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The U.S. Court of Appeals for the Third Circuit (which governs New Jersey) recently ruled that a whistleblower case against a hospital - - alleging that its arrangement with an anesthesiology group violated the Stark and Anti-Kickback laws - - should not be dismissed and should proceed.
This decision is important because it emphasizes the importance that ALL arrangements between hospitals and physicians satisfy key requirements of the Stark and Anti-kickback law exceptions, such as having written agreements in place and paying fair market value compensation.
The Arrangement
In 1992, a hospital entered into an exclusive agreement with an anesthesiology group to provide anesthesia services to the hospital’s patients. The hospital agreed to provide the group with office space, supplies, equipment and personnel when providing services at the hospital.
In 1998, the hospital built a new standalone facility that included a pain management clinic. The group provided pain management services to patients at the pain clinic, and the hospital did not charge the group for space, equipment and personnel used by the group at the clinic. The group billed for their professional services and the hospital billed for the technical component. Notably, the parties did not amend their 1992 agreement, or enter into a new agreement, to document the arrangement between the hospital and the group with respect to the pain management clinic.
The hospital was purchased in 2001 by another health system, and the arrangements with the group continued thereafter without change.
In 2005, one of the group’s pain management physicians left the group to establish a pain management practice which competed with the hospital’s pain clinic. This physician then filed a qui tam whistleblower case against the hospital and its successor alleging violations of the False Claims Act as a result of the arrangement with the anesthesiology group being in violation of the Stark and Anti-Kickback laws.
The Court’s Decision
The Court considered: (i) whether the pain management arrangement at the clinic implicated the Stark and Anti- Kickback laws (the Court viewed the two laws as essentially similar); and (ii) if so, whether the parties complied with the personal services exception.
The Court stated that the Stark law was implicated because both (a) pain management, unlike general anesthesia services, involves members of the group making “referrals” to the hospital (as defined by the Stark law); and (b) there was a “compensation relationship” between the hospital and the group because the group received numerous benefits from the hospital, such as “exclusivity” and the free use of office space, equipment and personnel at the clinic.
The Court, however, ruled that the personnel services exception had not been met. One of the key requirements of this exception is that the arrangement set forth in writing all of the services to be provided by the parties. The Court found that the initial 1992 agreement did not cover the arrangement between the parties regarding services at the pain management clinic, which opened 6 years later in 1998.
In addition, the Court ruled that the personal services exception was not satisfied because: (i) as a factual matter, the 1992 agreement could not possibly reflect the fair market value of services provided 6 years later, and (ii) the compensation under the arrangement did not meet the definition of fair market value under Stark. In this regard, the Court stated that an agreement negotiated at arms-length does not by definition reflect fair market value, especially if one party is in a position to generate business for the other party.
Significance and Recommendations
Although this decision did not introduce any new substantive interpretations of the Stark law, it is important because it demonstrates the significance of complying with the most basic requirements of the Stark law. It also is a reminder that the government, with the help of increasingly prevalent whistleblowers, could use non-compliance with these relatively simple and basic requirements as part of stepped-up enforcement of these laws. As a result, we offer the following practical recommendations for Stark law compliance.
For ALL arrangements between a hospital and referring physicians, which may directly or indirectly involve the provision of financial benefits to such physicians:
• Enter into written agreements which describe in detail all of the services to be provided by the parties and the compensation to be paid.
• Pay attention to “multiple” relationships - - while certain arrangements with anesthesiologists, radiologists, pathologists and other hospital-based physicians may not pose Stark compliance issues (because no referrals are made), in some cases these physicians may make referrals (e.g., pain management, interventional radiology, etc.).
• Remember that Stark defines “remuneration” very broadly – not only does the use of office space, equipment and personnel at no charge (or at a discount) constitute remuneration, but other less obvious benefits such as exclusivity rights may also constitute remuneration under Stark.
• Engage an independent healthcare valuation consultant to confirm that the payments being made are fair market value and commercially reasonable, both at the outset of the arrangement, and every 1-2 years (and whenever the type or level of services change).
• Periodically (every 1-2 years) review all physician arrangements to ensure that the written agreements continue to reflect the services actually being provided by the parties, and that the compensation terms remain accurate (the payments may no longer be fair market value if the services have changed).
© Sills Cummis & Gross P.C.
© Copyright 2012 Sills Cummis & Gross P.C.About the Author
