1. 1 FRAUD AND ABUSE FUNDAMENTALS By Lori Nomura May 3, 2006 Association of Washington Public Hospital Districts Retreat for CEOs and Administrators “Leading Wisely, Living Well” Cave B Inn at SageCliffe Quincy, Washington May 2-4, 2006

2. 2 FRAUD & ABUSE COMPLIANCE  Effective compliance program  Health care fraud enforcement

3. 3 OBJECTIVES Overview of federal laws regulating relationships between referring entities  Recruitment  Employment  Personal services Discuss different types of compensation models and fair market value determinations Analyze commonly used exceptions and safe harbors

4. 4 Hospitals face significant risk unless their financial relationships with referring physicians fit squarely into statutory or regulatory exceptions to the Stark Statute STARK “Threshold Statute”

5. 5  If a physician (or a physician’s family member) has a financial relationship with an entity, the physician may not refer Medicare patients to the entity for designated health services unless an exception applies  Stark also prohibits an entity from billing for services provided as a result of a prohibited referral THE PROHIBITION

6. 6 FINANCIAL RELATIONSHIP Examples of ownership or investment interests include: –physician group practice –investment in an ASC or imaging facility  Ownership and investment interests can be through debt, equity or other means

7. 7 FINANCIAL RELATIONSHIP –medical director agreement with a hospital –use of hospital hardware or software to access hospital electronic records system from physician office –physician use of hospital space, equipment or supplies for service to private practice patients  Compensation Arrangements Examples: – physician employment by a hospital

8. 8 REFERRAL –The physician’s establishment of a plan of care –The physician’s request for a consultation with another physician and any test or procedure ordered by that other physician –A physician’s request or order for any DHS for which payment may be made under Part B Referral includes:

9. 9 DESIGNATED HEALTH SERVICES  Clinical lab services  PT and OT  Radiology services (MR, CT, ultrasound)  Radiation therapy  DME  Parenteral and enteral nutrients  Prosthetics and orthotics  Home health  Outpatient prescription drugs  IP and OP hospital services

10. 10 PENALTIES  Payment denial/recovery by Medicare  Refund to the individual  Civil monetary penalties of up to $15,000 per prohibited service/billing  Civil monetary penalties of up to $100,000 for a circumvention scheme  Program exclusion

11. 11 ANALYTICAL APPROACH  Does the physician refer Medicare patients to the hospital for DHS? If yes,  Does the arrangement comply with an exception? If no, any bill submitted for a DHS resulting from a prohibited referral violates the statute.  Is there a direct or indirect financial relationship between the referring physician and hospital? If yes,

12. 12 STARK EXCEPTIONS  Recruitment  Retention  Employment  Personal services

13. 13 ANTI-KICKBACK STATUTE  All providers and entities  Criminal statute  All federal health care programs

14. 14 THE PROHIBITION  Prohibits the knowing and willful offer or receipt of remuneration intended to induce or reward referrals payable by any federal health care program  Criminal statute requires intent  Greber “one purpose” test

15. 15 PENALTIES  Criminal fines and imprisonment up to five years  Civil money penalties of $50,000 plus treble damages  Exclusion from federal health care programs  Possible violation of the False Claims Act

16. 16 SAFE HARBORS  If the conduct in question complies with a safe harbor, no liability under the statute  Unlike the Stark exceptions, compliance with a safe harbor is not mandatory

17. 17 EXCEPTIONS AND SAFE HARBORS  Recruitment  Retention  Employment  Personal services

18. 18 PHYSICIAN RECRUITMENT  Only available for “qualified recruits”  Distinction between direct and indirect recruitment  Exclusive exception

19. 19 WHO QUALIFIES FOR RECRUITMENT? Hospital may provide remuneration to a recruit to relocate to hospital’s geographic area to join the medical staff

20. 20 PHYSICIAN RECRUITMENT “Geographic area” and “relocate” defined: “Geographic area” is defined as the area comprised of the lowest number of contiguous zip codes from which the hospital draws 75% of its inpatients

21. 21 PHYSICIAN RECRUITMENT Zip CodesIP %Total 9921022% 9921120% 42% 9921211% 53% 99218 8% 61% 99225 8% 69% 99301 7% 76% 99302 5% 81% 99310 2% 83% 99314 2% 85%

22. 22 PHYSICIAN RECRUITMENT, continued “Relocate” means the recruit moves his or her practice a minimum of 25 miles or the new practice derives a minimum 75% of its revenue from professional services to patients not treated by the recruit in the past three years Residents and physicians in practice less than one year are not subject to the relocation requirement

23. 23 PHYSICIAN RECRUITMENT, cont.  Written and signed agreement  Not conditioned on referrals  Remuneration not tied to referrals or other business  Recruit can establish privileges and refer elsewhere Direct recruitment requirements:

24. 24 INDIRECT RECRUITMENT REQUIREMENTS Seven additional requirements:  written agreement signed by the group  except for actual costs incurred, compensation must be passed through to recruit  In income guaranty, costs allocated to recruit limited to “actual additional incremental costs”  maintain records of costs passed through for five years  compensation not based on volume or value of referrals  no additional practice restrictions  arrangement cannot violate the Anti-kickback Statute

25. 25 ACTUAL COSTS  travel expenses  recruiter fees  moving expenses  signing bonus  malpractice tail expense Examples of actual costs reimbursable through group:

26. 26 INCOME GUARANTEE  Recruit receives set salary ($120,000)  monthly calculation of recruit’s revenue and expenses  repayment or forgiveness period

27. 27 ACTUAL ADDITIONAL INCREMENTAL COSTS  Recruit’s salary and benefits  Recruit’s malpractice premium, license dues  Cost of space rental?  Cost of staff salary and benefits?  General overhead? What qualifies?

28. 28 ANTI-KICKBACK SAFE HARBOR Recruitment safe harbor elements that differ from the Stark recruitment exception:  Available for physicians and other types of practitioners  Limited to placement into a HPSA (primary care, dental care and mental health)  Benefits provided cannot exceed three years

29. 29 PHYSICIAN RETENTION  Only permitted in HPSAs

30. 30 PHYSICIAN RETENTION, continued  Payment must go directly to physician  Must have a written offer elsewhere that requires a move of 25 miles or more and outside the hospital’s geographic area  Payment can be lesser of (1) the amount offered by other hospital minus current income, or (2) the hospital’s cost to recruit a new physician  Use is limited to once every five years

31. 31 EMPLOYMENT Payment to an employed physician is permissible if:  Employment is for identifiable services  The payment is consistent with fair market value and commercially reasonable even if no referrals are made  The payment is not tied to referrals  Any productivity bonus is based on services personally performed

32. 32 PERSONALLY PERFORMED SERVICES  Services that the physician directly performs  Examples: –physician prepares and administers an antigen – physician refills an implantable pump  Excludes credit for incident-to services and technical component of any ancillaries

33. 33 PERSONAL SERVICES ARRANGEMENTS Payments made to a physician or group practice for physician services are permitted if:  Written agreement specifying services, signed by the parties  Agreement covers all services by physician or references other agreements

34. 34 PERSONAL SERVICES ARRANGEMENTS, continued  Aggregate services are reasonable and necessary  Term is at least one year  Compensation is set in advance, does not exceed fair market value, and is not tied to referrals or other business generated

35. 35 SET IN ADVANCE  Permits per click or time-based unit of service  Must be fair market value  Must not vary based on referrals or other business

36. 36 OB MALPRACTICE INSURANCE SUBSIDIES  Reimbursement of some or all of the cost of malpractice insurance premium attributable to obstetrics  Available for OB or nurse-midwife practicing in a primary care HPSA  At least 75% of patients reside in a HPSA or MUA or are part of a MUP

37. 37 OB MALPRACTICE INSURANCE SUBSIDIES, continued  Payment does not vary based on referrals or other business generated  Practitioner must not be required to make referrals and may establish privileges at any other entity  Practitioner must treat federal program beneficiaries in a nondiscriminatory manner

38. 38 ACTION STEPS  Identify financial relationships with physicians/immediate family members –financial/accounts payable –facilities management –medical staff office  Identify Stark exception and Anti-kickback safe harbor  Confirm/evaluate compliance with exception and safe harbor

39. 39 Questions?

40. 40 CONTACT INFORMATION Lori Nomura Telephone: 206-447-7895 Email: Nomul@Foster.com Foster Pepper PLLC 1111 Third Avenue, Suite 3400 Seattle, WA 98101 www.foster.com