A Regulatory Overview Rachel Abramovitz, Esq., LL.B., LL.M.C. This presentation is for informational purposes only and is not intended to be legal advice. Receipt of this material does not establish an attorney-client relationship.

What is Fraud and Abuse anyway? Medicare fraud is typically characterized by: Knowingly submitting false statements or making misrepresentations of fact to obtain a federal health care payment for which no entitlement would otherwise exist; Knowingly soliciting, paying, and/or accepting remuneration to induce or reward referrals for items or services reimbursed by Federal health care programs; or Making prohibited referrals for certain designated health services.

What is Fraud and Abuse anyway? Medicare abuse Practices that, either directly or indirectly, result in unnecessary costs to the Medicare Program Any practice that is not consistent with the goals of providing patients with services that are medically necessary, meet professionally recognized standards, and priced fairly Examples: Billing for services that were not medically necessary Charging excessively for services or supplies; and Misusing codes on a claim, such as upcoding or unbundling codes.

What is Fraud and Abuse anyway? Prohibition on Self Referrals Strict liability law, does not require intent Our focus for today – F&A in physician contracts: The Anti-Kick Back Statute [42 U.S.C. § 1320a-7b(b)] Anti-Kick Back safe harbors [42 CFR § (a)-(u)] Physician Self-Referral Law (Stark) [42 U.S.C. § 1395nn] Stark safe harbors Exclusion Statute [42 U.S.C. § 1320a-7] Useful links training/files/StarkandAKSChartHandout508.pdf

The Anti-Kickback Statute A criminal law Prohibits “kickbacks” the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or services payable by the Federal health care programs (Medicare or Medicaid) Remuneration includes anything of value (free rent, expensive hotel stays and meals) The payer and the recipient alike are both in violation of the statute if they knowingly and willfully made or received a kickback Criminal penalties include fines, jail terms and exclusion from participation in Federal health care programs. Fines can be up to $50k per kickback, plus three times the amount of the remuneration

The Anti-Kickback Personal services safe harbor The safe harbor for personal services applies to physician contracts To be protected by the safe harbor the arrangement must fit “squarely” within the safe harbor Remuneration does not include any payment made by a principal to an agent as compensation for the services of the agent, as long as the following 7 standards are met: Written agreement signed by the parties Agreement covers all services the agent provides to the principal for the term and specifies what those services are If the agreement is for periodic/sporadic or part-time services, agreement must specify exactly the schedule of such intervals, their precise length and the exact charge for such intervals Term of at least 1 year

The Anti-Kickback Personal Services safe harbor (cont’d) Aggregate compensation over the term paid to agent is set in advance, is consistent with fair market value in an arms-length transaction and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment made by made in whole or in part under Medicare, Medicaid or other Federal health care programs. Services do not involve counseling or promotion of a business arrangement or activity that violates State of Federal law Aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonably business purpose of the services.

The Anti-Kickback Personal Services safe harbor (cont’d) OIG Advisory Opinion No : “… kickbacks might take the form of payments that exceed fair market value for services rendered or payments for on-call coverage not actually provided. … problematic compensation structures that might disguise kickback payments could include, by way of example: (i) “lost opportunity” or … payments that do not reflect bona fide lost income; (ii) payment structures that compensate physicians when no identifiable services are provided; (iii) aggregate on-call payments that are disproportionately high compared to the physician’s regular medical practice income; or (iv) payment structures that compensate the on-call physician for professional services for which he or she receives separate reimbursement from insurers or patients, resulting in the physician essentially being paid twice for the same service.”

The Anti-Kickback Personal Services safe harbor (cont’d) OIG Advisory Opinion No : “… improperly structured payments for on-call coverage could be used to disguise unlawful remuneration. … kickbacks might take the form of payments that exceed fair market value for services rendered or payments for on-call coverage not actually provided. … compensation structures that might disguise kickbacks could include, by way of example: (i) “lost opportunity” or similarly designed payments that do not reflect bona fide lost income; (ii) payment structures that compensate physicians when no identifiable services are provided; (iii) aggregate on-call payments that are disproportionately high compared to the physician’s regular medical practice income; or (iv) payment structures that compensate the on-call physician for professional services for which he or she receives separate reimbursement from insurers or patients, resulting in the physician essentially being paid twice for the same service.”

The Anti-Kickback Space Rental safe harbor Remuneration does not include any payment made by a lessee to a lessor for use of premises, as long as all of the following 6 standards are met: Written lease agreement, signed by the parties Lease covers all of the premises leased between the parties for the term and specifies which premises are covered If lease is intended to provide lessee with access to the premises for periodic intervals rather than full time, lease specifies exactly the schedule of such intervals, their precise length and exact rent for such intervals Term is for at least 1 year Aggregate rental charge set in advance, consistent with fair market value in arms length transactions, not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment made be made in whole or in part under Medicare, Medicaid, or other Federal health care programs.

The Anti-Kickback Space Rental safe harbor (cont’d) Aggregate space rented does not exceed that which is reasonably necessary to accomplish the commercially reasonable business purpose of the rental Fair market value means the value of the rental property for general commercial purposes Cannot be adjusted to reflect the additional value that a party would attribute to the property as a result of its proximity to convenience to sources of referrals or business otherwise generated for which payment may be made in whole or in part under Medicare, Medicaid and all other Federal health care programs

The Anti-Kickback Sale of Practice safe harbor No comparable Stark safe harbor In a sale by one practitioner to another practitioner, both of the following standards must be met: Period from date of first agreement to completion of sale not more than 1 year Seller not in a position to make referrals to or otherwise generate business for the buyer under Medicare or a State health care program after 1 year from date of first agreement

The Anti-Kickback Sale of Practice safe harbor (cont’d) In a sale by a practitioner to a hospital or other entity, the following 4 standards must be met: Period from date of first agreement to completion of sale, not more than 3 years Seller will not be in a professional position after completion of the sale to make or influence referrals to, or otherwise generated business for, the purchasing hospital or entity for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs Acquired practice must be located in a Health Professional Shortage Area (HPSA) for the seller’s specialty area As of time of first agreement, purchasing entity must diligent and in good faith engage in recruitment activities to hire a new practitioner to take over the seller’s practice

The Anti-Kickback Practitioner Recruitment safe harbor Remuneration does not include any payment of exchange of anything of value by purchaser to induce practitioner practicing within her current specialty for less than 1 year to locate, or to induce any other practitioner to relocate her primary place of practice into a HPSA for her specialty area, as long as the following 9 standards are met: Written agreement signed by the parties, specifying benefits provided by purchaser, terms of benefits and obligations of each party If practitioner leaving established practice, at least 75% of revenues of new practice must be generated from new patients not previously seen by practitioner at her former practice

The Anti-Kickback Practitioner Recruitment safe harbor (cont’d) Benefits to be provided for not more than 3 years, terms cannot be substantially re-negotiated during the 3 year period, unless HPSA ceases to be a HPSA No requirement that practitioner made referrals, be in a position to make or influence referrals or otherwise generate business for the purchaser as a condition for receiving benefits; except that purchaser may require that practitioner maintain staff privileges at purchaser Practitioner not restricted from establishing staff privileges at, referring any service to, or otherwise generating any business for any other entity of her choosing

The Anti-Kickback Practitioner Recruitment safe harbor (cont’d) Amount or value of benefits provided by purchaser may not vary, be adjusted or renegotiated in any manner based on volume or value of any expected referrals to or business otherwise generated for the purchaser by practitioner for which payment may be made in whole or in part under Medicare, Medicaid or any other Federal health care programs Practitioner agrees to treat patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner At least 75% of the revenues of the new practices must be generated from patients residing in a HPSA or a Medically Underserved Area, or part of a Medically Underserved Population Payment or exchange of anything of value may not directly or indirectly benefit any person (other than practitioner) or entity in a position to make or influence referrals to the recruiting entity or benefits of items or services payable by a Federal health care program

The Stark Law Section 1877 of the Social Security Act, commonly referred to as the Stark Law Prohibits physicians from referring patients to an entity for receipt of “designated health services” payable by Medicare or Medicaid, if the physician or an immediate family member has a financial relationship with the entity, unless an exception applies “Financial relationship” direct or indirect ownership or investment interest in an entity through equity, debt or other means, or a direct or indirect compensation arrangement with an entity “Physician” a doctor of medicine or osteopathy, doctor of dental surgery or dental medicine, doctor of podiatric medicine, doctor of optometry or a chiropractor

The Stark Law (cont’d) “Immediate family member” husband or wife; birth or adoptive parent; child or sibling; stepparent, stepchild, stepbrother/sister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law; grandparent or grandchild, spouse of a grandparent or grandchild “Referral” a request by a physician for an item or service payable under Medicare or Medicaid (including the request by a physician for consultation with another physician and any test or procedure ordered or performed by such other physician), or a request by a physician for the establishment of a plan of care that includes the provision of DHS does not include service personally performed by a referring/ordering physician.

The Stark Law (cont’d) “Designated health services” are: Clinical laboratory services Physical therapy, occupational therapy, and outpatient speech-language pathology services Radiology and certain other imaging services Radiation therapy services and supplies DME and supplies Parenteral and enteral nutrients, equipment and supplies Prosthetics, orthotics and prosthetic devices and supplies Home health services Outpatient prescription drugs; and Inpatient and outpatient hospital services

The Stark Law (cont’d) All physician contracts must comply physician employment / independent contractor arrangements administrative services (e.g. medical director) recruiting arrangements/agreements, practice acquisitions organizational and operational structures of “group practices” group practice compensation, including profit distribution group practice ancillary services arrangements space and equipment leases office sharing and timesharing agreements economic relationships between physicians and hospitals (designated health service referrals, loan agreements, hospital guaranties of physician obligations)

The Stark Law (cont’d) “Group Practice” means single legal entity that bills under a single Medicare number has at least two “member” physicians providing medical services each member must provide the group the full range of services that the physician routinely provides at least 75% of the aggregate services that the member physicians provide, must be provided through the group practice members must personally conduct at least 75% of the physician-patient encounters subject to applicable local law, may be owned by physicians or another operating medical practice and may own and operate subsidiary entities the method of payment of overhead and distribution of income must be determined in advance the group must be governed by a centralized body, e.g. Board of Directors

The Stark Law (cont’d) Strict liability statute Prohibits the submission, or causing the submission, of claims in violation of the law proof of specific intent to violate the law not required denial of payment refund obligation Civil Monetary Penalties and program exclusion only for knowing violations Civil monetary penalties up to $15k for each service Potential False Claims Act liability Exclusion from Medicare/Medicaid programs

The Stark Law (cont’d) Exceptions (42 CFR ) include referrals for: Physician services within the same group practice In-office ancillary services Services furnished by an organization (or its contractors or subcontract0rs) to enrollees in pre-paid health plans Services by an academic medical centers Certain implants furnished by Ambulatory Services Centers Certain EPO and other dialysis-related drugs Certain preventive screening tests, immunizations and vaccines Eyeglasses and contact lenses following cataract surgery Intra-family rural referrals Exceptions require strict compliance with every element

The Stark Law (cont’d) Practice restrictions and non-competes When a hospital medical practice recruits a physician, the employment agreement between the medical practice and the physician may contain practice restrictions, as long as they do not “unreasonably restrict the physician’s ability to practice medicine within the recruiting hospital’s service area.” Parties to an arrangement may seek an advisory opinion from CMS whether the arrangement constitutes a “financial relationship” and/or whether any exceptions apply CMS 2011 advisory opinion / OIG permitted a one year noncompete clause because it did not “unreasonably restrict the doctor’s ability to practice in the recruiting hospital’s service area.”

The Stark Law (cont’d) Practice restrictions and non-competes (cont’d) Use of non-competes may be restricted by applicable state law AMA Opinion restrictive covenants unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician State law may determine ownership of patient’s medical records AMA Opinion 7.01 – everything that can reasonably and lawfully be done to serve the interest of the patient, including making a patient’s medical records “promptly available on request to another physician presently treatment the patient Provide access to/copies of medical records of physician’s patients upon authorization of patient Allow physician to continue treating a patient for acute illness after termination

The Stark Law (cont’d) Practice restrictions and non-competes (cont’d) Valuation or volume of referrals should not be considered in determining fair market value when purchasing a physician practice or hiring a physician that was formerly running her own practice Alternatives would be a fair market value of compensation analysis (how much would the physician earn if she remained independent)

Stark Personal Services safe harbor Arrangement is in writing; signed by the parties Specifies the services covered and covers all services to be furnished by the physician (or her immediate family member) all separate arrangements between the entity and the physician / family members may incorporate each other by reference by cross-referencing the master list of contracts maintained by the Secretary of HHS Services may be furnished through employees hired by the physician / family member; through a wholly owned entity; through “locum tenens physicians, i.e. a substitute physician Aggregate services contracted for do not exceed those that are reasonable and necessary for the legitimate business purpose of the arrangement

Stark Personal Services safe harbor (cont’d) Term of at least 1 year If arrangement terminated during the term without cause, the parties may not enter into the same or substantially the same arrangement during the first year of the original term Compensation is set in advance does not exceed fair market value Except in the case of a physician incentive plan (42 CFR ), is not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties Services do not involve counseling or promotion of a business arrangement that violates any Federal or State law A holdover personal service arrangement for up to 6 months following expiration under the same terms is OK

Exclusion Statute Exclusion Statute [42 U.S.C. § 1320a-7] The OIG (Office of the Inspector General) is required to exclude from participation in all Federal health care programs individuals and entities convicted of Medicare or Medicaid fraud, and has discretion to exclude individuals and entities on other grounds, including engaging in unlawful kickback arrangements Excluded physicians may not bill directly for treatment Medicare and Medicaid patient, nor may their services be billed indirectly through an employer or a group practice. Prescriptions written by an excluded physician will not be reimbursable by any Federal healthcare program

Exclusion Statute (cont’d) Exclusion Statute [42 U.S.C. § 1320a-7] (cont’d) Healthcare providers are responsible for ensuring that they do not employ or contract with excluded individuals or entities All current and prospective employees and contractors must be screened against OIG’s list of excluded individuals and entities

Fraud and Abuse – recent cases a Newark, NJ gastroenterologist entered into a settlement agreement with the OIG for $104, The OIG alleged that the doctor received remuneration from an imaging facility in Orange, NJ, in exchange for patient referrals a former Florida-based distributor for Zimmer, Inc. entered into a $123,000 settlement agreement with the OIG. The OIG alleged that two ZDI independent contractors paid third parties to recommend Zimmer, Inc. products to Florida-based physicians a former owner of a Kearny, NJ, medical practice entered into a settlement agreement with the OIG for $52,280. The OIG alleged that the doctor received kickbacks from a diagnostic testing facility, in exchange for patient referrals.

Fraud and Abuse – recent cases (cont’d) Harper's Hospice Care, Inc. agreed to pay $150,000. OIG alleged that Harper's Hospice paid remuneration to a physician in the form of medical directorship fees in exchange for the physician referring patients to Harper's Hospice for hospice services and pre- singing blank prescription forms for patients treated by Harper's Hospice Ukiah Valley Medical Center (UVMC), California, agreed to pay $1,692,588. OIG alleged that UVMC paid improper remuneration to physicians who invested in a joint venture ambulatory surgical center with UVMC Havasu Regional Medical Center (Havasu), Arizona, agreed to pay $510, OIG alleged that Havasu paid remuneration to a doctor in the form of the allowed rental of usable space at a below-market rental rate and the inappropriate provision of employee services.

Fraud and Abuse – recent cases (cont’d) Kishwaukee Community Hospital (Kishwaukee), Illinois, agreed to pay $230,320. OIG alleged that Kishwaukee paid remuneration to three medical group practices in the forms of a cash collections guarantee, start-up expenses, and loan forgiveness to subsidize the practices recruitment of a midwife, an advanced practice nurse practitioner, and a certified nurse practitioner Helen Newberry Joy Hospital (HNJH), Michigan, agreed to pay $221, OIG alleged that HNJH entered into improper financial relationships with a doctor involving the lease of space, discounted internet service, professional liability and health insurance, arrangement for office supplies and pharmaceuticals, arrangement for back-up call coverage, physician supervision and attendance at certain medical leadership meetings, and failure to collect interest on an outstanding loan balance.

Fraud and Abuse – recent cases (cont’d) United General Hospital - Public Hospital District 304 (UGH), Washington, agreed to pay $74,067. The OIG alleged that UGH paid remuneration to a physician in the form of excessive compensation for services performed at its facility Molina Healthcare of Florida, Inc. (Molina), agreed to pay $257,111. The OIG alleged that Molina offered to increase the capitation rates paid to four physicians in exchange for the referral of their patients to Molina and did increase the capitation rates of two of the four physicians Paul Lux, M.D., Missouri, agreed to pay $63,900. The OIG alleged that Dr. Lux received remuneration from a medical device manufacturer in the form of payments made under a clinical registry contract.

Fraud and Abuse – recent cases (cont’d) Hospital Authority of Benn Hill County, Georgia d/b/a Dorminy Medical Center (Dorminy), agreed to pay $50,000. The OIG alleged that Dorminy paid remuneration to a doctor in the form of free use of hospital space for a period of time ForTec Medical, Inc., ForTec Litho, LLC, ForTec Litho Florida, LLC, ForTec Litho Central, LLC, and ForTec Litho NY, LLC (collectively, ForTec), Illinois, agreed to pay $126, The OIG alleged that ForTec provided customers (including physicians) an all-expense paid trip to the Masters Golf Tournament. The OIG concluded that the trips were intended to induce referrals Carlsbad Medical Center, LLC (CMC), New Mexico, agreed to pay $995,380. The OIG alleged that CMC paid remuneration to three orthopedists in the form of improper payments for on-call coverage, malpractice insurance, travel reimbursement, and overpayments under an income guarantee agreement.