Health Care Compliance Association

HEALTH CARE COMPLIANCE ASSOCIATION

EAST CENTRAL REGIONAL ANNUAL CONFERENCE

STARK, SUNSHINE, AND PHYSICIAN COMPLIANCE ISSUES

Michael A. Cassidy, Esquire

Tucker Arensberg, P.C.

1500 One PPG Place

Pittsburgh, PA 15222

Phone: 412-594-5515

Fax: 412-594-5619

Email:

HEALTH CARE COMPLIANCE ASSOCIATION

EAST CENTRAL REGIONAL ANNUAL CONFERENCE

STARK, SUNSHINE, AND PHYSICIAN COMPLIANCE ISSUES

Michael A. Cassidy, Esquire

Tucker Arensberg, P.C.

1500 One PPG Place

Pittsburgh, PA 15222

Phone: 412-594-5515

Fax: 412-594-5619

Email:

1. Introduction

1. Recent Enforcement Activity

1. Physician Contracting

1. Us ex rel Drakeford v. Toumey d/b/a Toumey Healthcare System

1. USA and Elin Baklid-Kunz v. Halifax Hospital Medical Center

1. Physician Payment Sunshine Act

1. Renewed Laboratory Enforcement

1. Enforcement Actions

1. Pennsylvania Laboratory

1. Health Diagnostic Laboratory, Inc. - HDL was paying a $20 per sample processing fee to physicians who referred tests. Stopped after June 2014 Special Fraud Alert.

1. Also ran new tests on 100% of refrigerated.

1. Individuals quoted in WSJ 9/8/14.

1. Whistleblower claim?

1. Federal Enforcement

1. Special Fraud Alert: Laboratory Payments to Referring Physicians

1. Specimen Processing Arrangements - The OIG states that characteristics of a questionable specimen processing arrangement may be evidence of unlawful purpose include but are not limited to the following:

1. Payment exceeds fair market value for services actually rendered by the party receiving the payment.

1. Payment is for services for which payment is also made by a third party, such as Medicare.

1. Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.

1. Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient, or other basis that takes into account the volume or value of referrals.

1. Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information), or tests that otherwise are not reasonable and necessary or reimbursable.

1. Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

1. Registry Payments - The OIG has become of arrangements under which clinical laboratories are establishing, coordinating or maintaining databases and paying physicians to collect this information under the alleged guise of research and categorizing these payments as “registry arrangements”.

Characteristics of the registry agreement may be evidence of such unlawful purpose include, but are not limited to the following:

1. The laboratory requires, encourages, or recommends that physicians who enter into Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.

1. The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.

1. Compensation paid to physicians pursuant to Registry Arrangements is no a per-patient or other basis that takes into account the value or volume of referrals.

1. Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.

1. Compensation paid to the physicians pursuant to Registry Arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.

1. The laboratory offers Registry Arrangements only for tests (or disease states associated with tests) for which is has obtained patents or that it exclusively performs.

1. When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.

1. The tests associated with the Registry Arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

1. Pennsylvania Enforcement: Act 122 enacted December 18, 2013.

1. Pennsylvania enacted amendments to the Pennsylvania Clinical Laboratory Act on December 18, 2013 (the amendments are referred to as Act 122) and the Department of Health and Bureau of Laboratories just issued additional guidance on May 28, 2014 in the form of a Letter and Frequently Asked Questions.

1. Under Act 122 it is generally unlawful for clinical laboratories to:

1. Pay or receive a commission, bonus, kickback or rebate or engage in a split-fee arrangement in any form with a health care provider/practitioner.

1. Lease or rent space, shelves or equipment or other services within a health care provider’s/practitioner’s office. This includes leasing or renting space for the purpose of establishing a specimen collection station.

1. Directly or indirectly provide personnel to perform functions or duties within a health care provider’s/practitioner’s office for any purpose regardless of whether fair market value is offered or given.

1. Permit the placement of paid or unpaid personnel to perform services (e.g., specimen collection, processing, packaging or handling or genetic counseling) in a health care provider’s/practitioner’s office.

1. Exceptions - Act 122 also contains three enumerated exceptions to these prohibitions:

1. A health care provider/practitioner that owns and operates its own clinical laboratory may place its employees in the clinical laboratory.

1. A clinical laboratory licensed by the Department can refer specimens to another clinical laboratory licensed by the Department or to a CLIA-accredited or certified clinical laboratory.

1. Clinical laboratories are allowed to own or invest in a building in which space is leased or rented for adequate and fair consideration to health care providers/practitioners.

1. USA and Elin Baklid-Kunz v. Halifax Hospital Medical Center

1. Summary

1. Initial complaint filed by Realtor under seal June 19, 2009

1. Elin Baklin-Kunz - Physician Services Director

1. DOJ intervenedOctober 14, 2011

1. CIA and $85 million Settlement March 10, 2014

1. Non Intervention Claims

1. Medically unnecessary short stay - Summary Judgment for hospital denied January 8, 2014 because evidence at least establishes a genuine issue of material fact.

1. Anti-Kickback claims for failure to meet bona fide employment exception because physicians employed by “staffing arm” rather than “hospital”.

1. Instrumentality

1. Psychiatrist employment - Summary Judgment denied because compensation arrangement varied with volume of referrals and thus failed to meet Stark Law exception.

1. Statute of Limitations - July 1, 2014. Medically unnecessary admissions and offset impatient billing against theoretically permissible outpatient billing for medically necessary services.

1. Intervention Claims

1. Medical Oncologists

1. Summary Judgment granted to Relator

1. Corporate Integrity Agreement

1. $85 million

1. 8 x annual operating margin

1. 18% annual revenue

1. Neurologists

1. Summary Judgment denied on November 18, 2013

1. Statute of Limitations defense rejected July 1, 2014

1. Case proceeding to trial at this point

1. Medical Oncologists

1. Six medical oncologists employed by Hospital to treat inpatients and outpatients.

1. Billing prior to March 1, 2007 had separate inpatient and outpatient claims. Billing forms identified:

1. Overall responsibility - “attending”

1. Performing - “operating”

1. Contract term in question - Beginning with the fiscal year ending September 30, 2005, an equitable portion of an Incentive Compensation pool which is equal to 15% of the operating margin for the Medical Oncology program as defined by the financial statements produced by the Finance Department on a quarterly basis. The amount of the incentive compensation distributed to the Employee shall be determined by the Medical Oncology Practice Management Group. This compensation shall be paid annually according to the operating margin for the fiscal year. Payment will be made on or before March 15 of the following year in order to provide a 90-day period of collection. The Company shall make best efforts to achieve a reasonable collection rate in light of community needs, patient mix, and relevant health care reform efforts.

1. Incentive pool share based upon individual relative productivity.

1. The Stark Law sets forth several exceptions to its broad prohibition on compensation arrangements between heath care entities and referring physicians. To avoid the referral and billing prohibitions in the statute, a hospital’s financial relationship with a physician must fall into one of the exceptions. One such exception involves what the Stark Law describes as “bona fide employment relationships”. Under the exception, amounts paid by an employer to a physician will not be considered a compensation arrangement for purposes of the Stark Law if:

1. The employment is for identifiable services;

1. The amount of remuneration under the employment -

1. Is consistent with the fair market value of the services, and

1. Is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician,

1. The remuneration is provided pursuant to an agreement which would be commercial reasonable event if no referrals were made to the employer; and

1. The employment meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse.

1. The Government contends that the requirements of this exception were not satisfied because the Incentive Bonus, and therefore the Medical Oncologists’ remuneration, varied based on referrals for designated health services. More particularly, the Government points out that the pool from which the Incentive Bonus was drawn was equal to 15% of the operating margin of the Medical Oncology program, and the program’s revenue included fees for designated health services such as outpatient prescription drugs and outpatient services not personally performed by the Medical Oncologists. Thus, revenue from referrals made by the Medical Oncologists would flow into the Incentive Bonus pool, and additional referrals would be expected to increase the size of the pool. All other things being equal, this would, in turn, increase the size of the Incentive Bonus received by the referring Medical Oncologist.

1. Halifax points out that the requirement in the bona fide employment exception that the remuneration not be “determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician,” 42 U.S.C. §1395nn(e)(2)(B)(ii), is itself subject to an exception. The final sentence of 42 U.S.C. § 1395(e)(2) provides that “[s]ubparagraph (B)(ii) shall not prohibit the payment of remuneration in the form of a productivity bonus based on services performed personally by the physician (or an immediate family member of such physician)”. The Incentive Bonus, the Defendants argue, was just such a bonus, because “it is undisputed the bonus pool was divided up based on [each] oncologist’s personally performed services.” (Doc. 317 at 11) (emphasis in original).

1. In the Summary Judgment Opinion, the Court stated this is not enough to bring the Incentive Bonus within the bona fide employment exception. The Incentive Bonus was not a “bonus based on services personally performed” by the Medical Oncologists, as the exception requires. 42 U.S.C. § 1395(d)(2). Rather, as described by the Defendants themselves, this was a bonus that was divided up based on services personally performed or referred by the Medical Oncologists. The bonus itself was based on factors in addition to personally performed services - including revenue from referrals made by the Medical Oncologists for DHS. The fact that each oncologist could increase his or her share of the bonus pool by personally performing more services cannot alter the fact that the size of the pool (and thus the size of each oncologist’s bonus) could be increased by making more referrals.

1. Fair Market Value Opinions

1. Myers and Stauffer LLC/ Kathy McNamara retained by United States to opine on neurosurgeons compensation.

1. Compensation not commercially reasonable (page 27)

1. Favorably treated relative to other physicians on staff

1. Car allowances

1. Highest paid

1. Only physicians exceeding 90th percentile

1. Additional subsidies

1. Received 100% of collections

1. Hospital incurred significant expenses

1. Compensation for all call coverage

1. US ex rel Drakeford v. Toumey d/b/a Toumey Healthcare System, Inc.

1. Decision - Financial arrangement violated the Stark Act and claims submitted by Hospital therefore violated False Claims Act.

1. Allows fines ($5,500 - $11,000) plus treble damages

1. Jury awarded $39,313,065.00

1. Key Facts:

1. Private practice gastroenterologists took steps to establish ASC

1. Hospital calculated loss of $9.6 million over 13 years

1. Hospital employed physicians on a part time basis at an amount equal to 31% greater than total collections.

1. Key Holdings:

1. Evidence was sufficient to support finding that physicians’ compensation varied with volume and value of physicians’ referrals to provider;

1. Evidence was sufficient to support finding that provider took into account the volume or value of referrals in calculating compensation plans in physicians’ contracts;

1. Evidence was sufficient to support finding that provider’s Medicare and Medicaid claims were submitted in violation of FCA, even though provider asserted that the forms did not identify a “referring physician”;

1. Evidence was sufficient to support finding that provider knowingly submitted false Medicare and Medicaid claims, for purposes of scienter under the Stark Law;

1. Provider was not entitled to new trial on damages; and

1. Trebling of United States’ jury verdict and civil penalties did not violate Eighth Amendment.

1. Key Issues:

1. Valuation - Appraiser testified that, although she had calculated net present value of surgical volume, the appraisal was not used to determine compensation.

1. A reasonable jury could have found that the volume was taken into account.

1. Definition of Referral - “Attending” vs. “other” physician

1. Advice of Counsel

1. Initial counsel

1. Replacement counsel

1. Waiver of Attorney-Client privilege: Barker ex rel U.S. v. Columbus Regional Healthcare System

1. Legal Issues: No Damages

The provider argued there was no damage to the government because all of the claims and services were medically necessary, properly documented and properly coded. The Court rejected this argument and found that a claim submitted following a referral based on a compensation arrangement that violates Stark is itself illegal, even though the government received exactly what it paid for - medically necessary and properly coded services.

1. Calculation of Damages

The $237 million verdict was calculated as follows: $39 million worth of improper claims that were based on referrals that did not comply with Stark; plus triple damages on top of the jury verdict equaling almost $118 million ($39,313,065 x 3); plus a $5,500 sanction amounting to almost another $210 million ($5,500 penalty x 21,730 improper claims submitted). Notably, the Court held that the triple damages and $5,500 per claim sanction under the FCA were neither punitive nor excessive under the circumstances. As a practical matter, this means that a deal that was extensively reviewed by legal counsel (see below) and which the government paid for medically necessary services and procedures, results in the providers having to pay the government $237 million.

1. Advice of Counsel Defense

The providers argued that they did not have any improper intent to violate the FCA because they obtained and followed advice of experienced health law counsel. The provider (who ultimately became the whistleblower) insisted that they seek yet another opinion from an attorney in private practice who was formerly the OIG’s attorney, who identified risks and concerns with the deal. The Court rejected the provider’s advice of counsel defense.

1. Physician Payment Sunshine Act Compliance Obligations

1. Introduction

1. Statute - Physician Payment Sunshine Act Final Rule implements §6002 of the Affordable Care Act, which added §1128G of the Social Security Act [42 USC § 1320a-7(h)]

1. Regulations - Final Rule published Federal Register on February 8, 2013 (Vol. 78, No. 27, pp. 9458-9528). 42 CFR Parts 402 and 403.

1. General Summary

1. Open payments creates greater transparency around the financial relationships of manufacturers, physicians, and teaching hospitals. The program requires that the following information is reported annually to CMS:

1. Applicable manufacturers of covered drugs, devices, biological, and medical supplies to report payments or other transfers of value they make to physicians and teaching hospitals to CMS.

1. Applicable manufacturers and applicable group purchasing organizations (GPOs) to report to CMS certain ownership or investment interests held by physicians or their immediate family members.

1. Applicable GPOs to report to CMS payments or other transfers of value made to physician owners or investors if they held ownership or an investment interest at any point during the reporting year.

1. HHS Publication - HHS required to publish reports on public website.

1. Purpose of the Sunshine Act

1. Stated Purposes

1. Improve transparency regarding financial relationships between healthcare industry, manufacturers, physicians and teaching hospitals.

1. Reduce the potential for conflicts of interest among industry, physicians and teaching hospitals.

1. Foster transparency and improved decision making by healthcare consumers.

1. Significant Definitions

1. Covered Recipients

1. Any physician except a physician employee of an applicable manufacturer:

1. Physicians:

• Medicine

• Osteopathy

• Dentist

• Dental Surgeon

• Podiatrist

• Optometrist

• Chiropractor

1. Excludes Residents

• Fellows?

1. Teaching Hospital

1. Definition: For the purposes of this program, teaching hospitals are defined as hospitals that received a payment(s) under a Medicare direct graduate medical education (GME), inpatient hospital prospective payment system (IPPS) indirect medical education (IME), or psychiatric hospital IME programs during the most recent calendar year for which such information is available.

1. Teaching Hospital List

1. CMS has published a downloadable list (in .csv format, Microsoft Excel format and Adobe .pdf format) of all teaching hospitals subject to reporting for the 2013 reporting year.