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According to the 2016 Kaiser/HERT Employer Health Benefits Survey, the average annual premium for employer-sponsored family health insurance coverage in 2016 was $18,142 – representing a 20% increase since 2011 and a 58% increase since 2006.  As the cost of healthcare coverage has continued to rise dramatically, patients are seeing a reduced level of personal care.  The average wait to schedule an appointment with a doctor in the United States is 24 days – up 30% since 2014.  Meanwhile, physicians report that they spend, on average, only 13 to 24 minutes with a patient and of that time, approximately 37% of it is spent on EHR and other administrative tasks.

 

In 2010, the Affordable Care Act imposed a requirement that most Americans have insurance coverage.  But it also identified direct primary care as an acceptable option.  Whereas concierge and direct-pay medicine had once been limited to a very wealthy consumer base, it was suddenly poised to hit the mainstream.  And it can be a win-win for both physicians and consumers – physicians have the potential to devote more time to each patient and less time to paperwork, and consumers can pay for faster, more personalized attention from a physician instead of paying the pricey premiums now charged in the market for traditional insurance coverage.

 

But is concierge medicine right for every physician?

 

  1. Do you want to continue to participate in Medicare? If so, you will still be required to bill Medicare for your concierge patients and will not be able to charge Medicare patients extra for Medicare covered services.  Nor can you charge a membership fee (aka an access fee) that includes extra charges for services Medicare usually covers.  (The exception is if you do not accept assignment, in which case you can charge up to 15% more than the Medicare-approved amount for a Medicare covered services.)  If Medicare usually covers a service but will not pay for it, you must still provide the patient with an ABN.  And even if you do choose to opt out of Medicare, give extreme care to following the proper procedures or you could be subjected to substantial penalties.

 

  1. You still need to price services at fair market value. Even if you opt out of Medicare, providing “free” services because they are included in the access fee could run afoul of state anti-kickback laws.  Obtain advice regarding your state laws before setting your contract, and set a fair market value at which you provide each service.

 

  1. Check with your state to make your concierge/direct-pay contract is in compliance. Some states – including New York and New Jersey – have questioned whether these arrangements are deemed to be the practice of insurance but even where they are not, certain provisions of state insurance law could apply to your contract.

 

  1. Termination of existing patients. You can expect attrition by many, if not most, of your existing patients when transitioning from a traditional practice to a concierge or direct-pay model.  You will need to comply with state laws and ethical rules with regard to finding alternate care.

 

  1. Compliance with HIPAA. To the extent you are not participating in insurance or Medicare, you might not be a “covered entity” under HIPAA; however, there are many state privacy and confidentiality laws that you will still be required to comply with.

 

In some instances, transitioning to a concierge or direct-pay business model could be a win-win for both doctors and patients.  However, there are many legal issues that require careful consideration as you set up your practice.  There are many consulting firms that specialize in planning this transition, and a good attorney can help you avoid any pitfalls and ensure compliance with all applicable laws and regulations.

On June 14, 2017, the Sixth Circuit Court of Appeals in Breckinridge Health, Inc., et al. v. Price affirmed the district court’s finding that HHS could offset the amount of a hospital’s Medicare reimbursement by the Medicaid Disproportionate Share Hospital (DSH) payments received by such hospital.  In its decision, the Sixth Circuit followed the holding of the Seventh Circuit Court of Appeals in its 2012 decision in Abraham Lincoln Memorial Hospital v. Sebelius, where the Seventh Circuit, under similar facts, came to the same conclusion.

 

Breckinridge Health involved various Kentucky Critical Access Hospitals that, as part of Kentucky’s contribution to the DSH program, must pay a 2.5% tax on their gross revenue (the KP-Tax).  The revenue from the KP-Tax is then deposited into the Medical Assistance Revolving Trust under Kentucky law.  Funds from the revolving trust are then used to fund, in part, the DSH payments made to Kentucky hospitals.

 

The hospitals in this case had historically sought and received reimbursement under the Medicare Act’s reasonable cost statute for the full amount of their 2.5% tax payment.  However, for 2009 and 2010, full reimbursement was denied by the Medicare Administrative Contractor.  Instead, each hospital’s tax costs were offset against the amount of Medicaid DSH payments such hospital actually received.  This decision was upheld by the Provider Reimbursement Review Board and later the Administrator of the Centers for Medicare and Medicaid Services and, finally, the district court.

 

In affirming the district court’s decision, the Sixth Circuit relied on the Seventh Circuit’s rationale in Abraham Lincoln Memorial Hospital.  There, Illinois hospitals paid a tax assessment to the state as a condition of participation in Medicaid “access payments.”  The Seventh Circuit found that the tax assessment was a reasonable cost eligible for Medicare reimbursement.  However, because the payments the Illinois hospitals received from the fund were meant to reduce expenses associated with participation in the program, including the expense of paying the mandatory tax assessment that is a condition to participation, the set off was appropriate because the net economic impact of the access payments must be considered in calculating the reimbursement.

 

Applying the Seventh Circuit’s rationale, the Breckinridge court reasoned that “[b]ecause the DSH payment [the hospitals] received derived from the fund into which the [hospitals’] KP-Tax expenditures were placed, the net effect of the DSH payment is to reduce, at least in part, the costs [the hospitals] incurred in paying the KP-Tax.  Therefore, it constituted a refund notwithstanding the fact that it was not labeled as such.”  In other words, by receiving a return of the economic value of their KP-Tax payments through the disbursement of revolving trust funds, the hospitals essentially had already been reimbursed for their KP-Tax payments and such costs were not eligible to be reimbursed again under the reasonable cost statute.

 

In affirming the district court’s judgment, the Sixth Circuit made clear that the standard of review is to give the judgment of HHS controlling weight unless it is “arbitrary, capricious, or manifestly contrary to the statute.”  However, through its detailed review of HHS’s decision, the Breckinridge court bolsters the rationale arguably justifying the expanding view that DSH payments can properly be set off against the reasonable costs of participation.