5 Interesting Anti-Kickback and Stark Law Issues in Healthcare

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This article briefly discusses five interesting Stark Law and Anti-Kickback cases and issues emerging in healthcare.

1. Incentive compensation that includes credits for ancillaries. In May, St. Vincent Healthcare in Billings, Mont., and Holy Rosary Healthcare in Miles City, Mont., agreed to pay $3.95 million to resolve alleged Stark and False Claims Act violations. In that case, allegations stemmed from an incentive compensation system with physicians that included credits for designated health services, i.e. ancillaries.

The government claimed the hospitals paid incentive compensation that took into account the value or volume of physicians' referrals by improperly including certain designated health services in the formula for calculating the incentive pay. The actual settlement arose after the hospitals disclosed the issues to the government.

2. Selling shares in joint ventures at below fair market value. A qui tam case claiming that a surgery center sold shares at lower prices to referring physicians underscores the need for either an outside valuation for the sale of shares or a strong record as to the sale price and how it is fair market value. Further, there is particular emphasis or concern when shares are sold at different prices to different investors.

3. Contractual joint ventures. The Office of Inspector General issued a special advisory bulletin in April 2003 (Federal Register Vol. 68, No. 83, Pg. 23148) about a fairly common type of arrangement where a healthcare provider contracts out the entire operation of a line of business, essentially, to a manager or supplier. The risk and real operation of the business may substantially shift to the manager. However, the provider that still earns a profit or retains revenues notwithstanding the fact that they've really turned over all operations to the manager or supplier.    
 
The issue at question here is whether the provider is really doing nothing more than profiting from its referrals. This issue is further complicated when the provider is a group practice and is attempting to meet the Stark Law's in-office ancillary services exception. The exception was really created for situations where the practice is providing services such as X-Rays, advanced imaging, anatomic pathology, radiation therapy and physical therapy services internally to its own patients. Here, the practice acts as the provider but a third party may actually be operating the ancillary services.
 
In these joint ventures, the practice has the patients, but it is really the manager or supplier that provides the services. The government has cited the special advisory bulletin about this type of relationship several times over the years in expressing concerns about certain joint venture arrangements.

4. Physician-owned distributorships. PODs are physician-owned entities that derive revenue from selling or arranging the sale of implantable medical devices, which are ordered by the entities' physician-owners for use in procedures those physician-owners perform at hospitals or ambulatory surgery centers.
 
The OIG just issued a report in October regarding how pervasive PODs are in respect to spine surgery. In that report, the OIG said nearly one out of five spine surgeries buys or involves a POD and that the PODs don't tend to save hospitals money.

The OIG also issued a special fraud alert in March on PODs. In that alert, the OIG said it is concerned about the proliferation of PODs and views them as "inherently suspect under the antikickback statute." The agency also listed eight characteristics of a POD it would consider suspect.

5. Bill introduced to limit the in-office ancillary services exception. Most physician practices provide ancillary services to patients via the Stark Law's in-office ancillary services exception. For example, when a practice provides lab, MRI, CT, radiation therapy or other services, it is likely relying on this exception. But on August 1, Representative Jackie Speier (D-Calif.) introduced a bill that would strongly limit the use of this exception.   

On one hand, non-physician associations are generally in favor of this limit. On the other hand, the American Medical Association and many physician specialty providers strongly oppose this effort. At this point, while the legislation is a scare to physician practices of all sorts, it doesn't appear to have real traction.

For more information on any of these issues, please contact Scott Becker at sbecker@beckershealthcare.com or at (800) 417-2035.

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