Two recent high-profile Stark cases involving Tuomey Healthcare Systems in South Carolina and Marion General Hospital in Ohio offer good evidence that legal advice on physician-related transactions is worth the investment. Earlier this year, Tuomey was found guilty by a jury of violating the federal physician self-referral “Stark” law, and may have to repay nearly $45 million in Medicare reimbursement and face potential exclusion from Medicare participation, while Marion General Hospital agreed to a $1.2 million settlement for Stark violations.
The Stark law prohibits a physician from referring Medicare patients to an entity for the provision of any “designated health services” if the physician or his/her immediate family member has a financial relationship with the entity, unless the arrangement meets an applicable exception in the law or its associated regulations. Designated health services include inpatient and outpatient hospital services, among others. A healthcare provider is strictly liable under Stark, meaning the provider may violate the law even without intending to do so.
In the Tuomey case, the Department of Justice (“DOJ”) alleged the hospital violated Stark by compensating physicians under contracts that exceeded fair market value, and also took into account the volume or value of referrals to the hospital from the physicians. One of the most notable aspects of the case is the emphasis DOJ put on the intent of hospital administrators to disregard legal advice, even though intent does not have to be proven for a Stark violation. Over ten pages of the thirty-four page complaint alleged administrators either ignored or manipulated legal advice in crafting their physician employment agreements. For example, the complaint discussed an opinion letter from outside counsel that warned the hospital’s proposed employment agreement with a gastroenterologist would probably not fall within the “bona fide employment relationships” exception under Stark. Evidence in the complaint showed the hospital ignored legal advice and even forbade its outside counsel to produce written opinions when the hospital believed the opinions would be unfavorable.
Marion General Hospital paid physicians without written contracts, which in certain cases is a de facto Stark violation. The hospital’s president admitted that most of the trouble stemmed from its failure to carry out all the proper paperwork. The hospital could have avoided its problems if it had sought legal advice concerning proper compliance before entering into the transactions. Both of these cases indicate that when a healthcare provider obtains legal advice and acts accordingly, it may be less likely to face prosecution. On the other hand, a provider that disregards legal advice or takes a head-in-the-sand approach to compliance with Stark or other fraud and abuse laws may find itself paying substantial penalties. A small investment in time and money for legal advice before proceeding with a physician transaction might save the provider from significant fines and Medicare exclusion concerns down the road.« Back to news