Examining Stark Law: Todays Risks for Physician Contracts American - - PowerPoint PPT Presentation

Examining Stark Law: Today’s Risks for Physician Contracts

American Society of Medical Association Counsel 2018 Fall Conference San Diego, CA

Donald H. Romano, Esq. Foley & Lardner LLP

1

Stark Fundamentals

• 42 U.S.C. 1395nn and regs at 42 C.F.R.411.350-389
• Civil Statute
• In addition to its own civil penalties, can lead to False

Claims Act violation and/or coupled with AKS claims

• Flat prohibition against physician referrals for certain

designated health services where the physician has a financial relationship (in the form of an ownership interest or comp arrangement) with an entity

• Certain exceptions are available to protect legitimate

business arrangements

2

Important Stark Landmarks

• Expansion via Stark I, II, and III regs

– Includes “DHS” expansion – https://www.cms.gov/Medicare/Fraud-and-

Abuse/PhysicianSelfReferral/List_of_Codes.html

• Further expansion through Physician Fee

Schedule

– https://www.cms.gov/Medicare/Fraud-and-

Abuse/PhysicianSelfReferral/Significant-Regulatory-History.html

3

Important Stark Landmarks

• Tuomey litigation

– United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., No.

13-2219 (4th Cir. July 2, 2015)

• Self-Referral Disclosure Protocol

– https://www.cms.gov/Medicare/Fraud-and-

Abuse/PhysicianSelfReferral/Self_Referral_Disclosure_Protocol.html

4

Important Stark Landmarks

• Waivers for certain programs

– Pioneer Accountable Care Organization (ACO) Model – Bundled Payment for Care Improvement (BPCI) Models – Health Care Innovation Awards (HCIA) Round Two – Comprehensive ESRD Care (CEC) Model – Comprehensive Care for Joint Replacement (CJR) Model – Next Generation ACO Model – Oncology Care Model (OCM) – Part D Enhanced Medication Therapy Management (MTM) Model – Maryland All-Payer Model Care Redesign Program – Medicare Diabetes Prevention Program (MDPP) Expanded Model – Bundled Payments for Care Improvement Advanced (BPCI Advanced)

Model

– Medicare Shared Savings Program

5

What common issues are we seeing today?

• Implications for Physician Compensation

Arrangements

• Problematic leases: To Disclose or Not to

Disclose?

• Changes to Stark: Real or Imagined
• What’s the FCA attitude?
• Where do we go with advanced payment models?

6

Today’s Implications for Physician Comp

• Fair Market Value
• Commercial Reasonableness
• Varying with Volume or Value of Referrals

7

Fair Market Value Under Stark

• Definition

– The value in arm’s-length transactions, consistent with the general

market value. ‘‘General market value’’ means the price that an asset would bring, as the result of bona fide bargaining between well- informed buyers and sellers who are not otherwise in a position to generate business for the other party; or the compensation that would be included in a service agreement, as the result of bona fide bargaining between well informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement.

• Exceptions

8

Fair Market Value

• Can physicians be given per dollar per RVU (e.g.,

$59per RVU) credit for shared/split services and for supervising midlevels? Does the RVU amount need to be adjusted? Does a cap on total compensation solve all issues? Do gainsharing arrangements create FMV issues?

– Physician enters into gainsharing arrangement by which

she receives 70% of shared savings. 50% of shared savings is common among gainsharing arrangements. What is the basis for saying that 70% (or 50%) is or is not FMV?

9

Fair Market Value

• Without an escalation clause, automatic renewals,
• r unlimited holdover protection (as instituted in the

CY 2016 PFS rule), can create FMV problems

– Example 1 – Hospital and Physician enter into space or equipment

lease with a 3 year term. Parties cannot agree to new terms and agreement ends. However, physician continues to lease space or equipment on the same terms and conditions. So far so good. Two years later, the compensation amount falls below FMV.

– Example 2 – Same facts, except that it is a PSA and amount paid to

physician falls below FMV. No Stark problem. PSA exception requires that compensation not exceed FMV

10

Fair Market Value

Beware of the IOAS/no FMV required trap

• Physician is employed by “group practice” (as defined in 411.352).
• Her referrals for DHS within the group are protected by the in-office

ancillary services exception, which does not require FMV compensation

• But she also refers inpatients and outpatients to the group-affiliated

hospital

• If she has an “indirect compensation arrangement” with the hospital, her

referrals to the hospital would need to comply with the exception for indirect compensation arrangements (411.357(p)) and that exception requires FMV compensation

11

Commercial Reasonableness

• Statutory requirement, which shows up in the employee

exception, the lease exceptions, the PSA exception (sort of), the FMV exception, and a few others

• The standard is “commercially reasonable in the absence of

referrals”

• As applied to lease arrangements, be careful that the space
• r equipment leased is not more than what the DHS entity

needs

– Should a hospital lease a lithotripter and tech and keep paying

rent or does it have the volume to justify buying it and employing a tech?

12

Commercial Reasonableness

• Is it commercially reasonable for a hospital to hire

physicians at FMV and lose money on them w/respect to their professional fees if it can make that up and more on the facility fees for the procedures those physicians perform?

– What if the hospital is attempting to fulfill a community

need?

– What if the employer is a group practice affiliated with or

• wned by the hospital and the physician makes no

referrals or DHS to the group but rather only to the hospital?

13

Volume and Value of Referrals

• The test of whether compensation is determined in

a manner that takes into account the V or V of referrals is the same for every exception that has a V or V prohibition

• However, the scope of the prohibition is not the

same

– For “group practice” definition/use of IOAS exception, the

prohibition is on the direct or indirect taking into account the V or V of Medicare DHS only (except that it is permissible for a productivity bonus or profit share to indirectly take into account the V or V of referrals for Medicare DHS

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Volume and Value of Referrals

Scope of prohibition (cont’d)

• For employee exception, the prohibition is on the

direct or indirect taking into account the V or V of Medicare DHS only

• For the PSA exception and all other exceptions that

have a prohibition on taking into account the V or V

• f referrals, the scope of the prohibition is the direct
• r indirect taking into account the V or V of

Medicare DHS and other “business generated” (essentially everything else, e.g., Medicaid, commercial, Medicare managed care)

• 15

SRDP and Problematic Leases

16

Problems With Space Leases – Disclose or Not?

• Non-conforming space lease arrangements are a major

source (maybe the most common source) of SRDP submissions

• Basic Problems:

– Unsigned or no written agreement – No description of the premises

• Beyond the Basics

– Failure to collect the correct amount of rent (or any rent at all) – Physician group underpays the rent or no pays no rent at all – Physician group inhabits space that is not covered by the lease

17

Problems With Space Leases – Disclose or Not?

Difference Between Arrangement and Faulty Execution of Arrangement

• Where parties have reached a meeting of the minds for a lease of

space for a term of a year or more, and have reduced that agreement to a signed writing (a single writing or a collection of writings), which writing describes the premises with sufficient particularity, and the terms upon which they agree otherwise satisfy the requirements of the space lease exception at 411.357(a), that is a conforming arrangement. A conforming arrangement is an excepted financial relationship.

• Where the parties have entered into a conforming arrangement

but there is a mistake in the execution of the arrangement, there is no Stark violation (at least not yet)

18

Problems With Space Leases – Disclose or Not?

Difference Between the Arrangement and Faulty Execution of the Arrangement

Example 1: Rent is $5000 per month, due (must be received by) on the first of the month. Physician Group timely mails check for $4500 by

• mistake. Hospital recognizes mistake immediately and contacts Physician

Group, which immediately sends in check for $500. Example 2: Same facts as Ex.1 except that Hospital does not recognize mistake until 6 months later and contacts Physician Group, which immediately sends in check for $500. Example 3: Same facts as Ex. 2 except that, after discovering the mistake Hospital does not contact Physician Group about the matter for another 6 months, at which point the Physician Group tenders the amount owed pus interest.

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Problems With Space Leases – Disclose or Not?

Difference Between the Arrangement and Faulty Execution of the Arrangement

Example 4: Same facts as Ex. 1, except that it is 3 years after the rent check is mailed that the Hospital discovers it is underpaid and the statute

• f limitations has run and the Physician Group refuses to pay the shortfall
• f $500.

Example 5: Same facts as Ex. 4, except that the SOL is 6 years. Physician Group refuses to pay the shortfall and Hospital does not attempt any further action to collect the $500 plus interest.

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Problems With Space Leases – Disclose or Not?

Difference Between the Arrangement and Faulty Execution of the Arrangement

Example 6: Same facts as Ex.4 except that the rent is $20,000 per month and Physician Group underpays the rent by $2000 each month. After approximately 3 years, the amount of the shortfall is $70,000 plus interest. Physician Group refuses to pay, Hospital threatens suit. Physician Group asserts it has a laches defense and that in any case it is entitled to offset the $2000 per month against money it is owed by Hospital because of Hospital breaches of terms and conditions. After some negotiation, and upon advice of counsel, Hospital settles for $30,000.

21

Problems With Space Leases – Disclose or Not?

Difference Between the Arrangement and Faulty Execution of the Arrangement

Example 7: Physician Group leases suite 102 in an MOB owned by

• Hospital. After 6 months, and upon noticing that suite 103 has never been
• ccupied, and does not look like it will be occupied any time soon because

there is work needed to bring the suite up to par, Physician Group (which has now hired 2 more physicians) takes over suite 103 (in addition to

• ccupying suite 102). Six months later, Hospital discovers Physician

Group squatting in suite 103. Three months after that it insists that Physician Group vacate the space (which Physician Group does) but makes no attempt to collect any rent for suite 103 for the 9 months.

–

Is there a Stark violation (assuming Physician Group refers DHS to Hospital)? If so, what is the period of disallowance?

22

Problems With Space Leases – Disclose or Not?

Some Guiding Principles

• A mistake in the execution of a conforming arrangement (or

the deliberate decision by a referring physician to depart from the terms of the arrangement) may not result in a Stark violation if, upon discovery that a physician lessee has underpaid the rent (intentionally or not) or helped itself to additional space, the DHS makes reasonable efforts to collect the amount owed by the physician

– What are reasonable collection efforts depends on the facts and circumstances. For

example, is the amount owed sufficiently high so as to warrant bringing suit, or so low that only one or two demand notices are required? Are there equitable defenses (e.g., laches) or legal defenses (SOL has run, waiver, counterclaims by physician lessee) that justify not collecting any amount or compromising the amount owed?

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Problems With Space Leases – Disclose or Not?

Some Guiding Principles

• If, upon discovery that a physician lessee has underpaid the

rent (intentionally or not) or helped itself to additional space, the DHS entity lessor does not make reasonable efforts to collect the amount owed by the physician, there will be a gift to the physician (in the form of forgiveness of debt), for which no exception will apply

– If the non-compliant arrangement is disclosed to CMS through the

SRDP, will CMS handle it as a routine disclosure, or will it conclude there has been an intentional violation of Stark and/or a potential AKS violation and refer the matter to the OIG?

– What will be the period of disallowance?

24

Changes (Real and Imagined) to Stark

25

What’s New in Stark?

Not much (so far)

• Minor change to the delayed signature provision

– By regulation, parties have up to 90 days to procure the

necessary signatures in order to satisfy the written agreement of certain exceptions

– Section 50404 of the Bipartisan Budget Act of 2018

removed the restriction that the provision can be used

• nly once every 3 years with respect to the same referring

physician.

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What’s New in Stark?

• Codification of policy on collection of documents to

satisfy written agreement requirement

– In CY 2016 PFS Final Rule CMS clarified that writings can be

aggregated to satisfy the written agreement requirement in certain compensation exceptions

– Section 50404 of the BiBA of 2018 codified this policy in

section 1877 of the Act, stating that the written agreement can be satisfied by such means as determined by the Secretary.

– In CY 2019 PFS Proposed Rule, CMS proposed a special rule

• n compensation arrangements at § 411.354(e), which states

that the writing requirement maybe satisfied by a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties.

27

CMS Issues RFI for Stark

• On June 25, 2018 CMS published a Request for

Information on Stark

• Primary motivation appears to be CMS’s awareness

that Stark may have an adverse effect on health care providers’ willingness to participate in “integrated delivery models, alternative payment models, and arrangements to incent improvements in outcomes and reductions in cost.”

• CMS notes that the President's Budget for FY 2019

includes a legislative proposal for a new Stark exception for arrangements involving alternative payment models

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CMS Issues RFI for Stark

CMS requested comments on the following areas

• Information on either existing and potential arrangements that

involve DHS entities and referring physicians that participate in alternative payment models or other novel financial arrangements (regardless of whether such models and financial arrangements are sponsored by CMS), and any concerns about whether such arrangements can be protected under the existing Stark exceptions.

• What, if any, additional Stark exceptions are needed to protect

alternative payment model arrangements Specifically--

– ACO models, bundled payment models, 2-sided risk models in a FFS

environment, and any other payment models that can be described by the commenter

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CMS Issues RFI for Stark

Other areas of interest to CMS

• Suggested approaches to defining "commercial

reasonableness" in the context of the exceptions to the physician self-referral law.

• Suggested approaches to modifying the definition
• f fair market value for purpose of the exceptions

30

DOJ Guidance on Pursuing FCA Cases

• November 16, 2017 Memo from Attorney General

– “Effective immediately, Department components may not issue

guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch."

• January 25, 2018 memo from Associate AG

– “the principles from the [AG memo] are relevant to more than just the

Department's own publication of guidance documents. These principles also should guide Department litigators in determining the legal relevance of other agencies' guidance documents in affirmative civil enforcement (‘ACE’)…effective immediately for ACE cases, the Department may not use its enforcement authority to effectively convert agency guidance documents into binding rules. Likewise, Department litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law in ACE cases.”

31

DOJ Guidance on Pursuing FCA Cases

• January 10, 2018 DOJ memo on when DOJ considers it

appropriate to dismiss an FCA case over the objections of relators

• The FCA, specifically, 31 USC 3730(c)(2)(A), gives DOJ the

right to dismiss an action over the relator’s objection, provided it gives the relator notice of the motion and the relator has an opportunity for a hearing before the court

– Ninth Circuit says Gov’t must identify a valid purpose for

dismissing the action, U.S. ex rel. Sequoia Orange Co. v. Baird- Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), whereas D.C. Circuit says Gov’t has unfettered right to dismiss, Swift v. U.S., 318 F.3d 250 (D.C. Cir. 2003).

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DOJ Guidance on Pursuing FCA Cases

DOJ memo gives list of factors (which it says is non- exhaustive and not mutually exclusive) for when it will seek dismissal of a relator’s complaint:

• Curbing Meritless Qui Tams

– a qui tam complaint is facially lacking in merit-either because relator's legal

theory is inherently defective, or the relator's factual allegations are frivolous

• Preventing Parasitic or Opportunistic Qui Tam Actions

– qui tam action that duplicates a pre existing government investigation and

adds no useful information to the investigation.

• Preventing Interference with Agency Policies and Programs

– An agency has determined that a qui tam action threatens to interfere with an

agency's policies or the administration of its programs and has recommended dismissal to avoid these effects.

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DOJ Guidance on Pursuing FCA Cases

DOJ list of factors (cont’d)

• Controlling Litigation Brought on Behalf of the United States

– when necessary to protect the Department's litigation prerogatives.

• Safeguarding Classified Information and National Security

Interests

– particularly in cases involving intelligence agencies or military procurement

contracts, dismissal warranted to safeguard classified information.

• Preserving Government Resources

– when Gov’t’s expected costs are likely to exceed any expected gain

• Addressing Egregious Procedural Errors

– problems with the relator's action that frustrate the government's efforts to

conduct a proper investigation.

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QUESTIONS?

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