The convictions last month of two physicians who participated in an illegal kickback scheme are harsh reminders that Stark is not the only referral law to watch out for when structuring physician-hospital relationships.
A federal jury in Kansas City, Kan., found that between fall 1984 and January 1995, brothers Robert LaHue, D.O., and Ronald LaHue, D.O., violated anti-kickback laws when they received payments from executives at Baptist Medical Center in Kansas City, Mo., in exchange for referrals of nursing home patients. The federal anti-kickback law, a Stark precursor, makes it illegal to knowingly and willfully solicit, offer, pay or receive any direct or indirect payment in return for, or to induce, the referral of Medicare or Medicaid patients.
According to Jackie Williams, U.S. attorney for Kansas, the physicians received approximately $1.2 million in payments disguised as consulting fees, while Baptist received millions of dollars in Medicare reimbursements for treating patients referred by the LaHues. Former Baptist executives Dan Anderson and Dennis McClatchey were convicted of participating in a conspiracy to offer and pay bribes to the LaHues and now face a maximum of 10 years without parole in federal prison. Robert LaHue faces a maximum of 40 years in prison; Ronald LaHue could receive up to 25 years. Sentencing is set for Aug. 16.
Bruce Houdek, Robert LaHue's attorney, says the financial arrangement between the physicians and Baptist was legitimate and not dissimilar from gainsharing arrangements being created today. Houdek says the LaHues, who ran a 7,000-patient geriatric-care practice, partnered with Baptist to help it set up a geriatric-care clinic. Because of the brothers' expertise in the diseases and problems of old age, Houdek says, they were able to help the hospital reduce admissions and length of stay for nursing home patients.
In retrospect, Houdek says, he realizes the physicians did not document the market value of their consulting activities well enough. "While we had a lot of anecdotal testimony about the doctors' activities, unfortunately I think the jury found that there wasn't enough to establish that the payments were in fact for services," he says.
Robert Homchick, partner with the Seattle-based law firm Davis Wright Tremaine, says it seems as if the LaHues were paid above fair market value, and that is a red flag for any investigator. "If you're looking at any sort of incentive compensation arrangement or compensation arrangement in general, if you're not paying fair market value, you're in a world of hurt, and it's unlikely to pass muster. Fair market value is such a touchstone for tax-exempt status, anti-kickback and virtually every exception under Stark."
Homchick and Houdek agree that the LaHues' prosecution was extreme, and the convictions are sending shockwaves through the healthcare community.
"A lot of people are very concerned about the heavy-handed punitive approach that the government has taken," Houdek says. "There are administrative procedures that they could use to try to correct the problems without prosecuting doctors and giving them felony convictions or long prison terms."
Brent Saunders, director of the healthcare regulatory group at PricewaterhouseCoopers in Washington, says the LaHues' case is a good example of the rigidity of referral laws.
"The Stark law and the kickback laws sometimes act to prevent what would be the best case for the patient from occurring because they don't take into account that maybe this particular referral is actually the best thing for the patient, or this is the best care the patient could receive," he says.