Disclosure a good deal for Stark law violators
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.”