Articles Posted in Stark Law

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The U.S. Department of Justice (DOJ) recently announced a $69.5 million settlement with the North Broward Hospital District (the “District”) arising out of allegations that the District violated the federal Stark law and False Claims Act by entering into improper financial relationships with employed physicians.

The lawsuit alleged that the District provided compensation to nine employed physicians that exceeded fair market value for the physicians’ services, and instead rewarded the physicians for their referrals of patients to the District. The compensation arrangements were alleged to violate the federal Stark law, which prohibits physician referrals of Medicare and Medicaid services to entities with which the physician has a financial relationship, unless an exception applies. Stark exceptions related to physician compensation and employment arrangements require, in addition to other requirements, that the physician’s compensation is consistent with fair market value and not determined in a manner that takes into account the volume or value of the physician’s referrals. By submitting claims pursuant to referrals that violated the Stark law, the District also submitted claims in violation of the False Claims Act.

The lawsuit against the District was originally filed by a whistleblower pursuant to the qui tam provisions of the False Claims Act, which allow private individuals to sue on behalf of the government and share in the recovery. The whistleblower in this case brought the lawsuit after the District offered to employ him under terms that he believed may violate the Stark law. The DOJ announced that the whistleblower will receive over $12 million for his role in the case. The DOJ also announced that the recovery marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which is a partnership between the U.S. Attorney General and U.S. Secretary of Health and Human Resources that has been instrumental in the government’s recovery of $16 billion from fraud in the federal health care programs since 2009.

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On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million verdict against Toumey Healthcare System (“Toumey) for violations of the federal Stark law (“Stark”) and, consequently, the federal False Claims Act. The verdict marks the latest decision in the government’s longstanding legal battle against Toumey, a community hospital in South Carolina, and serves as a reminder to healthcare providers of the significant liability that can result from compensation arrangements that fail to comply with Stark’s safe harbor requirements.

In this case, the lower court determined that Toumey entered into part-time employment agreements with physicians that violated Stark. The agreements violated Stark’s limitations on physician compensation arrangements by varying with, or taking into account, the volume or value of the physicians’ referrals to the hospital. Under the False Claims Act, claims submitted for payment arising out of referrals prohibited by Stark constitute false claims, and subject providers to treble damages. In this case, the jury found that Toumey knowingly submitted 21,730 false claims, which amounted to $39.3 million in Medicare payments. The court awarded treble damages as well as other penalties.

The Fourth Circuit’s decision analyzed Toumey’s argument that since Toumey relied upon the advice of lawyers in determining that the compensation arrangements were permissible under Stark, Toumey could not have knowingly violated the False Claims Act. In rejecting this argument, the Fourth Circuit highlighted the fact that Toumey consulted with multiple attorneys, one of which raised serious concerns about the compensation arrangements, and that Toumey effectively lawyer-shopped for legal opinions that approved the employment contracts. Accordingly, the case should provide notice to providers to proceed with caution if they are contemplating obtaining multiple legal opinions in order to determine that an arrangement is compliant with health care fraud and abuse laws because of how the opinions may be scrutinized in hindsight.

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On October 17, 2014, the Centers for Medicare and Medicaid Services (CMS) extended its interim final rule regarding fraud and abuse waivers for accountable care organizations (ACOs) that participate in the Medicare Shared Savings Program. The Medicare Shared Savings Program was one of the initial steps taken under the Affordable Care Act to both increase quality and lower costs in the Medicare program. ACOs that participate in the Medicare Shared Savings Program can share in the savings generated to Medicare.

Originally, the interim final rule was published in the November 2, 2011 Federal Register, and had the typical three-year period before becoming a final rule. The continuation of the interim final rule extends the timeline for an additional year, establishing a new deadline of November 2, 2015. The interim final rule offers five waivers to ACOs, which allow healthcare entities to form and operate ACOs without fear of violating federal fraud and abuse laws. The ACO waivers include:

  • An ACO participation waiver;
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    The Centers for Medicare & Medicaid Services (“CMS”) recently released a favorable advisory opinion, CMS AO-2013-03, that interprets the “whole hospital” exception to the physician self-referral prohibition commonly known as the Stark Law. CMS determined that the proposed arrangement, which adds a new observation unit and 14 observation beds to a physician-owned hospital, complies with the “whole hospital” exception’s restriction on facility expansions.

    In general, the Stark Law prohibits the referral of Medicare patients for designated health services (“DHS”) to an entity in which the referring physician has a financial relationship. The law also prohibits the entity that furnishes DHS as a result of a prohibited referral from billing Medicare, the beneficiary, or any other entity.

    The Stark Law contains several exceptions to which the self-referral prohibition does not apply, including the “whole hospital” exception under Section 1877(d)(3). The “whole hospital” exception allows referring physicians to have physician ownership or investment interests in a hospital provided that the referring physician is authorized to perform services at the hospital and the ownership or investment interest is in the hospital itself.