HC Compliance Essentials

Don’t rely overly on the employment exception — or discount a competitor’s ability to stir up trouble.

Covenant Medical Center in Waterloo, Iowa, recently agreed to fork over a hefty $4.5 million to settle a federal False Claims Act lawsuit involving alleged Stark law violations. The case provides a potential harbinger of things to come and some “lessons learned” for hospitals and physicians trying to survive a growing government crackdown on fraud and abuse.

The crux: The U.S. government claimed that Covenant submitted false claims to Medicare because it had gravely overpaid five employed physicians who referred patients to the hospital for services — a verboten practice under the physician self-referral Stark law. In a news release announcing the settlement agreement, the Department of Justice noted that the Covenant physicians ranked among the best paid hospital-employed physicians not only in Iowa, but nationwide.

As for the physicians’ fate: The DOJ doesn’t anticipate any sanctions being brought against the physicians in the case, Bob Teig, assistant U.S. attorney told Eli’s Medicare Compliance & Reimbursement Alert.

That doesn’t mean, however, that the government couldn’t impose a civil or criminal penalty against both the hospital and physician in Stark cases, warns attorney Wayne J. Miller, with the Compliance Law Group in Los Angeles.

“The physician risks losing status as a Medicare provider and/or there could be licensure and other actions at the state level that could follow.”

Case Portends 2 Troubling Trends

The Covenant case sounds a warning knell for two key reasons, say legal experts. For one, the government targeted employment relationships, which it typically hasn’t done under Stark or as  kickbacks, observes attorney William Mathias, with Ober Kaler, Grimes & Shriver in Baltimore, Md. Secondly, a disgruntled competitor of Covenant reportedly stirred up the legal trouble for the not-for-profit medical center. Mathias says that based on the background he’s heard, the competitor saw that Covenant’s IRS form showed Covenant was “giving its physicians a much better deal than the competitor” was giving its physicians. “It wasn’t a qui tam suit,” however, he adds. “The hospital reportedly complained to Senator [Charles] Grassley and to other government officials.”

Mathias predicts that we will see “more and more” of this type of activity on the part of competing providers. “Healthcare providers trying to go through a lot of hoops to comply with the law feel frustrated when they feel like their competitors” gain unfair advantage by ignoring the law, he notes.

Some providers, of course, are also invested in leveling a crowded playing field. “Encouraging the government to investigate [a competitor] is often an option in a very competitive healthcare market,” says Miller.

3 Take-Home Messages You Can’t Miss

To stay out of competitors’ and the government’s crosshairs for Stark violations, hospitals and physicians should cover the following bases.

1. Always perform a fair market analysis of physician compensation. To meet the employment exception under Stark, the employment compensation has to be “consistent with fair market value” (FMV), explains Miller. And “the Covenant case indicates very clearly that the government and the courts are not going to ignore FMV in employment compensation arrangements.”

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