On November 1, 2018, the Centers for Medicare & Medicaid Services (“CMS”) filed the pre-publication version of the CY 2019 Physician Fee Schedule Final Rule (“2019 PFS Final Rule”). Within this massive publication, CMS finalized two regulatory changes affecting the exceptions at 42 CFR § 411.357 to the Physician Self-Referral Law (also known as the “Stark Law”) for compensation arrangements. The 2019 PFS Final Rule reconciles the regulations with the statutory changes made to the Stark Law enacted by the Bipartisan Budget Act of 2018 (“2018 BBA”) with respect to (1) how arrangements may fulfill the “writing” requirement under the compensation exception and (2) how arrangements that initially proceed without a signed agreement may still meet the signature requirement of an applicable exception. Parties to financial arrangements in effect on or after February 9, 2018 that implicate the Stark Law may rely upon these new modifications.

The Stark Law generally prohibits a physician from making a referral of designated health services (“DHS”) to an entity with which he or she (or an immediate family member) has a financial relationship. Section 411.357 details several excepted compensation arrangements carved out from the “financial relationship” definition for the purposes of the Stark Law. These exceptions include arrangements for the rental of office space and equipment, bona fide employment relationships, group practice arrangements with hospitals, certain fair-market-value compensation arrangements, among others.
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Barsky

Yesterday, our colleague Troy A. Barsky testified before the U.S. Senate Finance Committee led by Chairman Orrin Hatch (R-Utah) and provided recommendations for modernizing the Stark Law to regulate self-referrals without impeding the care coordination and value-based payment models promoted by health care reform legislation. Other witnesses before the Committee included Dr. Ronald A. Paulus

On Tuesday July 12, 2016, the Senate Finance Committee (“Committee”) will hold a hearing on “Examining the Stark Law: Current Issues and Opportunities.” Crowell & Moring Partner Troy Barsky will be testifying before the Committee as a Stark Law subject matter authority.

In advance of this hearing, the Committee released last week the white paper “Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models.”  Amid growing support for Stark law reform, the white paper deems the Stark law, as currently drafted, both an impediment to implementing health care reform, e.g., the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), and of limited value given shifts from fee-for-service to alternative payment models that reward quality health care rather than the volume of services.

The white paper focuses predominantly on modifications to the Stark law that would remove obstacles to implementing health care reform. After a roundtable held in December, 2015, that was co-moderated by Troy Barsky, the Committee had solicited and received a range of stakeholder comments that proposed various Stark law reform solutions: repeal the law in its entirety; repeal the compensation arrangement prohibitions; implement new exceptions and modify existing exceptions; implement new or expand existing waivers; and expand CMS’s regulatory authority pertaining to waivers, exceptions, and advisory opinions. These comments are catalogued and discussed throughout the white paper. The white paper also examined the need to distinguish between technical, e.g. documentation requirements, and substantive violations of the Stark law.  Commenters generally agreed that a separate set of sanctions should apply to technical violations and that such violations should not give rise to False Claims Act exposure.


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The Office of Inspector General, Department of Health and Human Services, has recently issued guidance for those of its contractors seeking to self-disclose reportable conduct under the Federal Acquisition Regulations (“FAR”). Under federal regulations governing relationships between the federal government and its contractors, any contractors with credible evidence of a potential violation of the False Claims Act or federal criminal law involving fraud, bribery, gratuity, or conflict of interest must make a timely disclosure of such violations to the Office of Inspector General for the agency with which they contract. Failure to timely self-report these potential violations can result in the suspension of contracts or the debarment of the contractor. This requirement applies only to contractors whose contracts are governed by the FAR and which are valued at over $5,000,000.

The guidance details the information required to be included on the disclosure form, including the date the issue was discovered, detailed descriptions of any internal investigation undertaken, and a quantification of the financial harm to the government and any potential overpayments. In addition to the guidance, issued in April of 2014, OIG has provided FAQs for contractors covered by the FAR who may be considering a disclosure.


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In issuing Advisory Opinion 14-03 (the “New Opinion”) in early April, OIG also took the highly unusual step of rescinding another advisory opinion issued in 2011, Opinion 11-18 (the “2011 Opinion”). Both opinions involve electronic health record (EHR) interfaces that facilitate physician referrals to outside providers and suppliers for ancillary services. As OIG continues to signal its increasing interest in policing EHR-related fraud, this action only serves to reinforce the idea that not only should providers using such systems should be vigilant in ensuring that their systems are compliant with established meaningful use requirements, they should also ensure that vendor relationships that involve EHR coordination comply with federal anti-kickback and Stark law rules as well.

The 2011 Opinion originally examined and found acceptable an arrangement whereby a provider of electronic practice management services (the “First Requestor”) offered a package of EHR software to clients for a discounted monthly subscription fee. The First Requestor charged a small per-transaction fee for the service of facilitating electronic referrals between health professionals and other physicians and ancillary service providers who were not “trading partners,” meaning that they had not enrolled in First Requestor’s service. The total amount of fees that the First Requestor could collect from a provider was capped at the amount of the discount on the overall package. Services provided included the transfer of relevant records, tracking communications between the providers, tracking orders by referring providers, and issuing patient referral reminders. The First Requestor provided trading partners with access to a database of information about providers offering certain services (i.e., labs, pharmacies, DME suppliers, and imaging services) that included both trading partners and non-trading partners.


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On October 2, 2013, the federal district court in Columbia, South Carolina imposed a landmark $237 million judgment in a much-discussed False Claims Act case which was predicated on violations of the Physician Self-Referral (Stark) Law, U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc.1 The case was originally filed as a qui tam case in 2005 by a physician, Michael Drakeford. The federal government intervened in the case in 2007. 

The relator Drakeford and the government alleged that Tuomey Healthcare System (Tuomey) had established employment relationships with certain referring physicians which did not meet a Stark Law “exception,” thus tainting all Medicare referrals and claims submitted by Tuomey for services resulting from these physicians’ referrals. The physicians, employed through Tuomey’s affiliated medical practice groups, were part-time employees and their compensation covered only the physicians’ outpatient surgery services. The physicians’ salaries were adjusted according to collections received by the hospital for the services personally performed by the physicians. The physicians also received productivity and quality bonuses based on a percentage of these collections. 


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