Caremark International last week said it plans to alter its business relationships with physicians to comply with a soon-to-be-implemented federal law intended to prevent abuse of patient referrals.
Beginning Jan. 1, 1995, the alternate-site provider will not enter into or continue any financial relationship with physicians unless that relationship is fully consistent with terms of a new federal law, known as the "Stark law," the company said. The law bars physicians from owning medical facilities and services to which they refer Medicare and Medi-caid patients.
The news comes one week after a Columbus, Ohio, physician with ties to Caremark was indicted by a grand jury in Columbus for allegedly accepting $134,600 in illegal kickbacks for referring patients.
In August, Caremark was indicted along with five others, including a physician, for allegedly participating in a $1.1 million illegal kickback scheme in Minneapolis.
Caremark also is the subject of an ongoing criminal investigation by HHS' inspector general's office, the Justice Department, the FBI and the U.S. attorney general's office.
The company has been named in a growing number of civil lawsuits filed by company shareholders and former patients as well. Caremark has denied any wrongdoing throughout the investigations.
The Sept. 27 policy announcement came on the same day that another alternate-site concern, T2 Medical, agreed to pay $500,000 and change its business relationships with physicians as part of a major settlement with federal officials (See story, p. 58).
Caremark said in a press release last week that it will go beyond the Stark law-which only applies to Medicare and Medicaid reimbursement-and apply its new corporate policy to private insurers as well.
"By extending Stark provisions to all payers, we stay ahead of changing regulations and set the highest possible example for our industry to emulate," said Lance Piccolo, Caremark's chairman and chief executive officer.
In addition, Caremark said it will establish an independent not-for-profit foundation to carry out its general purpose research grant, endowment and charitable giving program.
The new program will begin during the first quarter of fiscal 1995, the company said.
The new policy change isn't tied to the legal controversies surrounding the company, Caremark spokesman Les Jacobson said.
"(The policy change) has been under consideration for some months now," Mr. Jacobson said. Any discussions of the policy change had preceded the recent indictments involving Caremark, he said.
As for its timing, the announcement provides Caremark physicians-many of whom have 90-day notification clauses in their contracts with the company-with enough time to mull over the changes before renewing or cutting ties with the company in January, he said.
Caremark's decision to change its business arrangements with physicians to comply with the new federal law isn't the first time the company has changed its corporate policy with regard to physicians.
In a similar policy change in September 1991, Caremark said it would discontinue its fee-for-service arrangements with physicians in order to comply with federal "safe harbor" laws enacted in July of that year.
In that case, Caremark's self-imposed policy change came about after it was revealed that federal authorities were investigating the Northbrook, Ill.-based healthcare giant for allegedly paying illegal kickbacks to physicians.
Authorities at that time were trying to determine whether weekly consulting fees ranging from $12 to $150 per week paid to Caremark physicians were legitimate compensation for services rendered, or if they were merely kickbacks given to physicians in return for patient referrals to the company.
More recently, federal authorities in the Minneapolis indictment of Caremark alleged that the company invested $100,000 in Minneapolis physician David Brown, M.D., through bogus research grants and received a return on investment of $4.4 million in patient referral revenues (Aug. 8, p. 4).
Anti-kickback provisions of the Medicare and Medicaid fraud and abuse laws bar any form of remuneration to induce patient referrals. Criminal violations are punishable by fines and possible imprisonment. Civil violations are punishable by expulsion from the Medicare and Medicaid programs.
In 1993, approximately 14% of Caremark's revenues, or $250 million, came directly from Medicare and Medicaid patients.