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Demystifying Commercial Reasonableness in Physician/Hospital Transactions

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PYA Principal Lyle Oelrich presented “Demystifying Commercial Reasonableness in Physician/Hospital Transactions” at the Georgia Society of Certified Public Accountants’ (GSCPA) 2016 Healthcare Conference, February 11, 2016, in Atlanta, Georgia.

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Demystifying Commercial Reasonableness in Physician/Hospital Transactions

  1. 1. Page 0February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Demystifying Commercial Reasonableness in Physician/ Hospital Transactions Presented by: W. Lyle Oelrich, Jr., Principal Pershing Yoakley & Associates, P.C. The Georgia Society of CPAs Health Care Conference February 11, 2016
  2. 2. Page 1February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Introduction – Why Are We Here Today?
  3. 3. Page 2February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Commercial Reasonableness Definition An HHS has interpreted “commercially reasonable” Stark II Phase II also suggests Additionally, OIG has stated “An arrangement that appears to be a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.” “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential DHS referrals.” In order to meet the threshold of commercial reasonableness, compensation arrangements with physicians should be “reasonable and necessary.”
  4. 4. Page 3February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Commercial Reasonableness vs. Fair Market Value Commercial Reasonableness vs. Fair Market Value Commercial reasonableness is slightly different from fair market value. Does the transaction make cents sense? Was this a good business arrangement to enter into in the first place? Is there a legitimate business reason to enter into this agreement? Was it commercially reasonable even if there are no referrals between the parties? Do the underlying economics of the transaction make sense? Fair Market Value (NARROW) Commercial Reasonableness (BROAD) What is the range of dollars you are going to pay for the space/ services?
  5. 5. Page 4February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Assessing Commercial Reasonableness Unique Facts and Circumstances Commercial Reasonableness Definition and Regulations Court Guidance
  6. 6. Page 5February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Judicial Guidance Involving Commercial Reasonableness United States ex. rel., Kaczmarczyk v. SCCI Hospital Ventures Outcome: $10,000,000 Settlement Key Background  Qui tam action  Entered into medical directorship relationships across multiple hospital campuses within the system Key Findings  Low patient census did not warrant multiple medical directors  Certain paid duties overlapped with medical staff bylaw requirements  Inadequate oversight and enforcement of compliance measures
  7. 7. Page 6February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Judicial Guidance Involving Commercial Reasonableness United States v. Campbell Outcome: $8,330,000 Settlement Key Background  According to the published opinion, hospital partnered with local cardiologists to secure referrals  Offered part-time positions to provide principally academic services Key Findings  Physicians were not required to perform the majority of duties outlined in agreement  Lack of qualifications to be a professor  Court reasoned that physician’s title and compensation were commercially unreasonable, regardless of whether the compensation was fair market value
  8. 8. Page 7February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Commercial Reasonableness Approach Five Part Analysis Business Purpose Analysis Provider Analysis Facility Analysis Resource Analysis Independence & Oversight Analysis
  9. 9. Page 8February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Business Purpose AnalysisBusiness Purpose Analysis What environment (i.e., mission, vision, service area, service line, organizational history) will the proposed arrangement operate? Does the arrangement being pursued address any unmet community need or service? Does the proposed arrangement effectuate a legitimate business purpose that is essential to the functioning of the entity? Are the services contemplated in the proposed agreement related to the business and/or clinical plans and strategies of the entity? Do the proposed services contribute to the provider’s profits and/or the development of a particular service line without requiring income from proscribed referrals?
  10. 10. Page 9February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Provider AnalysisProvider Analysis Does the proposed arrangement require a physician to perform the services? Does the proposed arrangement require a physician of a certain specialty to perform the services? Does any specialized training and/or experience of the provider exist that should be taken into account when evaluating the proposed arrangement? Are the particular nature of the duties and corresponding amount of accountability associated with the proposed arrangement clearly defined and reasonable? Is the amount of time demanded of the physician under the proposed arrangement reasonable? Do any salary considerations exist that should be evaluated in relation to providers of similar specialty and experience in comparable organizations and positions?
  11. 11. Page 10February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Facility AnalysisFacility Analysis Are patient demand, the number of hospital patients, and/or the community need sufficient to justify the services? Are patient acuity levels such that the proposed services are necessary? Do patient needs dictate the necessity for a separate and distinct provider for the proposed services? Are the size of the hospital and the relevant department appropriate for the proposed services?
  12. 12. Page 11February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Resource AnalysisResource Analysis Is the proposed arrangement a necessary addition to the managerial and administrative efforts already required by the medical staff bylaws? Has the number of committees and/or meetings that otherwise require physician attendance outside of the proposed arrangement been considered? If the healthcare entity is part of a larger health system, do patient care protocols and procedures exist that can be coordinated among its facilities in lieu of the proposed arrangement? Does the proposed arrangement lend itself to the potential for duplication or misuse? Does the healthcare entity maintain any features, controls, and/or safeguards to reduce or eliminate the potential for risks of duplication or misuse?
  13. 13. Page 12February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference Independence and Oversight Analysis Independence and Oversight Analysis Does the healthcare entity use performance assessments to determine whether new or existing provider arrangements should be reduced (e.g., hours condensed) or eliminated? Does the entity maintain a formal process for executive management and legal counsel to review and approve the proposed arrangement? Does the provider engage in appropriate monitoring to determine: • Whether services specified in similar arrangements are actually performed? • The total amount of funds spent for such services? • A verifiable outcome resulting from the arrangement? Will the entity engage in regular assessments of the proposed arrangement that clearly show its effectiveness and demonstrate a legitimate need for continuation and/or renewal? Is there a written agreement that addresses the terms of the proposed arrangement?
  14. 14. Page 13February 11, 2016 Prepared for the Georgia Society of CPAs Healthcare Conference W. Lyle Oelrich, Jr., Principal Pershing Yoakley & Associates, P.C. loelrich@pyapc.com

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