Physicians & Facilities Frustrated in Upcharging Lab Fees

Licensed healthcare providers and facilities (including many drug and alcohol recovery businesses) who enter into arrangements with clinical labs to provide services to their patients and who then wish to charge more for those lab services will be very disappointed to learn about the restrictions under Florida law.

Section 456.054, Florida Statutes prohibits “kickbacks” and reads—

(1) As used in this section, the term “kickback” means a remuneration or payment, by or on behalf of a provider of health care services or items, to any person as an incentive or inducement to refer patients for past or future services or items, when the payment is not tax deductible as an ordinary and necessary expense.

(2) It is unlawful for any health care provider or any provider of health care services to offer, pay, solicit, or receive a kickback, directly or indirectly, overtly or covertly, in cash or in kind, for referring or soliciting patients.

(3) Violations of this section shall be considered patient brokering and shall be punishable as provided in s. 817.505.

The issue involved in a provider or facility charging more for lab services than they were charged by the lab itself is that the prohibition above applies to healthcare providers and “any provider of healthcare services.”  Regulators may find any reduced fee by the lab to constitute a kickback in exchange for a volume of patient referrals.

A related issue has to do with Florida insurance laws that pertain to charging more for an item or service than the provider or facility was charged.  For instance, if Lab 1 charges the provider/facility $10 for lab work, and the provider/facility charges an insurer $20, that can be found to constitute insurance fraud.

The key Florida prohibition, however, is found in the Florida Administrative Code, which reads—

59A-7.037 Rebates Prohibited – Penalties.

(1) No owner, director, administrator, physician, surgeon, consultant, employee, organization, agency, representative, or person either directly or indirectly, shall pay or receive any commission, bonus, kickback, rebate or gratuity or engage in any split fee arrangement in any form whatsoever for the referral of a patient. Any violation of Rule 59A-7.037, F.A.C., by a clinical laboratory or administrator, physician, surgeon, consultant, employee, organization, agency, representative, or person acting on behalf of the clinical laboratory will result in action by the agency under Section 483.221, F.S., up to and including revocation of the license of the clinical laboratory. In the case of any party or individual not licensed by the agency acting in violation of this Rule, a fine not exceeding $1,000 shall be levied and, as applicable, the agency shall recommend that disciplinary action be taken by the entity responsible for licensure of such party or individual.

(2) No licensed practitioner of the healing arts or licensed facility is permitted to add to the price charged by any laboratory except for a service or handling charge representing a cost actually incurred as an item of expense. However, the licensed practitioner or licensed facility is entitled to fair compensation for all professional services rendered. The amount of the service or handling charge, if any, shall be set forth clearly in the bill to the patient.

(3) Each licensed laboratory shall develop a fee schedule for laboratory services which shall be available to the patient, the authorized person requesting the test or agency upon request and shall be subject to subsection 59A-7.037(2), F.A.C.

In this era where healthcare providers and facilities are struggling to hold onto dwindling profit margins, it is understandable why some are considering arrangements with clinical labs.  Still, Florida providers and facilities have to be extremely cautious when entering into such arrangements.

 

Husband and Wife Kickback Conviction Not Surprising

The convictions of a husband and wife were upheld on February 2nd by the Second Circuit Court of Appeals.  The couple was convicted of soliciting and receiving kickbacks, among other things.  They argued that, in fact, all they did was to recommend physicians refer patients to a certain imaging center.  Their argument was that the doctors used their own judgment in referring patients.  Audio and video records of their activities, however, supported the prosecution’s case that in fact the couple actually paid cash to referring physicians for referrals made by the doctors to the imaging center.  The couple will spend about two years in prison.  The court did not address the legal issue of whether or not commission based compensation arrangements for marketing services were permissible.

Physician Owned Distributorships (PODS) Make Waves

doctor

Physician owned distributorships (PODs) have been the source of considerable controversy for years, but now they’ve caught the attention of Congress!

PODs distribute various things, most commonly surgical implants and devices, that are reimbursed by insurers. A patient needs a spinal rod, a surgical implant/device company makes it and a distributor rep distributed it. Device/implant companies usually contract with distributorships to sell their products. Distributorships contract with reps who are paid commissions for sales. Surgeons who actually order the devices sometimes think “Since I’m the one doing the surgery and ordering all this stuff, why don’t I make something from the selling it?” PODs are one way for physicians to financially benefit from the sales of devices and items their patients need, but they have never been more controversial than now.

Conceptually speaking, PODs are controversial because government regulators think physicians who have an economic stake in health care items or services will tend to over utilize them. Moreover, there is a specific concern that allowing physicians to profit from the devices their patients need violates federal anti kickback laws or the Stark prohibition on compensation arrangements.

In 2006, the Office of the Inspector General of HHS and CMS expressed major concerns about PODs, and cited concerns about “improper inducements.” At that time, the OIG stopped short of prohibiting them, but called for heightened scrutiny. CMS itself has stated that PODs “serve little purpose other than providing physicians the opportunity to earn economic benefits in exchange for nothing more than ordering medical devices or other products that the physician-investors use on their own patients.”

Implantable medical devices are unusual in the way they come into use. Unlike DMEPOS, for instance, medical devices are not sold to distributors. They’re sold from the manufacture to the medical facility where the surgery will take place. So, the argument goes, physicians are not actually in a position to drive the sales volume of the implants. The counter: physicians invested in a POD can leverage their hospital admissions to influence the device choice of hospitals and surgery centers.

The biggest legal hurdle for PODs is the federal Anti Kickback Statute, which carries both criminal and civil penalties. Simply put, if even one purpose of an arrangement is to pay for patient referrals, the law is violated. So, the law is arguably violated if one purpose of the POD is to induce physicians to order implants for their patients. Looked at another way, the law is violated if one purpose of a hospital doing business with a POD is to ensure patient referrals by the physician POD investors.

A 1989 OIG Special Fraud Alert on fraudulent physician joint ventures is especially interesting on the fraud and abuse issues in pointing out that the following would indicate unlawful intent to induce patient referrals—

Investor choice. If the only investors chosen are surgeons with an opportunity to refer and if they lack any business or management expertise, the arrangement appears to be a cloaked way to incentivize unlawful referrals (i.e. ordering implants). The key question is whether the business, in selecting investors, is looking to raise capital or to lock in referral sources.

Risk. If the POD investment involves little or no financial risk, the OIG would likely take issue with it.

The bottom line seems to be that if there isn’t a real business, with real financial risk and qualified investors, a POD will likely be viewed as a suspicious arrangement based on locking in patient referrals or physician admitting pressure by physician investors.

In its June, 2011 Inquiry “Physician Owned Distributors (PODs): Overview of Key Issues and Potential Areas for Congressional Oversight,” the U.S. Senate Finance Committee Minority Staff, the Committee reports “A number of legal and ethical concerns have been identified as a result of this initial inquiry into the POD Models.” The Committee reviewed over 1,000 pages of documents and spoke with over 50 people in preparing its report. The Committee cited long-held concerns regarding PODs, and leaned heavily on the 2006 Hogan Lovells (previously Hogan & Hartson) law firm’s anti-POD analysis.

With the Committee’s call for greater OIG and CMS involvement, one thing seems clear: the future of PODs is uncertain. In this era of cost-cutting, it seems clear that PODs are gonna get a haircut and may even lose their head.


Path Lab Proposal Shot Down by OIG

The Office of Inspector General of the Department of Health and Human Services recently (October 11, 2011) shook its head at a proposal involving a pathology lab management services business that was to be owned by physicians. The proposed arrangement had the following features:

1.A path lab management business (“Manager”) would be formed and the business would be owned by doctors;
2.The Manager would provide a list of management services to a path lab;
3.The path lab (“Lab”) would not be owned by the doctors that own the Manager;
4.The Manager would provide a fixed amount of hours of services each year and would receive a percentage of the Lab’s income (fixed percentage in advance) and that fee would approximate the Lab’s use of the Manager’s services for the year;
5.The physician Manager investors would be in a position to refer to the Lab;
6.The ownership interests of the physician investors in the Manager would exceed forty percent (40%);
7.More than forty percent (40%) of the Lab’s revenues would come from the physician investors.

The OIG decided that the proposed arrangement posed more than a minimal risk of violating the Anti Kickback statute. The OIG also said the manager cannot refer its own patients or generate business in connection with the proposed arrangement. The OIG focused on the following points in its advisory opinion:

1.The Manager’s “usage fees” to the Lab are percentage based and not flat and set in advance;
2.The ownership interests of the doctor investors in the Manager would exceed what is specified in the so called “small entity” Safe Harbor;
3.The physician owners of the Manager have no experience in managing a lab, but are in a position to generate referrals to it.

Though the regulatory Safe Harbors (to the Anti Kickback Statute) are illustrative of permissible arrangements, the OIG is clearly sticking very close to them. where federal or state healthcare program dollars are involved, physician investors would do well to make sure they are Safe Harbor compliant.


Consignment Closets: Still a Viable Option for DME Providers

In the age of heightened regulatory scrutiny, physicians and other health care providers often question whether “Consignment Closet” relationships are legal.  If properly structured these arrangements are not only legal but are of great benefit to patients needing valuable medical devices.  A properly structured relationship will, in all probability, withstand a regulatory challenge by the Office of Inspector General or from other regulatory authorities.Continue reading

Innovative Surgery Center Arrangements

While surgery centers generally follow the guidelines set forth in the federal Safe Harbor to the Anti Kickback Statute (AKS), not all do. In fact, there are some creative arrangements worth considering.

Some centers do not perform services which are compensated in any way by a state or federal healthcare program. As such, they don’t have to comply with the usual federal laws (e.g. AKS and Stark). That leaves the center to comply only with state regulation, which is usually far less restrictive than the federal laws. This works if the center intends, for instance, only to do work pursuant to Letters of Protection (LOP) or bodily injury suits. Though the pool of patients is very different in this type of center, the lid is nearly off when it comes to how creative the arrangements among the owners and referring physicians can be.

One of the more vexing challenges among all surgery centers is ensuring patient referrals by owner surgeons. While most centers will simply follow the federal Safe Harbor “one third test,” other centers go further and do things like: (1) making loans to owner surgeons, (2) creating “put” or “pull” periods during which time an investing physician can buy back out or be bought back out, and (3) even making exceptions to the restrictive covenants commonly contained in ASC documents.

Complying with the federal Safe Harbor applicable to surgery centers is clearly the most conservative way to go, in terms of regulatory compliance, since compliance means immunity from AKS violations. That said, Safe Harbor compliance is a little like horseshoes: coming close counts. The simple reason is that Safe Harbors are examples of conduct that complies with the AKS, but they are not all encompassing. There may be arrangements that do not violate the AKS which are simply not described in the Safe Harbors. Simply put, there are many other creative arrangements commonly employed in surgery centers. Since surgery center ownership and referral arrangements are hotly regulated, owners must be careful when considering veering off the straight course provided by federal law.


U.S. DISTRICT COURT RULING STRENGTHENS STATE STARK LAW

false claims act

Most readers know that the federal Stark Law deals primarily with matters involving physician self referral. The state equivalent, the Florida Patient Self Referral Act of 1992, has provisions that are even tougher than the Stark law. For instance, the Stark law allows some physicians to refer to renal dialysis centers in which they have an ownership interest, but the Florida law does not. Fresenius, a provider of renal dialysis services, filed suit seeking a declaration that the federal law (and not the state law) should control on the issue. Since there are several key areas where state law is more stringent than federal law (e.g. supervision requirements and ownership of entities that don’t provide “designated health services”), many eyes were on the court. Instead of giving Fresenius a pass and saying “Florida can’t make it tougher than what the federal law says,” the court stated that the federal laws do not preempt (supplant) the state ones.

Since the Stark Law does not preempt the state law and since the state law does not violate the U.S. Constitution, business people and professionals will have to make sure that both layers of compliance (state and federal) and solidly in place.


Haven’t Thought Much About Compliance Lately? The Government Has


It is estimated that health care fraud is a $60 billion a year business fueled by illegal conduct such submitting false claims and paying kickbacks to physicians and suppliers. Until recently, if large health care organizations were the targets of fraud investigations, these companies, as their penance, typically wrote a big check to the government and continued business as usual. Things have changed.

While indicting and convicting health care executives is not a new practice, officials at the Department of Health and Human Services (“DHHS”) and the Department of Justice (“DOJ”) are said to be frustrated with the frequent occurrence of repeat violations and they are ramping up their strategy. Lately there have been aggressive new initiatives rolling out to combat rampant health care fraud and the government is increasingly bringing criminal charges against executives even if they were not complicit in the fraud scheme, but could have stopped it if they had known.

What’s more striking is that in addition to civil monetary penalties and criminal indictments, the government is taking great efforts to exclude convicted executives from being involved in companies that do business with federal health programs. A recent bill introduced to Congress under the name of the “Strengthening Medicare Anti-Fraud Measures Act of 2011 (the “Act”), increases DHHS’ existing powers and allows them to seek to exclude owners, officers and mangers of companies that are convicted of health care fraud from federal healthcare programs even if they left the company prior to any conviction of the entity.

In addition to the expansion of the permissive exclusion afforded by the Act to DHHS, regulators and law enforcement officials are going to be increasingly utilizing current permissive exclusion remedies. DHHS’ bold move appears to be based on the rationale that the permissive authority of Secretary of DHHS or the Office of the Inspector General of DHHS to exclude individuals is a much easier process than criminal proceedings.

The impact of this aggressive new government strategy will likely have even further reaching consequences for convicted healthcare business owners and executives. For instance, an exclusion from being part of a business that works with federal health care programs would be a career ending blow for most executives. It should also be emphasized that smaller organizations are not in any way immune from enforcement activity. In fact, with newly increased enforcement budgets, authorities have the means and the time to target organizations of all sizes.

Law makers and regulators are hopeful that by ramping up the enforcement of existing laws and expanding the scope of DHHS’ power, it will act as a powerful deterrent against overt acts and will compel corporate executives to take proactive steps in preventing fraudulent activities and affirmatively addressing fraudulent practices when discovered. It is vitally important now more than ever, to have an active compliance program in place. A strong compliance program can not only detect and prevent fraudulent or negligent activities but also will typically be considered as a mitigating factor if an organization is culpable of fraudulent activity. The Florida Healthcare Law Firm works with health care organizations of all sizes to assist in the audit, development and implementation of effective compliance programs.


D.C./M.D. Arrangements Share Legal Issues Nationwide

chiropractic medicare

Chiropractors and medical doctors (or D.O.s) have had a long and somewhat complex relationship. Though they approach healthcare issues differently, there are many instances where they share care or even work together. Such “M.D./D.C.” relationships are legally complex, but often prove to be rewarding in many respects. Properly constructing the arrangements is critical, especially since government regulators and payers tend to view such arrangements with skepticism, alleging that the true reason for the combination is for chiropractors to avoid coverage restrictions.

The core legal issues the parties need to be aware of include:Continue reading