhibitor or ARB Therapy for Patients with
Providers need to be aware of these metrics and their own quality and outcomes data related to these metrics. Even if not looking at a relationship with an ACO, these numbers are important.
Not all providers are in ACO mode, but that does not mean that these considerations are not having an impact.
REFORM
Facility based and acute providers have a growing recognition that having a stake in broader continuum of care is important to achieving these objectives and these objectives are the “future”.
REFORM
This has led to a growing interest in partnerships, ownership and other
arrangements with home health and hospice providers.
At the same time, home health and hospice providers have realized that these pressures are leading to a reduction in referring entities.
REFORM – Homecare’s perspective
The result is that even outside of the ACO context, we are beginning to see more JVs and other collaborations.
REFORM – Homecare’s perspective
Some providers are looking to partner with acute care providers now, so that when an ACO comes to their area, they are already on the “inside.”
Similarly, some acute providers, are looking at partnerships with long term care in preparation for a later move.
REFORM – Homecare’s perspective
Finally, some of the integration is simply providers, looking at dwindling reimbursement are looking for an “exit strategy” or a survival strategy.
REFORM – Homecare’s perspective
As integration continues, more referring entities will be linked to homecare providers. This is causing providers to reconsider partnerships with long term care and acute care providers.
Formally “connecting” with providers can lead to a number of compliance issues for providers.
Shaping the Change
There are a number of models to consider: Ownership Joint Ventures
Contractual Joint Ventures – management arrangements
Preferred Provider Agreements
Shaping the Change
Each model provides certain benefits, but also presents specific risks.
JOINT VENTURES
Joint ventures are a great way for two or more entities to pool resources in order to start a new business. According to OIG joint ventures are also a way to try to disguise fraud and abuse violations.
Joint Ventures
OIG has repeatedly stated that it will carefully scrutinize joint ventures involving investors who are in a position to refer federal health care program business to the venture or to co-investors.
Two types of Joint Ventures Ownership Joint Ventures Contractual Joint Ventures
Joint Ventures
As the name implies, an ownership joint venture involves two or more entities coming together to create and own a new, separate provider.
Ownership Joint Ventures
The joint venturers each become part owner of the new entity.
This will involve contributions of capital, preparation of appropriate legal agreements and, possibly, applications for new provider agreements.
There are a number of structural questions to address in an ownership joint venture:
1. Type of entity 2. Ownership percentages 3. Governance 4. Management agreements? 5. Initial capitalization/valuation 6. Future dissolution; and more.
Ownership Joint Ventures
Parties need to consider these matters before any steps are taken. As you work through the issues of the ownership, governance, etc., you may find a JV is not the best idea.
Ownership Joint Ventures
Type of Entity:
1. LLC or Inc.
2. For profit, not for profit?
Ownership Percentages. This is going to be governed by value, see below.
Note: Hospitals will never consider anything less than 50% ownership.
Ownership Joint Ventures
Governance/Management:
1. Who is in control?
2. Day to day management?
3. Board’s Role?
4. Tie breaker?
Often parties will negotiate the governing document before negotiating the deal.
Ownership Joint Ventures
Dissolution/Wind down/Exit Strategy
This is extremely important – what do you do when the parties want to go their separate ways?
Don’t assume you will always get along!
Because an ownership joint venture involves a financial relationship between parties that are in a position to refer federal healthcare business to each other, the venture must fit into a safe harbor.
Ownership Joint Ventures
The Small Investment Interest Safe Harbor states that remuneration does not include “any payment that is a return on investment interest, such as a dividend or interest income” as long as each of the safe harbors standards are met.
Ownership Joint Ventures
The Small Investment Interest Safe Harbor has eight elements. An ownership joint venture must meet all eight elements to be completely in the safe harbor.
1. No more than forty percent of the entity may be owned by individuals or entities who have the power to make or influence referrals to the entity, furnish items or services to the entity, or otherwise generate business for the entity.
Small Investment Safe Harbor
This first element is known as the 60/40 rule. Few joint ventures can meet this element because they have 100% interested investors.
Small Investment Safe Harbor
2. Investment interests must be offered on the same terms to interested investors as they are offered to other investors.
3. The terms on which an investment interest is offered to an interest investor must not be related to the previous or expected volume of referrals, items or services furnished, or the amount of business otherwise generated from that investor to the entity.
Small Investment Safe Harbor
In other words, you cannot say, 40% of the shares of this entity are worth $100,000, but we will let you buy them for $30,000, because we know you are going to refer us a large volume of patients.
Small Investment Safe Harbor
Where this element comes into play is how we are valuing contributions. In an ownership JV, the homecare company is likely contributing assets and the acute care or LTC provider is contributing cash.
Parties need to prove value of assets justifies ownership percentage. Also need to show cash contributions justify ownership percentage in light of value of assets.
BEST PRACTICE: Formal valuation of assets.
Small Investment Safe Harbor
4. There is no requirement that a passive investor, makes referrals to, be in a position to make or influence referrals to, furnish items or services to, otherwise generate business for the entity as a condition for remaining as an investor.
Small Investment Safe Harbor
5. The entity or any investor must not market or furnish the entity’s items or services to passive investors differently than to non-investors.
Joint Ventures -- Small Investment
Safe Harbor (cont’d)
Again, everybody is treated equally. You cannot consider who is, or is not, a good referral source.
If you do, it looks like the venture is an attempt to hide a kickback.
Small Investment Safe Harbor
6. No more than forty percent of the entity’s gross revenue related to the furnished of health care items and services in the previous fiscal year or previous 12 month period may come from referrals or business otherwise generated from the investors.
Small Investment Safe Harbor
This is the second 60/40 rule. Again, very few joint ventures meet this element, because they generate 100% of their referrals from investors.
7. The entity or any investor must not loan funds to or guarantee a loan for a potential referring investor if that loan is used to purchase an interest in the company.
Small Investment Safe Harbor
This is intended to prevent the entity from loaning the “buy-in” to an investor who then repays the loan from dividends. This has the effect of allowing an investor into the entity with no real risk.
Small Investment Safe Harbor
8. The amount of payment to an investor in return for the investment interest must be directly proportional to the amount of the capital investment of that investor.
In other words, if you own 20% of the company, you receive 20% of the profits, even if you contribute 90% of the referrals. You cannot receive profits based upon the value or volume of referrals made to the venture.
Small Investment Safe Harbor
The two 60/40 rules mean that most JVs will not fit into the exception. However, being close is sufficient.
Small Investment Safe Harbor
Even with the two 60/40 rules, it is possible to structure an ownership joint venture that is legal. Need to work with lawyers, valuation experts and accountants.
Note: This is a safe harbor, there is not a parallel Stark Exception. This means that physicians cannot be part of a home health JV, with some very limited exceptions.
Small Investment Safe Harbor
A physician can be part of a hospice JV, because hospice is NOT a designated health service.
Small Investment Safe Harbor
The other form of joint venture is known as a contractual joint venture. A contractual JV can encompass a number of different relationships.
The most common Contractual JV involves a provider who is looking to branch out into a new area starting a new company and then
contracting with a provider in that area to “manage” the entity.
Contractual Joint Ventures
Example: ABC SNF, Inc. decides to get into home health. SNF decides to finance an agency, but approaches XYZ Homecare, Inc. to manage it.
Contractual Joint Ventures
There is a safe harbor for management agreements, the Personal Services and Management Contracts safe harbor.
The safe harbor states that any payment made to a “manager” is not remuneration, if all of the elements of the Management Contracts safe harbor are met.
Contractual Joint Ventures
To meet the safe harbor, the management contract must be:
1. in writing, signed by both parties and for a term of one year;
2. cover all of the consulting services to be provided;
3. if for sporadic services, it must state the schedule;
Contractual Joint Ventures
it must also:
4. Set out the compensation in advance
and compensation must be FMV;
5. Not involve counseling or promotion of activity that violates the law;
6. Be commercially reasonable;
Having a properly drafted contract alone is not enough. OIG will look at the operation of the management arrangement.
Contractual Joint Ventures
OIG has expressed concern about “management” ventures, because the
management agreement can become a vehicle to hide remuneration to a referral source.
Contractual Joint Ventures
In a 2003 special fraud alert, OIG announced a number of factors it considered to be indicators of a suspect joint venture. These “indicia” should be considered when structuring a management joint venture.
Indicia of suspect Contractual Joint Venture:
1. Venture is a new line of business for “owner.” -This will almost always be present.
2. The venture will serve predominantly patients from “owners” current patient base. – again, very common.
Contractual Joint Ventures
Indicia of suspect Contractual Joint Venture:
3. “Owner” has little or no bona fide business risk. This is, perhaps, the most important factor.
4. “Manager” is a would be competitor of the venture.
Contractual Joint Ventures
Indicia of suspect Contractual Joint Venture: 5. “Manager” supplies all, or many, of the services necessary to operate: management, billing, equipment, personnel, offices, etc. This relates to the idea of the owner having no bona fide business risk.
Indicia of suspect Contractual Joint Venture:
6. Practical impact of arrangement is to allow the “owner” to bill for the services provided by manager.
7. Parties agree to a non-compete clause that divides the “territory” between the “owner” and the “manager.”
Contractual Joint Ventures
KEY: Problematic contractual joint ventures
involve the owner starting a business on paper, but depending upon the manager to provide, essentially, everything required to operate the provider.
Contractual Joint Ventures
If you are approached about a contractual joint venture, the “owner” should really be an owner. if they are only an “owner” on paper and you are doing all of the work, this can be a large
problem.
Whenever you are approached about a potential joint venture, you should not take any action without seeking the advice of counsel that is thoroughly familiar with fraud and abuse laws. You may find your well intentioned business venture has become a source of immense liability.
Joint Ventures – Final Thought
PREFERRED PROVIDER
ARRANGEMENTS
These arrangements are seeing a resurgence as another vehicle to allow the facility to have some assurances of quality and outcomes, without a more formal JV.
Remuneration can become an issue in a number of ways:
1. Outright value offered to get into arrangement.
2. Value provided during relationship – agency staff become defacto discharge planners, education offered for CEU, etc.
Preferred Provider Arrangements
Preferred provider arrangements focus on certain key areas:
1. Communication
2. Patient Care – admissions, quality, feedback,
3. Quality Assurance
4. Related matters
Preferred Provider Arrangements
No value is involved. Neither party provides ANYTHING of value to the other.
No CEUs
No “help around the facility.” No discharge planning
This is extremely important. If the preferred provider gives anything of value to the referring entity, the arrangement becomes a kickback scheme.
Preferred Provider Arrangements
Arrangement should include specific provisions regarding compliance.
1. homecare employee do’s and don’ts
2. express prohibitions on any education or training having CEU or similar value.
3. No payment or other value to become
the Preferred Provider.
Preferred Provider Arrangements
The preferred provider arrangement will spell out:
1. Lines of communication
2. Goals for relationship – in terms of patient care.
3. QA efforts – may need to define specific metrics and reporting periods.
Preferred Provider should be preferred, because of the quality of care and other care related understandings, not because the provider is providing anything of value to the entity.
Preferred Provider Arrangements
As with other partnerships, providers should consult with counsel prior to establishing and carefully monitor the relationship once established.
Preferred Provider Arrangements
Many of these ventures are precursors to homecare being brought into the world of ACOs and Bundled payments.
Long Term Care aligning so that ACOs can then incorporate them.
Where are we going?
As number of ACOs grows, we will begin to see them start to incorporate LTC. Up to now, ACOs have focused predominantly on hospital – physician relationships.
Where are we going?
Providers have an opportunity, through exploring these ventures, to show the other providers, especially those who are driving the change, that they are prepared to be part of the change.
When you are approached about potential partnerships, need to be aware of:
1. Compliance Risks!!!
2. How you will operate the JV – are you a partner or along for the ride?
3. What is your exit strategy? – If it doesn’t go well, how do you leave? Do you leave?
Where are we going?
Integration along the continuum appears to be the future of health care, but that does not mean we can simply ignore the traditional risks of partnering with referral sources.
Change is coming, but we need to be prepared to properly navigate it.
Where are we going?
Provider Partnerships: Surviving the
Change
Robert W. Markette, Jr. CHC Of Counsel
Hall Render Killian Health & Lyman, P.C. One American Square, Suite 2000
Indianapolis, IN 46282 317-633-4884 Rmarkette@hallrender.com
