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Record-breaking FCA settlements underscore importance of Stark Law compliance

Christina Randolph November 3, 2015

In September and October, the Department of Justice (DOJ) announced four record-breaking False Claims Act settlements – ranging from $25 million to $115 million – involving health care systems that allegedly made improper payments to referring physicians in violation of the Stark Law. The DOJ press release for each of the settlements can be accessed here: Columbus Regional Healthcare System, North Broward Hospital District, Adventist Health, and Tuomey Healthcare System. While the specific facts and circumstances giving rise to these settlements is different in each case, the allegations in each of these settlements involved above fair market value payments to the referring physicians and payments which allegedly reflected either directly or indirectly the volume or value of the physicians DHS referrals to the health care system, both of which are prohibited by the Stark Law. With the continued focus of the government on investigating and prosecuting matters involving compliance with the Stark Law, health care systems entering into compensation arrangements with referring physicians must have robust processes in place to ensure that the compensation arrangements – at the time that they are structured and during the course of the arrangement – don’t run afoul of the Stark Law.

There are several applicable Stark Law exceptions for arrangements between health care systems and employed physicians and independent contractor physicians, as well as specific rules for compensation arrangements with physicians who are employed by a group practice. A comprehensive discussion of all of the requirements of each of the applicable exceptions is beyond the scope of this post. With that in mind, though, there are certain core requirements that health care systems should consider addressing when developing processes designed to ensure that compensation arrangements with referring physicians comply with the Stark Laws. These requirements include the following:

  • Documenting the Compensation Arrangement: The written agreement must accurately reflect the entire compensation arrangement to be paid to the physician not only at the beginning of the arrangement, but also during the course of the arrangement if the parties agree to changes. Executives responsible for implementing and managing the arrangement need to understand how the compensation arrangement is supposed to be implemented and should work closely with the team responsible for drafting the written documents to ensure that there are no discrepancies between the written documentation and the intention of the parties – both at the outset of the relationship and as changes are made during the term of the agreement.
  • Identifying all of the Elements of the Compensation Arrangement: Each element of the compensation arrangement must be identified in order to accurately document the entire compensation arrangement and to analyze whether the entire compensation arrangement complies with the Stark Law. These components can include one or more of the following types of remuneration:  (a) cash compensation which can be expressed in any number of ways, such as an hourly rate, annual salary, and/or compensation formula, (b) provision of (or reimbursement to independent contractors for the costs associated with) employer-sponsored health, welfare, retirement benefits, payments for CME and other business-related expenses, (c) reimbursement of malpractice insurance costs, (d) provision of fringe benefits, such as free meals and tickets, and (e) as to independent contractors, the provision of space and/or clinical personnel in support of the physician’s practice. Contract request forms can be a great tool for identifying all of the elements of a proposed compensation arrangement with a referring physician.
  • Determining that the Compensation Arrangement is Within Fair Market Value & Meets Commercial Reasonableness Standards: The compensation arrangement with a referring physician must be within fair market value and for most arrangements, must also meet commercial reasonableness standards. In determining whether a particular compensation arrangement with a referring physician is within fair market value, as discussed above, all of the elements of a compensation arrangement must be analyzed.  Another factor in the fair market value and commercial reasonableness analysis is whether there are multiple compensation arrangements with the same referring physician, such that all of the compensation paid to the physician is considered in its entirety. Determining whether a compensation arrangement is within fair market value and meets commercial reasonableness standards generally is not limited to analyzing where the compensation falls within certain benchmark data, but rather also involves a considered analysis of all of the facts surrounding the proposed arrangement, the business reasons for the arrangement, as well as the conversations and negotiations that have taken place between the parties. The lawyers, business executives, and oftentimes third-party consultants who specialize in providing fair market value and commercial reasonableness opinions, will need to work closely together to complete this analysis.
  • Understanding the Physician Compensation Formula:  Unless a physician is practicing within a Stark Law group practice, a physician’s compensation cannot be determined in a manner that takes into account (either directly or indirectly) the volume or value of a physician’s referrals of DHS. In the context of a physician’s compensation formula, the Stark Law compliance analysis will include a particular focus on all of the data elements used in the calculations within the formula. One particular data element is the measurement of the “amount of services” for which a physician will be compensated. For those physicians who are not within a group practice and are paid compensation based on their referrals of DHS, the measurement of the “amount of services” whether expressed by encounters, revenue, wRVUs, etc., must be limited to the physician’s personally performed DHS. The Centers for Medicare & Medicaid Services (CMS) strictly interprets this requirement to include only those DHS that the physician actually performs by him/herself without the assistance of any other person, including another physician, nurse, or medical assistant.  On the other hand, for those physicians practicing within a group practice, the Stark Law allows a physician’s compensation to reflect the volume or value of his/her DHS referrals under limited circumstances. For group practice physicians, the measurement of the “amount of services” can include his/her DHS that are personally performed and DHS incident to the physician’s personally performed services. Group practice physicians can also receive an allocation of the group’s overall profits of DHS if the allocation is made to “pods of 5 or more physicians.” In order to ensure compliance with the Stark Law when calculating a physician’s compensation pursuant to a compensation formula, the executives and financial team members responsible for gathering the data must understand not only the calculations performed pursuant to the compensation formula but also the very specific Stark Law requirements that govern those calculations when the formula takes into account any DHS referred by the physician. For group practice physicians, this will include a thorough understanding of the allocation methodology for DHS revenues. For physicians not practicing within a group practice, this also involves developing processes to ensure that the physician only receives “credit” for personally performed DHS.
  • Identifying DHS: As discussed above, the Stark Law includes very specific requirements for the circumstances under which a physician may or may not be compensated for his/her referrals of DHS. This begs the question of how to identify “DHS.” DHS includes 10 categories of services. Of these, only four of them are exclusively defined by a CPT/HCPCS Code List, which is published by CMS on an annual basis at the beginning of each calendar year. CMS also has the discretion to update this list during a calendar year to address changes in CPT/HCPCS codes. The four categories of DHS exclusively defined by the CPT/HCPCS Code List are:
    • Clinical laboratory services
    • Physical therapy, occupational therapy, and outpatient speech-language pathology services
    • Radiology and certain other imaging services
    • Radiation therapy services and supplies
  • The other six categories of DHS for which there is no CMS Code List definition are:
    • Durable medical equipment and supplies (DME)
    • Prosthetics, orthotics, and prosthetic devices and supplies (POS)
    • Outpatient prescription drugs
    • Parenteral and enteral nutrients, equipment, and supplies
    • Home health services
    • Inpatient and outpatient hospital services
    • It is imperative that health care systems develop processes for identifying DHS in order to ensure that the compensation arrangements with referring physicians comply with the Stark Law. For those DHS included within the CMS CPT/HCPCS Code List, the processes involve uploading those codes and monitoring CMS’ changes to the Code List. For those DHS not included in the Code List, the processes are much more involved and quite cumbersome as each CPT/HCPCS code billed by a provider must be designated as either “DHS” or “not DHS.”

Ensuring that physician compensation arrangements comply with the Stark Law is no easy task. There are design, implementation and ongoing monitoring requirements, all of which present unique challenges not only from a legal perspective, but also from an operational perspective. As evidenced by the recent DOJ settlements, the risk of non-compliance is significant, again reinforcing the importance of assuring that the legal, business, finance and operations teams coordinate their efforts to manage this risk.  

Christina Randolph is a partner in Thompson Coburn's Health Law Practice Group. She can be reached at (314) 552-6539 or crandolph@thompsoncoburn.com