Cheryl Coon
Cheryl Coon

Anyone providing healthcare goods or services where any part is paid for by a federal or state program, e.g., Medicare or Medicaid, should be aware of the laws relating to improper referrals (the Stark law) and laws relating to improper remuneration in exchange for referrals of services or items to be paid for by a federal health care program (the Anti-Kickback law). It never hurts to refresh your memory on the hot button areas and understand current enforcement trends.

Increasingly, the federal Office of Inspector General and the Department of Justice are using sophisticated methods, including data mining, as enforcement tools. They have the ability to spot abnormal billing patterns, changes in patterns and other anomalies in virtually real time. Moreover, all federal claims data is now shared, so Medicare, the Children’s Health Insurance Program or CHIP, Medicaid, Department of Defense Tricare, Department of Veterans Affairs, Indian Health Services and Social Security claims can be accessed simultaneously. The government continues to beef up its enforcement personnel and offices and now has healthcare “sting” offices in nine cities, including Houston and Dallas. Enforcement actions are up 75%, with many more criminal cases being filed. In 2014, there were 353 defendants in health care cases with 248 convictions, with an average sentence of 50 months.

Not only are billing data bases being pooled and shared, governmental agencies and sections of agencies are data sharing. OIG shares claims data with the FBI, DOJ and Drug Enforcement Agency. Under new procedures, all qui tam False Claims Act cases are immediately shared with both the civil and criminal divisions of the OIG. Texas is one of the most active states in the nation for qui tam cases. Because plaintiffs, or “relators,” are entitled to a significant percentage of any amount recovered, current and former employees or even competitors frequently bring qui tam cases.The government also is starting to use new enforcement tools, such as charging providers under the Travel Act where alleged kickbacks are involved. And the OIG and DOJ are focusing more on putting the heat on executives, including officers and directors, in enforcement actions.

While there are new areas of focus, and new approaches to enforcement, the old rules have not changed. Things to avoid include (1) paying below market or above market rates for anything if there is a federal or state healthcare payor, or (2) receiving free or discounted goods or services. Recent enforcement examples include:

  • Hospitals providing discounted or free rent to physicians. ($510,179 fine imposed on one hospital for below market rent to physicians along with free or discounted personnel services.)
  • Providing above-market speaking fees to physicians (perhaps with expensive meals), typically from medical device manufacturers or drug companies. In one case, the dinner bill was $10,000 for 3 persons. (Novartis is facing suit by 27 states, the DOJ, and several cities, all started by a qui tam action filed by a former sales representative.)
  • Paying above fair market value compensation or bonuses to physicians who can refer patients ($21.75M fine against a Texas hospital for payments to cardiologists and ER doctors).
  • Receiving compensation and/or bonuses based on uncertain criteria and/or in excess of fair market value. (There is a $237.5M settlement related to such compensation arising from a whistleblower qui tam case for payments to oncologists and neurologists by a hospital.)
  • Serving as medical director (or in any capacity) with vague or no duties and/or with an inflated compensation rate. ($150,000 fine based on a medical director fee used to pay the physician director for “referrals”.)
  • Receiving above market rate for assets in a sale to another provider entity that is a potential referral/source. (An example would be a hospital purchasing assets at an above market rate from a physician or physician group.)
  • Accepting free tickets for rounds of golf, any other sport or other events. (The ForTec Litho companies recently paid $126,000 for giving providers trips to the Masters Golf Tournament.)
  • Receiving free continuing medical education, free internet, free or discounted insurance, or non-collection of debts. (There is a recent $221,000 fine related to free Internet and free insurance, among other things, provided to physicians)
  • Attending speaking events at luxury hotels or during fishing trips with questionable programs.  (In 2015, there was a $39 million settlement in a whistleblower case against Daiichi Sankyo Inc. regarding kickbacks to physician in the form of “speaker fees” and “padded speaker programs.”)
  • Required or other referrals not within a safe harbor. (A 2015 case involves a $3.2M settlement by a dermatology group that required its contractors to use an in-house pathology lab.)
  • Paying “marketing” or recruiting fees for patients. (In 2013, a hospital administrator plead guilty in a case involving recruiters. In another case, a home healthcare company was excluded from participating in any federal healthcare program for payments to a doctor’s spouse improperly characterized as payments for services.)
  • Providing discounts or gifts to patients unless strict safe harbor criteria are met.
  • Receiving management or consulting fees under sham contracts or at above market rates, e.g., for a teaching contract.  (In the 2015 Sacred Heart Hospital criminal case, the hospital owner and two (2) executives were convicted for kickback violations, with another four physicians pleading guilty. In another case, physicians and a pharmacy company paid a $3.79 million settlement in February 2015 related to consulting “fees” and extravagant perks such as trips.)
  • Receiving “processing” or similar fees when specimens or devices are involved. (In 2014, Berkeley Heart Lab and other labs entered into a $47 million settlement in a qui tam case brought by a whistleblower related to a $15 “processing fees” paid to doctors by the labs).

One of the high profile cases of 2014 illustrates how sophisticated governmental enforcement actions can be. DaVita, a dialysis provider, paid a $389 million dollar settlement under the False Claims Act for kickbacks paid to physician for referrals. Some of the specific kickback allegations were as follows:

  • DaVita purchasing shares in dialysis centers owned by physicians at above market rates.
  • DaVita selling physician shares in its dialysis centers to physicians for below market rates.
  • Giving physicians kickbacks masked as profits from joint ventures.
  • Paying physicians to refrain from using competing dialysis centers.

Clearly, under most of these cases, being able to establish fair market value is a key point to avoiding liability. Parties should insure they have evidence to back up any price calculations (e.g., marketing fees, medical director fees), and, if necessary, obtain the opinion of an independent third party regarding valuation in a transaction. In the DaVita case, the government was able to show that company gamed its “fair market” valuations by using certain algorithms and calculations depending on where it wanted a particular analysis to go. It is critical that a fair market value determination be exactly that, a fair market value determination, and not a manipulation to serve an end.

Also, when you assess your practice, you have to look at all potential compensation sources. OIG has sued successfully for amounts related to physician compensation in the form of malpractice insurance payments, travel reimbursement, on-call coverage payments and other amounts, arguing that overly generous payments by hospitals and other payors are really just inducements for referrals.

One way to avoid the mess of enforcement is to perform an in-house compliance audit at least annually. Long-term care providers should review leases (is the rent really fair market value, does it cover all the leased space), personal service agreements, loans, medical directorship agreements and any other arrangements involving money or services. Are the amounts commercially reasonable and fair market value? Are the agreements really being enforced, since lack of enforcement, such as with a loan agreement, can support an argument there is improper remuneration. Does the compensation value vary with the value or volume of referrals, e.g., pay to physicians that increases with the number of diagnostic tests referred? Are the agreements written and do they meet any applicable safe harbor criteria, such as having at least one (1) year term? Also, providers should be aware that “marketing” agreements and payments are an area that OIG reviews very critically.

Finally, providers in “hot” areas such as home healthcare, hospice, durable medical equipment and occupational or other therapy services, e.g., infusion services, should be very careful in all their transactions, since OIG has publicly stated these areas will be its focus for the next few years.

Cheryl Coon is a partner at Shannon Gracey, a law firm based in Fort Worth, TX.