23 Anti-Kickback Statute, Stark Law and False Claims issues and thoughts

This article briefly outlines 23 key Anti-Kickback Statute, False Claims Act and Stark Law issues and thoughts. It provides:

1. General thoughts regarding the Stark Law, the Anti-Kickback Statute and False Claims Act cases;

2. Healthcare niche, industry-specific Anti-Kickback Statute, False Claims Act and Stark Law issues — hospitals and health systems; clinical labs; surgery center chains, dialysis facilities; revenue cycle management companies, dental practice management entities and dermatology practices; and

3. Prospective guidance for companies, providers, investors and lenders.

General background

1. Increase in cases. The PPACA has led to a substantial increase in false claims cases. To understand this increase, one must understand the changes in the PPACA that led in part to the increase.

2. Traditional vs. non-traditional False Claims Act cases. First, traditionally, a false claims case could only be brought by an individual or the government in a situation where there is a true false claim. In essence, something wasn't billed or something was upcoded. The PPACA changed this such that any violations under the Stark Law or under the Anti-Kickback Statute can be a predicate act to give rise to a false claims case. Thus, even if a service was actually billed correctly, it would still be a false claim if it derived from an improper kickback or Stark relationship.

3. Showing a violation — core concepts. To show a kickback statute violation, one must show (a) some sort of financial reward (payment, discount or benefit etc.), and (b) an intent to induce, reward, capture or retain referrals. Here, one also looks at the "why" question. Why is someone marking the payment, selling the shares or entering into a relationship?

To show a Stark Law violation, one must show a financial relationship with a referral source and that the financial relationship does not meet a Stark Law exception. These are a wide variety of investment and compensation exceptions.

4. Healthcare recoveries since 2009. Since 2009, there has been approximately $13.4 billion dollars in healthcare recoveries under the False Claims Act. This is compared to $18 billion dollars in recoveries total.

5. Exponential damages. Potential damages in false claims cases add up because they are assessed at $5,500 to $11,000 per claim and triple damages. Each claim submitted with regard to an improper relationship is considered a false claim. Hence, one bad relationship can mean thousands of claims.

6. Government — to join or not to join — the stakes go up or down. A critical determinant of settlement and the value of a case remains whether the government joins in the case or not. In a false claims case, the government can choose to join the private plaintiff (a relator) or not. Where the government joins the private plaintiff, the difference in recovery is very substantial. In essence, when the government joins, the stakes go up.

7. Investor and lender sensitivity. Buyers, investors and lenders are much more sensitive to false claims risks than they used to be. Now, prior to a transaction occurring, buyers et al are much more aggressive about requiring a seller to make a self-disclosure and to maintain reserves as part of a deal. The extent of diligence by buyers is all across the board. Some are very aggressive/comprehensive about requiring billing and coding audits and an extensive review of referral relationships. Others are less aggressive.

8. Self-disclosure. Self-disclosure has become much more predictable. In the old days, providers were very wary of self-disclosure for fear that they would end up with an unusual or unexpected result. Now, self-disclosure has become much more predictable and parties are much more comfortable with moving forward with self-disclosure.

9. Healthcare regulatory diligence — two different levels. Healthcare regulatory diligence includes at least two levels of effort. First, a senior executive level process centered on 20 to 30 questions and discussions with senior leadership focused on areas of concern. Here, the interviewers should know very well the key likely issues that impact the niche industry. Second, diligence also includes a (1) deep dive review of all financial relationships, (2) a review of how the compliance plan works in practice and (3) billing and coding audits.

Industry-specific review — 7 niches

1. Hospitals and health systems. Here, there have been, for example, large reported cases related to such institutions as Tuomey Hospital and Halifax Health System. For example, parties have looked at whether there are improper productivity bonuses paid for referrals of technical services, whether payments are above fair market value and several other issues. See e.g., "1 Billion Dollar Stark Case Against Florida Hospital Headed to Trial" by Joe Carlson, November 25, 2013, Modern Healthcare. See also DOJ Release March 11, 2014, "Florida Health System Agrees to Pay Government $85 Million to Settle Allegations of Improper Financial Relationship with Physicians."

There is also a broad divergence in the hospital sector as to whether hospitals rely principally on employment relationships or they rely on a whole series of independent contractor and other relationships to stay close to their physicians.

Finally, in a recent case, Health Management Associates and 14 of its formerly associated hospitals will pay $15 million to resolve allegations that the hospitals knowingly submitted claims for Intensive Outpatient Psychotherapy services that did not qualify for Medicare reimbursement. In any event, because the hospital sector is so large and so much attention is paid to it, there continues to be a great increase in the amount of hospital related false claims and kickback cases.

2. Clinical labs. There has been a tremendous increase in the attention paid to clinical lab issues. This includes attention to alleged bribes paid to doctors in exchange for collecting specimens, bribes paid to doctors for other reasons (involvement in registries), excessive testing, the perception that there are often a greater combination of confirmatory tests and drug screens than needed and a huge growth in lab profitability. Here, the OIG has issued two different fraud alerts in the last 12 months.

See OIG Special Fraud Alert: Laboratory Payments to Referring Physicians - June 25, 2014. In summary:

"This Special Fraud Alert addresses compensation paid by laboratories to referring physicians and physician group practices (collectively, physicians) for blood specimen collection, processing, and packaging, and for submitting patient data to a registry or database. OIG has issued a number of guidance documents and advisory opinions addressing the general subject of remuneration offered and paid by laboratories to referring physicians, including the 1994 Special Fraud Alert on Arrangements for the Provision of Clinical Laboratory Services, the OIG Compliance Program Guidance for Clinical Laboratories, and Advisory Opinion 05-08."

3. Dialysis. In the dialysis industry, the key event news over the last year was the settlement by DaVita Healthcare Partners related to joint ventures and physician relationships. DaVita Healthcare Partners paid $389 million dollars approximately to settle such case. See "DaVita Pays 389 Million in Anti-Kickback Case" by Lisa Schenker, October 25, 2014, Modern Healthcare.

"This case involved a sophisticated scheme to compensate doctors illegally for referring patients to DaVita's dialysis centers," said U.S. Attorney John Walsh. "When a company pays doctors and/or their practice groups for patient referrals, the company's focus is not on the patient, but on the profit to be extracted from providing services to the patient."

There, DaVita allegedly (1) picked out doctors with big practices, (2) sold them shares at below fair market value and (3) maintained referrals through other ancillary arrangements. In dialysis, the government has also focused on EPO and in on improper use of ambulance transit.

As to dialysis joint ventures, the OIG focused in part on whether valuations were artificially reduced by negative forecasts of revenues. This effort would lead to also a heavily discounted settlement, lower share prices to physicians and higher returns (100 percent per year, for example). The lower share price would be viewed as a discount or kickback to the physician.

4. Ambulatory surgical centers. Here, the two things that have driven the most attention include a settlement related to a situation where physicians were allegedly sold shares at below fair market value and the development of ASC anesthesia relationships, and the fine line of what is proper versus improper. A third issue that has raised some issues in the ASC sector — but more in the surgical hospital and general hospital sector — relates to the use of physician owned distributorships. In a Special Fraud Alert addressing physician investment in medical device distributors that supply ASCs, the OIG stated that because of the "strong potential for improper inducements between… physician investors, the entities, device vendors and device purchasers," such ventures "should be closely scrutinized under the fraud and abuse laws." The OIG is particularly concerned with the implantable medical device context because the choice of brand and type of device may be made by the physician rather than by the ASC. Again, there is a wide range of what is likely appropriate and not appropriate.

See also OIG Special Fraud Alert: Physician-Owned Entities - March 26, 2013:

"This Special Fraud Alert addresses physician-owned entities that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers (ASCs). These entities frequently are referred to as physician-owned distributorships, or 'PODs.' The Office of Inspector General (OIG) has issued a number of guidance documents on the general subject of physician investments in entities to which they refer, including the 1989 Special Fraud Alert on Joint Venture Arrangements and various other publications. OIG also provided guidance specifically addressing physician investments in medical device manufacturers and distributors in an October 6, 2006 letter."

5. Revenue cycle and billing companies. There continues to be a significant amount of attention focused in the false claims area on improper billing, improper coding, upcoding and billing for services not fully rendered. This remains, as always, a core area of false claims cases. "Billing companies provide a key checkpoint to combat medical billing fraud. Consequently, they will be examined with the same scrutiny as healthcare providers," said United States Attorney Sally Quillian Yates, following a settlement where Medical Business Service agreed to pay $1.95 million for improperly coding and billing claims by radiologists over a three-year period.

6. Dental practice management. The dental practice management arena continues to be one where there is a lot of attention, particularly in Medicaid-driven programs as to unnecessary procedures, upcoding and whether consent was properly obtained or not, particularly as to minors. In response to these concerns, the OIG, as one example, issued a report this month on questionable billing practices for Medicaid pediatric dental services in California. The report identified 329 general dentists who may be billing for services that were not medically necessary or ever provided. The OIG recommended that the California Department of Health Care Services increase monitoring of dental providers, closely monitor providers in dental chains, and take appropriate action against dental providers with questionable billing. This continues to be an area with a lot of activity.

7. Dermatology. Here, the key focus areas seem to be on issues related to whether or not certain types of surgery are overdone or unbundled, as well as the sale of transdermal creams. For example, in March, a Jacksonville-based dermatology practice entered a $787,814.00 settlement with the government after the practice was brought under scrutiny following an analysis of healthcare reimbursement data that identified it as a top biller of skin lesion removal procedures.

Prospective guidance

There are several different things that companies, providers, lenders and investors should think about as part of core diligence and compliance. This list focuses more on the monitoring and audit functions then education.

1. Active compliance plan. Each facility and/or system should have a very active compliance plan. Here, in diligence one examines whether a compliance plan is in place, whether it is focused on the right issues and whether it is actually followed and used.

2. Regular billing and coding audits. In each system there should be regular billing and coding audits. Although traditionally by an outside party, some larger systems have large internal audit staffs. Whether larger or small, outside audits are necessary.

3. Audit financial relationships. Each system should have regular checks in place to verify and test and audit financial relationships with referral sources. Further, a sample audit of physician financial relationships should be conducted periodically.

4. Self-disclosure. Parties should regularly examine whether a self-disclosures is appropriate, whether for technical violations or substantive violations.

5. Financial support for relationships. For all financial relationships with referral sources, it is preferred that there be a serious file for backup that supports the valuation and payment amounts.

6. Stark Law and Anti-Kickback Statute review. Ideally, each relationship should have an objective sign off on whether it meets a Stark Law exception or not, and whether or not it meets an Anti-Kickback safe harbor.

7. A file for each core relationship. A separate file should be maintained for each financial relationship. This file might include, for example, (1) financial relationship support, (2) a Stark Law exception review, and Anti-Kickback Statute Safe harbor review and general analysis, (3) a tracking system as to renewals, and (4) a review of who signed off on the relationship.


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