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Hospital system settles excessive compensation case for $7.775 million
Baptist Health South Florida voluntarily disclosed to the U.S. government that it overpaid an oncology group that referred patients to two of its hospitals.
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 Alan E. Reider |  Allison Weber Shuren |
On May 12, Baptist Health South Florida, a health care system based in Coral Gables, Fla., entered into an arrangement with the U.S. Department of Justice’s Civil Division and the Office of Inspector General of the Department of Health and Human Services to settle claims that it violated the False Claims Act and the Physician Self-Referral Law. Baptist Health allegedly paid excessive compensation to a community oncology group that referred patients to two of Baptist’s hospitals, in violation of the Stark Law.
Excessive compensation paid to oncology group
At issue was a contractual arrangement Baptist had with the Oncology Hematology Group of South Florida for physics and dosimetry services. Physicists and dosimetrists assist radiation oncologists in planning radiation treatment for cancer patients. The Stark Law prohibits a physician from referring Medicare beneficiaries for “designated health services” to a Medicare provider with which the physician has a financial relationship and the Medicare provider for billing the federal health care program for those referrals, unless an exception applies. Radiation therapy and inpatient and outpatient hospital services are designated health services.
The most common exception used for contractual arrangements such as the one in the Baptist settlement is the personal service exception. The personal services exception requires that an arrangement satisfy all of the following conditions:
- The arrangement must be set out in writing, be signed by the parties and specify the services covered by the arrangement.
- The arrangement must cover all of the services to be furnished by the physician (or physician practice employees) to the entity.
- The aggregate services contracted for may not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement.
- The term of the arrangement must be for at least 1 year.
- The compensation to be paid over the term of the arrangement must be set in advance, may not exceed fair market value and may not be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties.
- The services to be furnished under the arrangement may not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law.
A few years after the agreement was executed, Baptist conducted an internal compliance review that determined that the contract may not have been in compliance with a Stark Law exception, including the personal services exception. Namely, the compensation paid to the oncology group may have exceeded fair market value for those services, in potential violation of the Stark Law. Upon this discovery, Baptist renegotiated the terms of the agreement with the oncology group.
Voluntary self-disclosure
In February 2006, Baptist Health availed itself of the Office of Inspector General’s (OIG) Self-Disclosure Protocol (SDP). Baptist Health submitted a formal voluntary self-disclosure report to the OIG disclosing the potential violation of the Stark Law resulting from the contractual arrangement. This report described the contractual arrangement with the oncology group and indicated that for a period of 2 years from about Dec. 1, 2003 to Nov. 30, 2005, that the hospital paid more than fair market value for the oncology group’s services. Baptist submitted claims to the Medicare program for services provided to patients referred by the oncology group to the Baptist hospitals. Baptist did not make any refunds regarding any of those claims. The settlement resulted from the Baptist’s disclosure.
The OIG created the SDP in 1998 (after conducting a pilot program) to encourage providers to voluntarily disclose possible violations. Since then, the OIG has issued two open letters issued on April 24, 2006, and April 15, 2008, promising potentially more lenient treatment for providers that self-disclosed violations in three significant respects.
First, the 2006 open letter encouraged providers to disclose potential Stark violations, and the OIG indicated that it would settle such matters on the lower end of the penalty continuum (eg, a multiple of the value of the financial benefit provided by the hospital to the physician). Second, it indicated that the OIG is more likely to enter into a Certification of Compliance Agreement (CCA) rather than an extensive 5-year Corporate Integrity Agreement (CIA) with the provider. Third, the April 2008 open letter indicated that the OIG generally will not require a provider to enter into ongoing compliance obligations through a CIA or a CCA when the provider has voluntarily disclosed a potential violation and complied with the SPD process, and the OIG has decided to settle the potential violation in return for a monetary payment. The OIG indicated that ongoing compliance obligations are not necessary when a provider has proved through the discovery and disclosure of a potential violation that its compliance program is effective.
Although the SDP is a process that may result in more lenient treatment, there are no guarantees. The OIG is not bound by the findings presented by the provider or obligated to resolve matters voluntarily disclosed in any definitive manner. The OIG may still refer the matter to the Department of Justice (DOJ) for possible imposition of civil and/or criminal penalties under its separate authority. Moreover, the OIG’s determination to resolve an SDP matter is not binding on the DOJ.
Settlement
The Baptist settlement presumably is an example of a provider receiving more lenient treatment because Baptist demonstrated that its compliance program was operational and effective — it discovered the potential violation and promptly called the matter to the OIG’s attention. Although Baptist Health agreed to pay $7,775,000 to the government to resolve claims relating to the oncology agreement, the government did not impose any corporate integrity or other compliance obligations on Baptist. This settlement appears to be consistent with the April 2008 open letter promising such treatment. The settlement resolves any potential civil and administrative liability for Baptist, its hospitals, affiliates and current trustees, officers and employees relating to the excessive compensation paid to the oncology group.
Lessons learned
In light of the recent enforcement efforts and the Center for Medicare and Medicaid Services’ recent proposals to strengthen the Stark Law regulations, oncologists and other providers are well advised to review their existing contractual arrangements for compliance with the Stark Law. As noted above, if the Stark law is implicated, an exception must apply or the arrangement will violate the law. There is little to no room for error in failing to meet an exception to the Stark Law, should a financial relationship implicate the Stark Law.
As shown in the Baptist settlement, Stark Law violations for a short period time, even when voluntarily disclosed to the government, can lead to settlements well in excess of a million dollars. Nevertheless, the OIG is more likely to view the provider more favorably when the provider uses the SDP rather than waiting for the government to discover the violations through a government investigation.
For more information:
- Allison Weber Shuren, MSN, JD, and Nicole Liffrig Molife, JD, can be reached at Arent Fox LLP, 1050 Connecticut Ave. NW, Washington, DC 20036-5339; 202-775-5712 or 202-715-8417; fax: 202-857-6395; e-mail: shuren.allison@arentfox.com or liffrig.nicole@arentfox.com.