Joe Wolfe

Real Estate in Health Care: A 15-Minute Discussion of Key Health Care Real Estate Trends

June 2, 2022 Joe Wolfe Practical Solutions in Health Care 00:19:49 Comments Off on Real Estate in Health Care: A 15-Minute Discussion of Key Health Care Real Estate Trends

Real Estate in Health Care: Discussion of Key Fraud and Compliance Considerations, Changing Market Conditions and Opportunities

In this most recent episode of Hall Render’s  “Health Regulatory Update,” Joe Wolfe discusses health care real estate trends and compliance issues with Libby Park and Addison Bradford from Hall Render’s real estate service line.

Podcast Participants

Joe Wolfe

Attorney, Hall Render
Health Regulatory Practice Group Leader

Addison Bradford

Attorney, Hall Render

Libby Park

Attorney, Hall Render

Joe Wolfe: Hello, and welcome to Hall Render’s Practical Solutions Podcast and Health care Regulatory Update. I’m your host Joe Wolfe, and I’m a shareholder with Hall Render. We’re the largest health care focused law firm in the country. And today we’re here to discuss fraud and compliance issues tied to health care real estate. And I have with me my colleagues Libby Park and Addison Bradford from Hall Render’s health care real estate service line. Before we dig into the content, Libby and Addison, can you introduce yourselves?

Libby Park: I’m happy to be here with you and Addison today. My name is Libby Park and I’m an attorney practicing in Hall Render’s Denver office. I’m a member of our health transactions team, and I work primarily on transactional matters relating to real estate and land use for our health care clients across the United States. Thanks so much, Joe.

Addison Bradford: Yeah, thanks for having us, Joe. My name is Addison Bradford and I’m here in our Indianapolis office. And most of what Libby said applies to me, I am within our health transactions group, specifically within our real estate service line. And Libby and I, and the rest of the folks on our team, help work on a wide variety of real estate arrangements, most of which involve at least some level of a compliance aspect.

Joe Wolfe: Great. Thanks, Libby, and thanks, Addison. And then I’ll just add, in my practice, I focus on fraud and abuse, Stark and anti-kickback compliance and physician arrangements. And my practice delves into real estate as well. And I think as we start to frame up this discussion, we all can agree that health care real estate is already a complex area in health law. And then when we layer on top of that other issues and more complexity like licensure and reimbursement and tax exemption, bond financing, and then Stark and Kickback on top of that, it gets even more complex.

And as all of us that are working in this space and working with clients nationwide know, it’s there has been even more complexity over the last few years as we’ve seen the pandemic and real estate issues unfold related to that. Obviously, many health care organizations had leasing arrangements in place with physicians. Space challenges have played out over the last few years. And now we’re having a discussion here today to talk about some of that complexity, but we’re going to do that in hopefully a very straightforward way in just 15 minutes. So I’m going to pose a few questions to Libby and Addison. And we’ll start off with Libby. Libby, first, when we talk about real estate in health care, what do we mean? What are the types of entities and players we’re talking about? And why does real estate matter in the health care space from your perspective?

Libby Park: Thanks, Joe. That’s a great question. And I think your initial introduction to health care real estate more broadly was right on point and a great intro for what we’re kicking off here today. Generally speaking, health care real estate encompasses any real property and land use issue that a health care entity may be dealing with.  Substantively, this can mean a lot of things, like commercial leasing, purchasing and selling real property, medical development of health care campuses and medical office buildings. We also deal with things like tax exemption for real property, zoning compliance, negotiating easements and land use agreements, performing environmental inspections and remediations, and also compliance and licensure issues that are tied to real property.

In terms of the entities that health care real estate affects, this is also very broad. We work with hospitals and health care systems nationwide, as well as individual providers, physicians, dentists, and physical therapists, for example, who are looking to start practices or secure space where they can provide care to patients. Health care entities range from large urban providers to small rural hospitals and health care systems. It really runs the gamut. And even with the increase in telehealth and transition to virtual care that we’ve seen over the past two years during the COVID pandemic, we’re still seeing that there is a need for real property space, and health care providers need these brick and mortar locations to provide care to patients and for administrative uses. That’s a broad overview.

Addison Bradford: If I can add to that, I think one of the challenges when it comes to health care real estate is a lot of the players are not health care entities, especially when it comes to commercial landlords that they might be leasing from, or even developers who don’t have experience within the health care space. One of the challenges we face is educating a lot of those non-health care parties about the regulatory environment in which hospitals, health care providers sit in and how that dictates the terms of the agreements that those parties enter into.

Joe Wolfe: That’s a good thought and great thoughts from both of you. Addison, that’s been my experience as well. You’re asking a landlord, a commercial property developer to step into our health care world with all of these additional levels of regulations and make sure that we’re helping them mitigate risk under this framework that is very different from any other industry. So I appreciate those comments.

I think that’s a good segue to the regulatory piece a bit. And my next question is for Addison. For us who work in this space, we understand that there are some special rules, notably the Stark law and the Anti-Kickback statute that create a framework that we need to follow when we’re contracting, especially with physicians, but in the health care space, especially with an entity or a provider that makes referrals. And in that context, sometimes there’s a need to self-disclose compliance issues as well. So I know Addison, you’ve been close to some recent judgment data and self-disclosure data related to real estate. What, if anything, does that data available related to Stark and Kickback tell us about lease provisions and more generally about other real estate arrangements that may trip parties up in this health care space?

Addison Bradford: Yeah, so we track settlement data that OIG and CMS put out as to the Anti-Kickback Statute and the Stark Law respectively, as well as monitor the settlement and judgment data that the DOJ puts out. And although there are gaps in some of that data, we can see from those settlements and judgments general trends and maybe what the government’s most concerned about and just generally the types of arrangements that are tripping parties up.

I’ll tell you the one trend we generally see is that the real estate compliance issues can often be a sign of bigger compliance issues within the organization outside of real estate. Not too many of the settlements and judgments we see are just related to real estate. It might be physician comp and real estate. It’s a number of other items. So I think it’s interesting is that it could be a sign of something bigger going on with an organization.

But in terms of the real estate specific OIG settlements and judgments we see, a lot of what we see is so called sham real estate arrangements, where it’s a physician or a hospital or some other provider that is leasing space that they don’t intend to use so that the owner of the building is getting that rental revenue, but ultimately they’re not using that space. In other cases, it’s way below fair market value rent. One of the essential elements of fitting within the rental of office space exception under Stark and within the space rental safe harbor is that the rental rate be fair market value. And there are a number of settlements and judgments where that isn’t the case.

And that makes sense to a certain extent. Not everyone that has been subject to these settlements and judgments is presumably acting nefariously, but fair market value isn’t readily known, necessarily. It’s why parties engage appraisers and even brokers to opine on what the fair market value is. So they may say, “Oh, I think this is market,” but especially with the commercial landlord, who’s not dealing with health care might say, “Well, this rate is market, it’s not a big deal.” Then they sell the building to a different provider and the relationship becomes subject to Stark and Anti-Kickback, and they realize, “Oh, it actually wasn’t fair market value.” So given the lease specific nature in that context of Stark and Anti-Kickback, it makes sense that a lot of those settlement and judgments stem from fair market value issues.

Joe Wolfe: Great. Thanks, Addison. And staying in line with the compliance discussion, Libby, I know you assist health care entities with their commercial leasing arrangements. What are the types of lease terms and compliance considerations that they should be considering?

Libby Park: Thanks so much for that question, Joe. You’re exactly right. And a lot of the points that Addison touched on in his response are relevant to commercial leasing arrangements as well, both from compliance language perspective, and also documentation that we need to ensure is included in the file for each leasing arrangement. A commercial lease has both business terms and legal terms. And I’ll touch on both of these sort of buckets of what we want to consider in a commercial leasing arrangement.

First, we’ll touch on business terms, which can vary significantly depending on the negotiating power of the health care client as well as the physical location of the property. Things that health care clients consider when entering into these types of arrangements are the length of the term of the lease. So for example, how many years will the initial term be? Do we want to be in the space for five years or 10 years? Are we going to negotiate subsequent renewal options for this arrangement to lock down the security of this space for additional years? Rent, this is of course a big one, and health care providers want to be able to lock in favorable financial terms for cost savings on rent and also potentially secure tenant improvement allowance to help build out their space.

Other considerations are expansion rights, considering do we want to lease adjacent space in the building if that becomes available, or potentially purchase the space? Assignment provisions, that’s another business term where a health care entity may want to build in the flexibility to assign or transfer the lease without having to obtain landlord consent down the line. The last business term I’ll touch on is an exclusive use provision. And this type of provision in a lease prohibits a landlord from leasing space to a competing entity or another health care entity that’s providing the same type of health care services in the building.

Let’s transition to compliance considerations. Each health care client should assess and flush out if their lease agreement is implicated by Stark and AKS. There are a couple ways that we advise clients to do this. One of these is requesting that the landlord complete a compliance questionnaire or certification. And this essentially is a landlord self-disclosure and agreement documenting if there is physician ownership in the landlord entity. And if the landlord’s an individual, is this individual a physician or an immediate family member of a physician? If the landlord is an entity like a limited liability company, we ask that entity to certify if there’s any physician ownership in the interest of the landlord entity. And depending on what we see in this certification, we can tailor the language of the lease to ensure that the necessary compliance language is included in the lease agreement itself.

I want to touch a little bit on how we document the fair market value of rent in commercial leasing arrangements. As Addison pointed out, this can really be an important piece of ensuring that the lease is compliant. And what we do here is generally connect with a broker or an appraiser, and have a broker opinion of value document that rental rate, as well as any incentives like tenant improvement allowance, are in fact commercially reasonable and consistent with fair market value for the specific location of the premises in the country. And so having that documentation and ensuring that the rental rate is within what is considered commercially reasonable is very important.

Two other items that we ensure are in commercial leasing arrangements are a floor plan that documents with specificity exactly the space that the health care tenant will be using. And then the compliance language that we include are things like representations and warranties from both landlord and tenant that neither is an excluded provider under any of the federal health care programs. We also include specific HIPAA, Stark, and AKS written language that both parties agree to in the commercial lease agreement.

Joe Wolfe: Great. Thanks, Libby. I’ll give a wrap up question in a second, but just as question for Addison. We previewed earlier that the challenges around COVID, now we know there are market challenges out there as well, I think particularly related to inflation. Inflation right now is at its highest in the past 40 years. Addison, how do you anticipate and draft around changing market conditions like this when you’re working on health care real estate arrangements in order to reduce the likelihood of compliance issues in the future years? How do you tackle that?

Addison Bradford: Yeah, the first step is just anticipating what those might be, based off of the particular relationship you’re looking at. So we’ve talked about leasing a lot thus far. So an example, if you have a 20-year lease agreement, well, you need to anticipate that the markets may change a lot more during that time such that the rental rate may… You may need some mechanism to adjust that rental rate to make sure it’s fair market value. It’s like one of the things we’re seeing right now, especially with inflation being what it, is the consumer price index is… I think it is somewhere around 8%. It can vary slightly, but it’s at significantly higher than maybe the one to two percent we’re used to. And many leases escalate the base or the annual rent based on that CPI index. So, in some cases you’re having an 8% increase in the rent.

And that’s really significant, and it can, not to say in every case it’s going to push the rental rate outside of fair market value, but certainly in some cases it will. So it’s anticipating those kinds of items and potentially setting, for example, every five years, redetermined what that fair market value rental rate, building in those provisions to make sure that, yeah, it may be fair market value today, it may be commercially reasonable today, or the relationship more generally may be okay, but in 10 years, some mechanism to address any of those issues.

And then I think that the second thing I’ll note on this is reimbursement costs are, from what I understand, are continuing to go down in some cases. And hospital operating margins are getting slimmer. So I think there will likely be some folks that are looking to cut costs. But I think just from approaching a health care real estate standpoint and predicting the future is to remain and to stay vigilant in negotiating health care real estate arrangements to make sure that they are consistent with the different health care regulatory laws and regulations that apply to them, even in the midst of a difficult market in which many of our clients are operating in.

Joe Wolfe: Great. Thanks, Addison. Just a final question wrapping up, do the two of you have a final thought for those listening in to today’s podcast? Libby, why don’t you go first?

Libby Park: Sure, Joe. I would just like to say, thanks everyone for tuning in. If I can ever help you with any health care real estate-related issues, particularly in this changing environment as we transition from the COVID pandemic, please feel free to reach out to me directly.

Joe Wolfe: Great. And Addison?

Addison Bradford: Yeah. The last piece of advice is I know [inaudible] it seems like we’re always… Or especially in the health care real estate realm when we’re working with a lot of developers, the health care real estate attorneys can seem like impediments to getting the deal done and slow down that process. But I think just the challenge with thinking about the role that attorneys and counsel play in this is realizing that they’re an asset on these deals, because ultimately, if there’s a compliance action that arises out of one of these deals, that might be way more expensive than the X number of dollars it took longer to negotiate or that you’re paying in rent. So I think my caution or challenge folks was to just have that mindset when reaching out to us or in-house folks.

Joe Wolfe: Those are some good thoughts. Again, we are the largest health care focused law firm in the country. And all day we are answering questions in this specific health care space. So to your point, Addison, some of my favorite calls are where a new client says, “Oh, I didn’t know you could just answer these kind of questions on the phone.” We have many situations where we’ve had the question you are asking over and over again in our niche and are able to add value immediately. So those are some good thoughts. Appreciate that.

And I appreciate everyone for listening in. Thanks for joining us today. If you’d like to learn more about fraud and compliance issues in health care real estate, please visit our website at hallrender.com, or reach out to Libby at lpark@hallrender.com, Addison at abradford@hallrender.com, or your regular Hall Render attorney. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice. Thanks, and have a great day.

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Private Equity in Health Care: A 15-Minute Discussion of Key Compliance and Fraud & Abuse Issues

May 25, 2022 Joe Wolfe Practical Solutions in Health Care 00:15:00 Comments Off on Private Equity in Health Care: A 15-Minute Discussion of Key Compliance and Fraud & Abuse Issues

Private Equity in Health Care: A 15-Minute Discussion of Key Compliance and Fraud & Abuse Issues

In this episode of Hall Render’s “Health Regulatory Update,” Joe Wolfe discusses compliance and fraud and abuse issues related to private equity investments with his colleagues Scott Taebel and Erin Drummy. Areas covered include the uptick in activity in the health care private equity landscape, potential compliance and enforcement risk for private equity firms, the importance of focusing on compliance/regulatory due diligence and the importance of going into any new transaction with eyes wide open.

Podcast Participants

Joe Wolfe

Attorney, Hall Render
Health Regulatory Practice Group Leader

Erin Drummy

Attorney, Hall Render

Scott Taebel

Attorney, Hall Render

Joe Wolfe: Hello, and welcome to Hall Render’s Practical Solutions, podcast and healthcare regulatory update. I’m your host Joe Wolfe. I’m an attorney with Hall Render.  We are the largest healthcare focused law firm in the country. And today we’re discussing compliance and fraud and abuse issues related to private equity investments. Today’s podcast comes from Hall Render’s healthcare regulatory practice group, which covers our advocacy compliance fraud and abuse and litigation service lines. I have Scott Taebel and Erin Drummy from our fraud and abuse and compliance service line with me. Scott and Erin can you introduce yourselves?

Scott Taebel: Yeah. Hi Joe. This is Scott and I work in the healthcare regulatory compliance space as you indicated, in particular defending providers who are subject to government enforcement actions and also those who are fortunate enough to discover compliance issues on their own, working with them to internally investigate those questions. And then self-report, if that is necessary.

Erin Drummy: And I’m Erin Drummy, I am also a shareholder in Hall Render’s healthcare regulatory practice group. My practice is focused exclusively in the healthcare space with a particular focus on regulatory matters, the Stark law and fraud and abuse issues. I rejoined the firm about a year ago after spending three years in house with a large global private equity backed physician group.

Joe Wolfe: Great. Thanks. Thanks Scott and Erin. And thanks for being on today. Obviously private equity in healthcare is a huge topic that many not only that are starting to invest in the healthcare space are focusing on, but also those healthcare organizations and physicians that are making investments into models backed by private equity. And so this is a topic that is getting a lot of attention in the industry and I’m really happy that you’re on and allowing our listeners to hear about this. I’m going to go through a few questions for Scott and Erin and get their reactions. First Erin, I have a question for you and it’s sort of a level set here when we’re talking about private equity and healthcare in that landscape. What do we mean and what are the types of entities and players we’re talking about and why are they getting into the healthcare space?

Erin Drummy: Sure. No, it’s a good question. And we’ve certainly seen significant uptick in activity with respect to private equity investment in healthcare in the last few years, compared with the same period in 2020 healthcare deal volumes grew by about 56% in 2021 for private equity investment. And there were nearly 2000 PE healthcare deals that closed in the first nine months of 2021. So we are certainly seeing significant volume and interest here by private equity investors in the healthcare industry. Studies have attributed the growth in private equity interest and investment to reliable revenue streams that are stemming from an aging population. There’s also increased per capita spend on healthcare in the US, which is again attractive to these private equity investors. We’ve seen a lot of interest in eyecare, pain management and dental practices in the past. And those areas do continue to have activity.

Erin Drummy: We’ve also seen interest in orthopedics and oncology, I think in part due to the sizable ancillary revenue streams that are embedded in those practices. Despite some downturn early in the pandemic COVID  has really not slowed things down much here. And we’ve actually seen the evolution of some new opportunities and areas of interest for private equity investment, namely telehealth, behavioral health, home health, and other sorts of support services. I think PE firms have been able to take advantage of what is a very fragmented healthcare system in the United States. And they’re coming in and using this roll up strategy to aggregate small individual provider groups into larger providers, creating economies of scale, operating efficiencies, leverage payers, increasing earnings. And we’re also seeing more recently a huge focus on data. These PE firms are very data driven and with the shift to value based care capitation, and other novel payer arrangements providers really need this data and need to be able to leverage this data and data analytics to manage their patient base and to do well under these payer models.

Erin Drummy: While some have predicted that we may see a decrease or a slowdown in 2022, I think it’s reasonable to expect there to be a continued interest in healthcare for private equity, investment and as such, I think it’s important for providers, whether you’re looking to sell or be purchased or as a private equity investor to have a good understanding of the healthcare regulatory framework and the risks that are out there for these investors and the portfolio companies.

Joe Wolfe: Okay. Thanks. Thanks Erin. And thanks for that overview of the PE landscape. I think the next question is for Scott. Scott, Erin just described what that PE landscape looks like. I know you have extensive experience in the healthcare compliance space, especially related to self-disclosures. And I think at last count you’ve worked on maybe over 150 CMS and OIG self-disclosures. Are there compliance and enforcement risks that come in this PE activity? And are we seeing enforcement or do you anticipate seeing it in the future, for example, around the False Claims Act?

Scott Taebel: Yeah, thanks Joe. We are seeing that trend and we do think there’s considerable potential risk here for PE firms as Erin described, based on the myriad of enforcement authorities that the government has at its disposal. Both from the standpoint of PE firms that may be getting into the healthcare space without full appreciation of what those risks can be. And also with those firms who become more entangled with the healthcare operation, such that they become targets themselves, the FCA case is really abound where the whistle blowers and the government are seeking to try to get at the perceived deep pockets of the PE firm based on their understanding as to what the PE firm knew or how it may have been involved, or even incentivized the behavior at question.

Joe Wolfe: Thanks, Scott. I think I have a question now for both Erin and Scott and Erin, you can take it first. So drawing on both of your experiences, what are some of the key considerations that you think PE and maybe healthcare organizations and physicians that are doing business with PE should be thinking about?

Erin Drummy: Sure. Piggybacking off of what Scott said, we’ve seen this evolution in case law and we’re seeing the private equity investors held accountable for conduct that violates the False Claims Act. I think it’s important for private equity investors and providers to be aware of this and to recognize that this series of cases holding private equity accountable will serve as a roadmap for future cases. I think we can expect there to be additional enforcement in this area and folks that are new to healthcare, or with varying degrees of sophistication in this area, need to recognize this as a particular area of risk. As Scott said, the whistle blowers are looking for a source of funds to secure a settlement or a judgment. And we’ve seen the courts signal a willingness to find the investors liable when they’re deemed to have a sufficient connection to the activity that violates the false claims act.

Erin Drummy: In my experience, private equity firms seek to have an active role in management. They want to bring these efficiencies and expertise to the portfolio companies, as opposed to, kind of sitting back as a passive investor. And therefore with that active role with board seats with involvement in the day to day management, I think it’s important to ensure that there’s a focus on compliance, that there’s a strong compliance program in place at both the portfolio company level, as well as with the private equity investment firm.

Scott Taebel: Yeah. And Joe, I would not only echo what Erin alluded to, but I would also encourage PE firms who are interested in getting into the healthcare industry to do a robust due diligence effort before doing so, making sure that the compliance concerns that we have been discussing here are identified pre-closing. And if after doing that due diligence, the PE firm wants to proceed. We do think that a good way of doing that is to make sure to self-report any activity that comes out through the due diligence is being non-compliant. It would be important. We think in that context to start with a clean slate, keep that activity with the prior ownership and make sure that any self-reports that may be necessary are done before the closing occurs.

Joe Wolfe: Great, Erin and Scott. And as we look to wrap up here do either of you have final thoughts for those listening today’s podcast. Maybe Erin, you could go first.

Erin Drummy: I would just echo Scott’s comments around due diligence. I think this is an important issue. We’ve seen issues that have been identified during diligence, but not addressed and not remediated come up later as the source of liability from a false claims act perspective. So this is really important. It can lead to both the destruction of the business of the portfolio company. The penalties here are significant as well as fines for the investment company. So in order to preserve your investment, I think it’s important for folks to really focus on due diligence and ensure that there’s strong regulatory counsel involved in reviewing documents and agreements, etc., in the due diligence process.

Joe Wolfe: Great. Scott, any final thoughts from you?

Scott Taebel: Yeah, just real quickly, Joe, as we’ve been talking about, I would make sure to go into the activity with both eyes open and while revenue generation is going to be critical and the infusion of capital can be very helpful in these contexts. I think that going forward, the PE firms should not lose sight of the importance of having the compliance function be very active going forward, even if it wasn’t previously. So any of these risks that we’ve identified can be addressed before they escalate into something more significant like a government investigation.

Joe Wolfe: Great. Thanks. And thanks, Scott and thanks, Erin. And thanks to all of you for joining us today. If you’d like to learn more about compliance and fraud and abuse issues related to private equity investment in healthcare, please visit our website at hallrender.com or reach out to Scott at staeble@hallrender.com or Erin at edrummy@hallrender.com or your regular Hall Render attorney. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice.

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Health Regulatory Update: Provider Compensation Trends

April 4, 2022 Joe Wolfe Practical Solutions in Health Care 00:20:26 Comments Off on Health Regulatory Update: Provider Compensation Trends

Health Regulatory Update: Provider Compensation Trends

An Interview with Alex Krause and Autumn Warden from the American Association of Provider Compensation Professionals (AAPCP)

In this episode of Hall Render’s  “Health Regulatory Update,” Joe Wolfe interviewed two key leaders of the AAPCP about the organization and trends in provider compensation.  The AAPCP is a nonprofit organization that brings together professional engaged in the administration, alignment, regulatory and strategy processes for organizations managing financial relationships with providers.  AAPCP’s members advise and lead organizations across the country on provider compensation, contracting, planning, recruitment, retention, strategy, and valuation.  The Association is open to individuals in health systems, medical groups, and other health care organizations who work in these areas.  If you are a professional looking for more information about the AAPCP and its upcoming conference in Indianapolis on May 5-6, please check out their website at providercompensation.org.

Podcast Participants

Joe Wolfe

Attorney, Hall Render
Health Regulatory Practice Group Leader

Email Joe

Alexander Krouse

Legal Counsel, Parkview Health
Board Member, American Association of Provider Compensation Professionals (AAPCP) 

Email Alex

Autumn Warden

Director of Business Development, Memorial Health System
Board Member, American Association of Provider Compensation Professionals (AAPCP) 

Email Autumn

Joe Wolfe: Hello, and welcome to Hall Render’s Practical Solutions Podcast and healthcare regulatory update. I’m Joe Wolfe, an attorney with Hall Render. We are the largest healthcare focused law firm in the country, and today we’re discussing physician compensation hot topics, and the American Association of Provider Compensation Professionals, or the AAPCP as we’ll use that term throughout the podcast. That’s a new industry trade association that has been very active over the last couple of years. I lead Hall Render’s healthcare regulatory practice group, and that covers our advocacy, compliance, fraud and abuse and litigation service lines. Today with me, I have Alexander Krouse, the Associate General Counsel for Provider Arrangements for Parkview Health in Fort Wayne, Indiana. And also Autumn Warden, the Director of Business Operations & Physician Compensation for Memorial Health System in Marietta, Ohio. Both are physician contracting and compensation experts, and both are heavily involved in the AAPCP. Alex and Autumn, can you please introduce yourselves.

Autumn Warden: My name is Autumn Warden, Director of Business Operations & Physician Compensation here in Marietta, Ohio. I have been in the provider compensation industry for almost six years now. I actually started in provider recruitment for about a year, and at the time there wasn’t significant focus or resources for provider compensation and contracting oversight. I essentially just became a self-starter and learned as much as I could about the industry on my own. Tapped into as many resources as I could, although at the time there was very few, but have really just grown the department within my own organization. I’ve been fortunate to have a lot of support there and have also been able to really grow as an industry expert for my organization internally and have also been able to keep up.

Alexander Krouse: Absolutely. Thanks, Autumn. I’m Alex Krouse, and I work for Parkview Health. I’ve been in charge of provider contracting and compensation for the past six years. For me it was a similar story, at least when I first started here, I was the legal counterpart to our finance team for provider compensation services and that VP of finance left.They said, “Hey, Alex, you’re the only one that knows about this.” So I’ve been doing it for about six years, prior to that, I was in private practice, primarily focused on Stark Law, physician compensation.  That’s the area where I’ve spent my career.

Joe Wolfe: Great. Thanks for those intros. I’m excited about this podcast, not only to get a chance to talk to Alex and Autumn again, but because this is a unique space where the AAPCP sits. It brings together individuals involved in the strategic valuation, legal operational, and financial aspects of provider compensation. For the first time, I think it’s creating a community around those issues to allow for education and skill development and resources that are really necessary for provider professionals in the compensation space to become successful. As I work with healthcare organizations all across the country on provider arrangements and provider compensation strategies, not only on the model side, but also on processes for implementation and documentation of fair market value, I often ask the question, where could our people go to get this training to learn about different approaches to valuation and compensation?

Joe Wolfe: The AAPCP is one place that I look to right away and often recommend. We’re going to learn a bit about the organization and also some trends in compensation. So I have a few questions for Alex and Autumn, and I think I’ll start with you, Alex. Could you give some background on the history of the AAPCP and where the organization is today?

Alexander Krouse: Yeah. Happy to. There’s a long story to it, but knowing this is the podcast I’ll give the abbreviated version. Many of us, Autumn and myself, we’ve known each other probably for three years now or close to it. Others within the association that have been more involved, we’ve been creating this network over the past few years and even some before that. I remember talking with others and we sat there and said, “We’re all in these different associations. It’d be nice if there was a space for the work that we do.” We’ve got accountants, we’ve got operation leaders, we’ve got attorneys like myself, we’ve got those that have worked in HR, worked in recruitment. And so from a skill set and a department standpoint, there’s a lot of variability.

Alexander Krouse: I think after enough people asked that question, we sat down and said, “Hey, let’s start this association that’s more focused on an area, a body of work and a body of knowledge, as opposed to a profession specific.” And so that’s really where it started, very just people like Autumn and myself coming together saying, “Hey, we’ll put in the time to be able to grow this.” We were really actually hoping to more formally launch in early 2020 by getting a group of us together, but because of COVID, we had to cancel that. And then we just slowly grew from there. Most of us have certainly met via video. I’ve not met Autumn in person, but we will at the conference in May here in Indianapolis.

Alexander Krouse: So that’s how it started and it’s continued to build. Where we are today, we have individuals, Joe, such as yourself, myself, and others that are in this association as members, a few hundred individuals. So we’ve grown to that level. There are individuals that work in private practice medical groups, that are in health systems, private equity, law firms, consulting firms, accounting firms, you name it. If you work in provider compensation, we welcome you as a member, that’s the community. As for just healthcare organizations, we have about 110 now at this point, healthcare organizations across the country that are really represented.

Alexander Krouse: Some are in individual county hospitals where that person that’s involved is doing 20 different things. Some of them are organizations with a 100 plus hospitals, about our average healthcare organization, probably about Parkview’s size, probably around two billion with around eight or nine hospitals and 1,000 providers. So a lot of variability in there, but it’s great to have that group together.

Joe Wolfe: Great. Thanks, Alex. Autumn, I’ll direct the second question to you. How has the AAPCP helped you in the work you do for your health system?

Autumn Warden: That’s a great question. To put it briefly, it’s provided resources that are so needed in this environment. Talking about the community that we’ve established, like Alex was saying, it’s not just resources as in getting access to a policy or some guidance around your policy or when you’re doing your commercial reasonableness document and what that should generally look like, it goes beyond that is so needed and just is almost invaluable. It’s being able to call someone like Alex that works at another organization that you’ve established a relationship with through the AAPCP. And you can ask, this is my situation and most of the time they’re going to say, “Oh yeah, I’ve dealt with that before and this is how we handled it. This is what worked, this was what our barriers were.”

Autumn Warden: What’s been so common in the provider compensation industry is, we work with third parties and they’re great.  We have great relationships with them, but most of the time, they’re not within the four walls of your hospital. They’re not sitting in the meetings with these physicians, they’re not managing relationships and managing your provider engagement initiatives as most health systems are really focused on right now. And they’re not toe to toe with your physician leadership and your operations team and your in house counsel. So when you have the community that is involved in operations, or worked closely with finance and physician leaders, and you have that community outside of your health system to help guide you, it really helps this industry propel to the next level.

Autumn Warden: That’s what’s been missing. It’s why we’ve worked so hard and why we will continue to work so hard to grow this association. We have the external experts and resources and will always need them,ut it’s the internal work and all the things that go into doing this job and doing it well, that we are really honing in on. It’s your internal experts and how we can support them.

Joe Wolfe: Well, thanks, Autumn. Alex, you’ve mentioned events, I know you have an upcoming conference in Indianapolis. Could you provide us some information on that?

Alexander Krouse: Yeah. We do have a broad education platform that we’re building. We really are looking at virtual accessibility to training new employees that are working in this area and creating modules. For, if you’ve got somebody that’s new to your staff. We all know that for most of us that are working right now, we’ve all been self-taught pretty much. We’re really trying to create that platform where there’s more formality of, “Hey, if you’re new to this area, here’s the introductory materials that you need to be able to speak the lingo, to think about things, to understand things.” That’ll be certainly taught by faculty across the country. I know Joe, you’re going to be helping out with that as well. We’re looking into developing a credential, certainly people that want to build a career where they have expertise in this area, and even if you’re not directly managing this area.

Alexander Krouse: Let’s say you do move further up in operations or in finance, and you’re the COO of a medical group, quite frankly, you need an in depth understanding of these issues, because really at the end of the day, it’s all about alignment. How do we do that? How do we appropriately do that? What works best? So that’s the broader platform, but a part of that is certainly in person conferences, which is just going to be invaluable to our members. So on May 5th and May 6th, the conference is going to be in downtown Indianapolis. We’re at a hotel venue, a historic venue there, right in the heart of Indy. I used to live there myself, so it’s in a great spot. We have a full first day of not only lecture style, coursework or events, but also opportunities where we’re going to be doing live polling of the audience.

Alexander Krouse: We’re going to be breaking into groups, so we can have more discussions, network and get to know one another. We will have an evening event with a cocktail hour and all of that. And then the next day, we’re going to have a morning where we’re talking about some cutting edge issues and then more group discussion. The one thing that I think is unique about our conference is that for all of our sessions, we have an in-house person that works in a healthcare organization, as well as some external experts. These are individuals from across all sorts of healthcare organizations, consulting firms, law firms. So there’s a lot of diversity of, I think, viewpoint there, which is something that you really don’t see in other conferences that work in this space. So we’re really excited about it and certainly if anybody is interested, you can go to our website, providercompensation.org and get more information.

Joe Wolfe: Thank, Alex. I think this is a question for both Autumn and Alex. What do you think will be the biggest issues in provider compensation in the near future?

Autumn Warden: I believe that the biggest issues in provider compensation in the near future will be the delicate balance between earnings based on fee for service compensation arrangements, and value based arrangements. I say it’s a delicate balance because it really is a balance of what your payer contracts look like and how you are aligning those to your compensation plans. And with the majority of health systems, payer contracts are still primarily fee for service, although there are significant initiatives around value-based initiatives. When your hospital’s reimbursement is dependent upon fee for service, you still have to make that a significant proponent of your compensation design.

Autumn Warden: For my organization specifically, we’re really trying to introduce value-based initiatives, while also maintaining the historical fee for service arrangements. That way if a significant shift starts to become more obvious, then we have the capability to shift the comp model as we need to. But all health systems are doing it differently right now. It’s just going to be interesting to see when and if the shift happens, how far we’ll have to make significant adjustments to our compensation plans.

Joe Wolfe: Great. Thanks Autumn. Alex, your thoughts?

Alexander Krouse: I 100% agree with Autumn, that’s going to be a major change management issue that I think is going to take us longer than a decade. That is going to be a major issue. I think one of the more pressing issues, is I think we’ve come from this historic practice of an overreliance on survey data. I think a lot of organizations have gotten into that. I think with the recent Stark final rule, some of the commentary and that not that surveys are bad, but it’s clearly not, Hey, surveys are everything. So I think organizations have to really rethink how they’re valuing physician services. I think in part that’s because of some of that commentary, I also think in part, because the surveys due to COVID, the physician fee schedule changes, the surveys aren’t going to be very helpful.

Alexander Krouse: I could see somebody making the argument, is it even commercially reasonable to use these surveys to set income levels given some of the anomalies within the data? So I’ll say this, over the next three to five years, organizations are really going to have to think about the way that they’re establishing compensation within their groups, because I think post 2020 for a lot of reasons, not just COVID.

Joe Wolfe: I would echo your thoughts there and I appreciate your answers to my questions. Looking at this year and the near future, we’ve experienced several years of reform now.  We’ve had some technical updates to the Stark and Kickback rules, new guidance and clarifications to fair market value and commercial reasonableness and to the volume and value standard. We have these new value-based exceptions and safe harbors that drive change, but all this reform has been coupled with other market challenges and disruptors, just like the two of you just talked about. The COVID-19 productivity compensation model and staffing disruptions, the Medicare fee schedule issues, disruptions to the market survey data, and I do think we’ll see continued enforcement. It’s a disruptive period of time, but there’s a lot of opportunity to revisit compensation in my mind, like you the two of you are pointing to.

Joe Wolfe: I think healthcare organizations are going to have to engage their key stakeholders, get them to the table, including legal compliance, finance, their contracting personnel, and they really need to look at these changes, where their organization sits and where they want to go looking forward. Are they going to innovate their models? How are they going to operationalize these changes? And compensation is right at the heart of all of it. And so what you’re doing there at the AAPCP and bringing together people in this disruptive period and allowing them to collaborate and to use your platform to pose questions to each other on your website, if they’re members. I applaud you for what you’re doing. So it’s going to be a very interesting, I think Alex, you said we have a decade of this in front of us.

Joe Wolfe: I agree that it’s going to be a long haul, but there’s a lot of work to do and opportunities to engage. So I appreciate the answers to your questions. For our listeners, if you would like to learn more about the AAPCP please reach out to Alex or Autumn. Again, Alex mentioned their website is providercompensation.org. We’ll also make their information available on the podcast platform, so you can email them directly. Thank you for joining us today. We hope that you tune in for future podcasts. Please remember that the views expressed in this podcast are those of the participants only, and do not constitute legal advice. Take care.

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Health Regulatory Update: Medicare Physician Fee Schedule Impact on Physician Compensation

March 7, 2022 Joe Wolfe Practical Solutions in Health Care 00:14:11 Comments Off on Health Regulatory Update: Medicare Physician Fee Schedule Impact on Physician Compensation

Health Regulatory Update: Medicare Physician Fee Schedule Impact on Physician Compensation

Effective at the start of 2021, the Centers for Medicare & Medicaid Services increased the work relative value units (“wRVUs”) allocated to several evaluation & management physician services. In this podcast, our Fraud & Abuse attorneys discuss the Stark and Anti-Kickback impact of these changes on physician compensation plans and identify steps that health care organizations have taken and should take now.

Podcast Participants

Joe Wolfe

Attorney, Hall Render

Keith Dugger

Attorney, Hall Render

Alyssa James

Attorney, Hall Render

Joe Wolfe: Hello, and welcome to Hall Render’s Practical Solutions Podcast and our health care regulatory update. I’m Joe Wolfe and I’m an attorney with Hall Render. We are the largest healthcare focused law firm in the country. Today we’re discussing the impact of recent Medicare Physician Fee Schedule changes on physician compensation plans. I’m the practice group leader for Hall Render’s health regulatory practice group that covers our advocacy, compliance, fraud and abuse and litigation service lines. My practice also focuses on physician compensation issues, and I’ve been working with health systems nationwide on the very issues we’re going to be talking about today. With me, I have Keith Dugger and Alyssa James. Keith, and Alyssa, could you introduce yourself?

Keith Dugger: Sure, absolutely. Joe, thanks for the introduction. My name’s Keith Dugger and I am a shareholder in Hall Render based in the Dallas, Texas office.  Alyssa and I are co-chairs in the fraud abuse service line. We spend a lot of time focusing on issues that have a fraud or abuse impact on healthcare provider relationships.

Alyssa James: Thanks. I’m Alyssa James, a shareholder here in Hall Render’s Indianapolis office. My practice, similar to Keith’s and Joe’s, focuses primarily on fraud and abuse matters, particularly dealing with the Stark Law, Anti-Kickback Statute, and Civil Monetary Penalty beneficiary inducement issues.

Joe Wolfe: Great. Thanks, Keith and Alyssa. Today in a very short podcast we’re intending to talk briefly about the recent changes to the Medicare Physician Fee Schedule and its impact on physician compensation plans. Framing this up, back in 2021 there were several modifications of the Fee Schedule that included several increases in the wRVUs that were allocated to certain common evaluation and management service codes or E&M codes.  For those healthcare leaders listening in you likely know that E&Ms are typically associated with primary care and other office based visits, but these increases impacted several different specialties.

Joe Wolfe: So we saw an increase in the wRVUs associated with certain E&Ms visits, so a bump up. But then on the other side of this due to budget neutrality rules, there was a reduction in the conversion factor that health care organizations receive in reimbursement for physician services. So these changes have had an impact on physician compensation plans, and that’s what we’re here to talk about today. And so let’s just start off with an initial question to Keith and Alyssa, how are these changes to wRVU calculations and conversion factors within the Fee Schedule affecting physician compensation plans?

Keith Dugger: Yeah, thanks Joe. Appreciate it. And I think generally these changes are potentially affecting both the economic viability of certain arrangements and the ability of these arrangements to come within applicable Stark and Anti-Kickback safe harbors and exceptions. As you mentioned for office based providers who do a lot of E&M codes, there is likely to be an increase in revenue associated with their performance of services, but it’s also going to be coupled with an increase in RVUs. And for those practices that use RVUs as a measure of productivity and compensation, the question is going to be, do the increased number of RVUs result in compensation for a physician that outpaces the increase in revenue from that physician’s services

Joe Wolfe: Thanks, Keith. Alyssa, do you have thoughts as well?

Alyssa James: Yes, I think what Keith has described is exactly right. And I think providers, even though this has been in place for a little over a year now or this shift has been occurring for a while, are still struggling with their physician compensation and what to do about it. Looking at the numbers of how the RVU modifications may impact compensation and looking at that in conjunction with the physician contracts to figure out the best path forward and what the options are.

Joe Wolfe: Great. Thanks. I think what Keith and Alyssa are also hitting on is that all physician arrangements need to align with a Stark exception like Keith described. And those exceptions typically require also that the compensation generated is consistent with fair market value, that the arrangement is commercially reasonable and that the compensation model doesn’t take into account the volume of value of referrals. Those three standards are always applicable. And so this issue with the Fee Schedule, it’s critical for healthcare organizations to have a coherent strategy around how they’re going to align with those three standards, regardless of their ultimate approach. I’m going to move on to question two here. What are the two of you seeing in the marketplace with respect to physician group responses to the fee schedule changes? What are you seeing health care organizations do in their response?

Alyssa James: I think the clients that I’ve been working with primarily have stayed on the 2020 fee schedule for 2021. Now for 2022, some folks are continuing on that 2020 fee schedule. I have worked with a couple of clients that are now moving into the 2021 fee schedule for 2022 as a transition year. And then there are some that even if they hadn’t implemented 2021 last year, they’re deciding to rip the band aid off, so to speak, and implement 2022 now going forward. I think it is something where there’s no one size fits all.

Alyssa James: I think it’s very organization dependent and again, what they are or aren’t permitted to do under their physician contracts. If they have to get the physicians to agree via an amendment, obviously that’s a different hurdle than some compensation models where the RVU calculation and conversion factor can be implemented by the employer without that agreement. I haven’t seen a one size fits all. I think it’s something that folks really grappled with in 2021 and are continuing to do so in 2022. Keith, I don’t know if you’ve had any different experiences down there in Dallas or with the clients that you’re working with.

Keith Dugger: I think the experiences are very similar. When the changes to the fee schedule came out in 2021, I think people were really hesitant. You had those changes coupled with unique market circumstances stemming from the pandemic. And I think people, I think entities were a little hesitant to jump too far into it until they could see the impact that these changes had on revenues and compensation. And I also think it’s one of those things that people, although Medicare had been threatening for a while to make changes. I just don’t think people were necessarily prepared.

Keith Dugger: Some clients were in many respects a little bit backed into the corner because their contract did not provide an easy pathway to modification. And so there was a lot of not frozen, but a lot of hesitancy to move forward until they saw what the market was going to do. And as we’ve seen in 2022, there’s been a further modification to the fee schedule. And so I think people are realizing now, entities are realizing now that they need to start to address this and they’ve got to do it in a way that fits within their corporate goals, their organizational goals, but in a way which allows them to maintain the viability of the arrangement.

Joe Wolfe: Thanks, Alyssa and Keith, my observations have been consistent with yours. This a challenging issue. I think the health care organizations that are reacting in the market need to engage the different stakeholders within their organization. They need to bring together a team to model out potential scenarios and determine what the potential strategies might look like if they’re going to continue to freeze or move on the new fee schedule like Alyssa and Keith mentioned. They are going to have to develop perhaps even specialty specific approaches. Maybe they take the same approach for all their physicians or when they actually engage and do the modeling, they might decide that it makes sense to take a bifurcated approach. It’s going to be dependent on that organization’s ultimate strategy.

Joe Wolfe: Keith mentioned the contractual language. I’ve seen that as well. That’s something that needs to be looked at. It’s really important to proactively assess these different strategies and determine the right way forward for the organization. So again, I’ve had consistent observations like what Keith and Alyssa mentioned. I’ll give each of you, Alyssa and Keith, a last opportunity to share what you’re seeing around the adoption of new productivity based , compensation formulas, your observations from working with clients and maybe what other impacts on compensation might you be seeing in the industry. So just some final thoughts from the two of you on these issues.

Keith Dugger: Yeah, absolutely. Well, I think one of the things that there’s a lot of uncertainty about is how  these RVU changes as well as the pandemic related effects impact their ability to assess fair market value. I think everybody in the industry recognizes that all of that together is going to have a significant impact upon survey data. And so while traditionally organizations might look to, just to throw out an example, MGMA or Sullivan Cotter data to say, Hey, we are fair market value – Our compensation structure is fair market value because it fits within this, “75th percentile of MGMA.”

Keith Dugger: Well, Stark has disabused us from thinking, “Hey, it’s automatically fair market value if it fits within that 75th percentile”. And secondly, the data, because of factors related to the pandemic where physicians  might have received their full compensation without meeting full productivity or historical productivity because of the influx of PPP dollars and other ways that providers were made whole. All of this is going to have an impact on the compensation survey data and thus providers are going to be, I think they’re going to be struggling to find a way to confirm that this is fair market value, or to make the best argument. So I think that there’s going to be a need to involve both attorneys and valuation entities in the process to make sure that you are making best argument possible in case that your compensation structure is ever looked at.

Alyssa James: I think that’s right. And I agree, I think there is uncertainty around fair market value and some of the survey data right now. Because of COVID volumes were down but a lot of employers and organizations kept physician compensation as stable as they could (and they were able to do that under the Stark COVID waivers). But I think the end result is that we’ve got some survey data that maybe isn’t the most reliable. And then when you couple that with these RVU changes and other issues going on in the health care space right now, such as reimbursement changes and things like PPP loans and funding and the CARES Act, that all plays into physician compensation for certain organizations. I think it’s a little bit of an unsteady time or an uncertain time.

Alyssa James: I agree with you, Keith, I think now more than ever, it’s important for folks to be reaching out to their legal counsel, as well as any valuation experts they may be working with.  If historically they’ve done those fair market value assessments internally within the organization, now might be a good time to, at least for some of their higher compensated physicians, to reach out to outside experts and really just get some more stable footing given all of the uncertainty in the market right now.

Joe Wolfe: Thanks, Alyssa, and thanks, Keith. And thanks to everyone for listening in. We’re obviously here to help as health care organizations work through these issues, whether it’s providing education or assisting with some of the modeling and strategy and analysis. We’re more than happy to work with you. Thanks to all of you for joining us today. If you’d like to learn about the changes to the Medicare Physician Fee Schedule and its impact on physician compensation, please visit our website at www.hallrender.com or reach out to me, or Alyssa or Keith by email. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice. Thanks and have a great day.

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