Physician Law : Pennsylvania Health Law Lawyer & Attorney : Fox Rothschild LLP : serving Philadelphia, Pittsburgh, Allentown, Erie, Upper Darby Twp

A recent whistleblower case out of the federal 3rd Circuit in Pennsylvania highlights some of the dangers in not properly documenting financial relationships between physicians and hospitals. Specifically, in US ex. rel. Kosenske v. Carlisle HMA, Inc., a Qui Tam lawsuit brought by the former member of an anesthesia group, the 3rd Circuit Court of Appeals reversed a US District Court’s summary judgment in favor of the defendant hospital and anesthesia group.

The anesthesia group in question had a written exclusive contract with the hospital for anesthesia services but, subsequent to entering into the exclusive agreement, began providing pain management services at the hospital’s freestanding pain center. The hospital did not charge the anesthesia group rent for use of the space in the pain center and the qui tam relator claimed that the arrangements failed to meet the Stark exception for personal service arrangements (and therefore that claims for services referred by the anesthesia group’s physicians to the hospital were in violation of the federal False Claim Act).

The Appeals Court found that the arrangement between the hospital and the anesthesia group implicated the Stark prohibitions because the anesthesia group received remuneration from the hospital in the form of, among other things, free rent and administrative services, and because the pain physicians referred patients to the hospital for diagnostic testing and other Stark services. The Court further found that the arrangement did not satisfy the Stark personal service exception because, among other things, the exclusive contract did not contemplate the pain management services when it was originally signed and it was not subsequently amended to address the pain management services. The case was remanded to the District Court for further proceedings.

What should physicians take away from this case?

(1) If you have a financial relationship of any kind with your hospital, it should be reflected in a signed written agreement;

(2) Make sure your agreements with your hospital meet an applicable Stark exception; and

(3) Regularly review and update your agreements to be sure they are in effect and accurately reflect the terms of the relationship.
 

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For those of you who have not been watching your Stark radar screen closely, be aware that CMS recently made a number of substantial changes to the Stark self-referral regulations that may affect your practice arrangements. Some of these changes will not take effect until October 1, 2009, but others changes will take effect on October 1, 2008. Key changes include (but are not limited to the following:

1.  “Stand-in-the shoes” Relationships – Under current regulations, physicians who refer to a Stark entity with which they have a financial relationship will be deemed to “stand in the shoes” (i.e., be treated as if they had the same compensation arrangements) of their physician organizations (e.g., their medical practice entity). CMS has clarified that, Effective October 1, 2008, this rule only applies to physicians who have an ownership interest in the physician organization – not physicians who are only employees, independent contractors or whose ownership interest is only titular.

2.  Services Furnished “Under Arrangements” -- CMS has in the past expressed concern over “under arrangements” ventures where a physician supplies items and services to a hospital for which the hospital bills the Medicare program and pays the physician fee. To address this concern, CMS has revised the definition of the term “entity” for purposes of the Stark prohibitions to the person or entity that actually performs a Stark services as well as the entity that causes a claim for the Stark service to be submitted to the Medicare program. This change will take effect on October 1, 2009.

 

3.  Per Click and Percentage-Based Compensation – The Stark regulations now expressly prohibit the use of “per service/per click” and percentage-based rent arrangements under space and equipment leases between physicians and entities to which they refer for Stark services. Percentage compensation arrangements are still permissible under Stark for personal services arrangements however. This change will take effect on October 1, 2009.

The Stark regulations continue to grow increasingly complex.  Because Stark is a strict liability statute (which means even inadvertant violations can result in substantial liability), physicians are encouraged to examine their existing financial relationships (ownership and compensation relationships) for compliance with these rules.  If you would like assistance in doing such an analysis or for assistance with any of your Stark questions, please contact Todd Rodriguez.

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