The 'halo over nonprofits' is gone and 3 other takeaways from recent Stark Law settlements

Two Florida health systems, each of which faced Stark Law and False Claims Act allegations, entered into settlements with the Department of Justice in recent weeks. The facts of the cases differed, but both offer valuable lessons for hospital and health system executives.

The Broward Health case
Fort Lauderdale, Fla.-based Broward Health, formerly North Broward Hospital District, entered into a settlement with the DOJ on Sept. 15. The system agreed to pay the federal government $69.5 million to settle allegations it violated the False Claims Act by engaging in improper financial relationships with physicians.

The Broward Health settlement resolved allegations that the system provided compensation to nine employed physicians that exceeded the fair market value of their services.

The allegations arose from a lawsuit filed by Michael Reilly, MD, under the qui tam, or whistle-blower provisions of the False Claims Act. Since the settlement was announced, Dr. Reilly has clearly stated what he believes led to the issues at Broward Health — hospitals employing physicians.

"We have to get hospitals out of the business of hiring doctors," Dr. Reilly told Kaiser Health News. "It's potentially detrimental to the patient, and it's terrible for healthcare."

Dr. Reilly was offered an employment deal with Broward Health, but he rejected the offer after his lawyer told him it was illegal. In his lawsuit, which was originally filed in 2010 and unsealed last month, Dr. Reilly alleges the system carefully tracked the value of physician referrals and pressured physicians to increase referral volume when they lagged.

The Adventist Health System case
Just one week after the Broward Health settlement was announced, Altamonte Springs, Fla.-based Adventist Health System agreed to pay $118.7 million to the federal government and to the states of Florida, North Carolina, Tennessee and Texas to settle allegations it violated the False Claims Act by maintaining improper compensation arrangements with referring physicians.

The settlement resolved claims that the nonprofit health system paid bonuses to employed physicians based on a formula that improperly took into account the value of the physicians' referrals to Adventist hospitals. Adventist allegedly submitted false claims to the Medicare and Medicaid programs for services rendered to patients by the physicians who received the improper bonuses.

The claims against Adventist were originally brought by three whistle-blowers who worked at an Adventist hospital in Hendersonville, N.C., and one whistle-blower who worked at the system's corporate office.

The Adventist settlement is the largest healthcare fraud settlement ever made involving physician referrals to hospitals.

Takeaways for healthcare executives

1. The "halo over nonprofits" is gone. "Historically, there has been a little bit of a halo over nonprofits" concerning Stark Law enforcement, says Danielle Sloane, a member in the healthcare practice group at Bass Berry & Sims in Nashville, Tenn. However, that isn't the case anymore.

Adventist Health System's recent settlement is an example of how the government is going after nonprofits, but Adventist isn't the only nonprofit system that has been the subject of a Stark Law enforcement action.

In 2014, Halifax Hospital Medical Center, a nonprofit system based in Daytona, Fla., agreed to pay the government $85 million to resolve allegations it violated the False Claims Act and Stark Law. The case centered on the relationship between Halifax Hospital and its employed medical oncologists, neurologists and psychiatrists. Among the allegations, the government claimed Halifax knowingly violated Stark Law by paying three neurosurgeons more than fair market value for their work.

The trend of the government going after nonprofit systems was also present in another case last year involving King's Daughters Medical Center in Ashland, Ky. The nonprofit system agreed to pay the government $40.9 million to resolve allegations it acted in violation of the False Claims Act and Stark Law by engaging in improper financial relationships with physicians. The lawsuit specifically alleged the system violated Stark Law by paying certain cardiologists salaries that were in excess of fair market value.

2. Employment agreements do not insulate hospitals from Stark Law enforcement. Several past settlements, such as the Halifax case and the settlement involving Sumter, S.C-based Tuomey Healthcare System, make it clear the government will not hesitate to bring an enforcement action over compensation for employed physicians.

The Tuomey case evolved out of 19 part-time employment agreements that the health system entered into with specialists. In May 2013, a jury found Tuomey violated Stark Law and the False Claims Act by submitting $39 million in false claims to Medicare and compensating physicians for referrals. As a result, a $237 million judgment was entered against Tuomey. The system appealed the ruling, and the appeals court upheld the judgment.

3. Government focus on lack of physician practice profit. Although a lack of profit at physician practices doesn't always equate to a Stark Law violation, since hospitals can take a loss on practices without ulterior motives, it is clearly something hospitals need to consider when setting physician compensation.

The recent Advocate and Broward Health cases both involve health systems operating physician practices at a loss. "It shouldn't be the expectation that the practice is going to continually operate at a loss," says Ms. Sloane. "It should be the exception rather than the rule."

At Adventist, most or all of the physician practices operated at a loss, and Ms. Sloane says compensation should be set so that is not the norm.

4. Consider self-disclosure. Hospitals can self-disclose potential Stark Law violations through CMS' Self-Referral Disclosure Protocol. This is an attractive option for many hospitals due to the seemingly reasonable settlements that have resulted from self-disclosure.

For example, Adventist self-disclosed its potential Stark Law violations less than one month after it was hit with the first qui tam lawsuit alleging violations of the physician self-referral law. Although Adventist's $188.7 million settlement may not seem reasonable, the amount appears to be a better deal than the alternative when the facts are considered.

The Adventist settlement resolved allegations that the system's compensation arrangements with approximately 240 employed physicians violated Stark Law, whereas the Broward Health case only involved arrangements with nine physicians. The Adventist case "shows a systematic failure to follow the law," says Ms. Sloane, and it is possible self-disclosure allowed the system to settle for less than it would have had it not self-disclosed.


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