Medicare Compliance & Reimbursement

How to steer clear of Stark’s “booby traps.”

“It seems as if, even for well-intentioned health care providers, the Stark law has become a booby trap rigged with strict liability and potentially ruinous exposure — especially when coupled with the False Claims Act.”

Think these words come from a health care provider or executive who has run afoul of Stark? Think again. They actually come from 4^th U.S. Circuit Court of Appeals judge who upheld a judgment against Sumter, SC-based Tuomey Healthcare System last year. The case continues to have repercussions this year as Tuomey’s former CEO agrees to pay $1 million to settle allegations of his personal liability in the case (see related cover story).

Judge Albert Diaz’s opinion (http://www.modernhealthcare.com/assets/pdf/CH10031772.PDF), along with facts of the Tuomey case, are a road map for how government regulators and prosecutors approach financial arrangements between physicians and health systems. Keep an eye on Tuomey’s biggest lessons as you navigate your health care organization’s financial relationships with physicians.

Lesson #1: The health system wanted to do a deal very badly. Why? Area doctors had begun to perform certain outpatient procedures in their own offices or in ambulatory surgery centers that they owned themselves. Previously, the doctors had done such procedures at Tuomey facilities, so the health system was trying to regain lost revenue. But shrewd business moves that might make good sense in other industries can trigger compliance woes in health care.

Lesson #2: The physicians’ ten-year contracts required them to perform their outpatient procedures at Tuomey facilities, and their salaries and productivity bonuses were based on a percentage of Tuomey’s net cash collections. The doctors had a financial interest in Tuomey, which implicated Stark. And their financial arrangement with Tuomey did not fall into Stark’s employment exception because their compensation varied with the volume and value of their referrals, the jury concluded. Other features of the employment arrangement, such as the lack of any set hours, also caused it to fall short of the exception.

Lesson #3. The physicians’ income rose dramatically as a result of the arrangements. One ophthalmologist’s annual income was $500,000 before he entered the contract, and $1 million annually after he entered the contract, the government alleged.

Eye-Opener: The court looked not only at money changing hands, but also other things of value. Judge Diaz’s opinion mentions that Tuomey paid for the physicians’ medical and malpractice liability insurance, as well as billing and collections costs for their practices.

Lesson #4: Tuomey only went through the motions to wedge the arrangements into Stark’s fair market value exception, the government alleged. Tuomey hired an independent valuation firm for fair market value (FMV) advice, but didn’t heed it, the opinion says.

Lesson #5. What started off as a Stark problem became a False Claims Act case. The whistleblower is Dr. Michael Drakeford, an orthopedic surgeon who, at first, was negotiating an employment contract for himself along with the other doctors. Drakeford began to question the deal when he spotted the Stark problems, and he began to question it even more when an attorney both he and Tuomey hired to review the deal warned them about potential red flags in 2005. Drakeford declined the deal.

As a qui tam relator, Dr. Drakeford collected a portion of the civil monetary penalties the government collected — a whopping $18.1 million (https://www.justice.gov/opa/pr/united-states-resolves-237-million-false-claims-act-judgment-against-south-carolina-hospital).