STARK UPDATE IN A TIME OF HOSPITAL-PHYSICIAN TRANSACTIONS Margaret J. Davino Kaufman Borgeest & Ryan LLP (973) 451-9600 March 10, 2015
Multiple transactions between hospital and physicians today TRANSACTION DRIVERS Potential changes in payment methods Integrated Delivery Systems Better position to participate in global fee and risk-based arrangements Reductions in Reimbursement Medicare Cardiology Reduction in Reimbursement for Nuclear Medicine Medical Oncology / Chemotherapy Low / No Margins on Pharmaceuticals Imaging Commercial / Managed Care Market by Market Depends greatly on Payor Competition Fee schedules often based on % of Medicare Reimbursement 2
Transaction Drivers TRANSACTION DRIVERS (continued) Differential between Practice / Free-Standing and Hospital Reimbursement Medicare Imaging Little or no differential Outpatient surgery ASCs paid approx 62% of hospital rates Commercial / Managed Care Practice / Free Standing Generally based on % of Medicare Hospital Outpatient sometimes based on % of Charges Not unusual for Hospital Reimbursement to be 150 to 200% of Free- Standing Rates 3
In transactions, beware of Stark Law Rule: A physician (or family member) may not refer a patient for a designated health service to an entity with which the physician or family member has a financial relationship unless there is an exception Designated health services (DHS) includes all inpatient and outpatient hospital services Exceptions: Compensation Ownership 4
Stark law penalties If a physician refers to a hospital or other entity with whom she has a financial relationship, and no exception exists: that referral is prohibited and cannot be submitted to Medicare or if submitted is a False Claim Penalties: denial of payment Civil penalties of up to $15,000 per claim Treble damage if violation of False Claims 5
Stark law basics Applies only to physicians (MD, DO, chiropractor, dentist, podiatrist, optometrist) Applies only to services paid for by government money (Medicare, Medicaid, Tricare) Beware of NJ Codey law more difficult to navigate than Stark (applies to any beneficial interest) 6
Stark exceptions General exceptions Academic medical centers: allows transfers of funds between various components of an AMC In-office ancillary services within a physician group Implants in an ambulatory surgery center EPO and other dialysis related drugs furnished in or by an ESRD facility Eyeglasses and contact lenses following cataract surgery Preventive screening tests, immunizations and vaccines Services provided by a health plan to enrollees 7
Stark exceptions Compensation exceptions Employment relationships Personal services and management contracts Isolated transactions (e.g., sale of a practice) Equipment leases Space leases Practitioner recruitment Fair market value compensation Indirect compensation arrangements Charitable donations by a physician Professional courtesy 8
Stark exceptions Other compensation exceptions Community wide information systems Referral services Unrelated remuneration (unrelated to the referral of health services) Medical staff incidental benefits Compliance training Non-monetary compensation to physicians up to $300 per year Electronic prescribing items and services Electronic health records software and services Retention payments in underserved areas OB malpractice insurance subsidies in underserved areas Intra-family referrals in rural areas Risk-sharing arrangements between a managed care plan and an IPA or physician Physician incentive plans (in managed care arrangements) 9
Stark exceptions Ownership exceptions Large investment interests Investment interests in mutual funds Whole hospital exception (but only for grandfathered parties) In-office ancillary services exception (for physicians in group practices) 10
Anti-kickback law is not the same as Stark Anti-kickback law: anyone who solicits, offers, gives or receives anything of value in return for business paid for by Medicare or Medicaid Broader than Stark Safe harbors are similar to Stark exceptions Based upon intent: but need not have specific intent, or even knowledge that AKS exists Penalties: criminal (prison), civil fines, false claims 11
Stark Exception/Anti-kickback Safe Harbor for Physician Employment Under Stark, employment is an exception for any physician (MD, DO, chiropractor, dentist, podiatrist, optometrist) Employment: payment by an employer to an employee for identifiable services with a bona fide employment relationship compensation is reasonable/fair market value not based on volume or value of referrals remuneration is pursuant to an agreement which would be commercially reasonable without referrals (determined through arms length negotiations) 12
Traditional Physician Employment Valuation Issues Compensation relative to production Professional Collections Work RVUs Multiple Sources MGMA AMA Sullivan Cotter Historical earnings Guarantee period Difference between recruitment and employment of a physician already in community 13
Employment By What Entity Some elements of compensation allowed by Stark can differ depending upon whether the physician is employed by a hospital versus by a physician group Physicians who are owners in a physician group may have profits from that group 14
Common Compensation Issues Physicians employed by a hospital may be compensated for clinical services only based upon their personally performed services Billing for ancillary services: cannot compensate an employed physician based upon the volume or value of ancillary services versus in a physician group, where a shareholder in a group may receive a percentage of profits But: Incident-to billing physicians in a group practice can get credit (for compensation purposes) for incident-to billed services But must meet all requirements of incident-to billing 15
Compensation Considerations in Employment of Physicians Potential components of compensation: 1. (Base) salary 2. Productivity component 3. Bonus RVUs, percentage of billings, patient encounters can be based upon meeting delineated goals and objectives, quality, PQRI, documentation, etc. 16
Determining Salary Tying salary to an outside source MGMA Sullivan Cotter salary surveys Level of salary may be related to a certain percentile of MGMA salaries for that specialty may start with 50 th percentile, but move up to 75 th percentile or 90 th percentile salary if compensation relates to a higher percentile of MGMA, wise from a compliance standpoint to document the physician s qualifications that justify the higher salary/mgma percentile 17
Productivity/Incentive Compensation Expected productivity can be built into the doctor s overall salary, or a specific piece of the doctor s salary can vary depending upon productivity example: Dr. Cancer receives a salary of $275,000 (75 th percentile MGMA for that specialty) with an expectation that he will produce at 75 th percentile or be subject to a salary adjustment or termination) or Dr. Cancer may receive a salary of $225,000 with an incentive component that pays a percentage of collections (perhaps with a guarantee of $50,000 for 2-3 years) 18
Measuring Physician Productivity Options include: RVUs collections (but dependent upon payer mix and billing company) patient encounters Consistent theme: productivity is based upon physician s personally performed services but can include personally performed interpretations of ancillary (e.g., imaging) services 19
Split Between Clinical and Non-Clinical Time Physician may be performing administrative, supervisory and teaching services as well as clinical services Compensation may be allocated to clinical and non-clinical time clinical compensation may be based (in part) upon productivity, and non-clinical time may be compensated differently 20
Split Between Clinical and Non-Clinical Time Example: Dr. Division Chief receives a salary of $325,000, of which $150,000 is based upon her administrative, teaching and supervisory duties, and $175,000 is based upon clinical duties Significance: the criteria for the administrative salary may be different than the criteria for the clinical salary example: Dr. Division Chief is expected to meet certain productivity targets to maintain her $175,000 clinical salary, but her $150,000 AS&T salary is based upon her division chief duties 21
Other Component of Compensation: Non- Clinical Bonus/Incentive Comp Non-clinical bonuses may be used for clinical physicians as well Consider behavior that you wish to incentify: documentation HEDIS scores patient satisfaction percentage of charts closed within [10] days Careful not to tie to level of billing or coding that could implicate compliance issues 22
Professional Services Agreements Paying For Unassigned ER Call Usually need to compensate non-employed physicians for various services provided to or on behalf of a hospital. Historically, physicians provided coverage for the hospital s emergency room as part of their duties as a member of the voluntary medical staff. More recently, the requirements of EMTALA, physician lifestyle considerations, increases in the uninsured or underinsured presenting to the ED and increased malpractice concerns have led to rise of the practice of hospitals paying for call coverage at least in certain circumstances practice tends to vary by geography. 23
Professional Services Agreements Regulatory Concerns Stark and Anti-kickback concerns Fair Market Value exceptions Personal services exception How does hospital choose who gets paid and who does not? Common Methods of Payment Fixed fee for a certain period of time e.g., daily rates With call situations, consider paying a fee only when the physician responds to a call and must come in Impact of OIG Advisory Opinions 07-10 and 09-05 24
Professional Services Agreements Valuation Issues Administrative vs clinical compensation Call Coverage Multiple methods Call volume and payor mix impact value Subsidies for hospital-based physicians Anesthesiology / Radiology / ER Physicians Approach is generally to estimate the costs of providing coverage less the professional revenues generated Largest cost is physician compensation Relative production is still important, but perhaps less so 25
Case example: Tuomey Healthcare Tuomey Healthcare System found after trial to have violated Stark Law and False Claims Act by submitting $39 million in false claims to Medicare from January 2005 through November 2006, and ordered to pay $237 million 26
Case example: Tuomey Healthcare System Tuomey Healthcare System (SC) In March 2010, a jury determined the hospital s employment contracts did not violate the False Claims Act, but did violate the Stark Law. DOJ is now seeking approximately $44 million the hospital received from the alleged illegal Stark referrals. According to some reports, the key evidence was a representation that physician employees would receive approximately 131% of the actual amount received by the employer for the services rendered, an amount the government alleged was in excess of fair market value and not commercially reasonable 27
History of Tuomey: Agreements with Physicians In 2003, several local specialty groups notified Tuomey they planned to perform surgical procedures in their ofifces instead of at Tuomey s 266 bed hospital Tuomey employed 19 specialists as part-time employees: - physicians required to perform outpatient procedures at Tuomey or its facilities - Physician salaries hinged on Tuomey s net collections for outpatient procedures - Physicians eligible for productivity bonuses of 80% of net collections, plus incentive bonus - Non-compete during term and for two years 28
Tuomey whistleblower: one of docs One of the specialists, Michael Drakeford, MD, filed a qui tam lawsuit against Tuomey in October 2005 after unsuccessful contract negotiation - claimed Tuomey paid doctors above fair market value - government intervened 2007 29
Question: role of facility fees Question: if Tuomey considered the anticipated facility fees when setting doctor compensation, that violated Stark by considering anticipated not just actual referrals Court: if a hospital provides compensation to a doctor based not just on the value of the doctor s services, but on additional revenues the hospital expects from the doctor s referrals, that comp takes into account volume or value of the doctor s referrals 30
Tuomey Stark violation: $237 million Jury finding May 2013: Tuomey s contracts with physicians took into account the volume and value of the anticipated referrals, and Tuomey knew these contracts would result in false claims to Medicare. 21,730 Medicare claims were prohibited by Stark. Penalty: $237 million in civil penalties 31
Case example: Halifax Hospital (FL) Halifax Hospital in FL settled in March 2014 for $85 million claims that it violated the Stark law from employment contracts entered into with its oncologists and neurosurgeons - whistleblower case filed by Elin Baklid- Kunz, the hospital s former director of physician services 32
Halifax Hospital contracts Employment contracts with medical oncologists provided for base salary plus participation in bonus pool based on 15% of the operating margin of Halifax s medical oncology program - bonus pool allocated among physicians based on personally performed services - but included testing and revenue from referrals by physicians Court: bonus pool violated Stark 33
Halifax neurosurgeon contracts Halifax neurosurgeon employment contracts provided for base salary, benefits, call pay, and a bonus equal to the difference between the base salary and the doctor s collections - total comp was 2x 90 th percentile - productivity was below 90 th percentile Hospital argued higher comp was justified, and had a valuation Court: FMV was question for jury 34
Halifax settlement Government calculated that oncologists and neurosurgeons referrals resulted in submission of 74,838 claims prohibited by Stark and overpayment of $105,366,000 - with treble damages and civil penalty, Halifax faced possible award of $1.1 billion 35
Case example: Bradford Regional MC Bradford Regional Medical Center (PA) found by district court in November 2010 to have violated Stark law, with damages potentially exceeding $20 million - on summary judgment motion - court left it up to jury to determine damages, as well as whether intent existed under anti-kickback law 36
Bradford arrangements with doctors In 2003, Bradford agreed to sublease V&S camera and V&S agreed not to compete in nuclear cardiology services with hospital - sublease also allowed Bradford to upgrade the equipment Bradford had a FMV assessment as to sublease amount. Took into account expectation that V&S would refer all of their nuclear studies to Bradford 37
Bradford arrangements with doctors Facts: V&S Medical Associates in 2001, which had previously referred all nuclear testing to Bradford Hospital, purchased its own nuclear camera - V&S doctors previously ordered 42.5% of the hospital s nuclear studies - hospital met with doctors on several occasions, and adopted a policy on physicians with competing financial interests 38
Bradford arrangements with doctors Bradford equipment sublease stated that V&S camera would be relocated to hospital, but remained in V&S offices -Bradford paid additional sum each month as rent, plus secretarial and other expenses pursuant to a space and services agreement 39
Bradford arrangements with doctors Four months after V&S camera sublease, V&S leased a new nuclear camera and placed it in the hospital. Bradford reimbursed V&S for the 200,000 early termination fee for the old camera. Hospital reimbursed V&S for its payments under lease for new camera - no new lease, because sublease allowed upgrade in equipment - old camera donated to another hospital 40
Bradford arrangements with doctors Bradford equipment sublease stated that V&S camera would be relocated to hospital, but remained in V&S offices -Bradford paid additional sum each month as rent, plus secretarial and other expenses pursuant to a space and services agreement 41
Bradford arrangements with doctors Bradford and doctors argued that equipment rental exception applied - Court: no, there was no equipment lease for the new camera. Sublease for old camera didn t count when the new equipment was not accounted for, and payments on old camera continued to be made - the arrangement took into account the anticipated referrals from the doctors 42
Case example: Tenet/Sulzbach U.S. v. Sulzbach Sulzbach served as both lawyer and compliance officer for Tenet. The company was subject to CIA and as such, the compliance officer had to sign a certification to HHS that company was in compliance with, among other things, the anti-kickback statute and other federal program legal requirements. Twelve physicians employed with compensation in excess of fair market value based upon what they previously made Internal documents concluded the hospital would suffer significant annual losses from the practices acquired if the structure/compensation proposed was paid 43
Case Example: Sulzbach U.S. v. Sulzbach (continued) Major law firm concluded the arrangements were problematic Qui Tam suit related to this issue was settled, but settlement specifically allowed claims to go forward against individuals Dismissed on procedural grounds (statute of limitations) 44
Lessons learned 1. When something doesn t smell right, don t do it - even if you do have a valuation - Tuomey had a three page opinion letter Ask: how do numbers measure up with third party independent surveys for evaluating FMV of physician comp, e.g., MGMA, Sullivan-Cotter, AMA 45
Lessons learned 2. Ensure that all elements of Stark are met - Stark is a strict liability statute 46
Lessons learned 3. Hospital facility fees cannot be taken into account 47
Lessons learned 4. For physician comp, look at doctor s compensation in relationship to what they are collecting - why would a physician earn more than they cost: are there any administrative services that should be compensated and taken into account? 48
Lessons learned 5. Beware of who could be a whistleblower 6. Consider your documentation 7. Cases often settle due to the sheet magnitude of potential damages 49
Stark Self-Referral Disclosures Two examples from July 2013: 1. Ohio Hospital disclosed it violated Stark because some of its arrangements with physicians for ECG interpretation, medical director services, vice chief of staff services, and hospital services did not satisfy any applicable exception under Stark Settlement: $235,565 50
Stark Self-Referral Disclosures 2. Texas Hospital disclosed that an arrangement for case management advisor services with a physician did not satisfy the requirements of any applicable exception under Stark Settlement: $54,108 51
Questions: Margaret Davino Kaufman Borgeest & Ryan (973) 954-9600 mdavino@kbrlaw.com 52