Stark threat on Med­i­caid

Pend­ing case will test whether states can be held li­able for providers’ vi­o­la­tions

Modern Healthcare - - THE WEEK IN HEALTHCARE - Joe Carl­son

For 20 years, the CMS has not ap­plied the fed­eral ban on physi­cian con­flicts of in­ter­est known as the Stark law to Med­i­caid claims. It’s fo­cused on Medi­care only. But pri­vate whis­tle-blow­ers have be­gun press­ing for clar­ity on the is­sue be­cause a 1993 law ap­ply­ing Stark to Med­i­caid re­mains on the books and could po­ten­tially put mil­lions of dollars in their pock­ets. Now, the CMS says the law does ap­ply, and the U.S. Jus­tice Depart­ment is mov­ing ahead by cit­ing the pre­vi­ously un­en­forced law in a Florida law­suit seek­ing re­pay­ment of Med­i­caid claims for Stark vi­o­la­tions.

A spokes­woman con­firmed last week in an e-mail to Mod­ern Health­care that the CMS does con­sider the Stark law ap­pli­ca­ble to Med­i­caid claims, even though it has never pub­lished fi­nal rules on how it would work.

If the Jus­tice Depart­ment’s le­gal strat­egy holds, chil­dren’s hos­pi­tals may be the most af­fected be­cause they treat so many Med­i­caid pa­tients. But any hos­pi­tal that cares for Med­i­caid pa­tients could be af­fected. That may ex­plain why or­ga­ni­za­tions such as the Fed­er­a­tion of Amer­i­can Hos­pi­tals deny that Stark ap­plies to Med­i­caid.

Yet some le­gal ex­perts say it is state gov­ern­ments—not the hos­pi­tals or doc­tors ac­cused of wrong­do­ing—that may have to foot the bill if providers’ Med­i­caid claims vi­o­late the Stark law, be­cause of the odd way that the orig­i­nal 1993 Stark law was writ­ten. That could cre­ate a sen­si­tive sit­u­a­tion at a time when the Obama ad­min­is­tra­tion is re­ly­ing on states to ex­pand their Med­i­caid pro­grams un­der the health­care re­form law.

“The law doesn’t au­tho­rize (the fed­eral govern­ment) to deny pay­ment to the hos­pi­tal. … The state is the one that loses the money,” said health­care at­tor­ney Kevin McA­naney, who helped write the Stark rules as an HHS reg­u­la­tions lawyer. “That’s why it’s never been fi­nal­ized.” The feds have “no stom­ach” for hold­ing states re­spon­si­ble for providers’ fi­nan­cial mis­deeds, he said.

In 1993, Congress ex­panded the scope of the Stark law from its orig­i­nal fo­cus on stop­ping doc­tors from re­fer­ring Medi­care pa­tients for lab­o­ra­tory ser­vices at fa­cil­i­ties they own. It in­cluded doc­tors’ re­fer­rals for hos­pi­tal ser­vices, among other things, and ex­panded Stark to cover Med­i­caid.

But Med­i­caid is run and partly funded by state gov­ern­ments. Rather than deny­ing pay­ments to Med­i­caid providers who vi­o­late the Stark law, the 1993 law di­rected the CMS to with­hold from the state Med­i­caid pro­gram the fed­eral match­ing por­tion of any claim that vi­o­lates Stark.

At least that’s how the CMS of­fi­cials read the law when they pub­lished pro­posed rules in the Fed­eral Reg­is­ter in Jan­uary 1998. Those rules were never fi­nal­ized or im­ple­mented, and sev­eral ex­perts said they were not aware of any case na­tion­ally in which a Med­i­caid provider has been suc­cess­fully pros­e­cuted for vi­o­lat­ing Stark.

“They came up with an idea and then never did any­thing with it,” said health­care at­tor­ney Donna Clark of Baker Hostetler.

In the mean­time, whis­tle-blower law­suits in health­care have taken off. In 2012, the Jus­tice Depart­ment re­ported an all-time high of $3 bil­lion taken back from phar­ma­ceu­ti­cal com­pa­nies and health­care providers via whis­tle-blow­ers’ law­suits that later were joined by the Jus­tice Depart­ment.

The in­sid­ers fil­ing those cases stood to gain as much as 30% of each set­tle­ment, giv­ing them a strong in­cen­tive to file as broad a law­suit as pos­si­ble for vi­o­la­tions of

the Stark law. Sev­eral health­care le­gal ex­perts said that pres­sure has caused the Jus­tice Depart­ment to toss the CMS’ old read­ing of the law and try to squeeze health­care providers for Med­i­caid re­pay­ments.

A mas­sive Stark and False Claims Act law­suit pend­ing against Hal­i­fax Health and its med­i­cal staffing sub­sidiary in Day­tona Beach, Fla., is the prime case. Fed­eral pros­e­cu­tors and a pri­vate whis­tle-blower say the sys­tem sub­mit­ted more than 70,000 false claims, in­clud­ing some for Med­i­caid pa­tients, re­port­edly cre­at­ing po­ten­tial penal­ties of as much as $1 bil­lion be­cause the sys­tem al­legedly paid on­col­o­gists and neu­rol­o­gists based on the vol­ume of busi­ness re­ferred to the hos­pi­tal.

The Med­i­caid al­le­ga­tions ar­gued that the hos­pi­tal, not the state Med­i­caid pro­gram, is li­able for the dam­ages be­cause the providers in­duced the state to sub­mit il­le­gal claims.

Hal­i­fax lawyers dis­puted the broad al­le­ga­tions and said specif­i­cally that Med­i­caid claims were “a le­gal im­pos­si­bil­ity.” But U.S. Dis­trict Judge Gre­gory Pres­nell in March 2012 re­fused to dis­miss the Med­i­caid claims from the law­suit. A March 2014 trial is sched­uled.

“The im­pact is huge,” said Robert Fabrikant, a part­ner with Manatt, Phelps & Phillips. “There is a very sub­stan­tial area of ex­po­sure that just didn’t ex­ist be­fore.” He noted that large Med­i­caid providers now may have a harder time con­vinc­ing po­ten­tial buy­ers in a hos­pi­tal trans­ac­tion that they don’t have po­ten­tial le­gal ex­po­sure un­der Stark.

While it re­mains to be seen whether the Med­i­caid al­le­ga­tions in Hal­i­fax will with­stand fu­ture court de­ci­sions, whis­tle-blow- ers aren’t wait­ing. Last month, the Jus­tice Depart­ment an­nounced it was join­ing a $500 mil­lion False Claims Act law­suit against In­fir­mary Health Sys­tem and a group of doc­tors and di­ag­nos­tic clin­ics in Mo­bile, Ala. They are ac­cused of us­ing a profit-shar­ing ar­range­ment to en­cour­age un­nec­es­sary test­ing of pa­tients, but the hos­pi­tal de­nies the al­le­ga­tions, which orig­i­nally cov­ered Med­i­caid claims.

The whis­tle-blower dropped the Med­i­caid al­le­ga­tions, how­ever, af­ter the Jus­tice Depart­ment de­clined to in­clude it when it filed to in­ter­vene in the case last week. The whis­tle-blower’s at­tor­ney, Christ Couma­nis of Couma­nis & York in Daphne, Ala., said he knew the Med­i­caid claims would be a hard sell.

“Frankly, we weren’t sure if it would be some­thing that would be en­force­able un­der the False Claims Act,” he said.

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