Want to stay out of jail? You need a compliance plan
February 1, 2001 29 minutes read
Want to stay out of jail? You need a compliance plan
By Ralph L. Glover II, JD, LLM, Associate Attorney, Chuhak & Tecson PC, Chicago
Editor’s note: If it was not clear before, it is perfectly clear now that all emergency medicine groups must have a compliance program in place. The complexity of a particular group’s compliance program will vary, of course. Emergency medicine group compliance plans will be, of necessity, relatively complex because of the close relationship most emergency medicine groups have with one or more hospitals. This is of particular regulatory concern when the hospitals are tax-exempt. For example, the Internal Revenue Service looks closely at the relationship between tax-exempt hospitals and their medical staffs (particularly hospital-based physicians such as emergency physicians), and the penalties for violations of Internal Revenue Code regulations may, in some cases, be imposed on physicians, not just the hospitals.
On June 7, 2000, the Office of Inspector General of the Department of Health and Human Services (OIG) issued its Draft OIG Compliance Program Guidance for Individual and Small Group Physician Practices. A final version was published on Oct. 25, 2000. There simply is no remaining adequate excuse for an emergency medicine group not to have a compliance plan in place. The benefits of a compliance plan include a potential reduction in government fraud penalties (which can easily reach into the millions of dollars) and could even, in some cases, make the difference between going to prison or not. Let there be no mistake, the Department of Justice criminally prosecutes physicians, prosecutions that, in some cases, result in physicians being sent to prison.
The OIG has consistently said that its guidance is "not in and of itself a compliance program" and that there is no such thing as a "one-size-fits-all’ compliance program." While certain basic components of a compliance program may be obtained from a "Model Compliance Plan," each emergency medicine group must specifically design its compliance program based upon its own size, specific services offered, variety of contractual relationships, and resources.
When developing a compliance program for an emergency medicine group, keep two critical points in mind. First, a written compliance plan is not a "compliance program." A compliance program is a constantly evolving, active process involving policies and procedures, audits, and continuing education, not a static document. Second, a compliance program is worthless (at best) if it is not, in the eyes of the OIG, an "effective" compliance program. Only "effective compliance programs" may serve to mitigate potential fraud penalties and, to provide any such mitigating effect, the compliance program must predate any governmental investigation.
The bottom line is: 1) if your emergency medicine group does not have a compliance program, it needs one; and 2) if your group has a compliance plan, it is critical to make sure it is an "effective compliance program." As emergency physicians, we are all cognizant of the danger of violations of the Emergency Medical Treatment and Active Labor Act (EMTALA), and policies for compliance with EMTALA will be an important component of our groups’ compliance plans. Contrary, however, to the impression of many emergency physicians, compliance for emergency physicians does not end with EMTALA. There is a laundry list of other federal and state fraud and abuse statutes and regulations that must be addressed. For example, failure to implement an effective compliance program increases the risk to you and your practice of False Claims Act lawsuits, violation of which carries a penalty of three times the amount of the false claim and up to $11,000 per false claim. At $11,000 per false claim, civil penalties under the False Claims Act for a moderate-sized emergency medicine group can easily reach into the millions of dollars. (Spectrum Emergency Care and various of its subsidiaries, e.g., settled for $3,145,494 as part of the Emergency Physicians Billing Services case, a case that should be familiar to all emergency physicians and which was discussed at length in ED Legal Letter, June 1999.)
There is ever-increasing federal and state scrutiny of physician compliance, particularly that of emergency physicians. Multiple federal and state agencies devote a significant portion of their effort toward the detection and prosecution of health care fraud. The resources devoted to this effort have increased every year. For example, in fiscal 1992, the Federal Bureau of Investigation (FBI) investigated 591 civil health care fraud cases. In fiscal 1998, the number increased to 2,801. In fiscal 1992, FBI investigations led to 116 criminal convictions. By fiscal 1998, that number had increased to 469.
This article provides an excellent summary of the basic components of an effective compliance plan for your emergency medicine group. It is, however, absolutely essential that you work with legal counsel that is experienced in the complexities of health care fraud and abuse to customize a compliance plan for your group.
On Sept. 25, 2000, the OIG released its Compliance Program for Individual and Small Group Physician Practices ("Compliance Guidance"). The Compliance Guidance was eventually published in the Federal Register on Oct. 5, 2000.1 As with the previous compliance plan guidelines for hospitals, third-party billing entities, laboratories, nursing homes, etc., the development of a compliance program by emergency physician practices is entirely voluntary. However, unlike the other compliance guidance releases, the compliance guidance for physician practices includes a great deal of flexibility. In drafting the Compliance Guidance, representatives from the OIG met with physician trade associations and other physician representatives in an effort to make the implementation of a compliance program by physician practices as practical as possible.
The purpose of the Compliance Guidance is primarily to assist physician practices in developing and implementing internal controls and procedures that promote and enhance compliance with the requirements of federal and state health care programs and the many statutes, regulations, and guidelines that are part of participation in those governmental programs. The OIG acknowledges that full implementation of all seven components presented in its Compliance Guidance might not be feasible for all physician practices; however, each emergency practice should consider addressing each of the components in a manner that best suits the practice. Each emergency practice should undertake reasonable steps to respond to each of the seven components of the Compliance Guidance based upon the size and resources of the practice. One way of satisfying some of the seven elements recommended by the OIG is for emergency physician practices to participate in the compliance program of another entity, such as a hospital or third-party billing company.
The OIG addressed a significant concern of emergency physicians and their financial managers by emphasizing that mistakes or even negligent billing errors should not be subject to civil or criminal penalties. Only acts committed with actual knowledge, reckless disregard, or deliberate ignorance of the falsity of the claim should be subject to civil and criminal penalties.2 To be sure, any overpayments made by Medicare (or any other federal health care program) to an emergency physician practice as a result of billing errors or mistakes have to be paid back to the program once the error is discovered, no matter what the practice’s level of intent in submitting the incorrect claim. In the draft version of the Compliance Guidance released on June 12, 2000, the OIG indicated that evidence of an effectively implemented compliance program would be considered in mitigation of civil or criminal sanctions to be imposed on a practice should health care fraud be discovered in the practice. In other words, the government might consider lighter penalties against a practice in which someone has committed fraud if the practice can demonstrate that it had an effectively implemented compliance program.3 Editor’s note: The key word here is "effectively."
The OIG says that the following seven basic components are fundamental to an effective compliance program:
• conducting internal monitoring and auditing through the performance of periodic audits;
• implementing compliance and practice standards through the development of written standards and procedures;
• designating a compliance officer or contact(s) to monitor compliance efforts and enforce practice standards;
• conducting appropriate training and education on practice standards and procedures;
• responding appropriately to detected violations through the investigation of allegations and the disclosure of incidents to appropriate government entities;
• developing open lines of communication, such as: 1) discussions at staff meetings regarding how to avoid erroneous or fraudulent conduct; and 2) community bulletin boards to keep practice employees updated regarding compliance activities;
• enforcing disciplinary standards through well-publicized guidelines.4
As evidence of whether a compliance program has been implemented effectively, the government will look at the corporate minutes of the practice. A practice’s corporate minutes should show evidence that the directors discussed the practice’s dedication to compliance and the need for a compliance program. In addition, the minutes should reflect evidence of: the directors’ discussion of how the practice should prepare a compliance program; the appointment of individuals to carry out the preparation and education and implementation activities of the compliance program; and the formal adoption of the practice’s compliance program. Government investigators also will look for evidence of audits, participation in or presentation of educational programs, and whether any corrective action or disciplinary action took place when compliance violations were discovered.
Seven basic components
1. Audit and Monitor. An ongoing process for the auditing, evaluating, and monitoring of the various functions of the emergency physician practice is an important tool for a successful compliance program. The ongoing evaluation should include evaluation of whether the practice’s standards and procedures are current and accurate, as well as whether the compliance program is actually working. Periodic audits of the practice are a way for the practice to determine whether compliance problems exist and to focus on the risk areas associated with those problems.
There are two types of audits that should be performed as part of the ongoing evaluation and monitoring of the practice: 1) standards and procedures reviews; and 2) claims submission audits.5 Of particular concern are the claims submission audits. Claims need not necessarily be audited retrospectively; however, prospective audits should occur regularly. The people involved in the audit should include a coder/biller and a clinician (emergency nurse, physician, etc.).
Self-audits should be used to determine whether:
a. the practice is submitting claims that are accurately coded and that accurately reflect the services provided to the patient;
b. documentation is being completed correctly;
c. services or items provided are reasonable and necessary;
d. any incentives for unnecessary services exist.6
The practice should conduct a baseline audit to examine its claim development and submission process from patient intake through claim submission and payment. The audit should identify areas within the process that may cause compliance problems and, therefore, are in need of improvement. The OIG recommends that the practice conduct the baseline audit during the initial three months after implementation of the education and training program so as to give the practice a benchmark against which to measure the results of future audits.
Once the baseline audit is conducted, the practice periodically should audit claims to ensure that the compliance program is being followed. These audits should be conducted on at least an annual basis.
2. Establish Standards and Procedures. An effective compliance program should have standards and procedures that describe the lines of responsibility for implementing the compliance program which will be followed by the entire practice, including support staff.7 Written standards and procedures are a central component of any effective compliance program. The standards and procedures should help to reduce the chance of submitting erroneous claims and other fraudulent activity by identifying risk areas for the practice and establishing tighter internal controls to counter the identified risks, while also making it easier to identify any irregular billing practices. As a starting point for determining what standards and procedures are necessary, the practice should assess potential risk areas. If the practice contracts with a physician practice management company, an independent practice association, a management services organization, or an outside billing company, the practice should incorporate the compliance standards and procedures of those entities, as appropriate, into the practice’s own standards and procedures.
In establishing standards and procedures, practices should create a resource manual including relevant publicly available information. Both the Health Care Financing Administration (HCFA) and the OIG have Web sites8 that contain a great deal of information relevant to health care providers, such as HCFA program memoranda, OIG special fraud alerts, OIG advisory opinions, and OIG inspection and audit reports. There are also other government Web sites such as the Department of Justice (www.usdoj.gov), the Internal Revenue Service (www.irs.gov), and the Federal Trade Commission (www.ftc.gov) that have health care-related information, as well. Update this binder on a regular basis as new regulations and guidelines are published.
For those practices that don’t have their own standards and procedures manual, the OIG suggests that the practice concentrate on four specific risk areas where fraud often occurs: 1) coding and billing; 2) the provision of reasonable and necessary services; 3) documentation; and 4) improper inducements, kickbacks, and self-referrals.9 Conduct an initial assessment of these four risk areas to determine where the practice’s principal compliance vulnerabilities might lurk.
Coding and Billing
The practice’s identification of risk areas associated with coding and billing should be a significant part of its compliance program. If an emergency physician group uses an outside company for billing purposes, the group’s standards and procedures should include relevant provisions from the OIG’s guidance for third-party billing entities. In addition, for those physician practices that own and use their own laboratory, include relevant provisions from the OIG’s guidance for laboratories in the practice’s compliance program. The following are some of the primary compliance issues associated with coding and billing:
• billing for items or services not rendered or not provided as claimed;
• submitting claims for equipment, medical supplies, and services that are not reasonable and necessary;
• double-billing;
• billing for noncovered services as if covered;
• knowing misuse of provider identification numbers, which results in improper billing;
• billing for unbundled services;
• failing to properly use coding modifiers;
• clustering: The practice of coding based on the theory of averages, whereby a practice bills for certain services, using one or two midlevel codes, and assumes that while some of the bills will be upcoded and some will be undercoded, in the end, the overall billing for the services will average out. The Oklahoma City-based Emergency Physicians Billing Service was found liable for conducting a similar practice;
• upcoding the level of service provided.10
Provision of Reasonable and Necessary Services
The standards and procedures developed for the compliance program should include guidance that claims should be submitted only for services that the emergency physician finds to be reasonable and necessary. The Medicare program does not pay for items and services that are not reasonable and necessary for the diagnosis or treatment of illness or injury, or to improve the functioning of a malformed body member.11 Editor’s note: Remember that, for purposes of Medicare reimbursement, it is the Medicare program (principally HCFA) that determines when an item or service is "reasonable and necessary." The fact that the physician thinks the service is necessary does not, itself, make it "reasonable and necessary" for purposes of Medicare reimbursement.
Documentation
There should be policies in place that provide for timely, accurate, and complete documentation of the diagnosis and treatment of patients. One of the most important compliance issues is accurate documentation by the emergency physician of diagnosis and treatment. Accurate documentation is necessary for the proper treatment of the patient. The evaluation and management (E&M) services documented by the emergency physician later will be used by the patient’s attending physician to develop a plan of treatment for the patient. In addition, comprehensive physician documenta-
tion is necessary for proper coding and billing
of services, particularly E&M services.
Improper Inducements, Kickbacks, and
Self-Referrals
The practice’s compliance program should include standards and procedures to ensure compliance with the various fraud and abuse statutes. This can include reference to fraud alerts, advisory opinions, or other material published by the OIG or HCFA that set forth opinions or positions on various health care-related issues. The compliance program may also include policies, position statements and opinions from the Federal Trade Commission, Internal Revenue Service, Department of Justice, etc. (For a list of items that should be included in a practice’s standards and procedures, see Table 1.)
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Table 1: Standards and Procedures |
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An emergency physician group’s standards and procedures relating to inducements, kickbacks, and self- referrals should address: |
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• contracts and other financial arrangements with other entities to which the practice members may refer patients; • joint ventures with entities that supply goods or services to the practice or to its patients; • contracts for consultation services or medical directorships; • office and equipment leases with entities to which the practice refers; • solicitation, acceptance, or the offer of any gift or gratuity for more than nominal value to or from those who might benefit from referrals from the practice or individual physicians.1 |
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An emergency physician practice’s standards and procedures also should address: |
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• the responsibilities of physicians under the Emergency Medical Treatment and Active Labor Act (EMTALA). • recently finalized EMTALA regulations regarding off-site provider- based hospital departments and the responsibilities of on-call physicians.2 (See ED Legal Letter, December 2000, for a discussion of the off-site department issue.) |
| In addition to the above-mentioned specific risk areas, the following are other relevant topic areas that should be addressed in the practice’s standards and procedures: |
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• employee hiring and retention; • creation and maintenance of encounter forms, including the registration, history and physical, and consent to treatment; • coding and billing competency and responsibilities, including education and certification requirements for coders; • correct coding initiatives; • patient outreach and communication; • general marketing; • patient quality of care. |
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References |
3. Designate a Compliance Officer/Contact. Each emergency physician practice should assign one or more practice individuals the responsibility of monitoring the practice’s compliance program. Based upon the practice’s staffing and other available resources, a practice may assign all of the compliance program responsibilities to one person, a compliance officer, as his or her exclusive responsibility. Alternatively, the practice may designate an employee as the compliance officer even though he or she may have other responsibilities in the practice, such as being the emergency practice administrator. For those emergency practices that assign compliance responsibilities to multiple employees ("Compliance Contacts"), the practice should develop standards and procedures describing the functions of the Compliance Contacts.12
In its Compliance Guidance, the OIG provides an example of a division of labor whereby one individual is responsible for preparing the practice’s written standards and procedures, while another individual is responsible for conducting or arranging for periodic audits.13 For those practices that decide to have only one compliance officer, it is not recommended that the individual responsible for coding and/or billing be the sole compliance officer, unless outside auditors are going to be used for the periodic audits. If the coder/biller is making mistakes or, worse yet, committing fraud, having that person as the sole compliance officer might obviously limit the effectiveness of the compliance program.
Another option presented by the OIG for those practices with financial or staffing limitations is for several practices to share a compliance officer. Naturally, such an arrangement would create significant confidentiality issues that would have to be addressed though confidentiality agreements.
(For a list of duties assigned to the compliance officer or Compliance Contacts, see Table 2.)
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Table 2: Compliance Officer Duties |
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The Office of Inspector General recommends that
the following list of duties be assigned to the Compliance Officer or Compliance Contacts: |
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• oversee and monitor the implementation of the compliance program; • establish methods, in addition to periodic audits, to improve the practice’s efficiency and quality of services and reduce the practice’s vulnerability to fraud and abuse; • revise the compliance program on a regular basis in accordance with changes in the needs of the practice, changes in the law, and with regard to revisions to policies and procedures of payer entities; • develop and coordinate the practice’s participation in a training program that focuses on the components of the compliance program, and verify that the training materials are appropriate; • research appropriate governmental resources to ensure that the practice does not employ or contract with excluded or debarred physicians; • investigate any report or allegation of misconduct or unethical or improper business practices and undertake appropriate corrective action, if necessary. |
| Source: 65 Fed Reg 59434, 59442 (Oct. 5, 2000). |
4. Conduct Appropriate Training and Education. Base any training and education program on the type of practice and the size of the practice. The necessary education or training programs may be accomplished through a variety of options (e.g., in-house or outside seminars, or something as simple as an office newsletter). The OIG suggests the following three steps to follow in setting up educational objectives:
1) Determine who needs training in coding and billing and compliance.
2) Determine the type of training that best suits the practice’s needs (such as seminars, inservice training, self-study, or other programs).
3) Determine when and how often education and training is needed and how much education and training each person should receive.14
Regardless of the means of education and training of employees, the practice should ensure that the necessary education is effectively communicated to all of the practice’s employees so that they come away from the education and training with a better understanding of the issues involved.
Compliance Training
Emergency practice members and practice employees should have training with respect to
the compliance program itself and applicable statutes and regulations. Compliance training should have two goals:
1) Employees should receive training on how to perform their jobs in compliance with the standards of the practice and any applicable regulations.
2) Each employee should be made to realize that compliance is a condition of continued employment.15
Coding and Billing Training
This training should include all coding and billing staff. It also might be helpful for other members of the practice to understand key basic coding guidelines. It is important that emergency physicians understand the importance of maintaining complete, accurate, and legible medical record documentation to allow the coders to accurately code the procedures performed. The following are items that should be included in coding and billing training:
• coding requirements;
• claim development and submission processes;
• prohibition on signing a form for a physician without the physician’s authorization;
• proper documentation of services rendered;
• proper billing standards and procedures and submission of accurate bills for services or items rendered to federal health care program beneficiaries;
• the legal sanctions for submitting false billings.16 (See the section on the False Claims Act.)
Training Format
Training may be conducted in-house or by an outside source. One way for emergency physician practices to satisfy this element is to attend seminars hosted by other entities. Hospitals and Medicare intermediaries often provide educational programs that would be beneficial to an emergency practice’s physicians and/or staff members. Seminar notes should be maintained.17
Continuing Education
Compliance education and training should be an ongoing activity. The OIG recommends that education sessions should occur at least annually. Due to constant changes in the regulations, at least semiannual training is most appropriate.18
5. Respond to Detected Offenses and Develop Corrective Action Initiatives. When the practice detects a possible violation of the compliance plan or of any federal or state statute or regulation, the practice must determine what corrective action must take place and develop a corrective action plan. Understandably, the OIG says that when fraudulent or erroneous conduct is detected, but not corrected, it can seriously endanger the reputation and legal status of the physician practice. Therefore, upon receipt of a report, or other reasonable suspicion, of a suspected fraudulent act, it is important that the compliance officer or other contact person thoroughly investigate the suspected fraudulent or erroneous conduct and determine whether a violation of the Compliance Plan or any applicable legal requirement has occurred. If there has been a violation, the compliance officer must ensure that appropriate corrective action takes place.19
When a practice determines that a violation of a federal or state law has occurred and resulted in overpayment of private or government funds for health care services, through mistake or fraud, the practice should seek the advice of its legal counsel to discuss the appropriate legal and procedural steps to take, so as to provide all available legal protections.
6. Develop Open Lines of Communication. The OIG considers an open and effective communication process to be an important part of any effective compliance program. (For a list of elements that the OIG believes is necessary for effective communication, see Table 3.)
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Table 3: List for Effective Communication |
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The Office of Inspector General (OIG) believes that the following elements should be included in a practice’s compliance program to achieve effective communication within the practice: |
| • Employees should report conduct that they believe in
good faith to be fraudulent or erroneous to the compliance officer. • The practice should use a user-friendly process for reporting fraudulent or erroneous conduct such as the implementation of a drop box. • The practice should implement compliance program standards and procedures that make a failure to report observed fraudulent or erroneous conduct a violation of the compliance program. • The compliance program should develop a simple and accessible procedure for processing reports of fraudulent or erroneous conduct. • If a billing company is used, develop lines of communication to and from the billing company’s compliance officer/contact and other responsible staff to coordinate billing and compliance activities of the practice and the billing company. Communication can include, as appropriate, lists of reported or identified concerns, initiation of and sharing of the results of internal assessments, training needs, regulatory changes, and other operational and compliance matters. • The plan should include a process for maintaining the confidentiality of any person who reports alleged fraudulent or erroneous conduct. • The plan should provide that there should be no retaliation on the individual who, in good faith, reports alleged fraudulent or erroneous conduct. |
| Source: 65 Fed Reg 59434, 59444 (Oct. 5, 2000). |
7. Enforce Standards Through Well-Publicized Disciplinary Guidelines. The practice should have procedures in place to enforce disciplinary action against individuals in the practice who violate the practice’s compliance standards. These disciplinary guidelines should be included in the practice’s education and training material and located in any employee handbooks or manuals that the practice may provide. The enforcement procedures should be designed in a manner such that a violation of the practice’s compliance standards will result in consistent and appropriate action, including the possibility of termination. However, the enforcement and disciplinary procedures should allow flexibility for cases in which there are mitigating or aggravating circumstances. The OIG suggests that disciplinary actions can include but need not be limited to: warnings (oral), reprimands (written), probation, demotion, temporary suspension, termination, restitution of damages, and referral for criminal prosecution. Before any referral to a government agency is undertaken, it is always best to consult legal counsel.20
Benefits of a Compliance Program
The OIG recognizes that the first priority of an emergency physician practice should be the provision of proper patient care. However, implementation and maintenance of an effective compliance program can help improve the provision of proper patient care by requiring that emergency physicians focus more attention on complete and accurate documentation. In addition, an effective compliance program can provide other benefits to the emergency physician practice such as:
• having claims paid more quickly with fewer denials by providing proper and more comprehensive documentation;
• minimizing billing mistakes;
• reducing the chances of a government audit; and
• avoiding violation of the self-referral and anti-kickback statutes.
Another benefit of specific relevance to emergency physicians and physicians who are on call for hospital emergencies is a reduction of the chance of an EMTALA violation.
Applicable Statutes and Regulations
The following are some of the various federal statutes that are used by the government to combat health care fraud, abuse, and deficiencies in the quality of patient care. The list is not intended to be comprehensive. An emergency physician practice’s compliance program should include educational sessions directed to the entire practice, including ancillary personnel, on the various applicable fraud and abuse and patient care statutes and regulations. In addition, the practice should maintain a binder containing the published fraud and abuse alerts, guidelines, and interpretations published by the OIG and HCFA. The practice also should include references to relevant state statutes and regulations; states often have their own self-referral, kickback, and anti-patient dumping provisions that are generally similar to the federal statutes.
• Federal Anti-Kickback Statute. The federal anti-kickback act is a criminal statute that prohibits individuals and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration of any kind:
— in return for referring an individual for an item or service reimbursable under a federal health care program;
— in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item reimbursable under a federal health care program.21
A violation of this statute is a felony and a conviction may result in a fine of up to $25,000 and/or up to five years in prison.22 Individuals and entities that violate the statute also may be subject to civil penalties such as exclusion from federal health care programs, and a civil money penalty of up to $50,000 for each violation, plus three times the amount of damages sustained by the government.23
Because the statute covers a great majority of today’s health care transactions, Congress has provided several exceptions and "safe harbors" for certain financial arrangements. If an emergency physician participates in an arrangement that falls within the proscription of the statute, but the arrangement fully complies with a given safe harbor or exception, he or she will be assured of not being prosecuted under the anti-kickback statute. Not all arrangements that fall outside the various exceptions and safe harbors, yet within the technical reach of the statute, however, are per se illegal and subject to prosecution; there must be an intent to induce a referral.
The failure to comply with a safe harbor can mean one of three things:
1) The arrangement does not fall within the ambit of the statute and, therefore, there is no reason to comply with a safe harbor.
2) The arrangement is a clear statutory violation and does not qualify for safe harbor protection and, therefore, prosecution is likely.
3) The arrangement falls within the general proscription of the statute, but, although it is not in full compliance with a safe harbor, there is little risk for abuse because the parties have acted in good faith to comply with all of the terms of a safe harbor.24 This last example would be subject to a case-by-case review to determine whether the parties have attempted to comply with the safe harbors and whether there is any risk of abuse.
U.S. v. McClatchey
A recent notable anti-kickback case is United States v. McClatchey.25 In this case, two physicians who were brothers (the "Physicians") and the co-owners of a physician practice specializing in providing care to patients in nursing homes and other residential care facilities approached an operations vice president at Baptist Medical Center ("Baptist") and proposed that, if Baptist bought the Physicians’ practice, the Physicians would admit their patients exclusively to Baptist instead of other local hospitals. Baptist declined to purchase the group, but, in January 1985, Baptist entered into a one-year contract to pay each of the brothers $75,000 per year to act as co-directors of gerontology services at Baptist. This arrangement continued through June 1994.26 In 1998, a grand jury returned indictments against seven individuals, including various officers of Baptist (including McClatchey) and the Physicians. The case is particularly noteworthy to health care attorneys because two of the attorneys who participated in the drafting of the arrangement for the hospital were indicted. The attorneys were later acquitted.
The evidence showed that McClatchey knew that the Physicians had not performed a substantial amount of the services required under their contracts. The Physicians even told McClatchey that they were only reporting two hours per week of work at Baptist. In addition, McClatchey was aware that certain Baptist staff members did not want the Physicians to perform services at the hospital. Evidence showed that McClatchey knew of the financial importance of the Physicians’ referrals to Baptist. Testimony also showed that McClatchey emphasized the importance of maximizing admissions and profitable outpatient visits to Baptist pursuant to referrals from the Physicians.27
This case was appealed to the 10th Circuit Court of Appeals, in part to determine the proper standard for the level of intent required to prove a violation of the anti-kickback statute. The 10th Circuit, following three other federal circuits, adopted the "one purpose" standard. This standard requires that "a person who offers or pays remuneration to another person violates the anti-kickback statute so long as only one purpose of the offer or payment is to induce Medicare or Medicaid patient referrals."28 Under this standard, it is a violation if even one purpose of entering into the arrangement was to obtain illegal referrals. That is, the arrangement must be entered into entirely for legal reasons. Editor’s note: In the McClatchey case, the remuneration paid to the Physicians was, according to the court, clearly not fair-market value, and the arrangement improperly took into account the volume and value of the referrals made by the brothers to the hospital.
Anti-Kickback Compliance Issues
As the statute and case law indicate, a violation of the anti-kickback statute requires that an individual intentionally or knowingly offer or receive remuneration (a "kickback") in return for referrals. In many jurisdictions, as illustrated above, the government need prove only that one purpose of the remuneration was to induce referrals. To avoid anti-kickback violations, an emergency physician practice’s compliance plan should provide the following:
• Any financial arrangement between emergency physicians and other entities or individuals whereby patients are being referred for services paid for under federal health care programs should be carefully reviewed for fraud and abuse compliance. Emergency physicians primarily refer to the hospital within which they provide services and to general and specialist physicians for follow-up care. Therefore, any financial arrangements with such parties should be in compliance with a safe harbor.
• If the emergency physician group rents office space from a hospital or other entity that the group refers patients to, the arrangement should satisfy a safe harbor to ensure that the arrangement will not result in violation of the anti-kickback statute violation.
Federal Civil False Claims Act
The federal civil False Claims Act is the government’s primary vehicle for prosecuting health care fraud. (See ED Legal Letter, June 1999, for a comprehensive discussion of the False Claims Act, particularly its qui tam provisions.) Under the federal civil False Claims Act, any person who:
1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government a false or fraudulent claim for payment or approval; 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 approved by the Government;
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 plus three times the amount of damages which the government sustains because of the false claim.29
A person "knowingly" submits a false claim if he or she: 1) has actual knowledge of the false claim; 2) acts in deliberate ignorance of the truth or falsity of the claim; or 3) acts in reckless disregard of the truth or falsity of the claim.
Through the qui tam provisions of the False Claims Act, a private individual may bring a False Claims Act cause of action on behalf of the individual (the "Relator") and the government. If the government formally enters into the action, it will undertake the primary responsibility for prosecution of the case. The government may dismiss the case or settle with the defendant without approval of the Relator. If the False Claims Act case is successful and a monetary judgment is entered against the defendant, a Relator may receive up to 30% of the proceeds from the judgment or settlement.30 Most of the well-known and large-award False Claims Act cases are filed by Relators, not the government.
As indicated in the OIG’s compliance guidance, the government seeks only to prosecute intentional or knowing acts of health care fraud. The False Claims Act does not provide any penalty for unintentional billing errors. This statute has been applied in the practice of emergency medicine with regard to billing for medical services, the most notable recent case being that of the Emergency Physicians Billing Service (EPBS).31
Third-Party Billing Entity Compliance Issues
Emergency physicians must remember that they remain responsible to the government for claims submitted to federal health care programs in the name of the physician or with the physician’s signature, even though the physician might never have seen or reviewed the actual claim.32 This is true even when emergency physicians use third-party billing companies to submit claims on their behalf. This was shown in the EPBS case, in which several physician groups that used EPBS had to return overpayments to the Medicare program.
Regardless of the structure of the arrangement between the physician group and its billing agent, the physician remains responsible for claims sent to federal health care programs on his or her behalf. Because of the reassignment rules, physicians cannot reassign payment for services provided to Medicare beneficiaries to billing companies, physician staffing companies or practice management companies if the physician is in an independent contractor relationship with the entity. Therefore, these entities that submit claims for physicians and physician groups are submitting the claims in the name of the physicians and, as a result, the physicians remains liable for the accuracy of the claims.
While percentage-based compensation arrangements with third-party billing companies are not prohibited per se, these arrangements serve as "red flags" to government compliance investigators, because such arrangements provide an incentive to the billing company to upcode the claims it submits on behalf of the physicians (the more that is billed, the more the billing company is paid). Editor’s note: This is true whether the arrangement is based upon charges or revenues, as the two are directly related.
In addition to the possibility of the submission of false claims, percentage-based billing and/or management services arrangements are disfavored by the OIG. With respect to the anti-kickback state, such arrangements may violate the statute depending on the scope of the services provided by the management services company. Such arrangements cannot fit within a safe harbor, because the percentage form of payment does not satisfy the requirement that payment for services be fixed in advance. Rather, payment would vary depending on the amount billed or collected.33 If the management services organization (MSO) conducts marketing and arranges for referrals to specific specialists (typical functions of MSOs), the arrangement may violate the statute if the MSO is offering or accepting remuneration for purposes of arranging for or recommending the purchase of, leasing, or ordering of any service or item payable under a federal health care program.
It is entirely appropriate and recommended that physician practices inquire about a management or billing entity’s compliance program and how carefully and frequently it conducts its own self-audits. When contracting with such entities, it is also appropriate for a physician practice to include requirements that these entities regularly monitor compliance. It is also appropriate to include indemnification provisions for liability resulting from the entity’s erroneous and/or illegal activities.
Editor’s note: There are, of course, limits to the protection that may be conferred by indemnification provisions. This is particularly true in the criminal context (e.g., it is obviously not possible to avoid a prison sentence on the basis of an indemnification agreement.
Conclusion
While the government does not mandate the implementation of a compliance program, a compliance program can be an important tool for the prevention of health care fraud and abuse. Physician compliance programs should be custom designed for a practice based upon the size, specialty, and any other special characteristics of the practice. For example, compliance plans for emergency physician practices should take into account issues specific to hospital-based physicians. When considering the penalties to levy on a practice, should fraud be discovered, the OIG and Department of Justice will not be particularly interested in simply whether the emergency practice has a compliance program in place. Rather, they will look to see whether the compliance program was implemented effectively. That is, was the practice making a real effort to avoid fraud and abuse. A "canned" compliance program, or one not tailored to the unique circumstances of each practice, is almost certainly not going to be effective.
Endnotes
1. 65 Fed Reg 59434 (Oct. 5, 2000).
2. Id. at 59436.
3. 65 Fed Reg 36818 n.5 (June 12, 2000).
4. 65 Fed Reg 59434.
5. Id. at 59437.
6. Id.
7. Id. at 59438.
8. HCFA Web site: www.hcfa.gov.
OIG Web site: www.oig.hhs.gov.
9. 65 Fed. Reg. 59434, 59438-59439.
10. Id. at 59439.
11. Id.
12. 65 Fed Reg 59434, 59441.
13. Id.
14. 65 Fed Reg 59434, 59442.
15. Id.
16. 65 Fed Reg 59434, 59443.
17. Id.
18. Id.
19. Id.
20. 65 Fed Reg 59434, 59444.
21. 42 U.S.C. § 1320a-7b(b).
22. Id.
23. 42 CFR § 1003.103(h).
24. 56 FR 35952 (July 29, 1991).
25. 217 F.3d 823 (10th Cir. 2000).
26. Id. at 827.
27. Id. at 830.
28. Id. at 835 (emphasis added).
29. 31 U.S.C. § 3729.
30. 31 U.S.C. § 3730(d).
31. U.S. ex rel Trim v. KcKean 31 F.Supp.2d 1308 (W.D. Okla.1998).
32. 65 Fed Reg 59434, 59447.
33. Id.
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