Articles on Compliance Strategies

Featured Health Business Daily Story March 4, 2008

Enforcement Agencies May Soon Look at Hospitals for Improper Financial Relationships With Device Manufacturers

Reprinted from REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

Enforcement agencies have come down hard on improper financial relationships between device manufacturers and physicians, and it won't be long before they turn their attention to the third player in the triad: hospitals. When hospitals make money from procedures performed to implant devices ordered by physicians pursuant to the illegal deals — even unwittingly — they may be vulnerable to false claims lawsuits, former government lawyers say. Hospitals should adapt their compliance programs to track and document physician arrangements with device makers and other vendors at a time when virtually all physicians admit to participating in industry arrangements, including accepting payments for consulting or enrolling patients in clinical trials.

"The business practices [of device makers] can get their clients — hospitals — in trouble," says San Francisco attorney Judith Waltz, former assistant regional counsel for HHS. "So far, [enforcers] haven't gone after hospitals because it's easier to stop the practice [of paying kickbacks] at the source," meaning they prosecute device makers and physicians. But it seems inevitable they will start going after hospitals, because hospitals are the ones getting the money and because now they are on notice that claims for services involving a device ordered by physicians receiving kickbacks in the form of excessive payments from the device maker may violate the False Claims Act, says Waltz, who is with the law firm Foley & Lardner LLP.

The crackdown on device makers is an extension of the enforcement agencies' general pursuit of inappropriate financial relationships between physicians and hospitals, pharmaceutical companies and other entities that live and die by patient referrals. The use of the Stark and anti-kickback laws as a premise to wield the False Claims Act against kickbacks is on the rise, lawyers say. Enforcers are pursuing all parties to the deals, including hospitals, physicians and device makers.

"Physician arrangements are a new and renewed interest area for [the HHS Office of Inspector General] and [the Department of Justice]. As a result, providers need to look carefully at their compliance programs to develop methods to respond to that interest," says Heidi Sorensen, former chief of OIG's Administrative and Civil Remedies Branch. According to the April 26, 2007, edition of the New England Journal of Medicine, 94% of physicians reported they had some type of relationship with the industry. The article said 83% of physicians report receiving food and drinks in the workplace; 78% get drug samples; 35% receive reimbursement for meeting costs or continuing medical education; and 28% report receiving payments for consulting, speaking or enrolling patients in clinical trials.

In the device arena, the feds are focusing on arrangements that include travel, entertainment, consulting agreements and practice support. The reason that investigators and prosecutors are so interested in these arrangements is they believe they can "create conflicts of interest that may affect medical decision making, increase costs and improperly steer business," says Sorensen, who is now with Foley & Lardner. Also, she says, when device and drug makers pay physicians, it can have an "anticompetitive effect and [erect] barriers to entry for new or smaller companies that cannot compete if they cannot afford that expense as part of their growth strategy."

Feds Follow the Money…to the Hospital

When device manufacturers improperly provide remuneration to influence a physician to recommend a particular product, the two parties are vulnerable for obvious reasons. But neither the device maker nor the physician is billing Medicare or another government health program for the device itself. That's where the hospital comes in. Reimbursement for the device is generally bundled into the APC (if it's an outpatient procedure) or the DRG (if it's an inpatient procedure), says Waltz. "The party actually billing is the hospital."

The way investigators and prosecutors work in most investigations, she says, is they follow the money. So if a claim is submitted because the implanted device was ordered by a cardiologist who has an improper financial relationship with the device manufacturer, then the claim may be viewed as "tainted" by the kickback, she says. Since the hospital actually submitted the claim and collected the reimbursement, it's on the hook for an overpayment, Waltz says.

What about the hospital's liability for a false claim? The Department of Justice might be able to meet the burden of proving intent for a false claim - with the statute's standard of reckless disregard or deliberate indifference - by demonstrating the hospital didn't adequately monitor physicians' financial arrangements with outside vendors or investigate conflicts, for example, she says.

For instance, Dr. Brown always insists on Brand X stents. The hospital administrator is playing with fire, maintains Waltz, if she just shrugs her shoulders and thinks, "Well, he must have his reasons."

"If the hospital looked more closely, they might have seen that Dr. Brown receives payments [from the maker of Brand X stent]," she says. "The government expects hospitals to exercise a certain level of due diligence to ensure that its claims are not tainted by factors which are unrelated to the medical needs of patients." All services for which Medicare pays must be "reasonable and necessary," and, in the government's view, those claims must also meet the general criterion that the government would pay for the claim if it knew all the relevant facts. If the items or services provided are excessive or unnecessary due to an underlying kickback arrangement, the claim might be deemed false, says Waltz. If the hospital fails to ensure the integrity of its processes, prosecutors can argue that it acted with reckless disregard, and the claims submitted were false, she adds.

According to Waltz, the current focus on physician arrangements also ties in with issues of quality of care and medically unnecessary services, two other government targets. In the above example, the scenario would be even worse for hospitals if devices are linked to unneeded surgeries that surgeons recommend for financial reasons, yet the hospital failed to detect — or even look for — the pattern. And with quality-of-care data available now, the government will have an easier time arguing that the hospital acted with reckless disregard for all unnecessary and uncovered services.

Here are Sorensen's and Waltz's suggestions for preventing compliance problems related to physician arrangements with device makers and other vendors:

Require physicians to inform the hospital of arrangements with device makers and other vendors. "Get disclosures from the medical staff" so you can see what their interests may be and take action accordingly, Waltz says. For example, if ABC Pharmaceuticals pays Dr. Jones for consulting on clinical trials, then it's probably better if Dr. Jones doesn't serve on the formulary committee, where he may recommend ABC Pharmaceuticals' products.

Store the information on physician arrangements in a database, including the name of the parties, the type of arrangement, the remuneration and the fair-market-value methodology, in order to track and centralize information and approval of arrangements. Define what arrangements will be included: consulting agreements, continuing medical education reimbursements, research grants, etc.

Identify your level of risk tolerance. For example, at institutions that conduct research, the institutional review board examines potential conflicts in clinical trials. It may be fine for a physician to have a minimal interest in a publicly traded device company for which he is overseeing clinical trials, but not to have an "unrelated" consulting agreement with a company that makes a device that is in clinical trials he is overseeing, Waltz says.

Develop a process to track payments to and from all parties if those receiving payments are employed by the hospital (or if the hospital receives payments directly). Physician groups and device makers should also track such payments.

Establish a process to approve reimbursements for employed physicians. "If they go to a big conference, you want to know if a device or drug company is paying their expenses," Waltz says. "You probably want to have a policy against that because industry codes tend to advise against that except in very limited circumstances."

Establish a formal written review and prior-approval process for arrangements that might suggest a conflict of interest, and maintain documentation to prove it was followed.

For a company that may be making payments, don't make any payments without documentation. Develop a process for reviewing payments and documenting the review. "It's critical to have documentation at all stages," Waltz says.

Clearly define what you mean by a gift. "A lot of doctors don't even think of travel reimbursement for continuing medical education as having the potential of being characterized as a gift," she says. "They don't see it as a potential compliance issue." This is why training on vendor largesse and conflicts is important.

Multiple arrangements with a single physician will be evaluated in the aggregate, Sorensen says. "Coordination is key to an effective compliance program."

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