Navigating the Regulatory Landscape: The 8 Top Legal Issues of 2012

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Idle hands are said to be the devil’s workshop; in 2012, government regulators proved the same to be true of hands that are busy, as evidenced by the new and modified rules that they churned out to address perceived problems in the delivery of radiology services. Many of these rules—brought forth by DHHS agencies—were unhelpful to radiology practices striving to keep their heads above water. In fairness, though, one or two rules were of the opposite character.

During 2012, there also were nonregulatory developments that affected (or seemed likely to affect) various radiology care-delivery models. Foremost among these: intensifying efforts by hospitals to integrate the independent radiology groups providing coverage for them. Whether introduced by regulation or by private-sector dynamics, the challenges of 2012 were shaped—and defended against—by legislation, judicial precedents, and legal interpretations.

Practice Mergers

The merger of radiology practices continued without letup during 2012. Spurring this activity—as in recent years—was continuing reduction in reimbursements for the professional component, coupled with the growth of multiple- procedure discounts. W. Kenneth Davis Jr, JD, a partner in the law firm Katten Muchin Rosenman, says, “Revenue per work unit is going down, and radiology practices have responded by increasingly trying to consolidate, pulling out costs where possible.”

Also occurring with somewhat more frequency in 2012: hospital systems stepping in and prodding radiology services to merge. “It happens where a system is served by more than one radiology group,” Davis explains. “Some of this is driven by a desire, among the hospital systems, to gain access to more capacity and to subspecialty radiology services.”

The groups being pressed to merge do not always fit well together. “Their organizational structures and cultures may be incompatible,” Davis notes. Whether such action is a decision of the parties alone or a step taken at a hospital system’s behest, there remained, in 2012, at least one significant legal impediment. “Mergers carry with them antitrust considerations,” Davis says. “This year, there was some heightened scrutiny of physician-practice acquisitions and mergers—scrutiny from regulators at the federal level, but especially from the states.”

Davis says that regulators cannot determine that a radiology monopoly will result when two practices unite simply by counting how many radiologists are in this particular community and seeing how this stacks up against benchmarks. “The most appropriate way to look at it is from the standpoint of market power: How much of it is the merged entity going to possess?” he asks.

“There are various red flags the government is now looking for that go beyond postmerger geographic dispersion of the radiologists. If you’re in a midsized metropolitan area and there are only two radiology groups in town—one is of medium size and the other is large—and you put them together, it’s bound to raise eyebrows. Regulators are likely to suspect that here is a group with the ability to set and raise prices at will,” he adds.

This, with several other factors, led to failed merger talks this year, Davis reports. Some proposed mergers failed because proponents couldn’t convince their practice colleagues to abandon long-held approaches to governance, control, and radiologist compensation. A related factor was the impact that a merger would have on customers.

“For example, you might have one group heavily focused on providing professional services at its own imaging centers, with the other group focused on providing professional services at hospitals that are in competition with the imaging centers of the first group—so the hospitals might be unhappy with such a merger,” Davis notes.

Exclusive Contracts

While hospitals might or might not have been keen to see radiology-group mergers, increasing numbers insisted that the imaging practices providing them with coverage agree to do so on an exclusive basis. “Radiology groups, this year, were more frequently told that they must limit or entirely halt their involvement with competing facilities,” Davis says. “In situations where the radiology group owns facilities, hospitals are increasingly telling them to undertake no further growth. In one instance that I’m aware of, the hospital has told the radiology group that it will terminate its contract unless the radiology group divests its imaging facility.