Caught be­tween com­pet­ing pres­sures

Huge whis­tle-blower set­tle­ment high­lights le­gal risk for hos­pi­tals in how to pay doc­tors

Modern Healthcare - - NEWS - By Joe Carl­son

Six years ago, Elin Bak­lid-Kunz, the physi­cian ser­vices di­rec­tor at Halifax Health in Day­tona Beach, Fla., told the chief com­pli­ance of­fi­cer and other ex­ec­u­tives that the hospi­tal’s pay­ments to some of its em­ployed physi­cians looked il­le­gal. When the agree­ments weren’t mod­i­fied, she filed a whis­tle-blower law­suit.

Last week, the 582-bed tax-as­sisted hospi­tal ten­ta­tively agreed to set­tle part of her federal suit for $85 mil­lion, of which Bak­lid-Kunz, who still holds her po­si­tion at Halifax, will re­ceive $13 mil­lion. And the case is far from over.

She said she filed the case be­cause she was afraid she and other hospi­tal of­fi­cials would face crim­i­nal charges. “I hon­estly felt that I didn’t have a choice,” she said in an in­ter­view (See re­lated story, at left).

Halifax de­clined to pro­vide com­ment for this ar­ti­cle. In an in­ter­view last Oc­to­ber, Halifax spokesman John Guthrie said the hospi­tal had got­ten a green light from its lawyers for the le­gal­ity of the physi­cian pay­ment ar­range­ments. “That’s why we feel we’re right and we feel we haven’t done any­thing wrong,” he said at that time.

You have to be so care­ful about in­ter­ac­tions be­tween a provider and a re­fer­ral source, be­cause they are in­cred­i­bly fraught with risk.”

—Trevor Fet­ter, pres­i­dent and CEO of Tenet Health­care Corp.

Many hos­pi­tals are hir­ing and con­tract­ing with doc­tors to boost re­fer­rals and serve mem­bers in their co­or­di­nated-care net­works. But how to pay those doc­tors has be­come a legally per­ilous area un­der the federal Stark and anti-kick­back laws and the False Claims Act, with whistle­blow­ers, their at­tor­neys and the Jus­tice Depart­ment watch­ing these trans­ac­tions closely. Halifax and other re­cent big-dol­lar whis­tle-blower cases in­volv­ing al­le­ga­tions that hos­pi­tals vi­o­lated Stark self-re­fer­ral rules in pay­ing physi­cians high­light the huge stakes for hos­pi­tals, which are at risk for triple dam­ages un­der the False Claims Act. Those dam­ages are based on to­tal billings, mak­ing the po­ten­tial dam­ages in these cases enor­mous.

Last week’s pre­lim­i­nary deal in the U.S. v. Halifax case is one of the largest set­tle­ments ever un­der the Stark law, the com­plex set of rules pro­hibit­ing pay­ments that en­cour­age un­nec­es­sary med­i­cal ser­vices and drive up federal health­care costs. The hospi­tal lit­i­gated the case all the way to jury se­lec­tion be­fore agree­ing to pay $85 mil­lion—more than eight times Halifax’s an­nual op­er­at­ing mar­gin and nearly 18% of its $480 mil­lion an­nual rev­enue. The set­tle­ment could still fall apart, and a sec­ond phase of the same trial is al­ready set for July.

That whop­ping set­tle­ment fol­lows last year’s $237 mil­lion ver­dict against Tuomey Health­care Sys­tem in Sumter, S.C., which was based on al­le­ga­tions that the sys­tem over­paid 19 physi­cians. And the Jus­tice Depart­ment an­nounced last year that it would in­ter­vene in a large case against In­fir­mary Health Sys­tem, a safety net hospi­tal in Mo­bile, Ala., that al­legedly paid il­le­gal pro­duc­tiv­ity bonuses to doc­tors who or­dered un­needed nu­clear imag­ing test­ing on pa­tients. In re­cent months, Jus­tice in­ter­vened in and con­sol­i­dated a se­ries of eight False Claims Act cases, in­clud­ing sev­eral with Stark al­le­ga­tions, against Health Man­age­ment As­so­ciates hos­pi­tals, which now are owned by Com­mu­nity Health Sys­tems.

Some ex­perts say it’s not nec­es­sar­ily that the Jus­tice Depart­ment has tough­ened its Stark en­force­ment, but rather that far more hos­pi­tals are sign­ing in­te­gra­tion con­tracts with physi­cians that raise po­ten­tial Stark is­sues. In ad­di­tion, there are more whis­tle-blow­ers and at­tor­neys spe­cial­iz­ing in such cases look­ing for big pay­days.

The tough part for hospi­tal lead­ers is that these le­gal pres­sures are at odds with pub­lic pol­icy and mar­ket forces push­ing health sys­tems to­ward greater in­te­gra­tion to im­prove care co­or­di­na­tion and re­duce costs. The federal govern­ment hasn’t rec­on­ciled its goal of en­cour­ag­ing in­te­gra­tion with its de­sire to prove that it’s tough on fraud and abuse. As a re­sult, sys­tems pur­su­ing in­te­gra­tion will need to be even more vig­i­lant be­cause they’re step­ping closer to the line where tra­di­tional Stark law en­force­ment might come into play.

“You have to be so care­ful about in­ter­ac­tions be­tween a provider and a re­fer­ral source, be­cause they are in­cred­i­bly fraught with risk,” said Trevor Fet­ter, pres­i­dent and CEO of Tenet Health­care Corp. Tenet has in­sti­tuted ma­jor com­pli­ance re­forms since its $900 mil­lion set­tle­ment of whis­tle-blower law­suits in 2006, but has a pend­ing whis­tle-blower case in­volv­ing its re­la­tion­ship with a clinic pro­vid­ing Span­ish-trans­la­tion ser­vices for pre­na­tal care. “There are con­flict­ing goals out there.”

But an at­tor­ney who rep­re­sents the Amer­i­can Hospi­tal As­so­ci­a­tion says Halifax and other cases show that Jus­tice is pur­su­ing Stark and False Claims Act cases more ag­gres­sively at a time when the govern­ment is un­der pres­sure to show it’s tak­ing strong ac­tion to curb waste and fraud in

There are trade as­so­ci­a­tions that will al­ways say the False Claims Act penal­ties are dra­co­nian and the law is too strict. What they are miss­ing is that it is the great­est fraud-fight­ing tool in the his­tory of Amer­ica.”

—Mar­lan Wil­banks, the At­lanta-based at­tor­ney for whis­tle-blower Bak­lid-Kunz

Medi­care and Med­i­caid. “This is about DOJ not ex­er­cis­ing the same re­straint that it used to and pur­su­ing close-call cases that ought to be re­solved other­wise,” said Jonathan Diesen­haus, a Wash­ing­ton part­ner with Ho­gan Lovells and out­side coun­sel to the AHA.

Whis­tle-blower at­tor­neys counter by say­ing im­proper pay­ment ar­range­ments that drive un­nec­es­sary care are a le­git­i­mate tar­get. “There are trade as­so­ci­a­tions that will al­ways say the False Claims Act penal­ties are dra­co­nian and the law is too strict,” said Mar­lan Wil­banks, the At­lanta-based at­tor­ney for whis­tle-blower Bak­lid-Kunz. “What they are miss­ing is that it is the great­est fraud-fight­ing tool in the his­tory of Amer­ica.”

Be­tween 2008 and 2012, the federal govern­ment re­cov­ered $9.4 bil­lion in civil health­care fraud cases un­der the False Claims Act, ac­cord­ing to an anal­y­sis by Jack Meyer, man­ag­ing prin­ci­pal with the con­sult­ing firm Health Man­age­ment As­so­ciates. (The con­sul­tancy has no con­nec­tion to the for­mer hospi­tal chain of the same name.)

A key is­sue in these cases is whether the hos­pi­tals paid physi­cians more than fair­mar­ket value as a way to in­duce them to steer more Medi­care pa­tients to the hospi­tal. One of the more than two-dozen le­gal safe har­bors for pay­ing doc­tors un­der the Stark law is the “bona fide em­ploy­ment ex­cep­tion.” Hospi­tal at­tor­neys are strug­gling to fig­ure out how to make sure their in­sti­tu­tion’s fi­nan­cial ar­range­ments with doc­tors meet the cri­te­ria for this ex­cep­tion.

But it may not be enough to vet these physi­cian deals ahead of time with hospi­tal at­tor­neys, which both Halifax and Tuomey say they did. For many hospi­tal lead­ers, the big­gest take-home les­son from these cases may be to lis­ten closely to whistle­blow­ers when they first raise con­cerns, and take ap­pro­pri­ate ac­tion promptly.

“The first thing is you want to en­cour­age your em­ploy­ees if they feel any­thing is in­ap­pro­pri­ate to re­port it to you,” said Fet­ter, whose com­pany self-dis­closed a case to the govern­ment based on an email he re­ceived from an em­ployee. Tenet ended up pay­ing a siz­able set­tle­ment.

Bak­lid-Kunz’s key al­le­ga­tion against Halifax Health is that the hospi­tal over­paid spe­cialty doc­tors to deliver un­nec­es­sary care to thou­sands of pa­tients. Halifax ad­min­is­tra­tors deny those al­le­ga­tions, say­ing the care was ap­pro­pri­ate and of­fi­cials had ev­ery rea­son to be­lieve the physi­cian pay­ments were rea­son­able.

The first trial was sup­posed to deal pri­mar­ily with the physi­cian com­pen­sa­tion is­sues. The Jus­tice Depart­ment joined that fight against Halifax three years ago, say­ing Bak­lid-Kunz had pre­sented clear ev­i­dence that the hospi­tal’s long-time lead­ers il­le­gally over­paid neu­rol­o­gists and on­col­o­gists nearly 27,000 times be­tween 2001 and 2011. A sec­ond trial against Halifax slated for this sum­mer will ad­dress Bak­lid-Kunz’s al­le­ga­tions of un­nec­es­sary in­pa­tient care and in­ad­e­quate doc­u­men­ta­tion of med­i­cal ne­ces­sity.

Civil War ori­gins

Both cases are based on the False Claims Act, a Civil War-era law that makes it a civil vi­o­la­tion to over­bill govern­ment pro­grams. The key to the law’s ef­fec­tive­ness, pro­po­nents say, is that it em­pow­ers whis­tle-blow­ers to step for­ward with non­pub­lic in­for­ma­tion and file cases to re­cover mis­spending on the govern­ment’s be­half. The law al­lows penal­ties of up to $11,000 per Medi­care claim, in ad­di­tion to triple dam­ages, if the con­duct is found in­ten­tional or aris­ing from reck­less dis­re­gard for the law. In hospi­tal cases, the False Claims Act typ­i­cally comes to bear when a whis­tle-blower can show the hospi­tal broke an­other Medi­care rule.

There is a pow­er­ful fi­nan­cial in­cen­tive for whis­tle-blow­ers to step for­ward, and a num­ber of mid- to high-level hospi­tal of­fi­cials like Bak­lid-Kunz have done so. They can take up to 25% of the amounts re­claimed if the govern­ment in­ter­venes in the case, or up to 30% if the govern­ment de­clines to in­ter­vene, as it did in the sec­ond Halifax case.

In U.S. v. Halifax, the al­leged pay­ment vi­o­la­tion in­volves Stark—a law of such daunt­ing com­plex­ity that its au­thor, for­mer Cal­i­for­nia Demo­cratic Rep. Pete Stark, has pub­licly called for its re­peal. Federal of­fi­cials have pub­lished, and reg­u­larly up­date, about two-dozen ex­cep­tions to the Stark law. One key ex­cep­tion, at is­sue in both the Halifax and Tuomey cases, is the “bona fide em­ploy­ment” ex­cep­tion. Un­der that rule, money paid to doc­tors is not con­sid­ered com­pen­sa­tion sub­ject to the Stark law as long as the doc­tors re­ceive no more than fair-mar­ket value for the ser­vices and the pay­ments don’t vary with the vol­ume or value of the ser­vices done at the hospi­tal.

At Halifax, the on­col­o­gists re­ceived in­cen­tive bonuses. They were al­lowed to split 15% of the hospi­tal on­col­ogy depart­ment’s op­er­at­ing mar­gin, ap­por­tioned to each doc­tor based on who did the most work. Hospi­tal of­fi­cials knew this pay would vary with vol­ume. But they ar­gued in court records that the lan­guage of the bona fide em­ploy­ment ex­cep­tion is it­self sub­ject to an ex­cep­tion that says pro­duc­tiv­ity bonuses are not con­sid­ered com­pen­sa­tion if they pay only for ser­vices per­son­ally per­formed by the doc­tor.

But U.S. District Judge Gre­gory Pres­nell in Or­lando is­sued a sum­mary judg­ment last Novem­ber that Halifax’s in­cen­tive bonus did not fall within the bona fide em­ploy­ment ex­cep­tion. That each on­col­o­gist “could in­crease his or her share of the bonus pool by per­son­ally per­form­ing more ser­vices can­not al­ter the fact that the size of the pool (and thus the size of each on­col­o­gist’s bonus) could be in­creased by mak­ing more re­fer­rals,” he wrote.

The rul­ing came as a sur­prise be­cause Halifax ex­ec­u­tives said the pay ar­range­ment was vet­ted by their own lawyers as well as by out­side coun­sel at McDer­mott Will & Emery. In a Jan. 24 state­ment of the case, Jus­tice Depart­ment lawyers wrote that the re­view by McDer­mott Will & Emery found only “a rea­son­able ar­gu­ment” that the con­tract was le­gal.

The Halifax case may never have reached this point if ex­ec­u­tives there had lis­tened to what whis­tle-blower Bak­lid-Kunz said were her warn­ings to them in 2008. HHS’ in­spec­tor gen­eral’s of­fice has re­peat­edly urged hos­pi­tals to es­tab­lish in­ter­nal com­pli­ance pro­grams and take prompt cor­rec­tive ac­tion when con­cerns arise.

But Bak­lid-Kunz said that was not the cul­ture at Halifax at the time. “I was al­ways told that Halifax was not li­able un­der (the False Claims Act) be­cause we were a tax-sup­ported hospi­tal,” she said in an in­ter­view.

What­ever the roots of the Halifax prob­lems, some hospi­tal lead­ers say most False Claims Act cases re­sult not from bad in­tent, but from sloppy prac­tices. The Halifax case should serve as a wake-up call be­cause it could hap­pen to any hospi­tal or­ga­ni­za­tion.

“There but for the grace of God could go any­body,” said Keith Pitts, Tenet’s vice chair­man.

Al­though in­cen­tive bonuses are not un­com­mon in health­care, a federal judge in Or­lando said this one was il­le­gal.

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