How MSOs Can Help Medical Practices After a Merger or an Acquisition – Part Two

In the first part of our discussion of the advantages of using a managed service organization if your medical practice acquired or merged with another medical practice; we discussed the tasks an MSO could perform and why you need to review your state’s corporate practice of medicine requirements.

In this part, we discuss how an MSO can be used to address Stark Law, the anti-kickback statute, and some of the practical issues involved with using an MSO.

When one medical practice acquires another practice or merges with the new practice, some of the many practical, business, and medical decisions that need to be reviewed include which offices will be kept and will any new offices be opened, what equipment will be kept and does any new equipment new to be purchased or leased, will new physicians need to be added to the medical practice, and many other issues.

The medical practice needs to understand Stark Law and the AKS to ensure that the needs of the patient are prioritized over the desire of the practice for more profit.

Acquiring another medical practice or merging with one. Stark exceptions and AKS safe harbors.

Stark Law

This set of federal laws prohibits physician self-referrals. Generally, this means that a physician cannot refer a patient to a “designated health service” such as a laboratory when the physician (or an immediate family member) has a financial interest in the designated health service (DHS).

An MSO can be used to address many medical and business issues – if the MSO meets a specific Stark Law exception. Our healthcare lawyers will explain what exceptions apply to Stark Law referrals and what requirements the MSO and medical practice must satisfy to help meet these exceptions.

• Bona fide employment relationships. “Any amount paid by an employer to a physician (or immediate family member) who has a bona fide employment relationship with the employer for the provision of services” if the following conditions are met:

• • The employment services are identifiable.
  • The remuneration is based on fair market value and does not, with limited exceptions, take into account the volume or value of referrals by the referring physician. The remuneration should be “commercially reasonable even if no referrals were made to the employer.” Some productivity bonuses may be permissible.

• Personal Service Arrangement (PSA). This exception applies to doctors who are independent contractors and not employees. The requirements that our healthcare lawyers will review include:

• • The service contract must be in writing.
  • The contract should cover every medical service the physician will provide to the DHS
  • The PSA should be for one year or longer.
  • The combined services shouldn’t be more than are “reasonable and necessary for the legitimate business purposes of the arrangement.”
  • The compensation should be established in advance, should not be more than the fair market value (FMV) for those services, and should not be based on the volume or value of the referrals (or business) between the physician and the medical practice
  • The services must comply with federal and state law.

• Office space rental. The MSO may be able to rent office space to the new medical practice if:

• • The lease agreement is in writing and identifies the premises.
  • The lease agreement is for at least one year – and other duration conditions are met regarding any lease that is terminated.
  • The space being leased should be reasonably necessary and meet other conditions.
  • The rental charge should be set in advance and should be consistent with the fair market value.
  • The rental charges are not based on the volume or the value of referrals
  • The lease would be commercially reasonable – even if there were no referrals.
  • Other conditions that our healthcare lawyers can explain.

• Equipment rental. The MSO can purchase equipment and then rent the equipment to the new medical practice under terms that are similar to those for the rental office space.
• Physician incentive plan exception. “In the case of a physician incentive plan between a physician and an entity (or downstream contractor), the compensation may be determined in any manner (through a withhold, capitation, bonus, or otherwise) that takes into account the volume or value of referrals or other business generated between the parties,” if the plan meets the following requirements:
  • “No specific payment is made directly or indirectly under the plan to a physician or a physician group as an inducement to reduce or limit medically necessary services furnished with respect to a specific individual enrolled with the entity.”
  • Many other conditions are met that our healthcare lawyers will explain

Some of the other Stark exceptions that can be addressed through the use of an MSO include:

• Physician recruitment
• Certain isolated transactions. This exception can be used so the MSO can infuse the practice with needed capital, to purchase certain assets (such is hardware and software), and even for a sale of the practice provided additional terms are met.
• Certain hospital arrangements
• Group practice arrangements with a hospital
• Payments by a physician
• Charitable donations by a physician
• Fair market value compensation
• Medical staff incidental benefits
• Risk-sharing arrangements
• Indirect compensation arrangements
• Other exceptions

The AKS

This federal law imposes criminal penalties and civil liability for referring patients, services, or products to (or from) a physician or medical practice – in return for any payment or remuneration. The AKS applies to the payment of bills that the physician or medical practice submits to federal healthcare programs such as Medicare and Medicaid. The AKS applies to willfully offering, soliciting, paying, or receiving remuneration in return for referring business. 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 are similar to the Stark Law exceptions. When using an MSO to help comply with the AKS safe harbor requirements, our healthcare lawyers will explain what requirements must be met including:

• The MSO arrangement should be in writing
• The MSO contract should be for at least one year
• The amount of the payments for office space, equipment, or other services should be established in advance of any work that will be done
• The payments should be based on the fair market value of the space, equipment, or services.
• The payments cannot be based on the value or volume of “Medicare or state health care program-covered referrals or business generated between the parties.”

Why you should discuss the use of an MSO with an experienced healthcare lawyer

The MSO does need to be carefully negotiated and prepared. 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. An MSO that violates federal or state law can result in civil and criminal penalties.

The agreement should also set forth how the contract between the MSO and the medical practice can be terminated; how disputes will be handled; and should specifically address any compliance issues. Many other terms will need to be negotiated.

As we’ve written in our general discussion of MSOs, MSOs need to be reviewed with an experienced healthcare lawyer. Experienced healthcare lawyers can explain when and how to use an MSO if the MSO is being used for a new medical practice based on the buyout of another medical practice or a merger with another medical practice.

A few practical concerns for new medical practices

These days, one of the drivers of referral arrangements is the use of technology.

“Fee-splitting and kickback dangers lurk in many guises, particularly as telemedicine, wearable tech, virtual reality healthcare delivery models, and other emerging technologies change the landscape of healthcare services.”

These issues can also plague brick-and-mortar practices, from the solo medical doctor, chiropractor, acupuncturist or naturopathic physician who is growing and wants to add a clinical practitioner, to the more established medical group or healthcare clinic that seeks to add staffing.”

The new practice may choose to hire clinicians as independent contractors instead of employees which creates questions about the application of the various referral laws. “If it’s cost-prohibitive to have the other clinicians as employees, the alternative arrangement we usually recommend is that of the medical (or management) services organization, or MSO.”

There will be marketing costs and branding costs for the new medical practice.

“Where marketing services are involved, we recommend a flat fee.”

“Marketing arrangements are often scrutinized. Percentage-based arrangements can be seen as compensation that depends on the value or volume of patients.”

Other issues the new medical practice may need to address with the help of an MSO include:

• Who can access the various patient files
• Scope of practice issues
• Subleases
• HIPAA compliance
• Many other issues

When a family practice, a dental practice, an orthopedic practice, a medspa, or any medical practice buys another practice or merges with another practice, the new practice should separate the medical duties from the administrative duties. This separation must be done carefully to avoid being charged with a violation of Stark Law or the Anti-Kickback Statute. Skilled healthcare lawyers can explain how the use of a managed service organization can help show the new medical practice is in compliance with Stark or the AKS – by using specific Stark exceptions or AKS safe harbors.

When any type of medical practice acquires or merges with another medical practice, there will be many questions about how to combine the assets, experience, patient data, office space, and many other aspects of the new medical practice. One of the common ways to have a smooth transition while complying with the various federal and state healthcare lawyers is to use a managed service organization – provided the practice of medicine is distinct from the administrative side of the business.

Any medical practice that buys or merges with another medical practice should contact Cohen Healthcare Law Group, PC to discuss their legal and healthcare compliance requirements. Our experienced healthcare attorneys advise doctors, medical practices, and MSOs about healthcare compliance laws and regulations such as Stark Law or the AKS.