The Stark Law prohibits a physician from
making a referral to a hospital if that physician has a financial relationship
with the hospital and an exception has not been met. If an exception is not met, the hospital is
required to reimburse the federal government for any payments made from
prohibited referrals. The FCA imposes
liability on persons or entities that present false or fraudulent claims to the
United States Government. If liability
is imposed based on the FCA, the party is responsible for civil penalties
between $5,500 and $11,000 per false claim.
The following is an
in depth analysis of the recent order and what healthcare organizations should
be doing to limit their liability under the Stark Law.
Government
Allegations
A surgery center applied for a certificate
of need in Sumter, South Carolina. At
the same time, Tuomey applied for a certificate of need for its own surgery
center which was later converted into an outpatient surgery center. Both certificates of need were granted, and
Tuomey was facing competition from the surgery center. After analyzing the impact of a specialty
group redirecting their referrals to the other surgery center, Tuomey estimated
it would lose $9.6 million over a thirteen year period.
To limit this loss, Tuomey began recruiting
specialist physicians to enter into part-time employment contracts. The nineteen (19) contracts included the
following provisions:
·
Physicians
were required to perform procedures at Tuomey facilities exclusively;
·
Tuomey
was responsible for all billing and collections;
·
Yearly
salaries based on previous year’s net collections;
·
Productivity
bonuses were equal to 80 percent of net collections;
·
Additional
incentive bonuses that could total up to 7 percent of the productivity bonus;
·
Each
agreement had a 10 year term;
·
Physicians
received full time benefits; and
·
The
agreement included a two year non-compete.
A valuation firm indicated these contracts
were fair market value. In coming to
that conclusion, the following facts were provided:
·
Analysis
indicated productivity levels of the physicians were between the 50th
and 75th percentiles; and
·
Compensation
levels exceeded the 90th percentile.
The valuation did not take into account any
full time benefits provided. In addition
to the valuation, Tuomey sought out the expertise of a former Department of
Health and Human Services attorney who had experience with the Stark Law. This attorney advised Tuomey that the
physician contracts were problematic and the terms could potentially expose
Tuomey to liability under the Stark Law.
Shortly after, Tuomey terminated the
representation and sought advice from a new attorney. The new attorney was placed in the position
of providing guidance to Tuomey regarding compliance with the Stark Law. This new attorney allegedly advised Tuomey
that given the facts above, the Stark Law did not apply to the physician
contracts.
The government alleged that these employment
agreements exceeded fair market value, were based on the volume and value of
referrals to Tuomey, and the Stark Law did apply to these employment
agreements.
Procedural
History
The action was originally assigned to the
Honorable Matthew J. Perry, Jr. and on March 29, 2010, the jury returned a
verdict in favor of the government establishing that Tuomey violated the Stark
Law. The jury also found that Tuomey did
not violate the FCA. Judge Perry then
ordered Tuomey to repay nearly $45 million to the federal government.
Tuomey appealed Judge Perry’s order for the
$45 million. On March 30, 2012 the
Fourth Circuit Court of Appeals issued its opinion on Tuomey’s appeal. The Fourth Circuit held that in the context
of inpatient and outpatient hospital services, there were referrals of hospital
services as the hospital billed the facility fee billed in connection with the
physicians’ personally performed service.
In addition, the court noted that compensation arrangements taking into
account anticipated referrals would be based on the volume or value of
referrals. Nevertheless, the court
remanded the case for retrial.
On retrial, the jury returned a verdict
finding Tuomey had violated the Stark Law, the FCA, had submitted 21,730 claims
in violation of the FCA, and the value of the claims submitted in violation
were nearly $40 million.
United
States District Court Order
On September 30th, the United
States District Court issued an order responding to post-trial motions filed by
the parties. Several arguments were made
through these motions in an attempt to void the previous jury verdict. The arguments and summaries of the court’s
decision follow:
·
Tuomey argued the
government failed to prove the physician contracts were subject to the Stark
Law.
Tuomey explained that the physicians’
compensation had been based only on collections for personally performed
services. Because of this, Tuomey argued
that the Stark Law did not apply because the indirect compensation arrangement
exception had been met. The court
explained that each time a physician referred a patient to Tuomey, the hospital
would receive a facility fee. Thus, because the hospital received a facility
fee from the services performed by the physicians, a referral was made and the
arrangement became subject to the Stark Law.
·
Tuomey argued the
contracts were not subject to the Stark Law because the government failed to
prove the compensation took into account the volume or value of referrals.
Tuomey next argued that calculating the potential
loss of referrals had no impact on the compensation paid to the physicians. The
court was not persuaded by this argument because multiple experts presented
evidence showing that Tuomey had been taking into account the volume of those
referrals. In the end, it was a decision
for the jury and a reasonable jury could have found that the compensation took
into account the volume or value of referrals.
·
The government
failed to show the submission of a false claim.
Tuomey also argued, assuming the Stark Law
did apply, that the data used to calculate the number of claims was speculative
because nothing in forms submitted to Medicare identifies the “referring
physician” but rather the “attending physician” or the “other physician.” The court explained that it was a jury
question whether attending and operating physicians constitute referring
physicians under the Stark Law.
Therefore, this argument was found to be without merit.
·
Tuomey argued that
because of reliance on counsel, no reasonable jury could have found that the
government met its burden of showing intent.
Tuomey argued that under the FCA, the
government did not establish the requisite intent to support this claim. Tuomey explained that it had been relying on
counsel as to whether the Stark Law applied.
The court found this argument not persuasive. First, Tuomey hired one attorney who had
concerns and believed there was risk.
Only after recognizing this, Tuomey hired a second attorney who gave
them the opinion that Stark did not apply.
However, there was evidence presented that Tuomey was shopping for an
opinion and attempting to steer decisions of the attorneys. The court held that a reasonable jury could
come to this conclusion.
·
Tuomey argued that
the government failed to prove damages.
Finally, Tuomey argued that the government
did receive medical services it paid for and there should be no actual damages
under the FCA. The court explained that
the FCA causes of action are based on the Stark Law and any payment from a
tainted referral is prohibited. The
court conceded that in all cases the government would receive medical services
it paid for, however the government would then be limited to civil
penalties. The court explained that this
would be contrary to the statute.
On of October 1st, Tuomey Board
of Trustees Chairman John Brabham issued a response to the judge’s orders. “In regards to the Federal Case ruling today,
Tuomey respectfully disagrees with the ruling.
Our attorneys are filing a notice of appeal today, and we will also ask
for a stay of the judgment, pending appeal.
The Board is and will continue to be open to settlement.”
Takeaway
Points
As this case proceeds, whether Tuomey
settles or not, it is impossible to ignore the risks associated with the Stark
Law. The bad news for compliance
officers, corporate counsel, and boards of trustees is that Stark Law risks
associated with physician compensation and ownership arrangements should not be
ignored. The good news is that the Tuomey
case provides takeaway points to help reduce Stark risk within your
organization.
The
Stark Law is a Strict Liability Law, Intent is Irrelevant
Given the complexity of healthcare laws, it
is important to understand that any financial arrangement with a referring
physician that does not meet an exception is a violation of the Stark Law. This requires the organization to reimburse
the federal government for all Medicare reimbursement received from referrals
from physicians during periods of non-compliance. The intention of the organization or lack of
knowledge cannot be used as a defense.
Take a
Proactive Approach to Physician Financial Arrangements and the Stark Law
It is important for organizations to
implement an effective compliance and monitoring program for physician
financial arrangements. This should
include evaluating physician financial arrangements from both a fair market
value and commercial reasonableness perspective.
Understand
the Difference Between Valuation Opinions and Legally Defensible Opinions
In Tuomey, the valuation expert failed to
defend the analysis in their opinion.
With all physician financial arrangements, organizations should ensure
the conclusions of the analysis are defensible from a commercial reasonableness
and fair market value perspective as those terms are legally defined in the
Stark Law, with the goal that the financial arrangement can be defended in a
court of law. The mere existence of a
valuation in the file is not enough.
If you or your
organization has any questions regarding the Stark
Law, or have any
questions regarding Hospital Compliance, please feel free to contact Robert A. Wade at (574) 485-2002 or Alex T. Krouse at (574) 485-2003.