SAFE HARBORS FOR TAX EXEMPT HEALTHCARE AND INCENTIVE PAYMENT CONTRACTS

At the end of November, the IRS issued its Notice 2014-67.  This Notice revises Revenue Procedure 97-13.  It creates a new five year safe harbor for management contracts and expands the allowed types of incentive or productivity awards.

The 1997 revenue procedure had described certain safe harbors that tax exempt healthcare facilities could rely upon so that certain incentive payment contracts or service or management contracts between the tax exempt facility (often built with tax free bonds) could enter into with a service provider and avoid private business use findings by the IRS.  This has commonly been used for physician service agreements.

The ACA’s emphasis on account quality performance standards and Medicare fee for service agreements in the share savings programs could have impacted not for profit hospitals under the former revenue procedure.  The IRS recognized this and issued the new 2014-67 Notice adding productivity rewards that would not be considered prohibited compensation if eligibility is based on the quality of service being provided rather than based on increases in revenue (or decreases in expenses), and if the award amount is a stated dollar amount, a tiered system based solely on the level of performance achieved or a periodic fixed fee.  The Notice also adds a new five year safe harbor for agreements where compensation is based on a capitation fee, a per unit fee, a periodic fixed fee/stated amount, or any combination of these.  The main difference under the new Notice is the lack of requirement for an early without cause termination right for the tax exempt entity.

WE ARE NOT LYING, OR IF YOU CAUGHT US, WE DIDN’T MEAN TO LIE.

We have previously discussed problems in narrow network plan access to primary care physicians.  In that discussion, we noted that in some cases, no patient appointments were available at all for new patients seeking primary care appointments under the narrow network plan.

It seems that this problem also exists under Medicaid plans.  According to the inspector general of HHS, approximately one half of listed providers could not offer appointments to Medicaid patients.  The problems identified by the inspector general included 1/3 of providers not being found at the location listed by a Medicaid managed – care plans.  At best, this indicates the managed care plans are being poorly managed.  At worst, it indicates the managed plans are actively committing fraud against insureds by claiming the availability of doctors and services that simply aren’t available.

Both this and the narrow network lack of availability indicate a market imbalance.  If insurers and managed plan managers offer a higher reimbursement rate, presumably, more doctors would join the plan and be available to patients.  The use by these plans of nonexistent, retired or nonparticipating doctors’ names in list of supposedly available physicians creates a distortion in bargaining power between providers and insurers.

The result of this is likely to be additional regulation by CMS.  We await the draft regulations.

LAWSUITS WITHOUT HIPAA

To date, courts have consistently found that no patient has a private cause of action for HIPAA violations.  State courts, however, seem to be allowing traditional invasion of privacy or negligence claims to proceed under various state laws.  In most cases, the party accused of breaching the privacy expectations claims that HIPAA prevents or preempts state law actions by patients.

Courts in Indiana and Connecticut have both refused to accept the preemption argument for various reasons.

What is interesting is that in these unauthorized disclosures of patient PHI cases, the courts determine that while HIPAA does not preempt the state actions from going forward, HIPAA standards state the minimum procedures required in safeguarding PHI.

SUPER HEALTHCARE USERS

Super-utilizers, those whose complex medical issues make them intense users of expensive healthcare services are coming into focus.  5% of Medicaid’s 68 million beneficiaries account for 60% of spending on Medicaid.  No wonder that this is a necessary target for cost management.  The answer, at least for 15 states, is the establishment of health homes.  These are teams of providers responsible for designing and coordinating physical and mental healthcare for super-utilizers.  Although these programs are fairly recent, the first state which established a healthcare home in 2012, Missouri, is beginning to measure the results, and the results are impressive.

While super-utilizers may be different in details, many of them combine chronic conditions (diabetes, obesity, hypertension) with mental health and/or addiction issues.  In some cases, the mental health issues prevent the patients from properly managing these chronic conditions, and result in a highly disproportionate use of urgent and emergency care facilities.  Indiana, Illinois and Kentucky do not appear to be states that have established health homes, or frankly, any other effective program to deal with super-utilizers.

HAPPY HOLIDAYS

Thank you for all your comments and questions on healthcare issues during 2014.

We wish everyone a safe and happy holiday season and a wonderful 2015!

This newsletter is edited by Paul Wallace of Jones ∙ Wallace, LLC, a member of the American Bar Association Healthcare Law Section and the American Health Lawyers Association who has been representing physicians and healthcare practices for over 25 years.  Mr. Wallace assists physicians in health practices in contract items, federal legal compliance, creation of practice entities, estate and wealth planning and similar issues.  Please feel free to call if you have any questions on this newsletter or legal matters at (812) 402-1600 or pwallace@joneswallace.com.