Cost Aspects: ADS, Tax Exemption, & Legislation

Alt. Deliv. Sys.

  1. PPO / Pref.'ed Prov'er Org.
    1. Dif. From HMO
      1. Flexible b/c can use prov'er not on list
      2. Need 2 pay more $
  2. HMO / Healthcare Maint. Org. / Healthcare Serv. Plan / Pre-paid med.
    1. Purpose 2 Contain Cost
    2. Deliv. / Insurer Side
      1. Enrollee / subscribers sign up
        1. Pay fixed $ / mo. as premium
        2. In return, get health care benefits
        3. Select from list of prov'ers / dr.'s
    3. Healthcare Prov'er Side / K'ing w/Prov'ers
      1. Dif. Models
        1. Staff model: empl's dr.'s
        2. Group model
          1. K w/sep. legal entity of Group, a prof. corp.
          2. K is called prof. serv.'s agmt
        3. Network
          1. K w/own Group & other medical groups
          2. Integ.'ed med. groups where dr.'s share losses / profits through same entity
        4. IPA (indep. pract. ass'n)
          1. K w/IPA / prof'l corp. which indep'ly gov's themselves
          2. Dr.'s in IPA maintain sep. pract.'s & have prov.'er agmt in IPA 2 access K's through IPA
      2. Dr's Pay
        1. Dr.'s can't dir.'ly bill pat.'s
        2. Prim. care prov'er paid capitated basis of fixed pay/member/mo.
          1. Internists
          2. Family pract.
          3. Ob / Gyn
          4. Pediatricians
        3. Specialists paid by discounted fee 4 serv.
      3. Fin.'al Disincentives
        1. Prim. care givers pay spec.
          1. Enrollee must B referred 2 spec. by prim. care
          2. Risk pools where HMO put some dr.'s capitation so that spec. will B paid when referred 2
          3. Dr's must pay if risk pool doesn't cover all cost of spec.
        2. Hosp's paid per dium rate / per day
          1. Dr. not want pat.'s in hosp. v. hosp's desire 2 keep pat.'s
        3. Ancillary risk pools
          1. Hosp. utilization risk pools
            1. Meas.'ed by # of adm. / bed days / thous. enrollees
            2. Want 150 bed days / 1k enrollee 4 healthy
            3. Want 650 bed days / 1k enrollee 4 Medicare
          2. Risk pools 4 running tests
        4. Deductible & co-payment
          1. Deductible is $ enrollee pays before ins. kicks in
          2. Co-payment by enrollees discourage them from going 2 healthcare
    4. Healthcare Serv. Plan
      1. HMO License
        1. Corp. gen'ly so file articles & bylaws w/Dep. of Corp.
        2. Submit K w/prov.'ers 2 B credentialled, compensated, & agreed
        3. Must have formal grievance process 4 enrollee's rts
      2. Credentialling Prov.'ers
        1. HMO must take rsbl steps 2 ensure prov.'ers R competent
        2. Ways
          1. HMO do it themselves
          2. Req. dr.'s 2 have active staff member in hosp.
        3. If HMO 4 Medicare, must B fed.'ly qualified
        4. QA is ongoing
        5. Utilization rev. / plan 2 monitor & control util. of serv.'s
      3. Diversification & HMO's Owning Prov'ers / Med. Groups
        1. Cut cost
        2. Capture as much of premium paid by enrollees as possible
          1. Create deliv. sys. 4 global capitated payment where get pay 4 prov'er / hosp. 4 institutional component
    5. Utilization Rev.
      1. Control Cost & Quality By
        1. Med. nec.
        2. Utilization rev.'ers apply applicable stand. of care
      2. Types of Rev.
        1. Retrospective
          1. After serv.'s prov.'ed
          2. On going 2 check quality
          3. If not confined 2 quality rev., dr. could B denied pay after serv.
        2. Prospective
          1. Prior rev. which is pre-auth. from HMO before prov. serv.
          2. All HMO has it
          3. If combined w/retro, dr.'s could B denied pay
        3. Concur.
          1. While care is being prov.'ed
          2. Ex.'s like if pat. needs 2 stay longer
      3. Case Managers Coord. Pat. Care
      4. Utilization Rev'ers
        1. Gen'ly not talk 2 treating dr.'s so rev.'ed in vacuum
          1. RN's make frontline dec.'s
          2. Dr's if HMO dec. 2 deny something, but not always same spec.
          3. HMO
          4. Prov.'er delegated if big. med. group & have capability
          5. 3rd Party Adm'or (TPA) acts as 3rd party & do adm. task 4 HMO
        2. Can B liab. b/c legal duty 2 dec. treatment by stand. of care
      5. EMTALA v. Utilization
        1. EMTALA req's hosp. w/Medicare 2 give med. screening exam 2 those coming 2 ER w/o asking 4 pay
        2. In CA (H & S 1317.4) HMO must pay 4 med. screening exam / any stabilizing treatment prov.'ed 2 enrollees even if prov.'er didn't have K w/HMO
          1. Exception if enrollee knew / rsbly should've known that didn't req. emergency care
    6. Impact on Dr's
      1. More imp. 2 have rel. w/HMO than w/pat.
        1. Less need 4 spec. & more 4 prim. care w/HMO
        2. D /P Rts 4 HMO K's in CA When Deselecting
          1. If term'ed 4 cause / med. disciplinary rsn, then HMO has oblgn 2 give D/P
          2. No cause term.
            1. Ok if good faith & fair dealing & not contrary 2 pub. policy
            2. If entity deselecting prov'ers controls imp. econ. int., then can arg. that dr. deserves fair proced.
            3. If dr. believes term. by bad faith / contrary 2 pub. policy, entitled 2 some fair proced.
          3. The higher the econ. int., more likely 2 find D/P rts
            1. Vested econ. int. stand. where prov.'er has rt. 2 some D/P whenever deprive prov'er of econ. rt.
          4. If IPA HMO
            1. HMO & IPA give D/P rts whenever take med. discip. axn against dr.'s
        3. Econ. Credentialing
          1. Criteria by Utilization: How Much Dr. is Costing
        4. Actual K 4 Dr. & HMO
          1. HMO can restrict referrals, but Dr. has oblgn 4 best dec. 4 pat.
          2. Encounter data
            1. Approp. 4 capitated data
            2. Prov'er submits encounter data 2 get paid
          3. Clean Claims
            1. Approved billing form 4 payment
          4. Unenforceable cl's
            1. K'al indemnity cl's unenforceable btwn HMO & Dr.
            2. Noncompetition agmts which restrict dr's from going 2 another HMO if term.
          5. Enforceable
            1. Can have equit. indemnity
            2. Non-solicitation agmts which prohibit dr.'s from soliciting pat.'s away from HMO
              1. CA dr.'s have rt. 2 notify pat. when change pract. / location which is dif. from soliciting
          6. HMO Membership List Confid.
            1. But if dr. can keep sep. list
            2. If dr. part of med. group, they med. group is keeper of files
          7. Capitation
            1. Co-payment could B deducted from capitation rate
            2. Entitled 2 adj. in rate if change in actuary / assumption
          8. Stop loss protection
            1. Ins. policy 2 pay 4 care that goes above limit

Tax Exemption

  1. Charact's
    1. Exempt activities that contrib. 2 pub. goods
    2. Adv's
      1. Not pay tax
      2. Exempted from sec. laws
  2. Fed.: Nonprofit Org. Under IRC 501)c)3
    1. Most Desirable B/c Allow 4 Tax Exempt Donations
    2. Reqt's 2 Qualify 4 Tax Exempt Status
      1. Org'ed excl'ly / subst'ly 4 exempt / charitable purposes
        1. Gen'ly corp. so file articles of incorp. & limit 2 charitable purpose
        2. Ez prong 2 meet & not where prob's gen'ly arise
      2. Operated excl'ly / subst'ly 4 exempt / charitable purpose
        1. Whether true community benefit was conferred in operation
        2. Factors incl.
          1. Stated purpose prov's sig. benefit 2 others w/o expected reward
          2. Hosp. is supported by donation & gifts
          3. Recipients of charitable serv's need not pay
          4. Whether income prod. / exceeds operating expenses / not
          5. Whether benefic. restricted / not
          6. Operation is low burden on govt
    3. Reqts 2 Retain IRS 501)c)3 Exempt Status
      1. Private benefit test
        1. Applies 2 everybody
        2. Prohibits activities resulting in priv. benefit unless
          1. Incidental 2 pub. purpose +
            1. Qualitative factor
            2. Rsbl rel. btwn hosp's charitable goal & priv. benefit conferred
            3. Activity is nec. 2 achieve exempt purpose & benefit is nec. byprod.
          2. Not subst'l 2 priv. person
            1. Quantitative factor
            2. Benefit conferred on indiv. shouldn't B excessive in amt.
            3. Only confer priv. benefit nec. 2 accomplish pub. purpose
            4. Factors
              1. Whether arms length negotiation
              2. Caps on exempt org.'s potential risk on investment
              3. Exempt org. retained control
              4. Whether payment & investment returns is rsbl amt
              5. Exempt org. has rt. 2 retain control of activity
              6. Exempt org. has rt. 2 obtain any asset / has option / 1st rt. 2 refusal
      2. Private inurement test
        1. Only apply 2 insiders
          1. Dr's in med. staff is assumed 2 B insider
        2. No part of net earning inures any benefit of SH / indiv. who has pers'al / priv. int. in org.
          1. Not prohibit all arr. but closer scrutiny 2 see if insiders unduly benefit from rel.
          2. Factors
            1. Arms length negotiation
            2. Terms were comm'ly rsbl
            3. Payment 2 insiders serve true busi. purpose
            4. Payments can't B dep. on income / rev. of exempt org.
            5. Rsbl ceiling / max. cap on payment 2 insiders
            6. Compensation rsbl 2 rel. of benefit received by exempt org.
    4. IRC 501)a
      1. Pub. charity / lots of pub. support which has better tax exemption
      2. Priv. foundation has sig. donors who control where 2 use $
  3. Unrel'ed Busi. Income Tax
    1. Taxed on Unrel'ed Busi. Income
      1. Not suff. 2 satisfy integral part but activity itself must B exempt 2 not pay tax
      2. If 2 much unrel'ed activity, then jeopardize tax exempt status
    2. Def. & Analysis
      1. Any gross income derived from exempt org. from any unrel'ed trade / busi. reg'ly carried on
        1. Activity has 2 B trade / busi.
        2. Reg'ly carried on so consid. freq. & cont.'ty
        3. Unrel'ed if not subst'ly rel'ed 2 exercise / perf. by that org. 4 exempt purpose
          1. Comm'l availability: if exempt org's activity also prov'ed by comm'l institution in same area, gen'ly not subst'ly rel'ed
          2. Hands on med. care test: more subst'ly rel'ed if activity involves hands on med. care
          3. Pat. / non-pat. test: more subst'ly rel'ed if activity only 2 pat.'s
        4. Portion of income
          1. If lwr than 10%, ok 2 exempt
          2. Dang. if 10-15%
    3. Exceptions 2 UBTI
      1. Royalty payment 4 use of intangible
      2. Rent
      3. Income from vol'eers
  4. Mergers Btwn Profit & Nonprofit
    1. IRS Scrutiny
      1. Rel'edness criterion 2 see if jt. venture furthers exempt purposes
      2. Conflict of int. criterion
        1. Control factor / allow exempt org. 2 operate excl'ly in furtherance of exempt purpose
        2. Whether exempt partn. is limited partn. which give no control 2 mgmt
        3. Whether profit org's duty 2 max profit conflicts
      3. Fin.'al benefit criterion
        1. Whether there's priv. inurement / benefit
      4. Govt's participation 4 community benefit

Legislation

  1. Fraud & Abuse & Anti-kickback Stt
    1. Lwr Cost by Decr'ing Inapprop. Utilization
    2. Payment Prog's
      1. Cost Based Reimbursement Sys. Before
        1. Hosp. bill 2 Medicare 4 cost of care
      2. Prospective Payment Sys.: PPS
        1. Payment set before serv.'s rendered by diagnosis rel'ed groups (DRG)
        2. DRG consid.'s adm'ing diagnosis of pat.'s & $ hosp. receives based on that
        3. DRG varies by external factors affecting hosp. cost
  2. Anti-Kickback Stt: 42 USCA 1320a-7b
    1. Section b)1
      1. Whoever knowingly & willfully solicit / receive any remuneration dir'ly / indir'ly, overtly / covertly, in cash / in kind 4 referral of serv.
      2. Remuneration incl's kickbacks, brib, / rebate
    2. Section b)2
      1. Same except it's offers / pays instead of solicit / receive
    3. Evol. of Stand.'s 4 Viol.
      1. Viol. if any purpose / 1 of payment 2 induce referral
      2. 1st circ., viol. if prim. purpose is unlawful
      3. 9th circ., viol. if prove beyond rsbl doubt that 1 of material purpose is $ / referral
    4. Scienter Reqts
      1. 9th circ. req's knowing the law & intend 2 viol. / willfully viol.
      2. Not many follow 9th reqt
    5. Penalties
      1. Monetary $25k
      2. Jail of 5 yrs.
      3. Excl'ed from Medicare / caid: mandatory / permissive
    6. Small Entity Investment Safe Harbor
      1. Investors in position 2 make / influence referrals can't hold more than 40% of investment int.
      2. Terms on investment int. R offered same
      3. Terms on which an investment is offered Rn't affected by prev. / expected vol. of referrals
      4. Investors not req'ed 2 refer busi. as condition of B'ing investor
      5. Entity not mkt / funish serv.'s dif'ly 2 investor v. non
      6. Investors' referrals can't generate more than 40% of gross revenue
      7. Entity not loan $ 4 investors
      8. Payments 2 investors have 2 B proportional 2 ownership int. so not pay based on vol. / value of referrals that investors make 2 entity
  3. Stark Leg.
    1. Before
      1. Dr. can't refer 2 lab if had investment / ownership in clinical lab
    2. Broader Now
      1. Dr. can't refer 2 entity he / imm. family has ownership int. / compensation arr. 4 7designated health serv.'s
        1. Radiology
        2. Phys. therapy
        3. Occupational therapy
        4. Radiation therapy
        5. Durable med. equip.
        6. Home health
      2. No scienter reqt
    3. Compensation Arr. & Fin.'al Rel.
      1. Compensation arr. is any arr. where dr. receives remuneration from entity in empl. / indep. K'or rel.
      2. Fin.'al rel. 4 those having ownership / investment int.
    4. Indep. K'or Safe Harbor (Almost ID 2 F & S Safe Harbor)
      1. K in writing
      2. Cov. all serv's dr. expected 2 perf.
      3. Serv's can't exceed what's rsbl & nec. 4 legit. operation
      4. Term of arr. has 2 B @ least 1 yr.
      5. Compensation in writing in advance
      6. Compensation can't exceed fair mkt value of serv.
      7. Compensation can't take into acct value / vol. of referrals
    5. If Viol.
      1. Entity 2 whom referral made can't bill Medicare
      2. Dr's subj. 2 fine & possible excl. from Medicare / caid prog.'s
    6. OIG
      1. Issue advance ruling on proposed trxn
        1. Specif. real trxn in writing
        2. Takes 6 wks 4 response
      2. Spec. fraud alert of what fraud will B targeted w/DOJ & HHS

This material is copyrighted by the author. Use of the material for profit is strictly prohibited without the written permission from the author.

May 6, 1997

Ms. Haeji Hong

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