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health care’s headaches

Regulations aggravate
health care’s headaches

A demonstration of the extraordinary complexity of the business of health care is the recent set of regulations implementing the laws limiting referrals to health care entities in which physicians or their family members have financial interests.
It took 70 pages of tightly packed Federal Register text–which was almost five years in the drafting–to explain which financial arrangements are legal, and which are not, with regard to 11 “designated health services.”
Such extraordinary complexity provides a partial explanation for the consolidation of physician practices and other health care providers that has been under way for several years.
The overhead cost of paying for legal and accounting advice to comply with such extensive regulations can quickly become prohibitive for the individual practitioner. Spreading such costs over a larger group may be the only economical way to afford the compliance measures these regulations make absolutely necessary.
The content of the new regulations also drives such consolidations. Consider, for example, the definition of a “group practice.”
That becomes relevant because, while referrals for designated health services are prohibited if the referring physician has a financial interest in the entity to which the referral is made, there is an exception if both the referring physician and the other entity are part of a group practice.
So, the question arises: What is a group practice?
To understand the rationale and complexities of the rule, consider clinical- imaging services. Studies have shown that when referring physicians have financial interests in imaging centers, they make many more referrals for imaging studies than if the imaging centers are financially independent.
On the other hand, it may benefit the patient to be able to have imaging services performed in the physician’s office, so the group-practice exception recognizes that a referral for imaging services is not illegal if the imaging is provided at the office by the group practice itself.
The situation begins to get more complicated if the imaging facility is owned by the group, but located at another site. The rationale for patient convenience is largely eliminated where there is such a separation. Plus, the structure looks a little different from the situation that caused the legislation to be enacted in the first place.
So it is easy to see why the regulations contain requirements that such a physician-owned imaging facility be located on-site. What if the imaging facility is in a building across the parking lot, or connected to the building housing the physician’s office by a tunnel or walkway?
Not good enough, according to the regulations, unless all of the group’s “designated health services” are performed at that location. So, if the group provides physical therapy and ultrasound services together at a separate location, that is OK, but if it provides one there and the other elsewhere, it is not.
As for the legal structure of the group, in an attempt to address perceived abuses by “group practices without walls,” the regulations create such tight corporate- structure restrictions that legitimate business arrangements also are prohibited.
According to the regulations, a group practice can include individual practitioners organized as individual professional corporations, but it cannot include partnerships or professional corporations that themselves include more than one physician.
Under this regulation, if 10 doctors with separate professional corporations have individual practices within a common office suite, they can create a group practice while each retains his or her own corporation.
However, if those same 10 physicians were organized into two larger professional corporations–each with five physicians–the two groups could not form an umbrella group practice while keeping the two subsidiary practices intact.
At the very least, the regulations could have permitted such a “group of groups” if the practices were all in the same location.
While that is an example of a strict regulatory approach, the regulations at the same time have taken a surprisingly lenient approach to other issues involving group practices.
Under the anti-referral law, referrals for designated health services are prohibited not only if the referring physician has a financial interest in the other entity, but also if a close family member has such a financial interest.
So, can a group practice of internists refer to a physical-therapy practice that employs the spouse of one of the internists?
On this question, the federal regulators used to say no, but now say yes. While the physician spouse cannot make such referrals, the other members of the group practice may, unless the physician spouse has effective control over referrals by the other members of the group.
That is a very abbreviated and summary treatment of just one set of issues with which physicians and their advisers must grapple.
The fact that the regulations may reverse course overnight–as occurred with referrals to the spouse of a group member–exemplifies the uncertainty inherent in any transactions in this area.
With such complexity comes increased administrative expense for which we all ultimately pay as purchasers of health care.
(Rene Reixach is an attorney with Woods, Oviatt, Gilman, Sturman & Clarke LLP, where he concentrates his practice in health law. He formerly was executive director of the Finger Lakes Health Systems Agency.)

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