Cleveland Clinic Health System Obligated Group - FMSbonds.com

party or for any services rendered on the order or under the supervision of an excluded physician. The Secretary ofDHHS is required to exclude from program participation for not less than five years any individual or entity who hasbeen convicted of a criminal offense relating to the delivery of any item or service reimbursed under Medicare or astate health care program; any criminal offense relating to patient neglect or abuse in connection with the delivery ofhealth care; a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other misdemeanorin connection with the delivery of health care services financed or with respect to any act or omission in a healthcare program (other than Medicare or a state health care program) operated by or financed in whole or in part by agovernmental agency; or a felony offense relating to the illegal manufacture, distribution, prescription or dispensingof a controlled substance. The Secretary also has permissive authority to exclude individuals or entities undercertain other circumstances, such as a misdemeanor conviction for fraud in connection with delivery of health careservices or conviction for obstruction of an investigation of a health care violation. The minimum period ofexclusion for certain permissive exclusions is three years.Enforcement ActivityEnforcement activity against health care providers is increasing, and enforcement authorities are adoptingmore aggressive approaches. In the current regulatory climate, it is anticipated that many hospitals and physiciangroups will be subject to investigation, audit or inquiry regarding billing practices or false claims. As with otherhealth care providers, the Obligated Issuers may be the subject of investigations, audits or inquiries by a Medicareintermediary or carrier, the OIG, U.S. Attorney General, Department of Justice Medicaid fraud control unit and/orstate attorney general or other state agency in the future. Because of the complexity of these laws, the instances inwhich an alleged violation may arise to trigger such investigations, audits or inquiries are increasing and could resultin expensive and prolonged enforcement action against the Obligated Issuers.Physician RecruitmentThe Internal Revenue Service (“IRS”) and OIG have issued various pronouncements that could limitphysician recruiting and retention arrangements. In IRS Revenue Ruling 97-21, the IRS ruled that tax-exempthospitals that provide recruiting and retention incentives to physicians risk loss of tax-exempt status unless theincentives are necessary to remedy a community need and accordingly provide a community benefit; improvementof a charitable hospital’s financial condition does not necessarily constitute such a purpose. The IRS also has issuedguidelines for its agents to follow in conducting audits that emphasize these restrictions, and has established specialaudit teams and procedures to ensure compliance. The OIG has taken the position that any arrangement between afederal healthcare program-certified facility and a physician that is intended to encourage the physician to referpatients may violate the federal Anti-Kickback Statute unless a regulatory exception applies. Physician recruitingand retention arrangements may also implicate the Stark Law. While the OIG has promulgated a practitionerrecruitment safe harbor to the Anti-Kickback Statute, it is limited to recruitment in areas that are health professionalshortage areas (“HPSA”). The OIG also has issued an advisory opinion (Opinion No. 01-4) analyzing physicianrecruitment arrangements and providing further insight into the manner in which it would evaluate and apply thephysician recruitment safe harbor. The Stark Law exception for practitioner recruitment is not limited to HPSAs;rather it applies to the recruitment of physicians who are relocating their practices to the geographic area served bythe hospital, if certain requirements are met. The Stark Law also contains an exception pertaining to retentionarrangements allows hospitals, in limited circumstances, to pay incentives to retain a physician in underserved areas.CMS has also issued an advisory opinion (CMS - AO - 2007 – 01) analyzing a physician recruitment arrangementand providing further insight in the manner in which it would evaluate and apply the Stark Law recruitmentexception.Management of the Cleveland Clinic believes that the physician recruitment programs of the ObligatedIssuers are in material compliance with these laws and policies, but no assurance can be given that the IRS or OIGwill not take a contrary position and that such position or any future laws, regulations or policies will not have amaterial adverse impact on the ability of the Obligated Issuers to recruit and retain physicians.Emergency Medical Treatment and Active Labor ActThe federal Emergency Medical Treatment and Active Labor Act (“EMTALA”) imposes certainrequirements on hospitals and facilities with emergency departments. Generally, EMTALA requires that hospitals35