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. The hospital sees that facility as a competitive threat.” Worse, a small (but growing) number of hospitals demand, as part of the exclusivity arrangement, that the radiology group participate with all of the hospital’s payors. Davis says, “The hospitals don’t care what kind of reimbursement rates the radiology group ends up securing from each of those payors. The demand is, ‘Make a deal with them, or else we may have to part ways.’ In a couple of states, legislation is being advanced to require radiologists and other providers to do exactly this.” He continues, “Unfortunately, and almost invariably, when radiology groups agree to this demand, the payors become aware of the contract’s provisions, and soon thereafter, the radiology groups experience a dramatic and rapid reduction in reimbursement.” Davis says that he finds troubling a move by hospitals to demand, beyond exclusivity, that the radiology group assume greater responsibility for the hospital’s technical component. “In other words, hospitals want the radiologists to be more involved with those things the hospital is going to be paid for,” he says. The rub is that “the hospital is less and less inclined to pay the radiologists for doing that,” he adds. Davis finds these demands troublesome from both economic and legal standpoints. He says that radiology groups need to stand firm against unreasonable expectations—and not just as a matter of principle. “The groups need to set you do them gratis, that puts both you and the hospital at risk of allegations of kickbacks,” he says. Accountable-Care Organizations In 2012, CMS finalized rules governing accountable-care organizations (ACOs). This, Davis observes, had the effect of encouraging more hospitals to become part of ACOs. “The new rules delve into how to establish an ACO. These rules are lengthy and detailed, but on the plus side, they also are reasonably clear, offering a good roadmap for how to proceed,” he says. Now, it falls to radiology groups to decide what roles they will play in the ACOs formed by the hospitals with which they have relationships. “On one hand, radiology groups want to be team players—to do everything they can to improve health care for the community through improvements in clinical services and care,” he says. “On the other hand, they have to balance this against the fact that they are entrepreneurs: that they are in business to be successful, and so must give thought to how they will support their own practices and grow them.” Some radiology groups under exclusive contracts feel that participation in the hospital’s ACO is owed simply as a matter of course. For them, the question is to what extent there must be participation. Davis says that groups in this position often find themselves under pressure to commit to full engagement. “The tensions can be significant if your hospital is dropping hints that you’ll lose the exclusive arrangement with them if you refuse to participate in the ACO,” he says. Compensation can be an issue in a situation in which, for instance, radiologists have little influence on the management of imaging services. “If radiologist compensation is tied to how well the imaging-services component is managed, then radiologists had better be given the authority and the resources to manage that component,” Davis says. Another compensation-related bone of contention is that aggregate reimbursements tend to decline as a result of good performance. “If you are successful in your role within the ACO, forth that they must be compensated in exchange for taking on extra responsibilities—because the law requires compensation. In fact, if you do extra tasks for the hospital, and you will find that you’ve reduced overall reimbursements from other payors,” Davis says. “Everything you do in the ACO is very likely to have an impact on utilization outside the ACO. This is going to put downward pressure on total reimbursement from those outside payors, since they are not going to pay you for any of the savings you generate within the ACO.” Compensation could become an even thornier issue when the second ACO version is rolled out, in the next few years. “That will be the start of risk- based contracting, which means you can anticipate a more limited pool of money available for reimbursements,” Davis says. “I would want to know how much of that money is going be left over to pay radiologists because there is a significant concern, from the radiologists’ perspective, that the hospital and the physicians who put patients in beds are going to get the first bite of that apple.” Joint Ventures In 2012, hospitals deepened their sophistication with regard to joint- venture acquisition and operation of imaging centers. More hospitals accepted the idea that—despite the tremendous consolidation occurring within the hospital industry—it makes more sense to buy the imaging center outright from the radiologists, but then let the selling radiologists manage it on a long- term basis. “There has been a greater willingness on the part of hospitals to enter into this kind of deal—not to shield the hospital from antitrust law, but to give the imaging center the best chance of being a clinical and economic success story for the hospital,” Davis explains. This greater willingness to enter into joint ventures has been a win–win development for both sides. “In the past, people have gone overboard trying to anticipate legal issues that might potentially arise in a joint-venture partnership,” Davis says, “but at best, they were boxing with shadows. At worst, they were anticipating problems that just simply were nonexistent. More recently (and this certainly was true in 2012), the prospective partners and their attorneys have been approaching these deals in a way that more realistically reflects the legal issues. As a result, the terms and conditions being written into the proposed agreements are more reasonable.” The flip side of acquisition is divestment, and that, too, occurred widely in 2012. “We increasingly see radiology groups wanting to sell their imaging centers because the continuing southward direction of reimbursement has made ownership less and less attractive,” Davis says. “In the five divestitures handled by my firm this year, all of the radiology groups involved sold their interests to hospitals. That is in keeping with a trend toward hospitals being the primary acquirers. It can be a good strategic move for the hospital because it helps it expand its footprint, with regard to where it is deriving its outpatient services, and it further links the hospital—in a potentially profitable way—to the various referring physicians outside the community.” On the legal front, there were tweaks to the rules pertaining to the type and degree of supervision that must exist in joint-venture provider-based facilities, Davis notes. “In part, at least, the rules for supervision in hospital inpatient and outpatient diagnostic centers have been changed to be more in line with the rules that apply to physician practices,”he says. “The concept is to have general, direct, and personal supervision.” Integration Discussions Health-care reform and economic shifts combined, in 2012, to convince more hospitals that survival hinges (to an increasing extent) on bringing independent providers of radiology services in-house. Thomas W. Greeson, JD, an attorney with the law firm Reed Smith, says, “We’re seeing, in some places, efforts on the part of hospital systems to encourage radiologists to give up independent practice and join their hospital-affiliated physician practices.” Greeson adds, “Some hospitals apparently believe that by having hospital-based physicians as employees, it will be possible to control the services those physicians provide better and, by extension, to achieve greater accountability from them and for them.” He does not predict that integration will emerge, in the year ahead, as the predominant model of delivery for radiology services, “yet it is certainly something that has captured the imagination of some hospitals. Only time will tell how widespread this model becomes,” he says. It might not spread at all if, as some speculate, integration arouses antitrust scrutiny, but this is something that Greeson does not expect. “I don’t think antitrust will be an issue unless the integration occurs within a system that already has dominant market power and exercises that power in a manner that’s potentially anticompetitive,” he says. In Greeson’s view, the traditional model of provider independence and autonomy is still the best. “I believe independent radiology groups have provided great service and created the incentives for radiologists to come to a community and offer a variety of subspecialty services,” he says. “I’d be hard-pressed to say that radiologists are going to be better off economically if they move from an independent status to the status of hospital employees, yet there are some radiologists who may prefer to do just that.” A flaw inherent in integration is its adverse long-term impact on compensation, he says. “Many radiologists who have achieved a decent level of compensation during their first contract terms as integrated providers may experience significant retrenchment in compensation by the time their contracts come up for renewal,” he explains. Greeson says that alternatives to integration are available, and radiology groups interested in maximizing revenues (and compensation) would do well to consider them. One alternative is a partially integrated arrangement. “In such a system, radiologists would be able to reassign selected services— breast imaging, say—to the hospital,” he says “The idea is try to find a way for the radiologists to help the hospital become more competitive without the radiologist paying the price of loss of economic independence.” Short of partial integration, the best way for radiology groups to please a hospital while retaining independence is simply by demonstrating value, Greeson says. Order Documentation In April 2012, CMS issued a final rule regarding how orders for physician- provided services—imaging among them—are henceforth to be documented. The salient part of these rules stipulated that only the technical component of imaging services ordered by physicians and furnished in IDTFs, mammography centers, portable facilities, and radiation- therapy centers needs to be included in the billing documentation submitted to Medicare. There is more, though: The rules require providers of imaging services to maintain a copy of the written order for seven years. Greeson has carefully dissected these rules, beginning when they were first proposed (in 2010). He has concluded that the provider of interpretation services is not subject to the seven-year requirement. He says, “If, as CMS has made clear, the provider of the professional component of the imaging service does not have responsibility for maintaining and supplying a copy of the order under this order-documentation rule, then it’s probably safe to say that recovery audit contractors (RACs) are without basis” for reimbursement denial/recovery. He adds, “Previously, radiologists were subjected to comprehensive error-rate testing and RAC audits where the interpreting radiologists have been required to provide a copy of the order as proof that the service provided was medically appropriate.” He continues, “This is very good news for interpreting radiologists who may be providing the clinical-component services for a hospital, for an imaging center, or for a physician practice. Radiologists now have a very clear statement from CMS that any efforts to deny payment for their services based on the fact that they have not provided a copy of the order upon the request of an auditor is without basis.” Multiple Procedure Payment Reduction In 2012, CMS issued Medicare Physician Fee Schedule (MPFS) rules that included one particularly unsettling subset: the Multiple Procedure Payment Reduction (MPPR) rule for the professional component. MPPR reduces the professional component for subsequent interpretation services when performed by a physician during the same day for a Medicare patient. For 2013, CMS proposes applying the MPPR to services performed for a patient on the same day by any member of the same physician group. Greeson explains that this MPPR rule change is slated to take effect in 2013 unless CMS has a change of heart before then—which Greeson says is possible. “There is hope: a faint hope, but hope, nonetheless,” he says. The 2013 change would apply to this scenario, for example: A trauma patient receives a whole-body CT exam; afterward, a neuroradiologist reads the images of the patient’s head. Later, a practice partner (who is the group’s musculoskeletal radiologist) reads other images from the exam. If the two radiologists’ group bills for the two different interpretations, it is likely to trigger a reduction in payment, in accordance with the 2013 MPFS. Greeson expresses alarm over this prospect. “Incentivizing the group to have one radiologist read the first and all subsequent images is not necessarily any more efficient—or more clinically advantageous—than having appropriate subspecialists share the interpretations,” he says. “In my view, CMS has not demonstrated justification for this rule,” he adds. “When a facility has a patient on the CT scanner for images of the chest and then concurrently takes images of the abdomen and pelvis while the patient is still on the table, there clearly are some efficiencies involved—but these pertain to the technical component of providing the imaging services. I disagree that this would also hold true when it comes to subsequent interpretations by the most appropriate subspecialists.” No matter how it is sliced, the MPPR extension for 2013 amounts to bad news for practices, Greeson says. “There is the possibility that CMS will reverse itself on this,” he notes. “The proposed 2013 rule applying the MPPR to group practices was heavily commented upon; we’ll soon see how persuasive those comments were.” The final rule will be issued by the end of 2012. On the chance that those comments were insufficiently persuasive, Greeson expects to see some groups resort to use of CPT® code modifiers (-59, indicating separate services, in particular) to permit them to continue performing shared subspecialty interpretations within the group, at the risk of an audit. “Radiologists will probably still try to provide the best possible clinical care,” he says. “For that reason, I believe that many will continue distributing the subsequent images to the right subspecialists for reading. The risk, with frequent use of modifier -59, is the potential triggering of an audit.” Enrollment and Billing Where an imaging service is performed is just as important as who performs it, judging by the place-of-service instructions that CMS disseminated in late September. Greeson foresees these instructions causing great anxiety among radiology providers when the place-of- service rules take effect next year. “The place of service for an interpretation service is going to be the location where the technical component was provided, but the claim must also report the address and the zip code for the interpreting physician,” Greeson explains. CMS wants to pay the claim on the basis of the interpreting physician’s Geographic Practice Cost Index (GPCI). If (for example) the interpreting physician is practicing in New York, Greeson says, CMS wants to make sure that the appropriate GPCI is applied to the RBRVS—the claim will have to be adjudicated by the Medicare administrative contractor (MAC) that has responsibility for New York, even though the technical component (where the exam was performed) is in, perhaps, Virginia. CMS does not want the Virginia MAC to pay the claim for the New York interpretation; it wants the claim to be adjudicated and paid where the professional component was provided. “For my money, this is a disappointment in that CMS is sticking with its inefficient and nonsensical MAC jurisdiction rules,” Greeson says. “It’s going to be very cumbersome, using my example, for the facility that takes reassignment and then bills for those services to have to submit the technical-component service claim in Virginia and have to enroll and submit the professional-component claim for the interpretation service in New York.” He continues, “Once again, CMS is not promoting efficiency; it’s making the adjudication of claims more cumbersome and difficult. The rule doesn’t go into effect until April 1, 2013. When it does, it will usher in many new denials of payment if the jurisdiction where the claim was submitted does not match where the interpretation was provided.” Since this iteration of the place- of-service rule appears to be cast in concrete, convincing CMS to change it is likely to prove difficult, Greeson says. As for the possibility of a challenge in federal court, “I’m not aware that any efforts are being mounted, at this point, to gain relief through litigation,” he says. “I think, for now, affected radiology groups are focused on coming up with ways to comply with the rules.”