Law of the land: Handle patient files carefully and treat hospitals as equals
As the HME industry changes shape due to competitive bidding, ACOs and other initiatives, there are two areas where industry attorneys have been keeping themselves especially busy these days: mergers and acquisitions, and hospital-related joint ventures.
Attorneys offered the law of the land, as well as a few tips and fair warnings.
It’s all good
Here’s how attorneys described the uptick in M&A activity taking place: First, it’s often driven by a buyer’s desire to increase his size (think generate economies of scale) and/or a seller’s desire to specialize (think dump all but one or a few product lines).
“It’s not typically about a provider going out of business,” said Edward Vishnevetsky, an associate at Munsch Hardt Kopf & Harr.
Second, it’s “quality” M&A activity, attorneys say.
“There’s a lot of activity, and it’s good-quality sellers getting paid good value by good-quality buyers,” said Neil Caesar, president of the Health Law Center.
But providers shouldn’t let the lack of fire sales tempt them to take their eyes off the ball, especially when it comes to what you can and can’t do with patient files. The short of it: These can’t be bought or sold, because that would be considered a kickback, attorneys say.
“However, if ABC Medical goes out and purchases hard assets and, as part of the purchase, has the seller transfer the patient files to ABC, it’s OK,” said Jeff Baird, chairman of the Health Care Group at Brown & Fortunato.
A few other tips: Attorneys don’t recommend tying the purchase price to the number of patients that end up transitioning to the buyer (again, to avoid violating the anti-kickback statute); they do recommend that providers have the seller initiate contact with patients to tell them they’re selling and to ask for their written permission to have the buyer call them (to avoid violating the telephone solicitation statute).
Skin in the game
Hospitals want back in the HME industry, but unlike in years past, when they were more apt to set up their own shops, they’re looking to enter joint ventures with existing providers. A good rule of thumb for these ventures, attorneys say: Treat hospitals like referral sources and make sure they have some skin in the game.
“Let’s say ABC Medical and St. Mary’s Hospital are going to set up a new DME and let’s say the startup cost is $200,000—at the get-go, ABC has to cut a check for $100,000 and St. Mary’s has to cut a check for $100,000,” Baird said. “You can’t have ABC say to the hospital, ‘You’re going to contribute future patients, you don’t have to put up anything upfront,’ because that’s a violation of the anti-kickback statute.”
In addition to “financial risk,” hospitals must also have “operational responsibilities,” meaning ABC can’t run a “turnkey operation” for St. Mary’s, attorneys say.
“I’m OK with ABC providing some services to the joint venture, but not so many that ABC takes over the joint venture’s operations,” Baird said. “I’m OK with the joint venture renting space from the hospital, so long as it’s fixed at one year in advance and is fair-market value.”
When providers and hospitals come together in a different way, under ACOs, there are even more questions to consider, like what kind of algorithm will be used to determine shared costs or savings.
“Another thing: What happens when an audit occurs,” Vishnevetsky said. “Who’s responsible?