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, or 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 or 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 owned 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 14
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 of referrals, the scope of the prohibition is the direct or 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. 19
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