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Posts Tagged ‘Stark Law’

When is a Referral Mandate for Employed Physicians Permitted under the Stark Law?

Wednesday, April 22nd, 2020

When Employed Physicians be Required to Make Referrals for Designated Health Services

Referral Requirements Employed PhysiciansThe Stark Law Regulations include a provision that dictates the conditions under which an employer of a physician may mandate referrals for designated health services.  Certain specific conditions must be met if an employer wishes to require its employed physicians to make referrals to the employer’s designated health services.  Many institutions assume that an employer may always require an employed physician to make referrals to its ancillary services.  That assumption is not correct.

The Stark regulations provides that a physician’s compensation from a bona fide employer or under a managed care contract or other contract for personal services may be conditioned on the physician’s referrals to a particular provider, practitioner, or supplier.    There are a number of specific requirements that must be present to permit referral requirements including:

  1.  The required referrals can only relate to the physician’s services covered by the scope of the employment or the contract.
  2. The referral requirement must be reasonably necessary to effectuate the legitimate business purposes of the compensation arrangement.
  3. The physician’s compensation must be set in advance for the term of the agreement requiring referrals.
  4.  The physician’s compensation must be consistent with fair market value for services performed (that is, the payment may not take into account the volume or value of anticipated or required referrals).
  5. The arrangement must otherwise comply with an applicable exception under Sec. 411.355 or Sec. 411.357.
  6.  The requirement to make referrals to a particular provider, practitioner, or supplier is set forth in a written agreement signed by the parties.
  7. The requirement to make referrals to a particular provider, practitioner, or supplier may not apply if the patient expresses a preference for a different provider.
  8. The referral requirement may not apply to cases where the patient’s insurer determines the provider, practitioner, or supplier;.
  9. The referral requirement may not apply where the referral is not in the patient’s best medical interests in the judgment of the referring physician.
  10. There can be no requirement that an employed physician make referrals that relate to services that are not provided by the physician under the scope of his or her employment or contract.

This scenario most commonly applies in cases where a hospital or health system employs a physician and requires direction of referrals to the system’s designated health services.  It is not uncommon to see a health system contractually require employed doctors to refer to the hospital or ancillary services of the hospital.  The Stark Law permits the employing hospital to require referrals subject to these conditions.  It is also common to see referral requirements without including in the contract the various conditions that must be present to permit the direction of referrals.  The Stark Law would cast a shadow over a compensation arrangement with an employed physician that requires referrals without subjecting the referrals to the conditions set forth in the Stark regulations.  Failing to subject the required referrals to the Stark Law conditions would seem to make the compensation arrangement illegal.  Any referral made to the hospital’s designated health services may be tainted and reimbursement arising from the illegally required referrals would be prohibited.

Stark Law Provisions Relating to Referral Requirements of Employed Physicians

The following is the exact wording of the portion of the Stark Law that established the various conditions that must be met in order to permit the provider of designated health services to require employed physician’s to refer to its DHS.

42 C.F.R. § 411.354(d)(4)

(4) A physician’s compensation from a bona fide employer or under a managed care contract or other contract for personal services may be conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, provided that the compensation arrangement meets all of the following conditions. The compensation arrangement:
(i) Is set in advance for the term of the agreement.
(ii) Is consistent with fair market value for services performed (that is, the payment does not take into account the volume or value of anticipated or required referrals).(iii) Otherwise complies with an applicable exception under §411.355 or §411.357.(iv) Complies with both of the following conditions:

(A) The requirement to make referrals to a particular provider, practitioner, or supplier is set forth in a
written agreement signed by the parties.

(B) The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient’s insurer determines the provider, practitioner, or supplier; or the referral is not in the patient’s
best medical interests in the physician’s judgment.

(v) The required referrals relate solely to the physician’s services covered by the scope of the employment or the contract, and the referral requirement is reasonably necessary to effectuate
the legitimate business purposes of the compensation arrangement. In no event may the physician be required to make referrals that relate to services that are not provided by the physician under the scope of his or her employment
or contract.

OIG Fraud Alert – Medical Director Compensation Arrangements

Tuesday, June 23rd, 2015

medical director compsnation

Medical Director – Fraud Alert – Physician Compensation

The Office of Inspector General of the Department of Health and Human Services release a new Fraud Alert on June 9, 2015.  The Fraud Alert relates to physician compensation for medical directorships and other services and warns that the compensation arrangements under these arrangements must be at fair market value and must require legitimate services to be performed in return for that compensation.  This is nothing new for those involved in physician compliance issues. However, the fact that the OIG chose this issue for a special Fraud Alert is significant in itself.

Medical director compensation has gained the attention of governmental enforcers over the years with some high profile cases that have focused on fraudulent medical director arrangements.  The compliance industry has tightened its belt on these issues; requiring strict adherence to policies and guidelines for medical director compensation. Clearly there is a legitimate need for health care providers to retain physicians to provide medical direction of various service lines.  In fact, regulations require medical director oversight in many areas.  Even where there is a legitimate need, it is necessary to carefully structure the medical director arrangement to be legally compliant.

You may find your compliance officer of health lawyer advising even more restrictive structuring of medical director arrangements as a result of this Fraud Alert.  The OIG uses Fraud Alerts to place emphasis on areas of concern.  These issuance must be taken seriously and should cause providers to review their policies, procedures and contracts to assure that they are legally compliant and could withstand scrutiny by external government investigators.

A few things to consider include:

  • Specifically defining the precise services that are required of the medical director.
  • Assuring that contracts are current, validly executed, and have not expired.
  • Require regular logs to be provided by the medical director which detail the services that are actually performed.
  • Require the service logs to correspond to specific duties that are described in the director agreement.
  • Support compensation with external fair market value opinions.
  • Cap compensation to assure that fair market value is never exceeded.

These are just a handful of issues providers need to consider when entering these arrangements with physicians.  For further details, contact your health care attorney or compliance officer.  By all means, pull your medical director agreements off the shelf and make certain that they are legally compliant.  You cannot assume that those arrangements will not be scrutinized by government enforces.

See – Fraud Alert: Physician Compensation Arrangements May Result in Significant Liability June 9, 2015.

Physician Owned Hospital Expansion – CMS Approval Process

Friday, May 16th, 2014

Obtaining Approval for Expansion of Physician Owned Hospitals 

physician owned hospitalsCurrently, federal law effectively prohibits the establishment of new physician-owned hospitals.  Expansion of existing physician-owned hospitals is also effectively prohibited.  An existing hospital may request an exception from the prohibition from the Center for Medicare and Medicaid Services.  An exemption may be granted by CMS, but not without the hospital going through the formal request and review process.

Under the federal Stark Law, physicians are prohibited from owning interests or having financial relationships with entities that provide “designated health services,” including hospital services, unless an exception exists.  Previous versions of the Stark Law contained an exception for investments in the hospital itself as opposed to a subdivision of the hospital (known as the “whole hospital” exception.  The Affordable Care Act virtually eliminated the “whole hospital” exception from the Stark Law for future hospital projects and for expansion of existing projects.

Beginning in March of 2010, a physician-owned hospital is prohibited from expanding existing capacity unless it applies for and is granted an exception as either an “applicable hospital” or a “high Medicaid facility.”  Federal regulations set forth the procedures that must be complied with when submitting requests for an exception.

Physician-owned hospitals that wish to expand existing capacity must follow the regulatory process for obtaining approval.  Part of this process involves CMS obtaining input from other providers in the community.  Even if expansion is approved, expansion cannot exceed 200% of the baseline number of operating norms, procedure rooms, and beds.  Expansion must be limited to the hospital’s primary campus.

Temporary Non-Compliance With The Stark Law

Friday, May 9th, 2014

Stark Law Temporary Non Compliance – Is There Any Wiggle Room?

Stark Law Temporary Non ComplianceOne issue that has raised concerns of providers when complying with the Stark anti-referral laws is what to do when a financial arrangement temporarily fails to comply even though it was originally structured to comply with Stark.  The Stark Regulations provide for a little wiggle room for arrangements that temporarily fall out of compliance. The relevant exception applies to referral arrangements that fall out of compliance temporarily for reasons that are beyond the control of the provider.

The temporary non-compliance exception only applies to arrangements that have historically complied with an  exception from Stark fora period of at least 180 days before the arrangement falls out of compliance. The exception then gives a provider a window period of 90 days to either correct the temporarily non-complying financial arrangement to bring it back into compliance or to terminate the non-complying referral relationship.

This exception brings to light the importance of continuing to monitor financial arrangements that could implicate the Stark Law to assure continued compliance. It is not enough to originally structure arelationship to comply with Stark and then forget about the ongoing arrangement. Changing circumstances could lead to future non-compliance.  Adverse consequences can be avoided if proper monitoring is in place and proactive steps are taken to correct any non-compliance issues.

If a review indicates that an arrangement has fallen out of compliance with the Stark Law, the provider should fully document the nature of the non-compliance and the reasons that the temporary non-compliance occurred. The documentation should include whatever evidence exists that the reason for the non-compliance was beyond the provider’s control.

In addition to documenting the reasons for the non-compliance, the provider should also immediately take steps to remedy the situation. The temporary non-compliance exception creates a narrow 90 day remedial time period. However, this 90 day window can actually be quite short. The exception provides that the 90 day remedial period begins to run on the date that the arrangement falls out of compliance; not the date that the provider discovers the non-compliance. Depending on the diligence of the provider in discovering the non-compliance, the time period to take remedial action may be substantially less than 90 days.

The temporary non-compliance exception can only be used once every 3 years with respect to the same referring provider. The exception is not available if the non-compliance places the arrangement in violation of the Anti-Kickback Statute.

It should also be noted that the exception does not apply to violations of the non-monetary limit on incidental medical staff benefits. Violaters of the non-monetary cap must bring the arrangment into compliance for subsequent years but cannot remedy past violations.

The biggest lesson to take from this exception is the need for providers to establish a systematic program for continual monitoring of financial relationships with referring providers.

Auditing Physician Payments For Stark Law Compliance

Thursday, April 3rd, 2014

One area of compliance that is often overlooked involves auditing of physician payments.  Physician contracts are often audited to determine whether they comply with a Stark Law exception.  Compliance should also work in the other direction, from payments that are made back to the existence of a contract that memorializes an applicable Stark Law exception.

Periodic monitoring of payments that are made to physicians should be undertaken.  Payments should be tracked to contracts to assure that the payment is covered by an applicable exception.  If there is no corresponding written agreement or if the written agreement has expired, there could be a potential Stark Law violation.  Further examination concerning the nature and purpose of the payment should be made.  If a Stark Law violation is found, self disclosure should be considered.

Stark Law Settlement – Physician Compensation Case

Wednesday, March 5th, 2014

Physician Compensation Stark Law Settlement

stark law physician compensation settlementA settlement has been reached in the most visible Stark Law case since the infamous Toumey case was decided a few years ago.   Halifax Hospital in Florida is reported to have agreed to a Stark Law settlement to avert further proceedings challenging compensation to come of its physicians. The Federal Court hearing the case had previously issued a ruling that the compensation structure at issue violated the Stark Law.

In order to assess the implications of this case, it is necessary to zero in on the precise compensation formula that was being challenged by the government. Allegedly, Halifax was paying six employed physician a production bonus based upon revenues from services that went beyond their own professional service revenues and included revenues generated by the Hospital for “designated health services” as defined under the Stark Law.

Under the Halifax compensation structure, designated health service revenue generated by all of the subject physician was placed in a compensation pool and divided among the physicians based on a proportion of their personally performed professional services. The Hospital was attempting to argue that this manner of dividing designated health service revenues between the physicians was not based on the “volume or value” of referrals for designated health services.

Those that are familiar with physician compensation structures and the Stark Law will understand that it is generally permissible for an independent physician group to compensation group practice physicians based on designated health service revenues in this manner. However, different rules and exceptions apply in the case of hospital employed physicians. This distinction in compensation structure between hospital-employed and group practice employed physicians has been well delineated in the Stark Law regulations and regulatory comments.

Given the regulatory history of this issue, the outcome in Halifax does not seem to be particularly surprising. Halifax put forth a potentially legitimate argument.  However, CMS has made it clear over time that hospital employed physicians cannot be compensated for their designated health services or services that are billed “incident to” their physician services. Hospital employed physicians can be compensated based on personal production from their own professional services; but even that compensation structure has limits. The Halifax outcome should enforce the concepts that we already know from the Stark Law; Hospitals cannot pay their employed or contracted physicians based on the technical component flowing from their services.

The other lesson to be reinforced by the Halifax case is that the cost of settling these cases, even if you believe there is an argument supporting your compensation structure, can be extremely high; in this case $35 Million (with 6 zeros). Unless you have this kind of money hanging around, it pays to structure compensation to employed physicians without inclusion of designated health service revenues as part of the consideration.

Stark Law Self Disclosure – Period of Dissallowance

Friday, September 13th, 2013

What is the Period of Disallowance In Stark Law Self Disclosures?

overpayment false claims act liability 60 dayWhen considering making self disclosure of arrangements under the Stark Law, the concept of “period of disallowance” is of central importance.  The period if disallowance generally refers to the period of timing during which a compensation arrangement is out of compliance with a Stark Law requirement.

To understand this concept, it is important to understand what the Stark Law prohibits.  The Stark Law prohibits an entity, such as a hospital, from billing for certain “designated health services” when a disqualifying compensation arrangement exists between the entity and a physician.  During the period of disallowance, designated health service cannot be billed and are considered to be an overpayment if billed and received.

When an entity makes a self disclosure, it is essentially admitting that a Stark Law violation took place.  Amounts collected for designated health services resulting from tainted referrals during the period of disallowance must be returned to the government as an overpayment.

CMS regulations define an outside limit for when the period of disallowance can be deemed to have ended.  Different rules apply depending on whether the arrangement involves excess compensation.  For example, in cases involving excess compensation, the period of disallowance can be assured to have ended when the nonqualifying arrangement is brought back into compliance and repayment of excess compensation is made.  However, CMS recognizes that every case is different and that there are cases when repayment will never be possible or compliance can never be completely attained.

CMS rules create an “outside time” when the parties can be assured that the period of disallowance will be deemed to have ended.  Each case is judged on its own facts and circumstances and the parties can argue that the period of disallowance has ended before repayment is made.  This permits DHS providers to take advantage of the self disclosure process in cases where they have no legal basis to require the physician to return the excess compensation.

In any event, issues regarding the period if disallowance must be addressed whenever Stark Law self disclosure is being considered by a health care provider.

Government Intervenes In Physician Compensation Case Alleging Compensation For Referrals

Wednesday, July 10th, 2013

Physician Compensation Stark LawThe Department of Justice has announced that it will intervene in a  False Claims Act lawsuit against a Mobile, Alabama based health system and diagnostic facility.  The lawsuit alleges that the provider billed Medicare for services referred by a group of physicians, in violation of the Stark Law and Anti-Kickback Statute.

The Stark Law forbids a clinic or hospital from billing Medicare for certain services referred by physicians who have a financial relationship with the entity.  The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving remuneration to induce referrals of services or items covered by federal health care programs, including Medicare.  The lawsuit alleges that the physician group was improperly paid  compensation that included a percentage of the money collected from Medicare for tests and procedures the doctors referred to the clinic.

The original lawsuit was filed in  2011 by a former physician in the group under the qui tam, or whistleblower, provisions of the False Claims Act.  Those provisions authorize private parties to sue on behalf of the U.S. and receive a portion of any recovery.  The act also permits the government to intervene and take over a lawsuit.   In this case, the government has decided to intervene in the case.

The government’s investigation has been a coordinated effort by the Department of Justice, Civil Division, Commercial Litigation Branch; the U.S. Attorney’s Office for the Southern District of Alabama; the Department of Health and Human Services Office of Inspector General; and the FBI.

This case illustrates the risk of providers of designated health services compensating physicians based on the value of referrals.  The Stark Law permits physicians to be compensated based on their personal production in most cases.  However, when payments cross the line to include the fruits of referrals for the technical component of their services, the Stark Law is implicated.  It appears that in this case, the compensation arrangement is alleged to have crossed the line to include the value of referrals.

Toumey Stark Law Case – Verdict In Second Toumey Trial

Friday, May 17th, 2013

Toumey Stark Law Case – Second Trial Finds Stark Law Violation

Toumey Stark Law Case Second Jury VerdictVirtually every lawyer in the country who is involved with physician compensation and Stark Law issues were waiting anxiously over the past couple of weeks for a jury verdict in the second Stark Law trial involving Toumey Healthcare System.  On May 8, 2013, we all got what we had been waiting for; a jury verdict in the much heralded case alleging Stark Law violations that were brought by a physician whistleblower.  Once the case went to jury, a verdict was reached in less than five hours.

The case alleged that Toumey had paid 19 part-time surgeons on its staff based on the business that the surgeons generated for the hospital.  The first trial in the case found that Toumey had violated the Stark Law and assessed $45 million in damages under the Federal False Claims Act.  An appellate court set the first judgment aside which lead to the necessity for a second trial.

A bulletin posted on the website of the firm that handled the case for the physician whistleblower states that Toumey could now be liable for up to $357 million under the False Claims Act.  The actual damages from the second verdict have not yet been determined.

We will be providing further analysis of this decision and possible implications for physician compensation arrangements with hospitals in future blog posts.  In the meantime, feel free to contact John Fisher at Ruder Ware Health Care.

CMS Issues Mandatory Report On Self Disclosure Protocols

Wednesday, April 4th, 2012

HHS Report on the Implementation of Voluntary Self-Disclosure Protocol

 The Affordable Care Act required department of Health and Human Services to create a voluntary self-disclosure protocol relating to Stark law violations. The centers for Medicare and Medicaid services issued the disclosure protocols on September 23, 2010.

 The recent report that was issued by CMS was statutorily required. The report indicates that since September 23, 2010 a total of 148 healthcare providers have submitted disclosures relating to violations of the Stark law. 51 of these disclosures are still awaiting review by CMS.  An additional 61 disclosures are awaiting additional information from the disclosing party.

 As of the current date, CMS has resolved six disclosures through settlement. These settlements have collected approximately $783,000.

 Go to the following link for a complete copy of the CMS report on the self-disclosure protocols.

John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
500 First Street, Suite 8000
P.O. Box 8050
Wausau, WI 54402-8050

Tel 715.845.4336
Fax 715.845.2718

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