Tag: healthcare

WHO Publishes Guidance for Ethics and Governance of AI for Healthcare Sector

The World Health Organization (WHO) recently published “Ethics and Governance of Artificial Intelligence for Health: Guidance on large multi-modal models” (LMMs), which is designed to provide “guidance to assist Member States in mapping the benefits and challenges associated with the use of for health and in developing policies and practices for appropriate development, provision and use. The guidance includes recommendations for governance within companies, by governments, and through international collaboration, aligned with the guiding principles. The principles and recommendations, which account for the unique ways in which humans can use generative AI for health, are the basis of this guidance.”

The guidance focused on one type of generative AI, large multi-modal models (LMMs), “which can accept one or more type of data input and generate diverse outputs that are not limited to the type of data fed into the algorithm.” According to the report, LMMs have “been adopted faster than any consumer application in history.” The report outlines the benefits and risks of LLMs, particularly the risk of using LLMs in the healthcare sector.

The report proposes solutions to address the risks of using LMMs in health care during development, provision, and deployment of LMMs and ethics and governance of LLMs, “what can be done, and by who.”

In the ever-changing world of AI, this is one report that is timely and provides steps and solutions to follow to tackle the risk of using LMMs.

Copyright © 2024 Robinson & Cole LLP. All rights reserved.
For more news on AI in Healthcare, visit the NLR Health Law & Managed Care section.

2024: The Year of the Telehealth Cliff

What does December 31, 2024, mean to you? New Year’s Eve? Post-2024 election? Too far away to know?

Our answer: December 31, 2024, is when we will go over a “telehealth cliff” if Congress fails to act before that date, directly impacting care and access for Medicare beneficiaries. What is this telehealth cliff? Let’s back up a bit.

TELEHEALTH COVERAGE POLICIES

Current statute (1834(m) of the Social Security Act) lays out payment and coverage policies for Medicare telehealth services. As written, the provisions significantly limit Medicare providers’—and therefore patients’—ability to utilize telehealth services. Some examples:

  • If the patient is in their home when the telehealth service is being provided, telehealth is generally not eligible for reimbursement.
  • Providers cannot bill for telehealth services provided via audio-only communication.
  • There is a narrow list of providers who are eligible to seek reimbursement for telehealth services.

COVID-19-RELATED TELEHEALTH FLEXIBILITIES

When the COVID-19 pandemic hit in 2020, a public health emergency (PHE) was declared. Congress passed several laws, and the administration acted through its own authorities to provide flexibilities around these Medicare telehealth restrictions. In general, nearly all statutory limitations on telehealth were lifted during the PHE. As we all know, utilization of telehealth skyrocketed.

The PHE ended last year, and through subsequent congressional efforts and regulatory actions by the Centers for Medicare and Medicaid Services (CMS), many flexibilities were extended beyond the end of the PHE, through December 31, 2024. Congress and CMS continue to grapple with how to support the provision of Medicare telehealth services for the future.

CMS has taken steps through the annual payment rule, the Medicare Physician Fee Schedule (MPFS), to align many of the payment and coverage policies for which it has regulatory authority with congressional deadlines. CMS has also restructured its telehealth list, giving more clarity to stakeholders and Congress as to which pandemic-era telehealth services could continue if an extension is passed. But CMS can’t address the statutory limitations on its own. Congress must legislate. CMS highlighted this in the final calendar year (CY) 2024 MPFS rule released on November 2, 2023, noting that “while the CAA, 2023, does extend certain COVID-19 PHE flexibilities, including allowing the beneficiary’s home to serve as an originating site, such flexibilities are only extended through the end of CY 2024.”

THE TELEHEALTH CLIFF

This brings us to the telehealth cliff. CMS generally releases the annual MPFS proposed rule in July, with the final rule coming on or around November 1. If history is any indication, Congress is not likely to act on the extensions much before the current December 31 deadline. This sets up the potential for a high level of uncertainty headed into 2025.

If we go over, this telehealth cliff would directly impact care and access for Medicare beneficiaries. The effects could be felt acutely in rural and underserved areas, where patients have been able to access, via telehealth, medical services that may have been out of reach for them in the past. The telehealth cliff would also impact how providers interact with their patients, and their collective ability to continue to utilize telehealth in a way that has benefited patients and providers alike. It could also influence how health plans choose to cover these services in the private marketplace beyond 2024. Such a dramatic change would impact business decisions for many providers and practices heading into 2025. And, at a time when provider shortages are still a significant issue, it would eliminate an option that has allowed many providers, practices and facilities to extend scarce resources for patient care.

TAKE ACTION

Stakeholders should be raising these concerns to Congress now. There are many ways to engage, including reaching out directly to key Members of Congress, looking for opportunities to testify or submit written testimony for relevant congressional hearings, and participating in organized events where Members of Congress will be present. This cliff can be avoided, but not without a concentrated effort and a lot of noise.

© 2024 McDermott Will & Emery
For more on Telehealth, visit the NLR Communications, Media & Internet section.

The End of the COVID Public Health Emergency and Its Effect on Employee Benefit Plans

The COVID-19 public health emergency ends on May 11, 2023. The emergency resulted in two big changes to welfare plans: the relaxation of certain notification and timing requirements, and the requirement for plans to cover COVID testing and vaccination at no cost to plan participants. While the public health emergency ends May 11, 2023, plans have a grace period until July 11 to take certain actions and come into compliance with the normal rules.

Plan Sponsor Requirements

Before the grace period ends, plan sponsors will generally need to follow the rules that existed before COVID. Among the most important of these rules are the requirements for plan sponsors to:

  • Timely provide all notices, including those for HIPAA and COBRA.
  • Review COVID-related coverage under their employee assistance programs (EAPs) to determine if such coverage would be considered “significant medical care,” which can result in additional reporting and compliance obligations.
  • Review telehealth options to ensure they are properly integrated and provided by an entity that can comply with the post-COVID requirements. Telehealth rules were substantially relaxed during COVID. With telehealth now expected and utilized by more participants, getting telehealth right is more crucial than before.

Plan Sponsor Decisions

With the end of the public health emergency, plan sponsors must also make several important decisions with respect to their employee benefit plans:

  • Whether testing will continue free of charge or will be subject to cost sharing.
  • Whether non-preventative care vaccines for COVID will continue to be free of charge.
  • Whether costs for certain COVID-related services will continue to be posted.

As they are mostly based on what costs the plan sponsor or plan will cover going forward, these plan sponsor decisions are largely business-related. In the absence of a choice by the plan sponsor, the insurance provider will likely make a default choice. The important legal consideration is that the plan documents and employee communications should be consistent and accurately reflect the plan sponsor’s decisions.

Participant Requirements

In addition to the changes for plan sponsors, the end of the public health emergency will result in the reinstatement of a number of rules applicable to participants. Participants will need to:

Follow the HIPAA Special Enrollment timing rules.

Elect COBRA within the 60-day window for elections.

Make all COBRA payments timely.

Timely notify the plan of disabilities and qualifying events under COBRA.

Follow the timing limitations of their plans and insurance policies regarding filing claims, appeals, and external reviews.

Next Steps

First, plan sponsors should decide what COVID-related coverage will remain fully paid by the plan, if any. Some insurance companies are already starting to communicate with participants, and maintaining a consistent message will avoid unnecessary problems.

Second, plan sponsors should review their EAP and telehealth coverages for compliance with the rules that will soon be in effect. To the extent necessary, plan sponsors should update the documentation for their plans.

Finally, plan sponsors should consider a voluntary reminder communication to participants. Many rules have been relaxed over the last two years or so, and participants may be confused regarding the rules. A reminder may save stress for participants and those administering the plan, and will also serve to document the plan sponsor’s intention to properly follow the terms of the plan.

© 2023 Varnum LLP

For more healthcare legal news, click here to visit the National Law Review.

Software as a Medical Device: Challenges Facing the Industry

SaMD Blog Series: Introduction

Editor’s Note: We are excited to announce that this article is the first of a series addressing Software as a Medical Device and the issues that plague digital health companies, investors, clinicians and other organizations that utilize software and medical devices. We will be addressing various considerations including technology, data, intellectual property, licensing, and contracting.

The intersection of software, technology and health care and the proliferation of software as a medical device in the health care arena has become common place and has spurred significant innovations. The term Software as a Medical Device (SaMD) is defined by the International Medical Device Regulators Forum as “software intended to be used for one or more medical purposes that perform these purposes without being part of a hardware medical device.” In other words, SaMD need not be part of a physical device to achieve its intended purpose. For instance, SaMD could be an application on a mobile phone and not be connected to a physical medical device.

With the proliferation of SaMD also comes the need for those building and using it to firmly grasp legal and regulatory considerations to ensure successful use and commercialization. Over the next several weeks, we will be addressing some of more common issues faced by digital health companies, investors, innovators, and clinicians when developing, utilizing, or commercializing SaMD. The Food and Drug Administration (FDA) has already cleared a significant amount of SaMD, including more than 500 algorithms employing artificial intelligence (AI). Some notable examples include FDA-cleared SaMD such as wearable technology for remote patient monitoring; doctor prescribed video game treatment for children with ADHD; fully immersive virtual reality tools for both physical therapy and mental wellness; and end to end software that generates 3D printed models to better plan surgery and reduce operation time. With this rapid innovation comes a host of legal and regulatory considerations which will be discussed over the course of this SaMD Blog Series.

General Intellectual Property (IP) Considerations for SaMD

This edition will discuss the sophisticated IP strategies that can be used to protect innovations for the three categories of software for biomedical applications: SaMD, software in a medical device, and software used in the manufacture or maintenance of a medical device, including clinical trial collaboration and sponsored research agreements, filing patent applications, and pursuing other forms of protection, such as trade secrets.

Licensing and Contracting with Third Parties for SaMD

This edition will unpack engaging with third parties practically and comprehensively, whether in the context of (i) developing new SaMD or (ii) refining or testing existing SaMD. Data and IP can be effectively either owned or licensed, provided such licenses protect the future interests of the licensee. Such ownership and licensing are particularly important in the AI and machine learning space, which is one area of focus for this edition.

FDA Considerations for SaMD

This edition will explore how FDA is regulating SaMD, which will include a discussion of what constitutes a regulated device, legislative actions to spur innovation, and how FDA is approaching regulation of specific categories of SaMD such as clinical decision support software, general wellness applications, and other mobile medical devices. It will also examine the different regulatory pathways for SaMD and FDA’s current focus on Cybersecurity issues for software.

Health Care Regulatory and Reimbursement Considerations for SAMD

This edition will discuss the intersection of remote monitoring services and SaMD, prescription digital therapeutics and how they intersect with SaMD, licensure and distributor considerations associated with commercializing SaMD, and the growing trend to seek out device specific codes for SaMD.

Our hope is that this series will be a starting point for digital health companies, investors, innovators, and clinicians as each approaches development and use of SaMD as part of their business and clinical offerings.

© 2023 Foley & Lardner LLP

For more information on Healthcare, click here to visit the National Law Review.

 

Will CMS’s Proposed Rule on “Identified Overpayments” Increase Reverse FCA Cases?

On December 27, 2022, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule which, in part, seeks to amend the existing regulations for Medicare Parts A, B, C, and D regarding the standard for when an “identified” overpayment must be refunded, pursuant to the Affordable Care Act (ACA) and the False Claims Act (FCA) reverse false claims provision. As written, the proposed rule would remove the existing “reasonable diligence” standard for identification of overpayments, and add the “knowing” and “knowingly” FCA definition. As a result, an overpayment would be “identified” when the entity has actual knowledge of an identified overpayment, or acts in reckless disregard or deliberate ignorance of an identified overpayment. And, a provider is required to refund overpayments it is obliged to refund within 60 days of such identified overpayment.

If this proposed rule is finalized, the Department of Justice (DOJ) and Health and Human Services (HHS) Office of Inspector General’s (OIG) should be applying the same intent standard to their evaluation of potential reverse false claims and Civil Monetary Penalty liability.

The Lay of the Land

Currently, the applicable overpayment regulations state:

A person has identified an overpayment when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.

42 C.F.R. § 401.305(a)(2). In the 2016 Final Rule, CMS agreed “the 60-day time period begins when either the reasonable diligence is completed or on the day the person received credible information of a potential overpayment if the person failed to conduct reasonable diligence and the person in fact received an overpayment.” This reasonable diligence standard allows entities to not only determine credibility of allegations, or issues relating to, a potential overpayment but also, when credible, to conduct a properly scoped internal investigation, during which an entity also accurately quantifies any associated overpayment due for refund.

In the proposed rulemaking, CMS is suggesting instead the following standard:

A person has identified an overpayment when the person knowingly receives or retains an overpayment. The term “knowingly” has the meaning set forth in 31 U.S.C. 3729(b)(1)(A).

31 U.S.C. 3729(b)(1)(A) defines “Knowingly” as any circumstance in which “a person, with respect to information—(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.”

The currently proposed provision has similar effect to the language CMS proposed in 2012 and, after consideration of comments, ultimately rejected in the 2014 Final Rule (Medicare Advantage and Part D) and 2016 Final Rule (Medicare Part A and Part B). In that final rulemaking, CMS removed the “actual knowledge,” “reckless disregard,” and “deliberate ignorance” terms in favor of the reasonable diligence standard, leaving practitioners to argue that CMS had lowered requisite intent to a standard less than required by the FCA.

Potential Impact

The FCA is a fraud statute, requiring intent. If a company investigating the credibility, issue, and scope of a matter (i.e., exercising reasonable diligence) also diligently determines the scope of a possible refund obligation, it would be difficult for DOJ to credibly claim an entity has acted recklessly, or with deliberate indifference to repayment under the FCA. DOJ’s general practice has been to bring reverse FCA cases when a provider does not investigate credible allegations and does not refund associated overpayments, after identifying them. For example, in a 2015 case, DOJ attorneys stated in a court conference, “[T]his is not a question … of a case where the hospital is diligently working on the claims and it’s on the sixty-first day and they’re still scrambling to go through their spreadsheets, you know, the government wouldn’t be bringing that kind of a claim.” United States ex rel. Kane v. Healthfirst, Inc., 120 F. Supp. 3d 370, 389 (S.D. N.Y. 2015).

It remains to be seen whether this change will result in an increased pursuit of reverse FCA cases. The proposed rule would eliminate an explicit diligence period (generally not to exceed six months, except in particularly complicated analyses, such as under the Physician Self-Referral or “Stark” Law) to ascertain the validity and amount of a potential obligation to refund an overpayment. The proposed rule does not explain whether providers, suppliers, and others still will have an opportunity to conduct a reasonably diligent inquiry into whether any obligation to refund exists at all, prior to the ACA 60-day clock starting to run. Ideally CMS would make clear in any preamble that the government still expects reasonable and professional efforts be undertaken before making refunds, even if that process may take some time to complete

Absent such clarity, the fact remains that it is difficult to “identify” an obligation to refund, much less any refundable amounts, without first validating the alleged overpayment and quantifying any obligation.

Additionally, this standard may prompt entities to submit an HHS-OIG self-disclosure before all facts are known. While OIG requires a disclosing party to conduct an internal investigation prior to submission, it is near impossible to thoroughly investigate issues and identify any refund 60 days from learning of a possible issue that might result in a refund (especially when multiple payors are involved). Even if a disclosing party notes within a self-disclosure that an investigation is ongoing, the disclosing party must certify that it will complete its investigation within 90 days of the submission date – which still may not be enough time based on the complexity of the allegations or claims review required. The resulting back-and-forth of incomplete information likely would create unnecessary delays in reaching a resolution and frustration among all parties involved.

We encourage all providers, suppliers, Medicare Advantage organizations, Part D participants, and other stakeholders to submit comments on this proposed rule. The public has until 5 p.m. ET on February 13, 2023 to submit comments, which are accepted, electronically or by mail.

Article By Kara (Schoonover) Sweet, Lisa M. Noller, and Lawrence W. Vernaglia of Foley & Lardner LLP

For more healthcare and health law legal news, click here to visit the National Law Review.

© 2023 Foley & Lardner LLP

Colorado Legalizes Therapeutic Psychedelics – Now What?

Ten years after Coloradans voted for their state to be one of the first to legalize recreational cannabis, Colorado is again making history as the second state in the country to legalize therapeutic psychedelics for adults.

Colorado voters narrowly approved Proposition 122 with nearly 53% of the votes (as of the morning of November 14th 97% of the votes have been counted). Their vote thus enacted the Natural Medicine Health Act of 2022 (NMHA) which legalizes supervised or facilitated therapeutic sessions for adults twenty-one years and older using certain psychedelic plants and fungi. Click here for our initial takeaways and a high-level summary of key provisions of the NMHA.

Now that therapeutic psychedelics are legal in Colorado, what should be expected next? Below are key dates and next steps as Colorado navigates implementation of the NMHA.

  • The Colorado Department of Regulatory Agencies (DORA) must establish the Natural Medicine Advisory Board (Board) and appoint initial members to the Board by January 31, 2023. The Board must have 15 members who will be appointed by the Governor with the consent of the Colorado Senate. The primary role of the Board is to advise DORA as to implementation of the NMHA program.
  • By September 30, 2023, and annually thereafter, the Board must make recommendations to DORA on certain areas related to natural medicine, such as recommendations related to product safety, herm reduction, and cultural responsibility, training programs, educational and experiential qualifications for facilitators, regulatory considerations for each type of natural medicine and the rules to be promulgated by DORA.
  •  DORA has until January 1, 2024 to adopt rules and establish the qualifications, education and training requirements that facilitators must meet prior to providing natural medicine services to participants.
  • By September 30, 2024, DORA must adopt rules to implement the NMHA program and begin accepting applications for licensure of facilitators, healing centers, entities to test natural medicines, and any categories of licensure as determined by DORA.
  • Once applications are accepted, DORA must make decisions on licensure applications within 60 days of receiving an application.
  • From the launch of the NMHA program until June 1, 2026, “natural medicines” are limited to psilocybin and psilocyn. After June 1, 2026, upon recommendation by the Board, DORA may add one of more of the following to types of natural medicines that can be provided under the NMHA program: dimethyltryptamine, Ibogaine, and Mescaline (excluding peyote).

A notable takeaway and something to watch for in the forthcoming rules is a focus on social equity. Seemingly applying lessons learned from the rollout of the state’s cannabis program, the NMHA expressly requires DORA to prioritize equity and inclusivity as it establishes rules to implement the NMHA program. Specifically, DORA is required to adopt rules which: (i) establish procedures, policies and programs to ensure the NMHA program is equitable and inclusive; (ii) promote the licensing of and provision of natural medicine services to (a) persons from communities that have been disproportionally harmed by high rates of controlled substances (including cannabis); (b) persons who face barriers to access to health care; (c) persons who have traditional or indigenous history with natural medicines; and (d) persons who are veterans by, offering, at a minimum reduced fees for licensure and training, incentivizing the provision of natural medicine services at a reduced cost to low income individuals, and incentivizing geographic and cultural diversity in licensing and the provision of and availability of natural medicine services.

In addition, DORA is prohibited from imposing unreasonable financial or logistical barriers that would prevent individuals with lower income from applying for a license and individuals are limited to having a financial interest in five healing centers. Currently, the definition of “individuals” does not include corporations. However, DORA could establish a rule which includes corporations in this limitation and would arguably level the playing field in this budding market.

We will continue to monitor developments and closely follow the rulemaking process as Colorado designs and implements this historical new program.

Article By Lauren P. Carboni of Foley & Lardner LLP

For more biotech, food, and drug legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Comparison of Three Federal Fraud and Abuse Laws

In the post-COVID era, health care fraud and abuse issues will be aggressively and swiftly enforced by the government. The legal framework and regulations in the health care space can be intimidating. Below is a comparison of three of the big federal fraud and abuse laws that the government actively enforces; but they are not an exclusive list.  The summary below is a primer on the three main federal fraud and abuse laws and is intended to increase your basic understanding of these laws.

False Claims Act (FCA)

PROHIBITIONS:

  • Prohibits the submission of false or fraudulent claims, false statements material to a false claim, and conspiracy to commit violation
  • Prohibits concealing or avoiding obligation to repay money to government (failure to return overpayments)
  • Claims that violate AKS or Stark can also be considered false claims
  • Common false claims include lack of medical necessity; quality of care; billing/coding issues; off-labeled marketing; retention of overpayments

EXCEPTIONS:

  • n/a

PENALTIES:

  • Treble damages and as of May 9, 2022 per claim penalties between $12,537 and $25,076
  • Regulated by the DOJ

Physician Self-Referral (Stark)

PROHIBITIONS:

  • Prohibits referrals of designated health services by a physician (or an immediate family member) if the physician has a financial relationship with the entity performing the designated health service
  • Regulates financial relationships with physicians (and physician’s immediate family members) only

EXCEPTIONS:

  • The arrangement must completely satisfy an exception or it violates the Stark law

PENALTIES:

  • No criminal enforcement; CMP enforcement for knowing violations: per violation penalties– 3x claims and/or per circumvention scheme penalties; Nonpayment of claims arising from prohibited arrangement; Recoupment of amounts received; Exclusion from federal health programs; FCA liability
  • Regulated by CMS

Anti-Kickback Statute (AKS)

PROHIBITIONS:

  • Prohibits offers of, solicitation of, or payment or receipt of remuneration intended to induce referrals for health care services covered by a government program
  • Covers provision of anything of value to a person who refers, orders/purchases or recommends

EXCEPTIONS:

  • Voluntary safe harbors exist, but arrangements are not required to fit within a safe harbors

PENALTIES:

  • Applies to either party involved in an arrangement that violates AKS; Criminal penalties $100,000 /violation, up to 10 years imprisonment); Civil penalties (CMP3x unlawful remuneration and $100,000/violation); Exclusion from federal health programs; FCA liability
  • Regulated by the OIG

Providers should also be aware of other enforcement statutes such as the Eliminating Kickbacks in Recovery (“EKRA”), the Civil Monetary Penalties Act (“CMP”), and the Travel Act, to name a few, in addition to being well versed in the relevant state health care fraud and abuse frameworks.

Article By Courtney G. Tito of Nelson Mullins

For more criminal law and business crimes legal news, click here to visit the National Law Review.

Copyright ©2022 Nelson Mullins Riley & Scarborough LLP

Buying, Selling, and Investing in Telehealth Companies: Navigating Structural and Compliance Issues

A multi-part series highlighting the unique health regulatory aspects of Telemedicine mergers and acquisitions, and financing transactions

Investors in the telehealth space and buyers and sellers of telehealth companies need to account for a set of health regulatory considerations that are unique to deals in this sector. As all parties to potential telehealth transactions analyze their long term role in the telehealth marketplace, two of the central issues to any transaction are compliance and structure – both in terms of structuring the telehealth transaction itself and due diligence issues that arise related to a target’s structure.

The COVID-19 pandemic, combined with strained health care staffing and provider availability, have accelerated the growth of the telehealth, and start-ups and traditional health systems alike are competing for access to patient populations in the telehealth space. However, as we adjust to life with COVID-19 as the norm, the expiration of the federal Public Health Emergency (PHE) looms, and the national economy contracts, we expect that the remainder of 2022 and into 2023 will see consolidation as the telehealth market begins to saturate and the long-term viability of certain platforms are tested. Telehealth companies, health systems, pharma companies and investors are all in potential positions to take advantage of this consolidation in a ripening M&A sector (while startups in the telehealth space continue to seek venture and institutional capital).

This is the first post in a series highlighting the unique health regulatory aspects of telehealth transactions. Future installments of this series are expected to cover licensure and regulatory approvals, compliance / clinical delivery models, and future market developments.

Telehealth Transaction Structure Considerations

The structure of any given telehealth transaction will largely depend on the business of the telehealth organization at play, but also will depend on the acquirer / investor. Regardless of whether a party is buying, selling or investing in a telehealth company, structuring the transaction appropriately will be important for all parties involved. While a standard stock purchase, asset purchase or merger may make sense for many of these transactions, we have also seen a proliferation of, affiliation arrangements, joint ventures (JV), alliances and partnerships.  These varieties of affiliation transactions can be a good choice for health systems that are not necessarily looking to manage or develop an existing platform, but instead are looking to leverage their patient populations and resources to partner with an existing technology platform. An affiliation or JV is more popular for telehealth companies operating purely as a technology platform (with no core business involving clinical services being provided). For parties in the traditional healthcare provider sector that provide clinical services, an affiliation or JV, which is easier to unwind or terminate than a traditional M&A transaction, can allow the parties to “test the waters” in a new, combined business venture. The affiliation or JV can take a variety of forms, including technology licensing agreements; the creation of a new entity to house the telehealth mission, which then has contractual arrangements with the both the JV parties; and exclusivity arrangements relating to use of the technology and access to patient populations.

While an affiliation or JV offers flexibility, can minimize the need for a large upfront investment, and can be an attractive alternative to a more permanent purchase or sale, there can be increased regulatory risk. Entrepreneurs, investors, and providers considering any such arrangement should bear in mind that in the wake of the COVID-19 pandemic and proliferation of telehealth, the Office of Inspector General of the Department of Health and Human Services (HHS-OIG) has expressed a heightened interest in investigating so called “telefraud” and recently issued a special fraud alert regarding suspect arrangements, discussed in this prior post. Further, the OIG’s guidance on contractual joint ventures that would run afoul of the federal Anti-Kickback Statute (AKS) should be front of mind and parties should strive to structure any affiliation or JV in a manner that meets or approximates an AKS safe harbor.

Target Telehealth Company Structure Compliance

Where telehealth companies are providing clinical services, and are not purely technology platforms, structuring and transaction diligence should focus on whether the target is operating in compliance with corporate practice of medicine (CPOM) laws. The CPOM doctrine is intended to maintain the independence of physician decision-making and reduce a “profits over people” mentality, and prevent physician employment by a lay-owned corporation unless an exception applies. Most states that have adopted CPOM impose similar restrictions on other types of clinical professionals, such as nurses, physical therapists, social workers, and psychologists. Telehealth companies often attempt to utilize a so-called “friendly PC” structure to comply with CPOM, whereby an investor-owned management services organization (“MSO”) affiliates with a physician-owned professional corporation (or other type of professional entity) (a “PC”) through a series of contractual agreements that foster a close working relationship between the MSO, PC, and PC owner and whereby the MSO provides management services, and sometimes start-up financing. The overall arrangement is intended to allow the MSO to handle the management side of the PC’s operations without impeding the professional judgment of the PC or the medical practice of its physicians and the PC owner.

CPOM Compliance Considerations and Diligence for Telehealth Companies

A sophisticated buyer will want to confirm that the target’s friendly PC structure is not only formally established, but is also operationalized properly and in a manner that minimizes fraud and abuse risk. If CPOM compliance gaps are identified in diligence this may, at worst, tank the deal and, at best, cause unexpected delays in the transaction timeline, as restructuring may be required or advisable. The buyer may also request additional deal concessions, such as a purchase price reduction and special indemnification coverage (with potentially a higher liability limit and an escrow as security). Accordingly, a telehealth company anticipating a sale or fund raise would be well served to engage in a self-audit to identify any CPOM compliance issues and undertake necessary corrective actions prior to the commencement of a transaction process.

Below are nine key questions with respect to CPOM compliance and related fraud and abuse issues that a buyer/investor in a telehealth transaction should examine carefully (and that the target should be prepared to answer):

  1. Does target have a PC that is properly incorporated or foreign qualified in all states where clinical services are provided (based on the location of the patient)?
  2. Does the PC owner (and any directors and officers of the PC, to the extent different from the PC owner) have a medical license in all states where the PC conducts business (to the extent in-state licensure is required)? To the extent the PC has multiple physician owners and directors/officers, are all such individuals licensed as required under applicable state law?
  3. Does the PC(s) have its own federal employer identification number, bank account (including double lockbox arrangement if enrolled in federal healthcare programs), and Medicare/Medicaid enrollments?
  4. Does the PC owner exercise meaningful oversight and control over the governance and clinical activities of the PC? Does the PC owner have background and expertise relevant to the business (e.g., a cardiologist would not have appropriate experience to be the PC owner of a PC that provides telemental health services)?
  5. Are the physicians and other professionals providing clinical services for the business employed or contracted through a PC (rather than the MSO)? Employment or independent contractor agreements should be reviewed, as well as W-2s, and payroll accounts.
  6. Is the PC properly contracted with customers (to the extent services are provided on a B2B basis) and payors?
  7. Do the contractual agreements between the MSO and PC respect the independent clinical judgment of the PC owner and PC physicians and otherwise comply with state CPOM laws.
  8. Do the financial arrangements between the MSO, PC, and PC owner comply with AKS, the federal Stark Law, and corollary state laws and fee-splitting prohibitions, to the extent applicable?
  9. Is the PC owner or any other physician performing clinical services for the PC an equity holder in the MSO? If so, are these equity interests tied to volume/value of referrals to the PC or MSO (i.e., if the MSO provides ancillary services such as lab or prescription drugs) or could equity interests be construed as an improper incentive to generate healthcare business (e.g., warrants that can only be exercised upon attainment of certain volume)?

Telehealth companies considering a sale or financing transaction, and potential buyers and investors, would be well served to spend time on the front end of a potential transaction assessing the above issues to determine potential risk areas that could impact deal terms or necessitate any friendly PC structuring.

Article By Hannah E. Zaitlin, Mitchell D. Lindstrom, David S. Sanders, and Natasha Allen of Foley & Lardner LLP

For more health law legal news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Feds Announce More Aggressive Enforcement of Poor Performing Nursing Homes

In February of 2022, during his State of the Union Address, President Biden announced an action plan to improve the safety and quality of care in the nation’s nursing homes.[i] On October 21, 2022, Centers for Medicare and Medicaid Services (CMS) announced new requirements to help with oversight of facilities selected to the Special Focus Facilities (SFF) Program.[ii]

The SFF Program was created to help and oversee the poorest performing nursing homes in the country and improve nursing homes that have a history of noncompliance.  The goal is to improve safety and quality of care. The facilities selected for the SFF Program must be inspected no less than once every six months and if severe enforcement is needed, it is at the discretion of the state surveyors. The main objective for the SFF Program is for facilities to show exponential improvement, graduate from the program, and then maintain compliance and better quality of care and safety.

The new CMS requirements, outlined below, are aimed at facilities that continuously fail to improve and remain in the SFF Program for a prolonged period of time. Health and Human Services Secretary Xavier Becerra stated, “Let us be clear: we are cracking down on enforcement of our nation’s poorest-performing nursing homes. As President Biden directed, we are increasing scrutiny and taking aggressive action to ensure everyone living in nursing homes gets the high-quality care they deserve. We are demanding better because our seniors deserve better.”

CMS announced the following revisions to the SFF Program:

  • Effective immediately, CMS will use escalating penalties for violations for deficiencies cited at the same level in subsequent surveys. This can include possible discretionary termination from Medicare and/or Medicaid funding for facilities that are cited with immediate jeopardy deficiencies on any two surveys while participating the in the SFF Program.
  • CMS will consider facilities’ efforts to improve when considering discretionary termination from Medicare and/or Medicaid programs.
  • CMS will impose more severe escalating enforcement remedies for SFF Program facilities for noncompliance and no effort to improve performance.
  • Increased requirements that nursing homes in the SFF Program must meet to graduate from the SFF Program.
  • For three years after graduation from the SFF Program, CMS will ensure nursing homes consistently maintain compliance with safety requirements by continuing to closely monitor these facilities.
  • CMS is offering more support resources to facilities selected for the SFF Program.

Additionally, the Biden administration released a fact sheet with the steps they are taking to in improve the quality of nursing homes. [iii] Some of the steps mentioned include more resources to support union jobs in nursing home care, establishing minimum staffing requirements, incentivizing quality performance through Medicare and Medicaid funding, and enhanced efforts to prevent fraud and abuse.

  1. https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/28/…
  2. https://www.cms.gov/files/document/qso-23-01-nh.pdf
  3. https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/21/…

Article By Thomas W. Hess, Kelly A. Leahy, Sydney N. Pahren, and Bryan L. Cockroft of Dinsmore & Shohl LLP

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Fair Market Value Defensibility Analysis: Why is It Different from a Fair Market Value Opinion?

Fair market value is a pinnacle issue for compliance under the Stark Law and Anti-Kickback Statute. Compensation arrangements that are required to be representative of fair market value under Stark/AKS include employment, independent contractor, medical directorships, exclusive service arrangements, call coverage, quality reviews, medical staff officer stipends, etc.

Many consulting firms provide fair market value opinions relying extensively on the application of benchmark data. Based upon CMS’s statements in the Stark Law Final Rules, although application of benchmark data is a resource that can be utilized, fair market value can and should include the application of market/service area issues (i.e., deficiency of specialty) or physician-specific issues (i.e., expertise, productivity).

Commercial reasonableness is a separate concept from fair market value under Stark/AKS. Commercial reasonableness also entails whether the application of benchmark/market factors are defensible.

When analyzing the defensibility of compensation arrangements, it is important to view fair market value and commercial reasonableness as if advocating the facts and circumstances of the proposed compensation arrangement before a governmental entity (i.e., CMS, OIG, DOJ). When an attorney is rendering a fair market value defensibility analysis, not only will the analysis be protected under the attorney-client privilege, but the analysis will also include references and attachments to all of the applicable documentation and relevant information in case the compensation arrangement is ever required to be defended.

Article By Bob Wade of Nelson Mullins

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