Urology Group Challenge to Stark Regulations Is Too Little Too Late

A recent federal district court decision granted summary judgment to the government in a lawsuit by a urology group challenging the 2008 changes in Stark regulations affecting “under arrangement” services for hospital patients.  The decision illustrates the significant barriers to a successful challenge to these regulations.

The challenge focused on the 2008 regulatory changes that swept entities performing DHS into the definition of entities “furnishing” DHS and reversed CMS’ 2001 regulatory approval of “per click” lease agreements.  Several challenges to these changes were dismissed for not being raised within the six year limitation period applicable under the federal Administrative Procedures Act.

The arguments against these changes that survived the timeliness bar failed to convince the court that the changes were contrary to express Congressional intent stated in the legislation or were an impermissible interpretation of the legislation.  The court rejected an argument that the group practice exception for certain compensation arrangements constituted a Congressional expression of intent that the term “entity” was not intended to include entities that furnished DHS.  The court readily concluded that including entities that performed DHS within the definition of entities “furnishing” DHS was a permissible interpretation of the legislation.

As for the revision in the regulations to prohibit the previously permitted “per click” lease arrangements, the court noted that CMS is entitled to change its mind as long as there is a reasonable basis for the change.

“Thus, the agency remains free to reinterpret a statute in a way that varies greatly from its past interpretations so long as the agency provides a reasoned basis for its new interpretation.”

For more information regarding the Stark law or False Claims Act in general please contact Greg Montgomery.


OIG Updates its Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs

On May 8, 2013, the OIG issued an updated Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs (the “Updated Special Advisory Bulletin”).  The Updated Special Advisory Bulletin replaces and supersedes the OIG’s 1999 Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs.

The Updated Special Advisory Bulletin advises that the effect of an OIG exclusion is that the provider will receive no Federal Health care program payment for any items or services furnished by an excluded person or at the medical direction or on the prescription of an excluded person.  The prohibition on payment applies to all methods of Federal health care program payment.  It also extends to items or services beyond direct patient care.  Accordingly, OIG says that an excluded person is prohibited from serving in an executive or leadership role (i.e., as the CEO or CFO, general counsel, director of health information management or director of human resources) for a provider that furnishes items or services payable by Federal health care programs and is prohibited from providing other types of administrative and management services (i.e., health IT services and support, strategic planning, billing/accounting, staff training and human resources).

OIG urges providers to review each job category and contractual relationship to determine whether the item or service being provided is directly or indirectly, in whole or in part, payable by a Federal health care program.  If it is, OIG advises the provider to screen everyone that performs under that contract or category.  This would include, for example, screening nurses provided by staffing agencies or physician groups that contract with hospitals to provide ER coverage, and billing or coding contractors.  OIG warns that relying on the screening conducted by the contractor may not always be sufficient to protect the provider from CMP liability.

The Updated Special Advisory Bulletin warns that providers who arrange or contract with an excluded person face potential civil monetary penalties (“CMPs”) of up to $10,000 for each item or service furnished by the excluded person for which payment is sought, in addition to an assessment of up to three times the amount claimed and program exclusion.  OIG states that CMP liability would apply to the furnishing of all of the categories of items or services that are violations of an OIG exclusion, including direct patient care, indirect patient care, administrative and management services, and items or services furnished at the direction or on the prescription of an excluded person when the person furnishing the services either knows or should know of the exclusion.  Exclusion violations may also lead to criminal prosecutions or civil actions (i.e., claims under the False Claims Act).  OIG urges providers to use OIG’s self-disclosure protocol to self-disclose the employment of or contracting with an excluded person.

To best minimize risk of overpayment and CMP liability, OIG suggests that providers check the OIG’s List of Excluded Individuals and Entities (the “LEIE”) monthly.  OIG also recommends that providers use the LEIE as the primary source of information on exclusion.

To access the Updated Special Advisory Bulletin, click here.

If you have questions regarding exclusions from federal health care programs or provider contracting generally please contact Carrie Soli.

A Window into Hospital Charges – Medicare Releases Data on Charges and Reimbursements

On Wednesday, Medicare released on extensive spreadsheet documenting the average hospital charges and associated Medicare payments for 100 most common Medicare inpatient services.  The release of this data is unprecedented and provides consumers a valuable tool in assessing the cost of treatment.  The data provides insight into the cost for these procedures on both a local and national basis; permitting users to download the data and manipulate it by hospital, region, state, or a variety of other means.  To access the Excel file released by Medicare click here.

The data highlights the discrepancies in hospital charges and reimbursements both nationally and locally.  The release of this information is aimed at providing consumers a better understanding of the cost and reimbursements associated with these procedures.  As explained by HHS Secretary Sebelius “Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city.  This data and new data centers will help fill that gap.”  This data is in addition to the hospital comparison tool previously released by Medicare.

The release of this data has made both national and local news headlines: Puget Sound Business JournalNew York TimesUS News and World Report.

Stark Law Really Does Have Teeth

Tuomey Jury Finds Monetary Value of $39 Million for 21,370 Claims Submitted in Violation of False Claims Act

On May 8, 2013, the jury in the False Claims Act lawsuit against Tuomey Healthcare Systems, Inc. returned its verdict.  Based on its finding that Tuomey violated the Stark law, the jury found that Tuomey also violated the False Claims Act by submitting 21,370 false claims with a total value in excess of $39 million.

The court instructed the jury that the government’s case was based on allegations that Tuomey entered into compensation arrangements with certain physicians that violated the Stark law.  The government sought relief under the False Claims Act for these alleged Stark law violations.

The court instructed the jury that damages for Stark based violations of the False Claims Act are to be based on what the Medicare program paid to Tuomey for claims submitted in violation of Stark.  Under the False Claims Act, each false claim is subject to a penalty of between $5,500 and $11,000.  In addition, damages may be tripled.

In what might be considered by some as a substantial understatement, one of the attorneys for Dr. Michael Drakeford, who initiated the lawsuit under the whistleblower provisions of the False Claims Act, was quoted as commenting:

“Perhaps the message to be taken from this verdict is that the Stark law really does have teeth and when a hospital decides to pay physicians for referrals, it risks paying a very high price.”

As part of its on-going quarterly lunch time webinar series, the Ogden Murphy Wallace Healthcare Practice Group will provide a presentation on self-disclosure options and avoidance of state and federal False Claims Act liability in its June 4, 2013 webinar (to register click here).  If you have questions regarding self-disclosure or Stark in general please contact Greg Montgomery.


False Claims Act Recoveries Top $14.2 Billion

On May 1, 2013, the  Department of Justice announced a settlement with two Montana hospitals that added $3.95 million to its recoveries under the False Claims Act.  According to the announcement, with this additional recovery,  the Department of Justice has used the False Claims Act to recover more than $14.2 billion in federal healthcare payments since January, 2009.

Once again, allegations of hospital-physician financial relationships that violated the Stark law prohibition against self-referral were the stated basis for the allegations of False Claims Act liability.  In this case, according to the announcement, it was alleged that the hospitals paid incentive compensation to certain physicians in a manner that took into consideration the value or volume of the referrals by the physicians to the hospital by improperly including certain designated health services in the formula for calculating physician incentive compensation.

This situation was voluntarily disclosed by the hospitals.  In this regard, an OIG representative was quoted as commenting:

 “There is an expectation that corporations providing services to Medicare and Medicaid beneficiaries adhere to the provisions of the Stark Law.  I applaud St. Vincent Healthcare and Holy Rosary Healthcare for recognizing their potential liability in this matter and making a disclosure”

As part of its on-going quarterly lunch time webinar series, the Ogden Murphy Wallace Healthcare Practice Group will provide a presentation on self-disclosure options and avoidance of state and federal false claims act liability in its June 4, 2013 webinar (to register click here).  If you have questions regarding self-disclosure and overpayments in general please contact Greg Montgomery.


In a recently published proposed rule, CMS and HHS propose to substantially increase financial rewards available to individuals who report information regarding individuals or entities engaging in acts or conduct that are subject to Medicare sanctions.  The existing reward incentive program offers 10% of the amount of overpayment recovered or $1000 whichever is less.  Under the proposed rule, the reward could take a substantial jump up to 15% of $66,000,000, equaling $9,900,000.


CMS explains that under the existing reward incentive program which has been in effect since July 1998, only 18 rewards have been paid in a total amount of less than $16,000 and less than $3.5 million in overpayments have been collected.  It notes that after the IRS increased the rewards available under its rewards program in 2006, it has collected almost $1.6 billion and paid approximately $193 million in rewards.  CMS also tips its hat to the success of the whistle blower provisions of the False Claims Act, noting that rewards under this Act range from 15% to 30% of amounts recovered.


CMS estimates that with the proposed rule in place annual recoveries will increase by $24.5 million.  There will, however, be no whistle blower double dipping.  While conduct may entitle a whistle blower to recover under both the False Claims Act and the Reward Incentive Program, whistle blowers are going to have to pick only one whistle.  Regardless of which whistle is chosen, the bottom line is that with this new rule more individuals are going to be looking much harder at the conduct of providers and entities that seek payment for services and supplies from Medicare.


As part of its on-going quarterly lunch time webinar series, the Ogden Murphy Wallace Healthcare Practice Group will provide a presentation on self-disclosure options and avoidance of state and federal false claims act liability in its June 4, 2013 webinar.  If you have questions regarding these updated protocols or self-disclosure and overpayments in general please contact Greg Montgomery.


Sequester Payment Reductions to Medicare EHR Incentive Payments

CMS has confirmed that the mandatory reductions in federal spending aka the sequester will affect the Medicare EHR Incentive Program payments made in 2013.  Accordingly, all Medicare EHR Incentive Program payments made to hospitals and eligible professionals will have a 2% reduction.  This reduction applies to any hospital or eligible professional that participates in the program with a reporting period ending on or after April 1, 2013. 

The 2% reduction will not apply to the Medicaid EHR Incentive Program.  Therefore, those hospitals and eligible professionals expecting Medicaid EHR Incentive Program payments will receive the full amount without any sequester related reduction. 

If you have questions regarding the Medicare or Medicaid EHR Incentive Program please contact Elana Zana.

2013: A Critical Year for Medicare Incentive Programs

Amid all the recent attention given to the long-awaited modifications to HIPAA under the HITECH Act published earlier this year, it may be easy for Medicare providers to overlook the fact that 2013 is an important year for three Medicare payment incentive programs:  (1) the Physician Quality Reporting System Program; (2) the Electronic Prescribing Program; and (3) the Medicare Electronic Health Record Incentive Program.  As discussed below, there are important milestones and deadlines in 2013 for each of these programs associated with either receiving incentive payments or avoiding payment adjustments.

Physician Quality Reporting System (PQRS) Program

The PQRS Program is intended to promote the reporting of quality information by eligible professionals (EPs).  The incentives and payment adjustments for the PQRS program are based on whether an EP satisfactorily reports data on program-specified quality measures for covered physician fee schedule (PFS) services furnished to Medicare Part B fee-for-service (FFS) beneficiaries.  EPs can qualify to receive an incentive based on the 2013 reporting year (i.e. January 1, 2013 – December 31, 2013) equal to 0.5% of an EP’s total estimated Medicare PFS allowed charges for the 2013 reporting period.

The 2013 reporting year is also a critical year for the PQRS program because it is the first reporting year that will be used to apply the program’s payment adjustments.  Although the payment adjustments do not begin until 2015, the adjustments are based on information reported in the two-year “look back” reporting period, i.e., the 2013 reporting year for the 2015 payment adjustments, the 2014 reporting period for the 2016 payment adjustments, etc.  To avoid the payment adjustment for a particular year, an EP must satisfactorily report data in the applicable reporting period.  CMS will penalize EPs for failing to participate in the PQRS program in 2013 by reducing the 2015 Medicare PFS allowed charges by 1.5%.

Furthermore, one way an EP practicing in a group practice can report data for the PQRS program is through the group practice reporting option (GPRO).  Under the GPRO, a group practice may make PQRS reports for all individual EPs in the same group practice.  The deadline for a group practice to elect to report using the GPRO is October 15, 2013.

Electronic Prescribing (eRx) Incentive Program

The eRx Incentive Program is intended to encourage electronic prescribing by EPs.  2013 is the last year that EPs who are successful e-prescribers can qualify to earn an incentive payment.  The incentive payment for 2013 is equal to 0.5% percent of an EP’s total estimated Medicare PFS allowed charges for the 2013 reporting period (i.e., January 1, 2013 – December 31, 2013).  At the same time, the 2013 six-month reporting period from January 1, 2013 – June 30, 2013 is the final reporting period to avoid the 2014 eRx payment adjustment.  The 2014 payment adjustment for EPs who are not successful e-prescribers is equal to 2.0% of the EP’s Medicare PFS allowed charges.  An EP may be exempt from the 2014 eRx payment adjustment if the EP meets one of the payment adjustment exclusion criteria or the EP requests and CMS approves a hardship exemption.  An EP must qualify for one of the 2014 payment adjustment exclusion criteria or submit a hardship exemption request to CMS by June 30, 2013 to avoid the 2014 payment adjustment.

Medicare EHR Incentive Program

This program is intended to encourage Medicare EPs, hospitals and critical access hospitals to achieve “meaningful use” of certified EHR technology.  Payment adjustments for the Medicare EHR Incentive Program begin in 2015.  However, because of the two-year “look back” period adopted by CMS for the adjustments, EPs must demonstrate “meaningful use” in 2013 to avoid payment adjustment in 2015.  EPs who first demonstrate meaningful use in 2013 must demonstrate meaningful use for a 90-day reporting period in 2013 to avoid payment adjustments in 2015.  This means that October 3, 2013 is the last day for EPs who are demonstrating meaningful use for the first time to begin their 90-day reporting period.  EPs who first demonstrated meaningful use in 2011 or 2012 must demonstrate meaningful use for the full year in 2013 to avoid the 2015 payment adjustments.  The payment adjustment amount for 2015 is 1% of the EP’s PFS allowed charges for services furnished by the EP in 2015.

Summary of Key 2013 Dates:

June 30, 2013:

  • eRX: End of the 2013 six-month reporting period to avoid the 2014 payment adjustment
  • eRx: Last day for an EP to submit hardship exemption request to CMS to avoid the 2014 payment adjustment

October 3, 2013:

  • Medicare EHR: Last day for EPs to begin 90-day reporting period for Medicare EHR incentive (if 2013 is the EP’s first year of program participation)

October 15, 2013:

  • PQRS:  Deadline for group practices to submit self-nomination statement for group reporting option for PQRS program
  • PQRS:  Last day for EPs to elect the administrative claims option to avoid the 2015 PQRS payment adjustment

December 31, 2013:

  • PQRS:  End of period to avoid the 2015 PQRS payment adjustment
  • PQRS, eRx, Medicare EHR:  Participation year ends for all programs

In sum, Medicare providers should take note of the above dates related to the PQRS, eRx and Medicare EHR Incentive Programs, especially those dates associated with actions which they will need to take or achieve in order to avoid the applicable program payment adjustments beginning in 2015.

For more information about the Medicare incentive programs discussed above, please contact Lee Kuo.



On March 26, 2013, the Office of Inspector General (“OIG”) issued a Special Fraud Alert regarding physician-owned entities or distributorships (referred to as “PODs”) that generate revenue from the use of implantable medical devices ordered by their physician-owners for use in procedures performed by such physician-owners at hospitals or ambulatory surgery centers (“ASCs”).

While the Special Fraud Alert focuses on certain characteristics of PODs that create substantial risk of fraud and abuse and potential danger to patient safety, the OIG cited other prior pronouncements and guidance it issued over the past twenty-four years regarding its long-standing concern over physician investments in entities to which they refer.  Prior OIG guidance cited included the 1989 Special Fraud Alert on joint Venture Arrangements, published in 1994  and a letter dated October 6, 2006, regarding physician investments in the medical device industry.

It is clear that the OIG believes that significant risk of patient or program abuse, including but not limited to potential violations of the Federal Anti-Kickback statute, may flow from arrangements between and among physicians, device manufacturers and other device vendors.  The Anti-Kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, referrals of items or services reimbursable by a Federal health care program.

In its current Special Fraud Alert regarding physician-owned entities, the OIG recounted its view of certain questionable features regarding selection and retention of investors, solicitation of capital contributions, and distribution of profits, all of which potentially raise four general concerns typically associated with kickback arrangements:

1.  Corruption of medical judgment;

2.  Over-utilization;

3.  Increased costs to the Federal health care programs and beneficiaries; and

4.  Unfair competition.

The OIG is particularly concerned in this arena because the physician may play a significant role in the selection of the type of device and which manufacturer to use.  The OIG cautions that disclosure of financial interest may not be sufficient to cure what would otherwise amount to fraud and abuse, and identifies the following specific characteristics of arrangements that would cause concern:

— The size of the investment offered varies with anticipated volume or value of devices used by the physician.

— Distributions are made on the basis of volume as opposed to ownership interest.

— Conditioning referrals based on the use of certain devices on entities to which physicians refer.

— Arrangements that incentivize a physician’s use of certain devices or penalizes the physician for the failure to use certain devices.

— PODs ability to buyout physicians interests on favorable terms based on physician’s failure to meet certain volume requirements.

— The POD is a shell entity that is not truly engaged in the business, or provides no oversight related to distribution functions.

— Physicians fail to identify conflicts of interest through their involvement with PODs related to Hospital or ASC conflict of interest processes.

This Special Fraud Alert reiterates the OIG’s longstanding position that a physician’s ability to profit from referrals may lead to violations of the Federal Anti-Kickback statute.  Finally, the OIG reminds concerned parties that the OIG Advisory Opinion process is available.   For more information about physician-owned entities, the applicability of the Anti-Kickback statute, and the OIG Advisory Opinion process, please contact Adam Snyder or Don Black at (206) 447-7000.

CMS Posts Meaningful Use Stage 2 Specification Sheets

Looking for more detail on the Meaningful Use Stage 2 requirements?  CMS has conveniently created specification sheets for each Meaningful Use measure.  These sheets explain in detail each numerator and denominator eligible professionals and hospitals much achieve to be eligible for the EHR Incentive Payments.  The sheets also contain the certification and standards criteria issued from the Office of the National Coordinator.

For Eligible Professionals click here.

For Eligible Hospitals and Critical Access Hospitals click here.

For assistance with the EHR Incentive Programs and meaningful use in general please contact Elana Zana.