I think we can all agree that 2020 was a “dumpster fire” of a year. Join us as we kick off season 3 with our newest partner, Greg Cardenas. Greg shares his background, and one of his client’s “dumpster fire” stories. Tune in as he joins Michael and Brad to share how a seemingly simple decision can unearth a host of potential compliance problems.
Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at email@example.com.
[Intro] Welcome to legal one, two threes with ByrdAdatto legal issues, simplified through real client stories and real world experiences. Creating simplicity in three, two, one
[Brad] Welcome to another episode of legal one, two threes with ByrdAdatto. I’m your host Brad Adatto, and joining me is my cohost Michael Byrd.
[Michael] Thanks Brad. Today we’re launching season three. Our theme for season three is dumpster fires.
[Brad] For those not familiar with the term dumpster fire, it basically means a complete mismanaged situation, which results in a disaster, Michael much like 2020. But Michael, you and I have seen a ton of disasters or dumpster fires over the years of practicing law.
[Michael] Yeah. And speaking of disasters, Brad, before we introduce our guest and get into today’s episode, let’s talk about icebergs.
[Brad] Okay. Little surprise, but go on.
[Michael] In 1912, and probably the most famous maritime disaster, the Titanic struck an iceberg in the North Atlantic ocean and it sank to the bottom of the ocean and less than three minutes.
[Brad] Right. That dumpster fire in the middle of the ocean. I like it.
[Michael] And Brad, true confession. You’ve got Celine Dion in your head right now, don’t you?
[Brad] I’m on the front of the ship right now.
[Michael] So only about 10% of an iceberg is visible above the water. And many icebergs are as much as 50% wider than they appear on the surface. So there’s a lot of hidden danger. Also, Brad icebergs don’t stay in the same place. They are in constant motion and new ones are constantly forming. In 1912, the Titanic was traveling in total darkness and only had visual sighting and a shipboard radio to help it navigate. Looking back, the Titanic was simply not properly equipped to head into the iceberg riddled waters of the North Atlantic.
[Brad] Yes. It sounds like a hundred years ago. You either had to be pretty gutsy or honestly, pretty stupid to cross the North Atlanta and a ship at night. But Michael, I mean, I know you were there in 1912, but I guess a lot has changed since then.
[Michael] I resent that statement Bradford. Yeah, a lot has changed. Today ships are equipped with radar and onboard instruments to help identify icebergs. Satellite imagery from space agencies is also now available and it allows for real-time iceberg detection and international monitoring teams to conduct airborne mapping and issue daily iceberg reports to ships.
[Brad] All right. With all this modern technology and information, ocean dumpster fires should be a thing of the past, right?
[Michael] Yeah. You would think so. But even with all these technological advances over a hundred years later, ships still hit icebergs.
[Brad] That’s a little surprising. We can both agree that the Titanic was a dumpster fire, but exactly what does all this iceberg talk have to do with health care law?
[Michael] I think you’re jumping ahead, Brad, what you meant to ask is, “Michael, why do ships still hit icebergs?” Well, let me answer that question for you, Brad. There are a few main reasons. One is that ships don’t purchase the tools necessary to avoid icebergs, radar and satellite equipment and mapping services are expensive. Some people can’t afford it or just don’t want to pay for that added layer of protection. They see other ships cross ocean safely and assume it will be safe for them to do so as well.
[Brad] That’s not too smart. I mean, icebergs move with the currents. We’ve all seen these documentaries. They form and change the landscape. So if you haven’t invested the time and resources, educating yourself on the current risks, you wouldn’t know what areas are safe and what areas you need to avoid.
[Michael] Yeah. And the second reason that that ships still hit icebergs even with modern technology. Ships continue to sail into more and more remote and uncharted waters, and there are still many areas of the ocean that are not well explored or documented.
[Brad] I get it. If your ship stays in well-traveled waters, you’re likely to be safe. But if you steer your ship into unknown territory, you can never know what you might find.
[Michael] Yes. And finally, the third reason ships continue to hit icebergs is greed.
[Brad] Okay. I’m not sure if I follow that. What is profitable for ship the smash into an iceberg?
[Michael] Well, it’s not, but there are many different routes across an ocean to a given destination. Often the safer routes are longer. Costing more money and fuel crew, crew costs and ship maintenance, and upkeep. Ships take shorter and more dangerous routes because of the time and cost of the shorter route is deemed worth the financial risks.
[Brad] Okay. So sometimes ships take the shortcuts, and throw caution to the wind. I guess the wind is…they don’t really need that anymore, but to throw caution the wind to make that extra buck. This is all starting to sound an awful lot like a health care arrangement that we have seen over the years.
[Michael] Yes, I’m kind of sweating a little bit, just kind of applying the analogy, but this is the perfect segue to introduce today’s guest.
[Brad] Yay. We get to introduce him today.
[Michael] We’re joined by Greg Cardenas. Greg is a new partner in our Dallas office, and we’re really excited that Greg has joined the ByrdAdatto team. I didn’t do this intentionally, he may be a little extra intimidated as I sit here with my Texas Longhorn shirt on, because Greg is a Dallas native and a Texas A&M undergrad.
And for those not from Texas, they are fierce rivals with each other, or at least they used to before A&M defected to a different conference. And, most importantly, Greg’s actually a law school classmate of mine. Yes. They actually had law schools back when we got our education. Greg started his life career at a national law firm in Dallas, but he’s also owned and operated a booth at boutique health care firm in Dallas for several years.
And then served as inside general counsel for both the public and private health care company in the Dallas Fort Worth metroplex. He and his wife Anna live in Lakewood and have four daughters. Greg, thanks for joining us today.
[Greg] Hey, thanks for inviting me. It’s great to be here.
[Michael] Awesome. Well, we’re, happy you’re here. Love to hear Greg for the audience, just a little bit about your current law practice.
[Greg] Sure. Today my practice is primarily a health care transactional and regulatory practice. I represent doctors, group practices, diagnostic and therapeutic providers, and third-party management and development companies that operate in the health care space.
Now some of them need a form, a new company, or prepare governing documents, some need general contract preparation or negotiation, some need legal assistance buying, selling, or merging with other companies. But a lot of my practice is devoted to people who are contemplating a business arrangement in the health care sector.
And as you guys know, health care is a very heavily regulated industry. So often my clients need help navigating state and federal health care laws to ensure that their proposed business model doesn’t implicate fraud and abuse laws and expose them to criminal or civil liability.
[Brad] Yeah. And Greg, as we know that this practice area that makes it up, everything that you just said there is what we do. So you’re such an awesome fit for the firm. So we’re really excited that you’re here and be able to join us and bring all your expertise with you. But, since you are here and we’re discussing dumpster fires, I’m going to guess that you have a story today that involves navigating, see how I use that word Michael, navigating after all the iceberg talk.
[Michael] Really smart there, dad.
[Brad] Yeah. Navigating the health care arrangements to make sure clients don’t run a foul in existing health care rules and regulations.
[Greg] That’s exactly right.
[Brad] Yes. Good. But it wouldn’t be a dumpster fire if something didn’t go wrong. So, Michael.
[Michael] Yeah, as a great way to jump into today’s story. As we mentioned earlier in this episode, dumpster fire stories don’t always have a happy ending.
In fact, really, it’s just a matter of how bad the ending is. We know it’s not going to end well. And, you know, a lot of times when we’re brought in, it’s just managing how hard that ending is, how much damage there is after the fires put out. But there are pearls of wisdom. We can take from these stories.
Greg, you’ve been doing this for 25 years now. And so you’ve probably seen more than a few dumpster fires. What story do you have that we can learn from today?
[Greg] Well, several years ago, when I had just started my own health care boutique, I got a call from a physician that I’d never worked with before now.
A few of his doctors were members of a large group practice, but they had decided to split apart from that group. And one of their own group practice starting a group practice is no small task. So over a several month period, I worked closely with this client on a bunch of different legal matters.
I helped them navigate the terms of their departure from their existing group. I helped them form a new group practice and develop operating agreement and employment agreements for their staff. I helped them with their managed care contracts with insurance companies to get paid for providing services.
I did a number of things over a few months for him and really developed a close relationship with him. You know, we kept in pretty close contact for several months, talked occasionally, I’d worked with them, I’d go to their board meetings even. But over time, and I’m sure you guys see this with your clients, once the business operations settled down and there was no real obviously need for legal services. My communications with them became a little less and less frequent. I’d reach out to him every now and then to see how things were going. I grabbed an occasional lunch with them or send them an article that I thought might be of interest to his company, but they didn’t really seem to need any legal assistance.
They seem kind of like they were on autopilot.
[Michael] Makes sense. And, you know, I always use this analogy on how clients, and businesses use their attorneys. It’s kind of like how people go to the doctor and they kind of fall in a couple of different buckets. You have those who have a wellness plan. They go proactively to the doctor to make sure that they’re healthy and you have those who go to the doctor only when they’re sick.
And as we all know with doctors in our family and having represented doctors for twenty-five years, they literally go to the doctor when they’re sick and they tend to translate that over into how they use their legal counsel.
[Greg] I totally agree. You know, and in this situation, a few years passed and I really hadn’t had any close contact with this client.
And then one day I got a call from him asking him to meet. And what had happened was his group had received a termination letter from an insurance company that they had a managed care contract with. They were being terminated because the group had been performing surgical procedures at a hospital. That was out-of-network for the insurer.
[Brad] Okay, Greg, I think we have our first vocabulary word of the day for our audience. Who’s NEF, middle familiar with all these medical terms? What is the term out-of-network?
[Greg] Well, in the health care insurance world and out-of-network provider is a health care provider or a facility that does not have in place a pricing contract with the patient’s health care provider. And because the insurance and the provider have not negotiated at a discounted rate, the cost of services provided by an out-of-network provider to a patient are way more expensive than the same services. If they were provided by an in network provider.
Now, my client was performing surgeries on patients covered by this insurance company at a hospital that was out-of-network to the insurer. And as a result, each of those procedures cost the payer tens of thousands of dollars over what it would’ve cost if they’d been performed at an in-network provider. Now, it wasn’t a major insurer. It wasn’t like United or Blue Cross, or someone that covers thousands and thousands of lives, but it was a meaningful insurance company for a small group practice. So if this insurance company canceled its contract, it would be a definite financial hit to the client. My client had told me that they’d received a first letter from this group, kind of a warning letter. But they kind of tucked it away, forgot about it, moved on and didn’t really respond to it or that before.
[Michael] I’ve heard that before.
[Greg] Well, I asked my client why the group, and this was kind of my threshold issue. What was the motivation to use an out-of-network provider? It’s very expensive. Uh, sometimes there’s good clinical reasons. And in this case, there were, he told me that the specific procedure that they were performing was used with state-of-the-art robotic equipment and that this particular robot was only available at two facilities in their service area.
Now the other location where the robot was available was in network, but the group’s doctors didn’t have clinical privileges at that facility. So they couldn’t really send patients there and perform procedures there. Now my client said they could have performed a more traditional, non-robotic procedure at an in network hospital.
But the physicians felt clinically that the robotic procedure would be shorter and simpler. The recovery time would be shorter and that it would have fewer potential patient complications. So they felt clinically that the choice of the robotic procedure was better. And the out-of-network hospital was the right decision.
[Brad] Make sense so far.
[Greg] Yeah. You know, I thought so too. And the group’s decision was well-reasoned, but you couldn’t really avoid the fact that the financial cost of the insurer was enormous now, you know, Insurance companies discourage the use of out-of-network providers. Principally by increasing patient obligations, the patient copay and the patient deductible are way higher when you use an out-of-network provider than an in-network.
[Michael] I think most of us have gotten that bill in the mail before.
[Greg] Or we’ve at least compared the cost and decided to use an in network provider. And, I asked the Doctor. I said, you know, were the patients okay? Because you know, if you look at it, the patients were going to pay thousands and thousands of dollars more to be going to this hospital.
And the doctor said the patients had told him that they’d had discussions with the hospital regarding the procedure and their obligations. And they felt comfortable that they were never going to be charged for him. So they had no problem simply agreeing to go get the procedure performed that they had a network hospital now.
[Michael] That raise a little bit of a warning in my head, the little ding in my head when I heard that first red flag.
[Greg] You know, a lot of people don’t know this, but a hospital or any provider is not supposed to waive patient copays and deductibles for out-of-network procedures. That’s the insurance company’s protection against abuse by using out-of-network procedures. Otherwise group practices would send all their patients at a network where the reimbursement would be massive and they make more money on all procedures. So that’s kind of a check and balance it’s that issue, but you know, it wasn’t my client that was waiving copays and deductibles. But I was a little concerned that this kind of light looked like a little bit of an arrangement and the routine waiver of co-pays and deductibles without cut notice and consent of the patient does violate insurance law. My client wasn’t aware of that and my client, I don’t think it was any part of a structured arrangement, but I was just beginning to get a little concerned about the business relationship between my client and that out-of-network hospital.
[Brad] And I think, as Michael has noted, you know, no collection of copays and deductibles, no one noticed the insurance. I think if we’re this is that movie, the omnious music would start kicking in and the audience might see way off in the distance just some ice top for the water.
[Greg] If you work with most reputable or well-known larger health care systems, they probably wouldn’t do something like this. And they also probably would have a contract with the insurance company. So I kind of wondered what this hospital was and a doctor told me. I looked it up on the internet, just kind of Googled it, and it had a real bare bones internet presence.
It didn’t look like it was doing a lot of marketing off of that website. You know, I like to go to people I work with and see who’s the leadership, what do they do. Do I recognize them? Do they have in-house counsel? No, none of that information was really available to me on the website, but it was very clear that it was a physician owned hospital.
And you know, that was, I wouldn’t say it’s a red flag, but I mean, it did catch my attention because this was about the time when physician owned hospitals were becoming very prevalent. CMS and the OIG were really just catching up in identifying in their work plans and making a focus of their compliance efforts, physician owned hospitals and their relationships.
[Brad] And just for our audience to understand, Greg’s basically saying the federal government has really taken a strong eye and look as to what’s going on here with these physician owned hospitals.
[Michael] And I’d say too, just as the least regulatory guy on this episode, the way my simple mind thinks of it is: if you have a doctor who’s getting paid by the insurance company or the patient and the hospital who’s also getting paid, and that doctor has ownership in the other side, there’s just a lot to unpack there. And that’s where the law comes in for certain.
[Greg] Exactly. So, you know, I asked my client, do you have an ownership interest in this hospital? He said, no. But then he offered that they had submitted paperwork recently, or actually about nine months prior to become an investor, had subscribed for the purchase of an interest.
And they were hoping to be admitted at the hospital’s next quarterly board meeting. So we discussed that briefly, the nature of his interest, how he learned about it. And he told me that his group had been under consideration as a new investor for about eight months. And that during this evaluation period, his group was submitting monthly reports to the hospital. Telling the hospital all the surgical procedures that were being performed by all of the doctors on his group practice and what facility they were being performed at.
He thought this information was going to be used either to evaluate his admission as an investor, or if he were admitted, how big of an ownership interest they were going to give them.
[Brad] Again, scary music starts playing now.
[Greg] Yeah. I mean, if you’ve done this for a number of years, you start getting that feeling when they’re walking down the path of that it’s heading somewhere where it’s going to be a little uncomfortable. And I was beginning to get that feeling, you know? I asked him if he had already written a check to subscribe, and it’s not unusual at all to pay the funds that you hope you would be using at the time.
And my client told me that he had put a 50% down, 50% of the purchase price. And that while his investment documents didn’t state this on their face, the group told us or the hospital had told him informally, that if he were admitted they would probably be able to finance the remaining 50% at a distribution that the hospital would make after he were admitted.
[Michael] I’m starting to sweat a little bit.
[Greg] I know. I know. And when I asked him how I heard about the investment, he said he had, you know, several of his friends that he practices with were investors and just told them that the returns were phenomenal. That it was just extraordinary, and hey he had to get in. So that’s why he had pursued it.
[Brad] This reminds me of when my parents were like, so if your friends jump off a bridge would you jump off too? And of course I always said, well, yeah. But this is what it is starting to sound like, Greg.
[Greg] When you hear all these facts, one in a row, one after another, I think he probably saw my face drop a little. It’s funny because before I really had a reaction or vocalized anything, he kind of looked at me, and he must’ve seen the look on my face because he said, “Hey, Greg, don’t worry. I’m not sending any Medicare patients to that hospital.”
[Michael] So first of all Greg, I don’t remember us learning about the ‘everybody else’s doing it defense’ in law school. And secondly, we have all heard the second thing that he proactively told you: no federal patients. The follow-up idea is you can do whatever you want if you’re not taking federal money, and of course we all know that we should be on full alert at this point.
[Brad] In health care we always talk about spotting red flags. I think in this case to us, this hearing this story is like staring at a car dealership sized red flag that can be spotted miles away, but I guess he didn’t see it.
[Greg] I agree. And Michael, you bring up law school. I felt like it was a law school exam for me to issue spot on health care issues. So, you know, the good news was that my client was not yet an investor in this hospital. I mean, the bad news was almost everything else. The stark law generally prohibits physicians from referring to entities they own an interest in, but there’s a well-recognized exception for physician owned hospitals. I felt like it was probably pretty easy for this ownership to fit into an exception, but they had a kickback statute. The state and federal anti-kickback laws are completely different and they have criminal exposure. There’s a small investment safe harbor under the anti-kickback statute for this kind of an ownership interest, and the OIG had actually even put out a recent bulletin on suspect characteristics of physician joint ventures with hospitals and other developers. It identified the kind of characteristics they see in typical investments like this that raised their concern.
And among that suspect criteria was choosing investors based on their ability to generate referrals, making decisions on the size of the investment based on referrals, loaning money to physicians to make an investment interest, unrealistic returns on investment. I mean, almost everything my client had told me in this brief meeting was on the list of things the OIG said.
[Brad] Yeah, all giant no-nos.
[Greg] I also learned, as part of my conversation with the client, that in connection with their decision to make this investment they had intended to relocate their clinical offices. They had told their existing landlord they were moving out, and they were moving into the MOB or the medical office building on the campus where this hospital was located and even told me that he was thrilled to do it because the lease was long-term and the rent was way cheaper than he had it in his existing space.
[Brad] Another red flag.
[Greg] Well, and I’m not a real estate expert. I don’t appraise, but obviously, a below market lease between a physician and an entity to which you refer is a stark violation. It creates anti-kickback concerns. I didn’t know it was below market lease, but it sounded like it could be in connection with everything else I heard.
It was just one more straw on the camel’s back, so to speak. You hear all this and I kind of had to step back for a minute. The reason my client called me, was he had a contract with a payer that the payer was going to terminate and he wanted me to salvage it.
I sit down in his office and I start talking to him about his investment, and I ask him a bunch of questions. Now I’m talking to him about something that is totally apart from what he wanted to talk about. And you know, in the course of an hour fact gathering, he’s got a referral relationship with a hospital. He’s got a below market rent. He’s got all these things and this was really concerning to me. His group had never done a hospital investment before. This was all new territory for them. They hadn’t sought any legal counsel as part of their evaluation, and none of those things were on his radar.
So what I did is I said, “I know your initial focus was this insurance contract, and we’re going to handle that. But I’m really concerned about your group’s relationship with this hospital. And with your permission, I’d like to dig a little bit deeper. Maybe have a conversation with that hospital about the nature of this investment and what they’re doing, and just to kind of keep you in safe territory on that.” I could tell he was a little frustrated when that’s the direction I wanted to go in because I think he felt like I was going down a rabbit hole and he was going to be paying for it.
Fortunately though, he did trust me enough to authorize me to make the calls that I asked him to make. He gave me the name of the contract administrator or the administrator of the hospital to contact to have a discussion. And I read the name of it and it was like my stomach kind of sank a little bit because I knew the administrator very well.
I actually had a previous occasion to work with this administrator with another physician in a not dissimilar situation.
[Michael] Yeah. I mean, I can see the red flags mounting and I’ll just reinforce what you said Greg. With what we do, we often have doctors ask us what they perceive to be one certain thing, but because everything is so interconnected in health care, there often is layers behind that we have to look at it. So good for you to do that. You’re able to get him to, give you permission to keep digging.
[Greg] I was glad he was willing to give me that latitude, but going back to that administrator, it’s kind of funny because you guys have done this for years and when you hear the name of someone that you’ve worked with in the past and you know that they’re a key person in a deal that you’re doing now, you have an immediate visceral reaction. It’s either a very positive; “excellent” this is going to go well, or it’s an immediate negative “this guy again”. This was kind of, I would have to say unfortunately, more of the latter. Probably not surprising based on what I’ve told you.
I live in this space. I really like to feel like over my years of practice, I’ve developed skills for finding ways to accommodate a physician or my client’s desire to do a deal. I like to find compliant ways to allow for things to happen when other people may not have been able to. And I work hard to find solutions and I’m really disappointed when I can’t or when I raise objections and I’m not able to solve for them.
But the only other time I’d ever worked at with this administrator on a deal I met with him. This administrator had a deal that I thought was on very shaky compliance ground. And when I pointed out to him the concerns I had and even offered some alternatives to try to restructure the arrangement in a way that would be suitable from a compliance profile objective, this administrator had no interest in learning about my concerns in ameliorating my concerns or in mitigating my concerns. I remember going back and calling my client and I didn’t tell him walk away from this deal. I told him to read it as fast as he could.
So I was just a little concerned with what might happen here, but I tried to keep an open mind. I did call the administrator to set up a call. He didn’t remember me. And I asked him, I told him it might be good to have his counsel present for the call but he told me that wasn’t necessary.
We discussed the out-of-network. We discussed the waiver in the copays. We discussed the out-of-network procedures. We discussed the investment. Generally the kind of the business of the hospital, who else owns it, what they do, the terms of the particular investment and how they were evaluating it. And I guess just to cut to the chase after about 45 minutes to an hour with this administrator, I knew exactly what I needed to know to have a follow up meeting with my client.
[Michael] Wow. I think the only element here that may have been hopefully a saving grace for your client, was that your client was not already getting healthy distributions from the hospital because that usually really clouds their judgment. But it sounds like this all started out as a simple request, but it kind of snowballed into a whole lot of compliance issues to unpack. We’ll discuss how Greg approached this dumpster fire on the other side of our break.
[Access+] Many business owners use legal counsel as a last resort, rather than as a proactive tool that can further their success. Why for most, it’s the fear of unknown legal costs. ByrdAdatto’s Access+ program makes it possible for you to get the ongoing legal assistance you need for one predictable monthly fee. That gives you unlimited phone and email access to the legal team, so you can receive feedback on legal concerns as they arise. Access+, a smarter, simpler way to access legal services. Find out more. Visit https://byrdadatto.com.
[Brad] Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto with my cohost Michael Byrd. We’re back with our law partner Greg Cardenas who just told us a story of how a seemingly simple decision about where to perform a surgery can unearth a host of potential compliance problems this unaware physician may have no idea existed. Much like the iceberg that sunk the Titanic, they never saw it.
Greg, you had a lot of issues we worked through. As you were kind of telling the story, we were able to kind of start seemingly hit some of those red flags. But my first question to you is, as you were sitting there visiting with your client and going through all these issues that you’re spotting, how did they react when he was not aware of any of them?
[Greg] Yeah. You know, that’s a good question. And I felt fortunate that in this case I had a previous business relationship with the client where I’d helped them with a lot of other matters and they had gone well, and I built up some mutual trust and respect. So, when I mentioned to him in this particular case that there were aspects of his relationship with the hospital that he didn’t notice but that concerned me, he trusted my judgment enough to let me investigate.
[Michael] I know it can be frustrating when a client asks for help on one thing kind of, as we’ve been talking about, and then it kind of unfolds into needing to look at other things and I think it’s the why trust in the attorney client relationship is so important, especially in health care because there has to be perspective from the client that we have their best interests at heart.
And of course, without side baring us too much, we’ve talked about how we charge here at ByrdAdatto often so that we can create that alignment so that they don’t feel like there is a financial distance in it, but even with the hourly system- as long as there’s trust there, it can be fine. Often in health care there is more to it than what meets the eye.
[Brad] And I know we’re going to dive deeper into this, but I think what I love about this story so far Greg is a lot of younger attorneys would have just done the one thing they were asked to do. And to be an actual good attorney, you’re counseling your client through all matters and you’re looking at the map of the bigger picture every single time you’re meeting with them to make sure that each piece aligns. So this is why I’m enjoying this story so much, but Greg as you told us there are four or five red flags at least that I counted, how were you able to then go with your client and address each one of them?
[Greg] My strong belief in situations like this, where they are complex and there’s a lot of interrelated or unrelated matters, is one step at a time. I had a follow up meeting with my client and I told him, “look, we need to address two main items: the one you asked me about initially the insurance contract; and then two, your agreement with and potential arrangements with your hospitals.
So we started off with the insurance contract and I told him that while his group had valid clinical reasons for choosing to perform the procedure they did at an out-of-network facility, the factories group didn’t have privileges there. And the fact that it costs a whole lot more money than the in-network procedure was going to frustrate the provider.
And I also added that while the hospital’s decision to weigh facility copayments was not his group’s issue, if this fact influenced the group’s decision to make referrals or if it influenced the patient’s decision to accept it, and if in fact no one ever paid for those copays and deductibles, then all of those people could have potential exposure under Texas insurance law.
[Brad] And I would also add, we’ve seen it with the medical boards where the medical board sees something like this, they think it’s unethical and unprofessional even though they don’t really understand the typical things that you and I would analyze and the anti-kickback or stark law. They just sometimes think- hey, that’s not right.
[Greg] I guess the other thing is that then you got to overplay that over the generalized, you know, all these facts are kind of exacerbated by the fact that he’s considering becoming an investor in the hospital that he’s making this referral for these really really expensive out-of-network procedures too.
And you know, those were not facts known by the insurer. The insurer doesn’t know he’s considering an investment. The insurance probably doesn’t know about a waiver of copays and deductibles. They probably assume everybody’s following the law and doing what they’re supposed to do. But if a third party did know those things, it would most definitely influence their perspective of why a group was making referrals in the patterns and it was making it.
So I told them that that was something that really needed to be concerning to him and we needed to address it. So what we discussed was a plan of action for communicating with the payer to explain clinically why the referral was supportable and made sense, but recognizing the financial harm it was causing. You know, sympathizing a little bit with the insurer for their position and perhaps making agreements about what they do in the future with respect to these. And putting some processes in place that we can implement to give the insurer some concern that they’d have some advanced notice, some ability to discuss this with a patient so that it wasn’t going to be a surprise bill at the end of the month.
I also recommended to my client, just to help bolster their own compliance profile, that his staff conduct some training about discussions with their patients on waivers of copays and deductibles. Generally, while there are certain circumstances in which you can waive copays and deductibles, and there are certain circumstances in which you can write off copays and deductibles after attempting to collect them, those rules have elements that you ought to satisfy by having some training with the staff to show that you’re trying to do the right thing.
My goal was to assure that payer that while there were valid reasons for their choice, the group recognized hardship and were willing to work with the insurance to get to a middle ground that works for them.
[Michael] Wow. I want to compliment you too, because on the one hand you take it one step at a time, but I liked the way you unpacked this and communicated it to the client as two big issues. We just heard you talk about several issues in the first bucket, which is the insurance issue. But it does seem like it’s a little bit easier for a client to bite off; Okay, here’s the one you asked me about, and now here’s the other issue that you didn’t ask me about and you kind of pack all those issues into one, that bucket of conversation. So talk to us about what was your conversation like on the hospital?
[Greg] Yeah. Yeah, it’s funny because, you know, again, he asked me about the insurance contract. It’s very clear when I got there that what I was really wanting to know about was that hospital investment. So, I just had to be, unfortunately, very Frank. I mean, I had to speak my mind and I told him, I knew this was not why he called me, but I had very serious concerns about the investment interests he was considering.
I was concerned that the reports that he was submitting to the hospital and that the hospital was using to evaluate his candidacy work were probably across the line. Not the kind of things you’d want a record of a hospital considering in connection with its decision on your investment.
I thought the financial terms of your investment, specifically, that they’d loan you the pros investment amount and take it out of later proceeds- that’s a risk trait in Bolton’s and in the safe Harbor. I told them the fact that extraordinary returns were likely not necessarily in and of itself a problem, but the other fact that the OIG and that CMS will look at. I told them that again, I wasn’t finding a real estate expert but that the financial terms of his proposals and his moving into the MOB where he would refer physicians to the hospital that owned the MOB, that that was a little concerning and that created stark law problems which are strict liability. Those aren’t even intent-based.
And so all of these things together, I told him, really credit a lot of issues that you would have to really get a comfort level from an administrator from a hospital to feel like they had looked at these things and had adequately structured and built in safe guards to insulate you from any kind of real compliance risk.
And then I told them that I had that conversation with the administrator. I was looking for that comfort. I was looking for those safe guards, but unfortunately I got none of that. I told him that, you know, the administrator seemed very uninterested in identifying compliance concerns and he had absolutely no interest in restructuring, a business model that he felt was working for him just fine.
I guess in summary, I told him that the hospital’s proposal just had an extremely high risk profile. And that while I understood that he wasn’t sending Medicare patients to the hospital and that I suppose it in one sense that would mitigate a particular risk associated with that particular provider, it did very little in my opinion to reduce the overall risk. I just couldn’t in good conscience recommend him going through with it.
[Brad] We’ve talked about this in other episodes, but you know when you are trying to figure out your risk tolerance, that your conversation with them is, yeah so maybe the federal government doesn’t show up but you still have state laws to worry about. And at the end of the day, I always go back to, hey you worked really damn hard to get your medical license and you got to keep that medical board happy to how would they view this arrangement? And we know that it’s not like they kick down the doors and ask for it, but when an angry partner leaves or a patient reports, that that’s how these things come to light. And we’ve unfortunately seen those fights where we have people, the medical board saying, hey, you violated a stark law. And we’re like, well stark doesn’t apply yet to educate the medical board, but no one wants to see that investigation open.
[Greg] I agree. I agree. It’s hard to backpedal from that kind of stuff. So, and the other thing is, you know, that we’re talking about compliance, but just from an economic and a business perspective, I mean, my client put a lot of time and effort into that. You know, he found that deal. He approached the administrator, he convinced them to consider and he was on the cusp of making extraordinary returns. Yeah, might’ve been life-changing for this guy, in his opinion this was a great opportunity for him. And then his lawyer comes in here and finds all the problems and tells them what a bad idea is. You know, it’s not the kind of thing your client wants to hear.
And to add on top of that, these guys were prepared to move. They’d already notified their landlord. They terminated their lease state. They were assuming another lease. They were ready to move. Lots of plans, lots of sweat equity and lots of labor intensive and lots of costs. We spend a good bit of time, we talked about the stark law, we talked about the anti-kickback laws. We talked about the rest of his business, you know, his personal appetite for risk, whether he could speak for his group practice members in assuming that risk, you know? And so at the end of the conversation, uh, you know, it was kind of a somber ending, but he told me that he really needed to meet with his group practice team and that he’d get back to me.
[Brad] If this was a typical TV drama, we’d say, and we get to come back with the results next week. But since it’s not a TV drama, Greg, what were the end results?
[Greg] Well, you know, he called me just a couple days later and he told me that his group had agreed to withdraw their subscription and was no longer going to be considered as an investor in the hospital. They did give him a 50% deposit back, but his lease at the medical office building was contingent on him being admitted as an investor. And, unfortunately, they weren’t willing to either entertain that lease anymore or even negotiate a different right. They canceled that lease and my client understood that. So, he found himself with no investment and no medical office building to move to.
Now, fortunately, we were able to contract the current landlord and they had actually released the premises, but they hadn’t begun any real build-out or schematics or anything like that. So he was able to convince the new tenant to move into another available space, but at a financial accommodation, and we were able to wrap the lease and extend it. But there were penalties. So it costs a lot of money to actually stay in their own place. So that’s what happened with the hospital situation.
Now as for the payer contract, those things don’t resolve themselves overnight. You send a letter, they think about it and weeks go by and you get another letter and you negotiate. Over time, we were able to negotiate an arrangement in which the insurer would continue to contract with our group practice. But unfortunately, they really used it as an opportunity to extract a level of reporting and oversight, consent and price reductions that I thought were way more than our physicians needed to have to accept and probably in a normal circumstance wouldn’t accept.
It was really up to my group practice to determine whether the beating they were being asked to take was worth continuing to serve the patients that were served by this insurance company. Ultimately the group decided that it just wasn’t something they were willing to do, so they terminated that contract and took a hit because they lost those patients.
[Michael] Wow. With dumpster fires, as we kind of talked about at the beginning, once the fire started you were able to put it out and really the outcome was less bad than it could have been. Because I mean, this had potential for jail time as a worst case scenario, or using our iceberg analogy- the ship didn’t sink. But it did take a water and definitely suffered some damage.
[Greg] It did. I mean, that’s a fair assessment. They lost a payer contract, very unfortunate, and that probably could have been avoided had they responded quickly to the first letter they got. They lost a promising financial arrangement, but frankly it was one they never should have been considering in the first place. And had they considered it, had they submitted, had they been in, they probably would have faced criminal and civil penalties. They lost the lease. Fortunately, we were able to find them a new space, but it didn’t come without some costs.
So we protected the group and we salvaged some of these items, but they had to pay a lot more in legal fees to address these things on the backend than they probably ever would have had.
We had ongoing conversations about these items over time. I consider it a success, but it wasn’t without costs. It really, really drove home, by the way, you know, that something that we say a lot, which is an ounce of prevention is worth a pound of cure.
[Brad] Yeah, no doubt. We talked about lessons learned, Michael, in the beginning of this podcast and there’s a lot of lessons I think we can all take out of this. And going back to our iceberg and ships, and it was not lost on me, so let’s go back there. The ship hit the iceberg because they didn’t have the investment tools. Just like they needed the right radio and radar and everything else that they didn’t take those tools that they needed to help minimize the risk. They were traveling and uncharted territory, and it was just not known to them all these different risks. And then they went into risky waters because there was so much money to be made there and they just thought it was okay because others were traveling in that water. So the risk was, in their mind, worth the reward.
[Michael] Yep. Definitely sounds familiar.
[Brad] Yeah, it does. And it seems like this is the type of discussion that, when it comes to icebergs and collisions and oceans and dumpsters fires, it definitely fits nicely in the health care world.
[Greg] You know, and I do kind of want to say, I don’t know the ships but I do know my physician clients and these guys want to do the right thing. I mean, I know I still have an ongoing relationship with a lots of these clients that find themselves in these positions and they want to do the right thing. They’re committed to doing the right thing. I was absolutely certain in this case that this group practice was not trying to skirt the law.
They weren’t. They weren’t trying to run a foul. They just didn’t know. They weren’t aware of this. They hadn’t done this before. They wanted to do the right thing, but after a while it became so automatic that things were going fine and legal bills are expensive and nobody wants to talk to lawyers when they don’t have to. So it just didn’t seem like a necessary component of their overall business.
[Michael] They didn’t know what they didn’t know. And, to add to that, I think that it’s stories like these and lessons that can be learned in health care in particular, but even in running a business, choosing the “wellness plan” and being proactive can save you so much time, money, and obviously the dumpster fire type consequences. We talk about this, we talk about health care law being complicated. We’ve had several episodes, in fact we had one episode in particular saying Don’t Be a Lone Wolf. It’s just, they’re busy practicing medicine and whatever specialty they have, how could they possibly know these legal obstacles that are out there?
[Greg] I totally agree. And just having the opportunity to speak with these clients occasionally, informally asking about their business, is really helpful and just kind of understanding the kind of things are facing because had I been brought in at the beginning of these things, I really feel like we’d have avoided this stuff with a whole lot less heartache, frustration and cost.
[Brad] Well, Greg, thanks for joining us today and sharing your dumpster fire story with us. And, for next week we will have another attorney joining us, Sarah Wirskye. Which Greg, if I remember correctly, you actually hired her a long time ago.
[Greg] Actually we worked together for several years when she was a young attorney when I was at a different firm. She is fantastic.
[Brad] Well we are excited to have Sarah join us as another guest next week. She has an incredible background, which I can’t wait to share with the audience. And more importantly, I know she’s got some great dumpster fire stories.
Thanks again for joining us today. And remember if you like this episode, please subscribe. Make sure to give us a five star rating and share with your friends. You can also sign up for the ByrdAdatto newsletter by going to our website at https://byrdadatto.com.
[Outro] ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. References to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues.