A federal court in Kentucky dismissed a whistleblower action claiming that a medical school, physician faculty and a hospital had violated the Stark law and the Anti-kickback Statute (AKS).
This decision is significant because it is the first court case to analyze in detail the academic medical center exception under the Stark law.
The Challenged Arrangement
The suit was brought against the University of Louisville Children’s Hospital and certain physician faculty members who referred patients to the Hospital. The Hospital made contributions to the University’s research foundation out of which the physicians’ faculty salaries were paid.
The plaintiff argued that these salaries were indirect compensation payments from the Hospital to the physicians in exchange for their referrals to the Hospital, in violation of the Stark law, the AKS, and the False Claims Act. The Stark law prohibits physicians from referring patients for certain designated health services to facilities with which the physicians have a financial relationship.
The Stark law contains various exceptions, including one for academic medical centers (the “AMC exception”). This exception requires, among other things, that:
- the physician be a bona fide employee of the AMC and perform substantial academic or clinical services;
- the physician’s compensation be set in advance, fair market value (FMV) and not subject to change based on referrals;
- the AMC and its components be integrated and their relationships be set out in written agreements or documents; and there be no violation of the AKS.
Although the physicians were employees of the medical school, the plaintiff claimed that they did not perform “substantial” academic or clinical services and that their timekeeping records were a sham because the physicians did not use a consistent method for tracking their time but rather, just made general estimates.
The Court’s Decision
The Court dismissed the action, finding that the AMC exception had been satisfied. The Court ruled that the physicians were providing “substantial” services because they conducted the training of more than 100 medical residents, and that the AMC exception does not require a specific time-keeping methodology for physician services.
The Court also examined whether the physicians’ compensation was FMV. Although the plaintiff argued that all of the physicians’ income be included in the analysis (not only faculty salary, but also income from private practices), the Court rejected this as being “utterly impracticable.” Further, the Court refused to focus solely on national statistical data, and ruled that the payments were FMV in light of the physicians’ overall duties, responsibilities and qualifications.
The Court found that even though one physician received a much higher salary than the other physicians and made more referrals to the Hospital, his compensation reflected his overall duties and his more substantial leadership responsibilities.
The Court also rejected the plaintiff’s contention that the AMC exception was not satisfied because the relationship between the medical school and the Hospital was not set forth in a written contract. Noting that CMS did not want the AMC exception to be applied in a hyper-technical manner, the Court stated that nothing in the Stark regulations requires a specific type of documentation to memorialize the relationship between the medical school and its components.
The Court found that the parties’ arrangement dated back to 1962 in an agreement establishing a “continuing relationship,” and had also been memorialized in various other documents between the parties over the years.
Finally, the Court ruled that the arrangement did not violate the AKS. In reaching this conclusion, the Court rejected the widely known 1985 decision in U.S. v. Greber, which held that the AKS is violated if just one purpose of a payment is to induce referrals.
Significance and Recommendations
Although this is a federal district court decision - - and hence is not binding, and may be appealed - - it is significant because it demonstrates that some courts may not take a strict “hyper-technical” approach in applying the Stark law due to its substantial intricacy.
For instance, in reaching its decision the Court: (i) acknowledged the “inordinate complexity of the Stark law,” which “has resulted in a ‘Homeric odyssey’ for attorneys attempting to advise clients on the ‘troublesome and elusive goal’ of compliance”; and (ii) commented that while Congress had intended the Stark law to provide “bright line rules to guide physicians and healthcare providers … this objective has proven elusive.”
While the decision may provide some comfort that hospitals may have flexibility in complying with the Stark law, future courts may not take a similar approach. Thus, we offer the following practical recommendations for compliance:
• Enter into written agreements which describe in detail the services to be provided and the compensation to be paid.
• Engage an independent healthcare valuation consultant to issue a report that the payments are FMV and commercially reasonable.
• Periodically review all physician agreements (preferably on an annual basis) to ensure compliance with current Stark regulations.
• Document physician services and time using a reliable and consistent method (e.g., daily time logs which are written or dictated by the physicians).
• On an ongoing basis, confirm and document that physicians are performing all required services under the contract; otherwise, the payments may no longer be FMV.
© Sills Cummis & Gross P.C.© Copyright 2013 Sills Cummis & Gross P.C.