A Shot Across The Bow Is Your Compensation Plan In Compliance With The Stark Law?

Pastor Medical Associates was a four-doctor medical group in Brookline, Mass. that was charged with violating the Stark self-referral law by compensating its physicians based on the volume and value of their referrals to an in-house lab.
The physician group agreed to settle the Medicare fraud charges by paying the federal government $230,000. The group also agreed to submit to a three-year compliance program imposed by the Department of Health and Human Services Office of Inspector General, which includes annual audits.

Had the group not settled and lost the case at trial, it risked paying $15,000 per Medicare claim filed, full repayment of all Medicare payments received, and prohibition from future participation in Medicare and Medicaid programs.

An Important Case

The Pastor Medical Associates case was a shot fired across the bow of doctor compensation plans by the federal government to warn physicians, dentists, chiropractors, and others of its intention to enforce the law. The case is significant for several reasons.

First, it demonstrates that intent to violate the Stark Law does not need to be proven. This is a strict liability statute. Failure to comply out of ignorance or any other reason is not a defense.

Second, the group was never accused of ordering medically unnecessary tests. It failed the Stark Law “Compensation Test,” which directly affects the internal physician compensation systems that group practices which participate in Medicare or Medicaid programs must use. This test requires that no doctor in a group practice may receive compensation that is directly or indirectly based on the volume or value of the doctor’s designated health service referrals, except through certain indirect methods deemed acceptable under the law.

Group practices must maintain documentation supporting the method used to compensate individual doctors within the group. That information must be made available to federal government officials upon request. The Compensation Test is only one of a dozen or more requirements necessary to meet the group practice exceptions of the Stark Law. This is an all-or-nothing compliance statute, meaning that the failure of just one test can subject the group to the full penalties under the law.

Third, even small group practices shouldn’t expect that they will be overlooked due to their size.

Fourth, this case demonstrates the effectiveness of the qui tam whistleblower provision of the law. This provision provides for a monetary reward equal to a percentage of total penalties and repayments recovered to employees, associates, or other parties that bring false claims violations to the attention of the government.

The Pastor Medical Associates case began with a breach of contract suit filed by a former associate of the group who felt she was unfairly treated. In the course of that suit, the associate also filed a false claim suit on behalf of the federal government, claiming the group’s compensation arrangement violated the Stark Law against self-referral.

Upon investigation, the federal government agreed and joined her false claim suit. As a result, in addition to the settlement of $230,000, Pastor Medical Associates was required to pay the associate’s attorney fees and other expenses. Because the associate was deemed the whistleblower that brought the case to the government’s attention, she was also rewarded $41,400, which is 18{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the total settlement.

A Thorny Issue

The Stark Law is extremely complicated, and group practices reimbursed by Medicare or Medicaid, however small, that don’t have a compliance program in place are taking a dangerous risk. The group’s compliance program and doctor compensation plan should be reviewed by a consultant and legal counsel familiar with the Stark Law. Physicians being recruited by group practices would be well advised to inquire into the details of the group’s Stark compliance program as well.

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers, P.C. in Longmeadow; (413) 567-6101.