|New Jersey Adopts Emergency Amendment on Physician-Ownership|
The New Jersey Board of Medical Examiners, on the heels of an interesting case related to the Codey Act (the details of which you can view here), has issued an emergency amendment on physician-ownership. The amendment will require all qualifying practitioners and practices to adhere to disclosure-of-ownership requirements within 120 days of the amendment's effective date; it has been adopted on an emergency basis and will become effective upon acceptance for filing with the state Office of Administrative Law.
The emergency amendment leaves two key questions unanswered. First, will it be adjusted to permit third-party management ownership? Second, will the amendment make it very difficult to handle out-of-network due to the concept that the professional and technical side under their language may need to be handled the same way? These questions are expected to be answered over the next two to four months via legislation or through the board itself.
The full text of changes to
13:35-6.17 Professional fees and investments, prohibition of kickbacks follows below.
(b) A practitioner shall not refer a patient or direct an employee of the practitioner to refer a patient to a health care service in which the practitioner or the practitioner's immediate family, or the practitioner in combination with the practitioner's immediate family, has a significant beneficial interest, unless the practitioner held the interest prior to July 31. 1991 and discloses that interest to the patient as required herein or as otherwise permitted in this rule. Such a practitioner shall be deemed to be grandfathered. If a licensee professionally affiliated with a grandfathered practitioner obtains a significant beneficial interest in the same health care service in which the grandfathered practitioner holds an interest on or after July 31, 1,391, that practitioner shall not refer patients to that service. A licensee professionally affiliated with a grandfathered practitioner who does not hold an interest in that health care service may refer patients to that service so long as all of the disclosure requirements set forth below are met. Disclosure shall be made by the practitioner in ways appropriate to the professional circumstances including conspicuous posting of a written disclosure form prepared as set forth below, at least 8.5 by 11 inches in size, in the practitioner's waiting room in all office locations. The patient shall also be provided with a personal copy of the notice. The notice format shall be as follows:
Public law/rule of the State of New Jersey/Board of Medical Examiners mandates that a physician, podiatrist and all other licensees of the Board of Medical Examiners inform patients of any significant financial interest held in a health care service.
(c)The restrictions on referral of patients established in (b) above shall not apply to:
Accordingly, take notice that practitioners in this office do have a financial interest in the following health care service(s) to which patients are referred:
(LIST APPLICABLE HEALTH CARE SERVICES)
You may, of course, seek treatment at a health care service provider of your own choice. A listing of alternative health care service providers can be found in the classified section of your telephone directory under the appropriate heading.
- Radiation therapy pursuant to an oncological protocol, or lithotripsy or
renal dialysis treatment, provided that at there is disclosure of the financial interest; or
- A health care service that is provided at the practitioner's medical office for which the patient is billed directly by and in the practitioner's name. For purposes of this paragraph, a practice site at which ambulatory surgery and/or special surgical procedures that are integrally related to a practitioner's field of practice are performed may be deemed a referring practitioner's "medical office" if:
(i) The practice site is operated in a business form authorized under N.J.A.C. 13:35-6.16 (f) for the practice of medicine;
(ii) Referring practitioners participate in governance so as to ensure that the referring practitioner can fulfill obligations as set forth in N.J.A.C. 13:35-6.16 with respect to the hiring and retention of professional staff, the quality of care provided and the maintenance of all professional practice standards;
(iii) The referring practitioner personally performs the procedure on the patient he or she referred;
(iv) Disclosure of the referring practitioner's financial interest is made to the patient in writing, at or prior to the time that the referral is made, consistent with the notice format to be utilized by grandfathered practitioners in (b) above, documented in the referring practitioner's chart, and accompanied by a list of the full names of all other practitioners who have an interest in the practice side and, if applicable, disclosure that certain component parts of the bill for this service may be handled by payors differently (for example, the professional fee may be in-network and the facility or technical fee may be out-of network;
(v) All of the ownership interests in the practice site are held by investors who referring practitioners, referring practitioners in combination with other non-referring practitioners, closely allied licensed health care professionals or a licensed hospital;
(vi) Ownership interests are not related to previous or expected volume of referrals, services furnished, or the amount of business otherwise generated by or or antjcipated from that investor to the entity, and the amount of payment returned to an investor is directly proportional to the amount of the capital investment (including the fair market value of any services rendered prior to the operational date of the entity) by that investor, unrelated to the volume of business generated;
Under this rule, a practitioner's practice site shall be deemed the practitioner's medical office and the billing in the practitioner's name if the practitioner can demonstrate compliance with all of the requirements of this rule. The requirements of subsection (v) shall be deemed to have been met if the practitioner and other investors can document that within 120 days of filing of the rule they commenced to bring the practice site into compliance with the requirements of such subsections.
|When Is the Right Time to Sell an ASC?; |
Are Physician-Hospital and Corporate Partnership Models Changing?
1. When is the right time to sell equity in your center, and how will a potential increase in the capital gains tax impact these transactions?
Selling a center is typically driven by the desire to take "cash off the table" or because you need help in managing or turning the center around. In simple terms, there are both mathematical and personal comfort answers to this question. Remember, after one sells a majority interest in the center, for the remainder of his career, he will receive a lesser amount of distributions because he will own a smaller percentage of the center after the sale. This is typically the case. Further, when one finally sells the remainder of his interest, he will sell those interests at 3 to 4 times earnings as opposed to the 6 to 8 multiple that he might receive when selling a majority of the equity in a transaction.
So, from mathematical and economic perspectives, note the following: If you sell your interest in a surgery center at about 7 times earnings, you typically receive mostly capital gains tax treatment on that sale. This essentially means that if you held the same interest in the center rather than selling such interest, it would take you about 10 to 11 years after taxes to receive the same amount of money for that interest as you would receive in a sale transaction. Then, at the end of 10 to 11 years, you still own the interest in the center. Given that one cannot forecast the future of a surgery centers for this length of time, one might argue that it is always time to consider selling your center if you can receive 6, 7 or 8 times earnings for the center.
With that stated, when you reinvest the money that you receive from the sale, it is unlikely that you can receive anywhere near the return on investment month to month from other investment opportunities as you would receive from your surgery center investment. Thus, you are gaining a certain amount of comfort and financial security by selling a center but giving up current and ongoing cash flow. If your operational perspective is very long term, there is a strong argument that you should hold on to your equity in the center. The closer you are to retirement, the stronger the incentive to sell the center and to be part of a selling group because that is the only time you will have a chance to receive 6 to 8 times EBITDA.
The only time that you should always consider selling is if you see the center projected to go in a downward direction. However, one of the challenges is that many buyers will also sense the same concern. An increase in the capital gains tax rate would lessen the amount of time it takes to receive the amount of after-tax income from simply holding on to the center. For example, if it takes about 10 to 11 years to receive what someone received in a 7-times-EBITDA transaction if he just held his equity, then if the capital gains tax rate were to go up significantly, the length of this holding period starts to decrease, closer to the multiple that you have received in a sale transaction. For example, if you get paid 7 times earnings and the capital gains tax rates are close to ordinary income tax rates, then the hold period to break even with a sale transaction is about seven years.
2. What are the benefits of a minority-equity acquisition versus the historical majority-equity model?
The core benefit of a minority-equity acquisition is that it allows the physicians to continue to hold a majority of the interests in the venture, which is good for the longevity of the venture. The core downside to the physicians is one receives less in pricing in a minority-interest transaction than in a majority-interest transaction (i.e., 6 to 8 times earnings). Thus, there is a disadvantage in pricing when selling a minority-equity position versus a majority position. Also, it is the only time you can ever sell for 6 to 8 times interest. A minority-investment option does not provide the same amount or liquidity in exit value.
3. Is there an increased interest in ASC management arrangements between physicians and hospitals? If so, what are the benefits and/or risks involved?
There is muted increased interest in ASC management agreements. These are often driven by the built-in reimbursement advantage that hospitals enjoy. In essence, hospitals have a lot more cash to play with in order to pay management agreements and pay medical director fees in order to retain physicians and prevent them from developing their own centers. At the same time, very negative comments from the government on these types of arrangements have muted the increased interest in the growth of these arrangements. However, the reduced reimbursement for some specialties due to CMS's updated ASC payment system is also leading more surgeons to be more interested in looking at options other than their own ASCs.
4. What changes have you seen in the physician/hospital joint-venture over the past few years that will impact these relationships in the future?
The largest change that we see in physician/hospital joint-ventures relates to physician/hospital relationships as a whole. Essentially, we are seeing a greater number of situations in which physicians are being employed by hospitals than we have seen in several years. This lessens the pool of available physicians and surgeons for ASCs or other types of ventures and also gives the hospital additional control over case flow.
|News and Notes
Surgeon pleads guilty in neurosurgery equipment kickback case. An Arkansas surgeon pleaded guilty in the U.S. District Court for the Eastern District of Arkansas to one count of knowingly soliciting and receiving kickbacks from a medical device distributor in return for using certain products during surgeries that were paid for by Medicare or Medicaid (United States v. Chan, D. Ark., No. 4:06 CR 00344, plea accepted 1/3/08). According to the indictment, Patrick Chan, MD, asked for and received up to 50 percent of all commissions - about $7,000 to $8,000 per month from January 2004 to June 2006 - that an unnamed distributor earned from sales generated by his surgeries. Dr. Chan, who performed surgeries at Central Arkansas Hospital and the White County Medical Center, faces up to five years in prison and a $25,000 fine and will have to pay the government $31,000 to cover investigation costs.
Meridian Surgical Partners acquires Michigan surgery center. ASC management firm Meridian Surgical Partners announced earlier this week that it has acquired a majority interest in Brookside Surgery Center in Battle Creek, Mich. The multi-specialty ASC has over 11,500 square feet of space with three ORs and two procedure rooms. In the past 12 months, more than 4,000 outpatient surgical cases have been performed at the center including orthopedic, ophthalmology, plastic, otolaryngology, general surgery and pain management. The center is comprised of 13 physician owners and operates within a medical office building. For more information about Meridian, visit www.meridiansurg.com.
Reliant Renal Care announces company formation, $50 million financing and strategic acquisition and joint venture. Reliant Renal Care, a comprehensive outpatient dialysis provider, is pleased to announce its company formation with the initial placement of $ 50 million in private equity for acquisitions and development. The executive management team is led by CEO Barbara Bednar, formerly COO for Renal Treatment Centers and co-founder and COO for Physicians Dialysis, who has 35 years' experience in the industry. Scott Roncace is the CFO of Reliant and brings with him 20 years of experience most recently with Call, Inc., a privately held pharmaceutical company. Nola McMullen is the COO for the company; John Sullivan will be the CDO. Rounding out the management team is Larry Nail, senior vice president of development. Ferrer Freeman & Company, which invests exclusively in healthcare-related companies, leads the company's investor syndicate. In conjunction with the financing, Reliant Renal Care closed the acquisition of a majority interest in four dialysis centers in central Michigan. As part of the transaction, McLaren Healthcare Corporation received stock in Reliant and will be represented on the Reliant board. Joining FFC and McLaren in the transaction is DW Healthcare Partners, a healthcare-focused private equity investor. For more information on Reliant Renal Care, please visit www.reliantrenalcare.com.
Update on June Orthopedics- Pain Management- and Spine-Driven ASC Conference. Besides the May FASA (the ASC Association) annual meeting, and the October FASA/ASC Communications conference, there is not better place to network and meet industry leaders than the June conference. In fact, given the physician and orthopedic focus, many of our exhibitors find this to be the single most effective event of the year.
Last year, this event -- which is focused on orthopedics, and spine and pain -- had more than 480 attendees. Based on the growth we saw last year, we have expanded the roster of speakers and will be bringing in more nationally known figures such as Tucker Carlson and Dr. Brian Cole, as well as Mike Snow from SCA, Cliff Adlerz from Symbion and John Rexwaller from National Surgical Hospitals. We also have a broad and outstanding agenda. Last year, we sold out of exhibit space 30 days before the conference. This year, at a premium cost, we added three spots to the foyer for exhibiting, but exhibit and sponsorship opportunities are limited -- and several exhibit spots are already gone. Please reserve your spot as soon as you can!
The sponsorships include the following:
- senior leadership,
- keynote speaker,
- networking lunch,
- Thursday pre-conference meeting,
- conference tote bags,
- cyber cafe,
- labeled bottled water,
- continental breakfast and,
- networking breaks.
A big thanks to Naya Kehayes and Eveia Consulting & Management Company; they are as good at managed care as anyone in the business. Eveia will be sponsoring the badge lanyards at the conference. Thank you again for your support. For more information on Eveia, call Ms. Kehayes at (425) 657-0494.
Download a conference prospectus here. As always, our full-year ASC Review advertisers receive a discount on exhibiting and sponsorships. For information, e-mail Scott Becker, and he will direct you to your ASC Communications account manager, or call (800) 417-2035, or e-mail Jessica Cole, Emily Noyes or Ryan Kiernan directly.
Thank you, new and returning advertisers. We are delighted to welcome Provation Medical, maker of ProVation MD software; it is designed by 12 full-time, in-house physicians and coders, working together with more than 75 clinician and coder consultants to create software that mimics a physician's or nurse's natural preferences and workflows. For more information e-mail Laura Gilbert.
We also welcome Marshall Erdman, a full service construction firm that offers project management from financial analysis to design-build. Contact Tom Cornell for more information on Marshall Erdman's services.
We also thank B.Braun, a leader in surgical supplies and equipment across a variety of specialties for returning as a full-year, full-page advertiser in the ASC Review. Please e-mail Jim Ricchini to learn more about all that B.Braun offers.
Looking ahead: March/April issue of Becker's ASC Review. Our March/April issue will focus on several key topics:
- Establishing an ASC -- A Primer from A to Z;
- Tips for Profitable Endoscopy in ASCs;
- Key Products for GI;
- Hospital-Physician Joint-Ventures: Current Tips for Success; and
- the Orthopedics and Spine Medical Device Market Letter.
The June conference brochure will also be included. If you would like to contribute, please e-mail Stephanie Wasek or call her at (484) 866-1292.
To ensure you don't miss an issue of the Becker's ASC Review, please subscribe! Visit www.BeckersASC.com or call (800) 417-2035.
Healthcare conference of interest. We are delighted that Outpatient Outlook 2008, an event focused on outpatient care and industry leaders as a whole is advertising with the ASC Review as well. This is not an ASC Communications event, but is presented by a5, a Chicago-based firm with significant healthcare and event marketing experience. For more information, e-mail John Harris or visit Outpatient Outlook online.
McGuireWoods Reception. In an effort to continue fostering relationships among those in the health care industry, McGuireWoods will host a reception on Feb. 7 from 5 to 7:30 p.m. at the Ritz-Carlton Chicago highlighting the following companies and leaders who work with hospitals and other providers in Illinois:
- Britt T. Reynolds, the vice president, division III operations, for Community Health Systems, the largest publicly traded hospital company in the United States.
- Claudia Stone Gourdon, senior vice president -- hospital sector, of Healthcare Finance Group, Inc., which specializes in senior debt financing that enables healthcare service providers to achieve their strategic capital goals.
- William "Mike" Karnes, CFO, and Tom Mallon, CEO, of Regent Surgical Health, an experienced surgery center developer, surgery center manager and developer of physician-owned hospitals across the country.
- Raymond M. Braun, president of McShane Medical Properties; John C. Daly, vice president -- healthcare services, McShane Construction; and Alexander M. Hlavacek, COO of McShane Medical Properties; all of the McShane Companies, a leading provider of integrated development, design/build construction, medical property acquisition and medical property management services in markets throughout the United States.
- David L. Woodrum, FAAHC, FACHE, a partner in Woodrum/ASD, which provides a range of services to ambulatory surgery centers - from development, management, and strategic marketing, to facilitating acquisitions and structuring joint ownership.
The following McGuireWoods lawyers will be highlighted as well: Jeffrey C. Clark, healthcare litigation; Craig R. Culbertson, capital markets and healthcare finance; Donald A. Ensing, capital markets and healthcare finance; Paul E. Fisher, real estate; Kara M. Friedman, healthcare and Illinois certificate of need; Thomas F. Londrigan Jr., healthcare and state government relations; and Jeffrey E. Rogers, government investigations and healthcare litigation.
If you are interested in attending, please e-mail Amy Nolan. Space is limited.
|Companies to Watch |
We are delighted to highlight the following companies in this week's E-Weekly.
Ion Healthcare. Ion Healthcare provides a turnkey solution for screening and management of patients with sleep apnea referred to your surgical center. Sleep apnea patients require special care, and Ion can help. The company's clinically proven quality program will provide your center everything needed to assess and manage risks of sleep apnea in patients referred to your center. You do not need to refer away sleep apnea patients. Ion's program provides free on-site clinical support; free sleep apnea screening; at-home diagnostic testing; comprehensive therapy and aftercare programs coordinated with the primary care physician; and a new source of ASC revenue. Contact an Ion Healthcare professional today at (804) 433-1717 or visit Ion Healthcare online to learn how you can partner with the market leader in peri-surgical sleep apnea patient management.
CareCredit: Patient Payment Plans. CareCredit lets your patients pay their current bills in full immediately with the use of convenient monthly payments. Your center gets paid in two business days with no responsibility if the patient delays or defaults. This reduces risk and costs of carrying accounts receivable, increases cash flow, and eliminates outsourcing and resultant fees to outside billing and collection agencies. That's why more and more ASCs are offering CareCredit interest-free and low-interest extended patient payment plans. A division of GE, CareCredit is the nation's leading patient payment program. CareCredit is currently offered by over 80,000 practices and has been used by over 6 million patients. Don't wait for your facility fee -- get paid now and increase your cash flow with CareCredit. Call 800-300-3046, ext. 4519, or visit www.carecredit.com for more information or to get started today.
Physicians Endoscopy. Physicians Endoscopy develops and manages endoscopic ambulatory surgery centers in partnership with practicing GI physicians and hospitals. We currently partner with 150+ physicians in Arizona, California, Florida, Indiana, Michigan, North Carolina, New Jersey, Ohio, Pennsylvania, Texas and Washington. The company's physician and hospital partners enjoy majority equity ownership and maintain all facets of local control, while PE holds a minority ownership position. It's 14 operating centers provide services to 125,000+ patients annually. The company has five additional centers under development. The strategy is simple: service. Physicians Endoscopy is forthright, reliable, and communicative, and we deliver upon expectations and promises. Additionally, its centers regularly deliver a greater-than-50 percent profit margin. Visit them on the Web at www.endocenters.com", or e-mail John Poisson or call him at (215) 589-9003.
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If you have any questions on any of the items listed in this letter, please contact me at (312) 750-6016 or by email at firstname.lastname@example.org.
Very truly yours,
Scott Becker, JD, CPA