Physicians’ Financial Relationships Can Put Practices at Risk

The Department of Justice last month announced that William Beaumont Hospital, a regional hospital system based near Detroit, Michigan, agreed to pay $84.5 million to settle allegations of improper financial relationships with physicians. The DOJ claimed that Beaumont violated the Federal False Claims Act as a result of the hospital’s failure to comply with two of the main federal fraud and abuse laws: the Physician Self-Referral Law (commonly known as the Stark Law) and the Anti-Kickback Statute (AKS).

In this case, the government alleged that between 2004 and 2012, Beaumont provided eight physicians, including cardiologists, oncologists, and ophthalmologists, with above-fair-market-value compensation and/or below-fair-market-value office space and employees. Some of the activities that contributed to the alleged enhanced compensation reportedly included payments for unnecessary medical directorships and service on committees, all of which were allegedly intended to secure referrals to Beaumont from the involved physicians.

It’s not uncommon for physicians to enter into partnerships with hospitals, but such relationships can potentially put providers in a dangerous position.

While the DOJ doesn’t appear to be pursuing the physicians involved in this instance, it’s certainly not unheard of in similar cases, as the government sometimes also holds providers liable for violating multiple fraud and abuse laws. By staying educated and informed and carefully evaluating financial relationships, providers can mitigate liability. Let’s take a deeper dive into the inner workings of the Stark Law and AKS and how physicians can protect themselves against potential violations and avoid getting wrapped up in a federal investigation.

Understanding Federal Fraud and Abuse Laws

The Federal False Claims Act imposes significant penalties on individuals who knowingly submit false claims to the government for payment (or engage in certain other related behavior).  In the health care context, false claims can include submitting claims for payment for medical services when those medical services were provided as the result of violations of the health care fraud and abuse laws. This particular case involved alleged violations of both the Stark Law and AKS, which are intended to ensure that physicians’ medical judgment is not distorted by improper financial incentives and to protect against the resulting overutilization of medical services.

The Stark Law is designed to prohibit physician self-referral, which is the act of a doctor referring a patient to a medical facility in which the physician or a family member has a financial stake. Unless protected by an exception, this type of activity is considered to be an inherent conflict of interest, often encouraging overutilization of services that can quickly drive up healthcare costs. The Stark Law also prohibits a hospital or practice from billing Medicare or Medicaid for services provided as a result of a prohibited referral.  The Stark Law is a strict liability statute, which means the physician can violate the law even if he or she did not mean to do so.

The AKS is a criminal statute that prohibits the exchange of any form of payment for referrals for services payable by federal healthcare programs, such as Medicare, Medicaid, and Tricare. The AKS covers both the person paying and the person receiving the kickback, but, unlike the Stark Law, the AKS is an “intent-based” statute, meaning that you only can violate the law if you have improper intent.

Safeguarding Against Violations

The recent Beaumont settlement reinforces the need for physicians to carefully review their financial relationships with hospitals to make sure that they comply with the Stark Law and AKS.

To determine whether the Stark Law has been violated, the U.S. Department of Health and Human Services Office of Inspector General (OIG) recommends asking the following three questions:

• Is there a referral from a physician for a designated health service?
• Does the physician (or an immediate family member) have a financial relationship with the entity furnishing the DHS?
• Does the financial relationship fit within an exception?

If the answer is “no” to either the first or second question, the Stark Law is not implicated. However, when it comes to Stark Law, even if the given situation meets that criteria, many relationships are protected by a long list of exceptions, including physician employment and independent contractor arrangements, office space leases, equipment rentals, and medical staff benefits. A comprehensive list of these exceptions can be found by accessing the following three links: 42 CFR 411.355; 42 CFR 411.356; 42 CFR 411.357.

Compliance with the Stark Law does not guarantee compliance with the AKS, and risk under the AKS should be analyzed separately. Liability under the AKS is ultimately based on the intent of each involved party, but the OIG has indicated that it may be useful to ask:

• Is there a “remunerative” relationship between a physician and an entity, such as a hospital, for which the physician is in position to generate federal healthcare program business?
• Could one purpose of the remuneration be to induce or reward the referral or recommendation of business payable in whole or in part by a federal health care program?

If the answer to both questions is “yes,” then the AKS is potentially implicated and the arrangement should be analyzed carefully. In these cases, additional questions that physicians and practices may want to ask include:

• Does the arrangement have a potential to interfere with clinical decision-making?
• Does the arrangement have a potential to increase costs to Federal health care programs, beneficiaries, or enrollees?
• Does the arrangement have a potential to increase the risk of overutilization or inappropriate utilization?
• Does the arrangement raise patient safety or quality of care concerns?

In addition to analyzing these questions, physicians and practices should also consider whether the arrangement meets (or can be restructured to meet) one of the AKS safe harbors. Similar to the Stark Law exceptions, safe harbors exist for many common business arrangements. A list of these safe harbors can be found here.

Talk to a Professional

While asking the questions listed above can help physicians avoid entering into financial relationships that violate the Stark Law or AKS, determining compliance with these laws often involves analyzing whether the relevant arrangement meets the detailed, technical requirements of a Stark Law exception or AKS safe harbor.  Given the difficulty of making these determinations, and the significant consequences of unknowingly entering into a non-compliant arrangement, physicians and practices should always ask an attorney to review their financial relationships and confirm legal compliance.

Disclaimer: This post is written in general terms and is not a substitute for legal advice or intended to create an attorney-client relationship.