Out of the blue, D.C. healthcare regulators informed Hero Practice Services that its two dental practices needed a “certificate of need.” The lengthy, stringent process to secure one would have hamstrung the practices, which served 50% Medicaid patients. Hero’s general counsel Eleanor Kasper and her team worked with the D.C. council to update the antiquated law so dental practices would no longer be called out on certificates of need.
The story reflects the mission of Hero, a healthcare practice management company whose providers in dental, vision and orthodontics are located in many underserved communities and see 97% Medicaid recipients. In this conversation with McGuireWoods partner and host Geoff Cockrell, Eleanor discusses navigating regulatory requirements across different states, retaining providers and challenging the notion that private equity-backed healthcare is “bad.”
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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.
This is The Corner Series, a McGuireWoods series exploring business and legal issues prevalent in today's private equity industry. Tune in with McGuireWoods partner, Geoff Cockrell, as he and specialists share real-world insight to help enhance your knowledge.
Geoff Cockrell (:Thank you for joining another episode of The Corner Series. I'm your host, Geoff Cockrell. Here at The Corner Series, we try to bring together thought leaders and deal makers at the intersection of private equity and all things healthcare. Today I'm joined by Eleanor Kasper, general counsel at Hero Practice Services. Eleanor, if you could introduce yourself and Hero a little bit. I've worked with you guys for a long time, and you have some interesting business models that are a little different, but maybe give a little primer on yourself and Hero.
Eleanor Kasper (:Absolutely. Thanks, Geoff. I'm happy to be here today. So Hero Practice Services is essentially a healthcare practice management company that manages practices in the pediatric space for dental, vision, and orthodontics. So certain of our practices may have one line of business, vision, for example, or dental, or they might have two or three. And that's unique in that the kiddos that come to our practices can get all three services done in a much more efficient manner.
(:We are about 97% Medicaid, and we're located in some pretty underserved areas. So the ability for parents to bring patients in and have multiple services in one fell swoop as opposed to having to miss work or figure out transportation to get back two or three times is really kind of the core of our model.
Geoff Cockrell (:All dental practices have compliance issues that they have to navigate, but with Hero having such a high percentage of government reimbursement, it puts a premium on making sure that you have compliant businesses, especially when you've got different kinds of practices that might be internally referring. How do you think of establishing a broad culture of compliance across such a far-flung organization?
Eleanor Kasper (:Yeah, absolutely. As the general counsel and chief compliance officer, I spend a lot of time thinking about compliance and what that means. And so our framework, our kind of overarching framework for all lines of business is the elements that the US Department of Health and Human Services has promulgated. So these are seemingly pretty basic concepts like having your compliance officer and committee communication and education, auditing, investigating, all of these really critical elements. But we put a lot of emphasis on ensuring that these elements are not just on paper, right?
(:So we have a set-up where I have another attorney on my team, she's the legal and compliance associate, Tiphani Gay. She's absolutely fantastic. And then I have another woman who really focuses on clinical compliance.
(:So when we think about compliance in the healthcare sphere, it's essentially broken into two categories that have a lot of overlap, but we have our legal compliance, so to speak. We're making sure that we're complying with HIPAA records, release timeframes, or my background's employment law, so I do a lot of advising with the People Group Services. There's a lot of legal compliance from an employment law standpoint.
(:Then separately, we have our healthcare-specific practice compliance, so ensuring that our water lines are clean. There's a lot that goes into the day to day clinical compliance functions, and with my background being law and my colleague Tiphani's background being law, we rely very heavily on our compliance counterparts that are in the field to help make sure all of the clinical audits are taking place to make sure everybody is wearing their PPE where they need to be wearing it and not where they don't need to be wearing it. So there's that piece of it.
(:And then there's, you mentioned the Medicaid piece, there's the auditing piece, that's a big part of our compliance program. We have clinical audits to make sure that everything in the practices is running how it should and everything is sterilized appropriately, the water lines are clean, all of those sorts of things.
(:Then we have the provider chart audits. We have internal chart audits and external, and that's to make sure that the quality of care is there.
(:And then separate from all of that is the billing audit piece. And that's a big piece given that we are so heavily Medicaid-funded. But in general, to create the culture that I think is necessary to have an effective compliance program, you have to have buy-in at all the different levels. So everybody from the CEO down to the newest employee who just joined the company, everybody needs to understand that the compliance team is here not only as a rule enforcer or the ones that conduct scary investigations, but as a resource. And that's taken time to build that level of trust. And I'm really, really proud of being to the point where now people call us throughout the day, all day, every day or send a Teams message, send an email just seeking guidance because they understand that we're here as part of a support role to ensure or help ensure that they're doing what they need to be doing.
Geoff Cockrell (:One of the kind of, as I've worked with a number of dental and another retail multi-site healthcare businesses, one of the markers of difference that I've seen out there is the degree to which an overall business is central command and control, consistency-oriented versus local autonomy-oriented. And each of those have a kind of pluses and minuses at various levels, both production, local decision making, a lot of things that can be better or worse in different contexts. How does Hero think about that dichotomy of central consistent command and control versus a local autonomy?
Eleanor Kasper (:Yeah, that's a great question, and it's something that we talk about a lot, and we really try to reiterate to the practices where we think that line of demarcation, so to speak, is. So anything that is clinical decision, clinical process, anything of that sort lives at the practice. We are acutely aware that nobody working for Hero management is in a position to make a clinical decision. So all of that lives at the practice.
(:What I would say, I find it interesting, but a lot of clinicians would probably say the boring stuff is really what Hero owns. So all of the administrative pieces, people services, putting out compliance policies, and this is where it gets a little bit tricky. We put out policies, we help enforce the policies, but at the end of the day, the local leadership really is charged with making sure those policies are followed since we're not there every day, we don't see everything that happens. So we try to really empower our operations managers and our providers to have an attitude of ownership.
Geoff Cockrell (:One of the pervasive storylines currently is, and I think this is an incorrect storyline, but you see it a lot in the press of the hazards of having private equity involvement in healthcare, and there's a few notable examples against the many private equity funds that are invested in healthcare services that I work with. I see a very different picture. From where you sit, what has been the benefit of having private equity capital and engagement on your business, and how would you contrast that with some of the prevailing storylines?
Eleanor Kasper (:Yeah, that's a great question. So we follow all of the media around PE-owned or PE-backed healthcare, healthcare transaction laws. All of these topics have been very heavy in the media, and I think some degree of regulation oversight is a good thing, and I think that focus that's truly on patient safety is a good thing. We can always have those discussions, but I do think that a lot of this media attention and a lot of the healthcare transaction laws, for example, the one in California that thankfully was just vetoed, I think these come from a place of, to some extent, fear, a lack of understanding about the degree to which probably the medical world in general, but for certain the dental world is relying on support organizations.
(:So what I see is being in charge of making sure that Hero is complying with all of the regulations out there. As the country becomes increasingly more regulated, and as being a business owner becomes increasingly more expensive, more risky, more time-consuming, it's nearly impossible for many providers to graduate from medical or dental school and open their own businesses.
(:So many of the providers that are interested in working for us recognize that they don't have a lot of options outside of working for a support group unless they're business-minded or unless they want to take on the cost and the risk.
(:So by working with a support organization typically, which is PE-backed, we're doing all of the behind the scenes work for these providers, which frankly is no small feat. And so I hear the arguments, but I see the reality that we're going to have an increased healthcare crisis throughout this country if we start blocking or banning these kinds of transactions.
(:And the proposed bill in California would've been detrimental to the DSO world. It essentially would've banned PE-backed DSOs, and I really don't think the legislature understood the impact that such a law would've had on access to dental care, healthcare in general. And then when we're thinking about the Medicaid world or we're thinking about patients who don't have insurance at all, essentially it would have removed opportunities for many of those individuals to get healthcare.
(:So I hear their arguments. I'm sure that in certain cases there is validity. I know that there have been bad actors in the past, absolutely. But I think the presumption that all PE-backed healthcare is bad is really unfounded.
Geoff Cockrell (:Eleanor, beyond just broad regulatory compliance, having a large business with lots and lots of employees across lots and lots of states can introduce a number of employment-related legal challenges. Given where you guys sit in the areas that you are, what are some of the key challenges from an employment perspective that are arising?
Eleanor Kasper (:So we currently have practices in six states and the District of Columbia. So as you can imagine with some of the more regulated states like California, Colorado, we're constantly following updates, regulatory changes in these states, but even in some of the less regulated states.
(:So I work very closely with the people services team. We have a fantastic team of HR business partners who do a great job owning the regulatory landscape. Even though they're not attorneys, they do a great job following what's going on, pending legislation, and we spent a lot of time collaborating.
(:So right now this year, we've been undertaking a self-audit for FLSA exemption purposes, and right now we're in a little bit of a holding pattern while we wait to see what comes out of Texas. But we always want to be ahead of the game, especially as we move from the end of one year into the next year as new laws can go into effect or not.
(:We partner really closely with the people services team anytime we have a complaint or an investigation that centers on employee behavior. So we have a confidential employee hotline where if employees would like to remain confidential and report a compliance concern, they can do that. A lot of times we find that they don't really care about remaining anonymous, and so they will identify their name, which gives us a little bit more information to help investigate and see what's going on. But partner very, very closely with people services on that.
(:One of the challenges is differences in break laws, pay laws across states. So we're consistently engaging in discussions to figure out the best ways to navigate some of these inconsistencies from state to state that seemingly would be a little bit easier if regulated federally, but I understand that's probably not going to happen.
Geoff Cockrell (:In a number of retail provider services businesses, maintaining the provider base in your organization is the be-all or one of the be-all, end-alls of success in the business, and holding people sticky to businesses is done through a combination of carrots and sticks, carrots being compensation apparatus, sticks, among other things, being a restrictive covenants. The general sensation is that the tide is moving against employment-based restrictive covenants. The FTC has made moves to make some bans on employment-based restrictive covenants. Obviously that's been held up, and we're recording this after the election, and the next administration might have a different take on that. But as you're looking at your business, how do you thinking about maintaining stickiness with providers? How do you guys think about the balance of carrots and sticks in that environment?
Eleanor Kasper (:So I think in general, the carrot is always pay, right? We pay very competitively. We also expect our providers to do a little bit more than just diagnosing and treating dental, vision, orthodontic issues. We do expect them to be part of the team to show leadership in the practice, to show up for what we call morning huddles where the whole team at a practice meets before patients get there.
(:And so it's been an evolution during the time that I've been here to see how our approach has changed. And I think that our current VP of recruiting has really done a fantastic job helping us achieve that balance. The pay piece is so critical. Given the tide moving away from restrictive covenants, I think we have a very reasonable approach. We're consistently updating our contracts. I engage in negotiations with potential provider council, and I'm really proud of the collaborative dialogue that we have when we are negotiating these contracts because we understand that providers are real people and they have real families to support and they have real concerns.
(:And so I think we do a great job addressing those, writing in exceptions where it makes sense to do so, but still maintaining our high expectations in terms of clinical excellence and in terms of buy-in to really being part of a team, and bringing it back to the compliance piece, really being part of having an effective compliance program. We have to trust that our providers are abiding by the rules just like anybody else. They're the ones that are diagnosing treatment. We need to be confident that they understand restrictions on fraud, waste, and abuse, for example. We need to feel confident that they understand HIPAA concerns and that they're not going home and talking to their families about patient business.
Geoff Cockrell (:Eleanor, I know that Hero has been involved in some of the shifting landscape of regulatory oversight in some of the places that you guys operate, and pretty interesting story. Maybe give us a little color of some of the involvement that Hero has had in shaping the regulatory landscape.
Eleanor Kasper (:So I think the biggest example that comes to mind, and this has been in partnership with Janelle Shumaker who is our VP of pair relations and who has been very heavily involved in this space for a number of years at this point. We have two practices in DC. We've been in DC for 14 years. Suddenly out of the blue a couple years ago, we received a notice from the DC State Health Planning and Development Authority telling us that we needed a certificate of need. This was the first time in 14 years that we had heard dental practices would need a certificate of need.
(:So we dug in, we worked with outside counsel and outside lobbyists and really dissected the statutory requirement on which the district was relying and learned that it didn't make a whole lot of sense. The district was holding us out to be ambulatory centers, which also doesn't make a lot of sense given we're pediatric dental and vision practices.
(:So we got really, really involved in working with individuals at the DC Council and having conversations about why this law is pretty antiquated, why it doesn't make sense for a lot of the healthcare practitioners in the district, and in fact was having a really significant impact on healthcare providers not moving to the district and leaving the district.
(:We started looking into statistics on the number of dentists that left the district in the past few years, and it was staggering. Hero's two practices in the entire district currently see around 50% of the Medicaid patient population, and we have significant wait times. We need more providers, we need more practices, other practices need to come to the district to provide the care for the number of both kids and adults that need it there.
(:And so we felt like the district's very stringent, lengthy 18-month process was having a negative impact on this. So I'm really excited that there is current DC legislation. I don't think anything will take place until January, but we're in discussions with Christina Henderson's chief of staff to make sure that any legislation does include a specific call out for dental practices, everybody's interest, particularly the DC local government, to make sure its own policies and requirements like this aren't impacting their ability to provide care in the district.
Geoff Cockrell (:It's a fascinating story, and it is certainly the case that regulations that kind of start as trying to be protective of outcomes and concerned about adverse outcomes can become stifling to the point where the regulations themselves are creating adverse outcomes. So it's great to see you guys involved in that.
(:Eleanor, we could talk for quite a bit, but let's call it a wrap there. We've worked with you guys for a long time, and certainly think the world of you all, but thanks for coming on the podcast.
Eleanor Kasper (:Thanks so much, Geoff.
Voice Over (:Thank you for joining us on this installment of The Corner Series. To learn more about today's discussion, please email host, Geoff Cockrell, at gcockrell@mcguirewoods.com. We look forward to hearing from you.
(:This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this installment.
(:The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.