Publisher’s Letter: July 2010

Scott Becker, JD, CPA -   Print  |
A Review of 100 Anti-Kickback and Self-Referral Settlements and Cases; The Erosion of Independent Medical Practice; Outpatient Trends – Six Key Issues; 10 Legal Issues Facing ASCs; Bobby Knight, Tucker Carlson, Lt. Colonel Bruce Bright and 95 Other Speakers; Co-Management Agreements; Anesthesia Models under Attack; Streamlining Spans and Layers

1. 100 anti-kickback and self-referral cases.
We recently had the chance to review nearly 100 kickback and self-referral cases and authored an article related to these findings. The cases highlight an interesting distinction between cases and settlements where the provider or company paid more than $100,000 to settle allegations and those that paid less than $100,000. The distinction often lies in the amount of improper intent involved in the incident or incidents that drove the settlement. The article is entitled “A Review of OIG Self-Referral and Anti-Kickback Cases: 6 Categories of Non-Compliant Physician Relationships and 8 Recent Cases.” For a copy of this article, please e-mail me at sbecker@mcguirewoods.com or Kirsten Doell at kdoell@mcguirewoods.com.

2. Erosion of independent medical practice. There is likely to continue to be significant erosion in independent medical practice. This does not generally dictate less outpatient work but it does impact the entrepreneurial outpatient side of the business. There are different statistics but generally 40-45 percent of all physicians are now employed by hospitals. There is also anecdotal discussion in the cardiology sector, for example, that while there are 30-35 percent of cardiologists currently employed by hospitals, there are 70-80 percent of cardiologists in talks to become employed.

Independent practitioners have generally been the life blood of ambulatory surgical centers, physician-owned hospitals and several other health- care free-standing entrepreneurial ventures. Even slight changes in the total number of independent physicians have huge impacts on the economies of scale of surgery centers and physician-owned hospitals. These businesses, like most businesses, work with a fairly fixed set of costs. A great deal of the profits in these businesses is made after a base amount of cases are brought in which cover the fixed costs. Incremental cases drive a great deal of the profits. If the incremental cases are taken elsewhere through employment by hospitals and other systems, this leaves physician-owned facilities in a much tougher predicament.

Several factors are driving the trend towards employment. The top four are 1) money, 2) money, 3) money and 4) life balance.

1) Hospitals can afford to pay physicians well due to the technical fees generat- ed by such physicians for hospitals; 2) physicians are very concerned regarding reimbursement rates; 3) many physicians were hurt significantly by the stock market and real estate crash and are seeking lower risks in their practice; and 4) many physicians who graduated over the past decade seem more focused on life balance and more predictable hours than a business owner’s lifestyle.

A statement in an article by Scott Gottlieb, a former CMS official articulates the trend pretty clearly. He states in his Wall Street Journal article “No, You Can’t’ Keep Your Health Plan”:

“Doctors, meanwhile, are selling their practice to local hospitals. In 2005, doctors owned more than two-thirds of all medical practices. By next year, more than 60% of physicians will be salaried employees. About a third of those will be working for hospitals, according to the American Medical Association. A review of the open job searches held by one of the country’s largest physician-recruiting firms shows that nearly 50% are for jobs in hospitals, up from about 25% five years ago.

Last month, a hospital I’m affiliated with outside of Manhattan sent a note to its physicians announcing a new subsidiary it’s forming to buy up local medical practices. Nearby physicians are lining up to sell — and not just primary-care doctors, but highly paid specialists like orthopedic surgeons and neurologists. Similar developments are unfolding nationwide.

Consolidated practices and salaried doctors will leave fewer options for patients and longer waiting times for routine appointments. Like the insurers, physicians are responding to the economic burdens of the president’s plan in one of the few ways they’re permitted to.”


3. 5,200 Medicare-certified ASCs. There are now more than 5,200 Medicare-certified surgery centers. There has been a significant deceleration in the growth of surgery centers. In fact one prominent commentator has said this might be the first year in which there is a net loss in the total number of ASCs across the country.

Of the nations Medicare certified surgery centers, 20-35 percent have a hospital partner. Another 20-30 percent are rumored to be not making money at any one time.

4. revenues under pressure. Revenues for outpatient services will be under tremendous pressure due to two distinct factors: 1) the erosion of in- dependent medical practices which reduces case numbers (discussed above) and 2) the fact that commercial paid reimbursement is under tremendous pressure. The two bigger winners in the healthcare reform bill are likely to be the pharmaceutical industry and the hospital industry. Each have for the foreseeable future solidified a substantial part of the healthcare budget and protect themselves from significant reimbursement risk. This means that if healthcare costs are actually going to be reduced or stay somewhat steady, a great deal of the reimbursement reductions will come from a whole num- ber of other sectors.

Further, insurance companies are exercising more authority over physi- cians. Here, Mr. Gottlieb says:

“One of the few remaining ways to manage expenses is to reduce the actual cost of the products. In health care, this means pushing provid- ers to accept lower fees and reduce their use of costly services like radiology or other diagnostic testing.”

5. Ten Legal Issues Facing ASCs - 2010. Elissa Moore, Elaine Gilmer and I recently completed an article titled “10 Legal Issues Facing Ambulatory Surgery Centers – 2010.” Please contact me at sbecker@mcguirewoods.com or Kirsten Doell at kdoell@mcguirewoods.com for a copy of this article. It outlines issues such as anti-kickback issues, healthcare reform, HIPAA, out- of-network arrangements and a number of other issues.

6. Co-Management arrangements. Co-management arrangements for the time being seem to be the new thing as a means for hospitals to work with independent physicians. While it is not clear how long co-management arrangements will stay the new hot thing, there is likely to be some period of time in which they remain very important. Some of them appear to be done in “aggressive” ways in terms of payments. It may be that over time as government intervention occurs, these will need to be restructured.

We will have three different talks on co-management relationships at our Fall ASC Conference, taking place Oct. 21-23, 2010, in Chicago (see item #10 below for more information).

7. Layers and spans. A very intelligent short article that I read recently was from Bain Consulting. Here, Bain Consulting talked about something they title “layers and spans.” The article is titled “Streamlining Spans and Layers: Tuning Your Organization for Better Decisions.” The core concept was that reducing the amount of layers in a company by some small degree and increasing a manager’s span (for example from five direct reports to seven direct reports) can have a large positive impact on reducing an organization’s costs. It was an interesting study, which included some great statistics, and was really informative. In essence, great companies must be modified at layers and spans and great managers ought to have a greater number of people they manage directly (and handle this extremely well). Of course, a key to managing a number of people well is often having “great people and engaging in great recruiting.”

8. Outpatient Trends — Six Key Issues. For a copy of a brief article authored by Barbara Kirchheimer and myself titled “Outpatient Trends – Six Key Issues,” please e-mail me at sbecker@mcguirewoods.com.

9. Anesthesia Models Under Attack. For a copy of an article entitled “Anesthesia Models Under Attack,” please e-mail me at sbecker@mcguirewoods.com.

10. 17th Annual ASC Conference. We have completed the agenda for our 17th Annual ASC Conference. We will be at the Swissotel on Michigan Avenue in Chicago. The conference will include more than 90 sessions and keynote speakers such as Coach Bobby Knight (Thursday pre-conference), Political Commentator Tucker Carlson, and Lt. Col. Bruce Bright. It will also include nearly 95 sessions on business, legal and clinical issues for ASCs. t should be our largest and most interesting conference ever. Should you desire to receive a brochure for the conference, please contact me at 312-750-6016 or at sbecker@mcguirewoods.com.

11. Consolidation. We are seeing substantial consolidation in the hospital and surgery center areas. Consolidation discussions are occurring rapidly both amongst chains and in the acquisitions of hospitals and surgery centers. Prices seem relatively solid.

Should you have any questions, please contact myself at 312-750-6016 or by e-mail at sbecker@mcguirewoods.com.

Very truly yours,

Signature

Scott Becker

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