HISPANIC (H

This conference season, private equity (PE) investors and providers compared notes on the current state of the markets, trends, opportunities and challenges. Below is a summary of key trends that have been discussed.

A recent Health Care Private Equity Panel during the Young Jewish Professionals CEO Healthcare Symposium, co-sponsored by Foley and moderated by Foley partner Chris Donovan, explored the strategies of different investment funds. Speakers included Bob Schulz of Health Enterprise Partners, Ameya Agge of BlueMountain Capital Management, and Richard Mattera of Optum. Currently, health care represents 18% of the gross domestic product and that already significant percentage is expected to grow. Given the high level of spending, and despite the range of strategies and focal points in the health care market that varies from middle market to distressed investing, each panelist shared the common goal of lowering the total cost of health care while enhancing outcomes. Panelists emphasized the attractiveness of target investments that reduce costs of care without impairing quality. Many of those investments are capital intensive, involve information technology/data spend of a high magnitude, or require significant scaling to achieve a level of profitability to warrant the initial investment.

Given these capital demands, larger PE/hedge funds and strategic investors have become more nimble at structuring investments either as joint ventures a valuable and indispensable player in the evolving health care ecosystem. These novel models, when compared to the traditional growth equity and buyout models, are seen as a trend line that will be embraced by sellers and buyers, especially larger providers and systems that may seek to access the benefits or private capital but not sacrifice clinical and other strategic control.

All speakers agreed that private equity would be a key player in the ongoing consolidation of many sectors in health care, especially outpatient services that have historically been highly localized, siloed, and disaggregated.

Four Key Takeaways for Private Investors

Another panel of PE Investors discussed four key takeaways that highlight some unique features of the current market at the iiBIG’s Investment and M&A Opportunities in Health Care conference. Chris Donovan moderated the session and panelists included Andrew Farris, Director – Private Equity Investment Team of BlackRock PE Partners, Fred Lee, Head of Business Origination of Leerink Revelation Partners, and Larry Simon, Partner of Clearview Capital.

1. Partnerships. Large systems are challenged by slim inpatient margins and are making bolder bets in outpatient and ancillary service areas. To do that, in many cases, requires significant capital for IT, personnel, new infrastructure and dedicated standalone assets and capabilities to service the system and potentially third parties. Health systems are finding that PE is a ready and capable capital partner to share the capital burden without ceding clinical and financial control over key areas.
2. Financial Structuring. Recent deals have evidenced a willingness by PE to partner with strategics to create a financial arrangement that both satisfies PE’s return targets as well as a strategic strategy objective. For example, the panel referenced the recent Kindred deal involving Humana, TPG Capital, and Welsh, Carson, Anderson & Stowe that features put/call rights amongst the investor parties as a good example of a PE return structure wrapped around a strategic goal of Humana to acquire home health and hospice providers for their MA plans.
3. The Effect of Social Determinants of Health.  Increasingly, PE will be asking targets how to fill in the blanks on some assumptions on underwriting that may have previously been overlooked. For example, has the target included social determinants of health criteria in its pro forma modeling in terms of upside on revenue through better clinical outcomes at lower cost and downside? Has the target identified any social determinants of health that, as addressed, could improve outcomes? If so, at what cost and is reimbursement available (directly or on a quality basis) therefore?
4. Platform Creation. The current highly active auction and valuation market in certain areas (e.g. health care information technology, physician practice management specialties (PPMs), and autism) are requiring PE to do more platform “creation” on their dime and with their capital. For example, a specialty physician practice with adequate EBITDA levels in a given market may not simply exist and need to be formed out of a series of smaller practices with the PE firm identifying synergies, revenue capture opportunities, and cost duplication. Creating the platform, as opposed to buying one, is time consuming and can negatively impact return. However, it can be done at a lower initial valuation with a higher degree of confidence that pro forma returns will be realized.

Summary

Given the trends that have recently been covered in various conferences, PE continues to invest aggressively in the health care market. Given the high capital needs in a dynamic market, disaggregated provider niches in need of consolidation and the pressure on all players to reduce cost and add value; PE will be a major player in shaping health care M&A markets for the foreseeable future.

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On April 29, 2019, the Florida State Legislature passed HB 23, a law providing additional guidelines on the use of telehealth in the Sunshine State. The bill is now on its way to Governor DeSantis’ desk where he is expected to sign it into law. The law cements the validity of telehealth services in Florida, establishes new telehealth practice standards, creates a registration process for out-of-state health care professionals to use telehealth to deliver health care services to Florida patients, and introduces less-than-ideal commercial reimbursement provisions.

Passage of the bill is due to the outstanding efforts of the Florida telehealth community, including the Florida Telehealth Advisory Council and its dedicated members. The 13-member Council held public meetings throughout 2017, conducted a research survey of Florida health plans, facilities, and providers, and ultimately completed a comprehensive report with recommendations to the Legislature for a telehealth bill.

The bill creates a new section in the Florida statutes (Section 456.47, F.S.) which takes effect July 1, 2019. The essential provisions are summarized and explained below:

Key Definitions

• Telehealth is defined as the use of synchronous or asynchronous telecommunications technology by a telehealth provider to provide health care services, including, but not limited to, assessment, diagnosis, consultation, treatment, and monitoring of a patient; transfer of medical data; patient and professional health-related education; public health services; and health administration. Telehealth does not include audio-only telephone calls, e-mail messages, or fax transmissions.
• Telehealth Provider is broadly defined as an individual who provides a health care service using telehealth, which includes, but is not limited to, a licensed physician, podiatrist, optometrist, nurse, nurse practitioner, pharmacist, dentist, chiropractor, acupuncturist, midwife, speech language pathologist, audiologist, occupational therapist, radiological personnel, respiratory therapist, dietician, athletic trainer, orthotist, pedorthist, prosthetist, electrologist, massage therapist, medical physicist, optician, hearing aid specialist, physical therapist, psychologist, clinical social worker, mental health counselor, psychotherapist, marriage and family therapist, behavior analyst, basic or advanced life support service, or air ambulance service. Telehealth provider also includes an individual licensed under a multi-state health care licensure compact of which Florida is a member state or an individual who obtains an out-of-state telehealth registration (discussed in more detail below).

Practice Standards

• Standard of Care. The new law makes it clear that a telehealth provider has the duty to practice in a manner consistent with his or her scope of practice and the prevailing professional standard of practice for a health care professional who provides in-person health care services to Florida patients.
• Telehealth Exams. A telehealth provider may use telehealth to perform a patient evaluation. If a telehealth provider conducts a patient evaluation sufficient to diagnose and treat the patient, the telehealth provider is not required to research a patient’s medical history or conduct a physical examination before using telehealth to provide health care services.
• Telemedicine Prescribing. A telehealth provider may only use telehealth to prescribe a controlled substance if the controlled substance is prescribed for: (1) the treatment of a psychiatric disorder; (2) inpatient treatment at a hospital; (3) the treatment of a patient receiving hospice services; or (4) the treatment of a nursing home resident. This change expands telemedicine controlled substance prescribing in Florida to hospice and nursing home patients. Prior to this law, controlled substances could only be prescribed via telemedicine for the treatment of psychiatric disorders or for patients in a hospital. The Florida Board of Medicine may need to update its regulations to reflect this expansion. Telemedicine prescribers should continue to be mindful of prescribing requirements under federal laws, as remote prescribing of controlled substances is governed by the Ryan Haight Act.
• Patient Medical Records. Telehealth providers must maintain a complete record of the patient’s care according to the same standard as used for in-person services and comply with applicable Florida law for confidentiality and disclosure of the patient’s medical record.

Out of State Registration and Licensure Exceptions

• Out-of-State Registration. The new law authorizes out-of-state health care professionals, without a Florida license, to use telehealth to deliver health care services to Florida patients if they register with the Department of Health or the applicable board, meet certain eligibility requirements, and pay a fee. To obtain an out-of-state registration the health care professional must:
  • Complete an application;
  • Maintain an active, unencumbered license issued by another state that is substantially similar to the corresponding Florida license;
  • Not have been the subject of disciplinary action relating to his or her license for the previous 5 years;
  • Designate a registered agent for service of process in Florida;
  • Maintain professional liability coverage, that includes coverage for telehealth services to patients in Florida, in amounts equal to or greater than what are required for a Florida-licensed practitioner;
  • Not open an office in Florida or provide in-person health care services to patients located in Florida.
  • Only use a Florida-licensed pharmacy or a registered nonresident pharmacy or outsourcing facility to dispense medicinal drugs to patients located in Florida. (Pharmacists only)
• Licensure Exception. A health care professional who is not licensed to provide health care services in Florida, but who holds an active license to provide health care services in another state, may provide health care services using telehealth to a patient located in Florida without a Florida license and without an out-of-state registration, if the services are provided: (1) in response to an emergency medical condition; or (2) in consultation with a Florida-licensed health care professional who has ultimate authority over the diagnosis and care of the patient.

Insurance Coverage of Telehealth Services

While the bill is a great step forward for providers of telehealth services on several fronts, it does not actually require health plans to cover services delivered via telehealth.

With an effective date of January 1, 2020, the bill creates a new Section 627.42396, F.S., which reads:

“A contract between a health insurer issuing major medical comprehensive coverage through an individual or group policy and a telehealth provider, as defined in s. 456.47, must be voluntary between the insurer and the provider and must establish mutually acceptable payment rates or payment methodologies for services provided through telehealth. Any contract provision that distinguishes between payment rates or payment methodologies for services provided through telehealth and the same services provided without the use of telehealth must be initialed by the telehealth provider.”

A new subsection (45) also was added to Section 641.31, F.S., which mirrors this language for health maintenance organizations.

The language merely clarifies that contracts signed by insurers with telehealth providers be “voluntary” with mutually acceptable rates or payment methodologies and requires the telehealth provider to initial any contract provision that would cause telehealth reimbursement to be different than reimbursement for the same services provided in person. This new reimbursement statute resembles the telehealth commercial insurance coverage law in Michigan. Unfortunately, for now, health plan reimbursement continues to be a stumbling block for telehealth providers and patients as Florida remains among the minority of states without a meaningful telehealth insurance coverage law.

What’s Next?

Florida already has telehealth regulations for allopaths (64B8-9.0141) and osteopaths (64B15-14.0081) and many other professional boards have issued a position statement on the practice of telehealth. The new law may require the Board of Medicine to rewrite its current regulation to the extent it conflicts with the controlling provisions of the new statute.

Providers looking to enter the Florida market must understand and navigate these interesting laws on telehealth licensing, practices standards, controlled substances, and reimbursement. We will continue to monitor Florida for any rule changes that affect or improve telehealth opportunities in the state.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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No Fraud Waivers Contemplated

On February 14, 2019, CMS’ Innovation Center announced its Emergency Triage, Treat, and Transport (ET3) Model for EMS / ambulance suppliers to partner with other health care providers such as telehealth entities and urgent care centers in order to triage and treat Medicare beneficiaries more effectively.  In response to a recent inquiry, the ET3 Model Help Center clarified that at this time, CMS does not plan to issue fraud and abuse waivers for the ET3 model. Additional information about model requirements associated with new payments for ambulance suppliers, including legal requirements and waivers, will be released in the anticipated Request for Applications to be issued in the summer of 2019.  Accordingly, in negotiating with health care providers, the EMS suppliers will likely need to abide by the usual requirements against arrangements that violate the Anti-Kickback Statute (“AKS”) and the Stark Law.

Stark Law and AKS

If an ambulance supplier knowing and willfully solicits or accepts payments or benefits for referrals or for otherwise generating Medicare or Medicaid business, assuming the conduct does not fall into one of the safe harbors, that conduct can violate the criminal Anti-Kickback Statute (AKS).  42 USC § 1320a-7b(b).  Similarly but without the necessity of criminal intent, the Physician Self-Referral law, 42 U.S.C. § 1395nn (the Stark Law), prohibits any person or entity from presenting or causing to be presented any claims for payment to Medicare for “designated health services” (DHS) provided to patients who were referred by a physician with whom the entity that provides the DHS has a financial relationship, except for those recognized exceptions to the Stark Law. Medicare payments are not permitted for services rendered in violation of the Stark Law.  Violations of the Stark Law and the AKS can form the basis of a False Claims Act case.

Background

For the first time, the Medicare program will reimburse EMS suppliers for treating beneficiaries in-place and transporting emergency patients to alternative destinations like urgent care centers or physician practices rather than emergency departments.  The new ET3 model will allow participating ambulance suppliers and other health care providers to work together to deliver treatment in-place (either on-the-scene or through telehealth) and with alternative destination sites (such as primary care doctors’ offices or urgent-care clinics) to provide care for Medicare beneficiaries following a medical emergency for which they have accessed 911 services. Additionally, the model will encourage development of telephonic triage centers for low-acuity 911 calls in regions where participating ambulance suppliers and providers operate. The ET3 model will run for five years and start in 2020.

While continuing to pay for 911 transports under the current system, the ET3 model will test two new ambulance payments circumstances:

• Payment for treatment in place with a qualified health care practitioner, either on-the-scene or connected using telehealth; and
• Payment for unscheduled, emergency transport of Medicare beneficiaries to alternative destinations (such as 24-hour care clinics) other than destinations covered under current regulations (such as hospital emergency departments).

Qualified health care practitioners or alternative destination sites that partner with participating ambulance suppliers would receive payment as usual under Medicare for any services rendered.

The model will use a phased approach in regions across the country. CMS wants the EMS participants in the ET3 Model to partner with participants in the delivery of emergency care such as cities, counties, doctors, telemedicine centers, and urgent care facilities.

CMS will release its Request for Applications in summer 2019 to solicit participation from Medicare-enrolled ambulance suppliers and providers. In Fall 2019, to implement the triage lines for low-acuity 911 calls, CMS will release a Notice of Funding Opportunity for a limited number of two-year cooperative agreements, available to local governments, their designees, or other entities that operate or have authority over one or more 911 dispatches in geographic locations where ambulance suppliers and providers have been selected to participate. For more information, visit the CMS ET3 website here.

For more information on Foley’s experience with Ambulance and EMS suppliers, visit Foley’s Health Care Industry Team.

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We are pleased to introduce The Health Care Law Today Podcast –  your connection to timely health care legal updates. Topics will cover a wide range of legal issues including Digital Health and Telemedicine, Regulatory and Compliance, Mergers & Acquisitions, Private Equity, Venture Capital and so much more.  Each episode, a Foley attorney will connect with a thought leader to discuss legal trends currently affecting the health care industry. It is important to note that this podcast does will not cover any specific client legal matters, but covers topics that all health care organizations may be navigating.

For this episode, Roger Strode, Partner and Health Care Attorney discusses orthopedics in the new millennium and the evolution of the business of orthopedic and spine medicine. Roger is joined by Dr. Todd Albert, Surgeon in Chief, Chief Medical Officer, and Korein Wilson, Professor of Orthopedic Surgery at the Hospital for Special Surgery (HSS).

We encourage you to listen to the podcast in its entirety.

Following is a transcript of this podcast.  Please feel free to download a PDF version here.

Please note that the interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Podcast Transcript

Roger Strode:

Todd, maybe you can start out by giving the audience your perspective on how orthopedic and spine medicine, and the business of orthopedics and spine medicine has grown during the course of your career.

Dr. Todd Albert:                

It’s been an incredible evolution to watch. I graduated from my fellowship in 1993. The majority of people in those days were in a small group or solo practice, or maybe they worked in an academic department. But, no one owned anything. No doctors owned anything. I joined a group of six people, and over time, what I saw the first step was amalgamation of groups to become bigger. There was a perception by physicians that their income was dropping. It was the HMO [managed care] era, and  individuals didn’t get fee-for-service anymore. There was a perception by physicians that their income was dropping.

It was partially reality/partially perception, but it was a defensive move [for physician groups] to try and get bigger, first for negotiating purposes with insurance companies, etc. Then, as groups grew, at least our personal experience was, we wanted to leverage the ability of our growth to own things that were appropriately used to treat patients. What I mean by that is we ordered orthotics, braces and things like that all the time. It was just to have control of the braces we ordered, the quality of what we ordered, the physical therapy that we ordered, really for control.

The secondary effect, especially in musculoskeletal medicine (orthopedics) was that it became an ancillary stream of revenue. By owning the things that you would prescribe in the necessary kind of process of care, you started to see accumulation of your business assets.

The natural [progression] was to go from orthotics, to PT, to then surgery centers, and ultimately at least we in Philadelphia, went to hospitals. Much of it was around control of quality, but it became also an ancillary revenue stream so it served two purposes. Now, this Hospital for Special Surgery was a different purpose. It started 153 years ago as a single specialty hospital when James Knight, who was the Founder, was trying to treat poor kids with Polio in New York City out of his house. He wasn’t even a surgeon.

Then the second Surgeon in Chief, Virgil Gibney, was a surgeon. It was almost heresy that he performed surgery on people. From there, it’s grown to what you described. It’s the largest musculoskeletal academic medical center that’s solely focused on musculoskeletal health. There’s a huge advantage, as I had just alluded to, in a smaller group setting because a huge advantage to being singularly focused with no distraction of transplant medicine, cardiac medicine, GI medicine, where we can deliver care to patients that is really hard to compare to in a general hospital.

I think that’s a huge advantage when we talk about delivering the best care, but it’s also a huge economic advantage to be able to singularly focus on musculoskeletal care. Our not for profit hospital is very, very successful as a business model because we focus and have every single thing dialed into what delivers the best care for the patient.

Roger Strode:                   

Correct me if I am wrong, but a number of years ago a Harvard professor, a woman by the name of Regina Herzlinger, wrote a book. I believe was called Focused Factories and I think the premise of her book was when it comes to health care that the focus factory is really the way to go. It sounds like, and without skipping too far ahead because I do want to dive into the business of the Hospital for Special Surgery a little later, it seems to me that the Hospital for Special Surgery, it’s little bit like Sloan Kettering, it’s a little bit like the MD Anderson, but yet in spine and orthopedic and musculoskeletal medicine, that that focus is really what’s made you guys as successful as you are.

Dr. Todd Albert:              

You’re 100% correct. I came from a general hospital setting where we tried to create a focus factory by owning a hospital, which we can talk about. But I think it is 100% correct. Just to take Regina Herzlinger’s thesis a step further, what she said is that hospitals and doctors should become much more like McDonald’s or FedEx, where you do the same thing over, and over, and over again to perfection. I think that’s to your point, the way to deliver the most efficient cost effective care.

Roger Strode:                   

One of the things that I would like to spend a little time talking about is the growth of the large orthopedic group and the interests of both hospitals and now, specifically private equity, in the acquisition of orthopedic medicine. What I want to talk about a little bit and explore with you is, as a disclaimer, I realize you’re in private practice and you are at the Hospital for Special Surgery have sort of a very unique model, and please correct me if I’m wrong, where many of you are just in a single physician practices.

You have your own single practice, which today can be almost impossible to do in most markets to have just Todd Albert PC, or Todd Albert PA. The hospital does employ some physicians, but you guys are all in some very small practices, which you just don’t see anymore. You’re not really part of private equity, and you’ve not been approached necessarily by private equity.

I know that private equity has begun to turn its sights on orthopedics, and to me it seems natural from their perspective because of, as you said before, it’s always struck me that orthopedics, if you consider leverage points and you consider all of the ancillaries, whether it’s PT, and it’s imaging, and it’s DME and orthotics, its ambulatory surgery, in some cases it’s physician-owned hospitals. You have tremendous lines of business that spin off individual income streams, and they like to say that people get wealthy when they make money while they’re asleep.

Orthopedics seems to be one of the few practices left where a physician doesn’t have to have his hands on a patient at any particular time necessarily to generate revenue for his business. Can you talk a little bit about the trend of the consolidation of big practices around the country, as well as where you see private equity going from your perspective? Because I am sure you’ve had plenty of conversations with physicians around the country as well as internally. And maybe some of the various pros and cons you see from a physician perspective.

Dr. Todd Albert:              

I think that was actually a great lead up because the truth is, you described the Hospital for Special Surgery fairly accurately. We have grown, from when I came, by a lot of physicians.  But almost except for probably four physicians, they are singular physicians, with what looks like under a practice manager, and the practice management is HSS. So you can’t tell people are singular, because everybody has the HSS tag. That’s a whole different model which works very nicely, and there’s consolidation there. Let’s put that aside for a minute.

Where I started at the Rothman Institute, we grew from, as I alluded to before, six physicians or seven physicians up to over 100. We were in the first group … the first musculoskeletal group to join, if you remember, and this is an old term, “the physician practice management companies.” They were rolling up. The first trend was rolling up physician groups with the idea of you’d give a third of your income off the top. It was a little bit of a pyramid. You’d give the 30 percent income for the rest of your life, and they would offer income growth, and more efficiencies, and ancillaries, and all those things.

That trend was very, very rampant in the mid- to late-90s. The industry collapsed a bit. What’s happening now is slightly reminiscent of that in terms of groups getting bigger and bigger, as you said. In my opinion, the original driver was to get leverage, but not as much leverage for ancillaries, leverage to negotiate, to negotiate against hospital systems and to negotiate against insurers. In Philadelphia, it’s somewhat of a unique market, some other unique markets in the United States where there were large insurers. There was Keystone, which was the Blue Cross product which was huge, and so we wanted to become big to have negotiating power, but we also became big so that we could own those ancillaries.

In my opinion, to answer your question to what I think about the private equity, we always were thinking about could we get as a multiple. But, I’m not sure if it’s the best play, because many of these large groups, and people became large and then owned all the ancillaries and built it up so they would be attractive.

As far as I understand, for private equity you want to buy something, increase the value and then sell it and the average lifespan is a three to four year lifespan before the next transaction. Well if it’s a really successful group, they’re not maximized on their ancillaries but they’re doing pretty well on the ancillaries and you have to say, “What is that infusion of private equity going to do build them up to get to the next level?”

There is the ancillaries, but if I was a private equity group I’d want to buy doctors who haven’t exploited all those ancillaries yet and then build up the ancillaries and then sell them to someone else.

Roger Strode:                  

Todd, I think that is one of the questions that private equity is probably facing here. I have a little bit of experience in this, and you’ve got for example the large super groups like the Rothman, or the Ortho-Indie, the Ortho-Carolinas, these very, very large groups. You’re right, they are maxed out probably already on the ancillaries that they’ve got everything they can possibly have, and even then some. They’ve expanded, they’ve made them better. Then the only way to grow in a situation like this is something that some of these groups have already done. They go around and they will then bolt on smaller practices onto them. From a private equity standpoint, I think that’s the other way to grow because one of the ways they do it is they will take a platform practice and will pay a fairly sizable multiple.

It’s no secret, we’ve seen the multiples in the 11/12 times trailing 12 months earning range, if not more. Then when they bolt onto smaller practices and they go out and acquire those smaller practices, those tend to be acquired at a substantially lower multiple, usually maybe half. So the idea is that then when you sell the whole thing, or you do the next trade whether it be three years out or seven years out, whatever it might be, you’ve got built in arbitrage between what you paid for those smaller practices and what you ultimately trade at hopefully higher than the multiple that you originally bought it at.

I’d like your thoughts here, it strikes me also that orthopedics is going to be a little bit of a tougher nut to crack, and it’s been a tough nut obviously for hospitals to crack because you can imagine large hospital systems would love nothing more than to employ the orthopedic surgeons that fill up their surgical suites.

It’s because of these ancillaries, and it’s because of the entrepreneurial nature of orthopedic surgeons, they don’t really seem to need the help growing in many cases. They don’t need that outside capital, so what is it that would attract them? It would probably have to be something like just the equity downstroke, the ability to monetize part of their practice and then hopefully the equity that they take in return, in addition to the cash, will grow I suppose.

I guess I’d like to know and get your thoughts on is, do you see any of these super groups, do you ever foresee a national platform for orthopedic surgery where you could have a very large network of orthopedic surgeons all over the country that are all under the same maybe MSO [management services organization] model, or under the same [brand] … flying the flag, whether it be an HSS flag or whether it be whatever flag. Do you foresee that happening?

Dr. Todd Albert:              

I would love to see it, because it’s been one of my little dreams or thought processes, as you were talking about private equity. What the really good play is if you could create that. I always make the joke that what I would like to see is a musculoskeletal insurance company, and people laugh at me. But if you think about the costs, if you look at large employers, the second largest cost, the second or first largest cost under their pay line is musculoskeletal injuries.

If you could get a national consolidation or a huge, huge supergroup to supergroup consolidation, and control the intake and the lives of all those patients, imagine you could go to really large employers and say, “What did you spend last year on your musculoskeletal health?” They have those numbers: Comcast, Google, everybody, American Express, has those numbers. “What’d you spend?”

What if our venture could decrease your cost by 25%, would you be willing to share that savings with us? And now, you have a new type of product that you’re delivering. I think if there’s going to be a play in that way, that would be the play for some smart organization to perform. We’ve talked about it in a different way at HSS, and it’s a little embryonic in it’s thought process. But it’s a thought process of trying to create almost a musculoskeletal ecosystem.

In other words, trying to help people with their musculoskeletal problems both before if you think about the life cycle of musculoskeletal injury. There’s prevention, just like there’s cardiovascular prevention, but there’s prevention in terms of getting your muscles strong, all the things that you do from childhood to old age to help your balance, help your muscle strength, prevention of fractures, falls, injuries all that, through those who have sprains and all those other things helping them either with an app, through access to care, to those few that need surgery taken care of then, to the rehabilitation.

If you think about that life cycle of care, we have some interests and a lot of knowledge in how to do that at our institution. We’ve had some discussions and actually almost a SWAT team put together of how to create that, both the door to get in or to have access to people, to provide both education and easy to get at prevention tools, to access to care on a global basis. We’re not there yet, it’s just an early hot off the press “patent pending” kind of thing.

Roger Strode:                   

Interesting. Very interesting. In that regard, and now jumping to HSS because again, I have found it to be such a fascinating place, having had the pleasure and the honor of getting to work with you and the physicians and the leadership at HSS on some of your ventures.  Maybe you can talk a little bit about HSS’ mission and some of the really interesting things that you’re doing with respect to branching out and taking that HSS brand and that HSS intellectual property to different places in the world. You’re doing some really fascinating stuff, and I think if you talk about the business of orthopedic and spine medicine given the fact that you guys are really on the bleeding edge of all of this, no pun intended, or pun intended, maybe you can talk a little bit about the work you guys are doing in Korea, and also in different parts of the United States. I think people would really find that fascinating.

Dr. Todd Albert:              

Sure, I like to call it the “Bloodless Edge”, not the bleeding edge, the bloodless edge. We have a couple of different ways. We have some of the best knowledge having been created, and experiential knowledge, with a long history of like I said, a singular focus, and some really, really talented terrific surgeons and non-operative specialists.

One of our principle missions is education. We start with some educational outreach across the world, with partners. We’ve stared such connections in a number of places, but two examples you’ve mentioned: one was Korea where we have relationships, where we help certain hospitals and systems to improve their care both through education, we do analyses and help them with their operating rooms and how they function and share our protocols.

We’ve [also] done so in Colombia. We have an agreement we just executed in Cartagena, Colombia with a new hospital there that is connected to a wonderful hospital in Bogota. We’re helping them both to improve their processes and get off the ground in terms of improving their care. We’ve also executed an agreement with Aspen Valley Hospital in Aspen, Colorado, where we have a similar agreement to help them with their processes all related to musculoskeletal health.

One of the things we’ve done so that there’s a partnership between our excellent physicians and the enterprise, the HSS enterprise, that you helped us with Roger, with something we called HS Squared, where there are physician investors … you know you noted that we were somewhat individuals and physicians, a small number employed, 30% employed, but the rest individual practices under a physician practice management model that HSS is the physician practice manager but that people invested individually, and about 85% of our physicians invested.

It’s essentially, for lack of a better description, a talent management agency. This group, HS Squared, is in charge of when we do these outside ventures, quality, the people that we involve, the physicians we involve, an oversight of the protocols and the improvement in care that’s given. Also, when we create innovation, we help with the innovation as well.

That’s a different kind of ancillary that’s compliant in a partnership between the physicians and hospital. At least you have to tell me as my lawyer that we’re compliant. This is now going to out to the world.

Roger Strode:                   

It is really a unique model that we all did build between the physicians and counsel on both sides, as well as the leadership at HSS, to harness of that physician talent. It’s unique in that you do have all of these independent physicians, but you’ve come under one umbrella, you all own one company, and can share in the revenues that HSS generates from the hospitals in Korea, and in Cartagena, and in Aspen, et cetera, and the other places that you’ll branch out into by providing that talent at a fair market value rate.

It allows all the physicians to participate in the distributions through that rather than just simply the doctors who are maybe sent down to Colombia, or head out to Seoul to do it. All the physicians get to participate. It’s a pretty fascinating model.

Dr. Albert, I’d like to expand a little bit on this idea of HSS’s growth strategy and where you see it going.

Where does telemedicine and digital health fit into that particular growth plan?

Dr. Todd Albert:              

Telehealth is big all over. Everybody is dabbling in it. In the concept I alluded to in terms of a kind of an enterprise or an ecosystem, we view telehealth as the digital front door. So we’re thinking of ways to create this front door, or an app … I’ll give you example of one I take care of, back pain.

We are early in the stages of creating – [an app for when]… you have back pain. You go to the HSS app, you get exercises, you might get a preliminary diagnosis, you make sure there’s not red flags that you should see a doctor very soon, and you can go follow up and/or get a doctor in your area if you need that. I think it’s going to be huge across the country and the world for people obtaining medicine. Our strategy will absolutely include a telehealth strategy.

Roger Strode:                   

We’ve seen an explosion of clients interested in telemedicine and digital medicine, and it’ll be very, very interesting because if you kind of look at the growth curve of telehealth/digital medicine right now, a lot of these companies tend to be VC-backed, but we’re starting to see more and more of them actually start to cash flow and as they do that, I think you’re going to see a lot of private equity investment in telemedicine. When that happens, you’re going to see … That’s really, I think, a function of a heavy adoption by leading institutions like yours, like Mayo, and some of the others.

Then I think it’s going to be a function of patients ultimately getting comfortable with it, because I think I have seen some data out there that at least right now patients tend to be a little slow to adopt it, and while patients love digital apps, and we all love our phones and our computers, I think learning how to actually use it and use it to better your own health is something that probably organizations like yours that are going to help understand how to do that, and really how to use it.

Dr. Todd Albert:              

Yes, use it. Trust it. One of the other things we’re doing besides a digital front door, is trying to use wearable technology so people can both track their progress and their outcome, and we can use it for research to measure if we’re doing the correct thing for patients, or when patients may need an intervention.

Roger Strode:                   

Just real quick to wrap it up, what are you, Todd, in the next say three to five years, where do you see HSS? And where do you see the business of orthopedic medicine?

Dr. Todd Albert:              

I look at that a little bit as two questions. I think the HSS, I see perhaps in the next three to five years, realizing that dream I just spoke about of becoming … my raw term, my Waterbury, Connecticut term for it is “Musculoskeletal Insurance Company,” but we’re of course not going to become that, but being able to effectuate musculoskeletal care for a huge population through technology, partnerships and perhaps a global network, or at least a national network and maybe a global network. That’s three to five, probably to 10 years.

I think orthopedic medicine in general, you are going to see a way, as you noted, private equity has set their sights on, but I think you’re going to see more consumption of large orthopedic groups by private equity, but I also think it remains to be seen. I’m not a pessimistic person, but I think it remains to be seen whether when they look at that, when the private equity groups look at it and say, “Did we make a great purchase?” Much like the Phi Cares and all those did 20 years ago, and look back and go, “Well we did it, but it wasn’t super successful.”

I wonder as the private equity groups look at orthopedics, if in the end, 10 and 20 year sense, they’re going to say, “That experiment worked,” if they don’t do what I was describing, I think would be the play.

Roger Strode:                   

I think too, to kind of wrap it up, the great thing about private equity and the men and women that work in private equity, is they’re very smart people… And they’re very quick learners, and they’re very creative.

I think you may see some different investment models that might work in private equity. I don’t disagree with you. Obviously the lower hanging fruit are the smaller groups that haven’t exploited all of the ancillaries and don’t necessarily have the capital to grow the way a Rothman or an Ortho-Carolina might be able to grow, or an Illinois Bone and Joint might be able to grow. You may some more creative investment models in private equity.

I think we’re coming to the end of our time. Again, I want to thank Dr. Albert. This was really terrific, Todd. Very interesting stuff. I think one of the reasons that I had stayed in health care my entire career, and will finish out my career in health care, is it never stops changing, it’s fascinating, the business of health care is fascinating.

I do recall one anecdote that back when … I recall sitting at the Palm in Chicago when President Obama was elected, the night he was elected. We knew that the Affordable Care Act was on the docket, and that with the democrats capturing the House and the Senate, and the White House, that we were going to have the Affordable Care Act.

I recall thinking to myself, and talking to my wife, my girlfriend at the time, my wife, picking up the phone and saying, “My career as a health care lawyer is now officially over. I’m going to have to find something else to do because this Act is going to ruin medicine and ruin my career.” It’s a good thing that I don’t prognosticate anything, because I couldn’t have been more wrong.

It has created, as Rahm Emmanuel said I think at the time, “There’s nothing like taking advantage of a good crisis.” It has created such … I don’t want say chaos, but it’s created so much disturbance and it never really seems to stop changing, and it’s really fascinating stuff.

Dr. Todd Albert:              

Can I tell you one quick anecdote that goes along with that, that I remember? I don’t remember where I was sitting, but I remember rushing like crazy to get our private orthopedic hospital we just bought certified before that thing came down, because it was going to become illegal. I prognosticated that correctly. But we did get it done, as you know.

END OF TRANSCRIPT

Foley would like to thank Dr. Todd Albert for his time on our show. Again, please take a moment to listen to this podcast in its entirety.  We hope that you will subscribe to the Health Care Law Today Podcast on your regular podcast channels.

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On April 18, 2019, Arizona Governor Doug Ducey signed a new law expanding insurance coverage for telehealth services, including asynchronous telemedicine and remote patient monitoring.  The Arizona Legislature passed, nearly unanimously (79-1), SB 1089, ensuring that commercial health plans will cover medical services delivered in-person or via telemedicine. The law becomes effective January 1, 2021 and will benefit patients by increasing access and availability to healthcare services, and catalyze the growth of telehealth technologies throughout Arizona.

Note: attorneys in Foley’s Telemedicine & Digital Health Industry Team assisted in drafting the Arizona law.

A Revision to Arizona’s Prior Telehealth Law

Arizona’s prior telehealth coverage law contained a number of restrictions that confused practitioners and ultimately prevented patients from enjoying meaningful insurance coverage of services delivered via telehealth. Accordingly, Arizona revisited the statute and the new legislation amended the law to align with best practices from other states.  A number of other state legislatures are considering similar amendments to their current telehealth coverage laws in order to close these perceived loopholes and give patients and healthcare providers clarity on what medical services are (and are not) covered when delivered via telehealth.

How the New Law Will Help Patients and Providers

SB 1089 amends Arizona’s telehealth commercial insurance coverage laws (Ariz. Stat. §§ 20-841.09, 20-1057.13, 20-1376.05, 20-1406.05) to state that a health plan may not limit or deny coverage of health care services delivered via telemedicine and may apply only the same limits or exclusions on services delivered via telemedicine that are applicable to an in-person consultation for the same service.

Other notable changes in the law are:

• The definition of telemedicine was expanded to include asynchronous services and remote patient monitoring. Telemedicine is defined as “the interactive use of audio, video or other electronic media, including asynchronous store-and-forward technologies and remote patient monitoring technologies, for the purpose of diagnosis, consultation or treatment.”  Telemedicine does not include “the sole use of an audio-only telephone, a video-only system, a facsimile machine, instant messages or electronic mail.”
• Coverage was previously limited only to a subset of specialties (e.g., cardiology, burn, mental health, dermatology). The law eliminates those restrictions entirely, allowing practitioners of all health care specialties to deliver covered services via telemedicine.  Moreover, there are no rural versus urban geographic restrictions nor any originating site restrictions.
• Telemedicine services must comply with practice rules adopted by Arizona healthcare regulatory boards, rather than with accreditation standards of a national association of medical professionals. (The prior law required compliance with accreditation standards in addition to Arizona practice rules).
• A health plan may charge a deductible, copayment or coinsurance for a health care service delivered via telemedicine if it does not exceed the deductible, copayment or coinsurance applicable to a service delivered via in-person consultation or contact.

With the enactment of the new Arizona law, approximately 36 states plus D.C. have laws requiring commercial health insurance plans to cover telehealth services, and approximately ten of those states will have payment parity language. We will continue to monitor for any legislative changes that affect or improve telemedicine opportunities.

Want to learn more?

Join us for a deeper discussion of state telehealth laws at the Telehealth Summit 2019 in Atlanta on June 6-7, 2019. Read the current program agenda and register here.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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Two Maryland licensing boards – the Board of Examiners of Psychologist and the Board of Professional Counselors and Therapists – issued a pair of proposed rules setting forth practice standards for mental health services delivered via telehealth technologies. The Boards previously did not have specific practice standards or rules unique to telehealth. Once finalized, psychologists, counselors, and therapists using telehealth in their services should read and apply these new requirements to their operations and service models.

The proposed rules closely mirror each other. Both apply to professionals delivering care to patients located in Maryland. Both allow a wide range of modalities, defining telehealth as the “use of interactive audio, video or other telecommunications or electronic media,” but excluding an audio only telephone conversations, email, fax or text.  Both rules prohibit treatment based solely upon an online questionnaire.

The Board of Professional Counselors and Therapists rule allows therapists to conduct the initial patient evaluation via telehealth. The Board of Psychology rule requires an in-person initial evaluation unless the psychologist or psychologist associate documents in the record the reason for not meeting in person. (The rule doesn’t enumerate a list of acceptable or unacceptable reasons; it simply requires the reason to be documented.)

Professionals must confirm the identity of the client/patient, as well as the client’s location and contact information. The professional must also identify contact information for emergency services at the client’s location. Curiously, the rule issued by the Board of Professional Counselors and Therapists refers to the client’s location as the “practice setting.” While this could raise a suggestion that the client must be physically located in a clinical practice setting, it is more likely a drafting error because there is no mention of any originating site requirements in the rule.

Professionals must also identify everyone at the client’s location and confirm those individuals are permitted to hear the client’s health information. The use of the term “permitted” as opposed to “authorized or “legally authorized” and the absence of reference to any state or federal privacy law, suggests another person’s presence is subject to the client’s permission and not legal authority.

With regard to client consent to telehealth services, the Board of Psychology rule requires “written informed consent,” whereas the Board of Professional Counselors and Therapists rule requires the client’s “written and oral acknowledgement.” Both rules state that the standard for services delivered via telehealth is the same as services delivered in-person.

The Boards are considering comments and Maryland providers are awaiting the final regulations.  We will continue to monitor further developments including the passage of these final rules and any changes.

Want to learn more?

Join a deeper discussion of telemental health and state law at the American Telemedicine Association’s 2019 Annual Conference and Expo in New Orleans on April 14-16, 2019.  Read the current program agenda and register here.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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New Mexico lawmakers passed new legislation designed to close gaps in the state’s current telehealth insurance coverage law, provide coverage clarity to patients, and ensure payment parity to in-network health care providers. The Legislature passed, nearly unanimously (98-1), legislation ensuring that commercial health plans will cover medical services delivered in-person or via telemedicine. The bill now heads to the office of Governor Michelle Lujan Grisham for signature.  If signed into law, the bill should bring New Mexico to the forefront of telehealth coverage, benefitting patients and helping catalyze the growth of these technologies throughout the state.

A Revision to Prior Telehealth Law

New Mexico enacted its initial telehealth coverage law in 2013. However, the restrictive language of that law failed to ensure that patients could enjoy meaningful insurance coverage of services delivered via telehealth. Accordingly, New Mexico revisited the statute and the current bill would amend the law to align with model language and best practices.  A number of other state legislatures are considering similar amendments to their current telehealth coverage laws in order to close these perceived loopholes and give patients and healthcare providers clarity on what medical services are (and are not) covered when delivered via telehealth.

Note: attorneys in Foley’s Telemedicine & Digital Health Industry Team helped draft the legislative language in New Mexico’s new bill (SB 354).

How the New Legislation Will Help Patients and Providers

SB 354 amends New Mexico’s current telehealth commercial insurance coverage laws (NMSA §§ 13-7-14, 59A-22-49.3, 59A-23-7.12, 59A-46-50.3, 59A-47-45.3) to state that a health plan shall provide coverage for services provided via telemedicine to the same extent the health plan covers the same services when those services are provided via in-person consultation or contact.

Other notable provisions in the legislation are as follows:

• Telemedicine is defined as “telecommunications and information technology to provide clinical health care at a site distinct from the ” Telemedicine allows health care professionals to evaluate, diagnose and treat patients in remote locations using telecommunications and information technology in real time or asynchronously, including the use of interactive simultaneous audio and video or store-and-forward technology, or remote patient monitoring and telecommunications in order to deliver health care services to a site where the patient is located, along with the use of electronic media and health information.
• A health plan may not impose any unique condition for coverage of services provided via telemedicine.
• A health plan may not impose an originating-site restriction with respect to telemedicine services or distinguish between telemedicine services provided to patients in rural locations and those provided to patients in urban locations; provided that the law shall not be construed to require coverage of an otherwise noncovered benefit.
• A health plan may not limit coverage of services delivered via telemedicine only to those health care providers who are members of the group health plan provider network where no in-network provider is available and accessible, as availability and accessibility are defined in network adequacy standards issued by the superintendent of insurance.
• A health plan may charge a deductible, copayment or coinsurance for a health care service delivered via telemedicine if it does not exceed the deductible, copayment or coinsurance applicable to a service delivered via in-person consultation or contact.
• A health plan may not impose any annual or lifetime dollar maximum on coverage for services delivered via telemedicine, other than an annual or lifetime dollar maximum that applies in the aggregate to all items and services covered under the group health plan, or impose upon any person receiving benefits pursuant to this section any copayment, coinsurance or deductible amounts, or any plan year, calendar year, lifetime or other durational benefit limitation or maximum for benefits or services, that is not equally imposed upon all terms and services covered under the group health
• A health plan shall reimburse for health care services delivered via telemedicine on the same basis and at least the same rate that the group health plan reimburses for comparable services delivered via in-person consultation or

If the updated New Mexico legislation becomes law, approximately 36 states plus D.C. will have laws requiring commercial health insurance plans to cover telehealth services, and approximately ten of those states will have payment parity language. We will continue to monitor for any legislative changes that affect or improve telemedicine opportunities.

Want to learn more?

Join us for a deeper discussion of state telehealth laws at the American Telemedicine Association’s 2019 Annual Conference and Expo in New Orleans on April 14-16, 2019. Read the current program agenda and register here.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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In February, the Department of Justice (DOJ) successfully leveraged a new weapon to target pharmacies as it battles the nation’s opioid crisis. The new approach utilizes court-ordered temporary restraining orders (TROs) that result in an immediate suspension of a pharmacy’s ability to dispense controlled substances at the outset of a Drug Enforcement Administration (DEA) registration revocation process. A TRO prevents the suspect pharmacies from dispensing any medications until the DEA and the DOJ proceed through the usual course of revoking the offending pharmacies’ DEA controlled substance registrations.

In this context, the Federal District Court for the Middle District of Tennessee granted two TROs to DOJ against two commonly-owned pharmacies in Tennessee, thereby immediately prohibiting them from dispensing any medications prior to the initiation of revocation proceedings with the DEA.  The TROs were set to last until hearings scheduled for March. However, on February 20 and March 8, 2019, the Court granted joint consent motions that converted the TROs into Preliminary Injunctions, which further extends the suspension of the DEA registrations.

The DOJ’s complaint alleged that the commonly-owned defendant pharmacies violated the federal Controlled Substances Act (CSA) by routinely dispensing controlled substances while ignoring numerous warnings signs of abuse and diversion, including unusually high doses of opioid medication, prescriptions for opioid and other controlled substances in dangerous combination and patients traveling unusually long distances to obtain and fill prescriptions.  In its arguments, the government also tied the pharmacies’ alleged unlawful actions to several deaths, the hospitalization of at least five customers, and an overdose in the restroom of one of the defendant pharmacies.

DOJ characterized its approach of filing a complaint for injunctive relief to immediately suspend Xpress Pharmacy and Dale Hollow Pharmacy’s controlled substance registrations as the “first of its kind.”  The action originated with  DOJ’s Prescription Interdiction & Litigation (PIL) Task Force, which seeks to coordinate and deploy “all available criminal, civil and regulatory tools to reverse the tide of opioids overdoses in the U.S.”

Temporary Suspension.  Typically, the DEA and the United States Attorney General (AG), who heads DOJ, do not suspend controlled substance licenses immediately. While the DEA has the ability to temporarily suspend a pharmacy’s DEA registration under 21 U.S.C. Section 824, it must show “imminent danger,” which has historically proven difficult for the DEA. The DEA took this approach when it issued an Immediate Suspension Order to Morris & Dickson Company on May 4, 2018. However, in May 2018, the U.S. District Court entered a TRO against the DEA, effectively reinstating Morris’s DEA registration. Specifically, the Court reasoned that there was a substantial likelihood that the DEA’s issuance of the Immediate Suspension Order was arbitrary and capricious. After this decision, it appeared that the DEA would face similar challenges if it again attempted to rely on its immediate suspension authority in its efforts to combat the opioid epidemic.

Order to Show Cause as an Alternative to Temporary Suspension.   Instead of seeking the temporary suspension, the DEA has often issued an Order to Show Cause stating that a registrant violated the CSA. Violations of the CSA relied upon by the DEA as a basis for the Order to Show Cause include, among others, felony convictions related to controlled substances, exclusion from federal health care programs, and actions that would render the pharmacy’s controlled substance registration inconsistent with the public interest.  See 21 U.S.C. §824(a).

The Order to Show Cause includes a date for the registrant to appear before the DEA at least thirty (30) days after the order was issued. The registrant is also allowed to present a corrective action plan on or before the date of appearance. 21 U.S.C. § 824(c)(2). The registrant’s controlled substance registration remains active during the process, which can take months.

TROs.  In contrast, the DOJ filed a complaint under seal in the Oakley case, requesting that the court immediately issue a TRO against the target pharmacies, their common owner, and three pharmacists for violating 21 U.S.C. § 824(a). Specifically, DOJ argued that “pharmacists are frequently the last line of defense before a controlled substance that was prescribed without any legitimate medical purpose is sold to a patient. The Defendant pharmacies, pharmacists, and the pharmacies’ owner here failed to muster that defense…by filling those thousands of illegitimate prescriptions, Defendants crossed the line between pharmacy practice and violating the Controlled Substances Act.”

The Court granted DOJ’s motion. The TRO resulted in the suspension of the pharmacies’ controlled substance registrations, which, in effect, shut down the operations with respect to dispensing controlled substances until the matter is resolved (if not longer). This tactic provides the government with several advantages, including preservation of evidence and immediate cessation of potentially dangerous pharmacy operations.  While the alleged facts of the case surely contributed to the government securing injunctive relief outside of the standard DEA revocation process, pharmacies should be on notice that the DOJ is willing to take actions to shut down dispensing operations ahead of revocation and other prosecution.  Christopher Evans, Special Agent in Charge of DEA’s Louisville Field Division notes that this action “should serve as a warning to those in the pharmacy industry who choose to pit profit over customer safety.”

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Ambulatory surgery center (ASC) development and ownership has made a comeback after a number of years of stagnation due to an oversupply of centers and poor income growth. However, with significant changes in payment methodology, whether under Medicare or commercial third party insurance, the industry has seen a shift in surgical procedures toward less expensive and more efficient settings, most especially ASCs. Moreover, hospitals and health systems have been receptive to partnerships with physician owners of existing centers who are seeking leverage with payers, the kind of leverage that only large providers can bring. Finally, Medicare and other payers now reimburse a larger number of complex procedures when performed in surgery centers, such as interventional cardiology, radiology, nephrology and vascular procedures.

This activity has also seen increased interest in the ownership of ASCs by physician group practices, some of which are multispecialty or multi-subspecialty in nature. When it comes to ownership of an ASC by a multispecialty group practice owned, in part, by primary care, or other, physicians who act as referral sources to physicians (such as surgeons) who perform procedures in the ASC, the Office of Inspector General of the Department of Health and Human Services (OIG) has taken a dim view of these arrangements, arguing that practice owners who do not perform surgical procedures will benefit from their referrals to those who do. This position is consistent with the so-called “extension of the practice” safe harbor regulatory requirements.  Note that this article deals with ownership by multispecialty groups that do not consist entirely of surgeons or proceduralists, for which there is no Anti-Kickback Statute safe harbor (there is a safe harbor for “multi-specialty ASCs,” found at 42 C.F.R. § 1001.952(r)(3), in which the ownership is held entirely by physicians who are in a position to refer patients to, and perform procedures at, the ASC).

The OIG’s position is succinctly laid out in a 2003 Advisory Opinion (OIG Adv. Op. 03-05). The Advisory Opinion involved the potential ownership of an ASC by a hospital and a multispecialty group practice. Despite the arguments posited by the requestor, the OIG opined that because the group practice was multispecialty, “there is a substantial likelihood of cross-specialty referrals for services performed in the ASC.” The OIG went on to say that the “[p]roposed Arrangement would allow those Group Physicians for whom the Surgical Center is not an extension of their office practices to profit from their referrals to the Surgical Center or to their partners who perform procedures there. In this respect, the Proposed Arrangement poses the same risks as an ASC owned directly by surgeons and primary care physicians in the same community.”

Despite the position espoused by the OIG in Adv. Op. 03-05, there are plenty of multispecialty group practices that desire to invest in ASCs utilizing the practice as the investor. Whereas this approach is, admittedly, not without risk, and can be tricky, there are a number of arguments and structures that a group, and other ASC investors, might consider.

Referral Pattern Argument

In Adv. Op.  03-05, the OIG opined that the ownership of an ASC by the multispecialty group practice poses the same risks as an ASC owned directly by a combination of surgeons and primary care physicians in the same community. One could argue that the OIG’s opinion draws a weak analogy, thereby missing the mark. In the case of an established, integrated group practice, it is quite likely that the referring physician owners of the group practice have well-established referral patterns that include referrals to the surgeons and proceduralists who work in the group. For example, in an established orthopedic and spine practice that includes physicians who are sports medicine or physical medicine specialists, albeit non-surgeons, those physicians likely already refer most of their surgical patients to their surgeon partners. The same can be said for cardiology practices that include medical cardiologists and interventional physicians.  The ownership of an ASC by groups such as those described above are unlikely to change the group’s intrinsic referral relationships. In those instances, it is difficult to see the concerns expressed by the OIG in Adv. Op.  03-05. Conversely, it is altogether possible, if not probable, that a group of primary care physicians who invest in an ASC with unaffiliated surgeons may, indeed, be induced to change their referral patterns as a result of the investment.

Use of Group Practice Safe Harbor

Although there is not an applicable ASC safe harbor under the Federal Anti-Kickback Statute, there is a safe harbor related to investments in group practices (found at 42 C.F.R. § 1001.952(p)).  Under this safe harbor, receipt of a return on an investment interest, such as a dividend or interest income, made to a group practitioner investing in his or her own practice or group practice will be deemed to comply with the Anti-Kickback Statute so long as the practice meets the various requirements of the regulation. We believe that if a multispecialty group practice were to own 100% of an ASC, the returns from the ASC could be distributed to all owners — including physicians who don’t perform procedures in the center — without violating the Anti-Kickback Statute. Obviously, this safe harbor is of little use in the context of a joint-ventured surgery center.

Modified Distribution Techniques

We have seen instances where multispecialty group practices have invested in ASCs but have modified their distribution arrangements in an attempt to more closely mirror the extension of practice standards, yet provide those physicians who lack the ability to practice at the ASC a chance to participate in some portion of the investment.  Specifically, it would seem an obvious conclusion that a multispecialty group practice is unlikely to invest in an ambulatory surgery center if the cost of the investment cannot be recouped by the group (and indirectly by all physicians who own the group). Thus, an argument can be made that it is not a violation of the Anti-Kickback Statute to allow a multispecialty practice to make an investment in an ASC and to allow the group to recoup its investment, including any direct or indirect costs plus a reasonable rate of return on that investment before the physicians who perform procedures in the ASC are able to begin to profit from those procedures. What constitutes a “reasonable rate of return” will depend upon all facts and circumstances including what a third party lender would charge to loan the funds necessary to make the investment in the ASC. These amounts, it would seem, may be distributed to all of the owners of the group practice, in accordance with their ownership percentages in the practice, without violating the Anti-Kickback Statute. Only after these amounts are recouped would distributions be made to the group practice physicians who perform procedures in the ASC.

Alternatively, and in keeping with the various safe harbors under the Anti-Kickback Statute, a multispecialty group, or its individual physician owners, could invest in the ASC facility and lease the facility to the ASC entity, at fair market value, thereby taking advantage of the space rental safe harbor found in the regulations. In addition, assuming it has the wherewithal to do so, the multispecialty group could act as manager of the ASC providing staff, management and billing services to the ASC in exchange for fair market value compensation.

Although the above-described arrangements would not replace the returns that an investor in an ASC will reap, they would allow non-surgeons and non-proceduralists to participate, financially, in the arrangements.

Summary

ASC investment by multispecialty group practices that include non-surgeons and non-proceduralist owners has long been disfavored by the OIG.  While tricky, and not without risk, there may be ways to allow these groups to participate in ASC ownership. Care must be taken, however, to quantify the risks and develop a structure that minimizes any arguments that the arrangement violates the Anti-Kickback Statute.

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Momentum and support continues to build for telehealth commercial coverage laws across the United States, designed to ensure that covered members of health insurance plans can enjoy the full scope of their medical benefits – whether in-person or virtually.  Last summer, the Massachusetts Legislature considered a sweeping telehealth bill that would have instituted certain requirements for insurance coverage.  (Read our critique of that bill here.)  Although the 2018 legislative session ended before the proposed legislation was approved, Massachusetts legislators recently filed five new telehealth bills for consideration.

Listed below are four of the proposed bills that directly compete with each other, so it will be important to monitor their progress through committees and reconciliation:

• HB 1002: An Act Expanding Access to Telemedicine Services;
• HB 1001: An Act Relative to Behavioral Health Telemedicine;
• HB 991: An Act Advancing and Expanding Access to Telemedicine Services; and
• HB 1095: An Act Enhancing Access to Telemedicine Services.

Each of the four bills require certain groups or divisions to provide coverage for telemedicine services under varying conditions. Just like the language contained in the 2018 legislation, these new bills state that insurers may “not decline to provide coverage for health care services solely on the basis that those services were delivered by way of telemedicine by a contracted health care provider if: (i) the health care services are covered by way of in-person consultation or delivery; and (ii) the health care services may be appropriately provided through the use of telemedicine.”

In general, the bills require the following insurers to provide coverage for telehealth services:

• The Massachusetts Group Insurance Commission;
• Medicaid-managed care organizations in Massachusetts;
• Individual, group blanket or general insurance policies;
• Hospital service plan;
• Medical service corporation;
• Health maintenance organizations; and
• Preferred provider arrangements.

HB 1095 is notable because it allows, but does not require, Medicaid managed care organizations in Massachusetts to cover services delivered via telemedicine. In contrast, HB 1001 (An Act Relative to Behavioral Health Telemedicine) requires insurers to cover only behavioral health services delivered via telemedicine.

Of the five new bills, HB 917 (An Act to Facilitate the Provision of Telehealth Services) is the distinct outlier. It would not require health insurance plans to cover telehealth services. Instead, it proposes definitions, practice standards, prescribing, and informed consent rules for telehealth services.

At this time, it is unclear which of the five bills will prevail (or perhaps a combination of them).  What is clear is that Massachusetts legislators continue to explore ways for policy to drive innovation in health technology, balancing patient safety and health insurance considerations.  We will continue to monitor Massachusetts for changes that affect or improve telemedicine opportunities in the state.

Want to learn more?

Join a deeper discussion of telehealth state law and policy issues at the American Telemedicine Association’s 2019 Annual Conference and Expo in New Orleans on April 14-16, 2019.  Read the current program agenda and register here.

For more information on telemedicine, telehealth, virtual care, remote patient monitoring, digital health, and other health innovations, including the team, publications, and representative experience, visit Foley’s Telemedicine & Digital Health Industry Team.

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