Penalty loop­hole

Dis­clo­sure a good deal for Stark law vi­o­la­tors

Modern Healthcare - - THE WEEK IN HEALTHCARE - Joe Carl­son

Sev­eral years ago, Leake Me­mo­rial Hos­pi­tal, a crit­i­cal-ac­cess fa­cil­ity in ru­ral cen­tral Mis­sis­sippi, was on the verge of clos­ing and was look­ing for a buyer when its of­fi­cials dis­cov­ered that the pub­licly run hos­pi­tal was sit­ting on a time bomb.

More than $1 mil­lion in po­ten­tial fed­eral penal­ties had qui­etly ac­cu­mu­lated be­cause sev­eral con­tracts with lo­cal doc­tors con­tained tech­ni­cal vi­o­la­tions of the 1992 Stark law, which reg­u­lates physi­cians’ fi­nan­cial con­flicts of in­ter­est. That penalty was huge for Leake, as was clear when Mis­sis­sippi Bap­tist Health Sys­tems even­tu­ally bought it out­right for $2.8 mil­lion.

The sale kept the hos­pi­tal open, but that deal could not have gone through with­out a new CMS pro­gram that al­lows hos­pi­tals to turn them­selves in and get deep dis­counts on Stark law penal­ties. A le­gal set­tle­ment re­solved the Stark is­sues on Nov. 1, 2011, the same day the sale of the hos­pi­tal was closed. Leake paid just $130,000 in penal­ties.

“If it had not been dis­closed, it would not have been re­solved, and it would have stopped the sale,” said Leake County At­tor­ney Jef­frey Webb, who helped draft the dis­clo­sure of Stark vi­o­la­tions to the CMS. “And the hos­pi­tal would prob­a­bly have closed.”

At least 250 health­care com­pa­nies have sel­f­re­ported wrong­do­ing in­volv­ing the Stark law since the CMS’ Self-Re­fer­ral Dis­clo­sure Pro­to­col was au­tho­rized by the Pa­tient Pro­tec­tion and Af­ford­able Care Act in 2010. So far, 29 hos­pi­tals have set­tled cases for a to­tal of $3.3 mil­lion, av­er­ag­ing $114,000 per set­tle­ment.

In re­sponse to a re­quest un­der the Freedom of In­for­ma­tion Act, the CMS re­leased to Mod­ern Health­care copies of the first 11 set­tle­ments un­der the pro­gram. The doc­u­ments sup­port anec­do­tal ac­counts that the pro­gram is knock­ing down po­ten­tially large penal­ties to rel­a­tively mod­est amounts.

The 84-bed St. Joseph Hos­pi­tal in Ban­gor, Maine, faced the prospect of re­pay­ing as much as $900,000 to the CMS when it dis­closed in De­cem­ber 2010 that it po­ten­tially vi­o­lated the Stark law by hav­ing two physi­cian con­tracts that were not in writ­ing, ac­cord­ing to an es­ti­mate

con­tained in bond fil­ings by the hos­pi­tal’s cor­po­rate par­ent, Covenant Health Sys­tems.

Af­ter an 18-month in­ves­ti­ga­tion, CMS of­fi­cials of­fered to let St. Joseph pay just $59,000 to re­solve the is­sues, the hos­pi­tal’s set­tle­ment said.

In Fe­bru­ary 2011, Saints Med­i­cal Cen­ter in Low­ell, Mass., be­came the first hos­pi­tal in the U.S. to set­tle claims through the pro­gram when it paid $579,000 to re­solve self-re­ported prob­lems with con­tracts for physi­cians’ evening cov­er­age and med­i­cal di­rec­tor ser­vices. Bond doc­u­ments at the time re­ported the re­pay­ments could have reached a whop­ping $14.5 mil­lion.

Of­fi­cials with Saints, St. Joseph and Mis­sis­sippi Bap­tist Health Sys­tems all de­clined to comment, as did of­fi­cials of other hos­pi­tals in­volved in set­tle­ments.

The Stark law is in­tended to pre­vent physi­cians from en­rich­ing them­selves by re­fer­ring Medi­care pa­tients for ser­vices or to hos­pi­tals in which they have a fi­nan­cial stake, pre­sum­ably driv­ing up Medi­care costs. The law says that all Medi­care money paid to a doc­tor un­der a tainted con­tract must be re­turned, even if it’s only a tech­ni­cal vi­o­la­tion.

S. Craig Holden, pres­i­dent and chief op­er­at­ing of­fi­cer of the law firm Ober Kaler in Bal­ti­more and a for­mer trial at­tor­ney with HHS, said he has seen pro­posed hos­pi­tal merg­ers fall apart be­cause of un­cer­tain­ties over large po­ten­tial Stark penal­ties that were dis­closed to the CMS but not re­solved quickly enough.

Kath­leen McDer­mott, a part­ner at Mor­gan Lewis & Bock­ius and a for­mer health­care fraud co­or­di­na­tor with the U.S. Jus­tice Depart­ment, said the blame lies with the law’s high penal­ties and that the law does not re­quire a show­ing of in­tent or even knowl­edge of the law.

In an in­ter­view last week, for­mer Cal­i­for­nia Rep. Pete Stark, the ar­chi­tect of the orig­i­nal Stark law that went into ef­fect in 1992, said, “I think stiff penal­ties are fine. For the per­son who is out so­lic­it­ing re­fer­rals, and of­fer­ing kick­backs and spe­cial rates, I think they should be put out of busi­ness.”

But many Stark vi­o­la­tions are not only un­in­ten­tional, hos­pi­tal of­fi­cials say, they don’t even come to light un­til the buyer in a hos­pi­tal merger in­ves­ti­gates the seller’s ex­ist­ing con­tracts and dis­cov­ers le­gal prob­lems. And when Stark prob­lems be­come known, they can’t be ig­nored, be­cause do­ing so could turn the mat­ter into an even more se­ri­ous False Claims Act case fo­cus­ing on fraud.

Scott Taebel, an at­tor­ney at Hall Ren­der in Mil­wau­kee, said hos­pi­tals will con­tinue to use the self-dis­clo­sure pro­to­col, de­spite its costs, be­cause the po­ten­tial le­gal con­se­quences of not us­ing it are too great. “There is re­ally al­most no other op­tion other than the pro­to­col.”

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