OBS Legal Updateby Scott Einiger, Esq.
The passage of New York’s Office Based Surgery (OBS) Law on July 14, 2007 (Public Health Law §230-d) was significant for physicians in New York State who perform procedures or surgeries in an office setting, or a cost effective alternative to procedures in a hospital/Article 28 setting. The new law does not discuss the economic impact of becoming an accredited OBS facility (which accreditation is required to occur on or before July 14, 2009), or the legitimacy of reimbursement for facility fees. However, the law’s potential economic impact on physicians is substantial, both in the cost that must be incurred to become accredited and the cost to put additional systems in place to improve the standard of care.
What is clear from our most recent meeting with the Department of Health (DOH) (in conjunction with the leadership of MSSNY in July 2008), and the updates on the DOH website, is that the DOH has recognized that facility fee reimbursement is not prohibited under New York State law, but rather a permissible negotiation between carrier and provider provided full disclosure is provided to the carriers about the accredited nature of the practice.
As background to the continuing evolution of this issue, the OBS Law (Public Health Law §230-d) requires accreditation and adverse event reporting for physicians who perform “office based surgery”, as that term is defined in the statute . The adverse reporting requirement became effective for offices performing covered procedures or surgeries as of January 14, 2008, notwithstanding their accreditation status. In fact, already recalcitrant offices have been notified of investigations by the DOH related to their failure to make statutory reports in accordance with Public Health Law, §230-d, thereby subjecting them to possible licensure sanction.
At this point, there are three accrediting organizations which have been approved by the DOH specifically The Joint Commission, the Accreditation Association for Ambulatory Health Care (AAAHC) and the American Association for Accreditation of Ambulatory Surgery Facilities, Inc. (AAAASF). Regardless of which state approved accreditation agency is used, the accreditation process takes time (many of our clients have reported a three to four month process from application to accreditation). Therefore, physicians interested in continuing to perform office-based surgeries or procedures should begin the process now in order to complete the process before the July 14, 2009 deadline, which is rapidly approaching. The sooner accreditation is completed, the sooner physicians can safely continue to perform such procedures in their office without fear that accreditation process will not be concluded by the statutory deadline. Failure to become accredited by such deadline and continuing to perform such procedures thereafter in an unaccredited office will expose physicians to potential sanctions under the professional licensure statute in New York.
Typically, in order to achieve accreditation, the accrediting organization will require a “corporate organization” to undergo the accreditation process. Although a physician may choose to perform OBS within his/her medical practice, and it is not legally required that a separate entity be created exclusively for OBS, it is generally recommended since the statute does not require that the portion of a physician’s practice not performing surgery or procedures be included in the accreditation process.
A separate professional entity earmarked for OBS is legally advisable for a host of reasons, including risk management, asset protection, professional liability avoidance, marketing, etc. Historically, the insurance companies have requested that a medical practice billing facility fees form a separate entity to “house” its OBS and for facility fee reimbursement purposes. In light of this request from the carriers, and the DOH opinion of March 21, 2006 described below, many physicians performing OBS have formed a separate professional entity for their OBS practice.
In a March 21, 2006 DOH opinion, Don Berens, then DOH general counsel, examined the question of whether a general business corporation could bill for facility fees . The DOH concluded that generally speaking, billing of facility fees by a general business corporation, which then shared its revenues with a physician, could be construed as a violation of the corporate practice of medicine doctrine and could constitute illegal fee splitting . For that reason, and those reasons referenced above (quality assurance, marketing, risk management, identification to the carrier, etc), it was, and continues to be recommended that OBS practices be structured as professional entities. In order to clarify the DOH’s opinion on appropriate corporate structure and facility fee reimbursement issues for OBS practices, a meeting was held on July 14, 2008, when a Senior Partner from Abrams Fensterman, et al, Scott Einiger, Esq., travelled to Albany with Don Moy, Esq. (General Counsel of the Medical Society of the State of New York), Dr. Scott Tenner (the President of New York State Society for Gastrointestinal Endoscopy (NYSGE)), and other interested parties to meet with Tom Conway, Esq., the General Counsel of the DOH and his team. The meeting was comprehensive, and touched upon significant topics related to OBS, including facility fee reimbursement, corporate structure concerns and a request by the DOH for further data to evaluate the components of facility fee reimbursement.
Most recently, the DOH raised concern about the corporate structure of OBS practices as professional entities. Through a recent e-mail exchange on a healthcare law list serve, and for the first time in nearly two years, the DOH, through Senior Attorney, Michele Petruzzelli, has weighed in on the issue of corporate structure. The DOH commented that an OBS facility should not be set up as a distinct professional entity from the existing medical practice if done solely for billing purposes. In other words, the DOH cautioned against a mere billing “shell”.
Nearly simultaneously with this exchange, the DOH updated the “Frequently Asked Question” (FAQ) section of its website on June 5, 2008 to indicate that it might be illegal billing fraud for an OBS practice to bill third party insurers for a facility fee under a different corporate entity, such as a business corporation or a professional corporation, especially if the rate has not been negotiated with the third party insurer (See FAQ 45). As per the DOH website, “Only the OBS practice should be submitting bills to third party insurers.”
In order to clarify the DOH’s opinion on appropriate corporate structure and facility fee reimbursement issues for OBS practices, a meeting was held on July 14, 2008, when a Senior Partner from Abrams Fensterman, et al, Scott Einiger, Esq., travelled to Albany with Don Moy, Esq. (General Counsel of the Medical Society of the State of New York), Dr. Scott Tenner (the President of New York State Society for Gastrointestinal Endoscopy (NYSGE)), and other interested parties to meet with Tom Conway, Esq., the General Counsel of the DOH and his team. The meeting was comprehensive, and touched upon significant topics related to OBS, including facility fee reimbursement, corporate structure concerns and a request by the DOH for further data to evaluate the components of facility fee reimbursement.
MSSNY and the consortium of healthcare attorneys attempted to demonstrate at this meeting that the OBS professional entity would not be formed as merely a billing “holding company”, but rather would be set up as a separate professional entity for reasons such as identification to the carrier, asset protection, cost containment, quality of care, access to care, risk management, civil and licensure protection, and clear differentiation from the medical (non-surgical) practice for accreditation purposes. The DOH highlighted that it must be apparent that the professional OBS is practicing and rendering professional services, and not merely formed to charge a fee for “bricks and mortar” (e.g. facility fee) or administrative/operational/non-professional services.
Most significantly, the DOH confirmed that facility fee billing and reimbursement by OBS practices is neither prohibited nor required by New York State law, and does not require a written contract between the carrier and provider. Rather, the provider can negotiate with the carrier directly to pay a facility fee so long as he or she fully discloses that the OBS practice is accredited through one of the approved accrediting organizations, and is not an Article 28-licensed entity.
Notably, the DOH indicated that it will not advocate that facility fees must be paid to individual practices by carriers, and that a legislative amendment would be needed in order to require facility fee reimbursements to physicians who obtain OBS accreditation. The problem remains that if carriers do not pay accredited OBS practices, there may well be a crisis in access to health care, refuse to perform such office based procedures and have no incentive to become accredited if they are not reimbursed adequately for their additional accreditation, operation and other expenses. This may well result in offices refusing to provide services well suited in the office setting like endoscopy.
Although the meeting with the DOH was certainly informative, many issues remain unresolved, specifically regarding corporate structure. As such, until further clarification is sought, we recommend that the safest course to follow is for your existing OBS corporate structure to be analyzed by experienced healthcare counsel to ensure that the OBS entity is practicing medicine in accordance with the law in New York (as the accredited OBS practice must provide professional services and should not be formed merely for billing purposes). The OBS practice, if distinct, must further address appropriate patient disclosure under the Stark laws, and full disclosure to carriers notifying them of its accredited status to rebut any claims of confusion or representation.
As the OBS law has introduced the possibility of significant economic impact for many physicians, and significant savings to health care carriers as an alternative to Article 28 facilities, it is important that these discussions continue with the DOH and the carriers directly. It is also important that the legislature address the significant new issues raised in order to ensure that accredited OBS practices are created and structured appropriately and in compliance with all applicable laws so that the new law does not cause a crisis in access as offices which are not fairly compensated will have no incentive to create accredited facilities thereby lessening access to needed office based procedures and surgeries.
Other contributing attorneys: Stacy A. Steinberg, Esq., and Stacey J. Lipitz, Esq.