Let s Talk Tuomey: The Fourth Circuit s Recent Stark Analysis and Its Impact on Hospital Physician Arrangements

Transcription

1 Let s Talk Tuomey: The Fourth Circuit s Recent Stark Analysis and Its Impact on Hospital Physician Arrangements This roundtable discussion is brought to you by the Fraud and Abuse (Fraud) Practice Group, and is co-sponsored by the Business Law and Governance (BLG), Hospitals and Health Systems (HHS), and Physician Organizations (Physicians) Practice Group. April 16, :00-1:00 pm Eastern Moderator and Presenter Gary W. Herschman, Esquire, Sills Cummis & Gross PC, Newark, NJ, gherschman@sillscummis.com Presenters William W. Horton, Esquire, Johnston Barton Proctor & Rose LLP, Birmingham, AL, whorton@johnstonbarton.com Julie E. Kass, Esquire, Principal, Ober Kaler, Baltimore, MD, jekass@ober.com 1

2 THE FACTS

3 The Facts Tuomey offered physicians on its medical staff part-time employment agreements with a wholly-owned Tuomey subsidiary, only when they were performing outpatient surgeries at the hospital. Physicians agreed to perform outpatient procedures exclusively at Tuomey for 10 years. 2-year, 30-mile post-termination non-competition provision. 3

4 The Facts (cont d.) Physician compensation: tiered base salary tied to collections of personally performed services productivity bonus totaling 80% of collections up to an additional 7% of collections for meeting certain quality measures full-time benefits 4

5 The Facts (cont d.) Gov t alleged the total compensation to the physicians (salary and benefits), on average, was 19% higher than the PC collections. Tuomey received a FMV report stating that the physicians compensation was justifiable so long as it did not exceed 150% of the 90 th percentile a methodology which was rejected by both parties experts. 5

6 The Facts (cont d.) At trial, both parties agreed that if Stark applied, the arrangement should be analyzed as an indirect compensation arrangement. The gov t argued that the arrangements did not meet the ICA exception because the compensation took into account the volume or value of the physicians referrals. 6

7 PROCEDURAL HISTORY

8 Procedural History March 2010 Jury Verdict: Tuomey violated the Stark Law. Tuomey did not violate the federal False Claims Act ( FCA ). In July 2010 rulings on post-trial motions, the district court: Enters a $45 million judgment for payment by mistake of fact and unjust enrichment based on Stark violation. Set aside the verdict with respect to FCA Ordered a new trial 8

9 ARGUMENTS ON APPEAL

10 Tuomey s Position on Appeal to the 4 th Circuit Tuomey appeals arguing that the Stark Law does not apply in the first instance because there is no indirect compensation arrangement. Physicians only paid for personally performed services. 10

11 Tuomey s Position on Appeal (cont d.) Under Stark, an indirect compensation arrangement exists if the referring physician receive[s] aggregate compensation that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician. A referral excludes any DHS personally performed or provided by the referring physician. 11

12 The Government s Arguments on Appeal The gov t argued that the compensation: varied with the volume/value of referrals because the physicians only earned $ for work that simultaneously generated a TC; took into account the volume or value of referrals by including a portion of corresponding TC fee; was designed to exceed collections for the PC, by including an amount to compensate for TC referrals. 12

13 THE FOURTH CIRCUIT OPINION

14 The Fourth Circuit Opinion On March 30, 2012 the Fourth Circuit overturned the judgment. Found a violation of Tuomey s 7th Amendment right to a jury trial. District court set aside entire jury verdict Thus, no factual basis to sustain the equitable claims. 14

15 The Fourth Circuit Opinion (cont d.) However, the 4th Circuit also addressed two Stark issues which were raised on appeal and were likely to recur on remand: Does the facility component that results from a personally performed service constitute a referral? Do the contracts implicate the volume or value standards by taking into account anticipated referrals? 15

16 IS THE TC A REFERRAL?

17 Is the TC a Referral The court cited 66 Fed. Reg. 941: When a physician initiates a DHS and performs it him or herself, that action would not constitute a referral However, in the context of inpatient and outpatient hospital services, there would still be a referral of any hospital service, technical component, or facility fee billed by the hospital in connection with the personally performed services. 17

18 Is the TC a Referral? (cont d.) Based on preambles, the court concluded that the facility/technical component of the physician s personally performed services constitutes a referral. Thus, Tuomey s previous argument that the physicians were not making referrals fails. 18

19 THE VOLUME OR VALUE STANDARD

20 Do the Contracts Implicate the Volume or Value Standard? 4 th Circuit cites to Stark FMV Definition: compensation that has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. 42 FR

21 Volume or Value Standard (cont d.) 66 Fed. Reg. 877: We will not consider the volume or value standard implicated by otherwise acceptable compensation arrangements so long as the payment is fixed in advance is consistent with fair market value for the services performed (that is, the payment does not take into account the volume or value of the anticipated or required referrals). 21

22 Volume or Value Standard (cont d.) Court s Conclusion: physicians should be compensated for the services they actually perform and not for their ability to generate referrals. Thus: The jury must consider whether: The contracts, on their face, took into account the volume or value of referrals; and Whether the compensation did not meet the FMV standard by taking in to account anticipated referrals in computing the physician s compensation. Intent alone does not create a violation. 22

23 Implications of the 4 th Circuit s Decision

24 What Do We Know for Certain? The fact that a physician is being paid for personally performed services does not automatically mean that Stark is a non-issue. In the case of inpatient/outpatient hospital services, a Stark analysis will always be necessary because there will always be a referral of the TC whenever the physician provides a PC. 24

25 What Do We Know for Certain? Anticipated referrals of DHS cannot be considered when establishing physician compensation. The amount of the compensation must reflect only the FMV of the professional services being provided. 25

26 What Remains Unanswered? Did the court properly assess if an ICA exists in the first place? Is the court reading an FMV standard into the ICA definition? Unclear whether arrangements where compensation exceeds collections always implicate the volume or value standard. If compensation is FMV, could it still potentially be deemed to take into account anticipated referrals because of the hospital s business/strategic objectives for entering into the transaction? 26

27 What Remains Unanswered? If personally performed services automatically generate a TC referral, will compensation always vary based on the volume or value of referrals? Arguably, a compensation arrangement could generate referrals of a TC, but not necessarily vary based on the volume or value of TC referrals, e.g. FMV compensation based on wrvus or professional fee collections for personally performed services. What if the physicians were bona fide full-time employees (such as cardiologists or internists) with a substantial office-based practice and only a subset of their professional services generate a corresponding TC which is DHS? 27

28 Discussion of safeguards Legal counsel; carefully structure arrangements from the outset, considering the Tuomey opinion, and the government s positions in the case. Do not tier base (or bonus) compensation. If possible, avoid part-time employment, especially in similar circumstances. Don t give full-time benefits to part-time employees. If possible, keep compensation below expected professional fees. Transaction as a whole should be commercially reasonable. Others 28

29 Questions 29

30 Let's Talk Tuomey: The Fourth Circuit's Recent Stark Analysis and Its Impact on Hospital- Physician Arrangements 2012 is published by the American Health Lawyers Association. All rights reserved. No part of this publication may be reproduced in any form except by prior written permission from the publisher. Printed in the United States of America. Any views or advice offered in this publication are those of its authors and should not be construed as the position of the American Health Lawyers Association. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought from a declaration of the American Bar Association 30