Articles on Compliance Strategies

Featured Health Business Daily Story June 30, 2009

Six Steps That Can Be Taken to Reduce Serious New False Claims Risks Under Stark Physician Self-Referral Provisions

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.

By Nina Youngstrom, Managing Editor, (nyoungstrom@aispub.com)

Hospitals play with fire if they fail to perform Stark reviews, especially if it turns out financial arrangements with physicians are noncompliant and they owe money to CMS. Hospital payments to physicians that fall outside a Stark exception snowball over time because CMS contends that all reimbursement stemming from that physician referral to the hospital must be returned.

The new Fraud Enforcement and Recovery Act (FERA) compound these problems, since hospitals are at greater risk of a False Claims Act lawsuit for knowingly and improperly retaining money that belongs to the government.

"People may want to skip a review and avoid telling the board [about potential Stark problems], but with the False Claims Act I and II, deciding not to investigate your Stark compliance could be to your detriment," says South Bend, Ind., attorney Bob Wade, with Baker & Daniels. "In a typical hospital, you will find 200 to 500 financial relationships and nonmonetary compensation relationships that must meet Stark and it is a paper chase trying to determine when they begin, end and are modified. If you believe violations occurred, you need to figure out how so you can put in process changes to prevent violations from occurring again."

The Stark self-referral law bans Medicare payments for "designated health services" (DHS) referred by physicians who have a compensation or investment relationship with an entity providing DHS, unless an exception applies. When a physician refers patients for services to such an entity without meeting an exception — which is known as a self-referral — the DHS entity may face fines and penalties in addition to repaying reimbursement from the referrals.

Wade cautions hospitals to avoid old patterns of thinking that a Stark review is strictly the domain of the legal and compliance departments; it's more a "marriage" of legal, compliance and finance. "In hospitals, it is challenging to make sure payroll or financial departments are in lockstep with legal departments," he says. "You will find financial arrangements where payments being made are not consistent with written agreements." For example, management might end an administrative relationship with a physician, but no one tells payroll, so checks keep rolling out to the physician. "Convince people in finance they need to be part of this even if it is perceived as more of a legal and compliance review," Wade says.

Also, the earlier violations are caught, the better, since "a small financial Stark violation can result in a significant overpayment return," he says. Suppose a hospital pays a cardiovascular surgeon an hourly rate to serve as medical director, with a cap of $10,000 a year. The compensation maxed out three years ago, so all referrals received from that physician starting when the cap was exceeded are subject to repayment by the hospital.

Conducting Effective Stark Reviews

Here are Wade's tips for conducting a Stark review:

(1) Get information from the finance department on all hospital payments to and from physicians. Then find the contracts that support payments for all your arrangements.

(2) Review each contract to determine whether Stark applies. Not every contract triggers Stark. If Stark is implicated, audit the contract to determine whether each component is consistent with a Stark exception. "A primary issue is to determine that payments made to the physician are consistent with the contract," Wade says. For example, did the hospital pay Dr. Smith $100,000 last year for serving as a medical director even though on paper the payment was set at $50,000?

(3) Audit for documentation of fair-market value, the magic words in Stark compliance. If the payment is questionable, redo the fair-market analysis. "It's inevitable you'll find some financial arrangements that don't conform to fair-market value," Wade says. If that's the case, consider returning the overpayment stemming from the Stark noncompliance to your fiscal intermediary — "or the U.S. attorney if you have a friendly relationship."

(4) Don't neglect to audit nonmonetary compensation to physicians, such as gifts and benefits (e.g., football tickets). Stark caps the amount a DHS entity can give a referring physician annually (the current amount is $355). This is a big challenge and probably "where you will see the most violations," Wade says. The reason: Most hospitals don't have a "regimented way" to track gifts and benefits to physicians. "It's not a big issue in their eyes," he says. "It's cumbersome to make people aware of these, and it's counterintuitive to have to document and track them. Only people who are very Stark sensitive will appreciate this."

(5) Calculate potential repayments carefully so they only include DHS services. For example, if a hospital owns a nursing home and the physician self-refers patients for nursing home services, the hospital doesn't have to repay Medicare for these services because they are not on the DHS list.

(6) Share the findings of the Stark review with the compliance committee and board of directors.

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