stark update in a time of hospital-physician...
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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
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
Stark Exception/Anti-kickback Safe Harbor for
Physician Employment
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
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
Employment By What Entity
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
Common Compensation Issues
Potential components of compensation:
1. (Base) salary
2. Productivity component
RVUs, percentage of billings, patient encounters
3. Bonus
can be based upon meeting delineated goals and objectives,
quality, PQRI, documentation, etc.
16
Compensation Considerations in Employment
of Physicians
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 50th percentile, but move up to 75th percentile or 90th
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
Determining Salary
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 (75th
percentile MGMA for that specialty) with an expectation that he
will produce at 75th 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
Productivity/Incentive Compensation
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
Measuring Physician Productivity
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
Split Between Clinical and Non-Clinical Time
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
Other Component of Compensation: Non-
Clinical Bonus/Incentive Comp
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
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
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
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
Case example: Tuomey Healthcare System
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
History of Tuomey: Agreements with
Physicians
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
Tuomey whistleblower: one of docs
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
Question: role of facility fees
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
Tuomey Stark violation: $237 million
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
Case example: Halifax Hospital (FL)
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 Hospital 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 90th percentile
- productivity was below 90th percentile
Hospital argued higher comp was justified, and
had a valuation
Court: FMV was question for jury
34
Halifax neurosurgeon contracts
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
Halifax settlement
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
Case example: Bradford Regional MC
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
Bradford arrangements with doctors
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: Tenet/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
Case Example: Sulzbach
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
Lessons learned
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
Stark Self-Referral Disclosures
Questions:
Margaret Davino
Kaufman Borgeest & Ryan
(973) 954-9600
mdavino@kbrlaw.com
52
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