VOLUME 32, ISSUE 1

Judith Jurin Semo, PLLC

SEMO Law Group
Washington, DC

``Stark`` Reality: Stark, Anti-Kickback, &
False Claims Laws & Anesthesia

Anesthesiologists negotiating professional services agreements with hospitals often hear hospital administrators voice concern about compliance with “Stark,” a shorthand reference to the Stark Law, especially if they are negotiating compensation with a hospital. But what does Stark have to do with anesthesia and what does Stark require? How does it differ from the federal Anti-Kickback Statute? And how do Stark and the Anti-Kickback Statute relate to the False Claims Act? Is it possible for a claim to the federal government to be false if the anesthesia practice actually provided services to a patient?

This article is aimed at providing a brief overview of these issues, with examples of decisions addressing how these laws relate to anesthesia, and providing an update on recent developments in the area.

The Basics: The Stark Law.

The Ethics in Patient Referrals Act, commonly referred to as the Stark Law after its sponsor, Congressman Pete Stark, was first enacted in 1989 and amended in 1993 (known as “Stark II”), and is aimed at precluding physicians from profiting financially from their referrals. Stark II is a civil law prohibits physicians from making referrals for a series of “designated health services” (or “DHS”) to an entity in which the physicians or their immediate family members have a financial interest (via ownership or compensation), unless an exception applies. Such an entity cannot bill Medicare or Medicaid, the patient, or a third party payor for the services or goods provided as a result of such a referral. The Stark Law generally requires that any payments that a hospital makes to a referring physician be at fair market value (“FMV”) for the physician’s actual services and not take into account the volume or value of the physician’s referrals to the hospital.

DHS include outpatient prescription drugs and inpatient and outpatient hospital services.1 Although anesthesiology services are not DHS, anesthesiologists are viewed as making referrals for inpatient and outpatient hospital services. Following several Stark cases involving staggeringly high awards in recent years, hospitals are careful to ensure that their compensation arrangements with all physicians, including anesthesiologists, are compliant.

  • In Tuomey, an award of $237 million was upheld based on an arrangement in which bonuses paid to part-time employed physicians were based in part on the hospital’s cash collections for outpatient procedures the physicians referred (the case settled for $72.4 million).2
  • In Halifax,3 the hospital settled and agreed to pay the federal government $85 million based on an arrangement in which compensation of Hospital-employed oncologists improperly included a bonus component that improperly was based on value of their referrals to the hospital. The government also alleged that the hospital knowingly violated the Stark Law by paying neurosurgeons more than FMV for their services.4

The Stark Law and regulations outline a series of exceptions to the broad prohibition on referrals. For anesthesiologists negotiating compensation with hospitals, the exception for “personal service arrangements” often is the one on which the hospitals rely. Among other requirements, the arrangement must be in writing, be in place for at least one year, cover all of the services the physician will provide (or cross-reference separate arrangements), cover only services that are reasonable and necessary, and compensation must be set in advance, not exceed FMV, and not take into account the volume or value of any referrals or other business generated between the parties.5

The Stark Law and Anesthesia.

The Kosenske6 decision is the one decision that illustrates an anesthesia arrangement that did not comply with Stark, but the facts were distinguishable from the standard hospital-anesthesia arrangement. The anesthesia group entered into an exclusive agreement with the hospital to provide anesthesiology services. At the time, the anesthesiologists were not providing pain management services, but the agreement contemplated that the group might provide those services in the future. About fifteen months after signing the agreement, one of the group anesthesiologists and a hospital nurse began providing pain management services using space in the hospital. Six years after the agreement was signed, the hospital built a stand-alone facility containing an ambulatory surgery center (“ASC”) and a pain clinic. The anesthesia group provided pain management services to patients in the pain clinic, and the hospital did not charge the group rent for the space or equipment or a fee for the support personnel the hospital provided to the group at the pain clinic. The group was the only group providing pain management services at the pain clinic, and the parties did not amend the earlier anesthesiology services agreement or enter into a new agreement.

The court found that the arrangement implicated the Stark Law, because the arrangement between the group and the hospital did not qualify for the personal service exception for several reasons, including there was no written agreement governing the arrangement at the pain clinic and there were no arm’s length negotiations to assure that compensation reflected FMV.

Key Stark Law compliance pointers.

  • Compensation must be set in advance. That means that a hospital may not pay retroactively for services an anesthesia practice has been providing. Make sure a written agreement is in place before the group begins to provide services, if the group is expecting compensation from the hospital for its services.
  • If the anesthesiologists have any compensation or ownership arrangement with the hospital, make sure all arrangements (e.g., services agreements, medical director agreements, and any specific additional services arrangements) are documented in written agreements.
  • Be aware that the group may continue to be paid under an expired agreement as a “holdover” arrangement, so long as the holdover arrangement is on the same terms and conditions as the original expired arrangement. Prior to 2016, the holdover was allowed for only six months; effective in 2016, the six-month limitation does not apply. (Note that compensation must be consistent with FMV, and that compensation arrangements must be reviewed from time to time to assure FMV.)

A notable Stark case.

In a December 2011 decision7, a federal district court rejected a hospital’s claims that the Stark Law barred its payment for medical director services provided without a written agreement, allowing the plaintiff physician to pursue a claim for unjust enrichment. In that case, the physician, Dr. Braun, had a written agreement to serve as Medical Director of the Radiation Oncology Department. After more than ten years of service, the hospital terminated the agreement, though the physician continued to perform Medical Director duties for over two years and billed for his time. The hospital accepted the physician’s services, but did not compensate him for the services. When the physician sued the hospital for compensation for his services and other claims, the hospital defended on several grounds, including claiming that the Stark Law barred payment for the services, because there was no written agreement covering the medical director services.

The court rejected the hospital’s defense, noting it did not find that the Stark Law limited the court’s ability to grant relief for unjust enrichment. It also stated that awarding an equitable remedy for unjust enrichment did not necessarily create a compensation arrangement that must fit within a Stark exception.

The Braun decision was at a preliminary stage of the case (motion for summary judgment) and there has been little discussion of the case since then. The take-away message from this case is that physicians may have a common law remedy for services they provide to a hospital for which they do not have a written agreement with the hospital, notwithstanding the Stark Law.

The Basics: Anti-Kickback Statute.

In contrast with the Stark Law, which is a civil statute, the Medicare and Medicaid Patient and Program Protection Act of 1987, commonly known as the Anti-Kickback Statute (“AKS”), is a criminal law that prohibits knowingly and willfully offering, paying, soliciting, or receiving any remuneration (which means anything of value) to induce referrals of items or services that are payable by federal health care programs. The AKS is written in broad terms and has been interpreted to outlaw arrangements if even one purpose of the remuneration is intended to compensate for the referral of services or to induce further referrals. That means that an arrangement may be illegal, even if funds are paid for legitimate services, if one purpose of the remuneration (the “exchange of value”) is to pay for referrals or to induce referrals.

“Willfulness” for purposes of the AKS requires that the defendant intend to violate the law, but a person “need not have actual knowledge of th[e AKS] or specific intent to commit a violation of th[e AKS].”8 The AKS is a criminal statute, violations of which are felonies. Importantly, both parties to an arrangement are culpable if there is a violation of the AKS– the party soliciting the kickback, and the party providing the kickback.

Claims submitted to federal health care programs that include services resulting from AKS violations are “false” for purposes of the False Claims Act.9 Although courts recognized this rule prior to 2010, Congress amended the AKS in 2010 to codify this rule.10

Because the AKS is so broadly written, the Department of Health and Human Services Office of Inspector General (“OIG”) has promulgated a series of “safe harbors,” which consist of various payment and business practices that, although potentially capable of inducing referrals of business under federal and state health care programs, will not be treated as criminal offenses under the AKS if all requirements are satisfied. If a transaction satisfies the requirements of a safe harbor, the intent of the parties is not considered. Because the AKS is a criminal statute under which intent is considered, it is not required that an arrangement fit within a safe harbor to be illegal. If the arrangement does not fit within a safe harbor, the intent of the parties then will be considered. Among the safe harbors that are of greatest interest to anesthesiologists are the ones for personal services and management contracts, ASCs, employment, and investment in group practices (a term of art with multiple requirements).

As the OIG has stated:11

In some industries, it is acceptable to reward those who refer business to you.
However, in the Federal health care programs, paying for referrals is a crime.

The AKS and Anesthesia.

In the context of anesthesiology services, it is the facility (or referring physician) that makes referrals to the anesthesiologists, rather than the anesthesiologists making referrals to the facility. In contrast, in the context of pain management services, it is the pain management physicians who refer to the facility. This article is focusing solely on anesthesiology services. The regulatory concern relating to anesthesiology services is whether the facility or the referring physician is requiring something of value in exchange for the agreement.

For anesthesia practices, the most frequent AKS issue typically relates to demands by referring physicians for the anesthesia group to share a portion of its revenue, usually as part of an arrangement in which the referring physicians bill for the anesthesia services directly or through an anesthesia group the referring physicians own (in whole or in part). The OIG has issued two advisory opinions, one in 201212 and a second in 201313, raising concerns about AKS compliance in connection with two different arrangements proposed by referring physicians to bill and collect for anesthesia services.

Enforcement activity, primarily spurred by whistleblower (or qui tam) complaints filed under the False Claims Act, continues.

1. Tenet Healthcare. Tenet Healthcare Corporation (“Tenet”) disclosed in its Form 10-Q for the third quarter of 201914 that, in October 2019, it had reached an agreement in principle with the Department of Justice (“DOJ”) to pay approximately $66 million resolve alleged violations of the AKS, Stark Law, False Claims Act, and Oklahoma Medicaid False Claims Act, which were contained in a qui tam complaint filed under the False Claims Act in May 2016. Tenet reported that its reserve included another $2 million to cover the costs of the whistleblower’s (known as the “relator”) attorneys’ fees and other costs. The litigation is stayed until December 2019 in order for the parties to finalize the resolution.

The 167-page complaint in the case alleges a variety of arrangements, including the “Anesthesia Company Scheme,” under which the referring orthopedic surgeons formed an anesthesia group, which it installed as the exclusive provider of anesthesia services at the orthopedic hospital the surgeons had founded. The profit distribution to owners of the anesthesia group depended directly on the volume and value of the surgeons’ referrals. The complaint alleges that Tenet, through United Surgical Partners International, Inc. (“USPI”) and USPI Holding Company, Inc. (“USPH”), perpetrated the anesthesia company scheme across the United States using twenty-two anesthesia companies that Tenet owns, “with each such company using a USP -supplied kit comprised of boilerplate corporate formation and governance documents.” (USP refers to USP Oklahoma, Inc., a Tenet subsidiary.) The whistleblower alleged that all of the USP anesthesia companies were engaged in identical unlawful activities.

As noted above, Tenet is settling the case, so there is no finding of liability. In addition, there is no final settlement agreement with DOJ as of the date of this article. Nonetheless, the announcement of the $66 million settlement can be expected to serve as another reminder of the high stakes involved in arrangements with referring physicians that implicate the AKS. As explained below, it is not possible simply to dismantle an anesthesia company and avoid liability. If claims were submitted to Medicare and Medicaid in violation of either the Stark Law or the AKS may render them fraudulent, creating liability under the False Claims Act.

2. Drs. Frey and Daitch/Advanced Pain Management Specialists, P.A.. Two interventional pain management specialists entered into separate settlement agreements with DOJ to settle multiple claims, including claims relating to false claims for urine drug testing and several kickback arrangements, including one relating to anesthesia services. According to DOJ, the settlement resolved kickback allegations relating to anesthesia services provided by Anesthesia Partners of SWFL, LLC, which was owed by Drs. Frey15 and Daitch16. That anesthesia company provided services exclusively for the pain procedures Drs .Frey and Daitch performed. They contracted with certified registered nurse anesthetists (“CRNAs”) to provide the anesthesia services, paid them a contracted rate, billed Medicare and TRICARE directly for the anesthesia services, and retained the balance. DOJ stated that this arrangement resulted in improper reimbursement to Drs. Frey and Daitch and the funds they received induced them to refer patients for anesthesia services to the anesthesia group they owned. Dr. Frey agreed to pay $2.8 million and Dr. Daitch agreed to pay more than $1.7 million to settle charges against them.

3. Georgia Bone & Joint, Summit Surgery Center, Southern Crescent Anesthesiology, PC, and Sentry Anesthesia Management, LLC. In March 2018, an orthopedic practice, anesthesia practice, and anesthesia management company agreed to pay $3.8 million to settle allegations that the anesthesia group and anesthesia management company provided a free medical director to Summit Surgery Center to induce the orthopedic group to perform more procedures at the ASC rather than in the practice’s office and other allegations related to submission of false claims for prescription drugs purchased outside the United States that were not FDA-approved. The complaint in the underlying qui tam action alleged additional kickback arrangements not addressed in the DOJ press release announcing the settlement.

4. Sweet Dreams Nurse Anesthesia. DOJ announced a settlement on August 5, 2016 with a series of anesthesia businesses known as Sweet Dreams Nurse Anesthesia (“Sweet Dreams”), in which Sweet Dreams agreed to pay over $1.0 million to the United States and just over $12,000 to the State of Georgia to resolve alleged False Claims Act, AKS, and George False Medicaid Claims Act violations. One alleged scheme related to the provision by Sweet Dreams of free anesthesia drugs to ASCs in exchange for the ASCs granting Sweet Dreams an exclusive contract to provide anesthesia services at those ASCs. The settlement also resolve a second alleged scheme under which an affiliate of Sweet Dreams agreed to fund construction of an ASC in exchange for contracts for selection of Sweet Dreams as the exclusive anesthesia services provider at that facility and a number of other podiatry-based ASCs affiliated with that ASC. The investigation began as a result of a whistleblower lawsuit.

The facility fee that the Centers for Medicare and Medicaid Services (“CMS”) pays ASCs covers such services as personnel, drugs, and “materials for anesthesia.”17 Agreeing to provide the ASC with free drugs for anesthesia or pay the ASC for such drugs involves double payment to the ASC, which already is being compensated for the drugs under its facility fee.18 In 2012, in an entirely different context,19 the OIG addressed the double payment issue that a kickback raises in connection with a “management fee” an ASC sought to charge the anesthesiologists for non-Federal health care program patients and said: “In short, the [ASCs] would be paid twice for the same services, and the additional remuneration paid by the [Anesthesia Group] in the form of the Management Services fees could unduly influence the [ASCs] to select the [Anesthesia Group] as the [ASCs’] exclusive provider of anesthesia services.”20

Kickbacks in Health Care Outside the Anesthesia Arena.

Outside the anesthesia arena, kickbacks in hospital-physician relationships often involve arrangements in which the hospitals pay above-market compensation to referring physicians or offer them other financial incentives, such as free office space.

  • On September 25, 2018, Health Management Associates, LLC (“HMA”), which previously was a hospital chain, agreed to pay a staggering $260 million to resolve a series of alleged false billing and AKS violations. Among the many different arrangements cited by DOJ, several related to at least three different arrangements by HMA hospitals in Florida, Pennsylvania, and Mississippi to provide remuneration to physicians in return for patient referrals. The allegations included claims that HMA hospitals made excessive payments to physicians for their services as part of arrangements structured to disguise that the payments were intended to induce the referral of patients. Other claims related to alleged direct payments to cover overhead and administrative costs the group incurred, as well as providing physicians with free rent and, in one case, upgrades to the physician’s office space.21
  • On September 28, 2018, Kalispell Regional Healthcare System and subsidiaries and related entities agree to pay $24 million to settle claims that they violated the False Claims Act, the Stark Law, and the AKS by paying physicians more than FMV and entered into arrangements that improperly induced referrals.22
  • In August 2018, William Beaumont Hospital in Michigan agreed to pay $84.5 million to resolve claims that it paid physicians compensation that exceed FMV for the services they provided and provided free or below-market rent and office staff.23
  • On January 28, 2019, Avanti Hospitals LLC in California agreed to pay $8.1 million in settlement of claims that Avanti submitted false claims to Medicare and Medicaid for medical services referred by a physician who received kickbacks and other improper payments from one of the Avanti hospitals and other Avanti affiliates.24

The Basics: The False Claims Act.

First enacted in 1863, the False Claims Act (“FCA”)25 is a key federal government tool to combat health care fraud. Among other things, the FCA imposes civil liability for the knowing filing of a false or fraudulent claim for payment with the United States and , (2) knowingly using a false record or statement to obtain payment on a false or fraudulent claim paid by the United States. Importantly, the FCA allows private persons to file actions for FCA violations on behalf of the government. These lawsuits, known as “qui tam” actions, are referred to colloquially as “whistleblower” lawsuits. The FCA offers a financial incentive for private individuals (known as “relators”) to file such suits: Relators can recover between 15-25 percent of the government’s recovery, depending on the circumstances. If the government declines to intervene, the relator can recover 25-30 percent. The FCA penalties are adjusted an annual basis; in 2019, the minimum FCA penalty is $11,463 per claim and the maximum is $22,927 per claim,26 plus three times the amount of damages the government sustains.

Many of the cases discussed in this article were the result of qui tam cases. Employees and former employees often have detailed information regarding a practice’s business arrangements and they frequently are the relators who file whistleblower actions alleging Stark Law and/or AKS violations.

Conclusion.

Despite the enormous amount of change and unpredictability in the health care industry, two predictions can safely be made: (1) the government will continue active enforcement relating to health care fraud and abuse, and more whistleblower actions detailing problematic arrangements can be expected; and (2) regulatory compliance will remain critical for all physician practices, including anesthesiologists.

References

  1. Both the CMS and OIG websites have additional information on Stark. See https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/index?redirect=/physicianselfreferral/ and https://oig.hhs.gov/compliance/physician-education/01laws.asp.
  2. United States ex rel. Drakeford v. Tuomey Healthcare System, Inc., 675 F.3d 394 (4th Cir. 2012), on remand, 976 F. Supp. 2d 776 (D.S.C. 2013).
  3. United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., No. 6:09-cv-1002, 2013 WL 6989775 (M.D. Fla. 2013).
  4. See https://www.justice.gov/opa/pr/florida-hospital-system-agrees-pay-government-85-million-settle-allegations-improper (March 11, 2014).
  5. Among the other exceptions, there also are exceptions for bona fide employment relationships and indirect compensation arrangements.
  6. United States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88 (3rd Cir. 2009), remanded to No. 1:05-CV-2184, . 2010 U.S. Dist. LEXIS 31619 (M.D. Pa. Mar. 31, 2010).
  7. Braun v. Promise Regional Med. Ctr.- Hutchinson Inc., No. 2:11-cv-2180 (D. Kan. Dec. 16, 2011).
  8. 42 U.S.C. § 1320a-7b(h).
  9. 31 U.S.C. § 3729. A history of the False Claims Act amendments is available at http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Primer.pdf.
  10. 42 U.S.C. § 1320a-7b(g).
  11. https://oig.hhs.gov/compliance/physician-education/01laws.asp.
  12. Advisory Opinion 12-06, available at https://oig.hhs.gov/fraud/docs/advisoryopinions/2012/AdvOpn12-06.pdf.
  13. Advisory Opinion 13-15, available at https://oig.hhs.gov/fraud/docs/advisoryopinions/2013/AdvOpn13-15.pdf.
  14. Available at 2020 Tenet 10Q
  15. https://www.justice.gov/usao-mdfl/pr/fort-myers-pain-management-physician-pleads-guilty-healthcare-offenses-and-agrees-28 (June 4, 2018).
  16. https://www.justice.gov/usao-mdfl/pr/fort-myers-doctor-agrees-pay-more-17-million-resolve-allegations-fraud(December 20, 2018).
  17. 42 C.F.R. § 416.61(a)(6).
  18. The OIG addressed the double payment in another context
  19. Advisory Opinion 12-06.
  20. Id. at 7.
  21. See https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and-kickback-allegations-one.
  22. See https://www.justice.gov/opa/pr/kalispell-regional-healthcare-system-pay-24-million-settle-false-claims-act-allegations
  23. See https://www.justice.gov/opa/pr/detroit-area-hospital-system-pay-845-million-settle-false-claims-act-allegations-arising.
  24. See https://www.justice.gov/opa/pr/avanti-hospitals-llc-and-its-owners-agree-pay-81-million-settle-allegations-making-illegal.
  25. 31 U.S.C. §§ 3720-2733.
  26. See https://www.govinfo.gov/content/pkg/FR-2019-02-01/pdf/2019-00729.pdf.

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