ambulatory surgery center acquisitions: meeting regulatory...

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Presenting a live 90-minute webinar with interactive Q&A

Ambulatory Surgery Center Acquisitions:

Meeting Regulatory Requirements,

Conducting Due Diligence, Minimizing Risks

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, JUNE 7, 2017

Curtis H. Bernstein, CPA/ABV, ASA, CVA, MBA, Principal,

Pinnacle Healthcare Consulting, Denver

Melissa Szabad, Partner, McGuireWoods, Chicago

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Ambulatory Surgery Center

Acquisitions: Meeting

Regulatory Requirements,

Conducting Due Diligence,

Minimizing Risk

Presented by:

Melissa Szabad, McGuire Woods, LLP

Partner

Curtis Bernstein, Pinnacle Healthcare Consulting, LLC

Principal

6 | McGuireWoods

Ambulatory Surgery Center Acquisitions: Meeting

Regulatory Requirements, Conducting Due

Diligence, Minimizing Risk

I. The Transaction Process A. Non-disclosure/confidentiality agreement

1. Negotiation of NDA

2. Exchange of information and documentation

3. Commencement of negotiations

7 | McGuireWoods

B. Letter of intent/term sheet 1. Continued due diligence

2. Negotiate material terms

3. Non-binding LOI

8 | McGuireWoods

C. Definitive documents 1. Negotiate definitive documents

D. Closing 1. Execute and deliver transaction documents

2. Satisfy all “conditions to close”

9 | McGuireWoods

II. Due Diligence A.Compliance with anti-kickback, self-referral

and fee splitting statutes and regulations: 1. Sale of Interests

a. Fair Market Value

b. Offering of Units based on value or volume of

referrals

c. Reallocating Units based on value or volume of

referrals

10 | McGuireWoods

2. Redemption Issues a. Forced redemptions based on value or volume of

referrals

b. Litigation risk

c. Anti-Kickback risk

11 | McGuireWoods

3. Safe Harbor Compliance a. Compliance with 1/3 tests and other requirements

b. Uniform enforcement

12 | McGuireWoods

4. Compensation Arrangements with Physicians a. Anesthesia Arrangements

I. Federal Anti-Kickback: OIG Advisory Opinion No. 12-

06 (company and management fee models)

II. State Issues: anti-kickback, corporate practice of

medicine, fee splitting

13 | McGuireWoods

a. Anesthesia Arrangements

I. Employment of Anesthesiologists

Number of

Providers

Percentile Median

Percentile

2016 Compensation per FTE 6,682 $364,785 $425,380 $489,966 $579,383

Average ASA Units 2,859 8,430 11,439 15,646 19,762

2016 Collections per FTE 2,227 $339,511 $476,808 $639,638 $831,569

Average Compensation per ASA Unit 2,754 $27.00 $36.69 $53.08 $65.07

Average Professional Collections per ASA Unit 999 $29.07 $40.96 $51.16 $59.97

14 | McGuireWoods

b. Medical Director and other Personal Service

Agreements I. Safe harbor compliance

II. Time sheets

III. Fair market value

IV. Legitimate services actually rendered

V. Stacking

15 | McGuireWoods

b. Medical Director and other Personal Service Agreements

III. Fair Market Value

i. Services rendered versus rendering physician

ii. Administrative compensation versus clinical compensation

IV. Legitimate services actually rendered

i. Time sheet review process

V. Stacking

i. Benchmark data includes all compensation at both the aggregate and

per wRVU levels

ii. Producing at 90th level productivity does not mean compensation for

clinical services is set at 90th percentile compensation per wRVU

16 | McGuireWoods

II. Due Diligence (continued) c. Equipment and Real Estate Leases

I. Safe harbor compliance

II. Fair market value

III. Lithotripsy arrangements-per click, global billing,

different arrangements for Medicare/Medicaid and

commercial

IV. Femtosecond lasers—global billing, IOLs

17 | McGuireWoods

c. Equipment and Real Estate Leases

II. Fair Market Value

i. Full time exclusive lease versus block lease

ii. Accounting for all services provided and risks taken

iii. Credit risk and term of lease

III. Lithotripsy Arrangements

i. Per click versus half day

ii. Mobile versus on-site

iii. Bilateral and multiple procedure issues (lithotripsy and lasertripsy)

18 | McGuireWoods

d. Management Agreements I. Safe harbor compliance

II. Fair market value

19 | McGuireWoods

d. Management Agreements

II. Fair Market Value

i. Services provided

ii. Rate of return to management company

iii. Time versus task

20 | McGuireWoods

B. Billing and Coding Audit and Review

1. Medicare/Medicaid audits or reviews

2. Private payer recoupments, out-of-network issues

3. Private pay/non-covered procedures (ABNs,

physician global billing)

21 | McGuireWoods

C. Anti-Trust 1. Review of payor contracts

2. Payor contracting negotiations post-closing

22 | McGuireWoods

D. Compliance with conditions of participation 1. Look for other uses in the facility (physician office

space, shared common areas)

2. Disclosure of physician ownership

3. 23-hour stay, recovery care

23 | McGuireWoods

E. Licensure, CON and Accreditation 1. Do the number of operating and procedure rooms

match what is on the license or CON?

2. Have prior changes in ownership been reported?

3. Is license and accreditation current?

4. Any survey issues or plans of correction?

24 | McGuireWoods

F. Litigation and Liens 1. Run searches early

2. Need time to have liens removed

25 | McGuireWoods

G. Medical Staff Issues 1. Healthcare Quality Improvement Act

2. Denials, revocations, suspensions, other

disciplinary actions

3. Were bylaws followed?

4. Proper reporting

26 | McGuireWoods

III. Deal Structure A. Stock vs. Asset Transaction

1. CON, License and Permit Issues

2. Billing/Commercial Payor Issues

3. Tax Issues

27 | McGuireWoods

III. Deal Structure A. Stock vs. Asset Transaction

1. No change in value based on deal structure unless certain

assets excluded from transaction

a. Certain assets may not be transferrable

2. Value of equity = Value of assets – Debt

3. Multiple of earnings based on equity transactions

a. Real estate not included in quoted multiples but is

included in reported multiples

28 | McGuireWoods

B. Acquisition by a Hospital and Conversion to

HOPD 1. Reimbursement (Section 603 of the Bipartisan

Budget Act of 2015)--Effective January 1, 2017,

off-campus provider based departments (PBD) first

billing Medicare after Nov. 2, 2015 are no longer

eligible to be paid under the outpatient prospective

payment system (OPPS)

29 | McGuireWoods

2. Provider Based Regulations (42 C.F.R. § 413.65)--

The following PBDs are excepted from the new

payment rules (i.e., they still are still paid under the

OPPS): (a) on-campus PBDs; (b) dedicated

emergency departments; (c) remote locations of a

hospital (i.e., those located within 250 yards of the

hospital’s main buildings); or (c) off-campus PBDs

that were billing and operating as outpatient

departments prior to Nov. 2, 2015.

30 | McGuireWoods

3. Stark Act and Anti-Kickback Statute

Considerations a. Isolated transactions or fair market value exceptions to

Stark Act

b. No applicable safe harbor under Anti-Kickback

31 | McGuireWoods

4. Co-Management Agreements a. Fees: Annual Fixed Fee; Incentive Fee

b. Anti-Kickback (Advisory Opinion No. 12-22); Personal

Services and Management Contracts Safe Harbor

c. Stark Law; Personal Services Arrangements and Fair

Market Value Exceptions

d. False Claims Act

e. Civil Monetary Penalties

32 | McGuireWoods

4. Co-Management Agreements a. Time versus Value

b. Test of reasonableness

c. Stacking

5. Gainsharing and Bundled Payment a. Duplication of services

b. Time versus value

c. Test of reasonableness

33 | McGuireWoods

GI Medical

Patient

Encounte

r: DRG

Quality

Target

Achieved

Target

Missed

No Shared

Savings

Quality

Achieved

Quality

Missed

Compensatio

n: Hospital

Physicians

No Shared

Savings

Shared

Savings

• Review basis

for miss

• Geometric Mean

34 | McGuireWoods

Group Surgeon

Cement, Bio Utilization

Total Direct

Savings

Rebate

Savings

Potential

Surgeon

Savings Vol Hip Vol Knee Vol REV

Kneeman 520$ 8$ 528$ 264$ 10

Cementman (2,292)$ -$ (2,292)$ 2,700$ 204$ 6 1

Hipman 17,500$ -$ 17,500$ 8,750$ 5 5 2

Crosby 64,561$ 80$ 64,641$ 32,320$ 7 21 2

Young 22,707$ 34$ 22,741$ 11,371$ 10 7 6

Nash 315$ 88$ 403$ 201$ 3 3 1

Shoulderman 1,200$ (50)$ 1,150$ 575$ 1 6

Group 1 Total 104,511$ 160$ 104,671$ 2,700$ 53,685$ 31 47 18

Exhibit 2 - Case Break out

Surgeon Estimated Pool - YTD - Month 2017

Savings Volume

35 | McGuireWoods

5. CON, Licensure

36 | McGuireWoods

C. Partial Acquisition by Management Company

and/or Hospital 1. Valuation Pricing Issues

2. Ownership Percentage

3. Other Arrangements

37 | McGuireWoods

Questions or Comments?

Melissa Szabad

mszabad@mcguirewoods.com

www.mcguirewoods.com

Curtis H. Bernstein

cbernstein@askphc.com

www.askphc.com

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