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Posts Tagged ‘Stark Law’

Physician Compensation Stark Law Compliance Excessive Compensation

Monday, January 23rd, 2012

Physician Compensation – Recent Cases Illustrate Risks of Excessive Payments Under Medical Director Agreements

Physician compensation is changing along with the reconfiguration of payment incentives within the health care industry.  Physician compensation issues may be one of the biggest issues affecting the relationship between health care systems and physicians as these changes continue.  These changes are reflected in a number of recent decisions that provide some guidance on the legal topics that affect physician compensation.

One of the most important laws that affect physician compensation for physicians who are employed by a health care system is the Federal Stark Law.  The Stark law prohibits financial relationships between physicians and other providers to which the physicians make referrals for “designated health services.”  It is fair to say that virtually every relationship between a physician and a hospital will involve the referral of designated health services.  Therefore, the Stark Law will nearly always come into play and the payment pursuant to the employment agreement must be structured to comply with the Stark Law.

The Stark Law is a strict liability statute and does not require a showing of intent to violate its terms.  It is implicated based on referrals unless there is an applicable exception that applies to the referral arrangement.  In the case of employed physicians, there is an exception that covers bona-fide employment relationships that can be used to exempt the relationship provided that all of the conditions of that exception are strictly followed.  A bona-fide employment relationship must meet all of the following requirements:

  • the employment must be for “identifiable services”
  • the amount of remuneration must be consistent with fair market value
  • the amount of the remuneration cannot be determined in any manner that takes into account the volume or value of referrals by the referring physician
  • the compensation must be “commercially reasonable” even if no referrals were made between the physician and the organization

The recent cases have focused on the issue of “fair market value” and “commercial reasonableness” of the compensation paid from the hospital or health system to the employed physician.  These cases provide some guidance and parameters to examine when negotiating physician compensation.  However, the factual situations in the recent cases are unique and the extent that they will be of guidance to any specific compensation issue is uncertain.

The most recent case United States v. Campbell, 2011 U.S. Dist. LEXIS 1207 (2011) and arises out of the United States District Court of New Jersey.  The case involved the University of Medicine and Dentistry of New Jersey (UMDNJ) which was at risk of losing its Level I Trauma Center license due to a shortage in the number of cardiac procedures performed at the facility.  In order to secure its Level 1 Trauma Center status, UMDNJ developed a recruitment initiative directed towards increasing the number of cardiothoracic patients being served at the hospital.  This initiative focused on entering part-time employment arrangements with local cardiologists who were in a position to refer cardiology patients to the hospital.

The part time arrangements involved entering Clinical Assistant Professor Agreements with these cardiologists which enumerated a list of teaching, lecturing and research activities that the physician were to perform.  The physician in turn received salaries ranging from $50,000 to $180,000 per year.  The physician at issue in the case, Dr. Campbell, entered a part time employment agreement to perform a specific list of teaching related services for UMDNJ.

The US Attorney brought charges against Dr. Campbell and UMDNJ based upon alleged violations of the Stark Law and the Anti-kickback Statute.  The government contended that the primary service actually performed by Dr. Campbell under his part time employment contract was to refer cardiology patients to the hospital and that the contract was actually a sham arrangement designed to cover up payments for referral of cardiology patients.  Through the process, a federally appointed monitor reviewed the arrangements and concluded that the hospital’s program was an illegal device to compensate cardiologists for patient referrals.

The Court in the case was faced with deciding whether the case should be dismissed for failure to state a claim.  In refusing to dismiss the claims made by the government, the Court analyzed the Stark Law employment exception which requires that the payment of compensation to an employee who is in a position to make referrals for designated health services be at fair market value for the services  that are actually provided and that the arrangement be commercially reasonable.

The Court refused to dismiss the case noting that if “there was no requirement to actually perform the duties of [the contract] then the compensation could not be the fair market value for those services….”  The Court concluded that the payment above fair market value for the services that were actually required to be performed would serve some other purpose, such as compensation for referrals.  In the Court’s opinion, the excess payments would violate the Stark Law and would make claims made to Medicare for those services false claims.

This case points out an important point under the Stark Law fair market value employment exception.  Even though there might be a detailed listing of obligations under a contract, there must be some assurances that those services are actually provided.  If the services are not provided, the excess compensation will be considered to be for another purpose such as the inducement for referrals.  As a compliance matter, health care organizations should monitor their contracts to assure that the specific services are actually being performed.  The employed physician and the facility have equal interest in assuring this as both would be in violation of the Stark Law if the services are not provided.

A recent criminal case under the Anti-kickback Statute provides another illustration of the risks associated with medical director agreements that are not properly monitored or, in extreme cases are entered for improper purposes.

The recent criminal case of United States v. Borrasi further reinforces this point and illustrates that there are cases where “sham” medical director payments can lead to criminal liability under the federal anti-kickback statute.  In Borrasi, a physician was convicted criminally under the Anti-kickback Statute for conspiring to receive bribes from a nursing home for referring patients to the facility.  The jury found that the physician and others were placed on the organization’s payroll as “service medical directors.”  They were provided with compensation for a list of services that, according to testimony at trial, they were never really expected to perform.  There was also testimony from employees that the “medical directors” were rarely seen around the facility and that time reports had been falsified in order to make it appear that they performed services at the facility.

In addition to compensation for what were found to be “sham” medical director services, the nursing home also paid for a secretary for the physician’s company and paid lease payments for the building owned by the physician.  There was also testimony that the physician had said to others that he was receiving “free money” from the facility.

From the published case, it appears that the facts in this case were extreme.  However, the case holds value because it further indicates the risks involved with medical director contracts.  In this case there were criminal consequences for the “sham” medical director agreement.  In Borrasi, the government carried its burden of demonstrating that the payments were intended to induce referrals.  In order to prove a criminal conviction, the government must show that “intent” to induce referrals was one of the purposes for the payment arrangement.

Cases where intent cannot be proved may still lead to liability under the Stark Law.  Although no one goes to jail under the Stark Law, the financial consequences can be severe and involve repayment of reimbursement and civil penalties.  Penalties are not inconsequential and can be large enough to cause a great deal of financial damage to the party who is found to be in violation.

Medical Director Agreements – Compliance Issues – Fair Market Value

Saturday, July 9th, 2011

Medical Director Agreements – Stark Law Compliance

The recent case of the United States v. Campbell, 2011 U.S. Dist. LEXIS 1207 (Jan. 2011) is one of the more recent reminders of the potential exposure to Stark Law liability arising through medical director arrangements.  The Campbell case involved an effort on behalf of the University of Medicine and Dentistry of New Jersey to increase referrals of cardiothoracic patients.  This effort resulted in the hospital entering into clinical assistant professor (“CAP”) agreements with a number of cardiologists.  These clinical assistant professor agreements purported to require the physicians to perform a variety of teaching-related services.  Physicians were paid between $50,000 and $180,000 per year under these contracts. 

The United States contended that the primary service performed under the CAP agreements was the referral of patients for private cardiology services to the hospital.  Although there were services described in the agreement, there was little indication that many of these services were ever actually performed. 

The court found that the Stark Law was violated because the physician was not compensated at fair market value, and the arrangement was not commercially reasonable.  Both fair market value compensation and commercial reasonableness are requirements in order to comply with the Stark Law.  The court pointed out that there is no requirement to actually perform the duties that were listed in the agreement and that any excess compensation over fair market value was considered impermissible payments in violation of the Stark Law.

Although this case involves an agreement that was defined as a critical assistant professor agreement, the analogy to a medical director agreement is obvious.  There have been a long line of cases and settlements with the Office of Inspector General involving medical director agreements.  Some of these applicable cases include the following:

1)  The San Jacinto Methodist Hospital in Texas agreed to pay over $21,000 in civil monetary penalties for a physician medical director who occupied hospital space for private use and utilized hospital personnel for clerical assistance, presumably while performing medical director services to the hospital.

 2)  Jewish Hospital and St. Mary’s Health Care in Kentucky paid $130,000 in civil monetary penalties for allegedly paying the medical director compensation in excess of his medical director agreement and providing free nurse services to the medical director’s private practice.

 3) Cushing Memorial Hospital paid $50,000 in civil monetary penalties related to a cardiologist who was medical director of a cardiac rehabilitation unit and was paid without the agreement having been signed.

 It is worthy of note that the above three described cases involved self-disclosure to the Office of Inspector General and likely the self-disclosure mitigated the amount of penalties that were paid by the reporting providers.

These cases and the Campbell case raise a number of compliance issues relative to the medical director agreements.  First, the medical director agreement should be in writing, and the agreement should be signed.  The agreement should include a detailed description of the services to be performed and should also set forth in detail the qualifications of the specific physician to provide the medical director services.  There should be follow-up to be certain that the services are actually performed.  The physician should be required to submit regular time records documenting the services.  In all cases, the institution should document the commercial reasonableness and necessity of the medical director arrangement.  The compensation should always be at fair market value and should be supported by a fair market value opinion that is credible and considers all factors relevant to the specific medical director arrangement.

Finally, the organization should monitor the terms of each medical director agreement to be certain that there is no termination of the agreement at a time when compensation continues.  There must always be a writtten medical director agreement in place in order to justify even fair market value compensation for the services performed by the medical director.

For more information on medical director agreements, Stark Law, compliance in the fair market value  of physician compensation arrangements, contact John Fisher at Ruder Ware.

Stark Law Self Disclosure Protocols | Do They Create More Ambiguity?

Friday, January 14th, 2011

Self Disclosure Protocols May Actually Muddy The Waters For Many Providers
Stark Law Self Disclosure Considerations Become More Confusing

Self Disclosure Stark Law ViolationsThe Affordable Care Act of 2010 required CMS to publish protocols to assist providers in self disclosing actual or potential violations of the Ethics in Patient Referrals Act, known as the Stark Law.  The self disclosure protocols permit a provider or supplier to voluntarily come forward with Stark Law violations in the hope of minimizing and potential penalties for the violation.

CMS recently published Voluntary Self-Referral Disclosure Protocol on its web site.  The protocols were issued without going through the regulatory process and as such, there was no opportunity for providers to comment on the proposals before they were issued.

The protocols contain useful information regarding the procedures to be followed when making a self-disclosure.  However, in their totality, the protocols were extremely disappointing because they did nothing to assist providers in making decisions whether to voluntarily disclose questionable violations.  At the same time, the protocols raise the stakes to providers of using the self disclosure protocols because they “tip the scale” more in favor of the government when the process is used.

The Stark Law contains numerous areas of uncertainty.  There are legitimate questions whether many activities violate the Stark Law.  The protocols do nothing to help providers assess these ambiguous areas of interpretation.  Rather, once a provider submits a matter to the self disclosure protocols, it is evident that the government will treat the disclosed arrangement as violating the law; even in cases where the provider is acting in good faith by submitting an ambiguous arrangement through the self disclosure protocols.

The protocols also raise the stakes and create ancillary risk. For example, in-artful wording
in the protocols raise questions whether using the procedures could subject the organization to reopening of claims and cost reports that could not be reopened under existing procedures.  This may not have been the intent of CMS, however a close reading of the protocols raise potential issues that need to be considered by providers when determining whether to submit “close call” cases to the self disclosure process.

Another significant development is that the provider will now be asked to waive attorney-client privilege, apparently as a condition of submitting the arrangement to the self disclosure protocols.

Another ambiguous issue created by the protocols surrounds the 60 day overpayment return requirement that was created under the Affordable Care Act.  Once a violation of Stark is identified, a provider is statutorily obligated to reimburse the government for over-payments within 60 days.  This is a statutory requirement.  The protocols confuse matters by stating that the 60 day requirement will be tolled pending review of the self disclosure.  CMS states that a provider should withhold payment during the review.  But what of cases where the review takes longer than 60 days?  Does CMS have the ability to over-ride a statutory obligation by creating a “protocol?”

In its present form, it is difficult to envision a situation where a provider would use the self-disclosure protocol for Stark Law violations in situations that do not involve clear violations.  Each provider will need to make this determination given the fact of each case and after a close reading of the protocols and consideration of their implications.  However, it does not appear that the recently released protocols are of any assistance to provider who may be assessing whether to submit anything but clear Stark Law violations through 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

Ruder Ware is a member of Meritas Law Firms Worldwide

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