Recent Case Highlights Risks of Paying Physicians for Routine Duties
Payments to physicians, even for routine, necessary duties, may cause referrals to the entity making the payments to be "prohibited referrals" under the Stark Law. This means the hospital or other entity should not have billed for the services and owes a repayment to the government. Unless a Stark Law exception applies, hospitals cannot bill federal health care programs for designated health services referred by physicians to whom the hospital makes payments. Several commonly used exceptions, including those for the rental of office space or equipment and the provision of professional services, require a signed writing.
Historically, the signed writing requirement was interpreted to require a formal written contract signed by all parties. In 2015, however, CMS clarified its position to allow "a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties" to satisfy the writing requirement. CMS further stated that the documents must be sufficient to "permit a reasonable person to verify compliance with the applicable exception at the time that a referral is made." Additionally, while not every document must be signed, "a signature is required on a contemporaneous writing documenting the arrangement." Depending on the circumstances, electronic signatures, including an e-mail exchange, may satisfy the signature requirement.
Earlier this year, U.S. ex rel. Emanuele v. Medicor Associates, the first case interpreting CMS's 2015 guidance regarding informal documentation, illustrated some of the unappreciated risk and complexity inherent in the Stark Law. In Medicor, the plaintiff alleged that several arrangements between Hamot Medical Center and its exclusive outside cardiology provider, Medicor, did not comply with the Stark Law. Notably, this case was brought by a whistleblower alleging objectionable payments related to medical directorship agreements and other routine arrangements. Thus, hospitals and other referral recipients should be aware that even if payments are for necessary services, only cover services that are actually rendered and are for fair market value amounts, the arrangement can still be challenged under Stark if the parties lack the proper documentation.
In several of the Medicor medical directorship arrangements, the signed agreements had expired but the parties continued to act as if the agreements were still in effect. In those instances, the court concluded that the expired agreements, in combination with a series of invoices along with corresponding checks, were sufficient evidence of a consistent course of conduct showing that the parties had agreed in advance on the services, timeframe and the compensation to be provided under the arrangement. The court therefore determined that no Stark Law violation had occurred.
By contrast, for two other arrangements that were never memorialized in formal agreements, the court reviewed e-mails, memoranda, department meeting records, and an unsigned draft agreement. The court concluded that this collection of documents, when taken as a whole, would not permit a reasonable person to verify that the arrangement complied with an applicable Stark Law exception at the time the referrals were made. The court also noted that some of the documents expressed uncertainty regarding the amount of compensation to be paid and emphasized that none of the documents were signed by the parties. The court therefore concluded that these arrangements violated the Stark Law.
Violation of the Stark Law, even when there is nothing substantively improper about the arrangement, can lead to significant civil liability under the False Claims Act, civil monetary penalties, and exclusion from federal health programs. For this reason, we do not recommend relying on informal documentation, and best practice is always to memorialize any arrangement subject to the Stark Law in a written agreement signed by both parties.
If you have physician arrangements that are not currently memorialized in a written agreement signed by both parties, you should immediately take steps to preserve correspondence, e-mails and any other written documentation that, taken together, would set forth the services, the timeframe, and the compensation rate under the arrangement. Then, you should proceed to formulate a signed, written agreement as soon as possible.
If you are uncertain whether your current informal documentation is sufficient, or for more information about this article or the Stark Law, please contact Mary Foarde, John Breviu, Laura Nelson, or the Stinson Leonard Street contact with whom you regularly work.