On November 13, 2013, the United States District Court for the Middle District of Florida granted partial summary judgment in favor of the United States inUnited States ex rel. Baklid-Kunz v. Halifax Hospital Med. Ctr., et al. In its order, the Court provided clarification on the extent to which bonus compensation for referrals qualifies under the “bona fide employment relationships” exception to the Stark Law. A copy of the decision can be read here.
This case centers around how Halifax Hospital Medical Center (“Halifax”) compensated certain doctors within its hospital. Halifax, though its staffing instrumentality Halifax Staffing, entered into employment agreements with six oncologists. The employment agreements provided that the oncologists would receive both a salary and a bonus. The bonus for each oncologist was a percentage of a bonus pool which consisted of revenue from services directly performed by each oncologist and profits earned by the oncology department for fees and services not personally performed by each physician.
Halifax paid the bonus to its oncologists from 2005 through 2008. During this time, Halifax submitted thousands of claims forms to Medicare in which one or more of the oncologists were identified as an attending or operating physician. On June 16, 2009, the Relator, Halifax’s compliance officer, filed the qui tam action against Halifax alleging it violated the Stark Law by billing Medicare for items provided as a result of referrals from physicians with whom it had an improper financial relationship. On October 4, 2011, the Government elected to intervene in the Relator’s Stark lawsuit. The Court’s November 13, 2013 decision granted summary judgment for the Government and the Relator on the issue of whether the Stark Law was provided.
Stark Law Basics
Prohibited Referrals and Potential Liability
Generally speaking, the Stark Law, which was passed in two parts, “Stark I” and “Start II”, prohibits physicians from referring their Medicare and Medicaid patients to business entities in which the physicians or their immediate family members have a financial interest. 42 U.S.C §1395nn.
More specifically, Stark prohibits physicians from making referrals to an entity for clinical lab services if the physician had a prohibited financial relationship with the entity. In addition, Stark prohibits physicians from referring Medicare patients for the “designated health services” to an entity with which the physician (or immediate family member) has a financial relationship, unless an exception applies. Designated health services include:
(A) Clinical laboratory services;
(B) Physical therapy service;
(C) Occupational therapy services;
(D) Radiology services;
(E) Radiation therapy services and supplies;
(F) Durable medical equipment and supplies;
(G) Parental and enteral nutrients, equipment, and supplies;
(H) Prosthetics, orthotics, and prosthetic devices and supplies;
(I) Home health services;
(J) Outpatient prescription drugs;
(K) Inpatient and outpatient hospital services;
(L) Outpatient speech-language pathology services.
42 U.S.C. § 1395nn(h)(6).
The Stark Law provides:
(a) Prohibition of certain referrals
(1) In general
Except as provided in subsection (b) of this section, if a physician (or an immediate family member of such physician) has a financial relationship with an entity specified in paragraph (2), then,
(A) The physician may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made under this subchapter, and
(B) the entity may not present or cause to be presented a claim under this subchapter or bill to any individual, third party payor, or other entity for designated health services furnished pursuant to a referral prohibited under subparagraph (A).
42 U.S.C. § 1395nn(a)(1)(emphasis added).
In order to understand Stark’s reach, it is important to understand how Stark defines a “financial relationship” and a “referral.” As explained by the Court:
The Stark Law broadly defines “financial relationships” to include an ownership or investment interest in an entity or a “compensation arrangement.” 42 U.S.C. § 1395nn(a). “Compensation arrangement,” in turn, is defined as “any arrangement involving any remuneration between a physician (or an immediate family member of such physician) and an entity.” 42 U.S.C.§ 1395nn(h)(1)(A). “Remuneration,” with certain exceptions not applicable to the instant case, includes, “any remuneration, directly or indirectly, overly or covertly, in cash or in kind.” 42 U.S.C. § 1395nn(h)(1)(B).
“Referral,” for purposes of the Stark Law, is defined as “the request or establishment of a plan of care by a physician which includes the provision of designated health services.” 42 U.S.C. § 1395nn(h)(5)(A).The regulations interpreting the statute also broadly define “referral” as, among other things, “a request by a physician that includes the provision of any designated health service for which payment may be made under Medicare, the establishment of a plan of care by a physician that includes the provision of such a designated health service, or the certifying or recertifying of the need for such a designated health service.” 42 C.F.R. § 411.351. A referring physician is defined in the same regulation as “a physician who makes a referral as defined in this section or who directs another person or entity to make a referral or who controls referrals made to another person or entity.” Id. (emphasis added).
The Stark Law further provides that should any amounts be billed in violation of the act, the biller shall be liable for the overpayment and must refund that amount to the Government. 42 U.S.C. § 1395nn(g)(2). Violators of the Stark Law are subject to potential civil monetary penalties for each service billed.
In addition, violators also face potential False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., liability for knowingly submitting prohibited claims. Although a detailed analysis of the FCA is beyond the scope of this article, generally speaking, the FCA empowers private persons, known as relators, to file civil actions known as qui tamlawsuits and recover damages on behalf of the United States from any person who: 1) knowingly presents, or causes to be presented, a false or fraudulent claim for payment; or 2) knowingly makes uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government. As it relates to this case, “[f]alsely certifying compliance with the Stark Law in connection with a claim submitted to a federally funded insurance program is actionable under [the FCA].”
Stark’s Exceptions for Certain Compensation Arrangements
The Stark Law also provides for several exceptions to the broad general prohibition on compensation arrangements between health care entities and referring physicians. If a hospital’s financial relationship with a physician comes under one of the exceptions, then it is not prohibited under the Stark Law. The complete list of compensation arrangements exceptions are found at 42 U.S.C. § 13955nn(e).
In this case, the issue centered around whether the hospital’s financial relationship with its doctors qualified under the “bona fide employment relationships” exceptions under Stark. Under the bona fide employment relationship exception, amounts paid to a physician by an employer will not be considered a compensation arrangement under Stark if:
(A) The employment is for identifiable services;
(B) The amount of remuneration under the employment –
(i) is consistent with the fair market value of the services, and
(ii) is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician;
(C) The remuneration is provided pursuant to an agreement which would be commercially reasonable even if no referrals were made to the employer, and
(D) The employment meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse.
42 U.S.C. § 1395nn(e)(2).
In concluding that Halifax’s bonus scheme violated Stark and did not qualify as a bona fide employment relationship, the District Court focused its analysis on whether Halifax’s bonus compensation program “takes into account (directly or indirectly) the volume or value of any referrals by the referring physician.” 42 U.S.C. 1395nn(e)(2). In finding that the bonus compensation varied with the volume of referrals, the Court reasoned that because “[t]he bonus itself was based on factors in addition to personally performed services – including revenue from referrals made by the Medical Oncologists for [designated health services]. . . .the size of the pool (and thus the size of each oncologist’s bonus) could be increased by making more referrals.” Thus, the bonus compensation plan did not satisfy the requirements of the bona fide employment exception and therefore the oncologists were prohibited from making referrals to Halifax for designated health services and Halifax was prohibited from submitting Medicare claims for services furnished pursuant to such services.
However, in order to establish that a violation of Stark occurred, the Government was also required to establish that the physicians who were part of the bonus compensation plan provided referrals for designated health services for which Halifax submitted Medicare claims. In finding that this did in fact occur, the Court studied the listing of physician’s on Halifax’s Medicare claims forms (Claims Form UB-04) either as the “attending physician” or “operating physician” and held that the claims forms were relevant evidence which, if not rebutted, established that a particular physician made a referral under Stark.
In addition, because Stark is a strict liability offense, the qui tamrelator need not prove that anyone at Halifax acted in knowing violation of the law in order to establish that a violation occurred. Thus, although Halifax presented evidence that it received a legal opinion letter which found that its compensation program was compliant with the bona fide employment exception, it could not rely upon this letter as a defense to a Stark violation. However, it must be noted that the Court did not grant summary judgment as to damages under the FCA. As explained above, although Stark is a strict liability offense, the False Claims Act requires that a party commit a knowing violation in order to establish liability. Thus, the Court found, at least partially based on the existence of the legal opinion, that a genuine issue of material fact still exists as to liability under the FCA.
The Court’s decision provides clarification on the breadth of the bona fide employment relationship exception of the Stark Law. The decision makes clear that a bonus structure which merely divides up bonus compensation based on the services personally performed by an employer’s physicians will not fall within the exception if the bonus formula is not based solely on the services personally performed by each physician. If the bonus is based on factors in addition to personally performed services which can result in greater compensation based on increased referrals, then regardless of whether an employer divides the bonus based on volume of services personally performed, the bonus plan will violate the Stark law.
The Court’s decision also makes clear that health care facilities cannot shield themselves completely from Stark liability merely by having a legal opinion on file which states that the facility’s compensation relationship satisfies a recognized Stark exception. This is different than liability under the False Claims Act or the Anti-Kickback Law, 42 U.S.C § 1320a-7b(b), both of which require knowing violations to establish liability and where legal opinion letters may arguably be used as a defense to prosecution.