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Recent Settlements Serve as a “Stark” Reminder – Pay Extra Attention to Physician Compensation Arrangements

on Tuesday, 10 November 2015 in Health Law Advisory: Zachary J. Buxton, Editor

This summer has seen heightened activity in the prosecution and ultimate settlement of False Claims Act cases brought by qui tam relators alleging violations of the Stark law and Federal Anti-Kickback Statute due to inappropriate compensation arrangements between physicians and hospitals. The amounts for which these cases ultimately settled should serve as a wake-up call to providers that physician compensation arrangements are not to be taken lightly.

North Broward Hospital District – $69.5 million

The DOJ settled a qui tam action against North Broward Hospital District for $69.5 million. The claim was brought by a physician on staff at the hospital alleging that the hospital compensated its employed physicians in an excessive manner. The relator claimed that the compensation levels of the physicians were not fair market value and were not commercially reasonable unless the hospital took into account the profits from the physicians’ referrals to the hospital. The complaint also alleged that the compensation paid to the physicians exceeded the 90th percentile of regional market surveys and exceeded a 1:1 compensation to collections ratio. In other words, the relator alleged that the physicians’ compensation exceeded their professional collections, and as such, they must be receiving compensation based upon the ancillary services ordered from the hospital. The complaint also argued that the hospital tracked the contribution margins from the referrals made by physicians.

Columbus Regional Healthcare System – $35 million

The DOJ also settled a qui tam action against Columbus Regional Healthcare System in Georgia regarding a claim that a cancer physician was paid above fair market value for services provided. This case was brought by a former hospital administrator. The complaint alleged that a cancer center physician was paid amounts for medical director services that were in excess of fair market value and were not commercially reasonable, and that his overall compensation package was non-compliant. The complaint alleged that some of these medical director services were duplicative and nothing more than a method to get extra compensation to the physician. In addition, the physician was given compensation credit for professional services performed by other professionals. Ultimately, the physician was compensated well in excess of his own professional collections. Notably, the hospital obtained numerous valuation opinions on the compensation arrangement. However, these valuation opinions (i) were very fact specific, including assuming that the physician was only receiving compensation for personally performed professional services and (ii) some actually called into question the reasonableness of compensation above the 90th percentile, stating that there were significant doubts that the physician could legitimately produce at such high levels.

Adventist Health System – $118.7 million

This claim was brought by various Adventist employees, including a risk manager and compliance officer. Again, the relators alleged that compensation provided to physicians across the Adventist system was in excess of fair market value and did not properly account for the fact that the physician practices consistently lost money. There were other bad facts associated with certain compensation arrangements (up-coding, car leases paid for by the hospital), including an allegation that Adventist paid physicians bonuses based upon the number of tests or procedures they ordered. Adventist also tracked the volume and value of referrals from physician practices.

While none of these cases went to trial, it is important to note the following lessons learned:

  • Providers should ensure that payments made to physicians are for services actually needed by the provider and that are actually performed by the physician.
  • Paying physicians compensation in excess of the 90th percentile or such that there are practice losses significantly increases the risk of non-compliance.
  • Providers should not assume that compensation at median levels or below the 75th percentile is per se fair market value. Providers should also consider a physician’s actual productivity compared to compensation levels.
  • Providers should not track referrals or ancillary services ordered by physicians.
  • Obtaining a fair market value opinion for physician compensation levels does not automatically cause the relationship to be compliant with a Stark exception. Opinions are only as good as the facts upon which they are based and only serve as evidence of fair market value.
  • These claims were brought by qui tam relators who were employed by the providers, with the government later intervening. These claims were not brought about by CMS or OIG investigations. Anyone can be a qui tam relator, and providers should act accordingly when compensating physicians.
  • Even though providers may believe they have justification that a compensation arrangement is fair market value, often the cost of litigating against the government combined with the risk of an unfavorable outcome ultimately lead to these settlements.

Andrew D. Kloeckner

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