Frequently Asked Questions
Business lawyers are very good at representing businesses. Most of them have absolutely no background in representing physicians in health law matters. With millions of dollars hanging in the balance, depending upon how you structure your next contract, the last thing you need is a business lawyer who asks, “What’s a Stark Law?”
What is Stark Law?
The AMA Code of Medical Ethics, at one time, merely served as a model
for state licensing bodies. At worst, if a physician’s marketing
plan ran afoul of ethics rules, he or she might get a call to “cut
it out.” As the Medicare program began running a deficit, and in
essence became insolvent, HHS realized it would be difficult to curb
costs by challenging the medical necessity of treatment. Instead,
Congress and federal agencies decided to attack medical capitalism
by outlawing referrals of patients at the source. To do this, the
government converted the AMA Code of Ethics into federal offenses
which outlaw marketing relationships leading to referrals, or more
particularly, billing the government if a referral source is
forbidden. Stark Law and the Anti-Kickback Statute are based upon
Ethics Opinions 8.032 and 6.02-6.04 respectively.
This answer requires constant study of a mind-boggling number of
regulations and careful examination of the facts of each case. A
provider need not intend to defraud the government, nor is it
necessary that the government actually be harmed by a violation.
Even where the patient desperately needed the service, and the
government legitimately should pay the bill, if the service was
rendered by even a technical violation of a regulation, then the
prerequisite for submission of the bill has not been satisfied, and
the False Claims Act of the Civil Monetary Penalties Act may be
Most violations are not "fraud" at all, but what may best be described
as “malum prohibitum.” That act is only wrong, because the
government says so. The most common ways to accidentally violate
Fraud and Abuse laws come from “Contracts” or “Relationships” with
other providers. These contracts can be perfectly legal in other
businesses, such as employment contract between a doctor and a
hospital, an office lease between two doctors, a medical
directorship agreement with and ASC, an agreement between providers
to share leased equipment, or where the physician has an investment
interest in a facility to which a patient is referred. Federal
regulations set forth a host of “Safe Harbor” regulations which must
be strictly followed if the bill for service is to be deemed
“compliant.” This “failure to do what the government dictates”
becomes Fraud in the False Claims Act sense, because the government
requires a certification that a physician has complied with Stark
Law and the AKS. If the physician has in fact failed to comply, the
claim is a False Claim, if done knowingly. A physician need not know
he has violated a statute, he must simply knowingly do some act that
is against a regulation.
A physician owns a free standing building near a hospital. The hospital wishes to lease the building on a handshake deal, even though the space is larger than required, the hospital is willing to pay much more than the fair market value– expecting to make up the difference in referrals from the physician. Rather than a traditional lease, the hospital offers a percentage of the referrals to the physician as payment for the lease. Under these circumstances, the arrangement violates at least seven Anti-Kickback Safe Harbor provisions, which require that such an agreement must be in writing, for at least one year, at a rate set in advance, whi9ch is no more than fair market value, which cannot be greater than necessary for the reasonable needs of the hospital, and which must not take into account the expected number of referrals, or proximity of the space to the hospital.
What are the Chances of Prosecution?
At one time, the False Claims Act was the only way a case could be
prosecuted. This required filed by either the Attorney General or a
qui tam whistleblower. The whistleblower provision under the False
Claims Act provides that any former employee, any contractor, or any
person (including federal employees) who learn of a violation to
seek up to 30% of the recovery as a bounty. Although most judicial
enforcement actions were whistleblower suits, in 1987 Congress
passed the CMP law, which permits the OIG to begin an administrative
action, without filing suit. As an added incentive, PPACA and many
federal statutes provide that agency budgets may now be augmented by
the recoveries. Thus, prosecutors and federal agencies are partially
funded by the success of enforcement actions. The effect of all of
this, is that it is now “open season” on physicians.
If you are a medical provider and you have an ownership interest in a
facility, or have outside contracts, or agreements of any kind, you
may benefit from a low-cost “checkup” of your agreements. Most
often, violations are brought to the attention of the government by
whistleblowers seeking a bounty. It is important to get out ahead of
problems before they result in litigation.
First, the government and the patient get the treatment for free,
because the hospital and doctor must pay the government back.
Second, both may be liable for three times the payment as damages.
Third, each may be required to pay a civil penalty of $11,000 for
each bill submitted, and $50,000 for AKS violations. Fourth, either
may be excluded from the Medicare program. In sum, this is a
career-ending, and life-savings destroying catastrophe.
Used to be, no one paid any attention to Medicare Fraud and Abuse
regulations. A doctor would simply ask a business lawyer to draft up
a deal between the doctor and a hospital, imaging center, or some
facility down the street. Those days are gone. Any contract, lease,
office space rental, employment contract, medical directorship,
partnership, investment, joint venture, equipment sharing agreement,
medical supply contract, or marketing agreement must be reviewed by
a Health Lawyer such as Martin Merritt PLLC, to ensure the medical
client has not accidentally violated federal Fraud and Abuse
If a Medicare patient was referred between providers, i.e., a
physician and hospital, and a lawyer failed to make sure the
contract or arrangement between them strictly complies with Medicare
rules, neither party may bill Medicare for the service. It does not
matter that there was no fraud involved. The bill itself, may be a
False Claims Act or CMP Act violation. Each such bill is a separate
offense, punishable by a $10,000-$50,000 penalty for each bill.
A physician earning say, $100,000 a year can be sued for $50 million
or more, then disqualified from accepting Medicare patients, (or
even working for an employer who accepts Medicare patients.) And
that’s just for a technical violation. If a prosecutor decides to
make an example, the physician can be indicted for Health Care
Fraud. With the PPACA, it is now a felony for a provider to fail to
return any payment within 60 days of discovering an overpayment.
For physicians, call us before you sign any agreement. Further, feel free to call us even if you do not currently have a physician contract in the works. Martin will be happy to visit your office and discuss what contracts you have in existence, and you need to do to protect yourself. For business lawyers, if you do need a Health Law consult, you keep the client, Martin Merritt PLLC will do the Health Law aspect of the contract on either a flat rate or hourly basis, depending upon complexity. Martin will guide the client through the Health Law compliance rules and supply the contract language that gives the deal the best chance of success. You draft the remainder of the contract. Like Tax law, there is no guarantee that a contract will ultimately be found to comply with Medicare rules. However, the fact that the client hired a Health Lawyer and did all he could to comply, may very be the thing that keeps him from being prosecuted.
Martin Merritt, PLLC - Dallas Physician Law. Copyright 2012. All Rights Reserved.