All public companies will face at least some compliance and financial reporting consequences from healthcare reform. Those actually in the business of healthcare will face quite a bit more.

Healthcare reform’s two laws (the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act) unleash a slew of rules and regulations on the healthcare sector. Some went into effect immediately upon the reform’s passage back in March; others will go into effect in coming months and years. But hospitals, medical practices, doctors, nurses, medical device makers, and everyone else in the industry can rest assured, those rules will reach them sooner or later.

One rule that requires immediate attention: All healthcare providers (including suppliers) and nursing facilities that participate in Medicare or Medicaid must draft and implement an ethics and compliance program. The Department of Health and Human Services has pushed providers to adopt compliance programs voluntarily for more than a decade, but “now there’s a legal mandate,” says Scott Memmott, a partner in the law firm Morgan, Lewis & Bockius.

Sheeder

That mandate escalates the importance of a compliance program dramatically, says Frank Sheeder, first vice president of the Health Care Compliance Association and a partner at the law firm Jones Day. “If you don’t have a robust, effective program in place, your ability to receive reimbursement from federal payers could be at risk.”

Most larger healthcare providers already do have compliance programs in place—but plenty of others don’t, or they have programs that aren’t comprehensive or in step with current regulatory expectations, experts say. Smaller medical practices, locally owned pharmacies, home healthcare providers, and small medical equipment makers all might not be as far along in implementing compliance programs as they should be, Memmott says. “They’re likely to be impacted the most, and to have the hardest time complying with the new requirements,” he says.

The healthcare reform laws do spell out the program requirements for nursing facilities, which must implement them by March 23, 2013. Specific requirements for all other healthcare providers—including any implementation deadlines—were left to the discretion of the HHS Department. HHS officials did not respond to a request for comment.

Memmott

“The stakes are now higher. If you don’t have a robust, effective program in place, your ability to receive reimbursement from federal payers could be at risk.”

—Frank Sheeder,

Partner,

Jones Day

Whenever those requirements are issued, experts say providers will need to revisit their existing programs to ensure that they comply. Until then, compliance executives can get a head start by studying existing voluntary compliance standards published by the HHS inspector general, as well as recent corporate integrity agreements that HHS has published and the U.S. Sentencing Guidelines; all of them can be used as early guideposts for how your compliance program should look. Memmott also expects final HHS rules to include some scalability for smaller providers, as has been the case in its previous guidance.

Hospital Headaches

Healthcare reform will impose several significant changes on tax-exempt organizations running a state-licensed hospital or otherwise having hospital care as its principal purpose or function. Linda Moroney, a healthcare lawyer at law firm Drinker Biddle & Reath, says non-compliance with the new rules will be costly at best; at worst, violations could result in loss of tax-exempt status.

Most notably, for tax years beginning after March 23, 2012, tax-exempt hospitals must conduct a “community health needs assessment” at least every three years. That assessment must be made available to the public, and the hospital must adopt an implementation strategy to meet the needs that the assessment identified.

Moroney

NURSING SECTOR

Below is an excerpt from the the Patient Protection and Affordable Care Act listing the ethics and compliance requirements for nursing facilities:

EFFECTIVE COMPLIANCE AND ETHICS PROGRAMS.

(1) Requirement: On or after the date that is 36 months after the date of the enactment of this section, a facility shall, with respect to the entity that operates the facility (in this sub-paragraph referred to as the “operating organization” or “organization”), have in operation a compliance and ethics program that is effective in preventing and detecting criminal, civil, and administrative violations under this Act and in promoting quality of care consistent with regulations developed under paragraph (2).

(2) Development of Regulations:

(A) IN GENERAL—Not later than the date that is

2 years after such date of the enactment, the Secretary,

working jointly with the Inspector General of the Depart-

ment of Health and Human Services, shall promulgate

regulations for an effective compliance and ethics program

for operating organizations, which may include a model

compliance program.

(B) DESIGN OF REGULATIONS—Such regulations with

respect to specific elements or formality of a program shall,

in the case of an organization that operates 5 or more

facilities, vary with the size of the organization, such that

larger organizations should have a more formal program

and include established written policies defining the stand-

ards and procedures to be followed by its employees. Such

requirements may specifically apply to the corporate level

management of multi unit nursing home chains.

(C) EVALUATION—Not later than 3 years after the

date of the promulgation of regulations under this para-

graph, the Secretary shall complete an evaluation of the

compliance and ethics programs required to be established

under this subsection. Such evaluation shall determine if

such programs led to changes in deficiency citations,

changes in quality performance, or changes in other metrics

of patient quality of care. The Secretary shall submit to

Congress a report on such evaluation and shall include

in such report such recommendations regarding changes

in the requirements for such programs as the Secretary

determines appropriate.

(3) Requirements for Compliance and Ethics Programs:

In this subsection, the term “compliance and ethics

Program” means, with respect to a facility, a program of the

operating organization that:

(A) has been reasonably designed, implemented, and

enforced so that it generally will be effective in preventing

and detecting criminal, civil, and administrative violations

under this Act and in promoting quality of care; and

(B) includes at least the required components specified

in paragraph (4).

(4) Required Components of Program:

The required components of a compliance and ethics program of an operating organization are the following:

(A) The organization must have established compliance standards and procedures to be followed by its

employees and other agents that are reasonably capable

of reducing the prospect of criminal, civil, and administrative violations under this Act.

(B) Specific individuals within high-level personnel

of the organization must have been assigned overall responsibility to oversee compliance with such standards and

procedures and have sufficient resources and authority to

assure such compliance.

(C) The organization must have used due care not

to delegate substantial discretionary authority to individuals whom the organization knew, or should have known

through the exercise of due diligence, had a propensity

to engage in criminal, civil, and administrative violations

under this Act.

(D) The organization must have taken steps to communicate effectively its standards and procedures to all

employees and other agents, such as by requiring participation in training programs or by disseminating publications

that explain in a practical manner what is required.

(E) The organization must have taken reasonable

steps to achieve compliance with its standards, such as

by utilizing monitoring and auditing systems reasonably

designed to detect criminal, civil, and administrative violations under this Act by its employees and other agents

and by having in place and publicizing a reporting system

whereby employees and other agents could report violations

by others within the organization without fear of retribution.

(F) The standards must have been consistently

enforced through appropriate disciplinary mechanisms,

including, as appropriate, discipline of individuals responsible for the failure to detect an offense.

(G) After an offense has been detected, the organization must have taken all reasonable steps to respond appropriately to the offense and to prevent further similar

offenses, including any necessary modification to its pro-

gram to prevent and detect criminal, civil, and administrative violations under this Act.

(H) The organization must periodically undertake

reassessment of its compliance program to identify changes

necessary to reflect changes within the organization and

its facilities.

QUALITY ASSURANCE AND PERFORMANCE IMPROVEMENT PROGRAM.

(1) IN GENERAL—Not later than December 31, 2011, the

Secretary shall establish and implement a quality assurance

and performance improvement program (in this subparagraph

referred to as the “QAPI program”) for facilities, including multi-unit chains of facilities. Under the QAPI program, the Secretary

shall establish standards relating to quality assurance and

performance improvement with respect to facilities and provide

technical assistance to facilities on the development of best

practices in order to meet such standards. Not later than 1

year after the date on which the regulations are promulgated

under paragraph (2), a facility must submit to the Secretary

a plan for the facility to meet such standards and implement

such best practices, including how to coordinate the

implementation of such plan with quality assessment and

assurance activities conducted under sections 1819(b)(1)(B) and

1919(b)(1)(B), as applicable.

(2) REGULATIONS—The Secretary shall promulgate regulations to carry out this subsection.

Source

Patient Protection and Affordable Care Act (Jan. 5, 2010)

“There are a lot of lurking questions about what that requirement means,” Moroney says. For example, it’s unclear whether two hospitals serving the same community can collaborate to conduct a joint assessment or must each do their own—which could be expensive and time-consuming.

In addition, as part of their annual IRS Form 990 filings (essentially, annual reports for public charities), those hospitals must include a description of how they’re addressing needs identified in the assessment, and for any needs not being addressed, explain why. Hospitals that fail to comply will be subject to a tax of $50,000 per tax year.

Tax-exempt hospitals will also now need to include audited financial statements with their Form 990 returns. Since Form 990s are open to public inspection (state records offices usually maintain them in paper or database form), that means the financial statements will be subject to public disclosure as well. Moroney says that could be a cause of consternation for finance departments, too.

Additionally, effective for tax years beginning after March 23, 2010, tax-exempt hospitals must have written financial assistance policies that meet detailed criteria under healthcare reform law. While most hospitals have a financial assistance policy already, Moroney says some “may not have it in writing, may not have formalized it to the degree the new law contemplates, and may not have thought about how to publicize it.”

Even if their hospital does have a formal policy, she adds, compliance executives must ensure that it meets healthcare reform’s specific content requirements and “think about how it translates into process and operations.”

Other requirements already in effect require hospitals to limit the amounts charged to patients qualifying for financial assistance and to limit collection practices.

And one broad provision that’s “giving people heartburn,” Moroney says, is a stipulation that organizations operating more than one hospital meet healthcare reform requirements separately for each hospital facility. Right now, she says, it’s unclear what might happen to an organization that operates multiple hospitals if one facility isn’t in compliance but its others are.

Nursing Homes

Nursing homes must contend with a host of new transparency provisions that vastly expand the ownership information they must provide to enroll as Medicare and Medicaid providers. “There’s a long list of new information they now have to provide, and that information will be made available to states and the public,” says Scot Hasselman of the law firm Reed Smith.

Nursing facilities were already required to disclose information about any person or entity that holds an ownership interest of 5 percent or more. Healthcare reform now expands that to require new detailed disclosures about the facility’s organizational structure and officers, directors, and trustees, among other things.

Hasselman

For instance, a new category of “additional disclosable parties” includes information on any person or entity that exercises operational, financial, or managerial control over the facility, or that leases or sub-leases real property or owns a whole or part interest of 5 percent or more of the property’s total value.

Collecting and tracking all that information will be a significant administrative challenge, Hasselman says. Due to the broad definition of “additional disclosable parties,” it could become “very complicated quickly.”

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