The Government has many weapons that it can use in order to detect and institute fines and penalties, including criminal liability, with respect to improper financial arrangements with referral sources, including physicians, non-physician practitioners (“NPPs”) and other providers and suppliers. The major statutes are the Anti-Kickback Statute, 42 U.S.C. § 1320a–7b(b), Stark Law, 42 U.S.C. § 1395nn, False Claims Act, 31 U.S.C. §§ 3729 – 3733, and Civil Monetary Penalties, 42 U.P.S.C. § 1320a-7a (the “Fraud and Abuse Laws”). If a provider, like a hospital or health system, or supplier, like a laboratory, enters into and implements a financial arrangement that violates the Fraud and Abuse Laws, criminal liability and exclusion can be imposed, in the case of the AKS, and civil penalties including return of reimbursement received, in the case of the Stark Law, treble damages and up to $23,607 for each claim submitted, in the case of the FCA, and possible exclusion from participation in federal healthcare reimbursement programs under the AKS, Stark Law, and CMPs.
A major component of the Fraud and Abuse Laws as it relates to compensation arrangements with physicians and NPPs as referral sources is that each financial arrangement is required to be representative of fair market value and is commercially reasonable.
If compensation is identified internally as being above fair market value or not commercially reasonable, it is possible to self-report such issues either through the Office of Inspector General’s self-disclosure protocol, the Centers for Medicare and Medicaid Services’ self-referral disclosure protocol (for Stark Law infractions) or to the OIG under the Civil Monetary Penalties. Governmental entities, including state Medicaid Fraud Units, may also initiate actions. A great deal of litigation of potential inappropriate financial arrangements are brought by qui tam litigants under the False Claims Act.
The Department of Justice (“DOJ”) recently announced that for Fiscal Year 2020 ending on September 20, 2020, that it recovered $2.2 billion as a result of actions under the False Claims Act. Of this amount, $1.8 billion related to healthcare fraud (not including Medicaid recovery) of which $1.6 billion was due to whistleblower qui tam lawsuits.
The following are recent enforcement actions and the alleged issues related to financial arrangements with referring physicians and NPPs:
- Oklahoma Center for Orthopaedic and Multi-Specialties Surgery (July 2020). Settlement for $72.3 million related to alleged improper i) free or below fair market value office space, leased employees, and purchased supplies; ii) compensation in excess of fair market value paid to certain physicians; iii) equity buy-back provisions related to acquisitions that exceeded fair market value; and iv) preferential investment opportunities provided to referring physicians in connection with anesthesia services.
- Texas Heart Hospital of Southwest LLP (December 2020). This physician-owned specialty hospital in Plano, Texas and its management company paid $48 million to resolve claims under the Stark Law, AKS, and FCA. The action was brought by two physician qui tam relators alleging that referrals were being made, in part, based upon the physicians’ investment interest in the physician-owned hospital including an imposed minimum number of patient encounters in order to maintain ownership in the specialty hospital.
- Wheeling Hospital (November 2020). Wheeling Hospital settled a qui tam action for $50 million over allegations that it compensated physicians above fair market value and incentive compensation tied to the net revenue referred by the physicians which allegedly included technical fees.
- Kalispell Regional Healthcare System (November 2018). Kalispell settled a qui tam suit for $24 million for multiple alleged improper financial arrangements. The alleged arrangements included i) compensation above fair market value for specialists who were high producers of ancillary hospital services (i.e., orthopedic surgeons, general surgeons, oncology surgeons, neurosurgeons, gastroenterologists, and cardiologists); ii) compensation paid to many physicians, allegedly based upon projected value of referrals, above the 90th percentile when corresponding wRVU productivity was below the 25th percentile; iii) compensation paid to 47 physicians for director services but maintained time documentation related to director services from only 3 physicians; iv) using “contribution margins” based upon referrals from compensated physicians to reward physicians with higher compensation; v) debt collection, financial, operational support and other administrative services to a physician-owned entity at below fair market value in order to increase profits to the physician-investors; and vi) compensating five gynecological surgeons above fair market value with all five producing wRVUs below the 10th percentile with four being compensated above the 90th percentile and one being compensated above the 75th
- Collier Anesthesia Pain (“Collier”) and Tampa Pain Relief Center (“Tampa Pain”) (February 2021). Collier and Tampa Pain agreed to settle a qui tam lawsuit for $1,665,000 to resolve allegations that facility fee copayments for Medicare Advantage patients were routinely waved without an individual determination of financial need. The waiver of the copayment was allegedly conducted to induce patients to use an affiliated ambulatory surgery center to increase profits for the physician owners.
- Sutter Medical Center (November 2019). Sutter leased Physician Assistant services with the leasing physician group retaining the reimbursement for the professional services provided by the PAs when Sutter was paying for the PA’s leased services. Sutter also allegedly paid above fair market value for medical director and call services. Sutter settled this qui tam case for $30.5 million.
The key takeaways are as follows:
- Enforcement actions related to fair market value and commercial reasonableness are still occurring in great numbers, including the majority being brought by qui tam litigants;
- Fair market value, especially alignment between total cash compensation and production/services, is still a key issue being litigated;
- The structure of compensation arrangements, especially under the Stark Law, is still a top concern especially if compensation is tied to technical reimbursement or a hospital’s contribution margin; and
- Lack of documentation to support services rendered, especially medical director/administrative services, may call into question whether compensation paid is fair market value for services rendered.
Robert Wade
Partner
Barnes & Thornburg LLP
