von Briesen Health Law Blog

If you just don’t get Stark, you’re not alone.  Recognizing that even a simple question like “Who must sign an agreement?” continues to defy a simple answer, CMS has issued a clarification to its Phase III “stand in the shoes” doctrine that it is only necessary for a single authorized representative of a physician organization to sign an agreement; it is not necessary for all physicians who stand in the shoes of that physician organization to also sign the agreement.  This regulatory change formalizes guidance issued by CMS in a January 2008 FAQ.  While the result may seem obvious, the fact that CMS thought it necessary to issue formal regulatory guidance demonstrates how Stark continues to fall short of its goal as a “bright-line” statute.

This clarification, set forth in the CY 2010 Medicare Physician Fee Schedule Final Rule, was accompanied by a CMS solicitation for public comment on another area of continuing confusion involving its recent change to the definition of an “entity” under Stark.  As of October 1, 2009, the term “entity” includes not only the entity billing for designated health services but also the person or entity that “performs” the DHS.  While not proposing any clarification at this time, CMS has solicited comments on how it might craft future guidance, such as by tying the concept of “performing services” to factors such as the presence of a space or equipment lease, the use of supplies, management or billing services, and whether accompanying non-physician services are separately billable.  While it remains to be seen what CMS actually does with the comments it receives, one thing seems certain: the adoption of a multi-variable calculus such as that mentioned by CMS would make “bright-line” comprehension that much more elusive.

In a reminder that sweeping legislative reforms need to pass Constitutional as well as Congressional muster, a federal district court in Ohio has just set aside certain recent amendments to the False Claims Act (“FCA”).  The case, U.S. ex rel. Sanders v. Allison Engine Co. (decided 10/27/09), holds that the retroactive application of these amendments under the Fraud Enforcement and Recovery Act of 2009 (“FERA”) violated the Ex Post Facto clause of the Constitution.

FERA was enacted on May 20 of this year as part of the new administration’s push to protect massive stimulus funds from abuse.  FERA significantly expands the scope of liability under the FCA not only for persons who directly or indirectly receive stimulus dollars, but also for other persons who submit false claims to the government or who use false records to get a claim paid by the government.  An earlier U.S. Supreme Court decision in the Allison Engine case had ruled that the words “to get” in the FCA meant that “a person must have the purpose of getting a false or fraudulent claim ‘paid or approved by the Government’ in order to be liable,” and that the government must rely on the statement “as a condition of payment.”  FERA removed the “to get” language from the applicable provision in the FCA, so that the FCA now applies to false statements  made to almost any recipient of government funds regardless of whether the person making the false statement expected or intended the government to pay the claim based on those statement.

With FERA, Congress not only reversed the Supreme Court decision in Allison Engine but also attempted to completely erase the effects of that decision by applying its change in the law retroactive to June 7, 2008, two days prior to the Supreme Court’s Allison Engine decision.  The Ohio district court, in a continuation of the Allison Engine case after it was remanded by the Supreme Court, ruled that Congress acted improperly when it attempted to apply FERA to claims and cases arising between the date of the Supreme Court’s decision and the enactment of FERA.  The district court concluded that retroactive application of this amendment would punish behavior that was not illegal prior to the enactment of FERA, in violation of the Ex Post Facto clause.  The retroactive application of FERA threatened to resurrect lawsuits decided in that interim period; the new Allison Engine decision should assist in avoiding that result.

In a reminder to hospital executives and compliance officers everywhere, the former executive director and compliance officer for a California hospital has agreed to pay $64,000 to settle claims that he personally violated Stark laws when negotiating various physician financial arrangements. The contracts included interest-free loans, below-market rental arrangements, employment agreements with physician family members, and gifts, all over a period of several years. The hospital reported these arrangements to the government in 2005 and 2006 when details of the arrangements were reported by members of the medical staff during an audit after a new CEO arrived on the scene. The hospital ultimately entered into a $1.52 million settlement with the government in 2007. While some of the conduct alleged at the time of the hospital settlement was egregious, such as a million dollar line of credit to a physician and tens of thousands of dollars in gifts to doctors and their family members, other allegations involved purely technical violations due to an absence of proper paperwork.

According to the Office of Inspector General, the former CEO presented claims for Medicare services that he should have known resulted from these tainted relationships in violation of Stark. OIG Chief Counsel Lew Morris stated in OIG’s press release that “in addition to holding corporations accountable for health care fraud, individuals who caused the fraud should also be held accountable. Health care executives and compliance officers have a vital responsibility to ensure the compliance of the organizations that they serve.” OIG reportedly was originally seeking $5M in penalties.

The litigation ripples from these physician arrangements continue to spread notwithstanding the fraud settlement with the former CEO. The hospital has filed a civil lawsuit against its accountants and attorneys, alleging that they colluded to cover up the former CEO’s alleged improprieties.

New restrictions on per-click and percentage-based leasing arrangements and “under arrangements” provider agreements become effective October 1, 2009. These limitations will significantly diminish the ongoing utility of these models as a vehicle for hospital/physician collaboration. Hospitals and physicians now have four months to restructure or abandon non-compliant arrangements, as existing arrangements will not be grandfathered under the new rules. Read more…