Kusserow on Compliance: Breaking news: Tuomey saga punctuated with DOJ settlement

The federal False Claims Act (FCA) case against Tuomey Healthcare System, which is generally viewed as the landmark case with regard to the Stark law, has finally come to a close. On October 16, 2015, the Department of Justice (DOJ) announced that Tuomey, a system based in Sumter, North Carolina, agreed to resolve the $237 million judgment against it by paying $72.4 million to the federal government. The health care system also agreed to be sold to Palmetto Health, which was described by the DOJ as a multi-hospital health care system in Columbia, South Carolina.

Background

The judgment against Tuomey was based on the submission of false claims under the FCA (31 U.S.C. § 3729) related to violations of the Stark Law (42 U.S.C. § 1395nn), a statute that prohibits hospitals from billing Medicare for certain services that have been referred by physicians with whom the hospital has an improper financial relationship. The laws includes exceptions for many common hospital-physician arrangements, but generally requires that any payments that a hospital makes to a referring physician be at fair market value (FMV) for the physician’s actual services and not take into account the volume or value of the physician’s referrals to the hospital. After a jury found that Tuomey had filed more than 21,000 false claims in violation of the Stark Law and awarded the government the $237 million judgment, the Fourth Circuit confirmed the verdict and judgment. In short, Tuomey was found to have financially rewarded doctors for referring thousands of patients.

In its appeal, Tuomey argued that it relied upon legal advice of attorneys in the development of the compensation packages, but the court rejected the argument by noting that other advice that was obtained by the health care system raised concerns over the proposed arrangements but that advice was disregarded. The court noted evidence that Tuomey entered into the arrangements to prevent the physicians from performing their services outside the hospital in office or at ambulatory surgery centers. The case also included the arrangements that exceeded FMV by a significant amount. As a result, physician income dramatically increased under the agreement. The compensation took into account the physicians’ actual or anticipated referrals to Tuomey.

Lessons learned

  • Immediately investigate any questions raised about an arrangement.
  • Commercial reasonableness analysis must be thorough and supportable.
  • Productivity bonuses should not begin until after work is performed.
  • Independent FMV determination is needed as a safeguard, but it must be defensible.
  • A provider should avoid arrangements if it is afraid to keep accurate records of deliberations of such arrangements.
  • Avoid any deals that do not feel right, no matter what advisors say.
  • No consideration can be made of the value or volume of referrals a physician may bring.
  • Do not go opinion shopping or disregard legal and expert advice about an arrangement.
  • If relying on advice of counsel defense be prepared to open those files.
  • Ensure agreements clearly define specific duties and services to be performed.
  • Never take into consideration the volume or value of referrals in any agreement.
  • Once agreements are in force, verify performance before making payments.
  • Use outside experts to review arrangements and do not rely upon the attorneys who created the arrangements.
  • Settle cases as quickly as possible to avoid the sheer magnitude of potential damages.

For more on the Tuomey case, visit the Tuomey section of the Kusserow on Compliance page.

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.

Connect with Richard Kusserow on Google+ or LinkedIn.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.

 

Kusserow on Compliance: CMS moves to ease Stark rules for providers and for CMS

In the face of the landmark Tuomey case decisions that have added teeth to the enforcement of the Stark laws, CMS has learned what providers have known for years: vagueness in the law requires more interpretation. CMS has been overwhelmed by the number of self-disclosures that require interpretation, especially those involving technical violations. Previously, the agency may not have been sympathetic to calls from providers about the burden, but once the Office of Inspector General (OIG) announced that it would not handle any Stark referrals not implicating the Anti-Kickback Statute (AKS), CMS was forced to accept all the self-disclosures. Once that occurred, need for some clarifications in the regulations became dramatically clear. In response to this problem, CMS published a Proposed rule, which, if implemented, would update the Stark law regulations to account for recent changes relating to health care reform and advancements in patient care and payment methodologies (Proposed rule, 80 FR 41686, July 15, 2015). CMS is requesting information from the health care community on whether “additional guidance or rulemaking is needed to relax or remove barriers to health reform initiatives without compromising fraud and abuse prevention.”

The focus of the Proposed rule is on some of the technical requirements, which should not rise to enforcement levels. These changes were included in the 2016 Medicare physician fee schedule regulation and address many potential modifications to the Stark law, including the creation of new exceptions and guidance on CMS’ interpretation of existing Stark law exceptions. The most significant changes would involve: (1) new exceptions under the law for time-sharing arrangements with physicians; (2) recruitment incentives for non-physician practitioners; and (3) recognition that certain technical violations, such as expired agreements, would not necessarily arise to a fraud or abuse enforcement action.

Time-sharing agreements

CMS proposed a new Stark exception for time-share arrangements recognizing that it is a common practice for hospitals to rent space to physicians for a small amount of time during a defined period of time to permit patient visits at a location other than their primary office, for the convenience of the patients, the physician, or both. Under the Proposed rule, this would be permitted if physicians pay their hospital-landlord on a prorated basis for the time they occupy the space, and for the staff and equipment they use. However, such rentals would have to comply with Stark exception requirements (e.g., leases, equipment rentals), the agreement would have to be in writing, and it would have to reflect payment at fair-market value (FMV).

Non-physician practitioners

CMS has taken note of the fact that there is a looming shortage of primary care physicians and has proposed a limited exception for hospitals, federally qualified health centers (FQHCs), and rural health clinics (RHCs) to provide remuneration to physicians to assist with recruitment and employment of non-physician practitioners who receive remuneration from the hospital. This could add more non-physician practitioners to fill the gap. The exception would include many of the standard Stark safeguards, such as a written agreement signed by the hospital and the physician as well as remuneration that does not take into account the volume and value of referrals. Comments are also being sought as to whether this exception should also apply to non-physician practitioners who are recruited as independent contractors.

Technical issues

CMS also noted receiving numerous self-referral disclosures that are procedural in nature with providers saying they are unclear whether an arrangement has to be memorialized in a single document that covers all aspects of the arrangement. CMS reported that while a single document provides “the surest and most straightforward means” of compliance, “a collection of documents evidencing the course of conduct between the parties may satisfy the writing requirement.” This could extend to a variety of arrangements.

Comments

CMS is requesting comments from the industry to assist them with these changes. The agency can expect nothing but support from the industry for these proposed changes. For those interested in reviewing the entire draft rule and provide comments, such must be done by September 8, 2015. This is also an opportune time for hospitals to have their physician arrangements reviewed for current compliance and to understand the implications of the Proposed rule changes. This should not be done by anyone involved in development of them, but by independent experts 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.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2015 Strategic Management Services, LLC. Published with permission.

 

Kusserow on Compliance: Lessons learned from the Tuomey case

Now that the dust is settling on the decision in the Tuomey case, it is worth reflecting on what can be learned from it. It is rare for a hospital system to go to trial based on government charges relating to the Stark Law or Anti-Kickback Statute (AKS). Most health care providers reach a settlement with the Department of Justice (DOJ), rather than expend the resources to challenge the government in a trial and risk greater penalties in the case of a loss. The Tuomey Health Care System of Sumter, South Carolina was an exception. Its case went to trial twice and after being ruled against in both trials, made multiple appeals on the verdicts. Now, after a decade of fighting the government, the 4th Circuit Court of Appeals affirmed the verdicts of the lower court in favor of the government. The health care system is now saddled with over $230 million in False Claims Act (FCA) penalties. The many arguments raised by Tuomey in its appeal and answered by the court in its 67-page opinion provide a vast commentary and will likely prove to be a landmark case. Moreover, the decision provides a number of lessons that can be used by others who intend to or have entered into physician arrangements.

Tuomey physician agreements

Local physician specialty groups told Tuomey of their intention to perform surgical procedures in-office instead of at their hospital. In response, in an effort to avoid a reduction in surgical case volume, the hospital employed the 19 specialists as part-time employees. The contracts contained 18 parts and were complex. The basic terms included:

  • a 10-year agreement;
  • a requirement that the physicians perform outpatient procedures at Tuomey;
  • a provision stating that Tuomey would bill and collect from patients and other payers (e.g. Medicare/Medicaid);
  • a provision stating that physicians would be paid with base salaries related to net cash collections for procedures;
  • a provision stating that physicians would get productivity bonuses equal to 80 percent of the net collections;
  • an incentive bonus that could total up to 7 percent of the productivity bonus;
  • a prohibition from competing with Tuomey during the contract and two years after it expired;
  • a provision that covered physician health care;
  • terms that confirmed malpractice premiums for the physicians were paid;
  • physician cell phone reimbursement;
  • periodicals and journal reimbursement; and
  • Continuing Medical Education reimbursement.

Tuomey entered the employment arrangements after its board discussed the potential lost revenue from such physicians’ referrals to other less costly facilities in the community. Tuomey asserted it relied upon legal counsel advice in developing the contracts and argued that no false claims were ever submitted because the patients got needed care; claims met Medicare standards; and there was no evidence of overbilling, up-coding, or billing of unnecessary services. The record of the case during trial showed that Tuomey entered into the arrangements to prevent the physicians from performing their services outside the hospital, either in-office or at ambulatory surgery centers. The jury for the Tuomey case concluded that even though the health system relied upon legal and valuation expertise, when other factors were considered, the arrangements were in essence payment for referrals. The Tuomey third-party valuation consultant provided only a three-page opinion letter that included little supporting documentation or explanation of the methodology behind the valuation opinion. The government presented testimony and exhibits demonstrating that Tuomey also disregarded adverse legal and expert opinions when entering into the contracts.

Lessons learned

  • If you need multiple legal and consultants to support an agreement, reconsider the idea.
  • Relying upon advice of attorneys in physician arrangements is not an absolute protection.
  • If raising the “advice of counsel defense,” disclose all material facts to the attorneys.
  • All hospitals’ relationships with physicians need legal and expert consultant support.
  • Physician contracts should be subjected to periodic outside independent review.
  • Use independent outsider experts to periodically review the compliance program as a whole.
  • Fair market value (FMV) is not just a fair business deal, it also must meet specific requirements.
  • Physician compensation should not take into account volume/value of anticipated referrals.
  • The more complex the agreement, the more questions will be raised about it.
  • Negotiating at arm’s length will not provide protection from DOJ or whistleblower suits.
  • Not complying with a Stark exception or AKS safe harbor risks potential claims and liability.
  • Reasons for considering a financial arrangement are important.
  • Qui tam actions come from physicians, competitors, possible partners, and/or employees.
  • Taping meetings where sensitive information is discussed is not a good idea.
  • Contracts taking into account anticipated referrals implicate Stark’s volume/value standard.
  • Keep records/minutes related to arrangements; if concerns about arrangements remain, reconsider the deal.

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.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2015 Strategic Management Services, LLC. Published with permission.

Kusserow on Compliance: Breaking News: Decade long saga of the Tuomey Case comes to a close

On July 2, 2015, the U.S. Court of Appeals for the 4th Circuit published a 67-page decision in the decade-long Tuomey Healthcare System case. The original case arose from a qui tam (whistleblower suit) brought by Michael L. Drakeford, M.D., where it was alleged that the Sumter, South Carolina hospital violated the False Claims Act (FCA) (31 U.S.C. § 3729) by submitting tens of thousands of illegal bills to Medicare, arising from corrupt arrangements with 19 specialty doctors that were improperly compensated in violation of the Stark Laws. After losing in two jury trials, Tuomey appealed to the District of South Carolina, which ruled against it in favor of the United States and ordered Tuomey to pay $39,313,065, as well as $237,454,195 on the False Claims Act claims. The total was calculated as the minimum of treble of the $39 million plus the minimum of $5,500 per claim. Tuomey’s appeal to the Court of Appeals resulted in its affirming the U.S. government’s position on all significant issues.

Tuomey’s argument that it only relied upon the advice of its attorneys in its physician compensation arrangements was not accepted by the court. The court noted that one of the lawyers in question, Kevin McAnaney, a recognized expert on Stark Laws, raised concerns about the proposed contracts without even having seen the compensation value determinations. This evidence was seen as critical to its ability to satisfy its burden to prove that Tuomey acted with the requisite intent under the FCA. The court found that the failure to have taken that opinion more seriously was reckless disregard and that a reasonable jury could indeed be troubled by Tuomey’s seeming inaction in the face of warnings about the questionable nature of the proposed agreements. The court observed that “the jury evidently rejected Tuomey’s advice of counsel defense” and found no cause to upset the jury’s reasoned verdict that Tuomey violated the FCA.

Tuomey made several challenges to the amount of judgment entered against it, including: (1) that the district court improperly calculated the civil penalty; (2) that the district court used the incorrect measure of actual damages; and (3) that the award was unconstitutional under the Fifth and Eighth Amendments.

The court noted that a defendant found liable under the FCA must pay the government a civil penalty of not less than $5,500 and not more than $11,000 “plus 3 times the amount of damages which the government sustains because of that person.” In this case, the jury found that Tuomey had submitted 21,730 false claims, for which it awarded actual damages of $39,313,065, which the district court trebled. The district court then added a civil penalty of $119,515,000 to that sum, which it calculated by multiplying the number of false claims by the $5,500 statutory minimum penalty. The court rejected Tuomey’s arguments challenging the calculation and concluded that the jury had sufficient evidence to identify the prohibited referrals and, therefore, the amount of damages and penalties.

Tuomey argued the measure of actual damages and the true measure is not the sum total of all claims the government paid (as the court instructed the jury), but rather the difference (if any) between the true value of the services provided by Tuomey and what the government actually paid, since “there was no evidence that the government did not get what it paid for[,] . . . there were no actual damages under the FCA.” The court rejected those arguments noting that the Stark Law expresses Congress’s judgment that all services provided in violation of that law are medically unnecessary. By reimbursing Tuomey for services that it was legally prohibited from paying, the government has suffered injury equivalent to the full amount of the payments; and that in this case, the damage from the false statement came from the payment to an entity that was not entitled to any payment at all. 

The court disagreed that the damages and civil penalties were unconstitutional under the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fifth Amendment, citing the Supreme Court position that the treble damages provision of the statute includes a compensatory aspect, in that it accounts for the fact that some amount of money beyond actual damages is “necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims.”

The American Hospital Association and the South Carolina Hospital Association had filed briefs as Amici Supporting Appellant (Tuomey). For more information regarding the details, background, issues, and lessons learned from this case can be found in past blog articles on this case.

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.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2015 Strategic Management Services, LLC. Published with permission.