HOW TO REPORT EMPLOYMENT – PROVIDER HEALTHCARE COVERAGE OR IRS FORM W2

Since tax year 2011, ACA required employers to report the value of health insurance coverage to employees on form W2.  This was deferred until January 2013.  This now mandatory reporting must indicate the total dollar value of the coverage sponsored by employer, showing contributions by the employer and employee.  Notwithstanding this reporting requirement, such coverage continues to be available on a pre-tax basis.  The amount reported should not include any amounts contributed to an MSA or HSA, which are reported separately, or to an FSA.  If you want to know what the alphabet soup stands for, please feel free to contact us.

These reporting requirements are obviously designed to determine if individuals fulfill the individual mandate and minimum essential coverage requirements in 2013 and beyond. We expect the IRS to carefully scrutinize these initial 2013 filings because of the intense political interest and debate on ACA and its ultimate effects.

AFTER TUOMEY HOSPITAL STARK CASE

Recently, Tuomey Healthcare System was found to have violated the Stark Law in its contracts with outside physicians.  The initial jury verdict on May 8^th was for $39,000,000.00, and the Department of Justice has requested an additional $237,000,000.00 in fines and penalties.  Tuomey is a relatively small facility in Sumter, South Carolina, and it is clear that the $276,000,000 fine will make this facility insolvent.

The contracts involved ones that Tuomey entered into on an exclusive basis for part-time employment with affiliated specialist physicians.  Tuomey did this to prevent those physicians from moving their out-patient related business from Tuomey’s ambulatory surgery center, and to presumably lower cost locations which would compete with Tuomey, and, at least some of which, would be owned by the physicians.

My review of the case indicates that Tuomey made the following mistakes:

1. It agreed to pay the physicians more than the net revenues collected.  It is hard to suggest any circumstances where paying a broad range of physicians an amount more than the revenues generated is acceptable.

2.  Tuomey had obtained an FMV opinion of an “expert” that opined that the hospital’s rates which were to be paid to the physicians were unlikely to violate the Stark Law.  In retrospect, it is clear that this expert may have given Tuomey what it wanted to hear, and appears the jury felt it did not truly investigate the market, nor properly justify any conclusions.

3.  Tuomey appears to have considered the Stark Law as merely a guide to be followed, and so felt that so long as it met the letter of Stark, compliance was complete.  It is clear from this case that the Government is looking beyond the mere four corners of compliance, and looking at the underlying transaction for commercial reasonableness.

Lessons for both physicians and hospitals:

1.  Any compensation agreement with physicians which pays the physicians 100% or more of the revenue generated by the physicians is likely to be viewed with great suspicion by the Office of Inspector General (OIG);

2.  Pick your experts and advisors wisely.  Any opinions from any experts or advisors should be carefully reviewed to see whether there is a real and sufficient foundation for any opinions offered.

3.   Look at all of your existing arrangements to determine whether they comply or whether they need to be modified.  Particularly, pay attention to any compensation arrangements which have any variable components that cannot be specifically tied to acceptable performance or cost containment safe harbors.

It is unclear whether Tuomey is merely the forefront of a broad new wave of OIG Stark Law based actions for hospitals and other employers of physicians will face extensive penalties, or whether Tuomey’s facts are so unique, and the expert work in Tuomey was so poor that this is more of a one-off type case.  Under any measure, it appears that that the Tuomey decision is a death penalty for this hospital, or, if a negotiated amount is accepted by the Government, it is likely that Tuomey and its community will be severely impacted.

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 about this newsletter or any other matter at (812) 402-1600 or pwallace@joneswallace.com.