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.
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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In October 2005, Dr. Michael Drakeford filed his qui tam against Tuomey Healthcare System alleging Stark Law and False Claims Act violations. After ten years of investigation and litigation, including two jury trials, two trips to the Fourth Circuit U.S. Court of Appeals, and a staggering judgment of $237 million, on October 16, 2015, the Department of Justice announced that it reached a settlement with Tuomey to pay $72.4 million before its sale to Palmetto Health. Dr. Drakeford received a 25 percent share ($18.1 million) plus an additional $2.5 million payment for attorneys’ costs and fees.
Consistent with DOJ’s policy announced in the Yates Memorandum (see post), the settlement agreement only releases Tuomey, and does not release any corporate officers, directors or employees. Moreover, the settlement contains some unusual provisions concerning two such officers, noting that Tuomey had agreed to indemnify Jay Cox and Gregg Martin, the CEO and COO respectively during the relevant time period, for their attorney fees and expenses relating to the conduct covered by the settlement. According to the settlement, Tuomey has informed the United States how much Tuomey has already advanced Cox and Martin, and Tuomey assigned to the United States all claims or potential claims Tuomey has or may have against Cox and Martin for reimbursement of fees and costs advanced to them.
Tuomey also entered into a five-year corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General as part of the settlement. The CIA requires that Tuomey retain a law firm as a “Legal IRO” to perform reviews of Tuomey’s process for entering into arrangements with referral sources as well as reviewing specific arrangements. The CIA also contains a requirement that is starting to appear in more recent CIAs — certifications of compliance from both the compliance officer and the chief executive officer instead of only the compliance officer.
After the federal government’s victory against Tuomey Hospital, we have seen an increasing number of large False Claims Act (FCA) settlements with hospitals involving Stark Law allegations. Despite the intricacies of Stark Law compliance, the U.S. Department of Justice (DOJ) has not shown much leniency in its treatment of these cases, as shown by two recent settlements involving Columbus Regional Healthcare System and North Broward Hospital District. This On the Subject explores some “lessons learned” from these settlements as well as DOJ’s emerging interpretation of the Stark Law that may put vertically integrated health systems’ physicians arrangements at risk for scrutiny.
Read the full On the Subject.
In 1989, Congress enacted the Ethics in Patient Referrals Act. Twenty-five years later, in United States ex rel. Drakeford v. Tuomey, the Fourth Circuit upheld the largest False Claims Act (FCA) judgment predicated on Stark Law violations to date: $237 million. Writing in concurrence, Judge Wynn summarized the situation as “[a]n impenetrably complex set of laws and regulations that will result in a likely death sentence for a community hospital in an already medically underserved area,” concluding that “even for well-intentioned health care providers, the Stark Law has become a booby trap rigged with strict liability and potentially ruinous exposure—especially when coupled with the False Claims Act.”
The court’s opinion did not quarrel with this assessment: “we do not discount the concerns raised by our concurring colleague regarding the result in this case. But having found no cause to upset the jury’s verdict in this case and no constitutional error, it is for Congress to consider whether changes to the Stark Law’s reach are in order.”
This is not the first time that serious concerns have been raised about the breadth, complexity, and inscrutability of the Stark Law as currently implemented. As part of the Balanced Budget Act (BBA) of 1995, Congress voted to repeal the Stark Law as applied to compensation arrangements, but the BBA was vetoed by President Bill Clinton. More recently, the law’s namesake, former Representative Fortney “Pete” Stark, has urged its repeal.
This article is not intended to summarize all the facts of Tuomey or its extended procedural history, which have been recounted elsewhere. Rather, we seek to comment on three key aspects of the case: (1) the defendant’s advice of counsel/ scienter defense; (2) the court’s application of the “takes into account” prong to Tuomey’s physician employment agreements; and (3) certain inherent tensions in the Stark Law that the Tuomey odyssey underscores.
Defending False Claims Act litigation is often a costly budget item. The disposal of weak cases by the government through the intervention decision making process has always been a critical safety valve for non-culpable defendants. Two of the more concerning trends in False Claims Act litigation, however, are (1) the increasing likelihood of relators pursuing factually and legally weak allegations after the government declines to intervene, and (2) courts allowing such cases to survive a Rule 9(b) motion to dismiss. A recent case in the Middle District of Florida involving the unintended consequences of a health system’s adherence to a local zoning obligation serves as a prime example of these troubling trends.
On August 14, 2015, in U.S. ex rel. Bingham v. BayCare Health System, the court denied the defendants’ motion to dismiss relator’s claim that BayCare Health System (BayCare) and an independent third party real estate developer, St. Pete MOB, LLC (St. Pete’s)—referred to by relator as BayCare’s “proxy”—entered into a “scheme” to enable BayCare to pass remuneration to physicians in violation of the Stark Law and Anti-Kickback Statute (AKS). According to the relator, the heart of this “scheme” is BayCare’s ground lease to St. Pete’s on a BayCare hospital’s campus to build a medical office building (MOB).
In this ground lease, BayCare provided a non-exclusive easement for MOB tenants to use the hospital’s parking facilities. As pleaded by the relator, and acknowledged by the court, this easement was included in the lease “to satisfy zoning and other governmental requirements.” Despite this salient fact, relator turns this legally-required easement into illegal remuneration under the Stark Law and AKS simply by alleging that one of BayCare’s purposes in providing the easement was for St. Pete to avoid incurring the costs to lease additional land and to build a parking garage, and then for St. Pete to “pass some or all of the millions of dollars in savings to physician tenants to encourage them to make or increase referrals.” However, the relator does not appear to have mustered support for this bald conclusion. The relator does not appear to allege that the terms of the physicians’ leases with St. Pete’s are problematic, other than suggesting that amending the leases in 2013 to allow the physicians, staff and patients to use the parking facilities to access the MOB at no charge is another sign of improper remuneration. The relator also asserts that BayCare provided a “rent concession” to the tenant physicians (even though BayCare is not the landlord) by claiming a tax exemption for what is alleged to be non-exempt property, which saved St. Pete’s about $140,000 in real property taxes. The relator alleges, with little support, that this tax exemption resulted in lower rent charged to the physician tenants and that BayCare is culpable for this alleged remuneration even though St. Pete’s was the lessor.
The legal theory and factual problems with this case are multifold. BayCare’s legal obligation to meet the local zoning requirement for the easement should raise significant challenges for [...]
There has been a flurry of judicial and administrative activity regarding the Stark Law in recent weeks, bringing both promises of reprieve for the health care industry in complying with the technicalities of the law, and reminders of the need for executive vigilance when evaluating and approving transactions with referring physicians.
- On July 15, 2015, the Centers for Medicare & Medicaid Services (CMS) issued a notice of proposed rulemaking to amend the Stark regulations and to solicit comments from the health care industry on whether the Stark Law is a barrier to health care reform. Among other proposed amendments, CMS proposes: (1) to add two new compensation exceptions, (2) to expand the grace period for the signature requirement of various exceptions in some instances, and (3) to extend the six-month holdover provision of various exceptions. CMS also made several agency policy statements, including clarifying that signed writings do not need to be formal agreements and that the one-year term requirement of certain exceptions is satisfied when an arrangement in fact lasts for at least one year. For a detailed overview of the proposed rule and its implications, see the Special Report. CMS’s proposals to relax the technical requirements of various Stark Law exceptions, if implemented, would be a welcome reprieve to the health care industry by addressing the potentially draconian consequences of such seemingly innocent situations as a late signature on an agreement with a referring physician. Comments on the proposed rule are due September 8, 2015.
- On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million False Claims Act judgment based on Stark Law violations related to part-time employment contracts between a hospital system and referring physicians in United States ex rel. Drakeford v. Tuomey, rejecting the defendant’s request for a new trial based on multiple errors by the trial court and its constitutional challenges to the trial court’s award of damages and penalties. We previously posted about this decision. (For more details, see here.) The ruling raises questions related to the advice of counsel defense and scienter, and the meaning and application of the Stark Law’s “volume or value” standard.
- On June 12, 2015, the U.S. Court of Appeals for the District of Columbia Circuit struck down CMS’s regulatory prohibition on “per-click” equipment rental arrangements with referring physicians, but upheld CMS’s prohibition on “under arrangements” transactions. We previously posted about this decision. As we noted in that post, while it is not clear how CMS will respond to the ruling, if at all, per-click equipment rental arrangements still face scrutiny by the Office of the Inspector General (OIG) under the federal anti-kickback statute. The OIG has not taken the position that such per-click equipment rentals automatically create liability under the anti-kickback statute, but the risk of such potential liability under the federal anti-kickback statute (as well as state anti-kickback statutes) should be carefully considered. [...]
On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit affirmed the U.S. District Court for the District of South Carolina’s judgment of $237,454,195 in damages and penalties against Tuomey Healthcare System in United States ex rel. Drakeford v. Tuomey Healthcare System, Inc. (No. 13-2219). The judgment followed a rare False Claims Act (FCA) trial, after which the jury found Tuomey liable for submitting 21,730 false claims to Medicare. While the Fourth Circuit’s Tuomey decision addressed many claims of error advanced by Tuomey on appeal, this post highlights the court’s response to Tuomey’s challenges based on the “advice of counsel” defense and on the computation and size of the judgment.
Tuomey was alleged to have entered into part-time employment contracts with physicians that violated the Stark Law. After one of the physicians expressed compliance concerns about the structure of the proposed arrangement, Tuomey sought Stark Law compliance advice about the contracts from several attorneys – one of whom, Kevin McAnaney, indicated that the contracts raised “red flags” under the Stark Law. McAnaney was jointly retained by Tuomey and the physician, Drakeford, after Tuomey received a legal opinion from its longstanding counsel that the contracts were Stark compliant. Despite McAnaney’s advice, Tuomey elected to move forward with the contracts. Drakeford subsequently filed an FCA qui tam lawsuit against Tuomey, and the extensive litigation ensued. (more…)
Court Upholds CMS’ Prohibition on ‘Under-Arrangements’ Transactions, Strikes Down CMS’ Prohibition on ‘Per-Click’ Equipment Rental Arrangements
A 2008 rule change from the Centers for Medicare and Medicaid (CMS)—which effectively prohibited referring physician-owned companies from furnishing hospital services “under arrangements”—has withstood a challenge by a urology trade association. On June 12, 2015, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) held in Council for Urological Interests v. Burwell that the 2008 rule change, which redefined an “entity furnishing designated health services” to include entities that perform the services, not just bill for them, constituted a reasonable construction of the Stark Law and was entitled to deference. The appellate court, however, held that CMS’ prohibition on “per-click” equipment rental arrangements lacked a rational basis in light of the agency’s “tortured reading” of a relevant conference report, which, the court noted, was “the stuff of caprice.” Accordingly, the court struck down CMS’ 2008 prohibition on per-click equipment rental arrangements involving referring physician-owned equipment leasing companies.
Read the full On the Subject discussing the announcement.
On February 10, 2015, the United States Court of Appeals for the Seventh Circuit broadly interpreted the term “referral” in the Anti-Kickback Statute (AKS), in a decision that could have significant implications for health care professionals. The court held that a physician makes a “referral” under the AKS when he or she makes a “certification and recertification” that care is necessary, even though the physician did not steer patients to the particular provider. United States v. Kamal Patel, No. 14-cv-2607 (7th Cir. Feb. 10, 2015)
When patients of Dr. Kamal Patel, an internist in Chicago, needed home health care, Dr. Patel did not discuss with the patients which providers to use. Rather, a member of his staff provided them with 10-20 home health care company brochures, and the patients chose one of those providers on their own. Dr. Patel then “certified” the patient for 60 days of home care – and “recertified” if longer care was needed – by signing a Form 485 (a Medicare form that certifies that care is medically necessary and outlines a patient’s treatment plans) for each patient.
Dr. Patel allegedly accepted $400 in cash per certification and $300 per recertification from Grand Home Health Care (Grand) – one of those 10-20 providers. Based on these facts, the lower court held that Mr. Patel “referred” patients to Grand when “he certified or recertified that the patient needed care, that the care would be provided by Grand, and that Grand could be reimbursed by Medicare for services provided.”
On appeal, Dr. Patel argued that the district court erred in holding that the certification and recertification process constituted a “referral” under the AKS. Instead, he said that to “refer” means to personally recommend a patient use a particular provider. But Dr. Patel did not do that. Instead, his patients chose the provider on their own, without discussing it with Dr. Patel. The government countered that “refer” should include a doctor’s authorization of care, which would include the certification and recertification process. Indeed, on at least one occasion, Dr. Patel withheld certification forms from Grand, until payment was made. And, without those forms, Grand could not bill Medicare for the services it provided to Dr. Patel’s patients.
The court disagreed with Dr. Patel. In reaching its decision, the Seventh Circuit found support in the definition of “referral” under certain state laws, the Stark law, and in the way that Dr. Patel even used the term on one occasion. “Patel is correct that it does not matter who first identifies the care provider; what matters is whether the doctor facilitates or authorizes that choice,” the court stated. “Patel acted as a gatekeeper to federally-reimbursed care. Without his permission, his patients’ independent choices were meaningless.” What mattered to the court was not whether Dr. Patel steered patients to Grand but that Grand could not get paid by Medicare unless Dr. Patel certified the care – something that he did regularly in exchange for cash.
Several courts that have analyzed the issue, [...]