Physician self-referral law and healthcare organization financial management responsibilities

Financial Management in Healthcare Organizations and Physician Self-Referral Law (Stark Law)
Introduction
Healthcare organizations are required to comply with federal/ state laws that govern financial transactions. These laws are designed to regulate the financial operations of healthcare organizations and prevent fraud. This paper explains the financial responsibilities of management as stipulated under the Stark law, the consequences of non-compliance and suggests possible remedial steps that HCO management should undertake to meet the provisions of Stark law.
Name of the Law
Physician Self-Referral Law (section 1877 of the Social Security Act) is a federal law enacted in 1989 by the U.S Congress (Mannava, Bercovitch, & Grant-Kels, 2013). It is commonly referred to as Stark law after former California Congressman Pete Stark who sponsored the original bill. It is codified at Title 42 of the United State Code Section 1395nn (42 U.S.C. § 1395nn)
Management’s Financial Responsibilities
Improper financial interest
Under section 42 CFR 411.353, physicians are prohibited from having inappropriate financial relationships with entities that offer designated health services (DHS). A financial relationship, in this case, involves either ownership interests, investment interests, or compensation arrangements. Under 42 CFR 411.351, Stark applies to ten DHS referrals that are payable by Medicare. The services include (1) home health services, (2) prosthetics and orthotics,(3) clinical laboratory services, (4) radiation therapy and supplies, (5) radiology and certain imaging services, (6) outpatient subscription drugs, (7) inpatient and outpatient hospital services,(8) physical, occupational, or speech therapy, (9) durable medical equipment and (10) supplies, and parenteral and enteral nutrients, equipment and supplies. The management should scrutinize if a physician has any improper financial interests or motive with providers of designated services (Legal Information Institute, n.d.).
Medicare Claims
The health care managers should ensure that all referrals accepted from other health care institutions are ethical and just as stipulated in 42 CFR 411.353. If the referring physician has a financial relationship with the organization, the hospital managers may not submit Medicare claims unless the ownership or compensation structure satisfies the regulation exceptions in 42 CFR 411.357. Some of the exceptions to Stark Law include payments made for renting an office space or medical equipment, payments to physicians or family member who have a bona fide employment relationship with the DHS provider and fees that are unrelated to DHS. Section 42 CFR 411.351 defines a physician as either Oral surgeons, MDs, DOs, Dentists, Podiatrists, Chiropractors, or Optometrists. So, the management is responsible for ensuring that Medicare claims meet the provisions and exceptions of Stark Law (Legal Information Institute, n.d.).
Good Paperwork
The financial contracts between physicians and hospitals should meet the requirements of the Stark Law. The management should ensure that physician compensation meets the fair market value. Any commercially unreasonable payment violates the Stark Law.
Consequences for Ethical or Legal Breach
The consequences of violating Stark Law include claims repayment, False Claims Act liability, exclusion, and civil monetary penalties. Under 42 CFR 1001.102, a health care organization or physician who violates the Stark Law will be excluded from Medicaid programs for a period not less than five years (Legal Information Institute, n.d.). Under 42 CFR 411.353 (b), a DHS provider cannot be paid for services that were submitted under improper referrals and if the provider was paid, they have to make a repayment to the government within 60 days ((Legal Information Institute, n.d.). Under CFR 1001.103(B), the Office of Inspector General (OIG) may impose a penalty of not more than $100,000 for each medical scheme/arrangement claim and a fine that does not exceed $15,000 for each Medicare claim. Lastly, violating the Stark Law may result in the violation of the Anti-Kickback Statute and False Claims Act liability.
Since the inception of the Stark Law in 1989, some healthcare organization have violated that law. The most notable being Halifax Hospital Medical Centre, Tuomey Hospital, and Tri-City Medical Centre. Each of the cases is explained below.
Halifax Hospital Medical Centre Case
In 2014, Halifax Staffing Inc. (Halifax) and Halifax Hospital Medical Centre, a hospital system based in Florida agreed to pay $85 million to settle allegations that it violated Stark Law (U.S Department of Justice, 2014).
The government argued that in the contract that Halifax entered with its six medical oncologists violated the Stark law because the bonus incentive was pegged on the value of tests and prescription drugs. One of the employed Oncologist specifically ordered expensive medications and tests for Medicare patients. On the other hand, the hospital argued that the oncologists did not make any referrals as stipulated by Stark since they performed the services that they ordered. The court rejected the hospital argument. The court reasoned that the bonus structure was a referral because the hospital benefited from the facility fee even if the physicians performed the services.
On 13th November 2013, the court ruled that Halifax contracts with its medical oncologists violated the Physician Self-Referral Law (U.S Department of Justice, 2014). The trial case was to begin on 3rd March 2014, but both parties, in this case, reached an out-of-court settlement. Apart from paying $85 million to the government, Halifax also signed the Corporate Integrity Agreement (CIA). CIA requires Halifax to submit all its Medicare claims to the Department of Health and Human Services Office of Inspector General (HHS-OIG) for an independent review (U.S Department of Justice, 2014).
I agree with the court ruling and the settlement agreement because any bonus incentive to physicians should not depend on patient referrals or the value of tests and prescription drugs. Additionally, the five years CIA agreement between Halifax and HHS-OIG promotes integrity in Medicare claims.
Tuomey Healthcare System Case
On 3rd October 2013, Tuomey Healthcare System was ordered to pay $237 million by a federal judge for violating both the Stark Law and False Claims Act by submitting false Medicare claims that amounted to $39 million (Schenker, 2015). Tuomey appealed this decision and in 2015, the Federal Court of Appeals upheld the verdict that was made by the federal judge in 2013.
This case was filed in 2005 by a whistleblower - Dr. Michael Drakeford- who had declined to enter into an agreement offered by the Tuomey hospital (Schenker, 2015). It is a landmark case because the fine imposed by the courts exceeded the annual revenue of the hospital. The government argued that the hospital took into consideration the value of facility fee and referral when setting the salaries of physicians which is a violation of Stark law. In their defense, Tuomey claimed that they had relied on the advice of its lawyers when drafting the compensation agreements. Since the Stark Law is a liability statute, intent is irrelevant. The court reasoned that Tuomey ignored the warnings from one of the lawyers who advised that the physician contracts were risky (Schenker, 2015)
To avoid paying the $237 million, Tuomey entered into an agreement with the federal government. They agreed to pay the government $72.4 million and sell the hospital to Palmetto Health, a system based in Columbia. I agree with this settlement because it was not possible for Tuomey healthcare system to pay $237 million and remain in business. I also agree with the court rulings because it acts as a caution to other healthcare providers.
Tri-City Medical Centre
Tri-city Medical Centre based in California agreed to pay $3.28 million to settle allegations of improper financial arrangements with its physicians which is a violation of Stark Law (Schencker, 2016). The government argued that a total of 92 financial agreements between the hospital and its physicians had missing information such as signatures. Additionally, some of the written agreements could not be traced and others had expired. I support this settlement because contracts between hospital and physicians should meet all the paperwork requirements as stated in Stark.
HCO Management’s remedial steps to reverse the non-compliance organizations
First, HCO managers should rotate staff regularly because it promotes integrity among employees. The Stark Law states integrity measures that physicians should adhere to when making referrals. Therefore, each manager should ensure that physicians comply with the provisions of the Stark Law because it promotes effective relationships between the healthcare provider and the government.
Secondly, HCO managers can use technology because it promotes swift communication between physicians and DHS providers. Technology can also be used as a tracking tool. So, in case of improper referral, the HCO managers can use the tracking report for audit purposes. Physicians can also use mobile apps that are capable of documenting their daily activities. It helps in avoiding errors when making Medicare claims.
Third and lastly, HCO managers should ensure that employees are adequately trained. The provision of Stark Law concerning DHS is updated yearly. So, physicians need to be trained regularly. Adequate training promotes high performance and ethics within an organization. Furthermore, strict adherence to organization policies and procedures by physicians promotes financial accountability.
Conclusion
The Physician Self-Referral Law /Stark Law (42 U.S.C. § 1395nn) prohibits physicians from making patients referrals to DHS providers or other physicians with whom the physician has a financial relationship. The provision is straightforward, but it is subject to the exception that are outlined in 42 CFR 411.357. In the cases filed against Halifax Hospital Medical Centre, Tuomey Healthcare System, and Tri-City Medical Centre, the Stark law proved effective. All physicians should embrace the provisions of Stark Law because it is one way of reducing conflict of interest that is inherent in patient’s referrals.

References Legal Information Institute. (n.d.). 42 CFR § 411.351 - Definitions. Retrieved June 14, 2019, from https://www.law.cornell.edu/cfr/text/42/411.351 Legal Information Institute. (n.d.). 42 CFR 1003.103 - Amount of penalty. Retrieved June 14, 2019, from https://www.law.cornell.edu/cfr/text/42/1003.103 Legal Information Institute. (n.d.). 42 CFR § 1001.102 - Length of exclusion. Retrieved June 14, 2019, from https://www.law.cornell.edu/cfr/text/42/1001.102 Legal Information Institute. (n.d.). 42 CFR § 411.353 - Prohibition on certain referrals by physicians and limitations on billing. Retrieved June 14, 2019, from https://www.law.cornell.edu/cfr/text/42/411.353 Legal Information Institute. (n.d.). 42 CFR § 411.357 - Exceptions to the referral prohibition related to compensation arrangements. Retrieved June 14, 2019, from https://www.law.cornell.edu/cfr/text/42/411.357 Mannava, K. A., Bercovitch, L., & Grant-Kels, J. M. (2013). Kickbacks, stark violations, client billing, and joint ventures: Facts and controversies. Clinics in Dermatology, 31(6), 764-768. doi:10.1016/j.clindermatol.2013.05.014 Schencker, L. (2015, October 16). Tuomey will pay U.S. $72.4 million to duck $237 million False Claims verdict. Retrieved from https://www.modernhealthcare.com/article/20151016/NEWS/151019923/tuomey-will-pay-u-s-72-4-million-to-duck-237-million-false-claims-verdict Schencker, L. (2016, January 15). California hospital pays nearly $3.3M over potential Stark violations. Retrieved June 14, 2019, from https://www.modernhealthcare.com/article/20160115/NEWS/160119893/california-hospital-pays-nearly-3-3m-over-potential-stark-violations U.S Department of Justice. (2014, September 15). Florida Hospital System Agrees to Pay the Government $85 Million to Settle Allegations of Improper Financial Relationships with Referring Physicians. Retrieved June 14, 2019, from https://www.justice.gov/opa/pr/florida-hospital-system-agrees-pay-government-85-million-settle-allegations-improper