Einiger & Associates

New York Healthcare Law

New Law, New Liability, New Economicsby Scott Einiger, Esq.

Office-Based Surgery: New Law, New Liability, New Economics

The recent amendment of Subsection 48 to New York Education Law, Section 6530 and Section 230-d to the Public Health Law will likely have far ranging implications to physicians 1 who perform office-based surgery 2 The new law requires accreditation on or before July 18, 2009 for the physician seeking to perform office-based surgery (OBS) in his or her office. Additionally, practitioners must consider prior opinions from the Department of Health (DOH) governing corporate structure and the New York State self-referral laws (“mini-Stark”) to avoid potential violations of the corporate practice of medicine doctrine, illegal fee sharing and licensure requirements that could have repercussions to the physicians’ license and his or her livelihood. Finally there will be an enormous economic impact as the market shifts to embrace this new facility construct as cost containment is a central feature of the evolving health care delivery system.

While seemingly an unimportant decision, the designation of the name of the facility and the corporate structure is crucial to communicating clearly who you and your facility are, as the name of the OBS practice is how the practice will be known to the world. Therefore, providers need to be aware of certain prohibitions in the name which can automatically result in accusations by carriers of misrepresentation and may even lead to licensure issues with the DOH, as certain words specifically implicate that the OBS practice is an Article 28-licensed facilities and are hence “off limits”. Further disclosure of ownership of the new facility needs to be made under federal self referral laws (“Stark”) and mini-Stark to avoid violations of federal and New York State law.

Specifically, use of the words “center” or “clinic” in New York are prohibited as they are presumptive of an Article 28-licensed facility, and carriers will suggest that providers are fraudulently misleading them into paying licensed rather than accredited facilities. Under Section 600.8 of the New York Compilation of the Codes, Rules, and Regulations, “Criteria for determining the operation of diagnostic or treatment center under Article 28 of the Public Health Law”, the rule states that “It shall be prima facie evidence that a diagnostic or treatment center is being operated when any provider of medical health or health services describes itself to the public as a ‘center’ or ‘clinic’ ….” By this rule, “center” or “clinic” is strictly reserved for an Article 28-licensed facility. Thus, physicians should not use “center” or “clinic” for an OBS facility to prevent any confusion by carriers that might be seeking to use this technical violation as an opportunity to reclaim monies paid for professional or facility fee charges, or allegations by DOH of any misrepresentation by the OBS facility trying to mislead the public that it is an Article 28-licensed surgical center.

Additionally, prior to the new law’s implementation, the Department of Health had opined as to the nature of the entity which engages in office-based surgery. In a March 21, 2006 opinion, the DOH’s general counsel stated that the corporation designated for office-based surgery must be owned as a professional entity. As explained by the DOH, if a physician is sharing fees with a general business corporation, he or she might be viewed as engaging in illegal fee splitting with the lay entity (e.g. LLC or Inc). 4 While our firm continues to view the facility fee charge as a technical component, the DOH has made clear that the safest course of action for a provider is to form a professional entity.

In selecting a professional entity, the physician has the choice of a professional corporation (PC), a professional limited liability corporation (PLLC) and a limited liability partnership (LLP) 5 . It would be prudent for the physician to consult with an accountant before selecting a corporate form, as each professional entity has different tax consequences. Notably, each of the aforementioned corporate forms is approved by the Department of Education, which is responsible for the licensing and the regulation of licensed professionals.

The corporate form is also crucial since your professional corporation may employ nurses, physicians’ assistants, other physicians or health care professionals. In New York, under the corporate practice of medicine doctrine, only a professional entity may employ health care professionals. 6 As such, it would be a violation of the corporate practice of medicine doctrine for a lay entity to employ medical professionals. Moreover, the nurse or professional hired by the general corporation could also be guilty of professional misconduct for sharing fees with the corporation, which are criminal and licensure violations.

According to the Board of Regents, the unauthorized practice of medicine by a nurse would be a crime. Moreover, the facility and/or physician could be referred to the Attorney General’s office resulting in criminal implications and possibly referred to the Office of Professional Medical Conduct for licensure implications of the owner/practitioner. Therefore, the ramifications of failing to comply may be severe.

Failing to correctly structure the facility or selecting a name that is misrepresentative of the medical practice can also lead to problems with reimbursement or a recoupment demand by a managed care carrier. In a decision by the New York Court of Appeals in Mallela v. State Farm (“Mallela”) 7 providers were deeply impacted as the Court held that, at least in the no-fault insurance context, where a medical entity is intentionally fraudulently incorporated and where insurers show such “behaviortantamount to fraud”, insurers may recoup monies paid for services rendered. While the judicial guidelines are somewhat vague, it is clear that technical violations as to corporate structure are not sufficient for insurers to pursue recoupment attempts from providers. Noteworthy to providers, subsequent rulings have indicated that this pursuit of overpayment demands by carriers based on corporate structure may be expanded beyond the no-fault world and have import for private carriers. As such, corporate structure becomes crucial to avoid such Mallela-type issues and a carrier’s attempt to recoup reimbursement.

The proper corporate structure may be handled seamlessly with the right team in place to assist in this process. The physician should work with healthcare legal counsel and with an accreditation consulting company to assist them throughout the corporate structuring and accreditation process.

As a fully integrated healthcare firm, we have available a network of consultants willing and able to help you with the accreditation and corporate structure process. We would be more than happy to discuss any of the aforementioned or matters incident thereto. For accreditation consultation and billing, as well as accreditation questions, the firm has an affiliation with high quality consultants who can provide such information.

1 The new law applies to licensed individuals who are authorized to practice their profession underArticles one hundred thirty-one or one hundred thirty-one-B of the Education Law, which include any licensed physicians (i.e., an M.D., or D.O.) and licensed physician assistants and/or specialist assistants. Practitioners such as dentists, podiatrists or chiropractors are not covered under the office-based surgery law.
2 Office-based surgery is defined in the new law as any “surgical or other invasive procedure, requiring general anesthesia, moderate sedation, or deep sedation, and any liposuction procedure, where such surgical or other invasive procedure or liposuction is performed by a licensee in a location other than a hospital […] excluding minor procedures and procedures requiring minimal sedation.”
3 Please note that approval of any specific name requested by a provider is subject to the approval by the Department of Education.
4 Notably, the Department of Health stated in its March 21, 2006 opinion that “[a] physician who shares with a [general] business corporation a portion of an additional or enhanced fee for the physician’s costs to perform professional services in the physician’s office might be sharing fees in violation of Education Law § 6530(19).”
5 Please note a LLP is required to have at least two partners.
6 In a 1998 Report by the Board of Regents, Sections 6512 (stating it is a felony for an unlicensed person to practice medicine) and 6513 (stating the unauthorized practice of medicine is a crime) of the Education Law, “it is clear that business corporations cannot hire a licensee to provide professional services because the law neither authorizes such action nor provides an exemption.” Indeed, as highlighted by the Board of Regents, the corporate practice of medicine doctrine “serves to protect the public from a business relationship that could place constraints upon professional judgment, unduly limit professional practice, invade the professional integrity of the professional, or permit the business to make professional decisions.”
7 After many lower court decisions and appeals, Mallela (known as “Mallela III”) was ultimately decided by the United States Court of Appeals for the Second Circuit. 4 N.Y.3d 313 (NY, 2005).

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