ASCC Year In Review

A VOIDING STA RK, FA LSE CLA IMS A CT A ND A NTI-KICKBACK

VIOLA TIONS

Understanding The Regulations Impacting Physician Arrangements

Presentation

Regulatory Complexity Medicare Financial Data Overview of the Fraud & Abuse Laws Governing

Physician Relationships Recent Enforcement Trends Significant Court Rulings and DOJ Settlements Compliance Concerns and Practical Challenges

Understanding the Regulations

“There can be no doubt but that the statutes and provisions in question, involving the financing of Medicare and Medicaid, are among the most completely impenetrable texts within human experience. Indeed, one approaches them at the level of specificity herein demanded with dread, for not only are they dense reading of the most tortuous kind, but Congress also revisits the area frequently, generously cutting and pruning in the process and making any solid grasp of matters addressed merely a passing phase.”

Chief Judge Ervin, Rehabilitation Association of Virginia v. Kozlowski, 42 F. 3d 1444, 1450 (4th Circuit 1994).

Medicare Financial Data

Each working day Medicare pays over 4.4 million claims To 1.5 million providers Worth $1.1 billion

Each month Medicare receives almost 19,000 provider enrollment

applications Each year Medicare pays over $430 billion for more than 45

million beneficiaries

https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data2014.html

The Cost of Health care

Health care spending in 2020 is projected to reach $4.64 trillion,accounting for 19.8% of GDP.

Lost to fraud: 3% - 10% ($69 billion - $230 billion).

https://www.cms.gov

Fraud and Abuse Defined

Fraud: theft by deception Claiming payment for a service you did not deliver,

delivered in reckless disregard, or delivered knowing it to be unnecessary

Abuse: “gaming the system” Such as, unbundling necessary services and billing for the

unbundled services as separate items.

Major Fraud and Abuse Laws Impacting Hospital/Physician Relationships

False Claims Act (FCA)Federal Anti-kickback Statute(AKS)Physician Self-Referral Law (Stark)

False Claims Act “FCA”

31 U.S.C. §§ 3729-3731 Civil War vintage (1863) – known as “informer’s Act”

or “Lincoln Laws” Initially directed at procurement fraud and price

gouging Became popular tool for combating fraud in 1986

when its scope greatly increased via statutory amendments (birth of health care compliance programs)

Since 1986 over $24.2 Billion recovered in health care cases

www.justice.gov

The False Claims Act Prohibits

The knowing (Intentional) submission of false claims or the use of a false record or statement for payment with government funds

Covers claims presented to any health care program funded in whole or in part by federal funds

“Knowing” includes actual knowledge, deliberate ignorance and reckless disregard for the truth or falsity of the information

Applies to individuals and corporate entities 60 day Rule

Example

Hospital contracts with a neurosurgeon to provide medical director services for Neuro-Rehab Unit. The contract hourly rate of payment is above the 95th percentile of FMV, hours of service are not closely tracked, audits reveal the time sheets are identical for 2 years. Contract expired 18 months ago and medical director payment continued. The OIG audits the physician’s billing and financial arrangements and after review of the hospital contract and documentation, determines a Stark violation and a FCA violation has occurred. All Hospital claims billed pursuant to referrals of the surgeon are subject to the FCA and must be reimbursed to the Federal program because these claims were billed with a reckless disregard and a (possible) knowledge of an improper referral arrangement.

False Claims Act Sanctions

Monetary penalties of between $5,500 and $11,000 per claim, plus 3 times the damages sustained by the governmentPossible exclusion of violators from participation

in federal health care programs and from employment by entities receiving federal health care funds

Professional license sanctionsLoss of entity accreditation/certification

Qui Tam

Qui Tam Suits: private entities (e.g., employees, patients, providers, competitors, etc.) may sue the hospital under False Claims Act on behalf of the government.Government may or may not intervene.Qui tam relator.Receives a percentage of any recovery.Recovers their costs and attorneys fees.

False Claims Act Case

North Broward Hospital District, a 4 hospital system in Florida, has agreed to pay the federal government $69.5 million to settle allegations it violated the False Claims Act by engaging in improper financial relationships with physicians.

The settlement resolves allegations that the hospital district provided compensation to nine employed physicians that exceeded the fair market value of their services.

Anti-Kickback Statute

42 U.S.C. § 1320a-7b(b)

Prohibits purposeful payments to secure federal health care program business

Criminal statute – Based upon intent

Anti Kickback Statute “AKS”

Cannot knowingly and willfully offer, pay, solicit or receive remuneration to induce referrals for items or services covered by government program unless transaction fits within a regulatory safe harbor.

(42 USC 1320a-7b(b))

“One purpose test” Anti-Kickback Statute applies if one purpose of the

remuneration is to induce referrals even if there are other legitimate purposes.

(U.S. v.Greber, 760 F.2d 68 (3d Cir. 1985)). Difficult to disprove

Ignorance of the law is no excuse.

Examples of Kickbacks

Applies to any form of remuneration to induce or reward referrals for federal program business. Money. Free or discounted items or services (e.g., perks, gifts,

space, equipment, meals, insurance, trips, CME, etc.). Overpayments (e.g., not fair market value). Payments for items or services that are not provided. Payments for items or services that are not necessary. Professional courtesies. Waivers of copays or deductibles. Low interest loans or subsidies. Business opportunities that are not commercially reasonable. Anything else of value…

DaVita Paid $350 Million in 2014 to Resolve Allegations of Illegal Kickbacks

Anti Kickback Statute

Jail, criminal fines, or both

Civil Monetary Penalties - $50,000 per kickback plus 3x the remuneration

Exclusion

False Claims Act liability

Analysis

Financial arrangement or non-cash inducement between party that has referrals and party that wants them

Example: Hospital wants surgical business from ophthalmologist, provides free office equipment, processes their billing and rents them space at less than FMV

Fair Market Value (FMV) Does Not Excuse a Kickback

No de minimus safe harbor. No “fair market value” safe harbor. “Fair market value” payment does not legitimize a payment if

there is an illegal purpose. (70 FR 4864) But fairly safe if remuneration represents fair market value for

legitimate, needed services or items.

Consider risk of federal program abuse. Due to nature of transaction. Incorporate safeguards to protect against abuse

Avoiding the Suggestion of AKS Violations

Carefully craft physician relationships to avoid the suggestion of violating the AKS

Hospitals should be aware that physician relationships are a prime source of AKS problems

Strict control needed over contracting process for these relationships: Audits, Legal ReviewPolicy governing how contracts between facilities

and physicians must be processedChecklists for business purpose, FMV, etc.

Analysis of a Potential FCA or AKS Violation

1. Is there an economic benefit? 2. Is there a referral? 3. Is there a statutory exception? 4. Is there a safe harbor ? 5. Is there a potential for abuse?

Physician Self-Referral Law: Stark

General Prohibition:“... 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. Unless an exception exists.The prohibition seems clear but is subject to legal analysis and exceptions. Not always as you see it…

Halifax Hospital Paid $85 M in 2014 to Settle Stark Allegations due to a Bonus Structure for Employed Oncologists of which one Factor was Ordering Expensive Tests and Medication

Halifax Case

Halifax Medical Center (NFP) agreed to pay 85M to settle Stark and FCA violations.

Hospital argued that the employment of the physicians was an exception to Stark and that the physicians did not make referrals, as intended by Stark, as the physician’s personally performed the services they ordered.

Halifax

The Court rejected each argument: 1. The employment exception requires FMV compensation-not based

on referrals. The 6 MD’s bonus structure was based on the operating margin of the oncology department, and this included all referrals made by the MDs. The Court also noted the MDs ordered many expensive tests and drugs.

2. The Court reasoned that a referral exists even if the MD personally performs the procedure or service. The Hospital benefits from the facility fee, and thus, this is a referral.

As an additional note, Halifax is one of a handful of cases which extends the repayment of claims from referrals to Medicaid claims, thus opening the door to the OIG arguing that Stark applies to Medicare and Medicaid, as to any repayments.

What are Designated Health Services “DHS”

Stark applies to referrals for designated health services (“DHS”) payable in whole or part by Medicare. Inpatient and outpatient hospital services Outpatient prescription drugs Clinical laboratory services Physical, occupational, or speech therapy Home health services Radiology and certain imaging services Radiation therapy and supplies Durable medical equipment and supplies Parenteral and enteral nutrients, equipment, and supplies Prosthetics and orthotics

(42 CFR 411.351)

Stark: What it is and is not

Applies to referrals (orders, requests, plan of care,) by physician for DHS performed by others. Other providers or facilities. Others in physician’s own group. Other employees or contractors.

Does not apply to services the physician personally performs. Physician may perform his own DHS. Beware ancillary, technical, facility fees-Remember Halifax!.

Does not apply to many services performed by radiologists or pathologists since they usually do not make “referrals”.

(42 CFR 411.351)

Applies to referrals by a physician to entities with which the physician (or their family member) has a financial relationship

Physician = MDs DOs Oral surgeons Dentists Podiatrists Optometrists Chiropractors

(42 CFR 411.351)

Family member = Spouse Parent, child Sibling Stepparent, stepchild,

stepsibling Grandparent, grandchild In-law

Stark Violation Penalty

Penalties No payment for services provided per improper referral. Repayment of payments improperly received within 60 days of

becoming aware. Civil penalties:

$15,000 per claim submitted$100,000 per scheme

(42 CFR 411.353, 1001.102(a)(5), and 1001.103(b))

May also constitute Anti-Kickback Statute violation

May trigger False Claims Act

Stark Analysis

1. Is there a financial relationship between the DHS provider and the physician or their family member? Direct or indirect relationship? Ownership or investment interest? Compensation arrangement?

2. Does the physician make or has he/she made referrals to the entity for DHS payable by Medicare?

3. Does an exception apply?4. Has the entity billed for items/services pursuant to

improper referral?

Plain English

The Stark Rule in Plain English: Start with assumption that we CANNOT pay orgive anything of economic benefit (remuneration) to a physician referral source or his/her family member. If we do, we cannot bill Medicare for services ordered by that physician.Next: it might be ok if the arrangement falls intoan EXCEPTION to the Stark law.There is NO guarantee that one is available.Lack of intent is not an excuse.Stark law violations result in strict liability.

Stark: Exceptions for Compensation Arrangements

Bona fide employment relationships.

Personal services contracts. Office space or equipment

rental contracts. Physician recruitment

contracts. Remuneration unrelated to

DHS. Fair market value.

(42 CFR 411.357)

Non-monetary compensation up to $398.

Medical staff incidental benefits.

Compliance training. Community-wide health

information system. Professional courtesy. Certain payments by a

physician for items or services at FMV.

Others…

Personal Service Arrangement (PSA) Exception: Most Common Exception in Hospital/Physician Relationships

Personal Service Arrangement Exception (Applies to Compensation Relationships)

Remuneration paid under personal service arrangement is not a prohibited compensation arrangement if:

Arrangement is set out in writing, signed by parties and specifies services covered by arrangement; Services reasonable and necessary;Compensation is FMV and not based on referrals;Arrangement covers all services to be provided by physician to entity; and,Term for at least one year.

Non-Monetary Compensation (NMC) Exception

The Non-Monetary exception allows an entity that receives referrals (such as a hospital) to give a physician items or services that do NOT exceed a specific (total) dollar amount per calendar year.

* This amount is adjusted annually by the government2017 = $398

**This amount cannot be divided by the number of physicians e.g.: a $1000 advertisement for 5 physicians is still $1000 each.

Examples of NMC

Off campus mealEducationEvent ticketsGolfOffice equipment & suppliesGift basketsMugs, sweatshirts, water bottles, etcUse of services & employeesHoliday gifts

NMC Penalty if in Excess of $398.00/Year

Regulatory Penalties

The entities cannot bill for services provided from the time NMC has been violated until corrected.Must correct within 180 days ORend of the calendar year…Whichever comes first!

Employment Exception

Employment is for identifiable services; Amount of compensation under employment is: Consistent with fair market value, reasonable and determined through arm’s length negotiations;Not determined in manner which takes into account volume or value of referrals by referring physician; and,Compensation is provided pursuant to an agreement that would be commercially reasonable even if no referrals were made to employer.

What About Bonuses?

Stark allows productivity bonuses for employed physicians, if based on services performed personally by the physician (i.e., worked RVUs) and not on net revenue.

For example, services designated via the contract for which compensation is set in advance and calculated to meet fair market standards.

Can Referrals be Required in Employment Agreements?

An employer can require an employee to refer to a particular provider, practitioner or supplier if: the compensation is set in advance the compensation is fair market value the referral requirement is in writing, signed by the

parties is not required if the patient expresses a preference for a

different provider does not require physician to refer if patients’ insurance

does not cover services at required providers does not require physician to refer if the physician

believes that the required referral is not in the patient’s best medical interest

Basis of Referrals

The required referrals relate solely to the physician’s services covered by the scope of the employment and the referral requirement is reasonably necessary for the legitimate business purposes of the compensation arrangement between the employer and the employee

Can a Physician be More than 1 FTE?

Carefully evaluate a physician arrangement which could call to question the need to audit time spent on duties.

Example: Employed MD who is also a medical director and on several committees via different contracts. Are the time requirements reasonable in a week? Does each agreement require documentation of time before payment?

A time sheet documenting time spent on each duty in a month is necessary for all personal service arrangements. No payment should be rendered without an approved time sheet.

FMV Exception

Payments that are fair market value are permitted compensation arrangements if: In writing, covers all arrangements between parties, compensation is set in advance, commercially reasonable, and complies with all fraud and abuse requirements.

FMV requires a reasonable and fair transaction, based upon confirmation of reimbursement being within established limits. For example, compensation above the 50th

percentile would require additional approval and analysis justifying the amount.

Real Estate and FMV

Per Use or Per Click Arrangements

Per-click arrangements. CMS has repeatedly expressed concern over arrangements wherein physicians purchase equipment and then lease it to hospitals, with the hospital paying a rental fee for each use (or “click”) of the equipment. This type of arrangement is not allowed.

Stark Regulatory Revisions

Published on 11/16/15 –Proceed with caution! Summary: Clarification of Writing Requirements. Interpreting the “in

writing” component of the current exceptions for the rental of office space, the rental of equipment and personal service arrangements, CMS clarified that these and other compensation arrangements may be documented in a collection of writings rather than in a single contract.

Clarification of “Term” Requirement. CMS also clarified that an explicit “term” provision within a formal contract or other document is generally not necessary to satisfy the one-year requirement under the Stark Law exceptions for the rental of office space, rental of equipment and personal service arrangements.

Stark Regulatory Revisions

Broadening of Holdover Allowance. CMS has amended the six-month holdover provisions within the Stark Law exceptions for the rental of office space, rental of equipment and personal service arrangements, to permit extended holdovers. If the parties change the original terms and conditions of the arrangement, CMS would consider this a new arrangement that would need to satisfy an applicable exception.

Expansion of Temporary Noncompliance with Signature Requirements Exception. CMS will now allow the rule regarding temporary noncompliance with signature requirements to extend up to 90 days for the obtaining of all required signatures, regardless of whether a late signature is advertent or inadvertent.

New Recruitment Exception for Non-Physician Practitioners. The exception will apply only where the involved non-physician practitioner is a bona fide employee of the physician receiving the remuneration, and the purpose of such non-physician practitioner’s employment is to provide primary care services to the physician’s patients (i.e., general family practice, general internal medicine, pediatrics, geriatrics, and obstetrics and gynecology services).

Note: Navicent has policies in place regarding physician contracts and requires written agreements, signed by both parties for at least a one year duration.

Landmark case: U.S. ex rel. Drakeford v. Tuomey Healthcare System

On Oct. 3, 2013 a federal judge ordered Sumter, S.C.-based Tuomey Healthcare System to pay approximately $237 million in fines after a federal jury found the system violated Stark Law and the False Claims Act by submitting $39 million in false claims to Medicare from January 2005 through November 2006. The Federal Court of Appeals upheld this verdict in 2015.

There are several lessons to consider from this case, which impact hospitals relationships with physicians.

Facts of Tuomey

The compensation formula used to pay the physicians exceeded their expected professional collections by 31% (on average). The Government argued that this fact, by itself, demonstrated that the compensation formula was not commercially reasonable or consistent with fair market value. The hospital considered the value of the facility fee and referral when setting the salaries-a direct violation of Stark.

Facts of Tuomey

Tuomey employed the physicians as a strategy to prevent them from performing their procedures in‐office or in an ambulatory surgery center. The strategy was purely defensive, and not in response to any particular community need. The physicians’ compensation spiked dramatically after the employment agreements were implemented, with the Government citing one ophthalmologist who “saw his income soar from a little over $500,000 annually . . . to as much as $1 million per year after the contract.

Facts of Tuomey

The employment agreements had a ten‐year term, and a covenant not to compete with a two‐year tail following termination, which locked‐in their referrals and prevented them from forming competing ambulatory surgery centers even after their employment terminated. Tuomey obtained an independent valuation to support the fair market value of the compensation formula, and also obtained outside legal assistance to review and draft the agreements. Tuomey believed they could rely on outside counsel advice and used this as a defense in the case. (Remember Stark is strict liability and they cannot have an excuse but FCA requires intent).

Facts of Tuomey

Prior to Tuomey, most providers focused on whether the compensation rate payable to a physician falls within a fair market value range (typically between the 25th and 75th percentiles) based on independent compensation surveys. Valuation reports do not always clearly examine collections as a cap on total allowable compensation. (Indeed, Tuomey’s compensation expert testified that payment in excess of collections was not uncommon.) This practice may change after Tuomey.

Facts of Tuomey

One other issue of interest in the Tuomey decision is Tuomey’s unsuccessful use of the “advice of counsel” defense. While the substantive violations were under the Stark law, the suit was brought under the FCA and thus, requires proof that the defendant “knowingly” submitted false claims (which can be satisfied by a showing of “reckless disregard” of the requirements of the Stark law). Tuomey argued that it did not possess the requisite intent to violate the FCA because it relied on counsel to design the agreements and analyze all contract negotiations. The court ruled that the jury reasonably could have found that Tuomey possessed the requisite intent to violate the FCA.

Facts of Toumey

Court ruled: Clear Violations: Physician is paid a fixed amount or percentage for each ancillary service referred to the hospital. Physician is paid at the upper end of the compensation range recognizing that he/she is a high volume referral source. Physician is paid a percentage of the reimbursement received by hospital for every ancillary service referred by physician.

To avoid the $237.4 million judgment, Tuomey entered into a settlement agreement with the federal government. Under the terms of the settlement agreement, Tuomey will pay $72.4 million to settle the case and be sold to Columbia, S.C.-based Palmetto Health.

Legacy of Tuomey

The Court: “When a strategy doesn't smell correct, notwithstanding how many legal and valuation firms weigh in, leadership ought strongly consider not pursuing the strategy”. If a system needs multiple legal and valuation firms to support or back up a program, that in and of itself may be reason for pause. Each of a hospitals' relationships with physicians does need legal and valuation support. But if you find yourself needing to seek multiple opinions for a relationship, that may be good reason for concern. The jury for the Tuomey case concluded that even though the health system relied upon an expert assessment of the fair market value of the employment agreement, when other factors were considered, the arrangements were in essence payment for referrals.

Recent False Claims Act case

Altamonte Springs, Fla.-based Adventist Health System has agreed to pay $118.7 million to the federal government and to the states of Florida, North Carolina, Tennessee and Texas to settle allegations it violated the False Claims Act by maintaining improper compensation arrangements with referring physicians.

The settlement resolves allegations that Adventist paid bonuses to employed physicians based on a formula that improperly took into account the value of the physicians' referrals to Adventist hospitals. Adventist submitted false claims to the Medicare and Medicaid programs for services rendered to patients by the physicians who received the improper bonuses, according to the lawsuit.

The allegations against the health system were originally brought by three whistle-blowers who worked at an Adventist hospital in Hendersonville, N.C., and one whistle-blower who worked at the system's corporate office. The whistle-blowers brought the allegations under the qui tam provision of the False Claims Act.

The Adventist settlement is the largest healthcare fraud settlement ever made involving physician referrals to hospitals.

Self-Disclosure Protocol

Voluntary process to disclose self-discovered evidence of potential Stark Law violations (63 Fed. Reg. 58,399) Provides detailed instructions for making a self-disclosure Requires internal investigation and damages calculation Requires full description of conduct

Avoid costs and disruption of government directed investigation

Lower settlement amounts

February 2011-June 2015 (Self-Disclosure)

February 2011- June 2015 Self-Disclosure Settlements

Resources

Corporate Compliance Office: 633-1223

Chief Compliance Officer: 633-6831

Manager of Corporate Compliance: 633-6988

Corporate Compliance Reporting Line: 1-888-380-9008

Education Attestation

“I certify that I have completed the training session titled, Physician Arrangements Training. I understand that I am obligated to follow compliance requirements that apply to my work, and to ask questions as needed to assure my understanding.”

“I also understand that it is my obligation to report concerns about possible non-compliance, and that I may meet that obligation by discussing my concerns with my manager, another manager or supervisor, a member of the Audit Services and Corporate Compliance Leadership team, or by calling the Navicent Health Helpline at 888-380-9008.”

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