COMPLIANCE UPDATE: Settlement Affirms Stark II and Provider-Based Clinic Enforcement

by Wayne J. Miller, Esq.
Providers should heed well the implications of the recent settlement by the Centers for Medicare & Medicaid Services in the Rapid City Regional Hospital (RCRH) whistleblower case. In February 2003, the government announced that RCRH agreed to pay $6 million, and a physician group, Oncology Associates, will pay $525,000 to settle False Claims Act allegations.
The case is unique because it relies on violations of the "self-referral" law, also known as "Stark II," as well as the provider-based facility billing rules. The message to providers is clear: Structure arrangements with on-site clinics carefully, or you risk false-claim liability.
The feds alleged that RCRH (located in Rapid City, S.D.) improperly billed Medicare for oncology services referred by Oncology Associates, a physician clinic situated in hospital-leased space. The physician group allegedly had a financial relationship with the hospital that did not come within an exception under Stark II. That law prohibits referrals by physicians who have a financial relationship with a hospital, unless an exception applies.
According to the government, when the hospital and physicians submitted certifications that no Stark II problem existed (as required by that law), the hospital and physician clinic were committing a False Claim Act violation.
But the government also asserted an additional False Claims violation on the basis that physician services were improperly billed, resulting in "double-billing." The physicians billed as though they operated a freestanding facility; however, the government characterized their clinic as hospital-based.
As discussed in prior issues (see October 2002), provider-based facility billing rules require that clinics accurately designate provider-based status on bills because there is typically a "site-of-service differential." The physician fee rate for hospital-based clinics is typically reduced to reflect that clinic overhead costs are billed as a facility fee by the hospital. The feds alleged that the physician claims essentially resulted in "double-billing" of overhead costs.
All these problems resulted from an alleged "sweetheart" financial arrangement (note that none of the parties admitted liability). After several years of leasing space to the clinic, RCRH provided much more space, as well as staff and services, to the physicians without changing the annual rental rate. The hospital also paid the lead physician an annual directorship fee that was about the same amount as the annual rental.
The lease exception under Stark II requires fair market value rent. If the allegations were true, RCRH was providing the lease space at below market value rent, and therefore could not rely on this exception. Likewise, if the physicians were not paying the true overhead cost for the clinic space, this should have been reflected [...]

- Published on 2003-03-01