The Federal physician self-referral law, commonly known as the “Stark Law,” prohibits, among other things, a hospital from billing for certain designated health services (“DHS”) referred by physicians with whom the hospital has a financial relationship, unless that relationship qualifies for a statutory or regulatory exception. As a result, if a hospital’s employed physician is paid compensation in excess of the fair market value (“FMV”) of his or her professional services and/or the compensation fluctuates according to the volume or value of the physician’s referrals to the hospital, the hospital may not submit claims for DHS referred by that physician. Any claims submitted in violation of the Stark Law are deemed to be false claims, i.e., paid by mistake and unjust enrichment, thus activating the powerful enforcement tools available to the Federal government under the False Claims Act.
Recently, an Indianapolis-based healthcare network (the “Hospital”) agreed to pay the United States $345 Million to resolve allegations that it violated the False Claims Act by knowingly submitting claims to Medicare for services that were referred in violation of the Stark Law. The Federal government’s complaint specifically alleged that the Hospital: (i) paid physicians compensation greater than the FMV of their professional services; (ii) awarded bonuses to physicians that reflected the volume of the physicians’ referrals; and (iii) knowingly submitted false claims to Medicare for services resulting from unlawful referrals.
The complaint alleged that beginning in 2008, the Hospital’s management team initiated a “fraudulent scheme” that included the recruitment of cardiologists, cardiothoracic surgeons, vascular surgeons, neurosurgeons, and breast surgeons for employment for the purpose of capturing the specialists’ referrals for expensive services, such as “high-end imaging, radiation and medical oncology.” The complaint noted that the Hospital sought to integrate specialists into its own network to avoid “leakage [of the physicians’ referrals] to [the Hospital’s] local competitors.” The Hospital’s alleged scheme included paying the physicians salaries that were substantially higher than the salaries the physicians were making in private practice. The complaint also alleged that the Hospital engaged a valuation firm to review the specialists’ compensation, but knowingly furnished erroneous information to the valuation firm to obtain a favorable report. The complaint further alleged that incentive bonus compensation rewarded the specialists for making a certain number of referrals to the Hospital.
Citing “greedy compensation schemes” that profit from Medicare patients, U.S. Attorney Zachary A. Myers for the Southern District of Indiana, noted: “When doctors refer patients for CT scans, mammograms or any other medical service, those patients should know the doctor is putting their medical interests first and not their profit margins. [The Hospital] overpaid its doctors. It also paid doctors bonuses based on the amount of extra money the hospital was able to bill Medicare through doctor referrals. Such compensation arrangements erode patient trust and incentivize unnecessary medical services that waste taxpayer dollars.”
The allegations that led to this settlement were based on conduct by hospitals and health systems that has become increasingly ubiquitous during the past several years. Because of the higher reimbursements available to hospital outpatient departments for services that cost significantly less when furnished at non-hospital sites-of-service, some hospitals and health systems have sought to “lock up” physician referrals through employment relationships that provide above-FMV salaries and bonus compensation that rewards referrals. Not only does this conduct violate the Stark Law, the Federal Anti-Kickback Statute, and potentially, antitrust laws, but it also threatens the sustainability of the private practice of medicine.
The investigation of this matter by the FBI and HHS-OIG and the subsequent settlement resulted from a 2014 whistleblower complaint by the Hospital’s former Chief Financial and Chief Operating Officer under the False Claims Act’s qui tam provisions, which permit private individuals to bring a lawsuit on behalf of the government and to share in any monetary recovery.
How Frier Levitt Can Help
Frier Levitt’s team of experienced attorneys understands the complicated regulatory landscape in which medical practice and hospital/health system clients are operating. Whether your physician practice is being unfairly impacted by the conduct of a local hospital, or your hospital’s physician compensation methodology needs a comprehensive compliance review to avoid adverse outcomes such as FCA violations, contact Frier Levitt to speak with an attorney.
