7 Key Legal Concepts for Today's Hospital and Health System Leaders

In a Dec. 10 webinar hosted by Becker's Hospital Review, Scott Becker, JD, CPA, partner with McGuireWoods in Chicago, discussed some of the legal issues facing hospitals and their leadership teams.

Mr. Becker covered a range of topics and trends, from the rise of qui tam cases under the False Claims Act to compliant, bona fide physician employment arrangements. Here are summaries of a few key concepts discussed.

1. False Claims Act. Cases of hospitals violating the False Claims Act are more common today, as Mr. Becker said the law is more widely applied. It was easier years ago to distinguish a correlation between FCA cases and bad actors, or egregious and severe violations. But now, under the Patient Protection and Affordable Care Act, if hospitals violate the Stark Law or Anti-Kickback Statute, the law automatically categorizes claims resulting from those relationships as false claims. Thus, an FCA case can stem from a documentation error or other technical error.  

The increase in FCA cases is also partially due to the incentive citizens have to bring them forward. "In the past couple of years, there's been a huge growth in qui tam, or False Claims cases brought by an individual or private citizen on behalf of the government," Mr. Becker said. The individual, or relator, then receives a portion of the recovery. There were 62 healthcare qui tam cases recorded from 1987 to 1992. In 2011 alone, there were 417. Another 412 were recorded in 2012, according to a study from Washington, D.C.-based Taxpayers Against Fraud.

Some of the largest hospital cases making headlines were brought by whistleblowers, including a potential $1 billion case against Daytona, Fla.-based Halifax Health that is headed to trial. A case against Sumter, S.C.-based Tuomey Healthcare System — in which a federal judge ordered the system to pay roughly $237 million in fines — also stemmed from a qui tam suit. One of the system's specialists filed suit after an unsuccessful contract negotiation with the system.  

"When a claim is brought, there's treble damages plus $11,000 per claim. The potential damages can be staggering," said Mr. Becker. Often, the sheer magnitude of the potential damages is what leads hospitals and health systems to settle the case for several million dollars opposed to settlements that could reach hundreds of millions or even billions.

2. Stark Law. The Stark Law is a specific prohibition on physician referrals for Medicare and Medicaid patients for 11 designated health services. A physician may violate the Stark Law if he or she refers patients to an entity with which the physician, or a family member, has a financial relationship, unless an exception applies.

"Essentially, the concept is if you don't meet an exception, a referral from a physician cannot be billed for," said Mr. Becker. Also, Stark Law is a strict liability statute, meaning it does not factor the intent of the parties.

Mr. Becker said many Stark cases today "evolve out of technical violations" of the law. This may occur when a hospital pays a physician fair market value for the proper services, but they are paying the physician under a contract that expired, or a piece of information was not documented properly.

Mr. Becker encouraged leaders to remember the first rule of thumb: When it comes to hospital-physician relationships, everything must be in writing.

3. Anti-Kickback Statute. The Anti-Kickback Statute prohibits the offer, solicitation or receipt of compensation in exchange for referrals or services that are reimbursable under Medicare, Medicaid or other government payers. Unlike Stark Law, the Anti-Kickback Statute is an intent-based statue, meaning any violation must be proven knowing and willful.

The Anti-Kickback Statute also differs from Stark in that it relates to all kinds of services and parties — not just physicians. "So even a non-physician can get in trouble for referring business," said Mr. Becker. "It can be a home health aid — all kinds of people in the stream of commerce."

4. Bona fide employment. The key excepted financial relationship under Stark Law is for bona fide physician employment. "The current estimate is that 80 percent of all physicians have some financial relationship with their hospital, and about 50 percent of them are employment relationships," said Mr. Becker.  

The bona fide employment relationship exception to the Stark Law provides that physicians are permitted to be compensated as employees of hospitals as long as the amount paid to the physician is: (a) for identifiable services, (b) is consistent with the fair market value for services performed and (c) is not determined in a manner that takes into account the volume or value of referrals by the referring physician to the hospital.

5. Fair market value. To pay physicians consistent with FMV, hospitals cannot take into consideration the value or volume of referrals an employed physician may bring to the hospital or the hospital's affiliates. Specifically, a hospital may not base any part of a physician's compensation on the expected value of business the physician will refer to the hospital.

Hospitals can account for a physician's personal productivity in their compensation plan, however. To demonstrate FMV, systems must also prove the price for the service or entity is comparable for similar services or entities in the industry, as evidenced by prices in surveys or appraisals. They should have survey data to support their payments and special reports that support high pay in unusual situations, such as that for a physician who is "off the charts" in terms of relative value units and collections.

"When you pay an amount that doesn't easily pass the sniff test, you want to make sure you're digging to find valuation support," said Mr. Becker. "Don't go for a firm that tells you what you want to hear. Valuation firms shouldn't be writing you something just to support your claim — you need to really believe it."

He recommended health systems take caution and conduct audits of physician employment contracts to ensure there is nothing to give them pause and they can defend payments. Hospitals or systems should ensure every physician contract has a file, with materials in that file detailing how the system assessed FMV and arrived at the pay arrangement for each contract.

6. Creative physician relationship arrangements. Some law and valuation firms pride themselves on finding unorthodox ways for hospitals to interact with physicians, but Mr. Becker remains skeptical of these approaches. "We're not huge fans of being the only person doing the new, creative thing," he said. Mr. Becker said these inventive relationships may not violate Stark Law, but they are still likely to draw more scrutiny.  

Mr. Becker urged hospital leaders also to be cautious about any arrangement that requires sign-offs from several different valuation firms. While seeking six different valuation opinions may seem like sound research, Mr. Becker said he sees it a bit differently.

"As a hospital executive, if you get in a spot where you think you need six different professional services [agencies or firms] to back up your idea, that's probably the spot where you need to move away from the relationship," said Mr. Becker. "If you're so concerned about how this relationship works that you need multiple firms, that's often a good sign to the executive that they should talk to somebody, take a step back and say, 'I know I'm in a competitive situation, but if I need all these professional opinions to support an idea, it may be too squirrelly.'"

7. A culture of compliance. Mr. Becker said healthcare leaders should advocate for a culture of compliance within their organizations. When somebody comes forward with a concern, leaders should ensure they will fully investigate the matter. Discussions about compliance should permeate throughout all levels of the hospital or system. "You want to ensure the language goes all the way through," said Mr. Becker. "You can almost not talk about enough the intent to have a compliance-based culture."

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