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Practical Strategies For Minimizing Stark Law Risk

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Practical Strategies forMinimizing Stark Law RiskRobert A. Wade, Esq.PartnerKrieg DeVault LLP4101 Edison Lakes ParkwaySuite 100Mishawaka IN 46545Daniel Roach, Esq.VP Compliance and AuditDignity Health185 Berry StreetSuite 300San Francisco CA 94107(574) 485-2002bwade@kdlegal.com(415) 438-5579Daniel.Roach@DignityHealth.org

Overview Real estate complexitiesNon-monetary compensation and medical staff incidentalbenefitsCommercial Reasonableness and Fair Market ValueMedical Directorships/Administrative RolesClinical Practice AcquisitionsTechnical Violations – Defensive OptionsStark reviews and the self-referral disclosure protocolPhysician integration challenges related to Comanagement and Purchased Services AgreementsVarious Risk – Reducing Operational Recommendations2

Stark Act42 U.S.C. 1395nn The Stark II Act prohibits a physician frommaking a Referral to an Entityfor the furnishing of a Designated Health Servicefor which payment may be made under Medicare orMedicaidif the physician (or an immediate family member)has a Financial Relationship with the entityUnless an exception applies3

Stark II ActProof ofIntent is NotRequired4

PenaltiesDenial ofpayment orrefund; civilmoney penalties(up to 100,000)and exclusionsfrom federal andstate programsfor improperclaims orschemesKnowinglySubmitting aClaim FalseClaim withCriminalPenalties5

Avoiding a False Claim The False Claims Act, 31 U.S.C. § 3729 et seq., establishesliability when any person or entity improperly receives from oravoids payment to the Federal governmentIn summary, the Act prohibits: Knowingly presenting, or causing to be presented to theGovernment a false claim for payment;Knowingly making, using, or causing to be made or used, a falserecord or statement to get a false claim paid or approved by thegovernment;Conspiring to defraud the Government by getting a false claimallowed or paid;Falsely certifying the type or amount of property to be used by theGovernment;Certifying receipt of property on a document without completelyknowing that the information is true;Knowingly buying Government property from an unauthorized officerof the Government, and;Knowingly making, using, or causing to be made or used a falserecord to avoid, or decrease an obligation to pay or transmit propertyto the Government.6

Real Estate Complexities:Office Space Rates Square foot measurementReal estate appraisalsGross lease v. triple net leasePayment of increases in operating expensesTenant improvementsHoldover RentExclusive useNo percentage-based leasing arrangementNo per click rental for referrals from lessor7

Real Estate Complexities:Shared Space - TimesharesMust allocate all costs to set FMV RentalRate Rental of space (Half or Full Day Slots)Vacancy Rate (Project 20% vacancy?)SuppliesUtilitiesStaff (Registration, Nursing, etc.)Equipment8

Real Estate Shared Space(Example)Assume: 18 gross per square foot rental (exclusive use) 30% projected vacancy (in suite) 1,000 square feet in suite Building has 6,000 square feet, with 1,000 squarefeet of common area used by the suite (5,000 squarefeet usable space) Suite capable of being leased in half day increments(8:00 A.M. – Noon; 1:00 P.M. – 5:00 P.M.)9

Furnished Shared Space(Example) Furniture and equipment in suitedetermined to be leaseable at 2,000 peryear using independent third party leasingcompany. Miscellaneous medical/office suppliesprojected to be used in suite isapproximately 5,000 annually if suiteleased 70% of the time.10

Shared SpaceExample - allocating vacancy and commonareas costs 18 (exclusive use rate) 30% (vacancy) 25.71 per squarefoot ( 18 .7 25.71)1,000 square feet (suite) 5,000 square feet (building notincluding common area) 20% (percentage of suite’s usablespace in building’s usable space)1,000 square feet (common area) x 20% (suite to building) 200 square feet (common area allocated to suite)11

Shared SpaceExample1,200 square feet (suite plus allocated common area)x 25.71 30,852 30,852 2,000 (furniture and equipment) 5,000(medical/office supplies) 37,852 37,852 52 (weeks) 728 (weekly rate) 728 5 (business days in week) 146 (daily rate) 146 2 73 (half day rate)12

Shared SpaceExampleExample becomes more complicated if: Part of suite is leased (as opposed to full suite) Staff is provided by landlord/hospital Specialized equipment is included but not used by alltenants Non-standardized supplies are used by a tenant13

Time Share IssuesTime Share leases issues Specific Days, # of Days What is Exclusive Use? What must be usedexclusively? Is Lease Required? Hospital patients – Can Hospital arrange for specialists tosee Hospital’s patients in Hospital space? If Hospital schedules the patient but does not bill providerbased can Hospital charge the physician the technical fee?14

What is a Financial Relationship?Remuneration is defined (42 CFR§ 411.351)as:“any payment or other benefit made directly or indirectly,overtly or covertly, in cash or in kind ”15

Non-Monetary Compensation UpTo 380 Exception(Applies to Compensation Relationships)Compensation (defined as any benefit), not including cashor cash equivalents (i.e., gift certificates that may beredeemed in whole or in part for cash), may not exceed anaggregate of 380 per year per physician as long as: Benefit is not determined based upon volume or value of referrals. Benefit is not solicited by physician or anyone affiliated with theirpractice. Maximum cannot be aggregated to make a larger gift to a group.16

Non-Monetary Compensation UpTo 380 Exception The 380 limit applies to calendar year The 380 limit is updated annually.See: www.cms.hhs.gov/PhysicianSelfReferral/See: http://www.kriegdevault.com/info/stark-act17

Non-Monetary Compensation UpTo 380 Exception1.If a hospital inadvertently exceeds the annual limit,the hospital will still be deemed to be in complianceif i) the value of the excess is no more than 50% ofthe limit, and ii) the physician returns the excess bythe end of the calendar year or within 180consecutive calendar days, whichever is earlier.NOTE: Can only be used once every 3 years.2.Hospitals can hold 1 formal medical staff event peryear without including the cost in this exception.18

Non-Monetary Compensation UpTo 380 ExceptionAllocation example: 1,000 oil painting to 5 physician group Stark inflates the value to 5,000 as 1,000 mustbe allocated to each physician Cannot allocate 1/5 to each physician19

Non-Monetary Compensation UpTo 380 Exception“[F]ree CME could constituteremuneration to the physician dependingon the content of the program and thephysician’s obligation to acquire CMEcredits.”Phase II, page 1611420

Non-Monetary Compensation UpTo 380 ExceptionPreamble, on Page 16112 of Phase II, stated that “[theMedical Staff Incidental Benefits Exception] was notintended to cover the provision of tangential, off-sitebenefits, such as restaurant dinners or theater tickets,which must comply with the exception for nonmonetary compensation up to 355.” (emphasis added)21

Medical Staff Incidental BenefitsExceptionItems or services used on the hospital'scampus may be given to members of itsmedical staff if: Item or service is provided to all members in the samespecialty without regard to volume or value of referrals.Item or service is provided only during periods when themedical staff members are making rounds or involved in otherservices that benefit the hospital and its patients.22

Medical Staff Incidental BenefitsException The item or service is reasonably related tothe delivery of medical services at thehospital. Each item or service is less than 32 perbenefitFree ForPhysicians23

Medical Staff Incidental BenefitsException The exception specifically recognizes that “internetaccess, pagers, or two-way radios, used away fromthe campus only to access hospital medicalrecords or information or to access patients orpersonnel who are on the hospital campus, as wellas the identification of the medical staff on ahospital Web-site or in hospital advertising, willmeet the single “on campus” requirement .”(emphasis added) But not access to a third party internet site - e.g. forCME24

Tracking Non-Monetary CompensationThe OIG assumes that DHS providers trackthe non-monetary compensation given toeach referring physician.25

26

Who Tracks Non-MonetaryCompensation? Compliance Department Legal Department Finance Department (Accounts Payable) Medical Staff Office27

“What do you mean by FMV?” In the healthcare context, there areessentially 3 basic views on the meaningof FMV: “Person on the street” perspectiveProfessional appraisal perspectiveLegal/regulatory perspectiveUnfortunately, these 3 basic views frequentlyconflict.Parties can get “dazed and confused” whenthese 3 competing views meet to complete atransaction.28

“The Street” View of FMV “What everyone is getting paid in themarket”“What the hospital down the street ispaying”“Incremental cost plus a profit margin”“What’s in a survey book”“What it’s worth to one party to thetransaction”29

Professional Appraisal View of FMV Based on the “hypothetical-typical” buyerconceptFMV contrasts with investment value or strategicvalueDetermination of FMV is based on 3 approachesto value: CostIncomeMarketFormal body of knowledge and professionalstandards governing the appraisal practice forreal estate and business valuation (“BV”)No current body of knowledge or standards forcompensation valuation (“CV”)30

Legal/Regulatory View ofFair Market ValueAccording to the Stark Act, fairmarket value is “the value inarm’s-length transactions,consistent with the general marketvalue.”31

Legal/Regulatory View ofFair Market Value“General Market Value” means the price that an assetwould bring as a result of bona fide bargaining betweenwell-informed buyers and sellers who are not otherwise ina position to generate business for the other party, or thecompensation that would be included in a serviceagreement as a result of bona fide bargaining betweenwell-informed parties to the agreement who are nototherwise in a position to generate business for the otherparty, on the date of acquisition of the asset or at the timeof the service agreement.42 C.F.R. § 411.35132

Legal/Regulatory View of FMV Stark regulations state that the definition ofFMV “is qualified in ways that do notnecessarily comport with the usage ofthe term in standard valuationtechniques and methodologies.”Stark example: Exclusion of market comparablesbetween parties in position to refer.Stark example: FMV can be established by “any methodthat is commercially reasonable.” OIG Anti-kickback statute example:Footnote 5 to Advisory Opinion 09-09cautioning the use of the Discounted CashFlow (DCF) method for an ASC valuation33

Avoid the FMV Definition Pitfall The “Street” perspective of FMV isgenerally not reliable for healthcareregulatory purposes but may provideuseful information.Regulatory definition of FMV may limit orqualify FMV methods used in professionalappraisal practice.FMV as determined under professionalappraisal standards may be more rigorousthan the regulatory requirements.34

Avoid the FMV Definition Pitfall Learn to identify and navigate through thedifferent views of FMV as they arise innegotiating transactions and compliancereviews. Recognize that appraisal professionals donot give regulatory advice, but only theiropinion as to the determination of FMV,which may or may not take into accountregulatory considerations.35

What Is Commercially Reasonable?To be commercially reasonable,both the SERVICES andPAYMENT must be commerciallyreasonable.36

What Is Commercially Reasonable?The following services may not becommercially reasonable: Two medical directors over a department when onlyone is needed.Paying the physician for questionable consultingservices.Renting a piece of equipment full-time when only usedonce a month (assuming rental for one day is less thanfull-time rental).Purchase of physician’s medical office building with nointention to use building.37

Medical Directorships/AdministrativeServices Time documentation – see Exhibit .Hourly compensation – administrative vs.clinical benchmark data.Monthly stipend payments – compliancerisk increases.Appropriate oversight of performance ofadministrative duties.38

Physician Practice Acquisition Obtain appropriate practice valuation –use blending of asset, market, and incomeapproaches.Do not value practice based on medicalrecords.Post-acquisition compensation must beconsistent with business valuation.Post-acquisition ancillary revenue streamcan this be paid to physicians?39

Technical Violations Use 6 month holdover period (personalservice, rental of office space andequipment exceptions).Use delayed signature rule (30-daysintentional, 90-days inadvertent).Use temporary non-compliance rule-mustbe compliant for at least 180 days andbrought back into compliance within 90days of temporary non-compliance.40

Technical Violations(Cont.) Was physician an employee?Does physician refer DHS?Did non-compliant arrangement endoutside of the reopening period [4 years]?Can multiple documents create the“written arrangement signed by theparties”?Was the issue a mere contract violation,but not a Stark Law violation (i.e., latepayments).41

Technical Violations(cont.) Was there a mutual mistake (unintentionaloverpayments)?State Law defenses?42

Stark Audit / Review What is a Stark audit/review? Attorney-client protectionsConducting the audit/review: TheDHS entity should first identify all financialarrangements that it has with referringphysicians.43

Stark Audit / Review When to do an audit/review Must be committed to taking corrective actions,including disclosures and repaymentsWhy do an audit/review? See the slide on the use of the SRDP below44

Stark Audit / ReviewSources for Identifying Physician FinancialArrangements Legal DepartmentAccounting DepartmentCompliance DepartmentAll Operational Departments Accounts Payable – Tax DepartmentMarketing- Business DevelopmentEducation-Research-GMEMedical Staff Office45

Stark Audit / Review All documents regarding each financialarrangement need to be produced forreview. A document production checklist isincluded as Exhibit A.46

Exhibit A47

Stark Audit / ReviewAs part of Exhibit A, the relationship owner needs toidentify the type of arrangement in order that the attorneycan identify the applicable Stark exception. Leases in MOB Employment – specifying services: administrative teaching research– other than MOB clinicalIndependent Contractor – specifying services: administrative Leases teachingPhysician Recruitment research clinical Hospital-BasedGroup OtherSome organizations use a CARTS certification when the contract iscreated- certifying the purpose as Clinical, Administrative, Research,Teaching and/or Strategic48

Stark Audit / ReviewFrom Exhibit A, documentation regardingthe financial arrangement should beproduced. Executed copy of Contract and all AmendmentsFair Market Value documentation supporting the financialarrangement in the ContractMinutes of meeting where Contract was discussed and approvedList of all payments made to and from contract party related to theContractLegal review of Contract (both internal and external)Timesheets submitted by contract partyProductivity data if any portion of compensation is based uponproductivity49

Stark Audit / ReviewAfter all documentation regarding eachfinancial arrangement has beenassembled, each financial arrangementmust be analyzed for Stark Lawcompliance. The Stark Contract ReviewForm attached as Exhibit B can be used toevaluate and create an inventory listingeach financial arrangement.50

Exhibit BIssueExecuted Copy and allAmendmentsFMV DocumentationSupporting ArrangementFileCompleteReviewer CommentsAgreement Name:Term:Compensation:Time:FMV Justification:Committee Minutes:Meeting Minutes withDiscussion and ApprovalList of Payments To andFrom PartyAggregate Amounts:2007:2008:2009:Legal ReviewTimesheets Submitted51

Stark Audit / ReviewAfter each financial arrangement isanalyzed (and if a concern is raisedoutside of an audit/review), the DHS entitywill either need to determine if the financialarrangement conforms with allcomponents of an applicable Starkexception, or corrective action needs tooccur.52

Stark Audit / ReviewTypes of Corrective Action:Prospective Actions Written agreement needs to be developed or modified.Financial terms need to be modified to be consistent with commercialreasonableness/fair market value.Actions Related to Prior Services Items required to be paid need to be charged to physician (i.e.,increases in operating expenses).Additional documentation of compliance with a Stark exception needsto be collected.The “period of disallowance” needs to be determined.Possible repayment or self-disclosure will need to be made.53

Self-Referral Disclosure ProtocolOverview of the SRDP Protocol Introduction and Discussion of ProtocolCooperation with OIG and the Department of JusticeInstructions Regarding SubmissionVerificationPaymentsCooperation and Removal and Timeliness of DisclosureFactors Considered in Reducing Amounts Owed54

So, Go Ahead & Self‐Disclose!!

Self-Referral Disclosure ProtocolWhy use the SRDP? Suspected WhistleblowerSale/Purchase TransactionRevenue IntegrityChange in ManagementFinancing RequirementGovernance RequirementOverpayment Has Been Identified Consider other compliance options?56

Self-Referral Disclosure ProtocolIntroduction and Discussion of Protocol Purpose is to resolve actual or potential violations of thephysician self-referral law Separate from the advisory opinion process- MUSTADMIT A VIOLATION HAS OCCURRED Disclosure must be made in good faith Cannot appeal settlement Application of Reopening Rules57

Self-Referral Disclosure ProtocolInstructions Regarding Submission Financial Analysis “Look Back” Period Total amount actually or potentially due and owing Description of the methodology used includingestimates Summary of auditing activity and documents used58

Quantification of PotentialOverpaymentProviders need to: Determine commencement and ending of period of time during whichfinancial arrangement fell out of complianceUtilize the 6-month holdover period, where applicable (personal servicesarrangements and rental of space and equipment exceptions)If financial arrangement was with a group practice, identify each physician inthe group practiceDetermine when any applicable physician “referred” to the DHS entityduring the period of disallowance Referring physicianAdmitting physicianAttending physicianConsulting physicianEspecially for the consulting category, determine if items or servicesordered by “tainted” physician impacted the reimbursement received59

Quantification of PotentialOverpaymentAssuming provider diligently quantifies thepotential overpayment during the“lookback” period with due diligence, 60day reporting period does not commenceuntil the amount of the overpayment hasbeen determined.60

Factors Considered, ReducingPenalty and Repayment AmountsCMS may consider the following factors inreducing the amount due: Nature and extent of the improper or illegal practiceTimeliness of the self-disclosureCooperation in providing additional informationLitigation riskFinancial position of the disclosing partyEffectiveness of compliance program, especially ifcompliance program resulted in discovery of potentialStark infraction61

Nature and Extent of Improper /Illegal PracticeSome of the sub-factors CMS will weighinclude: Commercially reasonable? Fair market value?Takes into account volume or value of referrals?History of program abuse?Set in advance?Presence, strength of preexisting compliance program?Length, pervasiveness of noncompliance?Steps taken to correct noncompliance?62

Reducing Penalty and RepaymentAmounts: Additional Factors Timeliness of self-disclosureCooperation in providing additionalinformationLitigation riskFinancial position of disclosing party63

PHYSICIAN INTEGRATION:CO-MANAGEMENT and PURCHASEDSERVICE AGREEMENTS (PSAs)Services: Hiring and Firing RecruitmentMarketing On-site ManagementSelecting and Ordering of Equipment and SuppliesPolicies and Procedures CodingBillingUtilization Managementand ReviewCapital and OperatingBudgetsDischarge PlanningQuality ReviewCompliancePurchasing64

CO-MANAGEMENT & PSAAGREEMENTSBecause the compensation for comanagement services establishes a“financial arrangement” between thehospital and the physicians, and becausethe physicians will refer inpatients oroutpatients to the hospital, the Stark Law isimplicated.65

CO-MANAGEMENT & PSAAGREEMENTSStark Law Co-management arrangements should complywith either the personal service arrangementsexception or the fair market value exception.66

CO-MANAGEMENT & PSAAGREEMENTS Fair Market Value and CommerciallyReasonable Compensation Fair market value and commercialreasonableness will be determined based uponthe extent to which the physicians are providingmanagement services above and beyond simplytreating patients within the department.67

CO-MANAGEMENT & PSAAGREEMENTSFair Market Value Compensation: There are three primary compensationmethodologies, including: Hourly CompensationPercentage of Gross or Net CollectionsA Combination of Hourly Compensation and Percentage ofGross or Net IncomeUltimately, the amount of compensation paid tothe physicians must be documented to bereasonable in light of the management servicesprovided by the physicians.68

CO-MANAGEMENT & PSAAGREEMENTSCommercial Reasonableness: What is the physician group’s experience inproviding management servicesAre management services needed/needdocumented?Will the management services replace hospitalservices and reduce hospital costs?Is the engagement of the physician group formanagement services one of the best solutions?Will the physician group bring in a new serviceline or new management methods?69

PSA AGREEMENTS Is a PSA appropriate if the location will not beprovider-based? Are the physicians seeing hospital patients? Can the hospital pay physicians to see their own patients?Can the hospital pay physicians to see charity care or lowreimbursement patients?Is the PSA necessary to retain this type ofphysician services in the community?70

CO-MANAGEMENT & PSAAGREEMENTSSelection of Physician Group/Groups Careful consideration must be made whenselecting the physician group to provide comanagement services to make sure that suchselection is not intended to induce future orreward future or past referrals.71

Practical Strategies for AvoidingNon-Compliance Arrangements Educate everyone involved with physician financialarrangements regarding Stark Law risks.Use contract management data base.Designate at least one person in organization to monitorexpiration dates of financial arrangements with referringphysicians.Determine whether Evergreen Clauses should be used.Establish fair market value/commercial reasonablenessdocumentation process.Use third party valuations or defensibility opinions whenwarranted (i.e., compensation above the 75th percentile).72

Practical Strategies for AvoidingNon-Compliance Arrangements(Cont.) Use tracking system for non-monetary compensation.Designate at least one person within organization toreview and approve of all medical director time studiesprior to payment.Accounts payable should assure that, where applicable,a written and executed agreement exists prior to payingany referring physician.Establish Stark Law alliance between compliance, legaland finance departments.Make sure real estate manager understands Stark Lawrestrictions related to office leasing arrangements –especially part time arrangements.73

Practical Strategies for AvoidingNon-Compliance Arrangements(Cont.) If potential violation is discovered, establish process tocease billing for services referred by tainted physiciansuntil applicable exception is met.Review executives’ expense accounts for non-monetarycompensation issues.Conduct periodic Stark Law compliance reviews toinsure that the financial terms of arrangements havebeen met.If productivity compensation is paid, make sureproductivity is accurately reported (i.e., trackingpersonally performed wRVUs vs. RVUs ordered forancillary services or wRVUs generated by mid-level74providers).

Rental of space (Half or Full Day Slots) . leased 70% of the time. 10. 11 . the end of the calendar year or within 180 consecutive calendar days, whichever is earlier. NOTE: Can only be used once every 3 year