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Stark Law Introduction

41st Annual SCALL Institute March 23, 2013

Eric B. Gordon Partner McDermott Will & Emery LLP egordon@mwe.com

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Part I: Stark Law – A Brief Overview

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A Brief History

Lab ownership by MDs

MRI ownership by MDs

Stark I – Lab only

– Ownership and compensation

Stark II – 9 additional services, including inpatient and outpatient hospital

services

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What is it?

It’s a Medicare payment rule – Prohibits Medicare payment for services furnished pursuant to a

prohibited referral – Administered by Centers for Medicare and Medicaid Services (“CMS”),

not the DHHS, Office of Inspector General (“OIG”)

It’s a “fraud and abuse” rule

– OIG – civil monetary penalties (administrative fines) – DOJ – False Claims Act cases

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The Stark Law

The First Prohibition – If a physician (or an immediate family member)

– Has a “financial relationship” with an entity

– The physician may not make a “referral” to that entity

– For Medicare “designated health services” (DHS)

– Unless an exception applies

The Second Prohibition – The entity can’t bill for the service

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Stark Law vs. Federal Antikickback Law

Stark is a strict liability statute

It doesn’t matter whether a hospital’s violation is intentional or willful

It doesn’t matter whether a violation affected physician referral patterns, increased utilization, corrupted clinical judgment, or impinged on patient choice

Stark simply demands compliance with an exception or refund of the Medicare payments

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Sanctions

Absolute requirement to repay all claims for Medicare services furnished pursuant to prohibited referral

Civil monetary penalties of up to $15,000 per service for: – Submitting the bill or claim (“know or should know” standard); or

– Not making a prompt refund

Potential exclusion from Federal programs

False Claims Act liability – Two theories (after FERA and PPACA)

– Claims for DHS prohibited by Stark are false or fraudulent

– Failure to make a prompt refund = reverse false claims, i.e., avoiding an “obligation” to the federal government

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CMS Self-Referral Disclosure Protocol

Stark self-disclosures are common and have increased substantially since CMS’ Self-Referral Disclosure Protocol (SRDP), which was initiated in September 2010 – 36 disclosure submissions in 2010 – 104 disclosure submissions in 2011 – 73 disclosure submissions in 2012 through October

Of those submissions, only 18 have been settled to date – The settlements have been modest, only one reaching even $250,000

http://www.cms.gov/Medicare/Fraud-and-

Abuse/PhysicianSelfReferral/Self_Referral_Disclosure_Protocol.html

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Stark Self-Disclosures to DOJ

Detroit Medical Center (December 2010) – Detroit Medical Center self-disclosed approximately 300 physician

arrangements

• Most (but not all) involved so-called “technical” violations of Stark

• $30 million settlement

• Settlement amount reportedly limited, in part, based on ability to pay

9 –9

Stark Self-Disclosures to DOJ (cont’d)

Condell Medical Center, IL (December 2008) – Self-disclosed physician arrangements

• Below FMV leases

• Loans to physicians

• Technical Stark violations of “writing” requirements

– $36 million settlement

10 –10

Stark Self-Disclosures to DOJ (cont’d)

HealthSouth (December 2007) – Two improper financial arrangements with orthopedists discovered in

self-audit

• $14 million settlement

11 –11

Stark Self-Disclosures to DOJ (cont’d)

St. John Health System, Okla. (December 2009) – St. John Health System self-disclosed 24 physician arrangements it

discovered on internal review

• St. John described the violations as “technical”

• $13 million settlement

12 –12

Qui Tam (False Claims Act) and Government Investigation Settlements

Settlements by hospitals with Department of Justice relating to filed whistleblower suits or government investigations have often resulted in large settlements

13 –13

Qui Tam (False Claims Act) and Government Investigation Settlements (cont’d)

Lester E. Cox Medical Center, MO (July 2008) – Medical director agreements allegedly not in writing, in excess of fair

market value or based on referrals with single large medical group

– Services agreement with same group that included ancillary production in salary calculation

– $60 million settlement reportedly limited, in part, based on ability to pay

– The medical group also paid $1 million in settlement

14 –14

Qui Tam (False Claims Act) and Government Investigation Settlements (cont’d)

Erlanger Medical Center, TN (October 2005) – Alleged improper physician arrangements conducted through faculty

practice plan

– Included medical directorships and leases with large medical groups

– $40 million settlement

15 –15

Qui Tam (False Claims Act) and Government Investigation Settlements (cont’d)

McAllen/South Texas Health System (October 2009) – Allegations of improper directorships and leases with 7 physicians

– $27.5 million settlement

16 –16

Qui Tam (False Claims Act) and Government Investigation Settlements (cont’d)

North Ridge Medical Center, FL (March 2004) – Ten physician employment agreements alleged to take into account

referrals

– One medical director agreement alleged to exceed FMV

– $22.5 million settlement

– At time, largest Stark law settlement to date

17 –17

Qui Tam (False Claims Act) and Government Investigation Settlements (cont’d)

St. Joseph Medical Center, MD (November 2010) – Multiple service agreements with single medical group allegedly in

excess of fair market value

– $22 million settlement

18 –18

Qui Tam (False Claims Act) Litigation

Litigated cases create even greater potential exposure

Christ Hospital, Health Alliance of Greater Cincinnati (May 2010) – Allegations that the hospital provided assignments to its cardiac

testing station based on referrals

– $108 million settlement following favorable preliminary rulings for government on Stark issues

19 –19

Qui Tam (False Claims Act) Litigation (cont’d)

Tuomey Healthcare System, SC (2010, retrial pending) – Allegations that 18 part-time employment agreements violated Stark

law

– $45 million judgment entered by district court

– Overturned by Fourth Circuit for re-trial, possible damages 3x original judgment

20 –20

Qui Tam (False Claims Act) Litigation (cont’d)

Halifax Hospital Medical Center, FL (currently in pretrial motions) – Allegations that employment agreements with 3 neurosurgeons and 7

oncologists violated Stark law

– Whistleblower’s counsel have publicly announced their belief that potential damages are in the hundreds of millions of dollars

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Recent Stark Case Law

Fair Market Value, “Volume/Value” – U.S. ex rel Singh v. Bradford

– U.S. ex rel Drakeford v. Tuomey

– Kosenske v. Carlisle HMA Inc.

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Part II: Stark Compliance

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A Swiss Cheese Law

Ownership exceptions

Ownership and compensation exceptions

Compensation exceptions

Direct and indirect exceptions

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Direct Compensation Exceptions

Common Requirements – A signed writing (except employment exception)

– Signed by both parties in advance

– At least a one-year term (except employment exception)

– Specifying the services and/or items to be provided

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Direct Compensation Exceptions

Common Requirements – Compensation (or formula) must be “set in

advance”

– Compensation must be “fair market value”

– Agreement must be “commercially reasonable”

– Compensation can’t take into account volume/value of referrals

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Fair Market Value

Historically, FMV viewed as “soft” requirement

Unlike technical elements or “structural” violations, requires fact-based inquiry

Now, common source of government inquiry and qui tam lawsuits

Under the Stark Law, the defendant has the burden of proof that an arrangement is fair market value

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Gifts and Business Courtesies

Gifts – Nonmonetary compensation

– Annual limit ($380 for 2013)

– Examples: entertainment, business-related meals, holiday gifts

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Part III: FAQs

Do the rules apply to arrangements that have nothing to do with referrals?

Do the rules apply to physicians when not acting as clinicians (e.g., Board trustees)?

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The Scope of the Stark Law

Do the rules apply to full-time employees?

Do the rules apply to family members?

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Where to Find the Law

Statute – Section 1877 of the SSA (42 U.S.C. § 1395nn) Regulations – codified at 42 C.F.R. Part 411 Preamble discussions and regulations

– Stark I Proposed Regs (Mar. 11, 1992) – Stark I Final Regs (Aug. 14, 1995) – Stark II Proposed Regs (Jan. 9, 1998) – Stark II Final Regs

• Phase I (Jan. 4, 2001) • Phase II (Mar. 26, 2004) • Phase III (Sept. 5, 2007)

– Electronic prescribing/EHR Exceptions (Aug. 8, 2006) – 2008 MPFS Proposed Rule (July 12, 2007) – 2009 MPFS Proposed Rule (July 7, 2008) – 2009 MPFS Final Rule (November 14, 2008) – 2009 IPPS Proposed Rule (April 30, 2008) – 2009 IPPS Final Rule (August 19, 2008) – 2010 MPFS Proposed Rule (July 13, 2009) – 2010 MPFS Final Rule (November 25, 2009) – 2011 OPPS Final Rule (November 24, 2010)

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Where to Find the Law

http://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/index.html?redirect=/physicianselfreferral/ – Authorities

– List of CPT Codes

– CPI Adjustments

– Advisory Opinions

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Discussion