Maryland Court of Appeals Upholds State Malpractice Award Limit

The Maryland Court of Appeals has upheld the state’s $812,500 limit on malpractice awards for pain and suffering, overturning a lower court’s award of a higher amount, according to a report by the Baltimore Business Journal.

The state limit was enacted by the Maryland General Assembly in 2004.

“This important decision confirms the Maryland legislature’s intent to ensure that people’s needs are met without allowing a lottery-like system’s limitless awards,” said Carmela Coyle, CEO of the Maryland Hospital Association.

Read the Baltimore Business Journal’s report on Maryland’s malpractice limit.

Virginia State Health Commissioner Rejects Plans for Virtual Colonoscopy Clinics

Karen Remley, MD, Virginia state health commissioner, has rejected plans for three virtual colonoscopy clinics, which would have allowed patients to receive both traditional and CT colonoscopies, according to a report in theFredericksburg Free Lance-Star.

Dr. Remley rejected proposals for clinics in Manassas, Loudoun County and Fredericksburg, saying that the clinics were “costly, ineffective and unneeded,” according to the report.

Douglas Harris, the adjudication officer who provided an analysis of the projects for Dr. Remley, said in his report that providing office-based colonoscopies would be convenient and cost-effective for patients, but that bringing a new CT scanner into areas that have unused CT capacity would be unnecessary, according to the report.

Read the Free Lance-Star’s report on Virginia virtual colonoscopy.

8 Top Hospital and Health System Trends of the Past Decade

1. Loosened cost controls. HMOs in the late 1990s had successfully slowed growth in healthcare spending, but by the end of that decade they had come to be regarded as heartless conservators of the bottom line. Managed care’s tight controls began to loosen and “the negotiating power slipped back into the hands of the providers,” says Dick Clarke, president of the Healthcare Financial Management Association. Healthcare costs again began increasing faster than the general rate of inflation. “It’s not clear yet how much of that will change if providers come under more pressure to contain prices,” he says. 

2. Healthcare IT. Healthcare information technology, still rough around the edges in 2000, became a major force in hospital operations by the end of the decade, says Michael Rowan, COO and executive vice president of Catholic Health Initiatives in Denver. Innovations like computerized physician order entry and electronic medical records have been shown to improve safety as well as efficiency. Now, thanks to billions of dollars in incentives in the 2009 HITECH legislation, healthcare IT holds the promise of becoming virtually universal in the next few years. But Mr. Rowan reports that HITECH funds will pay for only about a quarter of the cost of the new technology. 

3. Patient safety movement. At the start of the decade, hospitals were just beginning to hear word of one of the most influential reports in the history of U.S. healthcare: “To Err Is Human: Building a Safer Health System,” published in Nov. 1999 by the Institute of Medicine. It concluded that from 44,000- 98,000 people die annually — the equivalent of 10 fully loaded 757 commercial airliners crashing each week, the report stated — due to errors in inpatient hospital treatment.

As a result, “hospitals started to get much more serious about quality and safety,” says Mr. Clarke at HFMA. The industry embraced continuous quality improvement, adds Thomas Dolan, president and CEO of the American College of Healthcare Executives. “Everybody realized that we have to constantly improve quality and it actually lowers costs because it reduces waste,” he says.

4. Physician entrepreneurialism. Many physicians became entrepreneurs, investing in ASCs, imaging centers and specialty hospitals as a way to supplement declining income due to lack of increases in reimbursements and become more efficient. The trend, however, put physicians into conflict with hospitals, who were concerned about losing market share to the leaner, physician-run organizations. By the end of the decade, it seemed that hospitals and regulators had blunted the trend.

“The ban on physician-owned hospitals in the health reform legislation signals the decline of the entrepreneurial physician,” says Nicholas Wolter, MD, a former MedPAC commissioner and CEO of the Billings (Mont.) Clinic. However, ASCs seem to have become a permanent fixture in U.S. healthcare, offering discounts too big for payors to pass up. 

5. Healthcare consumerism. “The future of market-oriented health policy and practice lies in ‘managed consumerism,’ a blend of the patient-centric focus of consumer-driven healthcare and the provider-centric focus of managed competition,” declared Jamie Robinson, a professor of health economics at the University of California, Berkeley, School of Public Health, in 2005 in the journal Health Affairs.

With the decline of HMOs, consumer-driven healthcare became a new way to contain costs. High deductible plans, with or without tax-free health savings accounts, would make patients cost-conscious consumers. Ratings of doctors and hospitals, from HealthGrades to CMS’ Hospital Compare site, would aid patients in choosing the best providers. Retail clinics opened to serve these new consumers. Hospitals developed a new fascination with patient satisfaction surveys. Brand-new hospitals lavished spending on patient-friendly design features, such as single rooms, sunlit atriums and concierge services, and these features seemed to shift market share. 

6. Shortages of healthcare personnel. In July 2007, the American Hospital Association reported 116,000 open positions for registered nurses in hospitals, and the existing RN workforce was aging. Mr. Rowan at Catholic Health Initiatives observes that the recession has erased the shortage for now, at least, as RNs were forced back into the workforce or into full-time work as family income fell.

Physician shortages also emerged. In a dramatic about-face at the beginning of the decade, the federal Council on Graduate Medical Education abandoned its long-held forecast of a physician surplus and predicted a shortage of 85,000 physicians by 2020. Since then, medical schools have been substantially increasing class sizes, but Congress has not removed a cap on the number of Medicare-funded graduate medical education positions for physicians that has been in place since 1997.

“Current evidence suggests that the United States is headed toward an aggregate shortage of physicians,” the Association of American Medical Colleges declared in 2009. “Given the extended time required to increase U.S. medical school capacity, and to educate and train physicians, the nation must begin now to increase medical school and GME capacity to meet the needs of the nation in 2015 and beyond.”

7. Accountable health organizations. While entrepreneurial physicians continued to spin off from hospitals throughout the decade, Dr. Wolter, the former MedPAC commissioner, says an opposing trend also emerged. Many young physicians were eagerly becoming employees. Accountable health organizations such as Mayo Clinic, the Cleveland Clinic and Geisinger Health System thrived by closely aligning hospitals and doctors to make care more efficient and effective.

Mr. Rowan at Catholic Health Initiatives says accountable health organizations seemed to be taking a lesson from the ASC playbook. Incentivizing physicians can make healthcare more efficient. But he adds that the trend is not easy for hospitals. “Many hospitals have no expertise in running practices,” Mr. Rowan says. “We’re hospital people, not group management people.” Hospitals used to hire doctors merely to generate business. Now, he says, “hospitals want doctors to take financial responsibility for outcomes.”

8. Recession. “The decade will be known for the financial turmoil that came at the end,” says Mr. Clarke of HFMA. In March 2009, Thomson Reuters reported that the median profit margin of U.S. hospitals has fallen to zero percent. Hospitals tightened their belts and many of them ended the decade solidly in the black. But the numbers of non-paying patients are still high and many leaders like Clarke believe we are entering an era of having to do more with less.

Visiting Physicians Association to Pay $9.5 M to Resolve False Claims Allegations

Visiting Physicians Association, a home health agency based in Farmington Hills, Mich., has agreed to pay the federal government and the state of Michigan $9.5 million to settle allegations that it violated the False Claims Act by submitting false claims to Medicare, TRICARE and the Michigan Medicaid program, according to a U.S. Department of Justice news release.

The agreement settles allegations that Visiting Physicians Association submitted claims to Medicare, TRICARE and Michigan Medicaid for unnecessary home visits and care plan oversight services for unnecessary tests and procedures and for more complex evaluation and management services than the services that Visiting Physicians Association actually provided, according to the release.

The allegations originated from four lawsuits filed by private plaintiffs under the qui tam or whistleblower provisions of the False Claims Act, which permit private parties to file an action on the government’s behalf and share in any recovery. This settlement provides that the four whistleblower plaintiffs will collectively receive a total of approximately $1.7 million, according to the release.

Read the DOJ’s release on Visiting Physicians Association.

Two Florida Physical Therapists Indicted on Healthcare Fraud Charges

A federal grand jury has indicted Lillian Pagkaliwangan and Raymundo Arellano, who are married, of Lakeland, Fla., with conspiracy to commit healthcare fraud, according to a report in Tampa Bay Business Journal.

The charges stem from alleged fraudulent billing practices at Lakeland Therapy Providers and Optimum Therapy, owned by Ms. Pagkaliwangan and operated by Mr. Arellano, according to the report.

Additionally, the two therapists are charged with 10 counts of making false statements related to the delivery and payment of healthcare services and three counts of aggravated identity theft, according to the report.

The couple faces a maximum sentence of 66 years in prison if convicted.

Read the Business Journal’s report on Lillian Pagkaliwangan and Raymundo Arellano.

Mobile technology should enhance work of human providers

MODERN LIFE is a blur of motion and activity, with people constantly communicating on the run. Traditionally slow to change its ways, healthcare is far from the cutting edge of mobile technology, but it’s making strides to close the gap.

“The opportunity for mobile technology to change the way we deliver healthcare is enormous, but the current state of affairs leaves a lot to be desired,” says Joseph C. Kvedar, MD, Director of the Boston-based Center for Connected Health. The Center, a division of Partners HealthCare, seeks to apply consumer-ready technologies, such as cell phones or digital cameras, to enhance the patient-physician relationship. “On the bright side, the time to make it happen is now, for two reasons: Payment reform is taking shape, and employers are fed up. Payment reform affects physician behavior, and employers affect employee behavior. When those two forces are aligned, big things can happen.”

For healthcare executives, the key is to not get caught up in the technology itself, but to view it as a means of improving human performance in—and satisfaction with—the healthcare experience. In other words, mobile technology should enhance the work of human providers, rather than seek to replace them.

“Mobile devices that can document and view vital signs, ECG strips, pain scores, medication data, lab results and nurses assessments, can give a bigger picture of what is going on so the physician can make the right decision quickly,” says Veronica Carr, nursing information coordinator with Shands Healthcare, a not-for-profit system affiliated with the University of Florida.

Best of all, mobile technology is exactly that: mobile. Savvy healthcare veterans don’t limit its role to a healthcare facility, but extend it out into the community to ensure its impact is felt by as many people as possible.

REMIND ME AGAIN

The first hurdle to using mobile devices in a community outreach program is finding technologies that the target population has access to and is willing to use. Studies have shown that more than half of all U.S. physicians own some type of smart phone, but they aren’t common in the general population.

“While it would be great if a doctor could remotely see your blood pressure or blood glucose readings on your BlackBerry, there just aren’t enough of those devices in use yet,” Dr. Kvedar says. “That’s why we look for the ‘lowest common denominator’ technologies. We do a lot with text messaging, because almost everyone with a mobile phone can send and receive them. It reaches a broad audience but still can deliver a powerful message.”

The center has two major text-message-based initiatives underway, each of which targets a highly vulnerable population. The first sends texts to remind pregnant teens to come in for their prenatal visits, and the other sends texts to substance abusers who are enrolled in addiction programs as a reminder to come in for their visits.

But even though 70% to 80% of the people in those two groups have mobile phones with text messaging capability, getting the reminder to them is only half of the battle. The other half is getting them to act on it, and who the message comes from is almost as important as the message itself, Dr. Kvedar says.

“It makes a big difference when the reminder comes from the patient’s own healthcare provider, as opposed to a vendor or even a health plan,” he says. “If you want your acceptance rate to go up, have a doctor or nurse recommend the service directly.”

FREE FLOW OF INFORMATION

Since the earliest days of organized healthcare, the basic layout of a hospital has revolved around a central nurses’ station, which acts as a communications hub for the entire floor. In years past, nurses shuttled information from the nurses’ station to patient rooms. Today, nurses and other clinicians are just as mobile as their predecessors, but in a completely different way. They aren’t moving patients’ information; they’re moving the actual patients from one room to another, and they need access to information everywhere.

“Patients today are very mobile, even within the walls of a hospital, so the nurses and clinicians who treat them need to be able to move as well,” says Edward Cuellar, CIO of San Antonio, Texas-based Methodist Healthcare, the city’s largest care provider with eight hospitals among its two dozen facilities. “Wireless communication plays an integral role in getting information to clinicians at the right time and in the right place, helping to speed clinical decision-making and deliver exceptional patient care throughout the continuum of care.”

Cuellar should know a thing or two about mobile technology. Earlier this year, Methodist entered into an agreement with two third-party vendors to develop a converged wireless system for six hospital sites. The deployment, which will provide voice and data services across an area spanning nearly 2 million square feet, includes an integrated wireless platform that will run on more than 800 wireless phones carried by physicians, nurses, administrators and staff.

Shands also has undertaken a project to keep patient data accessible to clinicians throughout its facilities, deploying an electronic charting program for nurses via laptop computers on mobile carts. Technology that people won’t use has little value, so while it was important to get multiple opinions during the planning stages of the project, it’s equally important to select a standard quickly to facilitate consistency and increase adoption, according to Erik Stielow, Shands’ manager of technical projects.

“Getting the buy-in of the end users is essential to a successful rollout,” he says, “but it’s also important to standardize relatively soon on a vendor for your hardware. Not everyone will be happy with available options or features but in the long run, end users are most satisfied when there is a consistent device experience and a high standard of up-time.”

Having multiple vendors and multiple platforms increases the need for end user training and limits IT’s ability to respond to hardware downtime, he says.

THE HUMAN EXPERIENCE

More than any other industry, the focus must remain on the human experience, whether a provider’s or patient’s. There is no room for “technology for technology’s sake.”

“In healthcare, you are faced daily with the human element,” Stielow says. “You see the frustration and the ache in people when they are sick, and their joy and jubilation during the birth of a child or the news that they are healed. We must never forget that we are here to serve our community, and all that we do as a business must support that goal.”

And that goes for getting a technology project approved and funded, according to Cuellar. When dealing with various decision makers, check the technical jargon at the door and focus on the practical results.

“Even as a CIO, if someone comes to me and wants to talk about this great new healthcare technology, I don’t want to hear about bits and bytes,” he says. “It should start with people, and that means workflow. The focus of technology should always come back to enhancing and improving the delivery of care.”

MedPAC Proposes Increases for Hospitals, Physicians; 0.6% Payment Increase for ASCs

Medicare Payment Advisory Commission is proposing that Congress give hospitals that perform at higher levels in CMS’ the pay-for-performance program a payment update of 2.4 percent in fiscal year 2011, based on the market basket index. Hospitals that don’t perform well on P4P would not get the payment update, a MedPAC official says.

However, the commission is also proposing another adjustment to hospitals’ payments to offset increases caused by coding improvements, the official says. These reductions, of up to 2 percent in fiscal years 2011-2013, would mean an aggregate inpatient update of 0.4 percent in fiscal 2011 for high performers in the P4P program, the official says.

Don May, vice president of policy at the American Hospital Association, stated that that the AHA was “disappointed” with MedPAC’s hospital payment recommendation, noting that CMS, which already has authority to apply an offset, had suggested using a “less aggressive” transition.

The exact wording of the MedPAC recommendations for hospitals is as follows:

Recommendation 1: “The Congress should increase payment rates for the acute inpatient and outpatient prospective payment systems in 2011 by the projected rate of increase in the hospital market basket index, concurrent with implementation of a quality incentive payment program.”

Recommendation 2: “To restore budget neutrality, the Congress should require the Secretary to fully offset increases in inpatient payments due to hospitals’ documentation and coding improvements. To accomplish this, the Secretary must reduce payment rates in the inpatient prospective payment system by the same percentage (not to exceed 2 percentage points) each year in 2011, 2012, and 2013. The lower rates would remain in place until overpayments are fully recovered.”

MedPAC’s recommendations also include a 1 percent payment update for physicians in fiscal year 2011. The commission reiterated its support for increased payments for primary care. Since overall physician payments would need to be budget-neutral, this increase would translate into a decrease in payments for specialists, the official said.

The exact wording of the MedPAC recommendation for physicians is as follows:

Recommendation: “The Congress should update physician payments for physician services in 2011 by 1.0 percent.”

MedPAC also recommended a  0.6 percent payment increase for ASC services in fiscal year 2011, but only for centers that submit cost and quality data to the CMS.

MedPAC and other policymakers are questioning whether the consumer price index, the factor now used to set ASC payments, is the best choice or whether the hospital outpatient market basket might be better, the official says.

Kathy Bryant, president of the ASC Association, says the recommendation is consistent with MedPAC’s past recommendations.

“The ASC Association continues to recommend that future ASC inflation updates be based on the market basket,” says Kathy Bryant, president of the ASC Association. “The ASC Association is continuing to work with MedPAC to improve its recommendations to Congress.”

The exact wording of the MedPAC recommendation for ASCs is as follows:

Recommendation: “The Congress should implement a 0.6 percent increase in the payment rates for ASC services in calendar year 2011 concurrent with requiring ASCs to submit cost and quality data.”

The commission recommended no payment updates for inpatient rehabilitation facilities, long-term care hospitals, skilled nursing facilities and home health providers.

MedPAC’s recommendations will be included in its report to Congress in March.

Southeast Missouri Hospital Named as One of Top 10 GI Hospitals in the State

Southeast Missouri Hospital in Cape Girardeau, Mo., has been named as one of the top 10 hospitals for gastroenterology surgery procedures in the state of Missouri and received recognition from the American Society of Gastrointestinal Endoscopy, according to a report in the Southeast Missourian.

The hospital received the first honor from HealthGrades, which ranked the hospital based on outcomes data compiled from The Twelfth Annual HealthGrades Hospital Quality in America Study, according to the report. Patient mortality and complication rates for patients undergoing GI procedures were significantly below the national average, earning Southeast a five-star rating for 2010.

Southeast was one of 134 hospitals receiving the ASGE award and the only hospital in southeast Missouri and southern Illinois to be designated, according to the report.

The hospital was presented with the awards on Jan. 12, 2010.

Read the Missourian’s report on Southeast Missouri Hospital.

Oklahoma Health System Pays $13.2M Settle False Claims Allegations

St. John Health System, based in Tulsa, Okla., has agreed to pay the federal government more than $13.2 million to settle allegations that it violated the False Claims Act by providing kickbacks to physicians for referrals and then billing Medicare and Medicaid for those services, according to a U.S. Department of Justice news release.

St. John allegedly made payments to 23 different physicians or physician groups to induce referrals for medical services.

The False Claims Act prohibits healthcare providers like St. John from billing a federal healthcare program, such as Medicare or Medicaid, for services resulting from referrals by physicians who have a financial relationship with the facility, unless that relationship falls within certain exceptions. Additionally, the federal Anti-Kickback Statute prohibits the payment of kickbacks for the referral of services that are paid for under a federal healthcare program.

In April 2008, St. John submitted a self-disclosure report to the Department of Health and Human Service’s Office of Inspector General that acknowledged that the physician agreements may have run afoul of federal law, according to the release.

The settlement announced today resulted from the company’s disclosure.

Read the DOJ’s release on the St. John Health System False Claims settlement.

Legal Issues for 2010

The ambulatory surgery center industry (ASC) confronted both challenges and change in 2009. However, with numerous ASC developments underway and an economic recovery on the horizon, the ASC industry is poised to perform well in 2010. This article addresses the key business and critical healthcare regulatory developments of this past year and their potential impact on the ASC industry for 2010.

Sale to ASC Management Companies and Health Systems

A significant business issue confronted in 2009 by the ASC industry was the decline in transactions involving a sale of a significant equity interest in an ASC to an ASC management company or health system. This decline was likely precipitated at least in part by a few historical ASC management companies that slowed down their acquisition strategies due to the tightened credit market.

In addition, the terms and pricing associated with a sale of a significant equity stake in an ASC clearly changed. For the past few years, many ASC management companies and health systems were willing to acquire a controlling equity interest in an ASC for a 7-plus purchase price multiple. Most purchase price multiples have dropped into the 5-6 range.

The purchase price formula is typically calculated as follows: (i) the ASC’s earnings before interest, taxes, depreciation and amortization (EBITDA) for the prior twelve months; multiplied by (ii) the purchase price multiple (e.g., 5-6 range); less (iii) the ASC’s long-term liabilities; multiplied by (iv) the ownership percentage being purchased. For example,. assume an ASC with $800,000 in EBITDA and no long-term debt desires to sell a 51 percent interest to an ASC management company, then the purchase price could range from $2 million to $2.5 million (e.g., [($800,000 x 5 to 6) – $0] x 51 percent).

Some new well-funded corporate buyers have also emerged in 2009. Additionally, hospitals continue to have an appetite for ASC acquisitions. As a result, a slight uptick in these transactions can be anticipated for 2010. While purchase price multiples will likely hover in the 5-6 range, ASC companies have also introduced more creative strategies to make deals more attractive to selling physicians, including the use of earn-outs and staged transactions. These strategies warrant careful attention as they can introduce new healthcare regulatory and other legal issues into the mix.

Hospital/Physician Alignment Options and Changes to the Stark Law

Hospitals and health systems will likely continue to leverage their higher reimbursement rates and community branding as a means to attract ASCs to them over other corporate investors. Historically, some hospitals pursued an “under arrangement” transaction strategy with physicians in an ASC setting.

While the terms of an “under-arrangement” transaction can vary considerably, it typically involves a physician-owned company leasing the space, equipment and/or staff to the hospital — perhaps on a turn-key basis. The hospital bills Medicare and other payors for the services and pays the physician-owned entity a fixed fee, variable fee or hybrid fixed/variable fee.

However, Stark law changes that became effective as of Oct. 1, 2009 forced hospitals and physicians to restructure or unwind such arrangements. In particular, the scope of the Stark law was expanded to apply not only to the entity billing for a “designated health service” (i.e., the hospital) but also the entity that is performing the designated health service (i.e., the physician-owned entity). In addition, the Stark law no longer permits a physician owned entity to lease space or equipment on a per-click, percentage of revenue or other similar fee structure.

In what appears to be an emerging trend across the country, a number of health systems are also considering (or for many — reconsidering) a broad spectrum of hospital/physician alignment and integration options including physician practice acquisitions, use of the foundation model, and entering into professional service and employment arrangements with surgeons and other proceduralists. These strategies may be driven at least in part by the changes to the Stark law as well as the mutual desire of hospitals and physicians to collaborate in the provision of healthcare services in a more meaningful and long-term manner.

Migration of Procedures From Hospitals Into the ASC

At the individual ASC level, in spite of a slight decrease in demand, many ASCs have grown their profits. The revenue growth may be due in part to the movement into the ASC of procedures historically required to be performed in the hospital setting, such as vascular access and certain orthopedic procedures.

The emergence of these procedures new to the ASC setting has been primarily driven by advances in medical technology as well as the expanded list of Medicare ASC covered procedures under the revised ASC payment system. Adopted by the Centers for Medicare and Medicaid Services in 2007, the revised ASC payment system allows an ASC facility fee to be paid for any surgical procedure performed at an ASC, except those surgical procedures that CMS determines are either not safe when furnished in an ASC or in which the expected duration of services would exceed 24 hours following admission.

The addition of these procedures to an ASC can have an immediate positive impact on an ASC’s bottom-line. As a result, many ASCs are examining the viability of adding these procedures to their ASC by attracting the appropriate physician specialists and sub-specialists and properly equipping the facility for such procedures.

Physician Re-Syndications

Physician re-syndications (i.e., sale of equity interests to physicians) remain very active for a number of reasons. First, ASC companies and physician owners of ASCs often desire to solidify physician utilizers’ relationships to their ASC by having them purchase equity interests. Second, a number of ASCs are reselling equity that was repurchased from prior physician investors who are no longer utilizing the facility.

Many ASCs, however, are struggling with how to make the buy-in price to physicians more attractive. The purchase price must be consistent with fair market value to minimize anti-kickback law issues. The purchase price formula for a physician’s purchase of a minority interest is the same as the formula used by an ASC management company, except that a 2-4 purchase price multiple is typically used in lieu of the 5-7 multiple. The buy-in, however, can still be quite significant. For example, assume the same ASC, as previously mentioned, desires to sell to a 5 percent equity interest to a physician, then the purchase price could range from $80,000 to $160,000 (i.e., [($800,000 x 2 to 4) - $0] x 5 percent) Allowing the ASC or its owners to loan monies to the physician to buy-in, including through an advance of future ASC distributions, could raise regulatory concerns. Accordingly, an ASC may consider alternative strategies to make the purchase price more affordable. These strategies may include the use of a dividend recapitalization or preferred distribution (which are treated as a liability in the formula described above thereby reducing the purchase price).

Alternatively, an ASC could undergo a tax-free restructuring so that the ASC is owned through a physician group practice. Group practice ownership of an ASC may allow an ASC to depart from a fair market value buy-in price.

Physician Buy-Backs

Many ASCs continue to be confronted with physician partnership and “deadweight” issues. A recently filed lawsuit, DeBartolo v. HealthSouth Corp. brings to the forefront the issue of non-productive physician owners in ASCs. The lawsuit was filed by a surgeon investor in an ASC whose shares were repurchased because of his failure to perform at least one-third of his procedures at the ASC.

The case is significant because it addresses the critical issue of whether the repurchase of a physician’s equity interest for failing to utilize the ASC would violate the anti-kickback law. On the one hand, the federal anti-kickback law ASC safe harbor mandates that a physician must perform at least one-third of his procedures at the multi-specialty facility in which he has an ownership interest. However, regulatory concerns could also arise if an ASC’s redemption of a non-productive physician is intended to penalize the physician for not selecting this particular facility for the procedure.

Nevertheless, many ASCs have incorporated compliance with the one-third test requirement into their governing documents. If a physician owner fails to perform at least one-third of his or her ASC procedures at the ASC in which he or she is an owner, then the ASC’s governing document may provide that such physician’s ownership interest in the ASC can be repurchased by the ASC or its other owners.

In an early ruling in DeBartolo, the federal court dismissed the lawsuit indicating it should be addressed under state law. While too early to determine, this initial ruling suggests that physician buy-back issues may simply raise state contract law claims. It is therefore critical that an ASC’s governing document incorporates the latest terms and mechanisms for dealing with physician equity buy-backs in a manner that takes into account the latest regulatory and other legal guidance.

Conclusion

There is no denying that this past year was a bit sluggish for the ASC industry, particularly in the transactional front, as it faced its own set of challenges including dealing with aggressive payor “out-of-network” billing strategies and the potential impact of health system reform. However, most ASCs escaped generally unscathed from the economic woes of this past year.

As 2010 gets underway, there are a number of favorable indicators for the ASC industry. Newly emerging buyers with capital are in search of ASC acquisition opportunities. Hospitals remain interested in pursuing collaborative strategies with physicians, particularly in the ASC and other outpatient sectors. And, ASCs are adopting a number of revenue enhancement strategies including through performing procedures not historically performed in the ASC setting, physician re-syndications and by adding ancillary revenue streams (e.g., anesthesia). As a result, the ASC industry is poised to have a strong year in 2010.

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