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Recent OIG Settlement is a Reminder that Stark Applies to Physician Compensation Practices in Private Physician Groups

on Thursday, 5 September 2019 in Health Law Advisory: Zachary J. Buxton, Editor

On August 15, 2019, the OIG announced a $1.2 million settlement with a private Alabama orthopedic group. One of the allegations was that the Group had violated the Stark laws because the Group paid its shareholder physicians directly or indirectly based on the volume of each shareholder physician’s referrals for designated health services such as physical therapy, x-rays, and MRIs.

The Stark law allows a physician group to bill and receive payment for Medicare and Medicaid services that qualify as “designated health services” only so long as the group meets the “group practice” definition under Stark. Designated health services (“DHS”) are defined in the Stark law and include lab, diagnostic imaging, and physical therapy. One of the requirements of being a group practice is that overall profits or productivity bonuses be distributed in a reasonable and verifiable manner that is not directly related to the volume or value of the physician’s referrals of DHS. The Stark law then provides safe harbors for meeting this test, which includes payment on a per-capita basis or payment based on professional service revenue attributed to each physician (not including any DHS). There’s also a de minimis safe harbor for practices with very small levels of DHS services.

Physician practices should make sure that any distribution of profits or bonuses that includes revenues from DHS meets this test. The reasonable and verifiable requirement is intended to assure that it can be verified that the distribution doesn’t relate to the volume or value of the physician’s referrals for DHS. For example, a subjective bonus system that pays out a portion of profits to each shareholder at the end of the year as determined by the Board would not meet this test since it can’t be verified that it was not related to the volume or value of referrals for DHS.

The suit also involved allegations that the Group was billing for services provided by unauthorized providers including athletic trainers and an exercise physiologist, who are prohibited from billing Medicare and Medicaid for these services.

The case was a qui tam action brought by a former employee of the Group who had been an exercise physiologist in the physical therapy department of the Group. The United States then intervened in the suit. The former employee will receive $200,000 of the amount under the qui tam rules. Since this was a settlement, there was no determination of liability.

John R. Holdenried

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