Latest Review of False Claims Act Compliance

The Justice Department has settled a spate of False Claims Act cases with healthcare providers this fall, reminding everyone that as much as compliance officers might worry about improper payments overseas, there is still plenty to worry about right here in the United States too.

Taken altogether, the latest wave of FCA cases offers useful lessons to the healthcare industry about physician payment arrangements, the broadening protections for whistleblowers, and the painful penalty amounts you might face to settle a False Claims Act charge.

“Enforcement agencies are aggressively using all the tools in their toolbox,” says Anna Grizzle, a member of law firm Bass, Berry & Sims. “In these False Claims Act cases, in particular, they’re using the Stark Law as a hammer to come down on these hospitals, resulting in these big settlements.”

The Stark Law is a statute that prohibits hospitals from billing federal healthcare programs for certain services—such as diagnostic tests and inpatient/outpatient procedures—that have been referred by physicians with whom the hospital has an improper financial relationship, including bonuses and other compensation arrangements paid to a physician based on such referrals. FCA violations occur when hospitals submit claims for payment to federal healthcare programs that it “knows or should know” are false or fraudulent.

The Stark Law also generally requires that any payments made by a hospital to a referring physician be at “fair market value” for the physician’s services, and not consider the volume or value of the physician’s referrals to the hospital. “Once a physician is under a contract with you and is not providing substantially the amount of services you thought they’d provide when you set the compensation as fair market value, you should to have a mechanism to make adjustments to the compensation,” says Holly Carnell, an associate with law firm McGuireWoods.

Tuomey Healthcare System’s settlement reached with the Justice Department in October highlights the high cost of non-compliance. The government argued in that case that Tuomey entered into contracts with 19 specialist physicians that required them to refer their outpatient procedures to Tuomey. In exchange, prosecutors said, Tuomey paid them compensation that far exceeded fair market value. Under the terms of the settlement agreement, Tuomey will pay $72.4 million and be sold to Palmetto Health, a multihospital healthcare system.

“Enforcement agencies are aggressively using all the tools in their toolbox. In these False Claims Act cases, in particular, they’re using the Stark Law as a hammer to come down on these hospitals, resulting in these big settlements.”
Holly Carnell, Associate, McGuireWoods

Tuomey is just one of several in a sweep of healthcare companies to reach settlements with the Justice Department for maintaining improper financial arrangements with physicians and submitting false claims to Medicare and Medicaid. Others have included Adventist Health System, Columbus Regional Healthcare System, as well as North Broward Hospital District—all of which reached settlements with the government in September, with total penalties of $209.5 million.

In some instances, the healthcare providers may want to go to a third-party valuation firm and get a valuation for certain arrangements, “so you have something in your file if that arrangement is ever challenged,” Carnell says. An example of that is if you’re looking to hire a highly sought after physician who your competitor is also trying to hire and the physician’s compensation offer to the physician has been increased due to a competitive recruitment process, you should ensure the adjusted compensation is still within the range of fair market value, she says.

Compliance Pitfalls

This latest wave of FCA enforcement actions suggests that companies can significantly reduce the risk of liability by knowing when a “financial relationship” does or does not qualify as an exception under the Stark Law. Healthcare companies and physicians have many valid reasons for entering into financial relationships. “These exceptions are highly technical with various elements, and if something is missed, then it’s strict liability regardless of the intent of the parties,” Grizzle says.

More examples: A hospital may need a physician to serve on an advisory board, to speak at an educational event, or to serve as a medical director. Although all of these may be valid reasons for a hospital to enter into a financial relationship with a physician, healthcare companies should still carefully assess whether a legitimate business need exists for that arrangement. “For compliance officers, that means asking: ‘Why do we need this contract with this physician?’ ” Grizzle says.

FALSE CLAIMS ACT CASES

Below is a summary of recent settlements that healthcare companies have reached with the Department of Justice for violations of the False Claims Act.
Tuomey Healthcare System. The Department of Justice in October resolved a $237 million judgment against Tuomey Healthcare System for illegally billing the Medicare program for services referred by physicians with whom the hospital had improper financial relationships. Under the terms of the settlement agreement, the United States will receive $72.4 million and Tuomey will be sold to Palmetto Health, a multi-hospital healthcare system.
The government argued in the case that Tuomey, fearing that it could lose lucrative outpatient procedure referrals to a new freestanding surgery center, entered into contracts with 19 specialist physicians that required the physicians to refer their outpatient procedures to Tuomey and, in exchange, paid them compensation that far exceeded fair market value and included part of the money Tuomey received from Medicare for the referred procedures. Tuomey also ignored and suppressed warnings from one of its attorneys that the physician contracts were “risky” and raised “red flags,” according to the government.
Adventist Health System. Adventist Health System, a non-profit healthcare organization that operates hospitals and other health care facilities in 10 states, reached a $115 million settlement with the government to resolve allegations that it violated the False Claims Act by maintaining improper compensation arrangements with referring physicians and by miscoding claims. 
The settlement resolves allegations that Adventist submitted false claims to the Medicare and Medicaid programs for services rendered to patients referred by employed physicians who received bonuses based on a formula that improperly took into account the value of the physicians’ referrals to Adventist hospitals. The settlement also resolves allegations that Adventist submitted bills to Medicare for its employed physicians’ professional services containing certain improper coding modifiers, and thereby obtained greater reimbursement for these services than entitled.
North Broward Hospital District. North Broward Hospital District, a special taxing district of the state of Florida that operates hospitals and other health care facilities in the Broward County, Florida, area, agreed in September to pay the United States $69.5 million to settle allegations that it violated the False Claims Act by engaging in improper financial relationships with referring physicians, the Justice Department announced today. The settlement resolved allegations that the hospital district provided compensation to nine employed physicians that exceeded the fair market value of their services.
Columbus Regional Healthcare System. Columbus Regional and Dr. Andrew Pippas have agreed to pay more than $25 million to resolve allegations that they violated the False Claims Act by submitting claims in violation of the Stark Law.  The settlement also resolves allegations that Columbus Regional and Pippas submitted claims for payment to federal health care programs that misrepresented the level of services they provided.  Under the settlement agreement, Columbus Regional has agreed to pay $25 million, plus additional contingent payments not to exceed $10 million, for a maximum settlement amount of $35 million, and Pippas has agreed to pay $425,000.
Source: Department of Justice.

Say you’re going to have multiple medical directors with responsibility over the same or similar areas; the question is, “do you really need each of these medical directors, or can one oversee the entire program or specialty?”

Even after the agreement is in place, healthcare companies should have a mechanism to monitor and audit their physician arrangements. “From a compliance perspective, it’s important to manage those relationships,” says Tony Maida, a partner in the law firm McDermott, Will & Emery. “It really is an ongoing process.”

You may find in the course of an internal audit that you need to issue a refund or make a self-disclosure to the government. “Compliance needs to work really closely with legal in order to make those decisions in the most informed way,” Maida says.

Conducting internal audits without taking any necessary corrective actions is meaningless. “If you are exercising that type of vigilance and self-policing, that can go a long way to help a provider avoid being the next headline,” Grizzle says.

Systematic overbilling for excessive and unnecessary procedures has been another risk factor in FCA enforcement lately. Millennium Health, for example, reached a $256 million settlement with the Justice Department to resolve allegations that it billed for federal healthcare programs for medically unnecessary urine drug and genetic testing, and for providing free items to physicians who agreed to refer expensive laboratory testing business to Millennium.

To reduce the risk of an FCA claim caused by billing for unnecessary procedures, the finance and compliance department should work together to identify (as part of an overall risk assessment) what activities might require an audit, Maida says. “Data analytics can inform the risk assessment process,” he says.

One way to identify your highest risk area, for example, is to review utilization rates, Maida says. “What sort of procedures are you billing most often?”

Knowing which physicians are ordering more tests or performing more surgeries than other doctors in your hospital is important. If a hospital has physicians who could be considered outliers that doesn’t automatically qualify as a problem, “but it means that they require a closer look,” Maida says.

Even if you are not studying your data to find outliers, you can assume the government is. “As the government does more data analytics and gets more sophisticated at it, I would expect that this would become an increasing source of cases both from whistleblowers and the government,” Maida says.

Whistleblower Threats

In all of the cases cited above, the claims were first initiated by whistleblowers. “We see that a lot of these cases are driven by relators, which continues to be the source of most of these FCA cases for the government,” Maida says. (“Relators” being FCA-speak for “whistleblower.”)  

“When you have an employee who is disgruntled and brings a complaint to somebody within the organization, it’s really important the organization takes that person seriously, that they’re listened to, and that they have an opportunity and a venue to voice their concerns,” says Carnell. “If exployees have that venue with their employer, there’s a better chance that they won’t voice those same concerns to the government," says Carnell. “If exployees have that venue with their employer, there’s a better chance that they won’t voice those same concerns to the government.”

Conducting exit interviews with departing employees is another way to minimize whistleblower liability. “Ask them why they’re leaving,” Carnell says. “Do they have any concerns that they would like to articulate?”

Having that final avenue to report any concerns gives compliance and legal an opportunity to investigate and potentially remedy any potential issues before an investigation or litigation ensues.