Healthcare: Current Regulatory And Legislative Activity

Saturday, March 1, 2008 - 00:00

Editor: Mr. Washlick, would you tell our readers something about your professional experience?

Washlick: My practice focuses on commercial transactions involving healthcare organizations, including hospitals, healthcare systems, physician groups and other large healthcare providers. It runs the full gamut on the transactional side - joint ventures, mergers and acquisitions, physician contracts, and so on - and, by its nature, also includes considerable regulatory compliance advice.

I came to Cozen O'Connor from another firm, where I directed its commercial healthcare practice. What I found attractive about Cozen was that it possessed one of the few full service healthcare practices in the region. When I refer to "full service," I mean we handle commercial transactions, complex litigation, reimbursement disputes, managed care contract negotiations and regulatory compliance. The depth of knowledge and breadth of experience of Cozen's healthcare attorneys was very appealing.

Editor: What are the biggest risks facing the healthcare field?

Washlick: There are several risks that even the most sophisticated need to be wary of when structuring commercial transactions/provider relationships. But, Stark (anti-referral law) and anti-kickback laws present a variety of landmines for healthcare providers. An arrangement inadvertently violating Stark rules, for example, will result in the denial of reimbursement for particular designated health services. The same is true with respect to the anti-kickback statutes which, unlike Stark, are criminal statutes. Therefore, it's essential for healthcare providers to have appropriate corporate compliance programs in place to assure conformity with these and other laws governing healthcare transactions and professional relationships.

Editor: Physician-vendor relationships can be positive, but they can also be a liability. What factors should counsel consider before entering such agreements?

Washlick: Physician-vendor relationships are coming under greater and more intense scrutiny. The Journal of the American Medical Association describes a relationship as a conflict of interest when a physician's judgment might be swayed by virtue of his or her relationship with the vendor. For example, what is the expectation when a vendor provides a physician with certain benefits, say, a free lunch, or theatre and sporting event tickets?

On its face, these so-called gifts might also implicate the anti-kickback statutes or Stark. As a consequence, some academic medical centers have gone so far as to ban the acceptance of gifts altogether, irrespective of the value or source. To some, this may be going a little too far - even the Office of Inspector General's (OIG) guidelines suggest that books and certain items are acceptable if they can potentially help a physician in his or her practice. However, the OIG does say it is critical that providers adopt and implement a policy regarding that acceptance of non-cash gifts.

There are also issues with respect to transparency - newspapers are filled with accounts of patients who were unaware of some financial interest their prescribing physician had in a drug or item of durable medical equipment.

In today's hypersensitive environment, the public must have confidence that medical judgment is not going to be compromised by external financial influences.

Editor: Physicians also have to tread carefully when making patient referrals to other medical facilities. What are some potential pitfalls?

Washlick: With referrals to facilities, the biggest pitfall surrounds Stark. If the physician has any financial interest with respect to a facility - i.e., an investment, or a compensation interest, which would include a lease of property or personal services - and the referral is for a Stark-designated health service that Medicare would otherwise reimburse, there is a serious issue. If Stark is implicated, the provider will only be able to submit a claim to Medicare for reimbursement if it meets one of the various Stark exceptions. If it does not, submitting the claim to Medicare for reimbursement will violate Stark. Aside from Stark, the anti-kickback laws also can come into play with respect to how the physician is compensated under the arrangement. If any part of compensation relates to his/her volume of referrals, actual or anticipated, vis--vis other physicians, the anti-kickback statutes may also be implicated.

Editor: What should healthcare organizations be evaluating to ensure good governance?

Washlick: At the moment, there is considerable pressure from a variety of sources on the governing boards of tax-exempt organizations to voluntarily adopt good governance practices. Sarbanes-Oxley is a good primer with respect to best practices in governance, and many organizations have adopted the principles underlying the statute, whether or not they are strictly applicable. Certainly any healthcare organization should have a conflicts of interest policy, and an organization of any real size ought to have an audit committee with independent members and the requisite expertise.

Additionally, during 2007, the IRS actively pushed best practices principles on boards of directors of exempt organizations. For instance, the IRS issued draft guidelines for good governance practices in February 2007, and released the revised Form 990 for tax-exempt organizations in December 2007, which requests substantial information regarding best governance practices that the IRS acknowledges is not required under the law. Optional for 2008, but mandatory thereafter, the form requires disclosure of whether certain policies and procedures are in place. This covers a pretty wide area, such as conflicts of interests, record retention, whistle-blower protection and compensation policies. It's safe to say that, while not required by law, the IRS is now expecting tax-exempt organizations to have the various policies referenced in the Form 990 in place, and is principally putting the burden on the governing boards to comply.

Editor: How can healthcare institutions navigate current IRS forms, including Form 990, pertaining to tax-exempt organization issues?

Washlick: For starters, such institutions need to have tax compliance as part of their overall compliance program. In fact, in keeping with good governance, the revised Form 990 should be on the top of the list of 2008 compliance issues for boards to consider.

The new Form 990 is an attempt to have 501(c)(3) healthcare organizations, including hospitals, quantify the community benefit they actually provide and assess the needs of that community. The Catholic Health Association recently developed guidelines on this that the IRS uses in its instructions for the new Form 990. These rules are especially important in an era where for-profit hospitals are also engaged in providing charity care. The way in which non-profits distinguish themselves from their for-profit counterparts is the basis for justifying the continuation of exemption from taxation and remains the subject of legislative hearings. So, you can count on Congress intently scrutinizing Form 990.

On the other hand, the new Form 990 presents an opportunity for the tax-exempt hospitals to tell their story of what they do and how their services further the organization's charitable mission. Another reason for organization leaders to pay careful attention when completing the form is that information gathered by the IRS might likely lead to future rulings, regulations and enforcement action.

Editor: Improving quality of care is also top priority. In light of increased scrutiny from the OIG, what standards should be set?

Washlick: Quality of care is on the OIG's 2008 work plan, and it has been a major initiative with respect to long-term care facilities, nursing homes and the like for some time. Taking the lessons learned there into the hospital and health system arena is the next step for the OIG.

Quality of care is directed at inadequate and substandard care, but it opens the door to much more. For instance, the government has been successful in bringing suits against providers, under the Civil False Claims Act, for submitting claims to the government for reimbursement for inadequate care.

In addition, the OIG and the American Health Lawyers Association have issued an educational resource guide for healthcare boards of directors regarding corporate responsibility and healthcare quality. Boards and organization leaders should refer to this document, which is intended to assist them in carrying out their oversight responsibilities, focused on promoting quality of care and preserving patient safety.

Editor: Quality of service is being rewarded through pay-for-performance plans, becoming more and more commonplace. Tell us about Medicare's pilot program in this area.

Washlick: I think Medicare deserves credit for this initiative. The Centers for Medicare & Medicaid Services (CMS) pay-for-performance pilot program rewards physicians and hospitals for improving the caliber of care. The key here is having an infrastructure in place, together with information systems enabling the provider to benchmark against future service and thereby demonstrate the improved care. Pay-for-performance represents a major driving force in moving the quality of care forward.

CMS's pilot program included in excess of 220 hospitals. There is no question that the results they have achieved represent a substantial increase in the quality of care at the participating hospitals. This signifies an enormous shift in thinking, from paying the provider irrespective of the quality of its service, to offering an incentive to provide a higher quality of care.

What makes this work, for the physicians and hospitals, is having a potential bonus pool available of additional money to spread among those providers who experience favorable performance outcomes. And, commercial health insurance companies have bought into this concept as well - they understand they can save money if their insureds receive the appropriate care in a manner that avoids preventable complications.

Editor: How can counsel work with hospital and health system management to institute protocols and set realistic benchmarks for pay-for-performance programs to be successful?

Washlick: Developing the requisite protocols is a team effort involving management, physicians and counsel. The development and execution of successful protocols depend on "buy-in" at every level, and, most importantly, at point of delivery. Many institutions see ongoing credentialing - and related access to staff privileges - as the key to physician participation. Counsel can help to ensure that objective and non-discriminatory criteria are utilized to evaluate physicians, and that such quantified criteria, underlying all pay for performance plans, are used across the board and have their own independent basis. The success of any program is not concerned with how many procedures the physicians or practice groups or institutions perform, nor what they contribute economically in the form of referrals, but rather with measurable outcomes.

Editor: On the legislative front, what is poised to impact the healthcare industry?

Washlick: That's a tough question, given the fact we are now in an election year. At the moment, there is nothing in the legislative pipeline poised to have a major impact. But , with every presidential candidate talking about some kind of healthcare reform, we are very likely going to see some legislative activity following the election. With respect to the regulatory arena, a number of deferred Stark modifications to the rules, governing lease arrangements and physician joint ventures, are in the works. We are ultimately going to have to wait and see what major overhauls are in store for the healthcare industry.

Please email the interviewee at with questions about this interview.