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Legal’s Role in Business Strategy
September 25, 2020
Lawyers are trusted advisors, but what happens when lawyers choose to be more? Can outside legal counsel be in a position to effectively advocate for your business? Advocacy can take many forms: cultivating collaboration across business units, creating new customer and vendor relationships, and more. The most successful of these endeavors occur when lawyers help businesses achieve legal protection and compliance while fully considering business realities such as operations, profit and importance of the contemplated deal, process or arrangement.
The tension between business realities and legal protection and compliance is heightened in the “gray areas” in which business leaders often operate. The natural tendency for lawyers confronted with gray areas is to find the safest path forward notwithstanding profitability. That path normally includes working with business leaders to simply get out of the gray area.
Although that isn’t a bad first step, it is just a first step. In some instances, the business model and growth potential are attributable to willingness of the business to operate in the gray area. In these situations, outside legal counsel can offer valuable perspectives and insights to help navigate difficult questions, help with close calls at the strategy level, and provide detailed steps to avoid pitfalls at the operational level.
Facing a recent business challenge, PRSM Healthcare and its outside counsel worked in this collaborative fashion to drive business value and customer acquisition.
Reconciling Tension Between Business Model And Legal Concerns
PRSM Healthcare, a domestic, “skin-in-the-game” medical scheduling service in Wellsboro, Pennsylvania, partners with various gastrointestinal (GI) practices to provide medical scheduling services. The skin-in-the-game model was a significant gray area causing tension between the company’s business model and legal regulations.
The anti-kickback statute makes it illegal for healthcare providers to accept remuneration for generating Medicare, Medicaid or other federal health care program business. To avoid this issue, medical scheduling services are typically paid based on talk time or number of patients scheduled. In PRSM’s model, PRSM is only paid after the practice is paid for a procedure scheduled by PRSM. If the practice isn’t paid, PRSM isn’t paid.
PRSM’s model solves a business problem for medical practices. The typical model puts the practice somewhat at odds with the scheduling service, as the scheduling service is incentivized to keep patients on the phone if paid per minute of talk time, or quickly schedule and rush patients off the phone if paid per scheduled visit. PRSM contacts and pursues patients through all forms of communication at no cost to the medical practice, documents everything in its cloud-based software system, and schedules patients directly through integration with the medical practice’s systems. PRSM earns a flat fee only after a patient presents for treatment and has a procedure, and the physician bills the payer.
In this case, the solution to a business problem for medical practices raised legal questions for PRSM. This skin-in-the-game system appeared to violate the anti-kickback statute.
When discussing the potential anti-kickback issue, a couple of things became clear: The skin-in-the-game model is particularly important for PRSM’s target customers, GI practices. The model positions PRSM for scalable growth.
Unlike in many healthcare sectors, the Centers for Medicare & Medicaid Services (CMS) spells out specific guidelines for GI practices. Colorectal and GI cancers are amongst the most common causes of cancer death in the United States. CMS has gone to great lengths to ensure that GI physicians are seeing, diagnosing, and treating their patient populations to catch early-stage cancer signs and prevent cancer recurrence. This creates a regular rhythm of patient visits and necessitates processes for patient communication to schedule follow-up appointments and screenings.
PRSM’s GI practice clients, however, are not paid unless and until a patient elects a procedure and it is performed by the practice. PRSM fills an essential gap in the medical scheduling space by enabling GI practices to choose a partner that gets paid when revenue is generated, versus a vendor that gets paid in a manner that fails to ensure alignment of practice and service provider incentives.
The confluence of two factors — the gap in an easily identifiable, large, and highly regulated market and PRSM’s willingness and ability to fill the gap and serve as a partner to its clients — positions PRSM for nationwide growth. Given the importance of the skin-in-the-game approach to PRSM’s clients and, hence, PRSM’s growth prospects, outside counsel collaborated with PRSM’s leadership team to solve the potential anti-kickback problem.
A Multi-Disciplinary Team
Although the legal problem was clear, the easiest legal solution — switch the payment model to one not based on skin-in-the-game — was not a viable solution for PRSM. Outside counsel was directed to work with PRSM to craft a legal solution that would give PRSM guidelines to avoid anti-kickback issues, preserve PRSM’s growth trajectory, and address any additional issues surfaced in the contract review process.
The contract review process involved review of a series of contracts, including the largest contract in PRSM’s history. PRSM could ill afford an unavoidable issue to delay review of the many legal issues on the table, including data privacy issues generally, HIPAA issues, cybersecurity issues, and negotiation of critical value-shifting provisions such as governing law and venue.
A diverse team of individuals was assembled to implement this new business strategy. The team included the legal department and non-attorney members to access contract negotiation efforts and development of an information security strategy, along with an understanding of data privacy (a key issue given PRSM’s reliance on technology integration with medical practice electronic health records systems) and HIPAA compliance efforts.
Unique to PRSM’s partnership with outside counsel was the law firm’s ability to also draw on a multi-disciplinary team, which included information technology professionals and other consultants, to provide a comprehensive solution. After analysis and discussion of Office of the Inspector General opinions, Stark Law and anti-kickback statute safe harbors, PRSM and its outside counsel worked together to implement new processes that allow PRSM to work collaboratively with its customers. Each legal issue was addressed, each contract was finalized, and a lasting attorney-client relationship was cemented.
For such a successful outcome to be replicable, in-house legal departments, outside counsel and the business leadership team must have clearly defined roles and expectations for working together. Establishing a productive relationship where all have a seat at the table streamlines the legal process. And in this case, upon request for information about operations and cost or value likely to result from inclusion or exclusion of heavily negotiated provisions, PRSM provided fast, clear responses. Likewise, outside counsel was responsive and invested time to understand PRISM’s business.
As a result of these efforts, PRSM signed one of the Southeast’s largest GI practices. More patients are being screened for deadly cancers because of PRSM’s awareness of how to communicate with and help retain patients. Practices are mitigating risk and paying only after procedures for which they are being paid are completed. Payers are realizing gains from investing in cancer screening and saving on cancer treatment. PRSM’s relationship with its legal counsel plays a significant role in helping the company reach its goals.
The cohesive relationship between PRSM and their outside counsel not only resulted in achievement of immediate aims but also set the stage for further success. PRSM’s growth is scalable, as the company’s procedure completion rates continue to exceed national averages. PRSM is in talks with numerous large practices to identify synergies and determine ideal timing to begin contractual negotiations.
The in-house counsel, outside counsel and business leadership relationship is the result of full alignment on key issues and corporate objectives. Understanding big picture goals and managing legal issues in a way that prioritizes those goals ensures successful outcomes and creates the foundation for growth.
Alignment between the legal team, both in-house and outside counsel, and the business leadership team should be the goal of every legal relationship. Attorneys set the tone for each client relationship by determining business goals and constraints first, legal questions and issues second, and the framing of legal issues in ways that redefine the rubric for attorney success. Success in addressing legal problems alone results in a pat on the back. Success in navigating legal issues based on the client’s shared business and legal goals results in a lasting relationship as the client’s trusted advisor — the goal of the legal engagement.
By Jason Gehman, PRSM Healthcare and Jimmie Strong, Baker Donelson
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