Fourth Circuit Tuomey Decision Interprets Stark Law While Remanding Case for Retrial – On March 30, 2012, finding that the district court violated Tuomey’s Seventh Amendment right to a jury trial, the United States Court of Appeals for the Fourth Circuit vacated a $44.9 million judgment against Tuomey Healthcare System, Inc. (Tuomey) for Stark law violations and remanded the case to federal district court. (United States ex rel. Drakeford v. Tuomey Healthcare System Inc., 4th Cir., No. 10-1819, March 30, 2012). While the Fourth Circuit’s opinion largely addresses procedural issues, two judges on the three-judge panel took the opportunity to outline their views on certain Stark law issues raised in the Tuomey case. Specifically, the judges addressed the following two questions:
(1) Whether the facility component of hospital outpatient services performed by the physicians pursuant to certain contracts (described below), for which Tuomey billed a facility fee to Medicare, constituted a “referral” within the meaning of the Stark law and Stark regulations (Issue No. 1); and
(2) Whether, assuming that Tuomey considered the volume or value of anticipated facility component referrals in computing the physicians’ compensation, the contracts implicated the “volume or value” standard under the Stark law (Issue No. 2).
Between January 1, 2005, and November 15, 2006, Tuomey entered into compensation contracts with 19 specialist physicians, pursuant to which the physicians agreed to perform outpatient services at Tuomey Hospital and to reassign to Tuomey all amounts paid by third party payors. Tuomey agreed to pay each physician an annual base salary that fluctuated based on Tuomey’s net cash collections for the outpatient procedures. Additionally, Tuomey agreed to pay each physician a productivity bonus equal to 80 percent of the net collections, and the physicians were eligible for a further incentive bonus.
The government alleged that these compensation arrangements violated the Stark law. The government sought relief under the False Claims Act (FCA) and further asserted equitable claims premised on violation of the Stark law. In 2010, a jury returned a verdict finding that while Tuomey had not violated the FCA, the hospital had violated the Stark law. The district court, however, set aside the jury verdict and ordered a new trial on the government’s FCA claim. At the same time, the district court granted judgment on the government’s equitable claims and awarded damages in the amount of $44,888,651, plus pre- and post-judgment interest.
Although the Fourth Circuit was not required to address the Stark law issues in order to reach its decision, two members of the three-member panel nonetheless chose to address these “other issues raised on appeal that are likely to recur upon retrial.” The third member of the panel wrote a concurring opinion that described the majority opinion’s discussion of Issue No. 1 and Issue No. 2 as “advisory in nature.”
II. ISSUE NO. 1
The Fourth Circuit’s majority opinion addressed whether the facility component of hospital outpatient services performed by the physicians pursuant to the contracts, for which Tuomey billed a facility fee to Medicare, constituted a “referral” within the meaning of the Stark law and Stark regulations. Noting that “[n]either the statute nor the regulation addresses whether a facility component that results from a personally performed service constitutes a referral,” the Fourth Circuit relied on prior Health Care Financing Administration (HCFA) commentary regarding the personal services exception to the Stark law:
We have concluded that when a physician initiates a designated health service and personally performs it him or herself, that action would not constitute a referral of the service to an entity . . . However, in the context of inpatient and outpatient hospital services, there would still be a referral of any hospital service, technical component, or facility fee billed by the hospital in connection with the personally performed service. Thus, for example, in the case of an inpatient surgery, there would be a referral of the technical component of the surgical service, even though the referring physician personally performs the service. 66 Fed. Reg. 856, at 941 (2001).
The court concluded that claims for “facility fees based on patient referrals are prohibited under the Stark law if there was a financial relationship within the meaning of the law between the physicians and the hospital.”
III. ISSUE NO. 2
Next, the Fourth Circuit addressed whether, assuming Tuomey considered the volume or value of anticipated facility component referrals in computing the physicians’ compensation, the contracts implicated the “volume or value” standard under the Stark law. The court stated that the “government contends that Tuomey’s conduct fits within this definition because it included a portion of the value of the anticipated facility component referrals in the physicians’ fixed compensation.” However, “Tuomey argues that the inquiry is whether the physicians’ compensation takes into account the volume or value of referrals, not whether the parties considered referrals when deciding whether to enter the contracts in the first place.” Although the court viewed the question of whether the physicians’ compensation under the contracts took into account the volume or value of anticipated referrals to be “an open question of fact … for the jury to resolve on remand,” the Fourth Circuit concluded that compensation arrangements that take into account “anticipated referrals” implicate the volume or value standard under the Stark law. To support its conclusion, the court cited agency commentary and the definition of “fair market value,” which defines fair market value, in relevant part, as compensation that “has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.” 42 C.F.R. § 411.351 (emphasis added).
To view the Fourth Circuit opinion, click here.
Reporters, Connie Dotzenrod, Atlanta, +1 404 572 3585, firstname.lastname@example.org, Sara Kay Wheeler, Atlanta, +1 404 572 4685, email@example.com, and Stephanie F. Johnson, Atlanta, +1 404 572 4629, firstname.lastname@example.org.
GAO Report: Despite Challenges, Medicare Secondary Payer Rules Saved Program $124 Million Over Three-Year Period – The Government Accountability Office (GAO) recently released a report analyzing the impact of a provision of the Medicare, Medicaid, SCHIP Extension Act of 2007 that imposes a mandatory reporting requirement upon certain insurers. The law, found at 42 U.S.C. § 1395y(b)(7)-(8), applies to situations in which Medicare’s payment obligation is secondary to another payer’s obligation. In these situations, CMS is not always notified that another payer is primary, and, as a result, Medicare sometimes covers benefits it is not obligated to pay. To minimize Medicare Secondary Payer (MSP) losses, the law obligates certain health plans to alert CMS once settlements have been reached with beneficiaries – to avoid having Medicare make payments and/or identify instances in which an attempt should be made to recover payments already made. Payers that fail to comply with the mandatory reporting requirements, which are still being phased in, are subject to fines.
The GAO report looked at the initial implementation of the law’s mandatory reporting requirement in the specific context of non-group health plans (NGHPs)—such as auto or other liability insurance, no-fault insurance, and workers’ compensation plans—and the resulting savings to Medicare. It also identified challenges to the implementation of the reporting requirement going forward and recommended steps to address them. With respect to increased efficiencies, GAO found that the reporting requirement, while not yet fully phased-in, resulted in $124 million in savings from 2008 through 2011 (the Congressional Budget Office had estimated that the reporting scheme would save Medicare $1.1 billion over a ten-year period). The report also noted that the law’s actual impact on Medicare “could take years to determine” because of delays between the time when CMS is notified of an MSP situation and any recovery, and because not all MSP situations lead to recoveries.
The report identified a number of challenges, including difficulties with determining whether reporting obligations have been triggered under the law—which may subject NGHPs to penalties for noncompliance. Specifically, NGHP stakeholders said that they are having a hard time verifying whether certain individuals are Medicare-eligible because many beneficiaries tend to be reluctant to turn over personal information (e.g., Social Security numbers). On this issue, the report noted that CMS has been assisting NGHPs with ways to collect the necessary information from beneficiaries and has indicated that NGHPs that follow certain CMS-recommended steps will be deemed compliant with the reporting requirement.
Some of the GAO report’s other findings included:
- The workloads of the three contractors that perform MSP-related administrative activities generally increased during the initial implementation period of the mandatory reporting requirement. Total CMS payments to these contractors also increased over the same period. For two of the contractors, the percentage increase in their workloads was significantly higher than the percentage increase in the payments they received.
- Contractor timeliness was identified as a challenge. In particular, NGHPs reported instances of long wait times when trying to contact contractors by telephone and delays in the issuance of demand letters to beneficiaries following settlements.
- To further control costs and improve efficiency, CMS has indicated a willingness to move toward a “self-service” model whereby NGHPs and beneficiaries could access and submit information through contractor websites and automated phone lines.
To view the GAO report, click here.
Reporter, Greg Sicilian, Atlanta, +1 404 572 2810, email@example.com.
Secretary of DHHS Issues Report to Congress Regarding Details of the Agency’s Implementation of Self-Referral Disclosure Protocol – Implementation of the Self-Referral Disclosure Protocol (SRDP) and its status after the first several months of operation are described in a report submitted to Congress on March 23, 2012 by the Secretary of the Department of Health and Human Services (DHHS). Section 6409 of the Affordable Care Act directed the Secretary to establish the SRDP, authorized the agency to reduce amounts due and owing for actual or potential violations of the Stark law disclosed under the SRDP, and required the Secretary to submit a report to Congress on the implementation of the SRDP no later than 18 months after the date on which it was established. The report provides some additional insight as to the workings of this disclosure and settlement process, although the final publicized settlements remain sparse.
The SRDP was established on September 23, 2011, and the report covers the period from that date through early March 2012. The report indicates that during that period, a total of 150 disclosures were submitted to CMS, with most of those submitted during the year 2011. Hospitals accounted for 125 of these submissions, with the other disclosures filed by clinical labs, group practices, community mental health centers, DME suppliers, and one ambulance company.
The most common types of violations disclosed involve a failure to comply with various exceptions in the Stark law rules for compensation arrangements (42 C.F.R. § 411.357), including the exceptions for personal services arrangements, rental of office space, recruitment, and nonmonetary compensation. The report also indicates that many disclosures involved multiple parties (including hospitals and physicians) and multiple complex financial arrangements. CMS analyzes each arrangement separately to determine whether it is appropriate to reduce amounts due and owing for violations of the Stark law.
At the time of the report, six of the 150 filed disclosures had been settled; and in the short period since the report was finalized, one additional settlement has been posted on the CMS website. As broken out in the report, for most of the remaining disclosures (61), CMS is awaiting additional information from the disclosing party. Many (51) of the remaining disclosures are under CMS review; a significant number (20) were placed on “administrative hold” for various reasons (such as bankruptcy proceedings or ongoing law enforcement activities); some (9) had been withdrawn by the disclosing entity; and a few (3) were referred by CMS to law enforcement.
The six settlements finalized at the time of the report represent an aggregate settlement amount of $783,060, representing the reduced amount due and owing collected from the disclosing providers. The dollar amount associated with the published settlements, however, varies widely:
- Two low-dollar settlements (one for $6,700 and another for $4,500) involve disclosures that a hospital had exceeded the calendar year non-monetary compensation limit for one or two physicians;
- A hospital paid $22,000 to settle the disclosure of a violation of the personal services arrangements exception in connection with an arrangement with a locum tenens physician for hospitalist services (this March 2012 settlement is reported on the CMS website but not included in the report);
- A group practice that failed to satisfy certain requirements of the employment relationship exception for a number of employed physicians settled for $74,000;
- A critical access hospital that disclosed several violations of the personal services arrangements exception in relationships with hospital and emergency room physicians settled for $130,000; and
- A hospital that failed to meet the terms of the personal services arrangements exception for compensation relationships with hospital department chiefs, medical staff leadership, and other physicians for onsite overnight coverage of patients at the hospital paid $579,000. This is the most significant settlement to date.
The report and the summaries of the settlements do not indicate the total “tainted” Medicare billings involved for the period in issue, the extent to which that amount was reduced to arrive at the settlement figure, or the formula for arriving at the settlement amount. The general factors set out in the statute and the protocol to determine whether a reduction in the amount owed is appropriate include the nature and extent of the improper practice, the timeliness of the disclosure, cooperation in providing additional information to CMS relating to the disclosure, and other factors CMS deems appropriate. The report explains that after receiving notice of the agency’s determination as to the appropriate settlement amount, a disclosing party that is in financial distress may discuss with CMS alternative arrangements to reach a financial resolution. Such alternatives may include a long-term payment plan or, in limited circumstances, a further reduction in the settlement amount based on an analysis by CMS of the disclosing party’s ability to pay.
The high number of disclosures for which CMS is awaiting additional information from the disclosing party underscores the relative complexity of the disclosure process, particularly if multiple arrangements, multiple parties, and long periods of time are involved in the matters at issue. The report highlights the fact that many of the initial disclosure submissions did not provide all relevant information and documents required by CMS, thereby slowing the resolution process. The CMS protocol requires a legal analysis of which elements of a relevant exception the arrangement satisfied and did not satisfy, a financial analysis that includes the total amount of remuneration involved, the amount of the tainted Medicare billings, a description of estimates made to arrive at these figures and the audit activity conducted, as well as relevant documents (e.g., contracts). Given these standards, disclosure submissions can run to hundreds of pages, as noted in the report.
CMS states that it has conducted and is continuing its education efforts in the industry regarding the SRDP, and that the quality of the submissions is improving. CMS characterizes the implementation of the SRDP as a success, and reinforces its commitment to improving the process.
The “Report to Congress: Implementation of the Medicare Self-Referral Disclosure Protocol” is available on the CMS website and is attached here.
CMS settlements under the SRDP are published on the CMS website.
Reporter, Kim H. Roeder, Atlanta, +1 404 572 4675, firstname.lastname@example.org.
King & Spalding Client Alert Issued Regarding the FTC's Grant of a Preliminary Injunction Against OSF Healthcare System/Rockford Health System – King & Spalding’s Antitrust & Litigation Practice Group recently issued a Client Alert entitled "FTC Granted Preliminary Injunction Against OSF Healthcare System/Rockford Health System." The Client Alert, issued on April 9, 2012, addresses the U.S. District Court for the Northern District of Illinois' grant of the Federal Trade Commission (FTC)'s request for a preliminary injunction, pending a full administrative trial before FTC Administrative Law Judge on the merits of OSF Healthcare System's proposed acquisition of Rockford Health System on April 5, 2012. The Client Alert is available in its entirety by clicking here.
King & Spalding Client Alert – King & Spalding's Antitrust practice has published a client alert relating to regulation of the private healthcare market in the UK, entitled "The UK’s Private Healthcare Market is Under the Competition Spotlight," which is available by clicking here.
This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.
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