Includes Stark Law issues and self-disclosure of E/M upcoding issues

What lawyers call “technical” Stark violations can slam hospitals because of the black-and-white nature of the statute, a fact of life that hit home for Detroit Medical Center, which agreed to pay $30 million to resolve false claims allegations arising from sweetheart deals with referring physicians, the Department of Justice announced Dec. 31.

After Detroit Medical Center self-disclosed problematic financial arrangements, including leases, noncash compensation and physician service agreements, as well as evaluation and management upcoding, the two sides hammered out a settlement that smoothed the way for the hospital’s sale to Vanguard Health Systems.

The case underscores the importance of having tracking systems to identify, for example, when hospital contracts (e.g., medical directorships) expire to ensure payments to physicians cease unless and until contracts are renewed. Hospitals must also carefully monitor all compensation arrangements with physicians to ensure that payments are consistent with fair market value and stay that way on renewal, notes Macon, Ga., attorney Alan Rumph, with Smith, Hawkins, Hollingsworth & Reeves. The new CMS Stark self- referral disclosure protocol may raise the stakes because it’s expected to produce more self-disclosures, he says.

It appears that the settlement amount could have been higher, but nonprofit Detroit Medical Center — the city’s number-one provider of hospital services to indigent patients — apparently got a break because of its financial limitations. According to the settlement, if the government finds out the medical center has undisclosed assets or any misrepresentations in its financial statements that change the net worth by $3 million or more, the government can rescind the settlement and either collect the settlement amount plus 100% of the hospital’s newly discovered net worth or file a False Claims Act lawsuit.

Vanguard, the new owner, also signed the settlement, but the sale was contingent on the hospital first resolving its alleged Stark and kickback liability. If for-profit Vanguard had assumed the hospital’s liability — which is the case when one provider takes over another’s Medicare provider number — it’s conceivable the Department of Justice would have sought penalties that reflect Vanguard’s assets, which are far greater than that of Detroit Medical Center.

As it prepared for the Vanguard sale, Detroit Medical Center, which owned eight hospitals and 50 outpatient facilities, discovered problems with its physician financial relationships. Between Oct. 29 and Dec. 8, 2010, the hospital self-disclosed to the government “certain conduct that may have been unlawful,” according to the settlement.

During various time periods, Detroit Medical Center:

• Rented office space to 65 physicians without having written, executed leases.
• Had compensation or other financial arrangements with 50 physicians who provided services in the absence of a written and executed contract.
• Gave “business courtesies,” such as tickets to sporting events and meals, to a number of physicians between 2004 and 2010. They were worth less than $2,000 per physician, the settlement says, but exceeded the Stark law’s $359 cap on the noncash compensation that a physician may receive every year from entities providing designated health services (e.g., hospitals). (The cap was $355 but rose $4 as of Jan. 1, 2011.)
• Had compensation, lease or other financial arrangements with 58 physicians that may not have been fair-market value and/or commercially reasonable.
• Provided signs “and/or may have provided advertising and biographical materials” to 123 physicians at prices that may not have been fair-market value or commercially reasonable.
• Had physician service agreements with 50 physicians that were not written or executed.

The settlement also resolved potential evaluation and management (E/M) upcoding that was self-disclosed by Detroit Medical Center. It submitted claims for certain E/M services provided by employed physicians to Medicare, Medicaid and CHIP beneficiaries when “available documentation did not support the level of services billed.” Problematic CPT codes included 99201, 99203-99205, 99211-99215, 99223, 99231-99233, 99239, 99243-99244 and 99254. (The hospital did not use CMS’s new Stark self-referral disclosure process.)

Detroit Medical Center did not admit wrongdoing in the settlement. Lawyers for the hospital and for Vanguard declined to comment.

South Bend, Ind., attorney Bob Wade sees a lot of problems with hospitals continuing to pay referring physicians after contracts expire, which violates Stark. Often it’s because the organization is so “decentralized, with no one accountable” for contract compliance. Dozens of people may be involved with a contract, which is a recipe for Stark problems. He advises hospitals to keep the universe of people involved in contract negotiation and oversight pretty small, perhaps limited to the compliance officer, legal counsel, CEO and CFO. There should be a direct line to accounts payable, so payments to physicians can be stopped when contract terms end.

And make sure everyone is properly trained, Wade says. Hospital executives facing big-dollar Stark self-disclosures stemming from one or two physicians will be frustrated, asking how it’s possible when valid medical services were provided. “A lot of times they don’t get that because [Stark] is a strict requirement,” says Wade, with Baker and Daniels.

Reprinted from the Jan. 10, 2011, issue of REPORT ON MEDICARE COMPLIANCE