Whistleblower Suits Put a Hole in a Health Systems’ Wallet: Implement an Effective “Tone at the Top” to Avoid Loss

Think the enforcement of the Stark Law and associated pursuit of false claims under the False Claims Act will ease based on the 2016 Medicare Physician Fee Schedule regulation and recent CMS-issued request for information on how to mitigate those regulatory burdens? If so, recent whistleblower lawsuits and settlements may give you pause. Last month, Montana’s Kalispell Regional Healthcare, in the largest Montana false claims settlement to date, agreed to pay $21.2 million to resolve allegations that physician compensation exceeded fair market value (FMV), was not commercially reasonable, and took into account the volume or value of referrals by the compensated physicians. According to the Complaint, “[t]he reason for this scheme is economics: the hospital system profits from increased referrals, and the physicians are highly paid despite minimal personal productivity.”

The whistleblower in this case was the CFO of the hospital who alleged that the hospital paid excessive compensation to a large number of specialty physicians and that the hospital system tracked the physicians’ referrals to the hospital and used that information as the basis of formulating their compensation. Allegations included the following:

• Physician compensation for 38 specialists was over the 90^th percentile for their applicable specialty
• Aggregate WRVUs were below the 10^th percentile
• Group collections were just above the national 10^th percentile
• Most of the physicians worked part-time but were paid as though they were full-time
• Physicians were provided with additional compensation for medical director services without substantiation (payments ranging from $50,000-$150,000 annually)
• Executives repeatedly informed by the CFO of the compensation system concerns and that he “advised the executive leadership that Kalispell Regional needed a common physician compensation philosophy”, which was at some “later point adopted by the governing body”, “but it ha[d] not been followed or implemented with physician contracts and physician compensation.”

The Stark Law Prohibits a physician from referring Medicare patients for designated health services to an entity with which the physician (or immediate family member) has a financial relationship unless an exception applies. A bonafide employed physician is an exception to the extent the total compensation paid to the physician is (1) fair market value, (2) commercially reasonable, and (3) doesn’t take into account the volume or value of referrals or other business generated. The Antikickback Statute prohibits offering, paying, soliciting, or receiving anything of value to induce or reward referrals or generate federal healthcare program business.Key Compliance Takeaways:

• Set a compliance-minded “tone at the top” in your organization. A culture of compliance starts at the top and infiltrates the organization.
• Address concerns raised by team members. Whistleblowers often act when they feel they have been unheard.
• Develop a sound physician compensation policy and approval procedure that is adopted by the governing body and adhered to by key executives. It is critical that the executive leadership champion this process.
• Document fair market value/commercial reasonableness for all physician compensation arrangements. Many organizations prefer to have the proposed arrangement reviewed by a third-party valuation expert to evaluate FMV and commercial reasonableness.
• Avoid compensating physicians on the basis of referrals.

Your organization can reduce the uncertainties of compliance issues and their potential subsequent federal penalties with the help of experienced reviewers. Coker Group is uniquely qualified to assist organizations in developing a compliant physician/provider arrangements process including the review and documentation of compensation arrangements from a fair market value/commercial reasonableness perspective.

‍Contact us today for assistance in creating a solid compliance program procedure.

‍Resources https://www.justice.gov/opa/pr/kalispell-regional-healthcare-system-pay-24-million-settle-false-claims-act-allegationshttp://1qb1ow3qfudf14kwjzalxq61-wpengine.netdna-ssl.com/wp-content/uploads/2018/07/KRM-COMPLAINT.pdf