Inside the Halifax Case: An Interview with the Government’s Expert Witness

710 views

Published on

This presentation will help you...

- Understand the Fair Market Value and Commercial Reasonableness issues in the Halifax case.

- Understand the positions taken by Ms. McNamara in the Halifax Valuation.

- Understand the best practices in the roles we have on Fair Market Value and Commercial Reasonableness issues.

Published in: Law
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
710
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Inside the Halifax Case: An Interview with the Government’s Expert Witness

  1. 1. © Husch Blackwell LLP INSIDE THE HALIFAX CASE: An Interview with the Government’s Expert Witness Thursday, April 24, 2014 – Noon – 1:00 PM (CST) David B. Pursell
  2. 2. GOALS  Understand the Fair Market Value and Commercial Reasonableness issues in the Halifax case  Understand the positions taken by Ms. McNamara in the Halifax Valuation  Understand the best practices in the roles we have on Fair Market Value and Commercial Reasonableness issues. 2
  3. 3. PARTICIPANTS TODAY  Kathy McNamara, C.P.A ̶ Myers and Stauffer LC  The remarks of Kathy McNamara in this presentation are her own opinions, and do not represent the positions of the DOJ, OIG or any other governmental agency with respect to this or any other matters.  Kathy authored the Expert Report and was the testifying expert for the U.S. DOJ with respect to the neurosurgeon employment agreements in the Halifax case.  David W. Thompson, C.P.A.  Kevin Walker, C.P.A. ̶ CBIZ MHM LLC ̶ David and Kevin acted as healthcare and valuation consultants for Ms. McNamara for this case as well as others.  David Pursell  Husch Blackwell LLP  Moderator for today’s program 3
  4. 4. KATHY MCNAMARA, CPA  Kathy has spent over twenty years in healthcare and business consulting, though today we are interested primarily in her background acting as an expert witness in a number of federal cases: ̶ U.S. ex rel. Baklid-Kunz v. Halifax Med. Center et al. (M.D. Fla.) ̶ U.S. ex rel. Drakeford v. Tuomey Healthcare System (D.S.C.) ̶ U.S. v. Campbell (D.N.J.) ̶ U.S. ex rel. Pogue v. Diabetes Treatment Center of America (M.D. Tenn.) ̶ U.S. v. Bourseau et al. (S.D. Cal.) ̶ U.S. ex rel. Kaczmarczyk, et al. v. SCCI Health Services Corp. et al. (S.D. Tex.) 4
  5. 5. DAVID W. THOMPSON, C.P.A. KEVIN WALKER, C.P.A.  David Thompson: has over 35 years of healthcare experience and has reviewed or prepared hundreds of healthcare valuations, including those for hospital/physician acquisition, employment or professional services transactions, surgical hospitals, ambulatory surgery centers, imaging centers, clinical and pathology labs, cardiac cath labs and physician practices.  Kevin Walker: has over 25 years of healthcare experience has reviewed or prepared hundreds of healthcare valuations, including those for hospital/physician acquisition, employment or professional services transactions, surgical hospitals, ambulatory surgery centers, imaging centers, clinical and pathology labs, cardiac cath labs and physician practices. 5
  6. 6. THE THREE HATS FOR ANALYZING TRANSACTIONS  Transaction Design and Implementation  Best Practices  Risk Tolerance  Relative Benefits  Compliance Review  Defensible Position  Appropriate Corrections  Litigation Defense  Risk Tolerance  Reasonable Defenses 6
  7. 7. HALIFAX BACKGROUND  Initial Complaint filed under seal June 16, 2009 alleging violations of the False Claims Act, including allegations of claims resulting from improper admissions and claims resulting from referrals from physicians whose employment agreements were alleged to violate the Stark Law and the Anti-Kickback Statute.  U.S. filed its Complaint in Intervention November 4, 2011 only with respect to the Stark Law/FCA allegations involving the Medical Oncologists and the Neurosurgeons 7
  8. 8. INTERVENED CLAIMS MEDICAL ONCOLOGISTS AGREEMENTS  Numerous issues, none of which included FMV or commercial reasonableness  Principal Stark Law issue: ̶ Does the bona fide employee exception permit a bonus pool that includes DHS revenue if allocated based on the proportion of personally performed services of physicians participating in the pool.  Held: No; employee exception only permits a bonus to a physician based on his or her own personally performed services. 8
  9. 9. NEUROSURGEONS AGREEMENTS  Three Neurosurgeons Agreements the subject of Ms. McNamara’s Report  We will discuss the valuation principles applied by Ms. McNamara in general terms, then review her application of these principals to the 3 agreements both for Fair Market Value analysis and Commercial Reasonableness analysis 9
  10. 10. REPORT CONCLUSIONS  I believe that the compensation terms of the employment agreements and HSI’s business arrangements with the neurosurgeons were not commercially reasonable because absent the physicians’ referrals to HHMC, there does not appear to be a legitimate business purpose for entering into or maintaining the described physician employment agreements. In my opinion, the employment agreements do not make commercial sense, and would not have been entered into by a reasonable entity of similar type and size.  Based upon my findings I believe that HSI paid Drs. Vinas and Khanna in excess of fair market value for their services for each year examined. Except for the years 2003 and 2008, Dr. Kuhn’s compensation also appears to fall outside the fair market value range. 10
  11. 11. COMMERCIAL REASONABLENESS  “Commercial Reasonableness” Definition: ̶ An arrangement is a sensible, prudent business arrangement from the perspective of the parties involved, even in the absence of potential referrals. ̶ Commercially reasonable in the absence of referrals if the arrangement would make commercial sense if entered into by reasonable parties even if there were no potential DHS referrals.  Stark Exceptions apply Commercial Reasonableness standard to agreement as a whole 11
  12. 12. POTENTIAL FACTORS Length of the term Renewal/evergreen provisions Termination for cause provisions Termination without cause provisions Full time/part-time employment Compensation--fixed vs. production Periodic review of compensation formula Ability to adjust compensation/formula Net cost of agreement to hospital Eligibility for pension, welfare and fringe benefits Scope of duties Requirements for documentation (administrative vs. clinical time and amount of time expended) Duplication of services (multiple agreements for same service) Demonstrable need for service in community Demonstrable need for service at hospital Justification for non-standard provisions (A non-exhaustive list) 12
  13. 13. COMMERCIAL REASONABLENESS  Conceptual Framework: ̶ Potential referrals will always exist in a hospital/physician transaction. ̶ But, do the terms of the asset acquisition and/or employment/independent contractor arrangement standing alone make legitimate healthcare business sense, or does the arrangement only make good business sense when you consider the value of the referrals that the hospital will be receiving from the physicians? 13
  14. 14. COMMERCIAL REASONABLENESS ISSUES  For Most Years the Physicians’ Received 100% of their Collections Derived from their Professional Services Kuhn Compensation& ProfitReviewBefore andAfterEmployment Before Employment AfterEmployment 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Practice Receipts 826,042 1,234,975 1,212,453 1,020,449 900,985 923,741 1,114,911 1,268,106 1,138,702 1,227,211 1,063,597 844,683 754,396 W-2-Compensation 150,000 160,000 187,021 185,898 587,173 1,078,793 1,032,523 1,253,335 1,217,137 1,154,989 1,154,921 1,186,346 1,086,541 SubSDistribution 357,508 682,767 564,638 306,411 Total Compensation 507,508 842,767 751,659 492,309 587,173 1,078,793 1,032,523 1,253,335 1,217,137 1,154,989 1,154,921 1,186,346 1,086,541 Compensationasa% of Receipts 61.44% 68.24% 61.99% 48.24% 65.17% 116.8% 92.6% 98.8% 106.9% 94.1% 108.6% 140.4% 144.0% Average Compensation% of receiptsbefore employment 59.98% Average Compensation% of receiptsafteremployment 107.50% Average Compensation before employment 648,561$ Average Compensation afteremployment 1,083,529$ Average Collections before employment 1,073,480$ Average Collections afteremployment 1,026,259$ 14
  15. 15. COMMERCIAL REASONABLENESS ISSUES  HSI Incurred Material Financial Losses related to the Neurosurgeons’ Practices Physician Income (Loss) After Physician's Salary and Benefits Practice Expenses Direct Practice (Loss) Facility Contributio n Margin Overall Neurosurgeon Margin Khanna $(338,853) $ 220,663 $(559,516) $2,412,176 $1,852,660 Vinas $(413,013) $ 388,626 $(801,639) $2,797,650 $1,996,011 Kuhn $25,949 $ 437,717 $(411,768) $3,116,078 $2,704,310 Total $(725,917) $ 1,047,006 $(1,772,923) $8,325,904 $6,552,981 15
  16. 16. COMMERCIAL REASONABLENESS ISSUES  The Neurosurgeons were Favorably Treated in Comparison to Other Employed HSI Physicians ̶ The neurosurgeons received a car allowance totaling $10,800 per year. No other HSI employed physician received any car allowance. When Dr. Kuhn practiced as an independent physician, his car expenses were much lower and ranged between $1,482 and $2,877 for the years 2000 through 2002. In later years Dr. Vinas’ car allowance was increased to $13,500 per year. ̶ For those years that HHMC’s Federal Form 990s were produced, each 990 listed each of neurosurgeons as one of the five highest paid employees. 16
  17. 17. COMMERCIAL REASONABLENESS ISSUES  The Neurosurgeons were Favorably Treated in Comparison to Other Employed HSI Physicians ̶ On a HHMC spreadsheet outlining the neurosurgeons’ compensation arrangements, the following was noted: ̶ “Additional subsidy not provided to other physicians:  200% of the Medicare Fee Schedule for all trauma patients  Reimbursed for hospital employees workers comp claims  Collection expense is not deducted from collections  Bad debt expense is not deducted from collections  80% of the Medicare fee schedule for district charity and self-pay patients like non-employed physicians.” 17
  18. 18. 0 200000 400000 600000 800000 1000000 1200000 1400000 1600000 1800000 2000000 Dr. Khanna Dr. Kuhn Dr. Vinas Medical Oncology Radiation Oncology Gynecology Oncology Urology Intensivist Neurosurgeons Compared to Other Employed Physicians Actual CY 2008 Compensation Physician Group Compensation is for highest paid physician in the group. MGMA 90th percentile for Neurosurgery With the exception of medical oncologists, the Neurosurgeons were the only employed specialist group who earn compensation above or near the 90th percentile levels. COMMERCIAL REASONABLENESS ISSUES 18
  19. 19. VALUATION PRINCIPLES  FMV Definition: The value in arm’s-length transactions, consistent with the compensation that would be included in a services agreement as a result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, at the time of the service agreement. 19
  20. 20. VALUATION PRINCIPLES  Cost Approach  Income Approach  Market Approach ̶ How are these methods applied in the valuation of physician Compensation? 20
  21. 21. VALUATION CONCLUSION  Based upon my findings I believe that HSI paid Drs. Vinas and Khanna in excess of fair market value for their services for each year examined. Except for the years 2003 and 2008, Dr. Kuhn’s compensation also appears to fall outside the fair market value range. 21
  22. 22. VALUATION PRINCIPALS Market Approach Industry Weighted Average Median 75th Percentile Neurosurgery 2011 552 66.43$ 84.73$ Neurosurgery 2010 523 63.72$ 80.00$ Neurosurgery 2009 439 65.25$ 85.72$ Neurosurgery 2008 214 66.08$ 85.52$ Market Data-Compensation Per WRVU Industry Weighted Average Median 75th Percentile Neurosurgery 2011 353 75.4% 104.1% Neurosurgery 2010 366 68.3% 97.5% Neurosurgery 2009 314 52.1% 96.6% Neurosurgery 2008 150 68.0% 81.4% Market Data-Compensation as a % of Collections 22
  23. 23. FMV RESULTS Vinas Neurosurgeon- Start Date-February, 2000 Total Compensation v Market Data Specialty-Neurosurgery-Actual Pay Year Vinas Vinas 1099-Misc Total 2011 1,430,798$ 1,430,798$ >90th 2010 1,617,383$ 1,617,383$ >90th 2009 1,933,717$ 1,933,717$ >90th 2008 1,896,437$ 1,896,437$ >90th 2007 1,443,407$ 1,443,407$ >90th 2006 1,984,833$ 1,984,833$ >90th 2005 1,440,589$ 1,440,589$ >90th 2004 1,098,403$ 81,500$ 1,179,903$ >90th 2003 1,004,248$ 5,437$ 1,009,685$ >90th 2002 951,365$ 51,861$ 1,003,226$ >90th 2001 n/a 46,500 46,500$ 2000 n/a 32,000$ 32,000$ Source W-2's 03328250-259 0341706, 0341699 0341710, 0341695, 0341693 Median 75th % 90th % Median 75th % 90th % 979,846$ 792,887$ 602,130$ 254% 196% 159% 1,349,839$ 1,155,934$ 967,155$ 331% 249% 200% 1,334,369$ 1,152,506$ 968,389$ 337% 255% 204% Industry Weighted Average Number Median 75th 90th Neurosurgery 2010 919 637,537$ 824,496$ 1,015,253$ Neurosurgery 2009 835 583,878$ 777,783$ 966,562$ Neurosurgery 2008 726 562,068$ 743,931$ 928,048$ Market Data- Total Compensation Excess over Market 23
  24. 24. FMV RESULTS Khanna Neurosurgeon- Start Date-July 7, 2001 Total Compensation v Market Data Specialty-Neurosurgery-Actual Pay Year Khanna Khanna 1099- Misc Total 2011 1,134,951$ 1,134,951$ <90th 2010 1,107,519$ 1,107,519$ <90th 2009 1,506,217$ 1,506,217$ >90th 2008 1,724,600$ 1,724,600$ >90th 2007 1,714,064$ 1,714,064$ >90th 2006 1,910,913$ 1,910,913$ >90th 2005 1,709,902$ 1,709,902$ >90th 2004 1,302,879$ 49,000$ 1,351,879$ >90th 2003 1,466,661$ 22,000$ 1,488,661$ >90th 2002 780,186$ 43,500$ 823,686$ <90th 2001 n/a 2000 n/a 58,500$ 58,500$ Source W-2's 03328210-219 0341691, 0341702-3& 0341707 Median 75th % 90th % Median 75th % 90th % 469,982$ 283,023$ 92,266$ 178% 138% 112% 922,339$ 728,434$ 539,655$ 190% 142% 115% 1,162,532$ 980,669$ 796,552$ 268% 202% 162% Market Data- Total Compensation Industry Weighted Average Number Median 75th 90th Neurosurgery 2010 919 637,537$ 824,496$ 1,015,253$ Neurosurgery 2009 835 583,878$ 777,783$ 966,562$ Neurosurgery 2008 726 562,068$ 743,931$ 928,048$ Excess over Market 24
  25. 25. FMV RESULTS $ Compensation Over (Under) Kuhn Neurosurgeon- Start Date-February 14, 2003 Total Compensation v Market Data Specialty-Neurosurgery-Actual Pay Year Kuhn Kuhn 1099- Misc Total 2011 1,086,541$ 1,086,541$ <90th 2010 1,186,346$ 1,186,346$ <90th 2009 1,154,921$ 1,154,921$ >90th 2008 1,154,989$ 1,154,989$ >90th 2007 1,217,137$ 1,217,137$ >90th 2006 1,253,335$ 1,253,335$ >90th 2005 1,032,523$ 1,032,523$ >90th 2004 1,032,407$ 46,386$ 1,078,793$ >90th 2003 504,302$ 82,871$ 587,173$ <75th 2002 n/a 158,363$ 158,363$ Source W-2's 0338220-228 0341708, 0341701,034 1704 Median 75th % 90th % Median 75th % 90th % 548,809$ 361,850$ 171,093$ 170% 132% 107% 571,043$ 377,138$ 188,359$ 203% 153% 123% 592,921$ 411,058$ 226,941$ 205% 155% 124% Actual Compensation % of Market Market Data- Total Compensation Industry Weighted Average Number Median 75th 90th Neurosurgery 2010 919 637,537$ 824,496$ 1,015,253$ Neurosurgery 2009 835 583,878$ 777,783$ 966,562$ Neurosurgery 2008 726 562,068$ 743,931$ 928,048$ Excess over Market 25
  26. 26. © Husch Blackwell LLP
  27. 27. - 5,000 10,000 15,000 20,000 25,000 30,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Vinas WRVUs Vinas Median 75th - 5,000 10,000 15,000 20,000 25,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Kuhn WRVUs Kuhn Median 75th 27
  28. 28. ADDITIONAL FACTORS  Physicians’ Time Analysis:  E&M codes, for instance, critical care codes, are time based codes for which a physician’s time must be documented in the medical record. Physicians routinely determine which level of E&M to code based on the amount of time they spend with a patient. Generally, more time spent with a patient equates to a higher level code, and higher reimbursement levels.  Neurosurgeons’ WRVUs associated with E&M services were compared to WRVUs reported by family practice physicians (because almost all of a family practice physicians’ work is associated with E&M services). Each of the neurosurgeon’s E&M services alone are positioned near or materially above the median levels reported by full time family practitioners. In 2007, Dr. Khanna’s WRVUs associated solely with his E&M services were 3.25 times higher than a full time family practice physician at the median level and more than 2 times higher than 90th percentile amounts. This means that even without accounting for all of the time he spent in surgery, Dr. Khanna billed over three times more for his E&M services than the median family practice physician.  HHMC engaged an independent consultant to perform a practice analysis for Dr. Vinas and Dr. Kuhn. After analyzing each of the physicians WRVUs by CPT code, one of the consultant’s findings was that Dr. Vinas was working an estimated 8,749 hours a year, and Dr. Kuhn 6,931 hours a year (there are 8,760 hours in a 365 day year). By using 2,080 hours to equate the consultant’s estimated hours to full time equivalents (“FTEs”), this equals 4.2 FTEs and 3.33 FTEs, respectively. An internal HHMC email showed that through August 2010, Dr. Khanna had taken 55 days off, Dr. Vinas 38 days and Dr. Kuhn 22 days off for the year. 28
  29. 29. ADDITIONAL FACTORS Physicians'E&MCodesOnly MarketData-FamilyPractice %ofMarketMedian %to75thPercentile Vinas Kuhn Khanna Survey N Median 75th 90th Vinas Kuhn Khanna Vinas Kuhn Khanna 2011 4,588 4,971 3,424 Family Practice(without OB)MGMA 2012 4886 4,815 5,897 7,082 95.29% 103.24% 71.11% 77.80% 84.30% 58.06% 2010 4,506 5,714 3,542 Family Practice(without OB)MGMA 2011 4354 4,819 5,884 7,081 93.58% 118.57% 73.50% 76.58% 97.11% 60.20% 2009 5,206 5,406 4,316 Family Practice(without OB)MGMA 2010 4179 4,845 5,865 7,004 108.12% 111.58% 89.08% 88.77% 92.18% 73.59% 2008 5,323 6,296 4,164 Family Practice(without OB)MGMA 2009 3876 4,735 5,723 6,879 110.55% 132.97% 87.94% 93.01% 110.01% 72.76% 2007 6,554 5,476 14,944 Family Practice(without OB)MGMA 2008 3629 4,600 5,606 6,796 136.12% 119.04% 324.87% 116.91% 97.68% 266.57% 2006 6,452 4,360 8,463 Family Practice(without OB)MGMA 2007 2365 4,073 4,898 5,794 134.00% 107.05% 207.78% 131.73% 89.02% 172.78% 29
  30. 30. WRAP-UP QUESTIONS 30
  31. 31. CONTACT INFO HUSCH BLACKWELL LLP David B. Pursell Partner HUSCH BLACKWELL LLP 4801 Main Street, Suite 1000 Kansas City, MO 64112-2551 Direct: 816.983.8190 Fax: 816.983.8080 David.Pursell@huschblackwell.com huschblackwell.com CBIZ MHM, LLC David W. Thompson | Managing Director p: 913-234-1025 dthompson@cbiz.com Kevin Walker | Managing Director P: 913-234-1023 kwalker@cbiz.com CBIZ MHM, LLC 11440 Tomahawk Creek Parkway Leawood, KS 66211 MYERS AND STAUFFER LC Kathy McNamara, CPA Senior Manager MYERS AND STAUFFER LC kmcnamara@mslc.com phone # 515-259-4082 cell # 913-568-5375 31

×