A few days before Thanksgiving, the news media published an internal memo by the Office of General Counsel (OGC) at the US Department of Health and Human Services (Department) to officials at the Centers for Medicare and Medicaid Services (CMS). The memo expressed OGC’s views on the impact of the Supreme Court’s Azar v. Allina
Tony Maida counsels health care and life sciences clients on government investigations, regulatory compliance and compliance program development. Having served as a government official, Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal and state Anti-Kickback and Stark Laws and Medicare and Medicaid coverage and payment rules. He represents clients in False Claims Act (FCA) qui tam matters, government audits, civil monetary penalty and exclusion investigations, and Centers for Medicare and Medicaid Services (CMS) suspension, and revocation actions, negotiating and implementing corporate integrity agreements, and making government self-disclosures. Read Tony Maida's full bio.
On October 9, 2019, the US Department of Health and Human Services Centers for Medicare and Medicaid Services (CMS) published proposed changes to the physician self-referral law (Stark Law). Physician practices are subject to the Stark Law, and the proposed rule includes an important clarification affecting certain group practices’ compensation models.
CMS proposes to revise its regulations to clarify the special rule for group practice distributions of income from Stark designated health services (DHS). Compliance with this special rule is a requirement of the Stark Law’s definition of a “group practice,” and compliance with the “group practice” definition is generally necessary for physician groups to have the protection of the in-office ancillary services (IOAS) exception to the Stark Law. The special rule for sharing DHS profits permits a group, or a pod of five or more physicians in the group, to pool their DHS income and distribute the pool in a manner that does not directly take into account the volume or value of any physician’s referrals for DHS.
For years, there has been a debate within the health law bar regarding how these DHS income pools can be structured under the special rule. One position is that the special rule permits pools to be organized by DHS, meaning, for example, that if the group’s only DHS are imaging and physical therapy services (PT), the group can have one pool for diagnostic imaging income in which one set of five or more physicians participate, and another pool for PT income in which another (perhaps overlapping) set of five or more physicians participate (split-DHS income pooling). The other position is that the special rule requires that the DHS income pool must include all the DHS generated by the participating physicians. In such a case, the imaging and PT pools described above would have to be consolidated (all-DHS income pooling).
On October 9, 2019, the US Department of Health and Human Services (HHS) published proposed changes to the physician self-referral law (Stark Law) (Stark Proposed Rule) and the Anti-Kickback Statute (AKS) and the Beneficiary Inducement Civil Monetary Penalty Law (CMPL) (AKS Proposed Rule).
The proposed rules represent some of the most significant potential changes to these laws in the last decade. HHS Deputy Secretary Eric Hargan said that they “would be a historic reform of how healthcare is regulated in America.” This On the Subject provides a high-level overview of key provisions in the proposed rules. More in-depth analysis will follow at our Regulatory Sprint Resource Page.
The Stark Law and AKS Proposed Rules have been promulgated as part of HHS’s “Regulatory Sprint to Coordinated Care,” which was launched in 2018 with the goal of reducing regulatory burden and incentivizing coordinated care. As part of this initiative, the Centers for Medicare and Medicaid Services (CMS) and the HHS Office of Inspector General (OIG) began scrutinizing a variety of long-standing regulatory requirements and prohibitions to determine whether they unnecessarily hinder the innovative arrangements that policymakers are otherwise hoping to see develop. The agencies took the step of formally seeking public input on this topic by issuing requests for information (RFIs) in June and August 2018. More information about HHS’s Sprint and the RFIs is available on our Regulatory Sprint Resource Page.
The Proposed Rules reflect a coordinated effort between CMS and OIG to address various challenges to the transition to value-based care. Both agencies clearly recognize that the two laws often operate in tandem, but they also emphasize that they are distinct and separate enforcement vehicles. Thus, in some instances OIG’s proposals may be more restrictive that CMS’s, and both agencies state that the AKS may act as a “backstop” to protect against arrangements that meet a Stark Law exception but are nonetheless considered abusive. CMS also proposes to remove compliance with the AKS as a requirement from several Stark Law exceptions, further underscoring the laws’ separateness.
In U.S. ex rel. J. William Bookwalter, III, M.D. et al. v. UPMC et al., the US Court of Appeals for the Third Circuit endorsed two controversial interpretations of the Stark Law’s “volume or value” standard, known as the correlation theory and the practice “loss” theory. Specifically, the court held that the relators had made out a plausible allegation of an indirect compensation arrangement between surgeons and University of Pittsburgh Medical Center (UPMC)-affiliated hospitals. The court held that the relators were entitled to proceed to discovery because of the correlation between the amount of the productivity-based compensation paid to the surgeons and the volume of the surgeons’ referrals for inpatient hospital services (e.g., operating room and hospital room and board). Repeatedly invoking the concept of “where there is smoke, there might be fire,” the court also stated that the fact that at least three of the surgeons allegedly received compensation in excess of the hospital’s collections for their professional services supported the plausibility of the relators’ allegation that the compensation “takes into account” the volume or value of the physicians’ referrals to the hospitals.
If this holding sounds familiar, that is because it is based on the same logic advanced by the Fourth Circuit in U.S. ex rel. Drakeford v. Tuomey, the infamous Stark Law/False Claims Act (FCA) case that first put the hospital industry on notice that common productivity-based compensation to hospital-employed surgeons could implicate the Stark Law. While distinguishable from Tuomey, UPMC has important implications for hospitals and health systems that employ surgeons.
Summary of Allegations and Procedural History
In UPMC, the plaintiffs alleged that the UPMC hospitals where the neurosurgeons performed cases each had an indirect compensation arrangement with the surgeons and thus triggered the Stark Law’s prohibitions against referrals and the associated Medicare claims for reimbursement. Based on this alleged Stark Law violation, the plaintiffs claimed that the hospitals violated the FCA by submitting false claims for hospital services referred by the surgeons. The surgeons were paid a base salary and a productivity bonus of $45 per work RVU above a specified target. If a surgeon did not hit the target, her base compensation would be reduced the following year. The government had intervened in and settled another aspect of the case, but declined to intervene on these allegations.
The compensation arrangement between the surgeons and the UPMC hospitals was evaluated as a potential indirect compensation arrangement because the surgeons were employed by UPMC-affiliated medical practices, not directly by the UPMC hospitals. For Stark Law purposes, an indirect compensation arrangement requires, among other things, that the compensation paid to the physician “varies with” or “takes into account” the volume or value of the physician’s referrals to the hospital. In this case, the plaintiffs alleged that the compensation greatly exceeded fair market value and that at least three surgeons were paid more than the hospital collected for their services. The plaintiffs also asserted that “[e]very time . . . [the surgeons] performed a surgery or other procedure at the UPMC Hospitals, the Physicians made a referral for the associated hospital claims pursuant to the Stark Statute.”
Bingham v. HCA, Inc., a recent Eleventh Circuit case, highlights the centrality of fair market value to Anti-Kickback Statute (AKS) analyses. This decision is significant for several reasons and we expect to see Bingham cited by many defendants in future False Claims Act cases. The case is also a reminder that the current regulatory and enforcement environment can result in litigation over arrangements with fair market value payments that involve little, or no, compliance concerns.
One of the most fundamental elements of managing risk under the federal Anti-Kickback Statute (AKS) is ensuring remuneration is consistent with fair market value. A recent Eleventh Circuit case highlights the centrality of fair market value to AKS analyses. See Bingham v. HCA, Inc., Case No. 1:13-cv-23671 (11th Cir. 2019). In Bingham, the court held that proving fair market value is an essential element for a relator to survive summary judgment and that relators must plead a lack of fair market value consistent with the Rule 9(b) particularity requirement to allege improper remuneration exists in the first place. The court’s holding is significant for two reasons: (1) it underscores that the plaintiff bears a burden in pleading and proving lack of fair market value, and (2) it suggests that fair market value compensation may be an absolute defense to an AKS allegation. We expect to see Bingham cited by many defendants in future False Claims Act cases, and we will be watching to see how the Eleventh Circuit and other courts continue to evaluate these concepts.
Case Background and Procedural History
We note that it took five years of costly litigation for HCA to reach this decision. Relator, who has filed a number of cases against hospital systems over the years concerning real estate deals, filed his first amended complaint on August 15, 2014. Relator alleged that HCA, through its Centerpoint Medical Center and Aventura Hospital facilities, violated the FCA due to improper space rental arrangements with physicians. Relator alleged that HCA allegedly paid a medical office building developer improper subsidies and that the developer passed the value of these subsidies onto physician tenants who signed 10-year leases through low initial lease rates, restricted use waivers, operating cash-flow shares and free office improvements. Relator also alleged HCA provided direct remuneration to physician tenants at the Aventura facility, including free parking, subsidized common area maintenance, free use permissions and below market rent.
In this second installment of the Healthcare Enforcement Quarterly Roundup for 2019, we cover several topics that have persisted over the past few years and identify new issues that will shape the scope of enforcement efforts for the remainder of this year and beyond. In this Quarterly Roundup, we discuss DOJ’s guidance on compliance…
Last month, the Civil Division of the Department of Justice (DOJ) announced the release of formal guidance to DOJ civil attorneys on how to award “cooperation credit” to defendants who cooperate with the Department during a False Claims Act (FCA) investigation. The formal policy, added to the Justice Manual Section 4-4.112, identifies the type of cooperation eligible for credit.
As announced by Assistance Attorney General Jody Hunt, DOJ believes the guidance reflects “important steps to incentivize companies to voluntarily disclose misconduct and cooperate with our investigations … False Claims Act defendants may merit a more favorable resolution by providing meaningful assistance to the Department of Justice—from voluntary disclosure, which is the most valuable form of cooperation, to various other efforts, including the sharing of information gleaned from an internal investigation and taking remedial steps through new or improved compliance programs.”
Under the policy, cooperation credit in FCA cases may be earned by 1) voluntarily disclosing misconduct unknown to the government, 2) cooperating in an ongoing investigation or 3) undertaking remedial measures in response to a violation. The first type of cooperation is straightforward: self-disclosure before a government investigation begins.
The second type of cooperation has two flavors. First, where the government has already initiated an investigation, a company may receive credit for disclosing other misconduct uncovered by the company through the course of its internal investigation that is unknown to the government. Second, DOJ lists 10 examples of other cooperative activities for which a company may earn credit for undertaking during an investigation, including
- Identifying individuals substantially involved or responsible for the conduct;
- Admitting liability or “accepting responsibility” for the conduct; or
- Assisting the government in its investigation by, for example, preserving relevant documents and information beyond existing business practices or legal requirements, identifying individuals who are aware of relevant information or conduct, and facilitating review and evaluation of data or information that requires access to special or proprietary technologies.
The third type of cooperation involves taking into account remedial actions that a company has taken in response to a FCA violation. Such remedial measures may include
- Undertaking a thorough analysis of the root cause of the misconduct;
- Implementing or improving an effective compliance program designed to ensure the misconduct or similar problem does not occur again;
- Appropriately disciplining or replacing those responsible for the misconduct;
- Accepting responsibility for the violation; and
- Implementing or improving compliance programs to prevent a recurrence.
Boards and management should make use of recent expanded guidance from the US Department of Justice to ensure that their compliance programs are considered “effective” if and when an investigation arises. Companies should affirmatively answer three fundamental questions in evaluating a compliance program:
- Is the compliance program well designed?
- Is the program being implemented effectively
In this first installment of the Health Care Enforcement Quarterly Roundup for 2019, we continue to monitor trends we identified in 2018 and introduce new enforcement efforts that are expected to persist in the coming year. In this Roundup, we focus on increased enforcement activity against electronic health record (EHR) companies, enforcement against individuals…