stark update in a time of hospital-physician...

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

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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

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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)

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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

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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

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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

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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)

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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

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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.

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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

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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)

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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

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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

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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

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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.

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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

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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

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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

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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

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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

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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

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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 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


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 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 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


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

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Stark Self-Referral Disclosures

Questions:

Margaret Davino

Kaufman Borgeest & Ryan

(973) 954-9600

[email protected]

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