What compliance professionals should know about auditing physician compensation arrangements

In an environment of increasing integration and financial relationships with physicians; a rigid and technical regulatory framework; aggressive government enforcement; and disproportionate penalties and enterprise risk under the Stark Law (42 U.S.C §1395nn), it is incumbent for health care organizations to have an audit plan and process for physician compensation arrangements to ensure such arrangements comply with Stark law requirements. In a webinar presented by the Health Care Compliance Association (HCCA), Curtis H. Bernstein, Principal, Pinnacle Healthcare Consulting and Joseph N. Wolfe (Hall, Render, Killian, Heath & Lyman, P.C.) provided insight into considerations for managing risks, an overview of the Stark Law and its exceptions, and tips for planning an audit and the audit process.

Managing the risk

Wolfe stressed the importance of ensuring that compensation arrangements with referring physicians are defensible. When it comes to compensation arrangements, organizations should ask, “How will the organization defend itself?” Wolfe recommended that the organization focus on the Stark Law’s technical requirements, which were updated in 2016, and the three tenets of defensibility: (1) fair market value, (2) commercial reasonableness, and (3) not taking into account the value or volume of referrals. Wolfe emphasized the need for health care providers that enter into physician arrangements to ensure that individuals involved in the process have an in depth understanding the Stark regulations and the exceptions

The plan and the process

Bernstein explained that the scope of the audit depends on the size and complexity of the company, prior experience with the process under audit, recent changes in the company or company’s operations, and previously recognized deficiencies, as well as circumstances that may arise during the audit. The audit process involves several steps.

  • A list of currently executed physician contracts must be compiled.
  • Compliance personnel must interview individuals commonly involved in physician relationships. The individuals conducting the audit should understand interview processes, including strategy, documentation, approval, and selection of interviewees.
  • The interviews must be reconciled to currently executed physician contracts. Common issues arising in reconciliation include the use of space, office equipment, and other items by physicians for professional or personal use, and payment for services not provided.
  • Time sheets or other attestation forms must be reviewed for completeness and accuracy.
  • Fair market value and commercial reasonableness must be documented for each agreement. Consider:
    • Who is providing the service?
    • Why are the services required?
    • When are the services performed?
    • How are the services provided?
  • All other terms of agreement and necessary steps must be performed in executing agreements and verified.

Bernstein noted that other items to consider during the process include the compensation structure, the length of a fair market value opinion versus the length of the contract, whether the compensation was set in advance, if the agreements were executed, and whether the agreements expired.

The compliance component

While the basic elements of an effective compliance program apply to physician arrangements, Wolfe explained that as compliance applies specifically to physician arrangements, it should be compensation focused and documentation and governance should support defensibility. He recommended that organizations adopt a compensation philosophy, have a written compensation plan, establish parameters for monitoring compensation, and form a compensation committee. In addition, organizations should (1) ensure that policies align with the new Stark technical requirements; (2) establish a consistent process for obtaining third party valuation opinions; and (3) periodically audit physician compensation arrangements. Finally, organizations should continue to monitor the enforcement climate.

House committee gives its approval to Medicare Advantage telehealth bill

A bill—The Increasing Telehealth Access in Medicare (ITAM)—aimed at improving access to Medicare Advantage telehealth services received approval from the House Ways and Means Committee on September 13, 2017. The unanimous approval came alongside the committee’s unanimous passage of a bill (H.R. 3726) to simply physician self-referral prohibitions and a bill (H.R. 3729) to continue Medicare add-on payments for ambulance services.

ITAM

The bipartisan bill, Increasing Telehealth Access in Medicare (ITAM) (H.R. 3727), introduced by Representatives Diane Black (R-Tenn) and Mike Thompson (D-Calif), seeks to encourage the use of telehealth by making it a basic benefit—rather than a supplemental service—for Medicare Advantage beneficiaries. Although critics of telehealth warn that the service presents a risk of overutilization in a fee-for-service reimbursement model, proponents of the new ITAM bill note that by pairing telehealth with Medicare advantage, that concern is “flipped on its head.”

Telehealth

A related bill, in the Senate, known as the Furthering Access to Stroke Telemedicine Act (S. 431), would permit any site exclusively administering acute care stroke treatment to be included in the list of eligible Medicare sites for telemedicine services, without regard for the site’s geographic location. In May of 2017, the Senate Finance Committee unanimously passed the Creating High-Quality Results and Outcomes Necessary to Improve Chronic (CHRONIC) Care Act (S. 870), a bill designed to expand telehealth access for Medicare beneficiaries with chronic conditions while increasing the incentives for accountable care organizations (ACOs) to provide those services.

Structure call coverage arrangements to avoid Stark & AKS issues

When compensating physicians for the time they spend on-call, hospitals should draft call coverage agreements with care to avoid potential problems implicating federal laws prohibiting physician self-referral (Stark Law) and kickbacks (Anti-Kickback Statute (AKS)). In a webinar presented by the Health Care Compliance Association (HCCA), Robert G. Homchick, partner at Davis Wright Tremaine LLP, and Scott M. Safriet and Adam S. Polsky, partners at HealthCare Appraisers, Inc., discussed changes to the call coverage risk analysis based on court opinions and changes in government implementation of rules.

As with most physician compensation arrangements, the Stark Law (42 U.S.C. §1395nn) is the threshold issue when analyzing call coverage agreements; additionally, if the agreement passes muster under Stark, the AKS (42 U.S.C. §1320a-7b) risks should be relatively modest. Both analyses contain some of the same considerations, such as fair market value (FMV) and commercial reasonableness.

Homchick, Safriet, and Polsky noted the following concerns for call coverage:

  • on-call coverage is becoming more expensive, but hospitals are facing decreased reimbursement; and
  • because traditional methods of securing call coverage no longer apply to all situations, hospitals are becoming more creative to obtain coverage.

To effectively secure coverage, hospitals should consider many options, and determine which is best applied in their situation. Potential coverage options include concurrent coverage, telemedicine, bundling on-call coverage with services beyond the emergency room, on-call coverage payment for employed physicians, and use of the “activation fee” concept.

However, the webinar cautioned that not all arrangements are the same, and in situations where it is truly difficult to secure coverage, a different approach may be necessary. Additionally, hospitals should look into the underlying reasons of why securing that coverage has been difficult—for example, are there shortened response times, a physician shortage in the marketplace, or is coverage restricted or quasi-restricted.

Former Tuomey CEO faces the ‘Stark’ reality of referral scheme

The former CEO of Tuomey Healthcare System agreed to a four-year period of exclusion and a $1 million settlement as a result of his involvement in a physician-referral scheme. The former executive’s exclusion and settlement follow a jury finding that Tuomey defrauded Medicare by filing false claims based upon illegally referred services.

Fraud

The government alleged that, due to fears that Tuomey would lose outpatient procedure referrals to a new surgery center, the former CEO entered into contracts with 19 specialist physicians, requiring the physicians to refer patients to Tuomey in exchange for compensation greatly in excess of fair market value. During the trail against Tuomey, the government asserted that the former CEO ignored warnings from the hospital’s attorneys that the physician contracts were “risky.”

Tuomey judgment

 After a month long trial, a South Carolina jury determined that the referral arrangement violated the Stark Law (42 U.S.C. § 1395nn). The illegal arrangement resulted in a $237.4 million judgment against Tuomey. Subsequently, the U.S. resolved its judgment against the health care system for $72.4 million and Tuomey was sold to Palmetto Health, a multi-hospital health care system. Prior to the CEO’s termination, the jury concluded that Tuomey filed more than 21,000 false claims with Medicare (see Tuorney saga punctuated with DOJ settlement, Health Law Daily, October 19, 2015). 

Settlement

The settlement with the former CEO is based upon allegations that, as a key decision maker, he led or participated in the scheme to defraud Medicare. Under the terms of the agreement, in addition to the $1 million payment, the former CEO will be excluded from federal health care program participation for a period of four years. His exclusion prohibits him from providing management or administrative services paid for by federal health care programs.