Anti Kickback Act
Stark Law and Anti Kickback Statute are some of the most challenging issues in physician compensation today. ValueScope’s healthcare experts conduct full audits of billing and compensation processes to determine the effectiveness of Medicare/Medicaid, Workers Compensation, and other compliance efforts. Our healthcare experts are adept at working with counsel and financial managers to identify problem areas and create billing, compensation, and compliance solutions.
On June 9, 2015, The Office of Inspector General (OIG) released an alert declaring physician compensation agreements that exceed fair market value may violate federal fraud statutes and be subject to stiff financial penalties and prosecution. For purposes of Stark Law in Title 42 of the Code of Federal Regulations, section 411.351, fair market value is defined as: “the value in arm’s length transactions, consistent with the general market value. ‘General market value’ means the price that an asset or services would bring as a result of a bona fide bargaining between well-informed buyers and sellers who are not otherwise in a business to generate business for the other party . . . on the date of acquisition of the asset or services rendered.” To ensure compliance and protection from financial penalties and/or litigation, a comprehensive review of all existing and future compensation arrangements should be performed by a qualified and experienced appraiser.
Consequences for Noncompliance
Twelve settlements have recently been reached in cases involving alleged violations. Since 2009, more than $24 billion has been recovered through False Claims cases. In U.S. ex rel. Drakeford v. Tuomey Healthcare Systems, Inc., Tuomey Healthcare Systems was found guilty of violating Stark Law and the False Claims Act and faced over $350 million in potential penalties, nearly three times the value of net assets.[i] Amedisys, Inc. was also affected by the False Claims Act, settling its allegations for $150 million in April of 2014.[ii] Five-year prison sentences per violation are also a possibility for violators of the Anti-Kickback Statute. Such financial and reputational disasters can be avoided through an independent, third party review/appraisal of your clients’ compensation agreements/plans.
Are You Compliant?
Stark Law and Anti-Kickback Statute compliance are some of the most challenging issues in physician compensation today. Compensation agreements in compliance with Stark Law generally include the following characteristics:
- Compensation for a specified term is set in advance.
- Compensation is consistent with fair market value in arms-length transactions.
- The agreement does not take into account the volume or value of referrals generated between the parties to the arrangement.
- Services rendered are necessary and commercially reasonable to accomplish the business purpose.
There are various arrangements, in which a physician may legally perform services in exchange for compensation, including:
- Professional services
- Technical services
- Administrative or managerial
- Clinical co-management
The key in valuing physician compensation arrangements is to match the compensation paid for services expected to be provided. An appraiser must carefully consider factors such as time requirements, type of arrangement, administrative duties, and supervisory responsibilities.
Healthcare Valuation Methods—What Needs to be Done
Fair market value (FMV) reviews of physician service arrangements for clients range from large, multi-state health systems to independent physician practices. Enlisting a firm that specializes in healthcare business valuations for buy-sell and joint venture transactions, tax, and financial reporting purposes can be beneficial.
Going through the valuation process that supports transactional healthcare FMV requirements entails performing:
- Detailed situational assessments
- In-depth fact-finding and interviews
- Market analysis, including compensation surveys and data
- Extensive financial modeling
- Rigorous valuation methodologies
- Understanding the value of healthcare claims and receivables
Market-Based Method: A market-based method is often used in the fair market value appraisal of a physician compensation arrangement. The best source of market data for comparative analysis is physician compensation surveys. The surveys include data from physician-owned practices and those owned by a health system and are provided by location and type of service. The major providers of survey data are Medical Group Management Association (MGMA), Sullivan, Cotter and Associates, Hospital & Healthcare Compensation Service, American Medical Group Association (AMGA), and Towers Watson Data Services. An appraiser will assess the comparability of the market data with the subject agreement. Productivity is often the primary factor in a benchmarking analysis. Market-based methods based on productivity include the percentile matching technique, median rate technique, compensation by quartile technique, and workload analysis.
Cost Approach: The cost approach may be utilized to recreate the cost of providing the same or similar services as outlined in the compensation agreement. A cost buildup method may include market-based data or historical costs that were previously negotiated in an arm’s length transaction. An appraiser may rely upon the historical compensation of a physician as a comparison for compensation under an employment contract. Adjustments can be made depending on similarities or differences in the scope of services provided in the past compared to the proposed arrangement. For example, the employment agreement may include hospital call coverage or administrative responsibilities.
Earnings-Based Methods: The earnings-based methods analyze the revenues associated with physician services less the cost of providing those services. The physician’s net earnings can be an indication of the value of a physician’s services to an employer. The income approach can be utilized to determine the present value of future economic benefits received by either party to the compensation agreement.
Healthcare Compensation/Stark Law/FCA Cases
Drakeford v. Toumey Healthcare Systems, Inc.
- Summary – Toumey Hospital signed part-time employment agreements with 18 specialists with salary compensation that varied/fluctuated based on net cash collections.
- Outcome – The Court found if compensation takes into account additional revenue the hospital anticipates will result from physician referrals, then the compensation was set to consider the volume or value of the referrals anticipated from the arrangement (indirect compensation arrangement).
- Penalty – Potential judgment of $350 million
U.S. v. Campbell
- Summary – University of Medicine and Dentistry in New Jersey (UMDNJ) entered into a contract with Dr. Campbell for a fixed compensation for part-time services. In return, Campbell referred patients from his part-time practice to UMDNJ for cardiac procedures.
- Outcome – UMDNJ settled with the government for submitting claims it knew to be in violation of Stark Law. The U.S. government brought an action against Dr. Campbell personally, even though he was paid a fixed compensation, claiming his primary function for UMDNJ was referring patients because he did not perform most of the services in his employment agreement (the compensation paid to him was not commercially reasonable and did not constitute FMV).
- Penalty – UMDNJ paid $8.33 million in False Claims Act damages (twice the amount paid to UMDNJ in claims); Dr. Campbell’s lawsuit is still ongoing (settlements of 9 other cardiologists in same civil case with DOJ totaled $3.2 million).
OIG Case against Fairmont Diagnostic Center and Open MRI (Houston)
- Summary – OIG alleged that payments to 12 individual physicians took into account the volume and value of their referrals and did not reflect FMV for the service performed (violated Anti-Kickback Statute).
- Outcome – OIG determined that the physicians were a part of the scheme and subject to liability under the Civil Monetary Penalties law.
- Penalty – All 12 physicians settled with the OIG for penalties between $50K and $200K each. The diagnostic center was excluded from participating in Federal healthcare programs for a period of six years.
Baklid-Kunz v. Halifax Hospital Medical Center
- Summary – Halifax had payment agreements with oncologists for a base salary and participation in a bonus pool equal to 15% of the operating margin of the Halifax oncology program in proportion to each physician’s services performed.
- Outcome – The Government argued that the arrangement took into account the volume or value of the physicians’ referrals and failed to comply with Stark Law and the False Claims Act. The DOJ argued that the total compensation exceeded the collections received for the physician services, and therefore there was no defense for it being FMV or commercially reasonable.
- Penalty – Halifax settled with the DOJ for $85 million.
Parikh v. Citizens Medical Center
- Summary – Citizens paid bonuses to physicians as an inducement for referring patients to the Chest Pain Center. Compensation paid to Citizens’ employed cardiology groups included employee benefits and below-market rate office space. Citizens paid bonus compensation to gastroenterologists based on patient referrals.
- Outcome – The DOJ alleged that Citizens’ compensation and bonuses were in excess of FMV and in violation of Stark Law and the False Claims Act.
- Penalty – Citizens agreed to pay the U.S. $21.75 million to settle the allegations.
Schubert v. All Children’s Hospital System
- Summary – ACHS set a base physician salary range between the 25th and 75th nationwide percentile. Two corporate officers independently ignored the plan and hired physicians in excess of the 75th percentile. Each hire resulted in a net operating loss to the physician group but were a financial boon to the hospital due to referrals.
- Outcome – The Government alleged a program of overpaying physicians, overpaying in the purchase of practices, and paying bonuses based on the number of Medicaid referrals. All acts violated Stark Law and the False Claims Act.
- Penalty – ACHS settled for $7 million.
Ameritox, Ltd. v. Millennium Laboratories, Inc.
- Summary – Millennium offered physicians free urine sample cups (worth $11) in exchange for test samples to be brought to Millennium.
- Outcome – A competitor brought an unfair competition suit alleging that the free cups constituted remuneration and violated Stark Law.
- Penalty – Millennium was ordered to pay $2.75 million in actual damages and $8.5 million in punitive damages.
How ValueScope Can Help
ValueScope’s knowledge of the broader healthcare industry adds valuable insight to the risks and benefits of a sale, acquisition, or services agreements.
ValueScope’s team conducts full audits of billing and compensation processes to determine the effectiveness of Medicare/Medicaid compliance efforts. The healthcare team is adept at working with counsel and financial managers to identify problem areas and create billing, compensation, and compliance solutions. Our team includes experienced economists (PhDs, MSs, and MBAs), Certified Public Accountants, Chartered Financial Analysts, and Certified Valuation Analysts. We are active members in the National Society of Certified Healthcare Business Consultants and the Medical Group Management Association.
ValueScope’s clients include:
- Physician practices
- Surgery centers
- MRI centers
- Home healthcare
- Hospice agencies
- Nursing homes
- Ambulatory outpatient care facilities
- Group purchasing organizations (GPOs)
We have dealt with critical issues such as Medicare cost reporting, cost shifting, reimbursement rate adjustments, beneficiary limits, sequential billing rules, CMS/RAC Audits, “Operation Restore Trust,” platform holding rules, line item limitation rules, HIPAA rules, OIG issues, Stark Law, prospective payment systems, HMO/PPO reimbursement structures, and the continued restructuring of government eligibility and payment rules.
[i] Bloomberg Healthcare Fraud Report, Outlook 2015: Uptick Expected in Stark, Anti-Kickback FCA Cases, Self-Disclosures