GEORGIA HOSPITAL ASSOCIATION CENTER FOR RURAL HEALTH ANNUAL SUMMER MEETING August 13-15, 2014 CONTRACT COMPLIANCE Daniel J. Mohan Partner Health Law Group

CONTRACT COMPLIANCE Presentation will cover the following: What are we talking about when we talk about “Contract Compliance”? What types of contracts? What is “compliance”? Why is compliance important? Are your contracts compliant? Requirements of compliant contracts Contract compliance audit What to do if you have non-compliant contracts

WHAT TYPES OF CONTRACTS? Focus on contracts that describe common hospital – physician financial arrangements Any arrangement between a hospital and a physician, physician group practice, entity in which a physician holds an ownership interest, or Any arrangement between the hospital and an immediate family member of the physician Arrangements at issue are any arrangement which involves the payment of money or other “remuneration” by the hospital to the doctor (or an immediate family member), or by the doctor (or an immediate family member) to the hospital

COMMON TYPES OF HOSPITAL-PHYSICIAN CONTRACTUAL ARRANGEMENTS Employment Arrangements Personal Services Arrangements Medical Director Diagnostic Test Interpretation Call Coverage Arrangement Department Staffing Arrangement Consulting Services Office Leases Equipment Leases Management Services Arrangements Recruitment Arrangements Practice Acquisitions

COMPLIANCE WITH WHAT? Concerned about ensuring that hospital-physician arrangements do not violate myriad of state and federal healthcare laws, primarily: Federal Anti-Kickback Statute Federal “Stark” Law Federal False Claims Act Federal Civil Monetary Penalties Act Other Federal Anti-Fraud Statutes State Anti-Kickback, Anti-Fraud and Self-Referral Laws

FEDERAL ANTI-KICKBACK STATUTE Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) provides that: Illegal remunerations. (1) Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind – (A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or (B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both. Whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person – (A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or (B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program,

FEDERAL “STARK” LAW The federal Ethics in Patient Self-Referral Law, a/k/a the “Stark” Law (42 U.S.C. § 1395nn) provides that If a physician (or an immediate family member of such physician) has a financial relationship with an entity (a) the physician may not make a referral to the entity for the furnishing of a “designated health service” for which payment may be made by Medicare, and the entity may not present or cause to presented to Medicare a claim for reimbursement or bill to any individual for designated health services provided by the entity in connection with a prohibited referral, unless a specific exception under the Stark Law is met

FEDERAL FALSE CLAIMS ACT The Federal False Claims Act (31 U.S.C. § 3729(a)) provides that Liability for certain acts. (1) In general. Any person who – (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; … (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person.

WHY IS COMPLIANCE IMPORTANT? Recent judgments and/or settlements of AKS, Stark Law, Civil Monetary Penalties and FCA enforcement actions against hospitals and healthcare systems Tuomey Healthcare 301 bed hospital in Sumter, South Carolina Qui tam relator filed suit in October 2005 – physician offered opportunity to participate in arrangement but declined Qui tam complaint, alleged part-time employment arrangements with 19 surgeons on Tuomey’s medical staff violated Stark Law and FCA Case went to trial Jury found in favor of government and qui tam relator Judge assessed civil fees and penalties against Tuomey in the amount of $267.7 million; later reduced to $237 million

RECENT SETTLEMENTS HALIFAX HOSPITAL MEDICAL CENTER 678 bed hospital in Daytona Beach, Florida Qui tam relator filed suit in June 2009 – director of physician services Alleged that hospital established impermissible bonus compensation arrangements with employed physicians that compensated physicians, in part, based on the value or volume of referrals Halifax settled alleged violations of AKS/Stark/FCA for $85 Million HARMON MEMORIAL HOSPITAL 72 bed hospital located in Hollis, OK Qui tam relator, former hospital CEO, filed qui tam suit Alleged hospital engaged in a variety of impermissible financial relationships with medical staff physicians including rent-free office space free office staff and billing and collection services reimbursement for services provided in Emergency Department that physician also billed for directly Payment of locums tenens services to cover doctor’s practice Hospital settled for $550,000; doctor settled for $1 million

RECENT SETTLEMENTS JACKSON PURCHASE MEDICAL CENTER 107 bed acute care hospital in Mayfield, Kentucky Alleged that hospital provided orthopedic surgeon with impermissible financial benefits, including hospital employed P.A. to work in physician’s practice at no charge to doctor waived payment of rent on MOB space occupied by doctor did not collect rent on equipment lease for diagnostic imaging equipment owned by hospital and used in doctor’s space Hospital settled AKS/Stark/FCA allegations for $850,000 WHEATON COMMUNITY HOSPITAL 25 bed critical access hospital located in Wheaton, Minnesota Case initiated by qui tam relator, former partner of physician involved in alleged misbehavior Complaint alleged that physician admitted patients to hospital when admissions were not medically necessary Hospital settled CMP/FCA allegations for $563,000; doctor settled allegations for $283,000

RECENT SETTLEMENTS COMMON THEMES: Overwhelming number of cases involved impermissible hospital-physician relationships Most of cases were initiated by “qui tam” relator; i.e., whistleblower Anyone is a possible whistleblower Former CEOs, administrators, other senior executives Disgruntled former employees (nurses, technicians, billing office, front office) Disgruntled physicians Competitors No hospital is too small, too rural, or “too otherwise” to avoid a qui tam complaint and investigation No hospital is too small, too rural, “too otherwise” to avoid paying fines and penalties if the government believes the conduct is sufficiently egregious Doctors are often forced to pay, as well

COMING INTO COMPLIANCE COMPLIANCE PLAN Compliance Plan provisions regarding contract compliance Maintain “master list” of hospital-physician contracts System for regularly updating the list Understanding requirements for compliant contracts Implement and administer contract control system to confirm compliance

CONTRACT COMPLIANCE How does a hospital determine if contracts are compliant? SELF-AUDIT! Step 1: Compile list of existing hospital-physician financial arrangements How to identify hospital-physician arrangements? FOLLOW THE MONEY! Stark Law is implicated whenever a “financial arrangement” exists between a hospital and a doctor Any arrangement involving hospital paying money to or receiving “money” from doctor (a/k/a “remuneration,” i.e., anything of value) creates a financial arrangement that implicates Stark and AKS Review hospital records to identify (a) all payments made by hospital to doctor, (b) all payments received by hospital from doctor

CONTRACT COMPLIANCE Step 2: Confirm accuracy of list Once preliminary list of hospital-physician arrangements is compiled, circulate list to senior hospital executive staff to confirm accuracy Tracking payments made to and from physicians is a good starting point, but imperfect method for identifying all potential relationships May not pick up Arrangements where no monetary payments are being made Joint venture arrangements Arrangements with companies owned, in whole or in part, by physicians Arrangements with immediate family members of physicians or companies owned by immediate family members of physicians

CONTRACT COMPLIANCE Step 3: Determine if written agreements are in place for each hospital-physician arrangement Does the hospital have a copy of a written agreement documenting the terms of each hospital-physician arrangement?

STARK LAW EXCEPTION REQUIREMENT GRID CONTRACT COMPLIANCE STARK LAW EXCEPTION REQUIREMENT GRID Employment Personal Services Space Lease Equipment Lease Recruitment Isolated Transactions FMV Compensation Written Agreement, signed by parties X Describes all services covered Agreement covers all services provided Aggregate services/items do not exceed reasonably necessary for legitimate business purposes Term of Agreement at least one (1) year Compensation paid is set in advance, consistent with FMV, not based on volume or value of referrals “Commercially reasonable”

CONTRACT COMPLIANCE AUDIT CHECKLIST STEP 4: Review all hospital-physician contract arrangements against Audit Checklist

CONTRACT COMPLIANCE AUDIT CHECKLIST Basic questions to confirm the contract meets applicable Stark exception and AKS requirements Is there a written agreement? Was the agreement signed by all the parties? Does the agreement specifically and adequately describe all of the items and/or services provided? Are the services/items reasonably necessary for legitimate business purposes? Does the term of the agreement run for at least one year? Has the original term expired or contract terminated? If so, did the term automatically renew, or is there evidence that parties renewed the agreement? Is compensation/payments made under the agreement Set in advance Consistent with FMV Not based on volume or value of referrals? Is the arrangement “commercially reasonable”?

COMMON CONTRACT COMPLIANCE ISSUES EMPLOYMENT Common compliance issues arising out of physician employment arrangements include the following: FMV nature of compensation Poorly constructed compensation plans that arguably compensate physicians based on volume or value of referrals “Commercial reasonableness” of arrangement Full-time services Compensation based on provision of specified services, but physician not providing services

COMMON CONTRACT COMPLIANCE ISSUES PERSONAL SERVICES ARRANGEMENTS Common compliance issues arising out of personal services arrangements with physicians include the following: No written agreement Agreement drafted but not signed by the parties Agreement does not adequately describe services to be provided Physician does not perform all services described in the agreement Lack of documentation to support services provided by physician Agreement expired and either did not renew automatically or parties failed to act affirmatively to renew FMV nature of compensation Evidence in file to support FMV of compensation? “Commercial reasonableness” of relationship Need for services provided by physician Qualifications of physician to provide services Physician is best person to provide services

COMMON CONTRACT COMPLIANCE ISSUES SPACE LEASES Common compliance issues arising out of medical office lease arrangements include the following: Lack of written lease agreement Lease not signed by parties Lease terminated or expired, no automatic renewal or parties did not affirmatively act to renew the lease Rent and FMV of rent If hospital is landlord, collecting rent? How was rent determined? Evidence to support FMV of rent (above or below FMV) How common area costs, utilities, etc. are apportioned or paid for ? Rent adjust? If long term lease, FMV of rent reviewed after period of years? Space leased is not commensurate with what is reasonable and necessary for legitimate business purposes of lease Hospital leasing more space from physician landlord than it needs, intends to fill, or is using? If physician is tenant, does lease describe all space the physician is using and paying for? “Specialty clinics” How is FMV of rent determined? Rent include all items and services provided? Lease specifically describe intervals of time physician is occupying space and physician uses space only during that time?

COMMON CONTRACT COMPLIANCE ISSUES EQUIPMENT LEASES Common compliance issues arising out of equipment lease arrangements include the following: Lack of written lease agreement Lease not signed by parties Lease terminated or expired, and not renewed Rent and FMV of rent Rent being paid? How was rent set? Evidence to support FMV of rent? Rent based in whole or in part on percentage of revenue or “per click” or per unit charge Hospital leases more equipment than it needs, or more time than needed Lessee not using equipment exclusively during time contracted for use

COMMON CONTRACT COMPLIANCE ISSUES PHYISICIAN RECRUITMENT ARRANGEMENTS Common compliance issues with respect to physician recruitment arrangements include the following: Lack of written agreement Agreement not signed by parties If recruiting to an existing practice, lack of written agreement signed by hospital, doctor and group Physician not meet “relocation of medical practice from outside geographic area served by the hospital” requirement If Physician is recruited to join an existing practice “Remuneration” payable by hospital to recruited doctor (i.e., income guarantee) is not passed by the group directly through the group to the employed physician Improper allocation of practice group expenses attributable to new physician Hospital may only reimburse “actual additional incremental costs” allocated to the new physician (i.e., no allocation of general overhead expense of practice)

CONTRACT COMPLIANCE Step 5: Post-compliance audit action items You have found no compliance issues – CONGRATULATIONS! You determine that you have potentially non-compliant physician contractual arrangements

CONTRACT COMPLIANCE ACTION ITEM 1: Fix the non-compliant agreements immediately ACTION ITEM 2: Consider whether to make a self-disclosure to applicable state and/or federal agencies of non- compliant arrangements ACTION ITEM 3: Administer existing compliance policies regarding contract compliance, or develop, adopt and administer new contract compliance policies to ensure compliance in the future and avoid future violations