By William H. Maruca, Esq.

Published December 2000

Special supplement on
Compliance Program Guidance for Individual and Small Group Physician Practices

• Overview of OIG's MD compliance guidance
  

• Physician compliance plan risk areas
  

• How to deal with compliance lapses
  

• Employee education in compliance programs
  

• Compliance and relationships among providers
  

• React to this article in the Discussion Forum.

The risks are significant: In a September 29, 2000 letter to Representative Pete Stark, the Department of Justice claimed that it currently has over 50 matters under investigation or in litigation in which whistleblowers have alleged misconduct that could violate the physician self-referral prohibition.

In implementing an effective compliance plan addressing referrals and other economic relationships among providers, you should consider each of the applicable laws currently in effect and their complex exceptions. These laws are deceptively similar to each other, and they overlap with each other in many ways.

The Stark Law

The physician self-referral law, also known as the Stark law, prohibits a physician from making a referral to an entity with which the physician or any member of the physician’s immediate family has a financial relationship if the referral is the for furnishing of a designated health service, and prohibits the entity from submitting the claim to Medicare or Medicaid for the service, unless an appropriate exception applies.

In evaluating a relationship or transaction under the Stark law, the following "decision tree" may be helpful:

Does the relationship or transaction involve a "physician"? That question is not as simple as it sounds. For Medicare purposes, the term includes MDs, DOs, dentists, podiatrists, optometrists and chiropractors, and also includes referrals made by a facility such as a Skilled Nursing Facility to whom a physician has made a referral.

Is there a prohibited referral for a Designated Health Service? A referral is any request for medical or related service or for a plan of care, with limited exceptions. Designated health services include: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography, and ultrasound; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. HCFA has interpreted these categories broadly in its 1998 proposed regulations, but changes are anticipated in the final version.

Is there a direct or indirect financial relationship with the entity providing the service? Note that the relationship may be with the physician or a member of the physician’s immediate family. Financial interests include ownership and compensation (such as independent contractor arrangements, consulting fees, or payments for rental of equipment or space,)

Does an exception apply? Here’s where it gets the trickiest. Although a thorough discussion of the Stark exceptions is beyond the scope of this article, they generally share a number of characteristics, including the requirement that payments or other benefits to a physician must be consistent with the fair market value of the items or services provided; the payments cannot vary with the volume or value of referrals for designated health services; and the arrangements must be in writing and continue for a term of at least one year.

Special problems arise under the "in-office ancillary service" exception which protects most designated health services provided by a practice within its offices. Since the Stark law also considers services provided entirely within a single practice to be "referrals," a practice should have its internal compensation formulas reviewed to assure that there are no improper incentives relating to the volume or value of designated health services ordered by each physician. In-office services must also be personally supervised by a "member" of the physician group present in the office suite when the services are performed.

Other common areas of risk under the Stark law include all relationships with hospitals, including medical director contracts, recruiting arrangements, personal service contracts, equipment leases, office leases, and the provision of free or below-market services by physicians to hospitals, or by hospitals to physicians.

Anti-kickback Law

The anti-kickback law provides both criminal and civil penalties for individuals and entities that knowingly offer, pay, solicit or receive bribes or kickbacks or other remuneration in order to induce business reimbursable by Medicare, Medicaid, or other governmental programs. The anti-kickback law may be distinguished from the Stark law in a number of important ways:

• The anti-kickback law applies to all services covered under the governmental programs, not merely the list of designated health services set forth above.

• The anti-kickback law provides civil as well as criminal penalties, while the Stark law provides only civil penalties.

• The anti-kickback law covers all individuals or entities guilty of prohibited conduct, while the Stark law covers only physicians.

• The anti-kickback law requires a showing of intent to violate the law.

In Pennsylvania, the landmark 1985 Third Circuit case of United States v. Greber held that if one purpose of an arrangement is to induce a referral of government-reimbursable business, then the arrangement is unlawful regardless of whether the arrangement has other lawful purposes. Nevertheless, the proof of intent remains one of the government’s most difficult obstacles in bringing a successful anti-kickback case. The government has resorted to cooperation of witnesses and defendants to record confidential conversations and has engaged in other aggressive evidence gathering tactics in a number of high-profile cases, particularly the Kansas City prosecution in United States v. Anderson.

• The safe harbors under the anti-kickback law are optional, unlike the Stark exceptions which are mandatory.

• Finally, the definitions of referral and the exceptions under the Stark law and the anti-kickback law differ in subtle but highly significant ways.

Pennsylvania Workers’ Compensation

The Pennsylvania Worker’s Compensation statute contains a self-referral prohibition which is a hybrid of the federal anti-kickback law and Stark law. It relates to a separate list of health services which does not perfectly match the list contained under the Stark law. Importantly, regulations under the workers’ compensation statute provide that a practitioner is deemed in compliance with that statute so long as the practitioner meets one of the applicable exceptions under the Stark law or the safe harbors under the anti-kickback law.

Corrective Action

Upon detecting a transaction or arrangement which may present issues under any of the above statutes, a practice should engage appropriate legal counsel knowledgeable about the highly complex laws and their equally complex exceptions to evaluate the existence and extent of a potential violation. With regard to the Stark law, absent final regulations under Stark II, only clinical laboratory violations are covered by currently enforceable regulations which were issued in 1995 under Stark I. Stark violations can therefore be classified into several categories: Those which clearly violate the plain language of the statute; those which violate the language of the final Stark I regulations, and those which would violate only the proposed regulations issued in 1998. The 1998 regulations are likely to be used as guidance by the court in interpreting the law until final regulations are published. At the time of this writing, final regulations are still expected to appear before year end.

With regard to the anti-kickback law, it is important that the parties be able to demonstrate that their economic relationships are free of improper intent. Although all documentation related to the review and solution of these problems should be treated as communications subject to the attorney-client privilege and/or the attorney work product doctrine, it is equally valid to assume that an aggressive prosecutor will find a way to obtain copies of nearly any document. Therefore, parties to a transaction should avoid expressions of prohibited intent to induce referrals, whether oral or written, in any context. I have attended many meetings in which the principals have told attorneys present to "shut their ears" to a discussion of referral intent. Not only does this put attorneys in a difficult position, but you can never be certain that such statements are not being overhead by witnesses cooperating with the government or by individuals contemplating becoming whisteblowers.

Transactions and arrangements which are determined to violate the self-referral and anti-kickback rules should be modified or terminated as soon as possible. Many of these arrangements include clauses which permit such renegotiation or termination. In their absence, it is to the benefit of all parties to such transactions to take corrective action at the earliest possible time.

Finally, there is the issue of disclosure. The compliance guidance published by the Office of Inspector General emphasizes that only fraudulent activity needs to be disclosed to enforcement agencies. It is therefore up to the practitioner and his or her advisors to determine on a case by case basis whether each potential violation rises to the level of disclosable fraud, or should be treated as an innocent error and reported only to the carrier. Keep in the mind the 50 claims pending based on whistleblower actions and remember that a violation disclosed by the practitioner is likely to be treated more leniently than one that is brought to the attention of the government by an outside party or by a government audit.

William H. Maruca, Esq., is a director with the Pittsburgh law firm of Kabala & Geeseman. He is Vice Chair of the American Health Lawyers Association Committee on Fraud and Abuse, Self-Referral and False Claims.