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Kickback and Stark Law Developments

Meredith WilliamsSenior Counsel

Office of Inspector General, DHHS

Washington, DC

Robert A. WadePartner

Krieg DeVault LLP4101 Edison Lakes Pkwy, Ste. 100

Mishawaka, IN 46545bwade@kdlegal.com

Charles B. OppenheimPrincipal

Hooper, Lundy & Bookman, PC1875 Century Park East, Ste. 1600

Los Angeles, CA 90067310.551.8110 coppenheim@health-law.com

HCCA 20th Annual Compliance InstituteApril 17‐20, 2016

Anti‐Kickback Statute UpdateBy Meredith Williams

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AKS Safe Harbor Proposed Rule

• 79 Fed. Reg. 59,717, Oct. 2, 2014

• Proposed to modify 42 CFR 1001.952 by (1) adding safe harborsto the anti‐kickback statute that would provide new protectionsor codify existing statutory protections and (2) modifying certainexisting safe harbors

• Proposed to amend the definition of “remuneration” in the CivilMonetary Penalties Law regulations at 42 CFR 1003 by addingthe exceptions to that definition that are set forth in AffordableCare Act of 2010

• Received significant commentsregarding free local transportation

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OIG Alert on Information BlockingIf a donor, or someone on the donor’s behalf, takes any action to limit or restrict the use, compatibility, or interoperability of the donated items or services with other electronic prescribing or EHR systems, the donation arrangement would not receive safe harbor protection and would be suspect under the Federal anti‐kickback statute

OIG Policy Reminder:  Information Blocking and the Federal Anti‐Kickback Statute”, Oct. 6, 2015, available at http://oig.hhs.gov/compliance/alerts/guidance/policy‐reminder‐100615.pdf 4

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OIG Advisory Opinions

• OIG Advisory Opinion No. 15‐13:  proposal to offer free van shuttle service to certain medical facilities in an integrated health system

• Modification of all independent charity patient assistance program advisory opinions

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OIG Policy StatementAssures hospitals that they will not be subject to OIG administrative sanctions for discounting or waiving amounts beneficiaries may owe for self‐administered drugs they may receive in outpatient settings when those drugs are not covered by Medicare Part B, subject to the conditions specified in the statement

OIG Policy Statement Regarding Hospitals That Discount or Waive Amounts Owed by Medicare Beneficiaries for Self‐Administered Drugs Dispensed in Outpatient Settings, Oct. 29, 2015, available at http://oig.hhs.gov/compliance/alerts/guidance/policy‐10302015.pdf 6

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MACRA and Payment Reform

https://www.cms.gov/Medicare/Quality‐Initiatives‐Patient‐Assessment‐Instruments/Value‐Based‐Programs/MACRA‐MIPS‐and‐APMs/MACRA‐LAN‐PPT.pdf10 7

Fraud and Abuse Waivers for Select CMS Models and Programs

https://www.cms.gov/Medicare/Fraud‐and‐Abuse/PhysicianSelfReferral/Fraud‐and‐Abuse‐Waivers.html 8

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Stark Law UpdateBy Bob Wade and Charles Oppenheim

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New Regulations:  List of Key Changes(October 30, 2015)

Leniency on “written agreement” and “one‐year term” requirements

New exception for recruitment of mid‐level clinicians

New exception for timeshare arrangements

Extensions on permitted “holdover” arrangements

More latitude on missing signatures

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How The Rules Have Changed –Written Agreement/Term

Depending on the facts and circumstances, a collection of documents, e.g., e‐mails, drafts, invoices, cancelled checks, timesheets, etc. can constitute a “written agreement”

The “one‐year term” requirement can be satisfied if the arrangement lasted one year, even if the written agreement does not specify a term

These are both “clarifications” of existing law, meaning that they apply retroactively too

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How The Rules Have Changed –Recruiting Mid‐Levels

Previously, there was just a “physician” recruitment exception

Now, hospitals (and FQHC/RHC) can recruit mid‐levels to provide primary care or mental health services to a physician’s practice

Covers PAs, NPs, clinical nurse, specialists, certified nurse, midwives, LCSWs and psychologists

Up to 50% of compensation, once every 3 years (and other restrictions apply)

What about 501(c)(3) hospitals?

Effective as of January 1, 2016

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How The Rules Have Changed –Timeshare Arrangements

Protects certain “timeshare” arrangements (not leases, which are subject to a different exception) between hospital or physician organization and a physician or medical group

Space, equipment and other items are predominantly for evaluation and management (E/M) visits

Any equipment is in the same building as E/M visits and used for diagnostic imaging only if incidental to E/M visit, and not used advanced imaging, radiation therapy or clinical laboratory services (other than CLIA‐waived tests)

Could this be used in hospital‐licensed or provider‐based space?

Effective as of January 1, 2016

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How The Rules Have Changed – Holdovers

The old rule allowed expired leases and personal services arrangements to continue after expiration on the same terms for up to 6 months, if exception otherwise satisfied

Their new rule extends the 6 months to an unlimited period of time

But, beware of fair market value issues and changes in services and/or compensation

Effective as of January 1, 2016

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How The Rules Have Changed – Signatures

The old rule allowed arrangements where only a signature was missing, for up to 90 days if inadvertent and 30 days if advertent

Now, all arrangements are allowed, when only a signature is missing, for up to 90 days

This grace period is still limited to once per physician every 3 years

Effective as of January 1, 2016

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Recent Cases and SettlementsHow should Compliance/Legal Respond?

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• Two standards:  i) cannot vary with the volume or value, and ii) cannot be based upon volume or value.

• Four levels of volume and value:  i. Paying a doctor for each referral of designated health services.  Clearly 

prohibited.ii. Creation of a bonus pool that varies with either the gross revenue or net margin 

of a service line.  Division of bonus pool based upon each physician’s referrals of DHS.  Clearly prohibited.

iii. Creation of a bonus pool that varies with either the gross revenue or net margin of a service line.  Division of bonus pool based upon percentage of work RVUs in comparison with aggregate wRVUs of all applicable physicians.  Halifax case, but unlitigated.

iv. Fixed bonus pool or bonus based upon overall success of AMC, both financially and based upon quality metrics. Unlitigated.

Varying Based Upon Volume or Value: What does this mean?

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Exceptions Requiring Commercial Reasonableness

• Rental of office space

• Rental of equipment

• Personal services

• FMV compensation

• Indirect compensation

• Isolated transactions

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Commercial ReasonablenessCMS (1998)

“We are interpreting ‘commercially reasonable’ to mean that an arrangement appears to be a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.”

63 Fed. Reg. 1659, 1700 (Jan. 9, 1998).19

Commercial Reasonableness CMS (2004)

“An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement 

would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group 

practice) of similar scope and specialty, even if there were not potential DHS [designated health services] referrals.”

69 Fed. Reg. 16054, 16093 (March 26, 2004). 20

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Fair Market Value for Physician Relationships

• Understanding data is imperative– Published benchmarks do not always present information 

consistently– Market data might not be comparable

• Apply data correctly– All physicians cannot earn the 75th percentile compensation 

per work RVU– Operating margin, gross margin, net margin, etc. are not all 

the same

• Paying for quality, efficiency, and patient satisfaction21

United States ex rel. Barker v. Columbus Regional Healthcare System, et al., Case No. 4:12-cv-108 (M.D. Ga.)

• Columbus Regional Healthcare System (“CRHS”) is located in Columbus, Georgia.• Richard Barker, the former top administrator of the John B. Amos Cancer Center, filed a wide-

ranging and detailed complaint under the Federal False Claims Act in May 2012.• The whistleblower alleged that CRHS compensated Andrew Pippas, M.D., in excess of fair

market value, and in excess of the revenue received on services the doctor had personally performed.

• Barker argued that the compensation only made sense if CRHS factored in the financial benefit of Dr. Pippas’ referrals.

• The physician’s work relative value unit-based compensation model also encouraged Dr. Pippas to document higher level visits than were necessary and allowed him to increase his compensation by improperly billing for services he did not personally perform.

Notable 2015 Settlements

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Columbus Regional• September 4, 2015, the Department of Justice announced a

settlement with CRHS for up to $35 million.• CRHS also entered into a “Corporate Integrity Agreement”

with the U.S. Department of Health and Human Services, Office of Inspector General.

• Settlement was also made with Dr. Pippas for $425,000 to resolve allegations of FCA and Stark Law violations.

Notable 2015 Settlements

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United States ex rel. Reilly v. North Broward Hospital District, et al., Case No. 10-60590 (S.D. Fla.)

North Broward Hospital District ("NBHD") is located in Broward County, Florida.

In 2010, Dr. Michael Reilly, a Fort Lauderdale orthopedic surgeon employed by NBHD, sued NBHD under the False Claims Act.

Dr. Reilly alleged that Broward engaged in a scheme of over-compensating physicians to generate significant losses, which were offset by profits received from those physicians’ referrals.

Notable 2015 Settlements

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North Broward Dr. Reilly based these allegations in part on the fact that

Broward weighed the volume and value of anticipated referrals when setting physician compensation.

• Dr. Reilly further argued that Broward’s “Contribution Margin Reports,” which continually tracked referral profits, further demonstrated that Broward deliberately implemented such a scheme.

• September 15, 2015 the Department of Justice announced a $69.5 million FCA settlement with Broward.

Notable 2015 Settlements

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Notable 2015 SettlementsUnited States ex rel. Payne, et al. v. Adventist Health System/Sunbelt, Inc., et al. (W.D.N.C) Adventist Health System ("AHS") is a Florida-based

system, which includes 44 hospital campuses in 10 states. In 2012, two lawsuits filed under the qui tam provisions of

the False Claims Act respectively by whistleblowers:• Michael Payne, Melissa Church, and Gloria Pryor, who worked at Adventist's

hospital in Hendersonville, North Carolina • Sherry Dorsey who worked at Adventist's corporate office• AHS self-reported non-compliant hospital/physician arrangements

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Adventist Allegations:

– Adventist-owned hospitals paid doctors' bonuses based on the number of test and procedures they ordered.

– As part of its corporate policy, Adventist told its hospitals to purchase physician practices and group practices or employ nearby physicians so it could control all patient referrals in those areas.

– Up-coded Medicare claims for patients in nursing and assisted-living facilities.

– Unbundled services and submitted them as separate claims to get larger reimbursements from the government.

– Submitted claims for services that weren't documented in patients' medical records.

Notable 2015 Settlements

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Adventist The complaints stated that overall physician compensation

was above fair market value, as evidenced by Adventist’s “substantial and consistent losses” on their physician practices, which were tolerated only because Adventist recovered those losses and profited by capturing referrals.

In 2015 Adventist agreed to pay $115 million based on:– Hospital/Physician Compensation Arrangements– Miscoding claims

Notable 2015 Settlements

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United States ex rel. Baklid-Kunz v. Halifax Medical Center (M.D. Fla.)

Halifax Hospital is in Daytona Beach, Florida In 2014, paid $86 million to settle alleged Stark Law and Anti-

Kickback violations, brought by a qui tam Relator.• The Relator was a Halifax compliance employee (not compliance

officer) turned whistleblower.• Hospital/Physician Compensation Arrangements

The government alleged that the prohibited referrals resulted in the submission of 74,838 claims and overpayment of $105,366,000.

Case Updates

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Halifax Health Executed contracts with six medical oncologists that included an incentive

bonus that (allegedly) improperly included the value of prescription drugs and tests that the oncologists ordered and Halifax billed to Medicare.

• Bonus Pool = 15% of Halifax Hospital's "operating margin" from outpatient medical oncology services (i.e., pool includes revenue from "designated health services" referred by oncologists)

• Does not comply with exception for bona fide employment arrangements because: (1) FMV and (2) volume/value referral prohibition

• Share of pool paid to individual oncologists is based on each individual physician's personal productivity, not referrals

• However, pool includes "profits" from services referred, but not personally performed by oncologists.

Case Updates

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Case Updates

• Complaint alleged that Halifax paid three neurosurgeons more than fair market value for their work. Bonus = 100% of collections after covering base salary, no expense sharing Total Compensation = as much as double neurosurgeons at 90th percentile

AMGA 90th MGMA 90th Dr. R. K. Dr. WK. Dr. FMV.

$844,703 $1,200,051 $1,725,302 1,160,163 1,897,524

Halifax Health

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How the Money & Referrals Flowed

Halifax HospitalMedical Center

Halifax Staffing, Inc.(Payroll Service Provider)

ThreeNeurosurgeons

SixOncologists

Referrals Referrals

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Losses on Physician Services – OK? DOJ asserts that paying physicians more than the professional collections they

generate exceeds FMV, is not commercially reasonable, and takes referrals into account:

“Given that each neurosurgeon was paid total compensation that exceeded the collections received for neurosurgical physician services, Defendants could not reasonably have concluded that the compensation arrangements in those contracts were fair market value for the neurosurgical services or were commercially reasonable.”

But, there is no requirement that providing physician services must be profitable:– If compensation is FMV and is not adjusted for referrals, it should satisfy the Stark Law– Some service lines have unprofitable payor mixes or low demand– CMS recognizes the legitimacy of subsidizing physician compensation, e.g. in the E.D.– Likewise, call coverage and hospitalist services often require subsidies

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Halifax Health Takeaways

How are bonuses structured and calculated?

Do you have a fair market value (FMV) opinion?

If physician compensation exceeds collections:

– Do you have a commercial reasonableness analysis?

– Do you have buy-in from legal and compliance?

Case Updates

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Case UpdatesTuomey

October 16, 2015, Tuomey agreed to settle with the government for $72.4 million—less than a third of the $237 million that a federal appeals court said it would have to pay for illegal compensation arrangements with doctors.

The sum required by the verdict would otherwise have been the largest levied against a community hospital and would have exceeded the Sumter, S.C., system's annual revenue.

As part of the settlement, Tuomey will also be sold to Palmetto Health, a system based in Columbia, S.C. Tuomey previously signaled it planned to partner with Palmetto.

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Tuomey• Contract Analysis

10 year terms Part‐time “employment” for only outpatient procedures Exclusive use requirement – all outpatient surgeries at Tuomey Yearly salary based on previous year’s net collections Bonus

• 80% of net collections of professional fees• Additional 7% of productivity bonus for other factors

• Agreement not to compete – prohibited physicians from performing surgeries elsewhere within 30 miles of the hospital (during and post‐two years)

• Full time benefits:  Including health insurance, malpractice premiums (covered physicians for office and inpatient services), cell phones, journals, CME

Case Updates

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Tuomey

• Cejka, a valuation firm evaluated the contracts for purposes of the fair market value requirement at inception. Analysis indicated productivity levels of physician’s were between the 50th and 75th percentiles Compensation level exceeded the 90th percentile Evaluation did not include full time benefits

• Government expert analyzed the contracts at trial. Impossible to ever make profit on these contracts Full time benefits for minimal hours per week Cejka showed that certain physicians, across the country, received between 49% and 63% of net collections, 

but Tuomey paid, on average, 131% of net collections Non‐Compete Agreement locked in referrals Reactive to competing ambulatory surgery center and physician groups informing Tuomey they may perform 

surgeries in their own offices rather than at Tuomey.

Case Updates

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Tuomey Takeaways

Virtually all FCA cases are resolved through settlement agreements due to potential ramifications of losing – unusual that this case went to trial

• Some cases settle after motions to dismiss are heard

Physician employment does not necessarily insulate agreements from Stark liability

If a proposed arrangement appears to have been developed in response to the fear of losing a referral stream, the government may look closely at issues of commercial reasonableness

Long-term arrangements should be reviewed periodically for compliance

Providers cannot blindly follow a fair market value or commercial reasonableness determination

Case Updates

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