Navigate healthcare fraud regulations for contracting | Baker Tilly
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Navigating healthcare fraud regulations for contracting and referral arrangements
June 7, 2021 · Authored by Melaney Scott, Calvin Swartley, Lawrence Vernaglia of Foley & Lardner, Jim Passey of HonorHealth
Healthcare providers navigate a myriad of regulations around contracting and referral arrangements with physicians because of the strict, evolving, and sometimes complicated laws governing such actions. These include the False Claims Act, Stark Law, and Anti-Kickback Statute as well as the Eliminating Kickback in Recovery Act of 2018.
Here are some ways to best monitor and complete internal audits of referral contracts to mitigate chances of running afoul of these regulations:
Fair market value
Physician contracts
Remuneration
Other risk areas
Changes to Stark Law and the Anti-Kickback Statute
To better navigate these complicated regulatory waters, healthcare providers may want to consider performing regular internal audits of their arrangements with referral sources — particularly physicians. They also need to understand important updates to two major regulatory structures published on Dec. 2, 2020. The Department of Health and Human Services released revisions to further the efforts to create a more hospitable regulatory climate for innovation of care. The revisions related to the rules governing:
Stark Law physician self-referral exceptions
Medicare Anti-Kickback Statute (AKS) safe harbors
What is Stark Law?
Stark Law, also referred to as the physician self-referral law, prohibits a physician who has financial relationships with an entity from making referrals to that entity for what is defined as designated health services (DHS) covered by Medicare unless the relationship fits within a exception of the Stark Law. Learn more about DHS in our article.
The original intent of the Stark Law was to eliminate financial motivation for physician to send patients for unnecessary services that could raise overall healthcare costs. Recent changes made to Stark Law are designed to improve patient access to care and health outcomes, reduce burden on providers, and better support CMS' broader push to advance coordinate care and innovate payment models.
What are physician self-referral exceptions under the Stark Law?
The new exception for limited remuneration to a physician refers to payments from an entity to a physician for the provision of items or services provided by a physician to an entity that doesn’t exceed an aggregate of $5,000 per calendar year, as adjusted for inflation. Remuneration must be made personally or through an employee, a wholly owned entity, or a locum tenens physician, but not through an independent contractor.
The exception applies only if the following terms are met:
The compensation isn’t determined by taking into account the volume or value of referrals or other business generated by the physician
The compensation doesn’t exceed the fair market value of the items or services
The arrangement is commercially reasonable
Arrangements for the lease of or use of office space or equipment don’t violate the prohibitions on per-click and percentage-based compensation formulas
The AKS covers a broader range of activity than the Stark Law and extends to all medical providers in a position to arrange or recommend medical services.
With the recent changes, the safe-harbor amendment for personal services and management contracts now provides protection to certain payment structures that no longer require that aggregate compensation be set in advance. The final rule also eliminates the requirement that any agreement set for a periodic, sporadic, or part-time basis specifies the following:
Exact schedule of such intervals
Their precise length
The exact charge for such intervals
How was guidance around COVID-19 blanket waivers clarified?
The Centers for Medicare & Medicaid Services (CMS) issued helpful guidance for providers at the beginning of the pandemic specific to the COVID-19 blanket waivers regarding physician financial relationships. CMS clarified that organizations who meet the requirements for Stark Law blanket waivers will also be protected from anti-kickback risk under a policy statement from the Office of the Inspector General of the U.S. Department of Health & Human Services.
Among the key changes, CMS ensured the regulations interpreting the Stark Law finalized the following:
Exceptions for value-based arrangements
Physician self-referral law
Beneficial-arrangement protections
Reduced administrative burden
Exceptions for value-based arrangements
There are new, permanent exceptions for value-based arrangements that permit physicians and other healthcare providers to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs might violate the physician self-referral law.
This supports CMS' broader push to advance coordinated care and innovative payment models across Medicare, Medicaid, and private plans.
Physician self-referral law
CMS provided additional guidance on key requirements for exceptions to the physician self-referral law to make it easier for physicians and other health-care providers to comply.
Beneficial-arrangement protections
CMS included protections for non-abusive, beneficial arrangements that apply whether the parties operate in fee-for-service or value-based payment systems. The latter systems may include payments, such as donations of cybersecurity technology that safeguard the integrity of the healthcare ecosystem.
Reduced administrative burden
The changes reduce certain administrative burdens that drive up costs by taking money previously spent on administrative compliance and redirecting it to patient care.
Healthcare organizations auditing their transactions during the public health emergency or soon thereafter can benefit from checking twice to verify they meet the waiver requirements.
Revised definitions: Fair market value, volume, and commercial reasonableness
Providers who are auditing their referral arrangements will benefit from heeding the revised definitions of important terms as they relate to the new rules:
Fair market value
Volume or value
Commercial reasonableness
Fair market value
Fair market value is defined as “value in an arm’s length transaction, consistent with general market value of the subject transaction.” Additionally, the fair market value of equipment and office space leases are determined without accounting for intended use or, in the case of office space, proximity to the lessor if the lessor is a potential source of referrals.
Additionally, a revised definition to general market value recognizes that fair market value is an individualized determination, but key considerations include the following:
Assets
Compensation
Rental of equipment or office space
Commercial reasonableness
Commercial reasonableness is any arrangement that furthers a legitimate business purpose and is sensible in light of the characteristics of the parties, including the following:
Size
Type
Scope
Specialty
Although legitimate business purpose isn’t specifically defined, it’s clear that conduct that violates the Anti-Kickback Statute wouldn’t qualify. Additionally, providers who have entered into an arrangement that doesn’t generate a profit but further legitimizes the business purpose can still be considered commercially reasonable.
Value or volume
Compensation will only be considered when taking into account the volume or value of referrals or other generated business if the mathematical formula used to calculate compensation includes the referrals or other generated business as a variable. It must either increase or decrease compensation in a way that directly correlates the compensation with a physician’s referrals or other generated business.
Auditing questions to consider
When auditing physician arrangements and payments, it’s important to create a list of audit attributes based on the legal requirements of the physician arrangements.
The list of audit attributes can be a mix of regulations and internal organizational policy requirements. An incorrect scope can create additional work if an organization is redoing the work or restarting an audit entirely. Consider the following questions:
What type of arrangements will the audit focus on, for instance medical director arrangements?
What’s the population for the selection payments or contracts?
How is the size of the sample determined?
Samples may be chosen using a judgmental, random, or other methodology. The time frame of the sample is just as important as method. The time frame can be based on how many physician payments are made over the course of a year — if there aren’t many, going back a full year is advisable. However, if an organization is processing hundreds of payments a month, only auditing a small percent would suffice.
