With 2010 bringing a heightened focus on healthcare compliance, reform efforts and enforcement, providers should be aware of the legal ramifications that surround these issues, says law expert Stephen W. Bernstein.
Bernstein, a partner at international firm McDermott Will & Emery LLP, outlines the top ten health law issues for 2010. At number five is healthcare information technology.
1. Stark Law Self-Disclosure
Providers subject to the physician self-referral law (Stark Law) continue to struggle with the ramifications of unintentional or so-called "technical" violations of the Stark Law, says Bernstein. Currently providers have no readily available avenue for resolving technical Stark Law issues at less than the full amount of the overpayments, he says. The House and Senate have both proposed health reform bills in 2009 requiring HHS to establish a Stark Law self-disclosure protocol, with both versions permitting settlement of self-disclosed violations for less than the full amount of the Medicare payments if warranted by the circumstances. Senator Grassley also introduced the "Strengthening Program Integrity and Accountability in Health Care Act" (S.2964), on Jan. 28, 2010, which includes many of the fraud fighting initiatives from the health reform bills, including establishment of a self-disclosure protocol.
2. Compliance Program Effectiveness
According to Bernstein, there should be scrupulous emphasis on effective corporate compliance programs. The Health Care Fraud Prevention and Enforcement Action team (HEAT), an interagency program of the U.S. Department of Justice (DOJ) and HHS designed to combat Medicare fraud, have put a new focus on this. HHS OIG recently republished a three-part series on healthcare compliance, and the DOJ has attempted to apply "Responsible Corporate Officer" and similar theories to assert liability to executives in fraud actions. Compliance program effectiveness is also an essential element of the Federal Sentencing Guidelines' compliance program criteria. Bernstein recommends that compliance effectiveness should be conducted relative to the standards established by the OIG compliance guidance, Federal Sentencing Guidelines and the DOJ Guidelines for the Federal Prosecution of Corporations.
3. Increased Enforcement – Complex RAC Audits and Survey Activity
Enhanced RAC audits, called "complex reviews" are taking RAC concerns to entirely new heights starting in 2010, says Bernstein. Complex reviews are far more labor - and time-intensive for audited hospitals and given that RAC auditors can keep between 9 and 12.5 percent of payments identified as improper, the more complex the review, the more likely the RAC auditors can take a hospital's audit results straight to the bank, he says. There is also an increased survey and enforcement activity by state departments of health and CMS of all types of healthcare facilities. Bernstein says the resources required to respond to survey findings, particularly the costs of remediating Life Safety Code-related deficiencies, places an additional burden on healthcare facility staff and budgets.
4. Health Insurance Industry Reform
The health insurance market is likely to face significant changes affecting all participants – health insurers, managed care organizations, employer/union group plans and individuals alike. The potential establishment of premium rating limitations, the elimination of lifetime coverage limits and the regulation of medical loss ratios (MLRs) are likely to affect the pricing of insurance products in a material way, says Bernstein. Even if Congress fails to act, he says states may enact reforms related to the small group market and to take their own steps to expand access for un- and under-insured individuals. With Medicare Advantage Organizations experiencing payment changes that are likely to continue, premium rates and plan benefit packages – including the availability of supplemental benefits – could be impacted he says.
5. Health Information Technology
With the passage of the Health Information Technology for Economic and Clinical Health Act (HITECH Act), in Feb. 2009, eligible professionals and hospitals need to understand what constitutes "meaningful use" in order to receive incentive payments beginning in 2011 and avoid penalties starting in 2015. The HITECH Act also expanded the reach of HIPAA, imposing nationwide notification requirements for breach of unsecured protected health information (PHI). Bernstein points to the Connecticut Attorney General's recent suit against Health Net over the company's loss of a hard drive holding information on almost 450,000 enrollees, saying that although this is the first time a state attorney general has invoked new authority under the HITECH Act to pursue breaches of personal health information, it is likely not the last.
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6. Focus on Tax Exemption
Tax-exempt hospitals must, for the first time, fully complete Schedule H to Form 990 when filing their 2009 tax returns. Schedule H requests supplemental information in narrative form, including descriptions of how the hospital assesses the needs of its community, informs patients of their eligibility for charity care, and uses community building activities to promote the health of its service area. According to Bernstein, while many hospitals used last year's filings as "practice" for Schedule H's data portions, few prepared sample responses to its narrative portions. Tax-exempt hospitals must fully complete Schedule K to provide supplemental information on tax-exempt bonds, including disclosure of private business use, posing another disclosure challenge for exempt hospitals, he says. Nonprofit boards, including those of exempt hospitals, will be expected to more actively assess the effectiveness of internal mechanisms designed to monitor business risk and preserve charitable assets, says Bernstein. He says, nonprofit organizations are well advised to identify whether board processes adequately support informed decision making in this regard, and take steps to improve processes where warranted.
7. Accountable Care Organizations and Medical Homes
If passed, health reform legislation is likely to promote the creation of cost-saving delivery models, such as Accountable Care Organizations (ACOs) and Medical Homes. In 2010, healthcare providers and private health insurers should anticipate increasing pressure from the public and private sectors to explore the formation of ACOs and Medical Homes, says Bernstein. In addition to the financial and strategic aspects of involvement in ACOs and Medical Homes, careful evaluation of participation in these models should include examination of the implications for tax-exempt status, existing quality initiatives, and federal and state regulatory compliance, he says.
8. Patient Safety Organizations
According to Bernstein, although many states have implemented peer review protections, under the Patient Safety and Quality Improvement Act of 2005 (Patient Safety Act), those protections vary from state to state and generally do not protect information that is shared outside of the healthcare institutions. There are currently more than 75 PSOs in 30 states listed with the Agency for Healthcare Research and Quality.
9. Pension Plans and Benefits
Two items of guidance that could affect executive compensation provided by tax-exempt organizations are likely to be published in the coming year, says Bernstein. The first is Internal Revenue Service (IRS) guidance regarding the application of Internal Revenue Code Section 409A. Bernstain says this guidance will affect supplemental retirement arrangements, employment agreements and other arrangements that provide for a deferral of compensation. Such arrangements will need to be analyzed once the guidance is published to determine whether any changes are required to avoid adverse tax consequences to plan participants, he says.
The second item of importance is cafeteria plan regulations expected to be finalized this year. According to Bernstein, final regulations will likely affect the ability of employers to continue to offer the full range of benefits through this cafeteria-style program in a manner that is tax-favorable to participating employees. Given these developments, employers should monitor guidance and regulations regarding nonqualified deferred compensation arrangements and cafeteria plans, and take these coming changes into consideration both in terms of internal planning efforts and budgeting for related costs in 2010, he says.
10. Loosening Credit Markets and Increasing M&A Activity
According to Bernstein, mergers and acquisitions (M&A) activity is expected to increase in 2010. Conversion transactions, where nonprofit healthcare facilities and entities "convert" to for-profit status through acquisition by for-profit companies, are also expected to increase, as are physician-hospital joint ventures, he says. Bernstein says the root of this activity is the relative loosening of bond and credit markets, providing increased access to capital – though while the costs of borrowing have modulated, so has the appetite for risk.
