Source: https://www.wachler.com/private-equity-investment-in-michigan-healthcare-entities.html
Timestamp: 2019-05-27 06:03:20
Document Index: 113085409

Matched Legal Cases: ['§ 450', '§ 450', '§ 450', '§ 450', '§ 1320', '§ 1395', '§ 1320', '§ 1395', '§ 333', '§ 400', '§ 752', '§ 750']

Private Equity Investment in Michigan Healthcare Entities | Grand Rapids, Michigan Health Care Lawyers
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Private Equity Investment in Michigan Healthcare Entities
Dustin T. Wachler, Esq.
Michigan healthcare providers contemplating a relationship with private equity investors must be aware of various legal considerations relative to such arrangements. Increasingly, private equity investors are becoming more interested in investing in healthcare entities. Such investments often present lucrative opportunities for healthcare providers, yet these arrangements implicate a myriad of legal issues. This article will focus on health law issues, however other legal issues including, without limitation, corporate, tax and real estate matters must be considered when evaluating private equity investment in healthcare entities.
Michigan laws include a legal doctrine commonly referred to as the corporate practice of medicine (“CPOM”) doctrine. CPOM laws restrict who can own and control certain healthcare entities and employ certain healthcare providers. Specifically, Michigan law requires entities that provide professional medical services to be organized as professional corporations (PCs) or professional limited liability companies (PLLCs). Michigan PCs and PLLCs engaged in the practice of medicine may only be owned by individuals licensed to provide the professional medical services rendered by the entity, or by entities directly or indirectly solely owned by such licensed individuals.1 Further, all officers of PCs and managers of PLLCs must be licensed to provide the professional medical services rendered by the entity.2 Accordingly, a medical practice through which physicians perform professional medical services cannot be owned or controlled by non-physicians (with the exception of ownership by a non-profit hospital). Thus, Michigan’s CPOM laws do not generally permit a physician practice to be owned or controlled by non-physician private equity investors. Accordingly, relationships with private equity investors must be structured so that the providers retain ownership of the professional entity when required by the Michigan CPOM laws. The result is usually a complex organizational structure that involves holding companies and management companies, some of which may include joint-ownership opportunities for the providers. Such structural considerations must also address any entities that are related to the professional practice but that are not governed or restricted by Michigan’s CPOM laws, as ownership of these entities may be transferred to private equity investors in certain cases, subject to federal and state fraud and abuse laws.
Federal fraud and abuse laws include, without limitation, the Anti-Kickback Statute (“AKS”) and the physician self-referral prohibition commonly referred to as the “Stark law”.3The AKS prohibits a person or entity from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward the: (a) referral of an individual for the furnishing of any item or service that may be reimbursed under a federal health care program, or (b) purchase, lease, ordering or arranging for or recommending the purchasing, leasing or ordering of any item, facility or service that may be reimbursed under a Federal Healthcare Program.4 Protection of an arrangement under an AKS exception or safe harbor avoids treatment as a criminal offense under the AKS. Stark contains a ban on physician self-referral which generally makes it unlawful for a physician to refer Medicare or Medicaid patients (or present claims for payment to Medicare or Medicaid) for designated health services (“DHS”) to an entity with which the physician (or an immediate family member) has a financial relationship.5 If Stark is implicated, the arrangement must satisfy all elements of a Stark exception in order to comply with Stark. These laws must be evaluated by the parties to ensure previous and future compliance, particularly since the relationship between the healthcare entity and private equity investors often results in organizational restructuring involving multiple entities. For example, if the resulting organizational structure involves a management company and private equity ownership of related entities, the relationship between these entities and the professional healthcare entity must be evaluated for compliance under the AKS and Stark.
Similarly, Michigan fraud and abuse laws must be considered and include, without limitation, state self-referral laws, anti-kickback laws, and fee-splitting laws.6 Michigan’s fraud and abuse laws differ from Stark and the AKS in various ways and as applied to various healthcare providers. Whereas Stark and the AKS only apply to governmental healthcare programs, Michigan fraud and abuse laws also apply to services reimbursed by commercial payors such as Blue Cross Blue Shield of Michigan (BCBSM). Michigan fraud and abuse laws, in conjunction with the CPOM doctrine, may also be implicated in arrangements whereby physicians retain ownership of the professional entity but the private equity firm earns fees generated by professional medical services. In addition to state fraud and abuse laws, Michigan healthcare providers must comply with additional licensure-based laws. Healthcare transactions must also account for rules regarding changes in ownership of licensed healthcare entities, which often require prior or contemporaneous notice to, and approval from, relevant state agencies.
1MCL § 450.1283(2); MCL § 450.4904(1).
2MCL § 450.1286; MCL § 450.4905(1).
3 42 USC § 1320a-7b(b); 42 USC § 1395nn.
4 42 USC § 1320a-7b(b).
5 42 USC § 1395nn.
6 See MCL § 333.16221; MCL § 400.604; MCL § 752.1004; MCL § 750.428.