Eventually, any health care organization with an effective compliance program is very likely to discover an issue that raises potential liability and requires disclosure to a government entity. While we largely discuss False Claims Act (FCA) litigation and defense issues on this blog, a complementary issue is how to address matters that raise potential liability risks for an organization proactively.

On August 11, 2017, a group of affiliated home health providers in Tennessee (referred to collectively as “Home Health Providers”) entered into an FCA settlement agreement with the US Department of Justice (DOJ) and the US Department of Health and Human Services Office of Inspector General (OIG) for $1.8 million to resolve self-disclosed, potential violations of the Stark Law, the Federal Anti-Kickback Statute, and a failure to meet certain Medicare coverage and payment requirements for home health services. This settlement agreement underscores the strategic considerations that providers must weigh as they face self-disclosing potential violations to the US government. Continue Reading DOJ Settlement with Home Health Providers Underscores Strategic Considerations for Self-Disclosure

A hospital system in Missouri recently agreed to settle with the US Department of Justice (DOJ) for $34 million to resolve claims related to alleged violations of the Stark Law. On May 18, 2017, DOJ announced a settlement agreement with Mercy Hospital Springfield (Hospital) and its affiliate, Mercy Clinic Springfield Communities (Clinic). The Hospital and Clinic are both located in Springfield, Missouri. The relator’s complaint was filed in the Western District of Missouri’s Southern Division on June 30, 2015.

The complaint’s allegations center on compensation arrangements with physicians who provided services in an infusion center. According to the complaint, until 2009 the infusion center was operated as part of the Clinic, and the physicians who practiced at the infusion center shared in its profits under a collection compensation model. In 2009, ownership of the infusion center was transferred to Mercy Hospital so that it could participate in the 340B drug pricing program, substantially reducing the cost of chemotherapy drugs. The complaint alleges that the physicians “expressed concern about losing a substantial portion of the income they had received under the collection compensation model as a result of the loss of ownership of the Infusion Center.” In response, the Hospital allegedly assured them that they would be “made whole” for any such losses. While it doesn’t provide precise details, the complaint alleges that the Hospital addressed the shortfall by establishing a new work Relative Value Unit (wRVU) for drug administration in the infusion center, which now operated as part of the Hospital. The value of this new wRVU was allegedly calculated by “solving for” the amount of the physician’s loss and “working backwards from a desired level of overall compensation.” Physicians were able to earn the wRVU for the patients they referred to the infusion center. The complaint alleges that the drug administration wRVU rate was 500 percent of the comparable wRVU for in-clinic work. In its announcement of the settlement agreement, DOJ characterized the compensation arrangement as being “based in part on a formula that improperly took into account the value of [the physicians’] referrals of patients to the infusion center operated by [the Hospital].” Continue Reading Physician Compensation Scrutiny Continues in Recent FCA Settlement

This April, providers cheered when a federal district court in the Middle District of Florida found insufficient evidence to support a relator’s theory that a hospital had provided free parking to physicians, in violation of the Stark Law and Anti-Kickback Statute (AKS). In the Report and Recommendation for United States ex rel. Bingham v. BayCare Health Systems, 2017 WL 126597, M.D. Fla., No. 8:14-cv-73, Judge Steven D. Merryday of the Middle District of Florida endorsed magistrate judge Julie Sneed’s recommendation that Plaintiff Thomas Bingham’s Motion for Partial Summary Judgment be denied and that Defendant BayCare Health System’s Motion for Summary Judgment be granted. However, as we discussed in a previous FCA blog post regarding these allegations, this type of case encapsulates a worrying and costly trend where courts allow thinly pleaded relator claims in which the government opted not to intervene, to survive past the motion to dismiss stage into the discovery phase of the litigation.

Bingham is a serial relator who practices as a certified real estate appraiser in Tennessee and was unaffiliated with BayCare. In his latest attempt, Bingham alleged that BayCare Health System had violated the Stark Law and the AKS by providing affiliated physicians free parking, valet services and tax benefits to induce physicians to refer patients to the health system. Continue Reading A Hospital’s Deserving Stark and AKS Victory—But At What Cost?

In a case of first impression, a federal court found that the federal physician self-referral law’s (Stark Law) requirement that financial arrangements with physicians be memorialized in a signed writing could be material to the government’s payment decision. This case raises troubling questions about applying the False Claims Act (FCA) to what many in the industry consider “technical” Stark issues, especially given the Supreme Court’s description of the materiality test as “demanding” and not satisfied by “minor or insubstantial” regulatory noncompliance.

United States ex rel. Tullio Emanuele v. Medicor Associates (Emanuele), in the US District Court for the Western District of Pennsylvania, involves Medicor Associates, Inc., a private medical group practice (Medicor), and Hamot Medical Center’s (Hamot) exclusive provider of cardiology coverage. Tullio Emanuele, a qui tam relator and former physician member of Medicor, alleged that Hamot, Medicor, and four of Medicor’s shareholder-employee cardiologists (the Physicians) violated the FCA and Stark Law because Hamot’s multiple medical director compensation arrangements with Medicor failed to satisfy the signed writing requirement in the Stark Law’s personal services or fair market value exceptions during various periods of time. The US Department of Justice declined to intervene in the case, but filed a statement of interest in the summary judgment stage supporting the relator’s position. Continue Reading Is the Stark Law’s “Signed Writing” Requirement Material to Payment: One Federal Court Says Yes

On March 20, 2017, the US District Court for the Southern District of Mississippi denied a motion to permanently seal the record of previously dismissed False Claims Act (FCA) claims.  The three relators, who initially brought the claims in US v. Apothetech Rx Specialty Pharmacy Corp., claimed they would face potential reputational damage and retaliatory actions if the case was not permanently sealed. The court ultimately held, however, that such “generalized apprehensions of future retaliation” were not enough to overcome the strong public right of access to judicial proceedings.

The underlying qui tam complaint was initially filed on August 14, 2015, and alleged the defendants engaged in a fraudulent scheme of improperly compensating independently contracted sales representatives for referrals. The relators voluntarily dismissed the complaint a year later in August 2016. Upon dismissal, however, the court temporarily sealed all case records related to the case to permit the relators time to file the present motion to seal.  Continue Reading Relators Denied Permanent Seal on FCA Case Record after Voluntary Dismissal

On November 15, 2016, as part of its 2017 Medicare Physician Fee Schedule update, the Center for Medicare and Medicaid Services reissued its prohibition on certain unit-based rental arrangements with referring physicians, adopted updates to the list of CPT/HCPCS codes defining certain of the Stark Law’s designated health services and implemented a minor technical change to its instructions for submitting a request for an Stark advisory opinion. These revisions can be found at 81 Fed. Reg. 80170, 80524-36.

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The good, reassuring news about that “old dog” fraud and abuse as it enters an age of payment reform is that criminal liability for fraud still requires a specific intent to defraud the federal health care programs, anti-kickback liability still requires actual knowledge of at least the wrongfulness, if not the illegality, of the financial transaction with a referral source, and civil False Claims Act liability for Stark Law violations still requires actual knowledge, a reckless disregard for, or deliberate ignorance of the Stark Law violation. This should mean that good faith and diligent efforts to comply with law, including seeking and following legal counsel, still go a long way in managing an organization’s and individual executive’s risk under the fraud and abuse laws. The bad, unsettling news about fraud and abuse in an age of payment reform, however, is that (1) anxiety about reform and stagnating and declining physician incomes are propelling a spike in transactions between health systems and physicians at a time when qui tam plaintiffs and the law firms that represent them are aggressively challenging the legitimacy and common structures for these transactions; and (2) the Stark Law is largely indifferent to the good faith intentions of health systems to integrate and enter into coordinated care arrangements with physicians, and continues to impose on health systems heavy burdens of proof that the arrangements comply with ambiguous standards like fair market value, volume or value and commercial reasonableness. While financial transactions incident to the Centers for Medicare and Medicaid Services’ (CMS) innovative care delivery and payment initiatives, such as accountable care organizations (ACOs), medical homes and bundled payment arrangements can be protected by the fraud and abuse/Stark waivers discussed in Part B below, there are many other common transactions and arrangements with physicians still operating in a fee-for-service environment  (such as practice acquisitions, employment, “gainsharing,” service line co-management, pay-for-quality and non-ACO clinically integrated networks) that are not protected by the waivers. During this period of transition to transformation of the health delivery and payment system, the key areas of risk for health systems are their burdens of proof on the ‘big three” issues of:

  • Fair market value,
  • Volume or value, and
  • Commercial reasonableness.

Each is discussed separately below, and the industry practices for managing these risks. Please note that none of these practices are necessarily “best” or “normative” practices, but are what we have observed.

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On September 19 and 27, 2016, the US Department of Justice announced two False Claims Act settlements that required corporate executives to make substantial monetary payments to resolve their liability. In the first, announced on September 19, North American Health Care Inc. (NAHC) and two individuals—its chairman of the board and a senior vice president of reimbursement—agreed to settle potential False Claims Act liability for a total of $30 million. The second settlement involves the former CEO of Tuomey Healthcare, who, a year after the $72.4 million corporate FCA resolution and two years after his departure from Tuomey as CEO, is now settling his own liability for $1 million, has been required to release any indemnification claims he may have had against the company, and has agreed to a four-year period of exclusion from participating in federal health care programs. Coinciding with the Tuomey CEO settlement announcement, Bill Baer, Principal Deputy Associate Attorney General of the US Department of Justice (DOJ), gave a speech in Chicago discussing company cooperation and “individual accountability” in the context of federal civil enforcement. This new guidance, as well as the two settlements, come a little over a year after DOJ Deputy Attorney General, Sally Yates, issued what is now known as the “Yates Memo,” which sets forth guidance to be used by DOJ civil and criminal attorneys “in any investigation of corporate misconduct” in order to “hold to account the individuals responsible for illegal corporate conduct.” Since then, corporate resolutions like these have been watched for telltale signs of whether the Yates Memo is really changing the way federal enforcement does business. Given the timing of the speech and the settlements, and the high level of the officers involved, that change may be here.

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On July 12, 2016, the US Senate Finance Committee held a hearing to “examine ways to improve and reform the Stark Law” as a follow up to releasing a white paper on June 30 titled Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models. The white paper summarizes comments and recommendations gathered during a roundtable discussion held by the Senate Finance Committee and the US House Committee on Ways and Means in December 2015 as well as written comments submitted by roundtable participants and other stakeholders on topics taken up by the roundtable in the weeks following the meeting.

Senate Finance Committee Chairman Senator Orrin Hatch commented in a press release that “[t]he health care industry has changed significantly since Stark was first implemented, and while the original goals of the Stark law were appropriate, today it is presenting a real burden for hospitals and doctors trying to find new ways to provide high quality care while reducing costs as they work to implement recent health care reforms. . . [The] paper reflects critical feedback from the stakeholder community on the law’s ambiguities, its unintended consequences and the need for reform, and I am hopeful it jumpstarts the discussion on how Congress can modernize the law to make it work for patients, providers and taxpayers.”

Congress’ attention to Stark Law reform would address the significant False Claims Act exposure Stark Law violations can pose, which has been a very active topic for relators and government investigations in recent years.

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