PICK ON PROVIDERS

The OIG season of issuing fraud alerts, special fraud alerts, advisory opinions and similar ways to make providing medical care even more difficult has begun.

The latest:

• Physician-owned entities – OIG has issued a “special fraud alert” that addresses physician-owned entities that receive revenue from selling or arranging for the sale of implantable medical devices by the physician owners for use in procedures the physician owners perform on their own patients at hospitals or ambulatory surgery centers.  These entities are often called physician-owned distributorships or PODs.

OIG’s special fraud alert points out Anti-Kickback Statute issues that may be raised from PODs.  While OIG recognizes the lawfulness on the one hand of PODs, it says that the ultimate determination by OIG of fraud of AKS issues “depends on the intent of the parties”.  Those factors are listed in the special fraud alert, and if you have any questions regarding your POD, please feel free to contact us.

• Laboratory payments to referring physicians – This special fraud alert discusses compensation paid by laboratories to referring physicians and physician group practices for blood specimen collection, processing and packaging and for submitting patient data to a registry or database.  Of course, the AKS applies here and OIG has and will continue to take a very close look at any payments, laboratory services, offers or gifts to a source or referral.  In the past these have taken the form of payments to a physician, renting office space, freebies and other arrangements, and these will be carefully reviewed by OIG.  If a laboratory is renting office space from you, does it actually use it, is it above or below market rate, is it an excessive amount of space for the laboratory’s needs?  If you are receiving per-sample payments, are those payments appropriate in amount?  If you are acting as a consultant or medical director, what activities do you actually perform, and are you paid the market value of those services?
• A variation on laboratory services is discussed in a recent OIG advisory opinion.  The laboratory proposed to provide all laboratory services for the practice’s patients and waive all fees for that practice’s patients who are enrollees in certain insurance plans that require the patients to use a different laboratory.  In the opinion, the laboratory was operating 45 patient centers in multiple states and provided clinical laboratory, anatomic pathology and forensic pathology services to hospitals, long-term care and assisted living facilities, physicians, etc.  The proposed arrangement would allow the laboratory to enter into agreements to provide all necessary laboratory services regardless of the patient’s health plan coverage.  The agreement would not allow the physicians to require that its patients use the laboratory, but it obviously would have been the normal and ordinary laboratory used.  Under the proposal, there would be no payment to physicians using the laboratory services for their patients when the laboratory provided the services at no charge to patients.

OIG quickly identified issues under the AKS and concluded that the proposed arrangement with the laboratories “could potentially generate prohibited remuneration under the Anti-Kick Back Statute”.  The “logic” used by OIG was that “it is plausible that more than half of the non-Medicare or non-Medicaid patients would be receiving free services while Medicare and Medicaid would be charged at the regular rate.  Thus, the proposed arrangement would essentially result in a two-tier pricing structure…”  It is clear that OIG found the situation where Medicare or Medicaid would be at a potential disadvantage to be unacceptable.  Since there are other statutes which prohibit pricing breaks below Medicaid/Medicare rates, it is unclear why OIG felt the need to involve AKS statutes where there, literally, is no “kick-back”.  This continues a concerning trend of OIG to use Stark and AKS statutes far beyond their original intended limits, and increasingly, simply to threaten behavior which OIG or CMS does not approve.  The likely result is merely that Stark and AKS statutes apply to everything, and that CMS and OIG hindsight will be just as disturbing as this advisory opinion.

• Physician compensation arrangements should be carefully considered.  OIG sent out a fraud alert this month suggesting that compensation arrangements like medical directorships or consulting agreements must reflect “fair market value for bonafide services” or risk an AKS claim by OIG.  Apparently OIG has been reviewing situations where a clinic, laboratory or other medical facility had multiple medical directorship agreements with physicians who provided little or no services and yet received payments for medical directorships.  OIG has also been looking at physicians who have multiple medical directorship contracts.

Starting from either direction, OIG believes that medical directorship agreements may have been being used recently to try to circumvent AKS or Stark requirements by disguising payments to physicians as payments for services when little or no service was given, or for the services given, the physician was overpaid.

The takeaway, viable services must be set forth in the medical directorship agreement, those services must be normally rendered, and the compensation rate for those services should be market appropriate.

HOSPITAL LOSES, HOSPITAL INSURER WINS

A federal court in Kentucky recently held that an insurer properly denied coverage to a hospital after the hospital gave untimely notice of a claim.  The insurer avoided payment on a $10M D&O excess policy claim.

The hospital had a primary D&O liability coverage and also purchased a secondary D&O coverage, the one at issue here.  This was a “claims-made” policy as opposed to as an “occurrence” policy.  Apparently, the hospital failed to make a claim during the required claims-made period, and then sought assistance in paying a $40.9M payment to Medicare for heart procedures that were later deemed not to be medically necessary.

The hospital claimed that even though they failed to give notice during the required notice period for a claims-made policy, the insurer should have to pay anyways since the insurer could not show any direct prejudice from the hospital missing the deadline.

The takeaway is that the court will more likely find that a delay in making a claim under a claims-made policy is fatal to the insured.  It appears that it is possible that under an occurrence policy, the hospital would have had more success.

WIN SOME, LOSE SOME

An oncology doctor in Georgia won one and lost one in a federal claim whistleblower action.  Dr. Thomas Tidwell was successful in having the court throw out a whistleblower’s claim that Dr. Tidwell violated the Stark law by referring patients to a hospital that he had a financial relationship with after it purchased his radiation oncology clinic.

In essence, the federal court found that the services Dr. Tidwell provided met the “consultation exception” to the Stark law.  However, on the second claim, an Anti-Kickback statute claim that Dr. Tidwell had submitted false claims to the government for reimbursement based upon a claim that the equipment he used to perform the services at issue “failed to meet the standard of care” and also whether the sale of his oncology clinic was above fair market value are still going to trial.  We will watch this case to see if Dr. Tidwell can end up batting a thousand.

This newsletter is edited by Paul Wallace of Jones ∙ Wallace, LLC, a member of the American Bar Association Healthcare Law Section and the American Health Lawyers Association who has been representing physicians and healthcare practices for over 25 years.  Mr. Wallace assists physicians in health practices in contract items, federal legal compliance, creation of practice entities, estate and wealth planning and similar issues.  Please feel free to call if you have any questions on this newsletter or legal matters at (812) 402-1600 or pwallace@joneswallace.com.