On August 2, 2018, DOJ announced that Detroit-based Beaumont Health would pay $84 million to settle claims that between August 31, 2004, and January 31, 2012, its arrangements with eight physicians violated the Anti-Kickback Statute (AKS) and the Stark Law by providing improper remuneration in the form of free or below-market value office space and employees and providing them with compensation in excess of fair market value. The settlement agreement also settles claims that from 2006 to 2012, Beaumont misrepresented that one of its CT radiology centers qualified as an outpatient department of the hospital. As part of the settlement, Beaumont is entering into a five-year Corporate Integrity Agreement, during which time its referral arrangements will be reviewed by an independent review organization.
Physician employment arrangements with hospitals have remained a significant area of regulatory scrutiny in recent months with the announcement of several high profile settlements and decisions in key FCA cases involving Stark and AKS-related issues.
In July 2016, DOJ announced a $17 million settlement in U.S. ex rel. Hammett v. Lexington County Health Services District. The lawsuit resolved allegations that Lexington County Health Services District, Inc. d/b/a Lexington Medical Center (LMC) in West Columbia, South Carolina violated the Stark Law and FCA by acquiring physician practices and employing physicians on terms that were in excess of fair market value and on terms that were not commercially reasonable.
On July 28, 2016, the Department of Justice announced a $17 million settlement in the matter of United States ex rel. Hammett v. Lexington County Health Services District, Case No. 3:14-cv-03653 (D. S.C.).1 The lawsuit resolved allegations that Lexington County Health Services District, Inc. d/b/a Lexington Medical Center (“LMC”) in West Columbia, SC violated the Stark Law and False Claims Act by acquiring physician practices or employing twenty-eight (28) physicians on terms that were in excess of fair market value and on terms that were not commercially reasonable.
The case was filed on September 15, 2014, and DOJ declined to intervene on September 16, 2015. Relator then continued with the case, resulting in the recently announced settlement. As part of the settlement, LMC also entered into a Corporate Integrity Agreement with the Department of Health and Human Services-Office of the Inspector General.
On October 16, 2015, Tuomey Healthcare agreed to pay more than $74 million to resolve a $237 million judgment in a long-standing FCA matter that had threatened to bankrupt the nonprofit hospital. The action, styled U.S. ex rel. Drakeford v. Tuomey Healthcare Systems, Inc., No. 05-2858 (D.S.C.), involved FCA allegations that Tuomey employed and compensated 19 part-time physicians in excess of fair market value and in a manner that varied with the volume of value of their referrals, in violation of the Stark Law. The settlement came after a July 2015 ruling from the U.S. Court of Appeals for the Fourth Circuit, which affirmed the district court’s $237 judgment against Tuomey following a jury trial in 2013.
The settlement agreement calls for Tuomey to pay $72.4 million to the United States—of which the relator will receive 25% ($18.1 million)—and an additional $2.5 million for the relator’s attorneys’ fees and costs. Payment of $32.4 million of the settlement amount is conditioned on the successful acquisition of Tuomey by Palmetto Health prior to December 31, 2015. In connection with settlement, Tuomey agreed to enter into a five-year CIA with HHS-OIG.
As we previously reported, physician compensation continues to be in the FCA crosshairs. In 2015 to date, there have been at least 12 FCA settlements involving alleged Stark Law violations, with the large majority of those being enforcement actions against hospitals like Tuomey.
What do the recent multimillion dollar FCA settlements tell healthcare providers about physician compensation arrangements? Standing alone, these settlements are cautionary examples of arrangements that may subject hospitals and physicians to increased scrutiny. These settlements, however, come on the heels of the recent OIG fraud alert – “Physician Compensation Arrangements May Result in Significant Liability,” and highlight the need for healthcare providers to proactively review physician arrangements for compliance with Stark and the Anti-Kickback Statute. For further discussion of the issues raised by these settlements and suggested tips for healthcare providers evaluating physician arrangements, please see this recent article, “Under the Knife: Enforcement Actions Increase Scrutiny on Physician Compensation Arrangements.”
In a welcomed move, CMS has proposed changes to the federal physician self-referral law (Stark Law) designed to improve consistency and interpretability and alleviate the number of technical violations leading to self-disclosures. This move is in stark (pun-intended) contrast to the stringent interpretation of the Stark Law by the Fourth Circuit in its decision in U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc., earlier this month. Given these sizable developments, what has changed and what are the implications for the healthcare industry? Our recent article discusses the Fourth Circuit’s opinion and what is to come for healthcare providers navigating the Stark Law.