Stark/Physician Self-Referral and Anti-Kickback

Transcription

1 Chapter 2 Fraud and Abuse Stark/Physician Self-Referral and Anti-Kickback L E A R N I N G OBJECTIVES After completing class sessions based on this chapter, a student will: Have a solid understanding of the Physician Self-Referral Law (Stark Law) and the Anti-Kickback Statute (AKS). Know to which services, individuals, organizations, and transactions these laws apply. Comprehend the exact behaviors that are prohibited. Become familiar with the exceptions and Safe Harbors through which healthcare providers and organizations can escape liability. Be aware of some hints and clues that noncompliant activities and transactions are occurring. Learn the basic steps for anticipating and preventing Stark and AKS violations. Hear about some typical cases of fraud and abuse violations and court decisions. INTRODUCTION When government authorities and industry officials talk about prohibitions of fraud and abuse in health care, they often are referring to the two major statutes focused on the healthcare industry: the Physician Self- Referral Law 1 and the AKS. 2 Between them, they apply to many essential practices and procedures in healthcare organizations practices and procedures that can be manipulated to produce undeserved financial benefit 1 42 U.S.C. 1395nn 2 42 U.S.C. 1320a-7b(b) _CH02_Printer.indd 21

2 22 Chapter 2: Fraud and Abuse for the organizations or associated individuals. The laws aim to prevent or punish such manipulation and benefit. The purpose of a compliance program is to prevent and detect violations of these laws. There is overlap between the coverage of the laws. Their provisions easily can be confused. It is useful to examine them at the same time, and then compare their features. PHYSICIAN SELF-REFERRAL (STARK) LAW The first Physician Self-Referral Law was the Ethics in Patient Referral Act enacted in 1989 (Stark I). It was championed by Congressman Pete Stark and came to be known as the Stark Law. It applied only to clinical laboratory services. The Omnibus Budget Reconciliation Act of 1993 (Stark II) expanded the law to include an additional 10 types of clinical services. The comprehensive health reform legislation, the Patient Protection and Affordable Care Act of 2010 (PPACA) added restrictions on physicianowned specialty hospitals and required the Centers for Medicare and Medicaid Services (CMS) to publish a self-referral disclosure protocol (SRDP). What the Law Prohibits The key language of the Stark Law states that:... If a physician (or an immediate family member of such physician) has a financial relationship with an entity..., then the physician may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made [under Medicare or Medicaid]... The entity may not present... a claim... or bill to any individual, third party payor, or other entity for designated health services furnished pursuant to a referral prohibited [under this law] [underlining added]. What the Key Statutory Terms Mean The application of even simple statutory language like this depends on the interpretation of key terms. Physician. The person making the referral may be an MD, osteopath, dentist, podiatrist, optometrist, or chiropractor. Immediate family member. Besides the referring physician himself, the person with the problematic financial relationship may be a spouse; _CH02_Printer.indd 22

3 Physician Self-Referral (Stark) Law 23 parent, child, or sibling (by birth or adoption); step-parent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; or spouse of a grandparent or grandchild. Entity. The entity with which there is a financial relationship must be one that bills CMS for designated health services (DHS) or that furnishes all or most of the components of the DHS. This includes the person or entity that actually performs the DHS, or presents a claim for DHS services to the Medicare program. As a result, physicians may not have an ownership interest in an entity that provides services under an arrangement with a hospital that bills for the services. An example of this is a group that contracts with a hospital to provide radiology services. Financial relationship. A prohibited financial relationship may take two forms. One is direct or indirect ownership of an entity. This includes equity stock, interest in a limited liability company (LLC), holding debt in the entity, and making loans to the entity. It does not include an interest in the physician s employer entity that arises from a pension plan. On the other hand, it will include an indirect interest in a DHS entity owned by the pension plan. The other form is direct or indirect compensation from an entity. The most common example is the compensation a physician receives when employed by the entity. Other problematic relationships are leases between healthcare facilities and physicians/physician groups, medical director agreements, and independent contracts (not employment) with physicians. The factor to be concerned about is any flow of remuneration to a physician. Designated health services (DHS). These are the services whose referral by a physician are considered most susceptible to abuse as a result of a prohibited financial relationship. They encompass nearly all the clinical services that a physician is likely to refer to another entity, including: Clinical laboratory services Physical therapy services Occupational therapy services Outpatient speech-language pathology services Radiology and certain other imaging services Radiation therapy services and supplies Durable medical equipment and supplies Parenteral and enteral nutrients, equipment, and supplies Prosthetics, orthotics, and prosthetic devices and supplies _CH02_Printer.indd 23

4 24 Chapter 2: Fraud and Abuse Home health services Outpatient prescription drugs Inpatient and outpatient hospital services Penalties for Violation of the Stark Law The Stark Law imposes strict liability, so that unless the physician has met an exception defined under the law, he or she will be considered to have committed a violation. It is irrelevant that he or she may have acted unintentionally, without knowledge that he or she was disobeying the law. The penalties for violation of the Stark Law are civil (not criminal) in nature. The amount of the payment or overpayment made by Medicare or Medicaid for DHS delivered in response to a prohibited referral must be returned. Penalties up to $15,000 for each noncompliant service may be assessed under the Civil Monetary Penalties Law. The healthcare entities or providers involved in the prohibited self-referral may be excluded from participation in the Medicare or Medicaid programs. (For facilities or practices that rely extensively on Medicare/Medicaid reimbursements, exclusion for even a few years can put them out of business.) There may be a further civil assessment against the parties of up to three times the amount of reimbursement sought for the noncompliant services. Violation of the Stark Law may simultaneously incur liability under the False Claims Act. Exceptions to the Law s Prohibitions The basic Stark prohibitions are quite comprehensive and would prevent many forms of physician referral that are considered beneficial and desirable. The law and its underlying regulations have defined numerous exceptions to the prohibitions. It is mandatory that a questionable physician referral arrangement be configured to fit within one of the exceptions in order to avoid being subject to the Stark Law. If it does not fit, it is prohibited. The Stark Law contains approximately 35 exceptions that describe acceptable financial relationships that allow a physician to refer to an entity for the provision of DHS. They fall into two broad categories: ownership or investment interests and compensation arrangements _CH02_Printer.indd 24

5 Physician Self-Referral (Stark) Law 25 There are several common requirements that apply to all the Stark exceptions dealing with compensation. The arrangement must be in writing, signed by the parties, and specify the services, space, or equipment covered. (This writing requirement does not apply to the bona fide employment exception.) The compensation must be set in advance and be consistent with fair market value (FMV). The compensation is not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties. The arrangement must be commercially reasonable, even if no referrals were made between the parties. The arrangement must serve a legitimate business purpose. These are the most significant or commonly used exceptions. Ownership in publicly traded securities and mutual funds. If the stock of the entity in which the physician has an ownership interest is publicly traded or part of the portfolio of a publicly traded mutual fund, the Stark prohibition does not apply. The logic is that the physician s referral decisions are so small compared to the total business of the entity that he or she could not influence its sales or profits. In-office ancillary services. Without this exception and the physician services exception, physicians would be prohibited from making referrals to their own practices which they owned and by which they were compensated. These are DHS offered within the practice but ancillary to the physician s primary professional services. Examples are physical therapy and diagnostic testing. The referring physician or another physician in the same group practice must personally furnish the services or directly supervise another person performing the tests. Rental of office space or equipment. Payments for the use of office space or equipment made by a lessee (i.e., physician practice) to a lessor (i.e., hospital owning the space or equipment) are not prohibited financial relationships, if the lease or rental agreement satisfies the common requirements listed previously and these additional requirements: The agreement is for at least 1 year. The space or equipment rented or leased must be used exclusively by the lessee; it cannot be shared with or used by the lessor. The rental charges over the term of the agreement cannot be based on a percentage of revenue attributed to the services performed in _CH02_Printer.indd 25

6 26 Chapter 2: Fraud and Abuse the space or through the use of the equipment, or reflect services provided to patients referred by the lessor to the lessee. Personal service arrangements. Remuneration from an entity to a physician or to a group practice is not considered a prohibited financial relationship if the common requirements listed previously and the following additional requirements are satisfied: The arrangement covers all services furnished by the physician. If there are multiple agreements, the agreements incorporate each other by reference or cross-reference to a master list that is maintained, updated centrally, and available for review upon request. The term of the arrangement is for at least 1 year. If terminated during the term, the parties cannot enter into a new agreement during the first 12 months of the original agreement. Bona fide employment relationship. Compensation paid by an employer to a physician who has a bona fide employment relationship with the employer is not considered a prohibited financial relationship if the following requirements are satisfied: The employment is for identifiable services. The compensation is consistent with the FMV of the services, and does not take into account the volume or value of referrals. The compensation is under an agreement that is commercially reasonable, even if no referrals were made to the employer. Productivity bonuses are not prohibited based on services personally performed by the physician. The employment agreement exception does not have to be in writing. Payments by a physician. Payments made by a physician are not considered a prohibited financial relationship, if the following requirements are satisfied: The payments are to a laboratory in exchange for the provision of clinical laboratory services. The payments are to an entity as compensation for any other items or services that are furnished at FMV and that do not fall under any other Stark exception. Certain arrangements with hospitals. Payments made by a hospital to a physician are not prohibited if they do not relate, directly or indirectly, to the furnishing of DHS. To qualify for this exception, the payment must be wholly unrelated to the furnishing of DHS and must not in any way take into account the volume or value of a physician s referrals _CH02_Printer.indd 26

7 Physician Self-Referral (Stark) Law 27 Physician recruitment. In certain circumstances, an entity, like a hospital, may make payments to induce a physician to relocate to the hospital s geographic area in order to join its medical staff. To fit within the exception: The recruitment arrangement must be in writing and signed by the parties. It must not be conditioned on the physician s referral of patients to the hospital. The payment to the physician cannot be based, directly or indirectly, on the volume or value of referrals made by the physician to the hospital. The physician may not be prohibited from also establishing staff privileges at another hospital. The physician must move his or her practice at least 25 miles from the previous site of the practice, or at least 75% of the physician s revenues must come from new patients. In addition to recruiting new physicians for its own employment, the hospital may assist a local physician group practice in recruiting a new physician to the hospital s service area. In such cases, the payment must pass through directly to the physician being recruited. In addition, the group practice may not impose additional practice restrictions (e.g., a noncompete agreement) on the recruited physician, but may impose conditions related to quality of care. There also are exceptions applying to the following topics: Remuneration unrelated to the provision of DHS Nonmonetary compensation up to $355 FMV compensation Medical staff incidental benefits Temporary noncompliance Professional courtesy Obstetric malpractice subsidies Community health information systems Isolated transactions Certain group practice arrangements with a hospital Payments by a physician for items or services Charitable donations by a physician Risk-sharing arrangements Compliance training Indirect compensation arrangements _CH02_Printer.indd 27

8 28 Chapter 2: Fraud and Abuse Retention payment in underserved areas Electronic health record (EHR) and e-prescribing items and services Clues That Prohibited Physician Compensation Has Occurred Aside from the reports coming from the comprehensive compliance programs every healthcare organization should have in place, there are a few common sense signs that something suspicious is happening with physician compensation. Some physicians have received windfall payments. Physician compensation figures appear inflated or distorted. Compensation seems to vary according the volume of physician referrals. Deal terms are not commercially plausible. Payments are designated as a reward for referrals. Deals or transactions exist for which there is no useful documentation. Deals do not match the supporting paperwork. When these signs are observed, an immediate investigation should begin. Reducing the Risks of Stark Violations Begin with the premise that a healthcare organization should not make any payments or give anything of economic value to a physician or his or her family member. If it chooses to do so, it will not be able to bill Medicare for services ordered by that physician. The organization can override that premise by fitting the transaction into one of the exceptions defined by the Stark Law. If there is no suitable exception, a legal transaction is not possible. The actual intent of the parties is irrelevant. Remember that the Stark Law reaches nearly every physician transaction. Both ownership and compensation relationships are defined in the broadest terms. Stark reaches virtually every physician family member as well. Almost every conceivable familial relationship is covered. Watch out for forms of nonmonetary compensation. This includes apparently innocuous items like social dinners, entry fees for golf or other participatory events, tickets for sporting, theatrical, musical, or social events, gifts during a medical illness or in recognition of a key life event, and simple gifts like pens or wine. The maximum dollar value of such compensation from one source, such as a hospital, is set each year by the CMS. It was $359 in 2011 and $373 in _CH02_Printer.indd 28

9 Physician Self-Referral (Stark) Law 29 Aggressive reduction in the risks of Stark violations starts with the commitment of top leadership (governing board members, senior executives) to strict compliance in all physician transactions. This should lead to the development of a structure and processes that establish effective internal controls. These could take the form of legal and financial reviews of existing physician agreements, centralized physician contract approval, and a formal accounts payable check before physician payments are made. On a regular basis, physician contracts should be evaluated for compliance with Stark and other laws. Several kinds of physician agreements should be scrutinized. All physician employment and independent contractor arrangements All economic relationships between physicians and the hospitals to which they make DHS referrals, including loan agreements, hospital guaranties of physician obligations, physician recruitment arrangements, independent contractor arrangements, and employment agreements Medical director positions Medical staff leadership roles Preceptor for residents Other physician services Call coverage responsibilities Membership on hospital committees (e.g., EHR, institutional review boards) Space and equipment leasing to/from physicians Office sharing agreements and time-share arrangements Income guarantees to physicians Honoraria for talks and presentations Practice acquisitions The organizational and operational features of group practices are subject to examination. Qualifying as a group practice under Stark enables physicians to take advantage of certain exceptions, including the physician services exception and the in-office ancillary services exception. Group practices that provide DHS should review Stark s group practice requirements to make sure they qualify under the definition, in order to protect their referrals through the in-office ancillary services exception. All group practice compensation arrangements, including all employment and independent contractor arrangements entered into by group practices with physicians are also subject to review. The methodologies used by group practices for distributing profits from the provision of DHS and for paying productivity bonuses to physicians should be particularly scrutinized for compliance with the regulations _CH02_Printer.indd 29

10 30 Chapter 2: Fraud and Abuse The services, compensation, and space allocations involving physicians should be monitored. When changes occur, agreements with the physicians should be updated. Procedures should be in place to identify, report, and reclaim overpayments in connection with noncompliant physician transactions. A good review process will include the following steps. Accounts payable activity is watched for payments to physicians. Accounts receivable activity is watched for payments from physicians. The payroll account is monitored for compensation payments to physicians. All physician payments are compared to their contracts and the supporting documentation. Periodically, the contracts and leases involving physicians are checked to make sure they are up-to-date and the payments specified are correct. The most advanced organizations use forms and checklists that must be completed before significant physician transactions may proceed. For example, these questions must be answered affirmatively before a payment for physician services is made. Is the applicable contract signed and in effect? Does the check request include appropriate supporting documentation for the payment amount? Does the payment amount agree with the related contract? Does the amount and purpose of this payment appear reasonable? Are there any contractual reconciliations or rate adjustments (e.g., consumer price index [CPI] inflation) that need to be made to the payment? The appropriate manager then certifies the answers with his or her signature. Recent Cases and Settlements Involving the Stark Law March The Bradford Regional Medical Center adopted an economic credentialing policy permitting termination of medical staff privileges in the event a medical staff member financially competed with the Center. To avoid losing their privileges, the physicians in this case, Singh et al., subleased their nuclear camera to the Center. Under the sublease, the Center made a fixed monthly payment for the use of the equipment, and an additional flat monthly fee for a noncompetition agreement from the physicians. The noncompete fee was calculated by an independent accountant, who determined the Center s expected _CH02_Printer.indd 30

11 Anti-Kickback Statute 31 revenue with and without the sublease in place. The court held that the arrangement violated the Stark Law, finding that the compensation was not FMV despite the fact that compensation was set at a flat fee, and despite the FMV analysis the Center obtained. The case was set for trial on the factual issues of whether the parties knowingly violated the Stark Law, and whether the AKS was also violated (see later discussion). December Condell Medical Center in Illinois paid $36 million as part of a voluntary disclosure related to arrangements with referring physicians that did not always comply with a Stark exception. Some of the questionable arrangements allegedly related to recruitment deals, below FMV rent on office space, and failure to have written agreements. July Lester Cox Medical Centers in Missouri paid $60 million to resolve allegations that it violated the False Claims Act, the Stark Law, and the AKS by entering into financial arrangements with one physician group that included medical director agreements not in writing, paying the physicians more than FMV, and paying them based on the volume of referrals. May Baptist Health South Florida settled for $7.8 million for violating the Stark Law related to alleged excessive compensation to a community oncology group for physics and dosimetry services. The hospital believed that the arrangement was excepted under Stark, but a few years after the agreement was executed, Baptist conducted an internal compliance review and determined that compensation was excessive for a 2-year period. Baptist did a voluntary disclosure to the government. ANTI-KICKBACK STATUTE The AKS was originally enacted as part of the Social Security Amendments of 1972 to protect patients and federal healthcare programs from fraud and abuse. In 1977, Congress enacted the Medicare-Medicaid Anti-Fraud and Abuse Amendments, which increased the severity of penalties from a misdemeanor to a felony, and added an expansive list of proscribed payments. Through the Medicare and Medicaid Patient and Program Protection Act of 1987, the Office of the Inspector General (OIG) was given the authority to levy civil as well as criminal penalties, and to promulgate regulations defining practices that would be permissible under the statute. These are referred to as Safe Harbors. There are a few reasons for the government s strong opposition to kickbacks. They encourage referrals based primarily on monetary reward to the referral source rather than the medical need of the patient. They lead _CH02_Printer.indd 31

12 32 Chapter 2: Fraud and Abuse to the overutilization of resources. This subjects patients to unnecessary procedures and interventions that may pose clinical risks of their own. Both public and private payors then bear the increased cost of the unnecessary services. Be aware that some states have their own anti-kickback laws that apply to all payors in contrast with the federal law s restriction to federal government healthcare programs. What the Law Prohibits The AKS prohibits anyone from offering a kickback, paying a kickback, or receiving a kickback in return for the delivery of healthcare services. Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind in return for... referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal healthcare program, or purchasing, leasing, ordering or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a federal healthcare program. 3 [italic added] Whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person... to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal healthcare program; or to purchase, lease, order or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a federal healthcare program. 4 What the Key Statutory Terms Mean There are a few terms in this statutory language that are essential to an accurate interpretation U.S.C. Section 1320a-7b(b)(1) 4 42 U.S.C. Section 1320a-7b(b)(2) _CH02_Printer.indd 32

13 Anti-Kickback Statute 33 Knowingly and willfully. One acts willfully when one acts with a bad purpose, with knowledge that his conduct is unlawful. But, must he know that he is violating the AKS specifically and intend to do so? That question was answered by the PPACA, the health reform law passed in It states that actual knowledge of an AKS violation or a specific intent to violate the AKS is not necessary for a conviction under the statute. The government must still prove that a defendant intended to violate some law, but no longer has to prove that it intended to violate the AKS itself. These amendments made by the PPACA make it easier for the government to prove an AKS violation. It is conceivable that a healthcare entity might make payments to a healthcare provider for more than one reason, some legitimate and some not. For instance, a diagnostic testing facility may contract with a physician to read and interpret test results, while the physician also may be a source of referrals for testing to the facility. The payments by the facility to the physician will appear to have two purposes to compensate him for the test interpretations and for his referrals to the facility. The courts hold that payment of any amount for referrals is illegal. Even though only part of the payments were intended to induce the patient to refer patients for testing, the statute is violated. A payment for referrals does not have to be the primary purpose of the payments received; it only has to be one purpose of the business arrangement. Remuneration. The payment to the physician for a referral may take almost any form, including a kickback, a bribe, or a rebate. The language used to describe the payment is irrelevant. The payment may be in cash or in kind; anything of value will constitute a violation. Federal healthcare programs. The statute is violated only if the kickback is intended to encourage a referral for services or products that will be reimbursed through a federal healthcare program. The technical definition of such programs is a plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government; or any State health care program. The primary examples are Medicare and Medicaid, but the term includes TRICARE (for active military), Veterans Administration (for military veterans), Indian Health Service, Public Health Service, and State Children s Health Insurance Programs (CHIPs). The statute excludes the Federal Employee Health Benefits (FEHB) Program from its application _CH02_Printer.indd 33

14 34 Chapter 2: Fraud and Abuse Penalties for Violation of the AKS Unlike the Stark Law, the AKS does not impose strict liability. There must be some showing that the parties intended to take the actions prohibited by the law. The nature of that intention is covered by the term knowingly and willfully, explained earlier. When the requisite intention is found, the penalties can be even more severe than under Stark. The civil penalties are similar: potential civil monetary penalties of up to $50,000 per violation, civil assessments of up to three times the amount of the kickback, provider exclusion from federal healthcare program participation, and False Claims Act liability. On top of that are criminal penalties of fines up to $25,000 per violation and a maximum 5-year prison term per violation. Exceptions to the Prohibitions of the AKS Safe Harbors Because of the broad scope of the AKS prohibitions, Congress created several statutory exceptions to protect legitimate business arrangements like these: Properly disclosed discounts or other reductions in price Payments to bona fide employees Certain payments to group purchasing organizations Waivers of coinsurance for Medicare services for certain individuals Certain risk-sharing arrangements with managed care organizations In addition, the OIG has issued regulations under the AKS that define a further list of Safe Harbors. If the provider payment arrangement meets the requirements of one of the defined Safe Harbors, it will be free from liability under the statute. If it does not fit within a Safe Harbor, it does not automatically violate the statute. However, the government is more likely to scrutinize the arrangement for possible violations. The following Safe Harbors have been established by regulation under the AKS: Investment interests Space rental Equipment rental Sale of practice Referral services Warranties Discounts Employees Group purchasing organizations _CH02_Printer.indd 34

15 Anti-Kickback Statute 35 Waiver of beneficiary coinsurance and deductible amounts Increased coverage, reduced cost-sharing amounts, or reduced premium amounts offered by health plans Price reductions offered to health plans Practitioner recruitment Obstetrical malpractice insurance subsidies Investments in group practices Cooperative hospital service organizations Ambulatory surgical centers Referral arrangements for specialty services Price reductions offered to eligible managed care organizations Price reductions offered by contractors with substantial financial risk to managed care organizations Ambulance replenishing Health centers E-prescribing items and services EHR items and services A common characteristic of these Safe Harbors is commercially reasonable goods or services being exchanged for a FMV price. The FMV term is defined in some detail in the regulations on the space rental and equipment rental Safe Harbors. In addition, many of the Safe Harbors require that total compensation be set in advance and documented in a 1-year written agreement signed by the parties. Reducing the Risks of AKS Violations In the normal course of business, healthcare organizations enter into numerous arrangements that could violate the AKS. These risks can be anticipated and avoided. Start by asking these questions. Is remuneration being exchanged and, if so, which party is giving it and which is receiving it? Does the arrangement involve referrals that will be paid for by a federal healthcare program? If so, who is making the referrals and who is benefitting from them? This establishes the outline of a potential kickback situation. What is the intent of the parties regarding the remuneration and the referrals? How might the government perceive the intent of the parties in this arrangement? Is the actual or the perceived intent of the parties to induce any of these actions: Referrals for patients covered by federal healthcare programs, ordering/purchasing goods or services to be paid for by a federal healthcare program, or the recommending or arranging for the ordering of such items? If that type of intent can be proven, there is a potential problem _CH02_Printer.indd 35

16 36 Chapter 2: Fraud and Abuse The only way to avoid that problem is to identify a suitable Safe Harbor. Is there an applicable statutory exception or regulatory Safe Harbor? What are the characteristics and terms of the arrangement? If it does not fit exactly within a Safe Harbor, can it be modified enough so that it does? The OIG has issued a list of compliance risk factors that may indicate an existing or proposed arrangement is in violation of the AKS. Overutilization of resources Increased program costs Adverse effects of care quality Reduced freedom of patient choice Compromising medical decision-making Unfair competition If these conditions are present, the arrangement should be reexamined. At the least, an effort should be made to restructure it or to implement compliance safeguards to ease the risk of violations. The safeguards could include measures like these. Systematic recording and tracking of contracts, particularly when they are executed, amended, terminated, or expired. The contracts must be written. Services exchanged between payors and referral sources without an up-to-date supporting contract will attract the attention of enforcement authorities. There should be rigorous documentation of the FMV of the payments made through the arrangement. Official opinions of accountants with valuation expertise can be helpful. The need for the particular arrangement should be justified and well documented. For instance, many hospitals employ medical directors. The question is whether a hospital actually needs a physician to fill this medical director position. It must be possible to show, through careful monitoring, that the services being reimbursed were actually provided. It would be a perfect example of noncompliance to verbally contract with a physician to pay too much money for unnecessary services that were never delivered. The OIG often negotiates Corporate Integrity Agreements (CIAs) with healthcare providers and other entities as part of the settlement of federal healthcare program investigations arising under a variety of civil false claims statutes. The providers or entities agree to the obligations, and in exchange, the OIG agrees not to seek their exclusion from participation in Medicare, Medicaid, or other federal healthcare programs. The CIA _CH02_Printer.indd 36

17 Anti-Kickback Statute 37 typically requires the affected organizations to do what they should have been doing anyway. They are a good guide to compliance steps for avoiding AKS liability, such as AKS-specific policies, procedures, and training; a central system for tracking arrangements, payments, and services; a contract review and approval process (e.g., legal review, business rationale, FMV justification); and signed written contracts. Fraud and Abuse Enforcement Activities It is worth studying specific examples of the enforcement of fraud and abuse laws for lessons on the kinds of individual and organizational behavior that lead to civil or criminal liability. July A Rhode Island physician s assistant was sentenced to 1 year incarceration (6 months in prison, 6 months home confinement), to be followed by 2 years of supervised release and a $3,000 fine. Michael Cobb pleaded guilty to taking kickbacks from Orthofix, Inc., a medical device company, for ordering its bone growth stimulators. Cobb worked for a neurosurgeon who prescribed bone growth stimulators for patients who underwent spinal fusion surgery. The surgeon had no preference about which company s bone growth stimulator was used, believing that there were no clinical differences among the stimulators on the market. The surgeon left this decision to Cobb, who was in a position to direct the stimulator business to whichever medical device company he chose. Between 2004 and 2011, Orthofix paid Cobb for each bone growth stimulator that was ordered by the surgeon in payments ranging from $50 to $300. Cobb never disclosed to the surgeon that he was taking these payments, and the surgeon would not have authorized the arrangement. Cobb was paid approximately $120,000 between 2004 and 2011 for bone growth stimulator orders. In return, Cobb steered more than a $1 million of reimbursement from insurance carriers to Orthofix, including approximately $350,000 in payments from federal insurance carriers. December A New Jersey doctor, William Lagrada, pleaded guilty to accepting cash kickback payments from Orange Community MRI ( Orange MRI ), a diagnostic facility, in exchange for patient referrals. Twelve other New Jersey doctors and a nurse practitioner were arrested and charged in separate complaints with accepting similar cash kickback payments from Orange MRI. Each of the defendants was recorded taking envelopes of cash in exchange for their patient referrals. An Orange MRI executive also was arrested and charged in connection with his participation in the scheme. Starting as early _CH02_Printer.indd 37

18 38 Chapter 2: Fraud and Abuse as 2010, Orange MRI began making monthly cash kickback payments in exchange for patient referrals to Orange MRI for diagnostic tests. At the end of each calendar month, individuals at Orange MRI printed Orange MRI patient reports that detailed how many magnetic resonance imagings, ultrasounds, echocardiograms, computed axial tomographies, and dual-emission X-ray absorptiometries were referred. These patient reports were used to calculate the kickback payments. September The U.S. District Court in Miami sentenced the owner of a mental healthcare company, American Therapeutic Corporation (ATC), to 50 years in prison for orchestrating a $205 million Medicare fraud scheme involving fictitious mental health services. The court also sentenced a co-owner to 35 years in prison and a third codefendant to 91 months in prison following guilty pleas for their roles in the scheme. The defendants paid kickbacks to assisted living facilities and halfway houses in exchange for patients being brought to ATC facilities so they could bill Medicare for intensive mental health treatments that were medically unnecessary or never provided. March Medline Industries, Inc. and The Medline Foundation paid the United States $85 million to resolve allegations that they improperly paid kickbacks (in the form of rebates, trips, gifts, and charitable donations) to healthcare providers in violation of the False Claims Act and the AKS. In particular, the settlement resolved allegations that Medline offered or paid unlawful remuneration to induce healthcare providers to purchase, lease, or order medical goods and supplies from Medline. December Detroit Medical Center, a nonprofit company that owns and operates hospitals and outpatient facilities in Detroit, paid the United States $30 million after it reported to the government improper financial relationships with referring physicians. The Physician Self-Referral Law (Stark Law) and the AKS restrict the financial relationships that hospitals may have with doctors who refer patients to them. Most of the relationships at issue in this matter involved office lease agreements and independent contractor relationships that were either inconsistent with FMV or not memorialized in writing. October Christ Hospital of Cincinnati, OH, and its parent system, the Health Alliance of Greater Cincinnati, agreed to pay $108 million and enter into a CIA with OIG to settle accusations that they violated the AKS and the FCA. The two entities were accused of illegally paying _CH02_Printer.indd 38

19 Study Questions 39 physicians in exchange for referring cardiac patients to the hospital. The OIG also notified Christ Hospital that it was considering excluding it from Medicare participation on the grounds that it improperly rewarded cardiologists for referring patients to the hospital in violation of the AKS. STUDY QUESTIONS 1. What is the difference between the Stark Law and the AKS? Compare how the two deal with these issues: the referral sources covered, the types of services (or goods) referred, who can be held liable, criminal vs. civil violations, necessary intent to violate the law, types of exceptions, and penalties for violations. 2. Describe the types of financial relationships that can lead to problems under the Stark Law. 3. Do a little research on the program exclusion penalty, starting with this section of the OIG website: What types of exclusions are possible, how long do they last, and what is the effect on the healthcare provider? 4. Choose two or three of the Stark exceptions or the AKS Safe Harbors that were not explained previously and gather information on their requirements. Start with these websites, for Stark exceptions, and for AKS Safe Harbors, pdf/42cfr pdf. The AKS link is to the federal regulations defining the Safe Harbors. It is a good idea to become familiar with the Code of Federal Regulations, where to find them, and how to interpret them. They are usually designated with a citation number like the one here, 42 CFR If the administrator of a five-physician medical practice asked you for recommendations of five steps she should take to reduce the risks of an anti-kickback violation, what would you tell her? 6. Have you ever committed an act willfully? Does that mean that you were breaking the law? L earning Exercises 1. With the guidance of your instructor, set up and carry out the following role play. One person plays the role of the medical director of a 45-bed hospital in a semi-rural community. A second person plays the role of an _CH02_Printer.indd 39

20 40 Chapter 2: Fraud and Abuse oncologist physician whom the hospital wishes to recruit to its medical staff. The third person acts as a business/legal advisor to the hospital and the doctor on the possible terms of an arrangement between them. The hospital is concerned that primary care physicians in the area have been referring their cancer patients to the specialists in another hospital 30 miles away. As a result, the patients increasingly are choosing to obtain other inpatient services from that hospital as well. The first hospital has seen a slow, steady decline in admissions and revenues over the last 2 years. It wishes to hire the oncologist in the hope that he will bring most of the cancer patients back to its facility and refer them there for other services. The hospital can afford to recruit and hire the oncologist only if he increases admissions to the hospital by a certain amount. The oncologist is willing to move to this relatively remote location only if he can be assured of a certain minimum income. The goal of the advisor is to help them to achieve their mutual aims in a way that does not violate fraud and abuse laws. 2. Arrange a brief visit with a local physician, perhaps your own primary care doctor. Tell her that you are doing some modest research for a course that you are taking. When you meet, ask if she receives small gifts from businesses in the healthcare field like pharmaceutical manufacturers, durable medical equipment manufacturers, testing laboratories, or other entities whose goods or services she might use. Ask how she ensures that the gifts do not influence her decisions about using or prescribing those goods or services. R E F E R E N C E S 1. A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse, a booklet prepared by the OIG for physician self-study. Available at hhs.gov/compliance/physician-education/roadmap_web_version.pdf 2. Audio narration of an OIG presentation summarizing the content of the above publication. Available at 3. The Department of Health and Human Services and The Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year Detailed annual report of government efforts to fight fraud and abuse in health care. Available at 4. Health Care Fraud and Abuse: Practical Perspectives, Second Edition, with 2009 Cumulative Supplement, Linda A. Bauman, BNA Books; second edition, Detailed technical guidance on fraud and abuse issues for lawyers representing healthcare organizations _CH02_Printer.indd 40