Kusserow’s Corner: Reviewing Physician Arrangements is Critical

Questionable physician arrangements are the top investigative priority of the Department of Justice (DOJ) and the HHS Office of Inspector General (OIG) with qui tam “whistleblowers” are leading them to new False Claims Act (FCA) cases daily. Two landmark FCA decisions are worthy of special note. They involved using the Stark Law as the sole predicate to the FCA. In the past the great majority of FCA cases involving physician arrangements were predicated by the Anti-Kickback Statute (AKS). Frequently, cases included both AKS and Stark violations as a predicate. These new prosecutions are different in that they were based solely upon the Stark Law. Both cases were similar on three points: (1) They were initiated by a “whistleblower” qui tam relator; (2) DOJ asserted that the hospital compensation of physicians violated the Stark Law’s prohibition against paying for Medicare referrals; and (3) both relied upon opinions from outside counsel that the arrangements complied with the Stark Law.

The first case was the $238 million award of damages after a jury trial against the Tuomey Healthcare System; most recently, the resolution of legal action against the Halifax Hospital, where confronted with up to $1.1 billion in damages and civil penalties, the hospital decided upon a tentative $85 million settlement. These are the two largest cases in the history of the Stark Law.

Stark Law

The Stark Laws were not originally intended for law enforcement, but were to be used as a regulatory payment law, but over the years evolved into more of a legal tool for FCA cases. Basically they prohibit a physician from referring a patient for certain designated health services (DHS) to an entity in which the physician, or an immediate family member, has a financial interest, such as an ownership or investment interest in the entity or a compensation arrangement, with the entity. Certain exceptions for arrangements are permitted under Stark. However, because the Stark Law is a strict liability statute, the arrangement must fit completely within the criteria of the exception in order to not violate the statute. The recent cases found that the arrangements did not meet the strict standards of the law and they caused hospitals to unnecessarily admit Medicare patients in order to obtain higher reimbursements, performed unnecessary surgeries and services, resulting in fraudulent billing practices.

Lessons Learned

These recent cases reflect the grave importance of carefully reviewing all physician compensation arrangements and exercising due diligence in documenting fair market value and commercial reasonableness. Tom Herrmann, JD, recently commented on the subject. He served twenty years with the OIG Office of General Counsel and six years as an Appellate Judge for the Medicare Appeals Board, dealing with arrangement issues. He stated that the Tuomey and Halifax cases “scream at hospitals to have expert reviews of current physician arrangements to ensure they are in compliance with both the Anti-Kickback Statute and Stark Laws.” He observed, “although physician arrangements have long been the top enforcement priority of both the OIG and DOJ, most Compliance Officers have not addressed this high risk area in their ongoing auditing and review activities, due in part to the fact that physician arrangements are viewed as the responsibility of legal counsel.” He further noted, “the arrangements at both Tuomey and Halifax were prepared by legal counsel and they were not viewed by the government as in compliance with the law.” Herrmann believes the reviews are best done by qualified, independent experts that avoid any concern about offending internal parties, responsible for developing and implementing agreements.

Arrangement Review Scope

Arrangement reviews are not financial audits, nor is it strictly a legal review of the four corners of the contract. Most such agreements have been made with legal assistance and may appear on the face of the document to be in compliance with AKS and Stark. It is what surrounds that document that may evidence non-compliance with the laws. It is this type of information that “whistleblowers” provide to DOJ. Therefore, a much more detailed audit is needed to examine all the circumstance surrounding the agreement; and the evidence to support physician compliance with the enumerated terms, including the following issues:

  • How the business necessity for an arrangement was established
  • The basis for selection of the physician
  • Whether the FMV determination for compensation is supportable
  • How the “Commercially Reasonable” standard was supported
  • Whether agreements meet the AKS “personal services” safe harbor or a Stark Law exception
  • The process whereby physician performance is evidenced before receiving payment

A proper audit should include review of documents, interview of key persons, examination of physician invoices, and selective audit of relevant emails on the subject. It is worth noting that in almost all successful cases, the DOJ/OIG found supporting evidence in wrongful intent in emails. Audit of this type is best done by experts on the subject that know exactly where to look and how to assess what is found, using the same approach that the government would follow in their investigation. Because of the depth of such an audit, it is best that they be done under direction of legal counsel.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.