Updated guidance has been issued by the U.S. Departments of Justice and Housing and Urban Development. The pronouncements open the door for local regulation of sober homes on a broad basis. In the past, state and local governments were limited in their ability to regulate sober homes because of the Fair Housing Act’s protection of the disabled. The new guidance is designed to assist state and local governments so that they may impose new restrictions but at the same time maintain compliance with the FHA.
The new guidelines do detail many prohibited forms of regulations, but they also go on to explain that state and local governments may act in certain ways that will have a significant impact. Specifically, state and local governments may deny a sober home if the cost burden on the city is too high. Cities can also establish licensing programs or implement other requirements for sober homes, as long as the requirements are not based on stereotypes and are fairly and equally applied.
In addition, the new guidelines clarify that state and local governments can take action in response to criminal activity, insurance fraud, Medicaid Fraud, neglect or abuse of residents, or other illegal conduct occurring at group homes. There can be spacing requirements imposed.
Sober home operators must be aware of the effect that these new guidelines will have on local regulation. Reasonable accommodations will be a far more intensive approval process than ever before.
Substance abuse recovery providers and associated businesses must deal with a new reality as to their place in the mental health continuum of care and their existence as a viable financial model providing services to the recovery population. As an attorney who has spent more than twenty years assisting the recovery community with their governmental needs, I am in a unique position to offer some of the historical background of the recovery industry.
Until the early ‘90’s, it was a “cottage industry,” filled with operators who remained mostly anonymous, with backgrounds as clinicians, psychiatrists and psychologists. Throughout the ‘90’s, the industry grew in an orderly fashion with an emphasis on re-introducing the recovery population into their surroundings, hence the growth of sober homes. And yes, many of those who moved to Florida for recovery elected to stay. Somewhat like the gay population in San Francisco, there was a recovery network in Florida. After the millennium, mental health care benefits became widespread, and after the enactment of the Affordable Health Care Act, true availability became a reality. This began an explosion of sober homes and neophyte operators, all protected by the ADA/FHA and therefore placed throughout neighborhoods of all economic stripes. Many operators were members of the recovery community with good intentions, but they never truly understood the profound responsibility of running their own business and caring for others. The hostility from the general public was overwhelming, with a panic by ordinary citizens as to crime, falling real estate values and fear that their children would be recruited into drug use.
The outcome was inevitable. Local governments, cut off by the ADA/FHA on the issue of sober home placement, turned to their elected officials for other forms of regulation. In 2014, the FBI made its first raids of sober homes, but the indictments seemed to stall. Then, upon scrutiny of the statutes surrounding substance abuse assistance, the government realized that some practices that seemed innocuous on the surface, almost “business as usual,” were in fact illegal. Following this recent realization, state and local authorities began making their own raids, grabbing local headlines.
I have reviewed the arrest reports and the use of confidential informants, and I think that these raids, unlike the FBI’s raids from 2014, are likely to go somewhere. And Florida State Statute 817.505, which is under the “Crimes” section of the Florida Statutes, is at the center of the matter. Those of you reading this may think this is just a “white collar crime,” but you must remember that this is an important matter. Violations of Section 817.505 will be prosecuted.
Florida State Statute 817.505 states “It is unlawful for any person, including any health care provider or health care facility, to: (a) Offer or pay any commission, bonus, rebate, kickback, or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, to induce the referral of patients or patronage to or from a health care provider or health care facility.”
Carefully note that Section 817.505 says “direct” or “indirect” and goes further to say “in any form whatsoever.” The broad scope of these provisions cannot be underestimated. There are some who want to craft a way around Section 817.505, but at this point in time, “crafting” is not what the industry needs. Remember all the tax gambits and stock schemes you have read about over the years? They all started with so-called consultants “crafting” something to escape the rules of the SEC or the IRS. In an industry that already has public relations problems, “crafting” is not the solution.
Section 817.505 contains some exceptions, which I will deal with in another article, but these exceptions will not assist you in the manner you expect. The bottom line is this: the marketing, branding and selling of recovery services is highly regulated and the common sense business approach that may be non-controversial in other industries presents difficulties in the recovery industry. Given the regulations, you may have your sign, your website, and “word of mouth” (that is, your own good reputation). But it may surprise you that the State Drug Task Force recently discussed the fact that there are scenarios in which an honest recommendation without compensation could be against the law!
With new legislation, the members of the industry who are trying to deliver outstanding service to a population in need will be given a clear path as to how to market, brand and sell their services. That path does not exist right now under the present legislation. You will be surprised at what operations you believe are common place in the industry break the present laws.
I have personally been counseling my clients to take this conservative approach to marketing long before this new raid, and I believe that we must spread the word that operators should be conservative and not crafty. I do believe that all involved understand the crisis and that State legislators will sooner or later pass new legislation giving some relief.
We urge you to review your operations on, among other things, collection of rent, eliminating “case management” and “boiler room” marketing or call centers. Review policies on medical necessity in connection with ordering urine testing as well as the pricing of the testing. The bundling of services, whether it be Yoga or urine testing, and the billing for it will be closely reviewed not only by the authorities but by the insurance companies. Remember, you have a “captive” population, and if you financially abuse them, expect to be taken to task.
So, at this point, we must wait for the reset button. Let’s see if we can get some reasonable laws passed.
The Comprehensive Addiction and Recovery Act (CARA) passed the Senate and the House. The bill contains numerous new policies including:
Expansion on which health care professionals may prescribe medications to treat people with addiction
Treatment instead of incarceration programs
Expanded availability of naloxone to first responders and others in the community
Grants for improving and expanding treatment and recovery programs
The bill only provided about half as much money as President Obama requested to help pay for the new programs. Despite this fact, it does go far in a number of areas and it helps in the ongoing efforts to see addiction as a health problem not a crime.
Are you interested in buying or selling a sober home or other recovery facility? If you are, you are not alone. A good deal of consolidation is occurring in the substance abuse disorder industry. However, it is important to keep in mind that the sale and purchase of a going concern involved in such a highly regulated business has its own challenges.
If you are considering buying or selling a sober home or other recovery facility, you must plan ahead. In going through with this transaction, you will be confronting issues unique to a health care organization. Here is a partial list of some of the matters that you should start thinking about as you consider this transaction:
Be careful with patient information because that information is protected by several laws. You may have heard of the Health Insurance Portability and Accountability Act (commonly known as HIPAA). HIPAA protects against the unauthorized disclosure of confidential patient information. However, you may not be aware that federal and state laws. However, federal law and laws in several states, including Florida, provide additional protections against the disclosure of information related to patients in substance abuse programs. These laws go further than HIPAA and provide even stricter rules about confidentiality. If you are a seller of a sober home or other recovery facility, you must protect the confidentiality of the patients’ information. If you are a buyer of a sober home or other recovery facility, you must find a way to conduct due diligence while still complying with the confidentiality requirements.
The sober home or recovery facility you are thinking of selling or buying may be licensed by certain governmental agencies. It is important to keep in mind that licenses do not just transfer automatically with a sale. The license may have a waiting period for transfers and may require completion of the transfer before the sale is finalized. The seller of a facility needs to be concerned about this transfer just as much as the buyer does. For example, some licenses consider the seller responsible until the buyer is licensed. In addition, some licenses require that the seller maintain records for certain periods of time.
Consider the non-compete clauses that a seller will undoubtedly be asked to sign as part of the deal. It is important to keep these clauses in mind when you evaluate the terms of the sale. For example, a seller will undoubtedly have to sign a clause saying that he will not solicit his former employees. When drafting this clause, you should look carefully at its terms—what geographic area does it cover and how long does it last? This clause can have a major impact, so you should pay attention to it.
Think carefully about what assets the seller has that will become part of the transaction. It is often complicated to place an exact value on these assets. You cannot just look at the number of patients currently in the facility. They are certainly not “for sale!” You also have to consider the average length of stay, how the facility replenishes its patient population, and how it will continue to replenish its population after the sale. Sometimes there is a “system” in place that adds value to the sale. It is important for both sellers and buyers to take the specifics of the situation into consideration and evaluate the legality.
The price of the facility will include an amount to pay for other “hard assets” the facility owns. For example, a facility may own real estate, have money in bank accounts, or have expensive equipment. In considering a transaction, you should think about the values of these assets.
Consider the employees of the facility. Will the clinicians, house masters, technicians and counselors stay after the sale? Are there pension plans or other employment related matters that must be reviewed?
One additional complication could be the existence of long term agreements such as lab contracts, real estate leases or other obligations. Think about whether the facility has such commitments. You also need to consider whether the agreements can be assigned in the sale—if not, the sale might be considered a breach.
The sale will have tax ramifications. It might result in a capital gain or loss. An accountant should be involved.
The sales agreement might be structured to include payments over a period of time. A seller should evaluate the buyer’s financial condition and ability to pay the agreed amounts. One question a seller should think about is whether the buyer will be relying solely on income from the purchased facility to pay the debt.
One hot button topic has been the attitude of insurance companies towards recovery facilities. The parties to the transaction need to evaluate the accounts receivables and the possibility of their collection.
As the above list begins to illustrate, buying or selling a sober home or other recovery facility presents more issues than buying or selling an average small business. This is not a restaurant or a hair salon you are dealing with here. The seller must place a value on the sober home or other recovery facility and all of its assets (including the value of goodwill) and must then undertake careful planning to ensure a smooth sale. During this process, the seller must balance the sale efforts with ongoing patient responsibilities, maintenance of licenses and qualifications, and other daily tasks involved with operating the sober home. The buyer must use the information available to evaluate whether the sale is in his best interests. Both parties face a lot of responsibility. If you are considering buying or selling a sober home or other recovery facility, please contact a legal professional such as the experienced attorneys at Weiner & Thompson. This article is not intended to provide legal advice.
The Palm Beach Town Council declared “Zoning in Progress” so that officials can consider new regulations of sober homes. Palm Beach recognizes that it cannot ban sober homes, but is considering new restrictions. We will be following this story and will report back with new developments.
Two California Assembly Members have proposed bills that would regulate sober homes. AB 2255 would require sober homes to have a live-in manager, operator, or owner and would require clients to participate in “legitimate programs of recovery.” The California Department of Health Care Services (“the Department”) would be charged with investigations, sanctions, and disciplinary actions. AB 2403 would authorize the Department to deny permits for treatment facilities within 300 feet of other facilities.
This article offers an explanation of sober living and explores some of its major pros and cons. Sober living can be useful because it provides a drug-free living situation, structure, and a community; however, the lack of regulation and confidentiality may cause problems. The author of the post notes that the factors that make a good sober living home are accountability, boundaries, one or two strike policy for using, structure and rules, amenities, and recovery program involvement.
An integrated recovery provider is a company with single common ownership that provides counseling, housing, billing and lab services. An integrated recovery provider would own its own lab, and own or rent its own offices and homes from unrelated parties. Licenses for the operations, including DCF and CLIA, would be in a single name. The provider might contract with outside managers, consultants and independent contractors in order to assure quality control and supply necessary expertise or guidance. This might include lab managers, physicians and physiatrists. The provider would only test its own patient base, not work for others.
This model might be based solely upon the good intentions to provide quality services and have nothing to do with patient brokering or any intention to unlawfully increase reimbursements for care. In fact, the intentions are most likely related to quality control. The question becomes: is this integrated system alone in violation of any law? Unfortunately, the way the laws are written, you are guilty until proven innocent.
Below is a summary of some of the laws and challenges to which an integrated recovery provider should pay special attention.
A. Stark Act
The Stark Law, 42 U.S.C. § 1395nn (also known as the “Physician Self-Referral Statute”), generally prohibits the referral of Medicare and Medicaid beneficiaries by a physician to an entity for the provision of “designated health services” if the physician, or the physician’s immediate family member, has a financial relationship with the entity, unless a statutory exception applies to that financial relationship. For purposes of the Stark Law, a “financial relationship” can include an ownership interest, an investment interest, and/or a compensation arrangement. The Stark Law is a strict liability statute and thus, no proof of bad intent is required to violate the Stark law. As a result, any arrangement that does not satisfy all of the criteria of a statutorily-defined Stark Law exception is illegal.
It is important to note that the Stark law prohibits physicians from referring patients to receive “designated health services” unless an exception applies. “Designated health services” include clinical laboratory services. This is not a “doctors” only statute. The Stark law prohibits the submission, or causing the submission, of claims in violation of the law’s restrictions on referrals. So, in discussing integration of ownership, the statute is not discussing your ownership, but the relationship of your particular doctor to this system. The doctor’s relationship could trigger the Stark Act, which has been amended on more than one occasion and remains complex. If your physician runs afoul of it, it could involve you as well.
B. Anti-Kickback Statute and Related Laws
The Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b) prohibits providers of services or goods covered by a federal healthcare program (“Federal Healthcare Program”) from knowingly and willingly soliciting or receiving or providing any remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual, or furnishing or arranging for a good or service for which payment may be made under a Federal Healthcare Program. The Federal Anti-Kickback Statute is an intent-based statute. For purposes of the Federal Anti-Kickback Statute, a “Federal Healthcare Program” is defined as “any plan or program that provides health benefits, whether directly through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government; or any State health care program . . .” (42 U.S.C. § 1320a-7b(f)). The Medicare, Medicaid, and TRICARE (military coverage) programs are all Federal Healthcare Programs.
The Anti-Kickback Statute is a criminal law involving any item or service payable by the Federal Healthcare Programs (e.g., drugs, supplies, or health care services). This gets tricky because everyone interprets this to mean the programs I mentioned above, but this is just a “short hand.” It could be that the new insurance programs receiving Federal subsidy under the Affordable Health Care Act are also covered by the statute. While the government has made certain pronouncements that the new insurance programs are not covered by the Anti-Kickback Statute, this issue is not yet settled by any court case.
Under the Anti-Kickback Statute, paying for referrals is a crime. Prohibited remuneration includes anything of value, which can take many forms besides cash, such as free rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consultancies. The statute covers those giving as well as those receiving kickbacks. Criminal penalties and administrative sanctions for violating the law include fines, jail terms, and exclusion from participation in the Federal Healthcare Programs.
Safe harbors protect certain payment and business practices that could otherwise violate the statute. Some safe harbors address office leases, personal service and management contracts, and appropriate payments to bona fide employees. To be protected by a safe harbor, an arrangement must fit squarely in the safe harbor and satisfy all of its requirements.
C. The False Claims Act
The False Claims Act, 31 U.S.C. § 3729, imposes liability upon any person who knowingly submits or causes the submission of false or fraudulent claims for payment or approval. Under the False Claims Act, a person with evidence of fraud (a “whistle-blower”) is authorized to file a case in federal court and sue on behalf of the government. In the healthcare context, examples of conduct that can arguably lead to charges of violations of the statute include, but are not limited to: billing for medical services not rendered; misrepresenting the level of services rendered; and submitting a claim for payment that is contrary to Federal Healthcare Program payment requirements. You have already heard of this statute in connection with the “medical mobility scooter” cases, but it is applicable to a number of health related items.
D. State Statutes
The important parts of the state statutes in the context of sober providers are Fl. State Statute Sec. 817.234 and Fl. State Statue Sec. 817.505. The first section makes “insurance fraud” a crime, and the second makes patient brokering a crime. These are in the “CRIMES” chapter of the Florida Statutes and are labeled as such. The important thing to note about state regulation is that it clearly covers a “health care provider or health care facility” that is a community service provider contracting with the Department of Children and Families to furnish alcohol, drug abuse, or mental health services under part IV of chapter 394 or any substance abuse service provider licensed under chapter 397. There is no argument that it would not apply because: 1) you were not a physician; 2) you were not accepting any reimbursement whatsoever from Federal Healthcare Programs; or 3) you were in a “safe harbor.” The reach of these statutes is broad: It is unlawful for any person, including any health care provider or health care facility, to (a) offer or pay any commission, bonus, rebate, kickback, or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, to induce the referral of patients or patronage to or from a health care provider or health care facility; (b) solicit or receive any commission, bonus, rebate, kickback, or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, in return for referring patients or patronage to or from a health care provider or health care facility; or (c) solicit or receive any commission, bonus, rebate, kickback, or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, in return for the acceptance or acknowledgment of treatment from a health care provider or health care facility. When you see language as strong as that, it makes you wonder how any attorney can tell you that you are safe unless there is a case directly on point or an Attorney General’s opinion giving comfort.
If you own a lab, then additional state statutes apply because labs have specific state statutory requirements. Generally speaking, in short hand, recovery providers fall under Chapter 394 as to mental health and Chapter 397 as to substance abuse recovery. Labs fall under Chapter 483.
E. Insurance Companies Generally
The insurance companies have constructed their own approach to the “legality” of an integrated ownership of recovery services. This arose out of an attempted use of an “investment” safe harbor to some of the laws mentioned above. The approach of the insurance companies is important to understand: operations can taint any system, no matter how well planned. So, reviewing one recently filed case, we find that the insurance company asks for federal court jurisdiction and venue because their plans are governed by the Employee Retirement and Income Security Act (“ERISA”). Employer health plans are organized under ERISA. The insurance company exercises its discretion over claims related to those plans as an ERISA fiduciary. Further, the insurance companies have private agreements with the health plans called Administrative Services Agreements. The Administrative Services Agreements assign authority, responsibility, and discretion to the insurance company to determine coverage and claims.
Most of the allegations from the insurance companies have nothing to do with Federal law. They do not need Stark or HIPPA. They use a number of state statutes, including: 1) Florida State Statute Sec. 501.204 dealing generally with unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in any industry; 2) Florida State Statute Sec. 456.054 stating that it is unlawful for any health care provider or any provider of health care services to offer, pay, solicit, or receive a kickback, directly or indirectly, overtly or covertly or in cash or in kind, for referring or soliciting patients; 3) Florida State Statute Sec. 483.245 stating that it is unlawful for any person to pay or receive any commission, bonus, kickback, or rebate or engage in any split-fee arrangement in any form whatsoever with any physician, organization, agency, or person, either directly or indirectly, for patients referred to a clinical laboratories; and 4) Florida State Statute Sec. 817.234 relating to false and fraudulent insurance claims against insurance companies. The last one is important: any fraud against an insurance company has its own special state statutory remedy. You can see who has been writing the laws.
The cases then go on to allege your rather ordinary causes of action: negligent misrepresentation, tortious interference with contract (the one between the health plan and the insurance company), and unjust enrichment. Insurance companies need none of the targeted Federal statutes to make their case. It is all based on the operations of the system.
Integrated recovery providers must be aware of numerous federal and state statutes. With the complex regulatory environment, any integrated recovery provider must be cautious to ensure that its business model does not result in any violations of the state and federal laws.
Even clean, well-run providers must be aware of the laws and must ensure that they are in full compliance. As a matter of public policy, integrated systems should be allowed because they can provide improved services to patients. However, a provider cannot rely on a public policy argument, and must be aware of the various regulations. With increased attention to the recovery industry, integrated recovery providers might face additional challenges.
U.S. Rep. Lois Frankel discussed the “over-proliferation” of sober homes in South Florida during her comments in support of The Comprehensive Opioid Abuse Reduction Act, HR 5046. HR 5046 does not specifically address sober homes, but Frankel used the opportunity to discuss the issue.
The Florida Legislature has been passive when considering solutions to the sober house problem that South Florida faces. One potential explanation for the problem is that eight-year term limits prevent legislators from specializing in an issue.