AHLA. G. Recent Developments in Stark and AKS Jurisprudence. S. Craig Holden OBER KALER Baltimore, MD

Transcription

1 AHLA G. Recent Developments in Stark and AKS Jurisprudence S. Craig Holden OBER KALER Baltimore, MD Kevin G. McAnaney Law Offices of Kevin McAnaney Washington, DC Fraud and Compliance Forum October 6-7, 2014

2 Anti Kickback & Stark Law Developments Kevin G. McAnaney Law Office of Kevin G. McAnaney S. Craig Holden Ober Kaler Overview Recent Stark Case Law and Settlements of Interest Recent AKS Case Law and Settlements of Interest OIG Developments Proposed rulemaking Guidance on ASCs/anesthesia, Drug Assistance Plans, Physician Owned Distributorships, & Lab Payments to Referral Sources Legislative Initiatives 2 1

3 Recent Stark Case Law and Settlements of Interest The Saga Continues U.S. ex rel. Drakeford v. Tuomey, 675 F.3d 394 (4th Cir. 2012) DOJ intervened in Qui Tam case alleging that Hospital s part time employment arrangements with surgeons to perform outpatient procedures at Hospital based outpatient surgery center violated Stark Hospital argued that Stark not apply to arrangement because compensation was FMV and did not vary or take into account referrals, thus there was no indirect compensation arrangement for Stark purposes. At trial, jury found the arrangement violated Stark but did not violate FCA. Trial judge entered judgment on equitable claims based on jury answer to Stark interrogatory, and granted retrial on FCA. Hospital appealed. 4 2

4 U.S. ex rel. Drakeford v. Tuomey, 675 F.3d 394 (4th Cir. 2012) 4th Circuit decision Vacated the Stark verdict and remanded In the interests of judicial economy, offered guidance on two issues on Stark law Is a shadow facility fee generated by a personally performed service a referral? Does the volume or value standard include anticipated referrals? 5 U.S. ex rel. Drakeford v. Tuomey, 675 F.3d 394 (4th Cir. 2012) The 4th Circuit found: that the hospital charge generated by a personally performed service is a referral. that the volume or value standard is implicated by anticipated referrals or business That physicians should be compensated for the services performed and not for referrals The 4 th Circuit defined the issue for the jury as whether the contracts on their face took into account the volume or value of referrals Intent alone does not create a violation. 6 3

5 U.S. ex rel. Drakeford v. Tuomey, 675 F.3d 394 (4th Cir. 2012) Retrial DOJ argued that physician compensation that is based on a percentage of collections for personally performed physician services takes into account the volume/value of DHS referrals In the indirect compensation exception, there is no productivity exclusion for personally performed services 7 Tuomey Retrial Key facts argued by DOJ on retrial Hospital employed surgeons on a part time basis to perform outpatient procedures in hospital outpatient surgery center Physicians compensation exceeded 100% of their professional fees based on percentage of collections DOJ argued the arrangements violated Stark because the compensation: was not Fair Market Value varied with the volume and value of referrals was not commercially reasonable 8 4

6 DOJ Litigation Positions [g]iven that each neurosurgeon was paid total compensation that exceeded the collections received for neurosurgical physician services, Defendants could not reasonably have concluded that the compensation arrangements in those contracts were fair market value for the neurosurgeons services or were commercially reasonable. US v. Halifax, United States Complaint in Intervention, pp (filed by the United States on Nov. 4, 2011) (emphasis added) See also, US v. Tuomey, Brief for Appellee United States of America, pp (filed by the United States on April 1, 2011) 9 Personally Performed Services Was DOJ s position limited to facts of Tuomey, where physician compensation was a percentage of collections Regulations deem FMV fixed per unit payments not to take into account the volume or value of referrals or other business generated 42 CFR (d)(2)&(3) Issue over whether percentage methodologies qualify WRVU based payments clearly qualify 10 5

7 What Does Commercial Reasonableness Mean? A number of the Stark regulatory exceptions contain a condition to the effect that [t]he agreement would be commercially reasonable even if no referrals were made between the parties or, in the case of employment, even if no referrals were made to the employer The DOJ appears to contend that a hospital s compensation to an employed physician is commercially unreasonable if the compensation paid the physician exceeds the net income of the physician s practice DOJ s litigation position recognizes limited exceptions (e.g., large indigent or Medicaid caseload; required service for hospital licensure or certification purposes) 11 Relevant Regulatory Text The term referral is defined to mean Medicare referrals only. 42 CFR The regulatory language does not prohibit consideration of non Medicare referrals, including Medicaid, commercial or self pay business In an indirect compensation arrangement, the indirect compensation exception provides that if the closest financial arrangement to the physician is employment, the commercial reasonableness test is applied based on referrals to the employer. 42 CFR (p)(2) In an indirect situation, the commercial reasonableness condition does not affect consideration of referrals or business generated by the employed physician for other affiliated entities (i.e., the hospital) 12 6

8 CMS Preamble Language We are interpreting commercially reasonable to mean that an arrangement appears to be a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals 63 Fed. Reg (Jan. 9, 1998) An arrangement will be considered commercially reasonable in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential DHS referrals 69 Fed. Reg (Mar. 26, 2004) 13 CMS Regulatory History On Subsidies DOJ s position on subsidies is contrary to the regulatory history regarding support payments in integrated health care systems In 2007, CMS issued stand in the shoes (SITS) regulations. The initial SITS rules inadvertently prohibited hospitals from making support payments to affiliated physician practice groups. 72 Fed. Reg. 51,012 (Sept. 5, 2007) Provider organizations protested that the regulation would adversely affect numerous support arrangements 14 7

9 CMS Regulatory History On Subsidies In response to the comments, CMS delayed the effective date of the regulation with respect to academic medical centers and integrated delivery systems. 72 Fed. Reg. 64,161 (Nov. 15, 2007) CMS concluded that protection for support payments between components of integrated health care systems was unnecessary because such arrangements were already protected under the modified SITS rules 73 FR (August 19, 2008) 15 Tuomey Retrial Verdict Jury found the arrangements violated both Stark and the FCA Total judgment of $237.5 million Single damages of $39, Trebled to approximately $118 million Mandatory penalties of $5,500 for each of 21,730 claims Case on appeal to 4 th Circuit 16 8

10 U.S. ex rel. Baklid Kunz v. Halifax Hospital Medical Center Government challenged arrangements with two sets of physicians Three neurosurgeons whose compensation was alleged to be above FMV Six medical oncologists whose compensation included a bonus consisting of an equal share of a pool of 15% of the hospital s medical oncology service s net income 17 U.S. ex rel. Baklid Kunz v. Halifax Hospital Medical Center In November 2013, Court found on summary judgment that oncologists compensation took into account hospital DHS and thus violated Stark In January, 2014, Court held that the arrangements did not violate the Anti Kickback statute Settlement of intervened claims announced March 11, 2014 for approximately $85 million 18 9

11 U.S. ex rel. Heesch v. Diagnostic Physicians Group Govt intervened in qui tam alleging that Infirmary Health System (IHS) through its subsidiaries violated the Stark and AKS Allegation that IHS through its subsidiaries compensated a group practice, Diagnostic Physicians Group (DPG), for its services staffing a provider based clinic a percentage of clinic collections that included ancillary DHS Allegation that IHS knew that DHS compensated its physicians in part based on DHS they generated 19 Application of Stark to Medicaid Historically, neither industry nor experienced counsel thought the self referral prohibition applied to Stark absent a state law Stark law only prohibits Medicare referrals CMS self disclosure protocol does not require disclosure of Medicaid referral 20 10

12 Stark Statutory Language re Medicaid... no payment shall be made to a State for expenditures for a designated health service furnished to an individual on the basis of a referral that would result in the denial of payment for the service under [Medicare], and subsections (f) and (g)(5) of [the Stark reporting provisions] shall apply to a provider of such a designated health service 42 U.S.C. 1396b(s) 21 Regulatory History CMS stated in 1998 Stark II NPRM [42 U.S.C. 1395nn(s)] does not, for the most part, make the provisions in [Stark] that govern the actions of Medicare physicians and providers of designated health services apply directly to Medicaid physicians and providers. As such, these individuals and entities are not precluded from referring Medicaid patients or from billing for designated health services. A state may pay for these services, but cannot receive FFP for them 53 Fed. Reg. 1659, 1704 (January 9, 1998) 22 11

13 Regulatory History We had intended to address in this Phase II rulemaking section 1903(s) of the Act, which applies section 1877 of the Act to referrals for Medicaid covered services which we. However, in the interest of expediting publication of these rules, we are reserving the Medicaid issue for a future rulemaking. 69 Fed. Reg , (March 26, 2004) 23 United States ex rel. Baklid Kunz v. Halifax Hosp. Med. Center The government argued that since the state was not entitled to claim FFP from the federal government based upon the allegedly prohibited referrals, Halifax had caused a false FFP claim to be submitted by the Medicaid program The Court agreed in the context of denying a Motion to Dismiss 2012 WL

14 Recent Cases Finding Medicaid Referrals from Tainted Stark Physicians Violate FCA U.S. ex rel. Parikh v. Citizens Med. Ctr., No. 6:10 CV 64 (S.D. Tex. Sept. 20, 2013) U.S. ex rel. Schubert v. All Children s Health Sys., 2013 WL (M.D. Fla. Nov. 15, 2013) Case settled for $7 million, April Stark Statutory Language re Medicaid... no payment shall be made to a State for expenditures for a designated health service furnished to an individual on the basis of a referral that would result in the denial of payment for the service under [Medicare], and subsections (f) and (g)(5) of [the Stark reporting provisions] shall apply to a provider of such a designated health service 42 U.S.C. 1396b(s) 26 13

15 United States ex rel. Baklid Kunz v. Halifax Hosp. Med. Center The government argued that since the state was not entitled to claim FFP from the federal government based upon the allegedly prohibited referrals, Halifax had caused a false FFP claim to be submitted by the Medicaid program The Court agreed in the context of denying a Motion to Dismiss No. 6:09 cv 1002 Orl 31DAB, 2012 WL Regulatory History [42 U.S.C. 1395nn(s)] does not, for the most part, make the provisions in [Stark] that govern the actions of Medicare physicians and providers of designated health services apply directly to Medicaid physicians and providers. As such, these individuals and entities are not precluded from referring Medicaid patients or from billing for designated health services. A state may pay for these services, but cannot receive FFP for them 53 Fed. Reg. 1659, 1704 (January 9, 1998) (emphasis added)

16 Other Settlements of Note Cooper Health System (NJ) settled FCA case for $12.6 million alleging Stark and AKS violations (2013) Paid several cardiologists $18,000 per year to attend 4 meetings of Heart Institute Advisory Board St. Mary Med. Ctr. (PA) paid $2.4 million after it selfdisclosed violations of the Stark Law by its failure to recoup amounts it was owed under terms of a number of physician recruitment agreements (2014) 29 Other Settlements of Note Intermountain Health System paid $25.5 million to settle Stark/FCA liability after it self disclosed (i) employment agreements that improperly took into account referrals of DHS and (ii) lease and compensation arrangements that violated other Stark requirements (2013) Adventist Health System/West paid $14.1 million to settle a FCA case alleging Adventist West violated the Stark and AKS by (i) transferring assets to physicians at less than FMV; and (ii) paid physicians above FMV for teaching services in its family practice residency program (2013) 30 15

17 Ameritox, LTD v. Millennium Laboratories, Inc., Case No. 8:11 cv 775 T 24 TBM (M.D. Fla., June 16, 2014) Millennium Laboratories offered physicians a free point of care test (POCT) cup (worth ~ $11), so long as the physician agreed: Not to bill Use the cups solely for an initial indication on a urine test Transport the sample in the POCT cup to Millennium Ameritox, a competitor, brought an unfair competition suit alleging that the free POCT cups violated Stark and the AKS 31 Ameritox, LTD v. Millennium Laboratories, Inc., Case No. 8:11 cv 775 T 24 TBM (M.D. Fla., June 16, 2014) Earlier ruling (Case 8:11 cv SCB TBM): Millennium s practice of giving free POCT cups to physicians constituted remuneration under both the federal Stark law and the AKS and was not protected by any statutory or regulatory exception Left to the jury: Does the Millennium physician agreement not to bill take the POCT cups outside the definition of remuneration? 32 16

18 Ameritox, LTD v. Millennium Laboratories, Inc., Case No. 8:11 cv 775 T 24 TBM (M.D. Fla., June 16, 2014) Initial jury verdict Millennium s free POCT cup program violated Stark and the AKS POCT cup program had clear value to participating physicians This constituted unfair competition and tortious interference with Ameritox s business relationships in four states Millennium ordered to pay to Ameritox $2.755 million in actual damages and $12 million in punitive damages Later reduction in punitive damages to $8.5 million 33 Recent AKS Case Law and Settlements of Interest 17

19 AKS Cases and Settlements Swapping US ex rel. Jamison v. McKesson, 900 F. Supp. 2d 683 (N.D. MS 2012) US ex rel. McDonough v. Symphony Diagnostic, Civil Action 2:08 CV (S.D. OH August 12, 2014) Order on motion for Summary Judgment US ex rel Gale v. Omnicare, No:1:10 CV 127 (N.D. OH July 23, 2013) Dkt. 104 Order on motion for partial summary judgment 35 AKS Cases and Settlements Discounts McKesson US ex rel Lisitza v. Johnson & Johnson, CA 07:10288 (D. MA February 25, 2011) Order on Motion to dismiss US ex rel Bannigan v. Organon USA, et al., CA 07: (D. MA September 30, 2011) US statement of interest PODs US v. Reliance Medical Systems, CV (C.D. CA September 8, 2014) Complaint 36 18

20 Swapping Longstanding OIG theory of AKS Government seems relatively reluctant to pursue theory In McKesson, US abandoned theory prior to trial Several decisions in declined qui tams casting doubt on theory 37 U.S. ex rel Jamison v. McKesson 900 F. Supp. 2d 683 US intervened in case alleging the former Beverly nursing home chain and McKesson violated the FCA by inter alia, subcontracting with MediNet, a McKesson subsidiary, to provide billing services in support of Beverly s enteral feeding sub. Gov t abandoned contractual joint venture theory prior to trial McKesson won at trial without calling any witnesses 38 19

21 McKesson Trial Government argued that MediNet had charged Beverly less than its fully loaded costs in the hope of getting future business McKesson demonstrated that prices charged were subject to competitive bidding, exceeded its marginal costs, and therefore were profitable Court found the prices were fair market value and profitable, thus MediNet did not provide any remuneration to Beverly Court cited US ex rel Klaczk v. Consolidated Medical Transport favorably 39 Earlier McKesson Rulings On earlier summary judgment motions, the Court held: OIG special fraud alert not subject to deference McKesson, Case 2:08 cv (Dkt no.231) Discount safe harbor did not apply because the discount was offered to one payor but not to M/M (Dkt No. 502) McKesson s services were not separately reimbursable or billable to Medicare Issue never briefed This condition does not even apply in these situations 40 20

22 US ex rel McDonough v. Symphony Diagnostic No. 2:08 CV (S.D. Ohio Aug. 12, 2014) In declined qui tam, relator claimed that Symphony sold its mobile imaging services to nursing facilities at below FMV in order to get Part B business Court granted defendants motion for summary judgment and dismissed case Relator provided no evidence that pricing above marginal costs 41 No Deference to OIG Relator seeks succor in the OIG s advisory opinions finding that pricing below total cost is suspect, meaning that it might merit further scrutiny by OIG But OIG advisory opinions do not establish rules of decision, and are not to receive judicial deference. Christensen v. Harris Cnty., 529 U.S. 576, 587 (2000). Moreover, OIG advisory opinions, by regulation, have no application to any individual or entity that does not join in the request for the opinion. No individual or entity other than the requestor(s) may rely on an advisory opinion. 42 C.F.R But in any case, OIG s identification of a practice as suspect merely triggers further investigation by OIG; it does not render a practice per se illegal or unlawful, as even Relator s expert acknowledges

23 Death Knell for Swapping? Three cases question swapping (Klaczak, McKesson, Symphony) But see, US ex rel Gale v. Omnicare Court denied relator s motion for partial summary judgment finding factual dispute over FMV Omnicare subsequently settled for $ 120 million Exceeding marginal costs is profitable But is FMV the marketplace? See Gale v. Omnicare Does this also affect carve outs? If FMV for commercial service, no remuneration for pull through business A stand alone commercial only contract should not generate any remuneration for M/M business 43 Formulary Placement and Compliance Discounts DOJ has challenge formulary placement and formulary compliance discounts in several cases involving institutional pharmacies US ex rel. Lisitza v. Johnson & Johnson, et al United States ex rel. Bannigan v. Organon USA Inc. et al (Statemen of Interest in declined qui tam) In oral argument in Lisitza case, AUSA stated Other companies have market share discounts and this case is not an attack on all market share agreements. We acknowledge that is a common process and we are not attacking them 44 22

24 US ex rel. Lisitza v. Johnson & Johnson, et al Government alleged that pharmaceutical companies had participated in unlawful discount arrangements, including conditioning some discounts on formulary placement and formulary compliance activities All pricing/discounts had been fully disclosed, including Medicaid rebates information On Motion to Dismiss, Court held that disclosure of discounts not sufficient for safe harbor because material terms and conditions of payment were not disclosed J & J settled for $149 million 45 United States ex rel. Banigan v. Organon USA Inc. et al In declined qui tam, DOJ filed a statement of interest arguing that discounts conditioned on formulary placement and therapeutic interventions are not reductions in the product s price Court cites Lisitza for proposition that discount exception requires disclosure of material terms 46 23

25 So what did the court say in Shaw? The government's suggested reading that the material terms of the transaction be disclosed is unpersuasive. It begs two questions: material to whom and in what context? The parties to the transaction might consider many more terms "material" than those needed by Medicare or Medicaid for reimbursement purposes. What the parties to the transaction may consider material, however, is not decisive as to whether the purpose of the statute is satisfied. The statute aims at reduction of the price of the goods or services through disclosure, so a lower price can be reflected in lower costs claimed from or charged to a federal health care program 47 More Bad Law on Safe Harbors Bad intent vitiates compliance US v. Borrasi, 639 F. 3d 774 (7 th Cir. 2011) (employment) US ex rel Bannigan v. Organon, 883 F. Supp. 2d 277 (D. MA 2012)(citing US v. Shaw, 106 F. Supp 2d 103(D. MA 2000)( What makes the activity illegal is not the label that someone attaches to the form of the transaction, even if the form may give rise to the rebuttable inference of illegality. The reason behind the transaction and the requisite state of mind underlying the criminal act are more significant than form and label ) 48 24

26 Bad Intent Vitiates a Safe Harbor? In establishing the regulatory safe harbors in Sec , the OIG first considered the full scope of factual circumstances potentially subject to the anti kickback statute, that is, generally all types of arrangements that could potentially involve an intentional payment of remuneration to induce the referral of Medicare business. Next, we proceeded to ``limit the reach of the statute somewhat by permitting certain non abusive arrangements, while encouraging beneficial or innocuous arrangements.'' Thus we sought to specify particular safe harbors that, despite the potentially unlawful intent, would protect non abusive relationships. To accomplish this objective, each safe harbor contains limitations and controls that provide adequate assurance that the programs will not be abused. The actual intent of the parties is entirely irrelevant to this analysis. The OIG has designed 13 final safe harbors that describe practices that are sheltered from liability, even though unlawful intent may be present, and is continuing to finalize 8 additional safe harbor provisions. 49 Are Joint Ventures Next? On September 8, 2014, DOJ announced the filing of two complaints against Reliance Medical Systems and two physician owned distributorships. U.S. v. Reliance Medical Systems 2:14 cv (C.D. CA) Complaint alleges distributorships violated the AKS are were used to channel kickbacks to physician investors Case is in 9 th Circuit where Hanlester is precedent Govt s allegations appear consistent with Hanlester 50 25

27 OIG Advisory Opinions and Other Guidance OIG Advisory Opinion May 25, 2012 Physician owned anesthesia services provider (Requester) is an exclusive provider of anesthesia services for physician owned ASCs. ASCs: Bill and collect facility services fee Requester: Bill and collect professional fee Proposed Arrangement A Requester pays ASC for management services Carve out federal health care program beneficiaries Proposed Arrangement B ASC physician owners establish wholly owned subsidiaries to exclusively furnish and bill for anesthesia related services at the ASCs The ASC subsidiaries to engage the Requestor as an IC to provide anesthesia services Payment to the Requester out of the ASC subsidiaries collections; the subsidiaries would retain any profit

28 OIG Advisory Opinion May 25, 2012 Arrangement A ( management services fee) Clearly problematic OIG held arrangement could potentially generate prohibited remuneration under the AKS 53 OIG Advisory Opinion May 25, 2012 Arrangement B (ASC subsidiaries) OIG said the this posed more than minimal risk of fraud and abuse: No AKS safe harbor protection for the remuneration the subsidiaries would distribute to the ASC s physician owners ASC safe harbor protects returns on investments only when the investment entity itself is a Medicare certified ASC Hallmarks of suspect arrangement OIG analysis exalts form over substance. ASC clearly can directly employ anesthesiologists and fit within safe harbor 54 27

29 OIG Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs May 30, 2014 Discusses problematic features of Patient Assistance Programs (PAPs), specific to Independent Charity PAPs Reiterates that, in accordance with longstanding OIG guidance, pharmaceutical manufacturers may effectively contribute to the safety net by making cash donations to independent, bona fide charitable assistance programs. OIG Special Advisory Bulletin regarding PAPs, OIG Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs May 30, 2014 Disease Funds: OIG will subject the PAP to greater scrutiny in the event the disease fund: Is defined so narrowly that the earmarking effectively results in a donor s subsidization of its own products Limits assistance to a subset of available products Operates to induce the purchase of a donor s products 56 28

30 OIG Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs May 30, 2014 Eligible Recipients: Eligibility must be determined according to a reasonable, verifiable, and uniform measure of financial need that is applied in a consistent manner The cost of the drug itself is not an appropriate standalone factor to determine eligibility Generous financial need criteria may be suspect if fund is limited to subset of available drugs or drugs of donor Conduct of Donors: Emphasizes importance of taking clear, well documented measures to ensure independence of PAP Arrangements between third parties and donors actions may provide inference that donors is attempting to correlate their funding of PAPs to their own product (e.g., third party market research contract) 57 SAB on Copay Coupons OIG builds on longstanding concern with waivers of copays OIG acknowledges the use of copays to promote cost effective care OIG reiterates that drug companies can provide assistance through PAPs Manufacturers failure to police coupon use by Part D enrollees may be evidence of intent to violate AKS 58 29

31 OIG Advisory Opinion February 12, 2014 Overview of facts: EHR provider charged ordering health professionals relying upon its Bi Directional Interface a transmission fee of up to $1 per order, if ordering from a clinical laboratory deemed out of network If a health professional referred to an in network clinical laboratory, the laboratory (and not the ordering health professional), would be responsible for a transmission fee Requester is an in network clinical laboratory Prior OIG advisory opinion, 11 18, approved a near identical service arrangement 59 OIG Advisory Opinion February 12, 2014 OIG concluded that such a transmission fee structure could potentially influence referring [health professionals] referral decisions in a material way. Health professionals often order laboratory tests at high volumes risk that fee structure could meaningfully impact a provider s choice of laboratory; No reason for the Requester, as an in network laboratory, to pay the EHR provider s per order fee other than to secure health professional referrals 60 30

32 Termination of OIG Advisory Opinion April 1, 2014 Overview of facts EHR provider offered financial incentives to health professionals to order from trading partners over non trading partners Cap on potential fees incurred by health professionals for ordering from non trading partners Initial review in 2011 Payment arrangements unlikely to influence ordering health professionals referrals in a meaningful way Termination notice, April 2014 Financial incentives provided to health professionals to order from trading partners over non trading partners may unduly induce a health professionals choice of provider, particularly for high volume services Cap on potential fees incurred by health professionals for ordering from non trading partners did not sufficiently mitigate risk 61 Physician Owned Distributorships For years, medical device manufacturers threw money at physicians to get them to use overpriced generic devices Hospitals cannot control costs for physician preference items OIG Special Advisory Bulletin on Gainsharing precludes any payments to physicians for limiting services Physician owned distributorships offer one way to control prices 62 31

33 OIG 2006 Letter to AdvaMed OIG simply reiterated that such ventures should be evaluated in light of the existing joint venture guidance OIG confirmed that percentage of JV revenues generated by investing physicians is a potential indicator of a problematic joint venture OEI Report 10/ pdf In FY 2011, PODs supplied devices used in nearly one in five spinal fusion surgeries billed to Medicare Spinal surgeries that used POD devices used fewer devices but did not have lower per surgery device costs than surgeries that did not use POD devices Among the hospitals in our sample, about a third reported buying spinal devices from PODs When hospitals in our sample began buying from PODs, their rates of spinal surgery grew faster than the rate for hospitals overall Finally, in FY 2012, surgeons performed more spinal surgeries at hospitals in our sample that purchased from PODs than at those that did not purchase from PODs 64 32

34 2013 Special Fraud Alert Lumps physician owned distributorships and physician owned manufacturers together Finds such ventures inherently suspect OIG does not explain how or why PODs are any different from physician investments in other entities to which they refer. E.g., ASCs, Hospitals, ESRD facilities 65 OIG s Particular Concerns The size of the investment offered to each physician varies with the expected or actual volume or value of devices used by the physician Distributions are not made in proportion to ownership interest, or physicianowners pay different prices for their ownership interests, because of the expected or actual volume or value of devices used by the physicians Physician owners condition their referrals to hospitals or ASCs on their purchase of the POD s devices through coercion or promises, for example, by stating or implying they will perform surgeries or refer patients elsewhere Physician owners are required, pressured, or actively encouraged to refer, recommend, or arrange for the purchase of the devices sold by the POD or, conversely, are threatened with, or experience, negative repercussions (e.g., decreased distributions, required divestiture) for failing to use the POD s devices for their patients 66 33

35 OIG s Particular Concerns The POD retains the right to repurchase a physician owner s interest for the physician s failure or inability (through relocation, retirement, or otherwise) to refer, recommend, or arrange for the purchase of the POD s devices The POD is a shell entity that does not conduct appropriate product evaluations, maintain or manage sufficient inventory in its own facility, or employ or otherwise contract with personnel necessary for operations The POD does not maintain continuous oversight of all distribution functions When a hospital or an ASC requires physicians to disclose conflicts of interest, the POD s physician owners either fail to inform the hospital or ASC of, or actively conceal through misrepresentations, their ownership interest in the POD 67 Who Would Do Such Stupid Things? Reliance Medical Systems, according to the allegations in the government s complaint RMS owners gave equity in PODs to physicians Others paid nominal amounts All equity repaid to all but one physician in 1 st month RMS owners imposed probationary period on physicians to make sure of use of RMS devices Physicians who didn t use devices or moved were forced to give up equity without compensation Physicians told to deny ownership if asked by hospitals Physicians with equal equity received different distributions Almost certainly the SFA was written with knowledge of RMS facts Arguably limits the broader application of the SFA 68 34

36 Clinical Lab Payments to Referral Sources Apparent increase in lab payments to referral sources Growing science of pharmacogenetics Explosion of Specialty Drugs OIG two guidance documents SFA on June 2014 on Laboratory Payments to Referring Physicians Advisory Opinion on laboratory payments to local pharmacies Do two non binding, not entitled to deference pronouncements equal one binding guidance? 69 SFA On Laboratory Payments to Referring Physicians OIG has longstanding concern with clinical lab arrangements with physicians SFA identifies two types of arrangements Payments for specimen collection & shipment Payments for providing information to Registries While OIG states FMV payments may violate the AKS, the SFA emphasizes FMV as primary safeguard 70 35

37 Suspect Specimen Collection Arrangements Payments exceed FMV Payments for services already paid by third party Payment to physician, rather than group bearing the costs of collection Payment on per specimen or other methodology that varies with referrals Payments conditioned on minimum volumes or specified tests Payment to physician even if services performed by phlebotomist paid by lab or other third party Carve outs 71 Suspect Registry Payments Lab requires or encourages periodic re testing to receive payments Lab collects duplicative data from multiple tests that may not be necessary Compensation that reflects value or volume of referrals Compensation that is not FMV Compensation that is not supported by timely documentation submitted by physician Registry only for tests/diseases that lab performs or has patents Lab only collects data from tests it perform Questionable requisition forms/panels 72 36

38 Specialty Pharmacy Payments to Referring Pharmacy (AO 14 06) Specialty pharmacy proposed to pay local pharmacies for support services in connection with patients needing specialty drugs Services to be provided included: (i) accepting prescriptions for specialty drugs; (ii) gathering patient and prescriber data; counseling patients; (iii) informing patients about specialty drug access and services; (iv) obtaining patient consent to send Rx to specialty pharmacy; (v) sending Rx to specialty pharmacy; and (vi) providing ongoing assessments for refills Compensation would be FMV on a per fill basis 73 OIG Analysis Per fill fees are inherently subject to abuse because of link to volume Payments only when prescription sent to specialty pharmacy No payment for services to patients not referred There is significant risk that Per Fill Fees would represent compensation for generating business rather than solely compensation for bona fide commercially reasonable services OIG appeared skeptical of the need for some of the alleged services 74 37

39 Fraud & Abuse Legislative Initiatives Protecting the Integrity of Medicare Act of 2014 Provides HHS OIG up to 1.5% of all amounts collected from Medicare false claim and fraud cases in addition to any other appropriations Expands the Senior Medicare Patrol Creates in SRDP a fixed financial penalty per arrangement for voluntarily disclosed technical Stark violations Requires HHS to issue report on establishing a permanent physician hospital gainsharing program Adds requirements/limits on chiropractic spinal manipulation, payments for vacuum erection systems for Medicare beneficiaries, & prior authorization for eye lift and eye brow surgeries for Medicare patients 76 38