Despite the recent failure of efforts to federally legislate health care reform accompanied by a collective sigh of relief which sounded like Hurricane Andrew crossing -- health care delivery and the financing of it are undergoing cataclysmic change.
In the past, physicians generally viewed managed care with little or no favor. However, any physician-oriented x3 must acknowledge that the landscape of our industry is changing. Gone are the days where the traditional model for financing health care involved a simple health insurance policy. "Managed care" has become a dominant characteristic of the landscape, and will remain the focus of much attention by those interested in health care reform. Health Maintenance Organizations ("HMOs") were the first "bandwagons" to arrive on the scene, and Preferred Provider Organizations ("PPOs") arrived shortly thereafter.
Many physicians are adapting to the changing environment and creating their own managed care products. These physicians are to be commended: we all remember what happened to the dinosaurs. However, the legal implications for physicians establishing new relationships and organizations are multifaceted, complex and fraught with traps for the unwary. Section 1128B(b) of the Social Security Act of 1987, 42 USCA Section 1320a-7b (also known as the "Fraud and Abuse Laws" or "Illegal Remuneration Statute") prohibits the offer or receipt of any remuneration in return for, or which is intended to induce, a referral of a patient or purchase of an item or services covered by Medicare or Medicaid. Violation of the statute is a felony punishable by up to five years imprisonment and/or $25,000 in fines, and may result in exclusion from the program. This statute has been interpreted to have very wide applicability to a broad range of activities. The consequences to a physician who gets on the wrong bandwagon can be so detrimental that prudence dictates a thorough "look before you leap"!
One managed care initiative is the Physician Hospital Organization ("PHO"). Typically, a PHO is a membership organization formed by a hospital and physicians essentially to contract with managed care plans. The capital and financial structure of a PHO may raise fraud and abuse questions if (1) the physician's capital investment or contribution is a nominal amount or (2) the flow of payments to the physician from third-party payors makes it appear that physicians are, through payor contracts, receiving payments for referrals to the hospital.
Another provider-driven managed care initiative is the Group Practice Association ("GPAs"). In a typical GPA, a network of physicians are part of one legal entity but maintain their individual practice locations.
To the extent that a GPA has a financial relationship with a hospital or other facility, referrals to the facility must not violate federal or state prohibitions on such referrals. The GPA's physician compensation, leases negotiated between the GPA and the physician, and the GPA's physician recruitment or incentive arrangements should (1) be negotiated at arm's length, (2) be set forth in written contracts, (3) reflect fair market values, and (4) not be tied to patient referrals to the GPA. A spokesperson for the Inspector General has stated: "We believe that many of these [GPA] arrangements are merely sophisticated disguises to share profits of business at a hospital with referring Physicians, in order to induce the Physician to steer referrals to the hospital." A word to the wise is sufficient.
Management Service Organizations ("MSOs") are also being utilized. MSOs contract with physicians or physician groups to provide management and administrative services (i.e., billing, purchasing, managed care contracting, etc.). An MSO may be owned by physician-investors, a subsidiary of a hospital, or a combination of the two.
If physicians are investors in the MSO, fraud and abuse questions may be raised:
Any physician contemplating participation in any form of managed care initiative mentioned hereinabove would be well advised to "look before you leap," then pick and safely get on the right bandwagon. Before a physician participates in one of these ventures, he should carefully review the venture first with his attorney.
Published in the Greater Houston Edition of M.D. News, January 1995
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