1. Transforming the Business of
Oncology through Science and
Technology

2. Adria Warren
Foley & Lardner
awarren@foley.com
Tynan Olechny
PYA
tolechny@pyapc.com
Curtis Bernstein
Pinnacle Healthcare Consulting
cbernstein@askphc.com
Oncology Business Transactional Issues –
At the Point of Transaction and Over the Life
of an Affiliation

3. Adria Warren
Foley & Lardner
awarren@foley.com
Fair Market Value –
Why It Matters

4. Page 3
Fair Market Value
In the healthcare context,
-- FMV is generally defined to mean FMV for actual and
necessary items furnished or services rendered, based upon
an arm’s length transaction, and without taking into account,
directly or indirectly, the value of volume of any past or future
referrals or the ability to influence the flow of business
generated between the parties. (70 Fed. Reg., 4858, 4866
(2005))
-- Commercial Reasonableness is generally defined to
mean a sensible, prudent business arrangement from the
perspective of the particular parties involved, even in the
absence of referrals (69 Fed. Reg. 16093 (2004))

5. Page 4
FMV – Why It Matters Regulatory Framework
Federal Anti-Kickback Statute
Federal Stark Law
False Claims Act
Civil Monetary Penalty Law
Tax Exemption Issues
 Private Benefit and Private Inurement
 Intermediate Sanctions
State Laws

6. Page 5
FMV – Why It Matters Anti-Kickback Statute
Prohibits knowing and willful offer or receipt of
remuneration intended to induce or arrange
for referrals of business paid for by
Medicare/Medicaid programs
 Civil monetary and criminal penalties
 CMP of $50,000 per violation
 Criminal penalties: $25,000 per violation
and/or up to five years in jail
 Exclusion

7. Page 6
FMV – Why It Matters Anti-Kickback Statute
 Any purpose test and problem of mixed motives
 ACA § 6402(f)(2): violation does not require actual
knowledge of AKS or specific intent to commit a
violation
 ACA § 6402(f)(1): claim for items or services resulting
from AKS violation constitutes a false claim under the
False Claims Act
 Safe Harbors provide immunity
 Safe harbors are not required
 Many safe harbors require FMV and commercially
reasonable remuneration

8. Page 7
FMV – Why It Matters Anti-Kickback Statute
 Is the purchase price a disguised kickback from the buyer
(overpayment) or seller (underpayment) to induce post-
deal referrals?
 Valuation may help negate an adverse inference of
improper intent
 To the extent that a payment exceeds FMV, it can be
inferred that the excess amount over FMV is intended as
payment for the referral of health-program business.
U.S. v. Lipkis, 770 F.2d 1447, 1449 (9th Cir. 1985)

9. Page 8
FMV – Why It Matters Stark Law
In general, if a physician has a direct or indirect financial
relationship with a DHS entity:
 The physician may not make a referral to that entity for the
furnishing of designated health services (DHS) for which
payment otherwise may be made under Medicare
 And the entity may not bill Medicare, an individual, or another
payor for the DHS performed pursuant to the prohibited referral
 "Designated health services" include all inpatient and outpatient hospital
services; lab; imaging; pharmacy; DME; radiation therapy; PT; occupational
and speech therapy; parenteral and enteral drugs, nutrients, and supplies;
prosthetics; orthotics; and home health services
 … unless a specific exception applies

10. Page 9
FMV – Why It Matters Stark Law
 $15,000 civil monetary penalty assessed against physician for
each prohibited referral
 DHS entity must refund DHS billed pursuant to a prohibited
referral
 $15,000 civil monetary penalty assessed against DHS entity for
billing for service rendered pursuant to a prohibited referral,
unless it can show that it did not have actual knowledge and did
not act in reckless disregard or deliberate ignorance of the
prohibited referral
 $100,000 civil monetary penalty for circumvention schemes
 Requirement to report to HHS financial relationships with
physicians upon request; $10,000 penalty for failure to report
 Potential exclusion

11. Page 10
FMV – Why It Matters Stark Law
 Strict liability/zero tolerance law
 Burden of proof is on defendant
 Violations are not remedied until referring physician/DHS
entity repays excess compensation or arrangement is
terminated
 Exceptions:
 Isolated Transactions
 Personal Services Arrangements
 Bona Fide Employment
 Rental of Space, Equipment
 Fair Market Value Compensation
 Indirect Compensation Arrangements
 Multiple exceptions have fair market value requirement

12. Page 11
FMV – Why It Matters Stark Law 2016
 2016 MPFS Nov. 16, 2015 – Helped reduce technical violations
 Clarifications:
 Existing policy
 Additional explanation where it appears stakeholders would benefit
from clarification
 New Exceptions:
 Assistance to a physician to compensate a non-physician
practitioner
 Timeshare arrangements
 Revisions to existing definitions, exceptions, and other rules:
 Signature requirement
 Unlimited holdover arrangements
 Renewing arrangements that qualify for the exception for FMV
compensation

13. Page 12
FMV – Why It Matters False Claims Act
 Permits private persons -- “relators” or “whistleblowers,” to
recover damages on behalf of the United States from, any
person who:
 Knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval;
 Knowingly makes, uses, or causes to be made or used, a false
record or statement material to a false or fraudulent claim;
 Conspires to [defraud the government]; or
 Knowingly makes, uses, or causes to be made or used, a false
record or statement material to an obligation to pay or transmit
money or property to the government or knowingly conceals…
avoids or decreases an obligation to pay or transmit money or
property to the government.
 Violations of the FCA are punishable by up to $21,583 per claim,
plus treble damages – more than doubled in 2016.

14. Page 13
FMV – Why It Matters Tax Exemption
IRC § 501(c)(3)
 Entities tax-exempt under this section must operate exclusively for tax
exempt purposes and not engage in compensation practices that result
in private inurement
 Penalties for non-compliance
 Intermediate sanctions
 Loss of tax exemption
 Many hospitals, health systems, academic medical centers are tax
exempt
 General guidelines
 Compensation to physicians should be FMV for services provided
 Total compensation paid should be reasonable for the market and
responsibilities
 IRC § 162 – “reasonable” compensation is the amount that would ordinarily
be paid for like services by like enterprises under like circumstances

15. Page 14
FMV – Why It Matters State Laws
State Law Issues
 State self-referral laws
 May apply to a broader scope of relationships than Stark (not just
physician financial relationships)
 May apply to a broader scope of services than “DHS”
 State anti-kickback issues
 May apply with respect to all services, not just those payable by
Medicare or other Federal healthcare programs
 May include “fee splitting” prohibitions

16. Page 15
FMV – Why It Matters
2005 OIG Supplemental Compliance Program Guidance
for Hospitals
Arrangements under which hospitals (1) provide physicians
with items or services for free or less than fair market value,
(2) relieve physicians of financial obligations they otherwise
would incur, or (3) inflate compensation paid to physicians for
items or services, pose significant risk. In such
circumstances, an inference arises that the remuneration
may be in exchange for generating business. (70 Fed. Reg.,
4858, 4866 (Jan. 31, 2005))

17. Page 16
FMV – Why It Matters Enforcement
2015 OIG Fraud Alert: Physician Comp Arrangements May
Result in Significant Liability
 Physicians who enter into compensation arrangements, such as medical
directorships, must ensure those arrangements reflect FMV for bona fide
services the physicians actually provide
 Arrangement may violate AKS if even one purpose is to compensate the
physician for referrals
 Government recently reached settlements with 12 individual physicians who
entered into questionable medical directorship and office staff arrangements
 OIG believed it took into account referrals and did not reflect FMV because the
physicians did not actually provide the services contemplated
The “Yates Memo” (September 9, 2015)
 DOJ policy seeks individual accountability in corporate wrongdoing

18. Page 17
FMV – Why It Matters
Fair Market Value is central to
the compliance analysis;
payments must be FMV,
commercially reasonable, and
cannot vary with anticipated
referrals.

19. Page 18
Outpatient Hospital Site Neutrality
The Bipartisan Budget Act of 2015 (BiPA Section 603)
 Budget compromise of November 2015 contained key provision
excluding any new off-campus hospital outpatient department (HOPD)
from Medicare’s outpatient hospital prospective payment system
(OPPS)
 CMS Final Rule November 1, 2016

20. Page 19
Outpatient Hospital Site Neutrality
Highlights of the Final Rule
Exempt (grandfathered sites):
 HOPDs in operation and billing Medicare under OPPS prior to
November 2, 2015
 OPPS billing permitted for new off-campus departments that are
“dedicated emergency departments”
 Cancer hospitals
 “Mid-build” protection
 Minor protection for those few operational HOPDs that provided
services but didn’t bill prior to November 2, 2015

21. Page 20
Outpatient Hospital Site Neutrality
Highlights of the Final Rule
Non-Exempt (non-grandfathered) off-patient sites:
 Will continue to be able to bill on an institutional bill
 Payment will be at 50% of OPPS rates, for now
 Lose outlier payments, SCH and other benefits
 Relocation kills exception!
 For addresses with multiple units, unit # is part of address
 Limited exceptions due to extraordinary circumstances (i.e., natural
disaster)
 CMS states that non-exempted off-campus HOPDs would
continue to be considered as part of the hospital and deemed
provider-based
 HRSA position still important

22. Page 21
Repeal, Replace, or Retreat?
Continuing relevance of the ACA?
 Medicaid & coverage expansion
 CMMI, other innovation models
 ACOs
Other payment reform? MACRA?
Antitrust & Transactions
Enforcement
Tax Reform, Cash Repatriation

23. Curtis Bernstein
Pinnacle Healthcare Consulting
cbernstein@askphc.com
Issues in Transaction Valuation

24. Page 23
Issues in Transaction Valuation
 Standard of Value
 Ancillary Services
 Personally Performed
Services
 Cash Flow v. Assets

25. Page 24
Issues in Transaction Valuation

26. Tynan Olechny
PYA
tolechny@pyapc.com
Issues in Compensation Valuation

27. Page 26
Collaboration Opportunities
 Clinical Affiliation
 Agreement for organizations to collaborate on an initiative or provide a specific service
together that may involve local, regional, or national partners
 Regional Collaborative
 Flexible umbrella structure for partnering on specific initiatives and building the foundation of
potential future integration; often encompasses many independent organizations in a common
geographic area
 Accountable Care Organization
 Independent entity formed for entering into risk-based contracts; owned by constituent
organizations; creates shared accountability among participating providers
 Clinically Integrated Healthcare Network
 Collection of hospitals that enter into joint payer contracts to improve care coordination and
clinical outcomes
 Mergers & Acquisitions
 Formal purchase of one organization’s assets by another or the combination of two
organizations’ assets into a single entity

28. Page 27
Multiple Models for Collaboration
 Employment Agreements
 Medical Directorship Agreements
 Educational Services Agreements
 Supervision Agreements
 On-call Agreements
 Consulting Agreements
 Professional Services Agreements
 Co-Management Agreements
 Quality Incentive Programs
 Shared Savings Arrangements
 Recruitment Incentive Programs
 Management Services

29. Page 28
Physician Employment Considerations
 Base compensation
 wRVU or other productivity-based compensation model
 Professional net revenue model
 In-office ancillary services
 Quality/performance compensation
 Chemotherapy administration supervision compensation
 Mid-level supervision compensation
 Practices losses

30. Page 29
Physician Employment (continued)
 Compensation level entirely disproportionate to productivity
level
 Example: productivity metrics (e.g., wRVUs) below median,
but total compensation exceeds 90th percentile
 Unusual compensation
 Example: In addition to salary and incentive compensation,
physician receives atypical forms of compensation (i.e., car
payment paid by hospital)
 Compensation exceeds collections
 Example: Physician is compensated at levels that far
exceed the collections associated with his/her personally
performed services
 Consideration of benefits

31. Page 30
Physician Employment (continued)
Hematology/
Oncology
Radiation
Oncology
Source: Medical Group Management Association

32. Page 31
Professional Services Agreements (PSA)
 Arrangements by which hospitals enter into agreements with
physicians to acquire necessary professional services
 Physicians retain practice entity
 Agreements for clinical services may include professional
staffing, call coverage, clinical and risk management
leadership, infusion, and midlevel supervision
 Agreements may also include administrative services such as
medical directorships, service line development, and/or
coordination
 Other potential services may include clinical research, etc.
 Physicians provide professional services and hospital bills and
collect for professional and technical services
 Hospital hires or leases clinical staff and purchases or leases
space and equipment

33. Page 32
Co-Management Agreement
 Hospital and physicians enter into an agreement where physicians are jointly
responsible with hospital for managing a defined service line
 Purpose is to recognize and appropriately reward achievement of defined
goals and responsibilities typically associated with developing, managing,
improving service line quality and efficiency
 Compensation may not take into consideration the volume or value of
referrals
 Benefits include
 Physician engagement
 Focus on quality, efficiency, and outcomes
 Physicians have authority to implement change
 Physicians may remain independent and collect professional fees
 Physicians have greater day-to-day oversight
 Potential of physicians to have ownership interest in management company

34. Page 33
Co-Management Legal Structures
 Direct contract model
 Agreement directly between physician/medical group and
hospital
 Separate company
 “NewCo” or management company formed to execute the
co-management agreement with the hospital and to
manage the service line
 May be physician-owned or a joint-venture with
physicians/hospital
 Physicians provide initial capitalization of NewCo (or
physicians and hospital if management company is to be
jointly owned)

35. Page 34
Co-Management Services
Leadership
• Medical Director
• Advisory
Committee
• Coordinating &
reporting to
hospital
Budget &
Finance
• Budget
development
• Financial
oversight &
monitoring
Strategic
Planning
• Development/
implementation
of service line
• New program
development
• Strategic
planning process

36. Page 35
Co-Management Services (continued)
Operations
• Service line
operations
• Staffing &
scheduling
• Patient & staff
work flow
• Equipment
procurement &
materials
management
• Credentialing
• Case
management
• Policies &
procedures
Human
Resources
• Review of staffing
levels &
recruitment &
retention plans
• Input on the
appointment &
evaluation of
clinical & non-
clinical staff
Other
• Medical staff-
related activities,
including
committee
participation
• Patient &
community
outreach &
education
• Assistance with
accreditation

37. Page 36
Co-Management Compensation Structures
 Base Compensation
 Hospital pays a fixed base fee for provision of pre-defined
management services or limits compensation to a maximum
amount based upon actual hours worked at a pre-determined rate
 Fee must be consistent with time and effort associated with the
scope of services provided
 Incentive Fee or Bonus
 Hospital pays an at-risk incentive bonus if the service line meets
pre-defined, mutually agreed upon, objectively measurable
performance targets (quality, satisfaction, efficiency etc.)

38. Page 37
Incentive Compensation
 Achievement of quality, operational efficiency,
patient/satisfaction goals
 Baseline levels determined using the facility’s historical and
clinical data and/or comparable national or regional data, with
incentives paid to reflect incremental improvement
 May be targeted toward identified areas of need
 Can be based on improvement or on achievement of specific
targets
 Incentives should be objective, verifiable, supported by
credible medical evidence, and individually tracked
 Provide for partial payment for attainment of incremental goals

39. Page 38
Key Considerations
Common elements include:
 Base compensation
 Productivity threshold (i.e., wRVU level)
 Incentive compensation for productivity
 Incentive compensation for quality outcomes
 Sign-on or retention bonus
 Compensation for excess call coverage
 Compensation for supervision or teaching services
 Administrative compensation
Hospitals and other organizations continue to utilize complex
compensation models, often with multiple layers of compensation
for multiple services sometimes referred to as “stacking”

40. Page 39
Assessing the Risk
• More moving parts
• Higher total compensation
• Ensuring the correct
benchmarks are considered
• Assessing each part and
the whole package
How risky is this agreement?
=

41. Page 40
Employment Considerations
 Proper understanding and use of survey data (compensation per wRVU,
compensation-to-collections ratio, etc.)
 Reliance on data from one survey versus multiple surveys
 What data are represented/included in each survey?
 wRVU data and the “match” to compensation percentile
 Is there a “safe” percentile for compensation – 50th percentile/75th percentile?
(settlements of the last year say: perhaps not)
 Historical compensation--what does it mean for FMV?
 Commercial reasonableness
 Compensation exceeds collections
 Ex: Physician is compensated at levels that far exceed the collections associated with
his/her personally performed services
 Unusual compensation
 Ex: In addition to salary and incentive compensation, physician receives atypical forms of
compensation (i.e., car payment paid by hospital)

42. Page 41
PSA and Co-Management Considerations
 Ensuring that compensation matches duties (e.g., clinical versus
administrative)
 Increased demand on physicians
 The 80-hour work week
 Compensation for identifiable services
 Are we paying for the same thing twice?
 Survey data – do they include compensation for everything for which
we are planning to pay?
 Using the correct survey(s)
 Commercial reasonableness

43. Page 42
Compensation for Research/Consulting Activities
 Sunshine reporting requirements when compensation originates from
a manufacturer (pharma, medical device, etc.)
 Importance of clinical research activities in the current world – e.g.,
to meet Cancer Center Standards
 Defining the scope of a physician’s activities - e.g., investigator
versus physician who merely identifies subjects for a study; speaker
versus advisor on product development
 Source of compensation affects the stakes– pharma funding,
hospital/health system funding, laboratory service provider (registry
study), etc.
 Keeping in mind guidance from OIG advisory opinions and
compliance guidance
 Reasonable payment structure – e.g., annual or monthly stipend, per
subject amount, percentage of research budget, fee for service,
hourly compensation, etc.

44. Page 43
“Top 10” Pitfalls for 2017

45. Page 44
Alternative Payment Models
(Oncology Care Model)
10

46. Page 45
Task vs. Time-Based Valuations
 Need to align incentives for providers
 Fee for service does not work in a world of bundled payment
reimbursement
 Quantifying actual time spent managing costs is
impossible
 Outside of meetings and other administrative-only time
 Determining the ability to reduce cost has been studied
by actuaries, regulators, hospitals, and providers
 Limited data on tying improved performance to reduced cost
9

47. Page 46
Task vs. Time-Based Valuations
9

48. Page 47
Task vs. Time-Based Valuations
Emergency Room Visits
in Last 30 Days of Life
Metrics for improvement
 Develop interventions to decrease ED usage
 Develop tools to analyze admissions within 21 days of
chemo
 Proper use of palliative care
9
10% 20%

49. Page 48
Establishing Metrics
 Quality measures
 CMS
 Specialty organizations (ACoS, ASTRO, ASCO, ACP)
 AMA – PCPI (Physician Consortium for Performance Improvement)
 NCCN
 NCQA
 NQF
 Private payers
 Satisfaction measures
 Patient satisfaction survey results
 Staff satisfaction survey results
 Program development
 Achievement of identified milestones (not measured by volumes)
 Process of care measurements
8

50. Page 49
Midlevel Supervision Compensation
 Considerations for midlevel supervision compensation
 Number of midlevels supervised (i.e., state requirements)
 Midlevel productivity
 Number of hours spent supervising
 Benchmark considerations
 Prevalence of supervision
 Number of midlevels supervised
 Method of compensation
7

51. Page 50
Infusion Supervision Compensation
 Considerations for chemotherapy administration supervision
 Service providers (i.e., MDs or MLPs)
 Scope of practice requirements
 Oncology and non-oncology (i.e., rheumatology, GI) services
 Location and number of infusion centers supervised
 Infusion center hours
 Infusion center volumes
 Multiple groups providing services
 Benchmark considerations
6

52. Page 51
How high is high?
5

53. Page 52
Value of Data
 Cost to compile reports
 Personnel/Staffing
 Technology/Software Expenses
 Start-Up/Infrastructure Costs
 Key Drivers of Value for Data
 Type of Data Providing – Breaking Down the
Record
 Aggregated Categorical Data
 Observation Variable Data
 Amount of Data Provided
4

54. Page 53
Valuing Other Intangible Assets
 Work Force in Place
 Medical Records / Data
 Brand Names
 Licenses
 Non-Competes
3

55. Page 54
Read the fine print
 Valuation:
 Duration
 Assumptions
2

56. Page 55
How does it all stack up?
1