Distinguished Guest Practitioner Mark Swearingen Lectures on Trends in Healthcare Law Enforcement

On Wednesday, September 21, 2011, Distinguished Guest Practitioner Mark Swearingen spoke at Seton Hall Law School on a number of healthcare law enforcement topics that were of keen interest to the audience of health lawyers and health lawyers-in-training.  Mr. Swearingen, who graduated from Seton Hall Law in 1998, is a shareholder at Hall, Render, Killian, Heath & Lyman, P.C., a large  healthcare law boutique based in Indianapolis, Indiana.

Among other things, Mr. Swearingen discussed two recent Stark Law cases: United States v. Tuomey Healthcare System, in which a jury award of $49.4 million is currently on review in the Fourth Circuit Court of Appeals, and United States v. Bradford, a summary judgment decision from the Western District of Pennsylvania that also largely favors the government.

As the court in Bradford explains, the case involved two physicians, Kamran Saleh and Peter Vaccaro, who leased a nuclear camera so that they would no longer have to refer their patients to the local hospital, Bradford Regional Medical Center, for nuclear imaging.  Faced with the prospect of losing over a third of its $2,274,094 in annual gross nuclear medicine revenues, the hospital responded by threatening to revoke the doctors’ admitting privileges.  Lengthy negotiations ensued, at the end of which the hospital agreed to sublease the camera from the two physicians; the camera remained at the physicians’ offices but other physicians with privileges at the hospital could use it.

Four local physicians who “provide[d] the same or similar services to patients as Drs. Saleh and Vaccaro” brought a qui tam action alleging that the sublease violated the Anti-Kickback and Stark Acts and that the defendants falsely certified compliance with those laws in connection with claims submitted to Medicare in violation of the False Claims Act.  The court agreed that the defendants violated the Stark Act, because the amounts the hospital paid under the sublease were inflated to account for the referrals the hospital lost as a result of Drs. Saleh and Vaccaro’s decision to lease their own camera.  The court deferred on the Anti-Kickback and False Claims Act charges, because it was unable to conclude at the summary judgment stage that the defendants acted knowingly.

As Mr. Swearingen commented, even if the sublease arrangement in Bradford was, on paper, above approach, the facts leading up to it were not good for BRMC and Drs. Saleh and Vaccaro.  That the hospital responded to losing business to the two physicians by first threatening to revoke their privileges and then entering into a financial arrangement that brought them back into the fold suggests that the sublease was about more than the use of a camera.  The facts in Tuomey were in several key respects similar to those in Bradford.  Tuomey, too, involved a hospital faced with the prospect of a group of physicians performing outpatient procedures elsewhere, which would have meant a loss to the hospital of $6-9 million in annual revenues.  To keep the physicians in the fold, the hospital entered into part-time employment contracts with them.  The government alleged– and the jury presumably found–that the contracts would have been money-losers for the hospital but for the associated facility and other fees that the hospital was able to bill in connection with the physicians’ services.

Mr. Swearingen also highlighted the fact that the hospital in Bradford lost the case despite having obtained an expert opinion that the amount it paid for the camera under the sublease was fair market value.  The defendant hospital in Tuomey similarly lost despite having obtained not one but two valuation analyses and multiple legal opinions.  The hospital in Tuomey relied on an advice of counsel defense and, notably, attorney-client privileged communications were entered into evidence at trial.  Going forward, Mr. Swearingen emphasized, fair market value and legal opinions “will be scrutinized” and “may not be dispositive.”

ACOs: OIG Guidance, CMS regulations, and Interpretive Tasks

Tim Greaney has already posted on the FTC/DOJ Joint Policy Statement on antitrust scrutiny of ACO applicants, and Jordan Cohen posted on the  CMS’s draft regulations on the Medicare Shared Savings Program (”MSSP”) for ACOs.   In this post, I’ll describe some interesting structural issues presented by the OIG’s notice on proposed waivers, which cross-references the CMS MSSP draft regulations. The fundamental issue for the OIG is how “virtual organizations” — those not fully integrated in a corporate or financial sense — can serve the integrative goals of the Affordable Care Act while staying on the right side of the web of federal laws prohibiting physician self-referral, kickbacks, and payments to reduce care to Medicare beneficiaries.  The OIG notice proposes to square this circle in two steps.

The OIG two-step; Step One

The Fraud & Abuse problem with ACOs is that they are intended to achieve the efficiency and quality gains of formally integrated delivery systems (Geisinger, Mayo Clinic)  through contract-based aggregation of providers.  This less formal integration, of course, implicates the dealings generally prohibited by the Physician Self-Referral Law (”Stark”), Anti Kickback Statute (”AKS”), and the Prohibition on Hospital Payments to Physicians to Induce Reduction in Services law (which provides for civil money penalties for violations) (”CMP”).  The OIG notice proceeds very incrementally.  In large part, the OIG proposes to affirm that a CMS determination that an ACO qualifies for participation in the MSSP signifies the adoption of quality and fiscal protections sufficient to allow a waiver of Stark, AKS, and CMP enforcement for purposes of the distribution of shared savings.  In addition, and to the extent “necessary for and directly related to” the ACOS’s participation in the shared savings plan, the OIG proposes to waive enforcement under the AKS and CMP provisions with respect to conduct that falls within a Stark exception.  In outline form, then, the OIG proposes as its initial waiver guidance:

• Stark. The OIG proposes to waive enforcement of Stark for
  • The actual distribution of MSSP to and among ACO participants, and ACO providers/suppliers for conduct during a year in which shared savings were earned; and
  • “activities necessary for and directly related to the ACO’s participation in and operations under the” MSSP.

• AKS. The OIG proposes to waive enforcement of AKS under two scenarios:
  • The distribution of shared savings under the MSSP
    • to and among ACO participants, and ACO providers/suppliers for conduct during a year in which shared savings were earned; and
    • for any financial relationships between ACO participants and ACO providers/suppliers necessary for and directly related to the ACO’s MSSP participation that implicate Stark, but fall within a Stark exception.

• CMP. The OIG proposes to waive enforcement of the CMP provisions under two scenarios:
  • Distribution of shared savings from a hospital to a physician so long as
    • “the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services”; and
    • the hospital and physicians were ACO participants or providers/suppliers during the year in which the shared savings were earned.
  • In the context of financial relationships among ACO participants and/or providers/suppliers necessary for and directly related to the ACO’s MSSP operations, that implicate Stark but that fall within a Stark exception.

The OIG two-step; Step Two

In Step One, the OIG proposes waivers for arrangements that are central to the MSSP gain distributions, or that are central to the ACO enterprise and are structurally within Stark exceptions.  The OIG goes on to solicit input on the need for additional waiver guidance, for conduct that is “beneficial” to ACO participation in the MSSP, but that also protects “patients and programs from harms caused by fraud and abuse.”  The OIG solicits input on:

• Arrangements related to establishing the ACO;
• Arrangements between or among ACO participants or providers/suppliers related to ongoing operations of the ACO and achieving ACO goals;
• Arrangements between the ACO, its ACO participants and/or providers/suppliers and outside individuals or entities;
• Distributions of shared savings or similar payments from private payers;
• Other financial arrangements for which a waiver would be necessary;
• Miscellaneous: duration of waivers, scope of the waivers listed above in “Step One,” and additional safeguards; and
• Arrangements in which providers are subjected to risk, particularly in the “two-sided risk model” in the CMS draft regulations on the MSSP.

“Necessary for and directly related to”

It is pretty clear that the lion’s share of the OIG’s waiver work will be done by determining whether or not an ACO has been qualified by CMS for the MSSP.  There will be waivers, however, even under Step One, that will require the OIG to evaluate the proposed arrangements.  Stark enforcement regarding the actual distribution of shared gains, for example, will be waived under the proposal for CMS-qualified ACOs.  But Step One proposes additional waivers “for activities necessary for and directly related to the ACO’s participation in and operations under the” MSSP.  Similarly, AKS and CMP waivers are proposed for dealings between ACO participants that are within Stark exceptions so long as they are “necessary for and directly related to the ACO’s MSSP participation.”  A standard based on what is “necessary for and directly related to” an ACO’s MSSP participation will, then, do a lot of the waiver work.  It is not a self-defining standard, and further elaboration from the OIG (by providing examples, perhaps) will lend clarity to the OIG’s waiver guidance.

Attribution, assignment, and patient notice

ACO commentators (here (subscription required) and here)  have observed that the method by which patients are “attributed” to ACOs is central to ACOs’ financial and structural planning.  Attribution was the term used in the literature to refer to the formal determination that a particular Medicare patient should “count” for assessing the gain (and possibly the loss) experienced by the ACO.  The CMS draft regulations on the MSSP, consistent with the terms of the Affordable Care Act, use the term “assignment” rather than attribution.  The CMS proposal’s treatment of assignment, or attribution, will engender much discussion here and elsewhere in the coming weeks.

One important issue, however, seems to have been resolved.  In the literature on ACOs, it has not been clear whether Medicare beneficiaries would know whether or not they had been assigned or attributed to an ACO; consistent with continuing commitment to beneficiaries’ right to choose providers within the Medicare fee for service system, the discussion contemplated the possibility that ACOs would organize a beneficiary’s care, gain payments as a result of efficiencies, but never inform the beneficiary of his “attribution” to an ACO.

Donald Berwick highlighted the requirement of patient notice in his Perspective published in the New England Journal of Medicine on the day of the regulations’ release.  The CMS draft regulations on the MSSP explain the requirement of patient notice in the following terms:

[W]hile the statute refers to the assignment of beneficiaries to an ACO, we would characterize the process more as an “alignment” of beneficiaries with an ACO as the exercise of free choice by beneficiaries in the physicians and other health care providers and suppliers from whom they receive their services. . . .  Therefore, an important component of the Shared Savings Program will be timely and effective communication with beneficiaries concerning the Shared Savings Program, their possible assignment to an ACO, and their retention of freedom of choice under the Medicare FFS program.

That piece of consumer protection regulation was absolutely essential.  It would be odd indeed, after decades of struggle with patient protection in managed care systems, were patients to be engaged without their knowledge in a system built on economic incentives to providers directed to care management.  We’ll post more about assignment and other ACO issues in the coming weeks.

Study Demonstrates Link Between Physician Surgicenter Ownership and Volume of Surgeries

Photo by Sarah McD via Flickr

There has long been a concern — reflected in the federal Stark Law and its state law analogues — that a conflict of interest arises when a physician refers patients to an ambulatory surgery center he or she owns.  Prior research established that a doctor’s rate of referrals of patients for surgery and other hospital-based services is positively correlated with an ownership stake in a specialty hospital; now there is similarly concrete, empirical evidence of the deleterious effect of the conflict created when doctors own surgicenters.

In an article in the April issue of Health Affairs, John M. Hollingsworth and his co-authors present the results of a study comparing “the practice patterns of physician-owners of surgicenters, before and after they acquired ownership, to those of physician-nonowners over the same time period.”  Using data from Florida for the years 2003-2005, the authors identified all patients who underwent one of five ambulatory procedures — carpal tunnel release, cataract excision, colonoscopy, knee arthroscopy, and ear tube surgery.  The procedures were chosen because “substantial variation exists … in their use,” making them “susceptible to the influences of financial incentives associated with surgicenter ownership.”  After accounting for differences in the populations served by physician-owners and physician-nonowners, the authors found that “the mean annual caseloads for owners … were at least twofold greater than those for nonowners.”  Even more telling, using earlier data, from 1998-2000, the authors found that, even after accounting for the fact that some of the eventual owners had higher-volume practices before they invested in a surgicenter, for four of the five procedures studied, “acquisition of ownership status kicked owners’ already high volumes even higher.”

In an earlier post, I noted that a 2009 New Jersey law conditions physicians’ ability to refer patients to surgicenters on the following: (1) for patients they refer, they personally perform the surgery; (2) they be paid in proportion to their ownership interests, not the number of patients they refer; (3) they and their physician partners make all healthcare decisions, leaving non-physician partners without a say; and (4) they inform their patients in writing of their ownership interest at the time they make the referral.

The work done by Hollingsworth and his co-authors suggests that while the first and second conditions might eliminate certain especially troubling payment arrangements, a “relationship between surgicenter ownership and surgical volume” can persist even when physician-owners personally perform the surgeries.  Similarly, while the third condition would require that physicians make healthcare decisions, it would do nothing to ensure that those decisions are uninfluenced by conflicts of interest.  The fourth condition — which puts the burden on patients to suss out which referrals are medically necessary and which result from a physician-owner inappropriately lowering his or her threshold for intervention due to a financial conflict of interest — is also unlikely to reduce “physician-induced demand.”  There is no evidence that patients are able to perform such a sifting function.  To the contrary, existing evidence suggests that they are not.

Ultimately, as Hollingsworth and his co-authors suggest, the government may need to “intervene through physician reimbursement.”  “[P]artial capitation or global payment schemes, or both, implemented in the context of proposed delivery system reforms (such as accountable care organizations) may be needed to discourage the over-use that fee-for-service payment rewards.”

Developments in the Law Governing Physician-Owned Ambulatory Surgery Centers in New Jersey

Photo by rxb via Flickr

Over the past year, one or the other of my sons has had minor surgery in no less than three of New Jersey’s many ambulatory surgery centers (”ASCs”).  So, I noted with interest the Appellate Division’s recent decision in Garcia v. Health Net in which it affirmed a lower court holding that physicians who make referrals to ASCs in which they have an ownership interest violate the Codey Law, New Jersey’s version of the Stark Law.  The Appellate Division also affirmed the lower court’s decision that, despite the illegal referrals, the physician-owners in the case committed no fraud.  They (along with other physicians-owners across the state) acted in reliance on the New Jersey Board of Medical Examiners’ conclusion that the Codey Law’s exception to the self-referral ban for services provided at the referring physician’s medical office applied to ASCs.

In response to the lower court’s holding and heavy lobbying from physicians, the New Jersey State Legislature enacted revisions to the Codey Law which were signed into law in March 2009.  Physicians are now expressly permitted to refer patients to ASCs in which they have a financial interest if they meet a list of conditions, including that: (1) for patients they refer, they personally perform the surgery; (2) they be paid in proportion to their ownership interests, not the number of patients they refer; (3) they and their physician partners make all healthcare decisions, leaving non-physician partners without a say; and (4) they inform their patients in writing of their ownership interest at the time they make the referral.

On the other hand, the Legislature acted to all but put a stop to the establishment of new physician-owned ASCs, with the exception of those which are jointly owned by a general hospital.  Development of hospital– and medical school–owned centers may proceed apace.  Fox Rothschild’s Elizabeth Litten notes  that this “resonates more of long-forgotten certificate of need and health planning policy than it does of the original law’s concern with physician profit motives and overutilization.”  Clearly, the Legislature hopes that the new limits will be good for general hospitals’ financial health.  Professor Frank Pasquale has written here and elsewhere about the concern that ASCs and other niche facilities harm general hospitals by “cherry-picking” lucrative patients and “lemon dropping” those that are more costly.

Photo by Mr. T in DC

What about patients?  Should we care whether ASCs are physician-owned or not?  Unsurprisingly, the American Medical Association believes that “physician ownership interests in health facilities, products or equipment can benefit patient care.” Peer-reviewed research suggests that physician-ownership makes no difference in health outcomes, however.  And, as Dean Kathleen Boozang states here, there is evidence that “physicians who hold an equity interest in an entity that provides ancillary health care services, such as a clinical laboratory or MRI, more frequently order those services for their patients, referring them, unsurprisingly, to the entity they own,” although there is no evidence that “this higher use equated to over-utilization.”  I would suggest, admittedly based on a small (and potentially unrepresentative) sample, that, if nothing else, physician-owned surgery centers have better amenities than those that are hospital-owned.  Some of these amenities could easily be done without (orchids in the lobby, souvenir teddy bear); others (popsicles and DVDs in the recovery room) are potentially more significant.

American Health Lawyers Association on the Stark Law and its Revision: a Good Step Towards Holistic & Ethical Reform

Health reform that focuses exclusively on health care finance — that is, how we pay for universal access to insurance coverage — will not produce successful reform.  Reform must be holistic, with a focus on the entire system, as well as its component parts, including whether the system is structured to deliver the right kind of health care services in the most appropriate setting, whether we have sufficient quantity and kind of health care professionals and technology geographically dispersed to provide the health care services that people will presumably have insurance to access, and whether the system properly incentivizes health care professionals to make decisions that are efficient, effective, and in patients’ best interests.  This is a massive undertaking, with a tremendous risk that important components will be overlooked precisely because of the size of the undertaking.  The Stark Law represents the kind of on-the-ground healthcare delivery problems that healthcare reform must tackle.

The American Health Lawyers Association’s Public Interest Committee today released a Whitepaper entitled: “A Public Policy Discussion: Taking Measure of the Stark Law” analyzing the ” Ethics in Patient Referrals Act” (and its progeny), more commonly known collectively as the “Stark Law“, after its primary sponsor, Congressman Pete Stark, who now counts himself among the many who believe that while the problem the law aimed to address is real, the statute and its multitudinous exceptions have become a nightmare.

Stark was enacted in response to empirical studies showing that physicians who hold an equity interest in an entity that provides ancillary health care services, such as a clinical laboratory or MRI, more frequently order those services for their patients, referring them, unsurprisingly, to the entity they own (the Whitepaper notes that no studies indicated that this higher use equated to over-utilization).  The implication, then, is that the opportunity for additional profit causes excessive referrals, whether consciously or unconsciously.  Thus, Stark sought to establish a bright line test regarding the propriety of physician referrals.  Stark prohibits a physician from referring patients to entities in which the physician (or a family member) holds an equity interest.  Congress seeks to ensure that patients are referred only for tests and other health care services that are medically necessary and appropriate.  The law also prohibits the entity actually providing the services to the patient (the recipient of the referral) from billing Medicare if the patient care resulted from an impermissible referral (even if the patient needed the service).

But a basic prohibition proved too broad to be practicable.  For example, how should the law treat rural areas where the only potential investors in an MRI for the community are all of the local physicians?   While many of situations crying for exceptions have been legitimate, virtually every single business relationship that seems justified requires the adoption of a new exception — which, the Whitepaper points out, stymies innovation in a dynamic health care market.  I would add that simultaneous with the continuous recognition of new exceptions, Congress and CMS keep adopting new prohibitions in response to physicians (with the aid of their lawyers) who take advantage of loopholes by engaging in business practices that violate the philosophical goals of the law, but are not specifically banned.

And so now we simply have a mess on our hands.  According to the Whitepaper, on the positive side, Stark has encouraged health care institutions to adopt corporate compliance programs and contract management systems; hospitals are more careful about their relationships with physicians.  Repeating a recurring theme of this blog about physicians’ conflicts of interest, the AHLA Whitepaper suggests that Stark has had less effect on physicians’ awareness and avoidance of conflicts of interest — my observation is that they continue to engage in business arrangements and practices that increase healthcare expenditures and cause patients to receive unnecessary medical services.  This is likely because physicians don’t understand Stark, which is rarely enforced against them.  The Whitepaper conveys the observations of some of its participants that Stark has caused a restructuring of healthcare delivery (some would argue that physicians have simply re-packaged their business relationships, rather than eliminated their “pernicious” conduct).  Even more problematic is that Stark precludes the experimental implementation of some creative ideas to reduce health care costs and improve quality, such as pay-for-performance, shared savings, and bundled payments.  Essential to a reform of how we deliver health care is an alignment of physician and institutional financial incentives - Stark (as well as some other laws) makes difficult that effort.

The AHLA Whitepaper seeks statutory reforms and increased CMS discretion as part of overall healthcare reform.  It suggests reimbursement modifications as a mechanism that would more directly accomplish the government’s goals of reducing costs and controlling utilization, including: decreasing reimbursement for ancillary services provided through a physician group practice; decreasing payments for high margin services; implementing more stringent credentialing requirements for the provision of certain services; bundling the payment for a physician office visit and ancillary services;  and payments for episodes of care, rather than delivery of specific services.

While AHLA addressed an important problem that begs for resolution, the ultimate challenges for health care reform that the Stark problem points up are significant:

• First is the question of whether reform will restructure health care delivery so that patients receive quality care that they actually need, in a timely cost-effective and convenient way.
• Second is how to identify the most effective means of adjusting physicians’ norms of behavior so that they recognize and avoid or ameliorate conflicts of interest that adversely affect their care of patients.
• Third, since the HHS OIG began issuing its Guidances, the relationship between government and provider has been like one of cat and mouse — the government articulates a philosophy about its interpretation of fraud, waste and abuse and the attendant practices that violate the law, and providers adjust their behavior to discontinue the specifically enumerated offensive practices, and then adopt new behaviors that government then addresses and it goes on and on and on.
• All of the above points result from the fact that politicians have created a huge perception divide — physicians believe that they are professionals operating in a market who should be guided by their ethical code and the business practices that make America great - government regulators and prosecutors believe that taxpayers foot 40-60% of the healthcare bill, and should expect very stringent oversight of the behavior of health care providers to make sure taxpayer money isn’t being wasted. Whatever our health care system looks like this time next year, everyone — provider, supplier, and patient needs to acknowledge that irrespective of what descriptors we use, it is a system significantly underwritten by the government, which means that it necessarily operates by different rules….

In the meantime, the AHLA Whitepaper is a terrific description of all that is right and wrong with the Stark Law. Let’s hope Congress takes notice.  More important, it exemplifies the important contributions professional organizations can make to productively convey to policy-makers the on-the-ground effects of their laws.  The AHLA process also models an exemplary collaboration between the private sector and government to their mutual education and, hopefully, benefit.

While the author is an AHLA board member, this post solely represents the author’s interpretation of and opinions about the AHLA Whitepaper, and has not been reviewed by any director, officer or member of AHLA.  The author had no involvement in the production of the Whitepaper.

Bipartisan Effort to Amend the False Claims Act

photo by oooh.oooh via Flickr

American Health Lawyers Association reports that Senators are seeking to amend the False Claims Act:

Senators Charles Grassley (R-IA), Richard Durbin (D-IL), Patrick Leahy (D-VT), Arlen Specter (R-PA), and Sheldon Whitehouse (D-RI) introduced recently the False Claims Act Clarification Act of 2009 (S. 458), which would amend the False Claims Act (FCA) to strengthen a whistleblower’s ability to bring a qui tam action on behalf of the government, among other things.

This amendment would also clarify some of the ambiguity surrounding the FCA.  The AHLA stated:

The bill includes a provision clarifying that the FCA was intended to extend to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee, whether or not the government has physical custody of the money, and whether or not the defendant specifically intended to defraud the government.

This clarifying amendment may have a significant impact on two areas of health care litigation.  First, the amendment would strengthen qui tam actions against pharmaceutical companies where the pharmaceutical companies do not actually present a claim to the government, such as with off-label drug marketing cases.  Second, the amendment may strengthen “bootstrapped” qui tam actions, where the qui tam relator brings a FCA action for Anti-Kickback Statute and/or Stark Law violations (physician “self-referral” cases), despite the lack of  any specific FCA violation, and because the Anti-Kickback Statute and Stark Law themselves lack a private right of action.

At the very least, the proposed amendment, which would facilitate the use of qui tam actions, is further evidence of the federal government’s increased reliance, and an intention to continue in such reliance, upon qui tam actions as a means of both regulatory and punitive enforcement.