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Physician Relationship Audit Workshop: A Practical Guide to Auditing Physician Relationships and Addressing Identified Issues

Bret S. Bissey, MBA, FACHE, CHC

Senior Vice President, Compliance Services MediTract

Anna M. Grizzle

Partner Bass, Berry & Sims PLC

I. Basics of Stark Law

A. Statutory Self-Referral Prohibition (42 U.S.C. § 1395nn): A physician is prohibited from referring Medicare or Medicaid patients to an entity for the provision of certain designated health services (“DHS”) if the physician (or immediate family member of the physician) has a financial relationship with the entity, unless an exception applies.

B. Select Key Terms

1. Physician: Doctor of medicine or osteopathy, a doctor of podiatric medicine, a

doctor of optometry, or a chiropractor. (42 C.F.R. § 411.351)

2. Immediate Family Member: Husband or wife; birth or adoptive parent, child, or sibling; stepparent, stepchild, stepbrother or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; spouse of a grandparent or grandchild. (42 C.F.R. § 411.351)

3. Designated health services: Include clinical laboratory services; physical

therapy, occupational therapy, and outpatient speech-language pathology services; radiology and other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics and prosthetic devices and supplies; home health services; outpatient prescription drugs; inpatient and outpatient hospital services. (42 C.F.R. § 411.351)

4. Referral (42 C.F.R. § 411.351):

a. A request, in any form (including written, oral, or electronic), by a physician

for, or the ordering of, or the certifying or recertifying of the need for, any DHS.

b. Includes a request for consultation with another physician or any test or

procedure ordered by or to be performed by the other physician.

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c. Does not include:

(i) DHS personally performed or provided by the referring physician. (ii) A request by a pathologist for clinical diagnostic laboratory tests and

pathological examinations, by a radiologist for diagnostic radiology, by a radiation oncologist for radiation therapy or ancillary services necessary for, and integral to, the provision of radiation if:

(aa) The request results from a consultation initiated by another

physician, and (bb) The tests or services are furnished by or under the supervision of the

pathologist, radiologist, or radiation oncologist, or under the supervision of a pathologist, radiologist, or radiation oncologist in the same group practice.

5. Financial Relationship: A direct or indirect ownership or investment interest in

any entity that furnishes DHS; or a direct or indirect compensation arrangement (with an entity that furnishes DHS. (42 C.F.R. § 411.354(a)(1)(i))

a. Ownership or investment interest (42 C.F.R. § 411.354(b))

b. Compensation arrangement (42 C.F.R. § 411.354(c))

C. Penalties

1. Strict liability statute with no proof of intent to violate the law required – even if

the violation was “technical” and not intentional. 2. Penalties include denial of payment, refunds of billed amounts, and civil

monetary penalties of up to $15,000 per prohibited referral. 42 U.S.C. § 1395nn(g).

3. Potential False Claims Act liability: Where a claim to Medicare or Medicaid is

made in violation of the Stark Law, it may be rendered “false or fraudulent,” creating liability for up to three times the program’s loss plus a per claim penalty of between $5,500 and $11,000. 31 U.S.C. §§ 3729-3733.

D. Examples of Commonly Used Exceptions and Elements

1. Personal Service Arrangements (42 C.F.R. § 411.357(d))

a. The arrangement must be in writing, signed by the parties, and specify the services, space, or equipment covered.

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b. The arrangement covers all services furnished by the physician. If there are multiple agreements, the agreements incorporate each other by reference or cross-reference to a master list that is maintained, updated centrally, and available for review upon request. The master list must preserve the historical record of the contracts.

c. The arrangement must be commercially reasonable, even if no referrals were made between the parties.

d. The arrangement must serve a legitimate business purpose.

e. The term of the arrangement is for at least one year. If terminated during the term, the parties cannot enter into a new agreement during the first 12 months of the original agreement.

f. The compensation must be set in advance, be consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties.

g. The services under each arrangement cannot involve counseling or promotion of an arrangement or other activity that violates federal or state law.

2. Rental of Office Space or Equipment (42 C.F.R. § 411.357(a)-(b))

a. The arrangement must be in writing, signed by the parties, and specify the services, space, or equipment covered.

b. The agreement is for at least one year. If terminated during the term, the parties cannot enter into a new agreement during the first 12 months of the original agreement;

c. The arrangement must serve a legitimate business purpose;

d. The space or equipment rented or leased must be used exclusively by the lessee when being used by the lessee and is not shared with or used by the lessor or an entity related to the lessor).

e. The rental charges must be set in advance and be consistent with fair market value.

f. The rental charges over the term of the agreement cannot be determined using a formula based on: a percentage of revenue attributed to the services performed in the space or through the use of the equipment; or per-unit of service rental charges that reflect services provided to patients referred by the lessor to the lessee.

g. The compensation is not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties.

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h. The arrangement must be commercially reasonable, even if no referrals were made between the parties.

3. Fair Market Value Compensation (42 C.F.R. § 411.357(1))

a. The arrangement must be in writing, signed by the parties, and specify the items or services covered.

b. The terms specify the time frame of the agreement, which can be for any period of time and contain a termination clause. (i) The parties cannot enter into more than one arrangement for the same items

or services during the course of 1 year. (ii) An arrangement for less than 1 year can be renewed an unlimited number of

times, provided that the terms of the arrangement do not change.

c. The compensation must be set in advance, be consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties.

d. Compensation for the rental of equipment cannot be determined using a formula based on a percentage of revenue attributed to the services performed through the use of the equipment; or per-unit of service rental charges that reflect services provided to patients referred by the lessor to the lessee.

e. The arrangement must be commercially reasonable, even if no referrals were

made between the parties.

f. The arrangement must serve a legitimate business purpose.

g. The arrangement must not violate the Anti-Kickback Statute or any federal or state law governing billing or claims submission.

h. The services performed must not involve counseling or promotion of a business arrangement that violates federal or state law.

4. Compensation Paid to Bona Fide Employees (42 C.F.R. § 411.357(c))

a. The employment is for identifiable services. b. The amount paid for remuneration is consistent with fair market value of the

services, and not determined in a manner that takes into account the volume or value of referrals.

c. The remuneration is under an agreement that is commercially reasonable, even

if no referrals were made to the employer.

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d. Note that a written agreement is not required.

II. Reasons for Review of Physician Relationships

A. Increased regulatory scrutiny and enforcement actions

1. Tuomey Healthcare System: Toumey Healthcare System, a South Carolina

healthcare system, was ordered to pay more than $237.5 million in False Claims Act (“FCA”) fines and Stark Law penalties. See District Court Order, http://archive.wltx.com/assetpool/documents/131001012609_Juge%20Seymour_Ruling_on_Tuomey_Healthcare.pdf

2. Halifax Hospital Medical Center: Settlement in the amount of $85 million paid

by Halifax Hospital Medical Center and Halifax Staffing Inc. (Halifax), a hospital system based in the Daytona Beach, Fla., area, to resolve allegations that they violated the False Claims Act by submitting claims to the Medicare program that violated the Stark Law. See DOJ Press Release, http://www.justice.gov/opa/pr/florida-hospital-system-agrees-pay-government-85-million-settle-allegations-improper.

3. Somerset Medical Center: Settlement in the amount of $435,640 paid by

Somerset Medical Center, a regional medical center located in Somerville, N.J., to settle allegations that it violated the federal False Claims Act by making improper rental payments to a cardiology group that referred large numbers of patients to the hospital. See DOJ Press Release, http://www.justice.gov/usao/nj/Press/files/Somerset%20Medical%20Center%20Settlement%20PR.html

B. Changes in Anti-Kickback Statute (“AKS”) and False Claims Act that greatly expand the reach of the False Claims Act (“FCA”).

1. Fraud Enforcement and Recovery Act of 2009 (FERA): FERA amended the

FCA to impose liability for both affirmative acts to conceal overpayments and the failure to repay an identified overpayment. 31 U.S.C. § 3729(a)(1) Liability can be imposed for the following:

a. Knowingly making or using (or causing) a false record or statement material

to an obligation to pay or transmit money or property to the government; b. Knowingly concealing an obligation to pay or transmit money or property to

the government; or c. Knowingly and improperly avoiding or decreasing an obligation to pay or

transmit money or property to the government. (commonly known as the “reverse false claims provision”).

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i. Obligation defined as “an established duty, whether or not fixed, arising

from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3).

ii. “Knowing” and “knowingly” defined as having actual knowledge of the information; acting in deliberate ignorance of the truth or falsity of the information; or acting in reckless disregard of the truth or falsity of the information; and requires no proof of specific intent to defraud. 31 U.S.C. § 3729(b)(1).

C. Enhanced penalties and liability for retention of overpayments for longer than

60 days.

1. Section 6402 of the Patient Protection and Affordable Care Act establishes a deadline for reporting and returning overpayments.

2. “Identified” overpayments must be reported and repaid within 60 days (or when the corresponding cost report is due, if applicable).

3. Failure to repay within 60 days constitutes an actionable “obligation” under the reverse false claims provision of the FCA.

D. Demonstration of effective compliance program

III. Audit Process for Review of Physician Relationships

A. Establish the audit parameters.

1. Determine who will perform the audit. 2. Determine if the audit will be performed at the direction of counsel. 3. Determine the purpose and scope of the audit.

B. Gather documents for review. These documents should include the following:

1. Written agreements with physicians. 2. Fair market value information for agreements. 3. Inventory of equipment and space being used by physicians. 4. Time records and activity logs.

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5. Accounts payable and payroll information for payments to physicians. 6. Accounts receivable for payments from physicians. 7. Any additional documents supporting the arrangement.

C. Review and analyze documents.

1. In analyzing the documents, the following questions should be asked:

a. Is there a written agreement for all payments to or from physicians? b. Has the agreement expired? c. Is the agreement at FMV and commercially reasonable? d. Are the parties complying with the terms of the agreement? e. Does the agreement comply with requirements of the applicable Stark

exception? f. If the answer to any of the above questions is no based upon an initial review

of documents, the reviewer should consult with relevant personnel to determine if additional information exists to address the deficiency and lead to a finding that the arrangement is compliant.

D. Conduct interviews of personnel to verify information and fill in any gaps.

1. Determine whether the parties have performed required duties under the agreement.

2. Determine whether there is a continued business need for the arrangement. 3. Determine if there has been a change in the relationship or arrangement. 4. Conduct a walk through of the facility to determine if there is space or equipment

being used by physicians that is not documented in a written agreement.

IV. Responses to Audit Results

A. Considerations of Common Issues

1. Expired Agreements

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a. A holdover personal service arrangement of up to six months following the expiration of the prior one year agreement that met the exception prior to expiration will continue to meet the exception, provided that the holdover arrangement is on the same terms as the preceding arrangement. See 42 C.F.R. § 411.357(d)(vii).

b. A holdover month-to-month rental for up to six months following the

expiration of a one year agreement that met the exception prior to expiration will continue to meet the exception, provided that the holdover rental is on the same terms as the preceding agreement. See 42 C.F.R. § 411.357(a)(7), (b)(6).

c. The agreement’s renewal provisions should be considered to determine if the

agreement on its face or other supporting documentation support a renewal of the agreement.

2. No Signed Agreement or Other “Technical” Deficiency

a. Temporary Noncompliance with Signature Requirements Exception (42

C.F.R. § 411.353(g))

b. Temporary Noncompliance Exception (42 C.F.R. § 411.353(f)) c. Available documentation should be reviewed and considered to determine if

this documentation could support that there is a written agreement.

3. Lack of documentation to support payment or noncompliance with payment terms, rates or caps and changed duties or payment terms

a. Available documentation should be reviewed and considered to determine if this documentation could support payments or documentation of changes.

4. Lack of FMV support

a. The parties should consider whether obtaining a retrospective valuation can support the fair market value of the agreement.

b. Available documentation should be reviewed and considered to determine if

this documentation could support that there is a written agreement. B. Resolution of Identified Problems

1. CMS Voluntary Self-Disclosure Protocol. Available at: http://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Downloads/6409_SRDP_Protocol.pdf

2. OIG Self Disclosure Protocol. Available at: http://oig.hhs.gov/compliance/self-disclosure-info/files/Provider-Self-Disclosure-Protocol.pdf

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V. Tips to Avoid Liability for Noncompliant Relationships with Physicians

A. Implement a contract approval process that covers the life cycle of the contract (initiation, development, review, approval, and performance).

1. It is recommended that the organization develop a policy requiring approval of

any arrangement with a referral source and a standardized approval form addressing the requirements of the applicable regulatory requirements to ensure that there is a process in place for the approval of arrangements with physicians.

2. Because of the complexities involved in compliance with applicable regulatory

requirements, it is recommended that any agreement with a potential referral source should be reviewed by experienced regulatory counsel prior to execution.

3. To ensure that there is a legitimate business need for the arrangement and the

contract approval process is followed for every arrangement, the contract approval process should require that the contract be approved by appropriate management and the governing body.

B. Ensure that any arrangement meets the following requirements:

1. The arrangement is documented in writing and signed by both parties. 2. The arrangement complies with the applicable regulatory requirements (i.e., Stark

exception or Anti-Kickback Statute safe harbor). 3. The agreement documenting the arrangement is tracked in a database or contract

management system. 4. The arrangement has no relationship to past, present, or future referrals between

the parties. 5. The arrangement has been approved following a needs assessment to justify the

position or activity. 6. The arrangement is fair market value with underlying documentation to support

fair market value maintained for future reference. 7. The arrangement requires the review and approval of all payments after ensuring

that the performance requirements under the agreement are met.

C. Create and maintain a database of all existing and new or renewed physician arrangements and establish detailed procedures for entering into arrangements.

1. Maintain a centralized database that implements requirements recommended by

the OIG in Corporate Integrity Agreements.

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2. Reconcile the database with payments made or received under physician

arrangements at least quarterly (i.e., test of completeness and accuracy of the contract database).

D. Track remuneration between all parties to any arrangement.

1. Ensure that there is no payment without supporting or required documentation. 2. If the arrangement involves services, ensure that there is no payment without

service or activity logs. 3. If the arrangement involves space or equipment, monitor the use of the leased

space or equipment to ensure that such use is in compliance with the written agreement.

E. Update agreements if there is a change in the arrangement (i.e., changes in

services, space, or compensation). F. Ensure compliance program addresses physician arrangements.

1. Increase emphasis on existence of adequate systems of internal control and risk

management. 2. Require all “covered persons” to agree to abide by the organization’s Code of

Conduct in connection with arrangement. 3. Provide training on the regulatory requirements for compliant arrangements and

potential risk areas. 4. Periodically audit existing physician arrangements to ensure continued

compliance. 5. Develop policies and procedures to investigate and take appropriate corrective

action, including the timely report and refund of identified overpayments, if there is a concern that a physician arrangement may not be in compliance.