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Health Law Update 2009: How the New Anti-Markup Rule Attempts to Make Things Simpler

Another year, another modification in a physician’s ability to bill and collect. As explained in last year’s news article, the government is attempting to limit ancillary income of physicians. With anti-referral and antikickback laws well established in prohibiting certain physician joint ventures, the new modified Anti-Markup Rule continues to add extra layers in confirming if a physician’s ancillary transaction will be profitable.

Introduction Section 1842(n)(1) of the Social Security Act prohibits a markup on the technical component of certain diagnostic tests if the test was not personally performed or supervised by the billing physician or another physician whom the billing physician “shares a practice with.” Over the past few years there have been changes made to the Anti-Markup Rule in an attempt to prevent the potential overutilization of the technical and professional componentsof diagnostic tests. The latest amendments are an attempt to address the potential overutilization while reducing the complexity associated with prior proposed rules.

Prior Version

In November 2007, Centers for Medicare and Medicaid Services (“CMS”) proposed a new Anti-Markup Rule aimed to be more restrictive. In general, the rule applied when a physician or other supplier billed for the technical or professional component of a diagnostic test that was ordered by the physician or other supplier (or related party),and the test was either 1) purchased from an outside supplier, or 2) performed at a site other than “offices of the billing physician or supplier.” As initially worded, the proposed rule was headed for a collision course with the federal anti-referral law (a.k.a. “Stark II”). Parties could be in compliance with Stark II but still unable to bill and collect federal payors without being in compliance with the Anti-Markup Rule.

Immediately CMS received feedback regarding concerns about the proposed rule. As a result, CMS delayed the effective date of the new rule until January 1, 2009.

New Version

In November 2008, CMS amended the Anti-Markup Rule to attempt to simplify its application and interpretation. The new rule basically has two alternative methods that, if met, will result in the Anti-Markup Rule not applying. Each alternative is independent of the other, meaning that each must be separately evaluated under the circumstances.

First, where the performing physician provides “substantially all” of his or her professional services for the billing physician or other supplier, the Anti-Markup Rule will not apply. The performing physician is one who supervises the technical component or performs the professional component. To meet the “substantially all” test, the physician must provide at least 75% of professional services for the billing physician or supplier.

Second, where the performing physician supervises or performs in the “same office building” as the billing physician, the performing physician is deemed to share a practice with the billing physician or other supplier, and the Anti-Markup Rule will not apply. The “same office building” is the same definition used under Stark II.

An arrangement must meet only one of the two alternatives. If an arrangement fails to meet either alternative, the Anti-Markup Rule will apply. If the Rule applies, payment to the billing physician or supplier for the technical or professional component must be the lowest of: 1) the performing supplier’s Net Charge to the billing physician or supplier; 2) the billing physician’s or supplier’s actual charge; or 3) the fee schedule amount for the test allowed if the performing supplier billed Medicare directly.

It is important to note that the amended Anti-Markup Rule is effective January 1, 2009, and there are no extensions or delays on its application. Beginning in 2009, arrangements must meet one of the two alternatives in order for the Anti-Markup Rule not to apply.

Independent Diagnostic Testing Facility

In July 2008, CMS proposed to require physicians and nonphysician practitioner (“NPP”) organizations furnishing diagnostic testing services to enroll as Independent Diagnostic Testing Facilities (“IDTF”) for each practice location furnishing these services. The concern was that certain physician entities could avoid the IDTF standards, resulting in beneficiaries receiving an inferior quality of care contemplated by the standards.

In November 2008, CMS delayed adopting the proposed requirement, citing the enactment of Section 135 of the Medicare Improvements for Patients and Providers Act of 2008 (“MIPPA”). Section 135 of MIPPA imposes upon the Secretary the task of establishing an accreditation process by January 1, 2012, for entities furnishing advanced diagnostic testing procedures. CMS does not indicate whether physicians or NPPs will have to follow the accreditation process. CMS will continue reviewing public comments and evaluating the situation in order to determine if their proposed requirement is necessary.

Conclusion

The Anti-Markup Rule is a billing and collection rule. Failing to satisfy either of the two alternatives will implicate the False Claims Act if the physician bills in violation of the new rules. This rule increases
exponentially the multiple regulations a physician must consider before entering into any business venture. Therefore, it is important that physicians and suppliers that work with diagnostic tests should examine their business arrangements to confirm that they meet one of the two alternatives.

By: Michael S. Byrd and Bradford E. Adatto

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Business Counsel Services

Asset Protection Planning

The Business Counsel Services Section of SettlePou is pleased to continue its three-part physicians’ series covering the following topics:

Attack on malpractice damage law caps (See SettlePou Newsletter Volume 4, Issue 3); (2) increasing the physician’s professional protection; and, (3) increasing the physician’s personal protection.

Part 2 – Increasing the Physician’s Professional Protection. The words “asset protection planning” has been thrown around so often that the actual meaning may have been diluted. This article is designed to detail the “What,” “Why,” “Who,” “When,” “How” and “Where” of asset protection plans. It will also provide information on exempt and non-exempt assets. Finally, it will detail the professional protections that can be provided to physicians.

What

What is asset protection planning? Proper asset protection planning is the orderly organization and structure of one’s assets and affairs (business and personal) in advance of potential liability, risk, judgment or other creditors’ claims to protect resources. Figuring out techniques that protect your assets is an extremely important and personal process.

Why

Why would someone develop an asset protection plan? (1) To deter potential creditors from going after your assets; (2) to frustrate the collection process making it difficult or impossible for future creditors to grab hold of your assets or collect judgments against you; and (3) to form an estate plan (as will be detailed in the next article).

Who

Who really needs asset protection planning? Most people think that asset protection plans are for extremely wealthy individuals. Asset protection plans are not just for the extremely wealthy individuals, but are for persons who have exposed assets and conduct activities that could create catastrophic liability. Based on judgment creditors’ rights, a person with more than $60,000 in net nonexempt assets should consider implementing an asset protection plan.

An example of a catastrophic event which could affect a physician is a malpractice claim in which a young professional is injured and can never work again. As explained in our last newsletter, the new Texas malpractice damage caps only non-economic damages, but economic damages are not capped. Such a catastrophic event would cause the economic damages to fall outside of the scope of the protection of the malpractice damage caps and most likely the physician’s insurance limits. This could leave the physician obligated to pay the remainder of a potentially large judgment.

When

When is it the proper time to begin asset protection planning? The best time to begin is now, but definitely before a claim is filed or made; otherwise, it may be considered a “fraudulent transfer.” A fraudulent transfer may occur when a person transfers property, in effect, to stop legitimate creditors from taking assets in order to satisfy a legitimate debt. Asset protection planning is not a means of defrauding creditors or even evading taxes. It’s a means to figure out and apply a series of lawful techniques that protect your assets from claims of future creditors.

How

How does one go about developing an asset protection plan? The physician should sit down with his or her professionals and conduct a risk assessment. This risk assessment will determine the likelihood and extent of the exposure, the activities that could create liability, the nature and extent of the physician’s assets (exempt vs. non-exempt assets), the family situation for future estate planning, and the personal wishes of that particular person. It is important when a physician is developing an asset protection plan to coordinate multiple professionals to ensure a solid plan. A good asset protection plan is like a custom-built chair. It has four solid legs and a sturdy back, but it still must be comfortable for you to sit in. At the end of the day, an asset protection plan must fit your needs. The professionals who should be a part of designing your plan are your CPA, financial planner, insurance agent and attorney. Each one of these individuals is a key ingredient in establishing your personal plan (or handcrafted chair).

Where

Where do these assets go? The non-exempt assets can be properly moved and placed into structured trusts or other entities.

Protection of Assets – Exempt vs. Non-exempt

The first level of protection an asset receives is being deemed by the Government to be an exempt asset. There are five main categories of exempt assets: (1) homestead exemption; (2) personal property exemption; (3) annuities; (4) life insurance and (5) retirement benefits. Generally, anything that falls outside of these exempt asset categories is considered a non-exempt asset and is subject to the claims of creditors. The homestead exemption is considered judgment proof. But it is important to note that you can have only one home qualify for the homestead exemption.

Professional Protection

For an individual there are certain levels of protection that can provide some type of asset protection. (1) The Government – The first level of protection comes from the Government. For physicians, the protection is Tort Reform. The malpractice caps limit non-economic damages and wrongful death. (2) General/ Professional Insurance – The next level of protection is to be properly insured. The problem with relying strictly on insurance is that it might not cover all possible risks; it might be insufficient; or your claim might be denied and/or the exclusions in the policy do not cover the activity.

(3) Corporate Structures – The third level of professional protection is corporate structures. Corporate structures allow you to move nonexempt assets into entities establishing certain levels of protections that an individual would not be able to receive. The main drawback is a potential loss of control after assets are moved. Depending on the need, the corporate structure could be a professional association, professional limited liability company or other types of affiliated entities.

Planning to protect one’s assets is important in light of the many risks in practicing medicine. Proper coordination, proactive planning and implementation can go a long way to achieve the desired results. In our next newsletter, we will present the final installment of our three-part series, Physician’s Personal Protection. This article will address the personal protection plans available to individuals. In addition, it will address estate planning aspects that can be incorporated into an asset protection plan.

 

By Michael S. Byrd and Bradford E. Adatto

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Business Counsel Services

Judgment Liens vs. Texas Homesteads: Down for the Count?

Perhaps one of the most famous lines in American pugilism was Muhammad Ali’s: “Float like a butterfly, sting like a bee.” For decades, judgment creditors and judgment debtors have been trading punches in the post-judgment ring, either in an effort to collect judgments owed or to avoid paying the same. The ebb and flow of this fight has seen the exchange of heavy punches, sometimes staggering one or the other. Now, the Texas Legislature may have delivered a knock-out blow to judgment creditors.

The fight usually starts the same. In the first round, a creditor secures a judgment against a debtor and then files an abstract of the judgment in every county where the debtor possesses, or may possess, real property. The filing of the abstract creates a judgment lien on any real property in that county. TEX. PROP. CODE ANN. § 52.001 (West 2007). Usually, although not always, the judgment lien attaches to the debtor’s homestead property. This, in and of itself, is not an issue. The Texas Supreme Court has observed that a lien against a homestead is never valid (in the sense of being enforceable) unless it secures payment for certain debts provided for in the Texas Constitution. TEX. CONST. art. XVI, § 50; Benchmark Bank v. Crowder, 919 S.W.2d 657, 660 (Tex. 1996). This does not mean, however, that a lien that is not valid and enforceable is completely without effect. As one Texas Court of Appeals has observed: “Under [the Texas Property Code] statutory provisions, a judgment lien is ‘perfected,’ or brought into existence against a debtor’s property, by recording and indexing an abstract of judgment in the county where the property lies. The debtor’s homestead is not exempt from the perfected lien; rather, the homestead is exempt from any seizure attempting to enforce the perfected lien.” Exocet, Inc. v. Cordes, 815 S.W.2d 350, 352 (Tex. App. – Austin 1991, no writ).

This is true, because as a principle of Texas law, “a judgment lien attaches to the judgment debtor’s interest if he abandons the property as his homestead before he sells it.” Hoffman v. Love, 494 S.W.2d 591, 594 (Tex. Civ. App. – Dallas 1973, no writ). For example, where a debtor acquires a second homestead before selling the first homestead, the first homestead is deemed abandoned and is no longer exempt from seizure. England v. Federal Deposit Insurance Corp., 975 F.2d 1168, 1175 (5th Cir. 1992). Furthermore, if the debtor retains the property as his homestead until he sells it,unless the debtor reinvests the proceeds of the sale in another homestead within six months from the date of the sale, the proceeds are subject to seizure by creditors. TEX. PROP. CODE ANN. § 41.001(c) (West 2007); Sharman v. Schuble, 846 S.W.2d 574, 576 (Tex. App. – Houston [14th Dist.] 1993, no writ). Even during this six-month window, if the debtor purchases another homestead, any remaining proceeds from the sale of the first homestead are instantly rendered non-exempt. England, 975 F.2d at 1174. Thus, judgment lien holders have a significant interest in filing and maintaining their judgment liens, even against a debtor’s homestead property.

As the fight moves toward the middle rounds, the debtor who was attempting to sell his homestead property demands that a judgment lien creditor release the judgment lien so as to not interfere with the sale of his homestead. Although the abstract does not create a lien on the debtor’s homestead, it can still create a cloud on the title. Where a judgment lien creditor refuses to release the judgment lien in conjunction with the debtor’s sale of his homestead, when requested to do so by the debtor, the judgment creditor may be held liable for damages occasioned by the refusal. Tarrant Bank v. Miller, 833 S.W.2d 666, 667-68 (Tex. App. – Eastland 1992, writ denied). Notwithstanding the requirement that a judgment lien creditor release a judgment lien on homestead property when requested to so, the creditor is entitled to evidence that the property is, in fact, a debtor’s homestead.

To this end, most judgment lien creditors require that the debtor(s) sign and file in the appropriate county real property records, an affidavit designating the property at issue as their homestead.

This practice finds support in the Texas Property Code, which provides for the filing of such a voluntary designation of homestead. TEX. PROP. CODE ANN. § 41.105 (West 2007). Indeed, under Chapter 41, Subchapter B entitled “Designation
of a Homestead in Aid of Enforcement of a Judgment Debt,” the judgment creditor may force the judgment debtor to elect his homestead and file such a designation. TEX. PROP. CODE ANN. § 41.021 et seq. (West 2007).

That procedure has now been amended by the Texas Legislature, effective September 1, 2007. A new section to Chapter 52, Subchapter A of the Texas Property Code was enacted to address homestead property interests and the release of judgment liens. TEX. PROP. CODE ANN. § 52.0012 (West 2007). Under this new provision, entitled “Release of Record of Lien on Homestead Property,” a judgment debtor may now avoid and remove an abstracted judgment lien without the judgment creditor signing a release of that lien. The judgment debtor does so by first preparing and then later filing a prescribed form of an affidavit in the real property records of the county in which the homestead is located. TEX. PROP. CODE ANN. § 52.0012(b(West 2007). Once filed, if a judgment creditor does not respond to the filing, the affidavit “serves as a release of a judgment lien,” upon which a bona fide purchaser or a mortgagee for value (including successors and assigns) “may rely conclusively,” so long as the affidavit complies with the statutory requirements. TEX. PROP. CODE ANN. § 52.0012(c) & (d) (West 2007).

The affidavit must state that the judgment debtor: (1) sent a letter and a copy of the affidavit (without attachments and before execution of the affidavit), notifying the judgment creditor of the affidavit and the judgment debtor’s intent to file it of record; and (2) the letter and affidavit were sent by registered or certified mail, return receipt requested, at least thirty days before the affidavit was filed, (a) to the judgment creditor’s last known address; (b) to the address appearing in the judgment creditor’s pleadings in the underlying lawsuit (if different from the last known address); (c) to the address of the judgment creditor’s last known attorney as shown in those pleadings; and (d) to the address of the judgment creditor’s last known attorney as shown in the records of the State of Bar of Texas. TEX. PROP. CODE ANN. § 52.0012 (d) (1) & (2) (West 2007).

However, the affidavit will not result in a release of the judgment lien if the judgment lien creditor files a contradicting affidavit in the real property records of the county in which the property is located asserting that: (1) the affidavit filed by the judgment lien debtor is untrue; or (2) “another reason exists as to why the judgment lien attaches to the judgment debtor’s property.” TEX. PROP. CODE ANN. § 52.0012(e) (West 2007).  The new statutory provision does not address two very important issues. First, the new statute does not set a deadline or a timeframe for a judgment creditor to file its contradicting affidavit. Because the new statute provides that a bona fide purchaser or mortgagee may rely upon the judgment debtor’s filed affidavit “conclusively,” a judgment lien creditor will necessarily have to file its contradicting affidavit almost immediately upon the expiration of the thirty-day notice. Second, assuming that such a contradicting affidavit is filed, the new statute does not provide a procedure or mechanism for resolving the dispute. Presumably, the parties will be left to pursue litigation to resolve the dispute, with the attendant risk that if the judgment creditor is wrong, it may be held liable for damages. It appears that the Texas Legislature has now added a haymaker punch to the homestead judgment debtor’s arsenal of punches. If a judgment creditor is not careful, it may find itself on the canvas only to learn that it has been counted out of the fight. As George Foreman quipped: “There’s more to boxing than hitting. There’s not getting hit, for instance.”

By David M. O’ Dens