Trends in regulation and compliance

A clearer view of trends in enforcement will help alleviate physician concerns.

Issue: December 1, 2004

ByAlan E. Reider, JD, MPH

Alan E. Reider [photo] As a health care regulatory lawyer, I have the benefit of observing trends from a distance; I am not affected directly by changes in legislation, regulation and policies emanating from the bureaucracy. I am more directly affected by the developments in the enforcement arena, as I serve as an advisor and defender of those who struggle to comply with complex rules and regulations. Developments in this area continue to plague health care providers including physicians in general and ophthalmologists in particular.

With respect to these trends, over the past year I have observed what can be best described as schizophrenia. Legislation has passed to provide economic relief and more predictability in future reimbursement for physicians. Yet this same legislation imposes additional administrative burdens, which will create increased economic burden on the physician practice. Similarly, new regulations and policies have been issued that were designed, in part, to provide more guidance and certainty for the physician community. At the same time, however, government enforcers are developing more aggressive and creative theories of prosecution, making continued participation in federal health care programs more precarious. Although the enforcers continue to trumpet more and larger victories in these cases, some physicians and other targets of these actions are fighting back and winning. Finally, despite the riskier enforcement environment and development of codes of conduct by the industry designed to restrict aggressive behavior, there appears, at least in some areas, to be a renewed willingness on the part of some physicians to venture into the proverbial gray area of compliance.

The government policy makers

OSN Section Editor Summit The Medicare and Medicaid Modernization Act of 2003 provided economic relief for the physician community. Instead of being subjected to a 4.5% reduction in reimbursement, physician compensation increased by 1.5%, a positive 6% swing. In addition, the legislation provided a new formula for future compensation adjustments designed to stabilize, in part, a system that was plagued with uncertainty and chaos. The legislation was also designed to provide relief to the physician community in the area of Medicare appeals. A new, streamlined system was established to replace a system that was known for its unreasonable delays and incompetence. Finally, other administrative relief was provided, through a loosening of the standards of the reassignment rule, to make it easier for physicians to enter into certain business relationships with other physicians.

The same legislation, however, also imposed additional burdens. For example, the new streamlined appeals process identified above is, in fact, a double-edged sword. One of the changes imposed by the legislation eliminates a physician’s right to full hearing before an administrative law judge (ALJ). Historically, this process was very physician-friendly. Further, under the historical system, a physician could challenge a carrier’s denial of claims without necessarily incurring significant costs and could participate in a relatively informal but highly effective setting. Under the new system, all of the relevant evidence and argumentation must be developed as part of a much more formal written submission prior to the ALJ level of review. The ALJ hearing is now limited to a question of whether the prior review was appropriate.

Of potentially greater impact, however, is the effect of the new prescription drug benefit created by the legislation. While touted as a great victory for seniors, this is a highly complex program whose benefits are largely misunderstood. While physicians’ direct involvement is somewhat limited, no doubt much of the burden to explain the benefit to patients will fall on physicians, and that burden will be felt in the time required for office staff to become familiar with the program and respond to patient inquires.

The government enforcers

The increase in enforcement is a trend that began 15 years ago and has not slowed down. While recent events suggest a shift from the small provider target, such as physicians, to the larger corporate target, such as pharmaceutical and medical device companies, physicians continue to be at risk and face new, extraordinarily aggressive theories of prosecution.

One 2001 case involved an $875 million settlement by TAP Pharmaceuticals in connection with marketing abuses relating to its drug Lupron (leuprolide). The case is noteworthy not only for its size (the largest settlement in history at that time), but also because the government pursued criminal prosecution against physicians as well as company executives involved in the alleged marketing abuses. The pursuit of those prosecutions was significant for two reasons. First, several physicians pled guilty to violations of the anti-kickback statute, as well as the prescription drug marketing act. More significantly, however, eight members of the TAP sales and executive staff were recently found not guilty in a kickback prosecution in which the judge rejected the government’s broad reading of the kickback statute and instructed the jury to apply a more narrow reading of the law. As a result of the acquittals, one TAP executive who earlier pled guilty was allowed to withdraw his plea. The implication of this case is not yet known, but it could signal a welcome swing of the pendulum back to a more rational standard in the application of the anti-kickback statute, and other broad criminal statutes that affect the health care industry.

Perhaps even more important, particularly for ophthalmologists, is the case of James Edwards, MD. Similar to the TAP case, the Edwards case is significant for two reasons: first, it demonstrates the incredibly aggressive theories pursued by government enforcers; second, Dr. Edwards was successful in his defense.

Dr. Edwards, an ophthalmologist, was charged with filing false claims in connection with improper evaluation and management coding. Dr. Edwards’ acquittal was secured when his counsel presented testimony from Health and Human Services Secretary Tommy Thompson before a congressional oversight committee, during which Secretary Thompson acknowledged that the E&M coding system was extraordinarily complex and that HHS simply could not get it to work. The jury needed very little time to deliberate and find Dr. Edwards not guilty.

Why the government would pursue such a case is a mystery. Unfortunately, however, for every Dr. Edwards, there are 10 or more physicians who dare not challenge the might of the prosecutor and resolve their case through either a civil or criminal settlement. Whether the failed prosecutions of the TAP executives or of Dr. Edwards will serve to embolden other defendants is unknown. Hopefully, these cases will serve to slow down overzealous prosecutors whose theories of prosecution go well beyond that which many believe to be the intent of these statutes.

The industry

With the explosion of enforcement cases triggering new compliance standards in the pharmaceutical and medical device industries, health care providers and suppliers have taken a significantly defensive posture. The PhRMA and AdvaMed guidelines were drafted extremely conservatively and appear to have had an impact on reducing the most flagrant conduct involving relationships with physicians. This response is prudent from the perspective of both the industry and the physician community, as the government is likely to continue to focus its attention on these industries. Physicians participating in aggressive practices likely will be caught in the investigative net.

Yet, while the industry appears to be moving in a more conservative direction with respect to this conduct, there appears to be a willingness, at least on the part of some, to move into areas of risk where the government has appeared to have no interest. I can speak only from my perspective, but for many years investment in ASCs by referral sources such as medical ophthalmologists or optometrists was rarely ventured. More recently, however, we have seen a reversal in this trend; existing ASCs are being syndicated, and new ASCs are being established with nonsurgeons, such as medical ophthalmologists and optometrists, included as potential investors. This activity does not appear to be reckless; the transactions that I have seen take great care to follow appropriate guidelines for small investment interests, such as assuring that each investor make a substantial cash contribution, that profit is distributed based solely on the equity interest of the inventor and not in relation to the value or volume of referrals, and that the investment opportunity does not result in a change of referral pattern.

At first this conduct might seem difficult to understand in light of the increased enforcement activity. Why would physicians take increased risk in one area while becoming more conservative in others? Perhaps it reflects the belief that the government’s perspective on enforcement is evolving over time, and we are now beginning to identify those areas of greater risk and those areas where the risk appears to be modest. Admittedly, from a legal perspective, it becomes difficult to advise clients that certain conduct is prohibited when the government has taken no action in a particular area and similar arrangements are well known to exist within the industry. It would certainly be a welcome development if these predictions are correct and we are starting to understand more clearly the areas of concern by the enforcement authorities.

In summary, the trends in the health care regulatory and compliance arena remain complex. Changes in the rules, even those designed to simplify, appear to create additional burden and confusion. In addition, the continued risk of enforcement creates further anxiety for the physician community. Hopefully, however, the trends we are beginning to identify through the successful defense of the TAP executives and Dr. James Edwards, as well as the belief that the government’s concerns are becoming better understood, will help to reduce some of these concerns in the future.

For Your Information:
Alan E. Reider, JD, can be reached at Arent Fox PLLC. 1050 Connecticut Ave. NW, Washington DC 20036; 202-857-6462; fax: 202-857-6395; e-mail: ReiderA@ArentFox.com.