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Focusing on Stark Law Brings Large Settlements for DOJ

​​​With the Department Of Justice focusing on Stark Law actions, and the proliferation of qui tam claims by whistle-blowers, 2015 has been riddled with record-breaking settlements. In June, the Office of the Inspector General issued a fraud alert putting physicians and health systems on notice, urging stricter scrutiny over physician compensation agreements, and potential liability under Anti-kickback and self-referral laws. The Stark Law prohibits physician referrals of designated health services for Medicare and Medicaid patients if the physician has a financial relationship with the entity that the patient is referred to, unless an exception applies.

Stark imposes strict liability for every transaction that violates, and provides severe penalties including, but not limited to: denial of payment and refund of claims paid, civil monetary penalties up to $15,000 per claim, and exclusion from Medicare, Medicaid and any other state healthcare programs. Stark Law liability also attaches False Claims Act (FCA) liability, which may include treble damages up to $11,500 for each claim submitted to the federal government. The Fraud Enforcement Recovery Act'​s requirement that overpayments knowingly retained and the Patient Protection and Affordable Care Act’s requirement that overpayments be returned within 60 days strengthened the enforcement of claims against physician self-referral.

Stark Law violations are either defined substantively or technically. Substantive violations cover the core issues the law was designed to prevent, such as compensating physicians based on volume and value of referrals, and leasing equipment or office space under fair market value. Technical violations cover inadvertent mistakes, such as forgetting to sign contracts, allowing contracts to expire without renewal, or failing to include all elements of the agreement in a written document. Even though technical violations are often unintentional, they can impose massive penalties upon providers.

Tuomey Healthcare System was found liable for substantive violations in U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc. The United States Fourth Circuit Court of Appeals found that Tuomey had agreements in which physicians’ compensation varied on the hospitals’ collections for procedures performed by those physicians. The court ordered the largest penalty against a community hospital, $237 million, a sum later reduced in a post-trial settlement to $72 million. As a term of the settlement, the Tuomey hospital was sold to Palmetto Health, which was required to retain an independent review organization to monitor all arrangements with healthcare professionals.

In his concurrence, Judge James A. Wynn wrote: “It seems as if, even for well-intentioned healthcare providers, the Stark law has become a booby trap rigged with strict liability and potentially ruinous exposure—especially when coupled with the False Claims Act.” Judge Wynn’s opinion considered the that fact no wrongful charge claims, such as upcoding or charging for procedures not performed, were ever raised by the government.

Last year, Stark settlements accounted for almost $4 billion in recoveries.  This also increase the financial incentive for whistle-blowers to file qui tam claims, in which they may receive between 15% to 30% of the recovery.  Due to the severity of penalties that can be imposed even for unintentional technical violations, providers are often pressured to settle.

A record-breaking settlement in 2015 was reached between Department Of Justice and Adventist Health System, which operates 44 hospitals throughout 10 states. Adventist agreed to pay $115 million to the federal government, as well as additional $3.7 million to Florida, North Carolina, Tennessee and Texas. This settlement came only a week after Broward Health, a South Florida provider, settled its Stark claims for $69 million. Neither provider was required to admit liability, or enter into a Corporate Integrity Agreement, as part of the settlement. In the Tuomey settlement, which was the result of litigation, executives were forced to leave their jobs, and the hospital was sold to a competing health system. This forced resignation provides an additional incentive for providers to settle, rather than litigate their potential liability under the Stark Law.

In order to streamline their enforcement of substantive claims, rather than unintentional technical claims, Centers for Medicare and Medicaid Services (CMS) published its final changes to the CY 2016 Medicare Physician Fee Schedule rule, in order to ease compliance with the law. The final rule clarified some regulations, relaxed certain technical requirements and created new exceptions. These changes also widened the path for the Stark violation self-disclosure protocol, already in place with CMS.  

A pending U.S. Supreme Court case will have a great impact on the enforcement of substantive violations. Universal Health Services v. United States ex rel Escobar focuses on implied certification as a way to include FCA claims in healthcare fraud claims. Implied certification generally means that a party had an ongoing obligation to comply with a law, irrespective of whether the party submitting the claim made a direct certification of compliance. In other words, FCA liability will attach to any claim submitted in connection to an underlying violation, similar to Stark. The ruling in this matter will either take the bite out of the penalties imposed on providers, or solidify the federal government’s aggressive enforcement of Stark violations. Regardless of the Court’s decision, providers and health care attorneys are in dire need of bright line rules that will simultaneously make complying with self-referral rules more transparent, and consequences for violators more predictable.