The Stark Law: A Proactive Practical Approach to Internal AuditJanuary 25, 2017

The Plan for Today• Stark Law Refresher

– Overview on the Stark law– Recent changes to the Stark law

• Internal audits– Tips for identifying potential Stark law

violations– Discussion of Stark audit checklist

• What to do if an audit identifies potential Stark law violations?

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Stark Law Refresher

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Stark Physician Self-Referral Law• 42 U.S.C. § 1395nn; 42 C.F.R. § 411.350 et

seq.• Basic Prohibition: Physicians may not make

referrals for certain designated health services (DHS) payable by Medicare to an entity with which the physician or an immediate family member has a financial relationship….

UNLESS AN EXCEPTION APPLIES!!• Strict liability – no bad intent needed

Four Part Analysis• There is a four part analysis to determine

whether an arrangement violates the Stark Law.

• If the answer to each of the four questions is "yes," the Stark law is violated, unless an exception applies.

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Four Part Analysis1) Is there a financial relationship between the referring physician and DHS Entity?

– Financial Relationships:• Ownership (stock, LLC membership, secured

debt, etc.)• Compensation (any form of remuneration or

value)– Direct or indirect

Examples of Financial Relationships• Professional Courtesy• Perks to Medical Staff

Physicians• Equipment Rentals• Discounts or Freebies

to Physicians• EHR Arrangements• Employment or

Independent Contractor Agreements

• Medical Director Agreements

• Leases • Call Coverage

Payments• Recruitment Packages• CME Offerings• Physician/Hospital

Joint Ventures

Four Part Analysis1) Is there a financial relationship between the referring physician and DHS Entity? (continued)

– Physician:• Doctor of Medicine or Osteopathy• Doctor of Dental Surgery (DDS) or Dental Medicine (DMD)• Podiatrist• Doctor of Optometry• Chiropractor

Four Part Analysis1) Is there a financial relationship between the referring physician and DHS Entity? (continued)

– Relationship with physician's immediate family members also count:

• husband or wife (including same-sex spouse)• birth or adoptive parent• child or sibling• step relative (parent, child, brother, sister)• in-laws (father/mother, son/daughter, brother/ sister)• grandparent or grandchild and spouse of a grandparent or

grandchild

Four Part Analysis1) Is there a financial relationship between the referring physician and DHS Entity? (continued)• An “entity” is the person or organization that “furnishes”

DHS Entity means:– A physician’s medical practice– A practice of multiple physicians– Any organization (or person) furnishing DHS

• Furnishing DHS – performing the DHS or presenting the claim to Medicare for DHS even if the right to payment has been reassigned

• Examples: Hospitals, Group Practices, Clinical Labs

Four Part Analysis2) Did the physician make a referral for DHS?

– Broadly defined– Request, Order, Plan of Care, Cert, Recert, Consult– Includes anticipated referrals– The physician cannot ask another physician to refer

for him/her– A referral by a physician for DHS that is performed

or provided by the referring physician is NOT a referral

Four Part Analysis3) Is the referral for DHS?

– 11 categories (next slide)– Remember that everything billed by a

hospital = DHS

Designated Health Services (DHS)1. clinical laboratory services2. occupational therapy

services3. radiation therapy services

and supplies4. parenteral and enteral

nutrients5. equipment and supplies,

home health services6. inpatient and outpatient

hospital services

7. physical therapy services8. radiology services9. durable medical

equipment and supplies10. prosthetics, orthotics and

prosthetic devices and supplies

11. outpatient prescription drugs

Four Part Analysis

4) Is the DHS payable by Medicare?

What About Medicaid?• There is room for argument about whether violation of

the Stark Law directly renders claims to Medicaid illegal.

• There were once CMS proposed rules to cause Stark to apply to Medicaid payment but they were never finalized.

• Many states have a “mini-Stark Law” that mimics the Stark Law for Medicaid.

• DOJ and several courts have taken the position that the Stark Law does apply to Medicaid for the purpose of False Claims Act allegations.− In other words, billing Medicaid pursuant to an arrangement that is

illegal under Stark is a false claim to Medicaid.

Basic Stark Law Analysis• If the answers to all four questions are

YES, then Stark is violated. • Unless the financial relationship between

the referring physician and DHS entity meets one of Stark’s exceptions.

Stark Exceptions• Need to meet the right “category” of exception • Compensation exceptions (e.g., FMV, PSA, Lease)

generally require:– FMV, flat-rate payments – Signed, written arrangement (2016 update - no formal

contract needed)– At least one year term (2016 update – does not have to be

express)– Commercially reasonable deal– Terms that are “set in advance” (no retroactive deals)

• Ownership and Combo exceptions – In-office ancillary service exception is main one used by

groups– Rural provider exception for non-metro areas

Common Stark Exceptions• Fair Market Value Compensation• Bona Fide Employment Arrangement*• Physician Recruitment• Nonmonetary Comp/ MS Incidental Benefits*• In Office Ancillary Services• Rental of Office Space or Equipment• Personal Services Arrangement• Payments by a Physician*• Isolated Transactions*• EHR Donations

* No need for signed, written documents

Stark Penalties• Good News: No Criminal Penalties• Bad News: Substantial Civil Penalties

– Denial/Repayment of Prohibited Claims during Period of Disallowance (see next slide)

– Civil Monetary Penalties ($15,000/claim for knowing; $100,000 for circumvention)

– False Claims Act (treble damages)– Monetary and exclusion for physicians

(knowing violations)

The Period of Disallowance• The period during which a compensation

arrangement is out of compliance with Stark.• The period of disallowance begins at the time

the relationship fails to satisfy the requirements of an exception.

• Period of disallowance continues until:– The arrangement is brought into compliance.– Any excess compensation is repaid by physician(s).– The hospital repays Medicare or discloses under

SRDP.

Recent Changes to the Stark Law –

Good Ones!

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Writing Requirement (Softened)• Most Stark exceptions require the

arrangement to be in a signed writing.• In 2016, CMS loosened up this

requirement such that lack of a "formal contract" will not be a problem provided that there are contemporaneous documents evidencing the course of conduct.

• A collection of documents is okay.

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Examples of Appropriate Documents Evidencing a Writing• Board minutes• Time sheets• Emails or handwritten communications between the

parties.• Fee schedules for specified services.• Check requests or invoices identifying services, dates

and compensation.• Call coverage schedules (or similar) evidencing service

coverage.• Accounts payable or check records for specified items

or services.

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Writing - Signature Requirements• Signature is required on a contemporaneous

writing documenting the arrangement.• A signed writing must clearly relate to the other

documents in a collection and to the underlying arrangement.

• Lack of signature okay for 90 days now, regardless of whether it was "inadvertent" (every 3 years – per physician).

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Writing - Timing• A document generated or produced after

a referral is made does not provide a basis for that (previous) referral.

• If the only documents in existence were created after an arrangement was created, the parties will not be able to show that the compensation was "set in advance."

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One Year Term (Softened)• Used to be required to be in the contract

for certain exceptions (space/ equipment lease, personal services).

• Now if there is a collection of documents evidencing that it did last at least one year, that is sufficient.

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Holdovers• Indefinite holdovers are permitted

– Used to be limited to 6 months– PSA, Lease, and FMV arrangements – Terms and conditions cannot change– Express holdover provision is not required,

but helpful– Holdover arrangement must continue to

meet all elements of exception, including FMV

Split Bill Arrangements• Split bill arrangements do not implicate

Stark– Hospital’s provision of space, equipment,

etc. to physician is not “remuneration” if hospital bills TC and physician bills PC

– Global billing does trigger the Stark law

Commentary on Stark vs. Health Reform• CMS acknowledged disharmony between new

integrated payment/delivery structures (e.g., ACOs) and Stark

• Acknowledges industry’s concern that the Stark law prohibits relationships necessary to carry out integration necessary for health reform

• Government is studying issue

New Exceptions • Assistance To Compensate a Nonphysician

Practitioner– For FQHCs, RHCs, and hospitals, there is a Stark

law exception for payment to a physician to assist the physician with compensating a non-physician practitioner.

• Timeshare Arrangements– Physicians and hospitals may share space,

equipment and services, e.g., to visiting specialists on a non-exclusive "as-needed" basis without violating Stark (rather than traditional formal fixed lease where "leasehold interest" is conveyed).

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Internal Audits for Potential Stark Law

Violations

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Conducting Internal Audits

• Issues to consider prior to beginning an audit – e.g., attorney involvement, internal

communication/education

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Conducting Internal Audits• Stark Audit Checklist

– How to prioritize contracts/arrangements/invoices to review

– Discuss list of items to look for when performing audit

• E.g., does written agreement exist – has it expired? Or fallen out of fair market value? Are services / is space still accurately described?

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Stark Traps• Physicians with multiple relationships:

each must meet an exception• All elements of exception must be met• No exception for patient convenience or

de minimis payments• “I didn’t know” or “I didn’t mean to” is not

a defense (strict liability)

Stark Traps • Watch out for “exclusive use” requirements in

space and equipment lease exceptions• Anything billed by hospital becomes DHS• Contracts with no auto-renewal clause• Long term contracts that do not adjust for FMV

changing over time

Common Stark Violations• Above FMV transactions - windfalls to physician• Commercially unreasonable deals• Undocumented arrangements• Expired or unsigned contracts (but now certain

holdovers are permitted)• Compensation tied to referrals (per-click deals; %

compensation)• Excessive recruitment deals to existing groups• Deals/payments that do not match paperwork• Expensive gifts and perks to medical staff physicians• Retroactive contracts or price adjustments

Steps to Take if You Identify a Potential Stark Law Violation

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Two Basic Response Options to Suspected Stark Violation1) Do nothing if no clear violation is found

– Bona fide arguments of compliance?

2) Self report and repay if violation is found– Directly to Medicare contractor– To CMS under Stark Self-Referral Disclosure

Protocol• 60-day “clock” starts once violation is

“identified”

Self-Referral Disclosure Protocol• The SRDP was established by the ACA.• The SRDP is essentially a process to enable providers

to self-disclose actual or potential violations of Stark (only).

• SRDP lists factors that CMS may consider in reducing the amounts owed by a disclosing party, but states: “CMS is not obligated to reduce any amounts due and owing.”

• Benefits of self-disclosure:– Possibility of reduced penalties.– Avoidance of exclusion as part of a settlement.– Potential protection from a viable qui tam whistleblower action.

Self-Referral Disclosure Protocol – Four year look back (may be changing to 6

years). – Detailed submission required – with

compliant contracts and estimated overpayment.

– CMS calculates repayment amount. – No appeal; open house to regulators. – Hope, but no promise of reduced

repayment. – Clearly stops 60 day clock.

After Settlement, You Still Have More To Do!

– Deal with patient copayments– Assess Medicaid repayment– Think about AKS violations– Think about IRS implications– Get everything compliant going forward (the

contracts already should be there by the time of SRDP)

– Communicate with accountants relating to audited financials/ cost report

Questions?

Sarah E. CoyneQuarles & Brady LLP

33 E. Main StreetMadison, WI 53703-3095

(608) 283-2435 sarah.coyne@quarles.com

Leah M. McNeelyQuarles & Brady LLP

33 E. Main StreetMadison, WI 53703-3095

(608) 283-2412leah.mcneely@quarles.com

© 2015 Quarles & Brady LLP - This document provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular circumstances before acting on any of this information because it may not be applicable to you or your situation.

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