Curing technical violations

As healthcare lawyers like to say, there's always some hospital CEO stuck on an airplane when a deal is finalized.

In a perfect world, that CEO signs the contract electronically soon after hitting the tarmac, whether it's a lease for physician medical office space, an agreement to pay a doctor for on-call time or a donation of electronic health records.

Problem is, if an oversight allows the deals to go into effect without every signature in place, they become technical violations of the Stark law, triggering massive potential liabilities. The law prohibits physicians from referring patients to facilities they own and or hospitals they do business with, because such arrangements can distort patient-care decisions with profit.

Even if the contracts between doctors and hospitals meet the basic requirements of Stark—including fair-market and volume-neutral pricing, and terms in writing before the deal starts—technical violations such as missing signatures or lapsed expiration dates can still render them illegal.

Hospitals commonly maintain hundreds of contracts, while larger health systems often have thousands, making it easy to overlook missing signatures or lapsed expirations. And as many hospital executives and lawyers know, these can quickly turn into million-dollar headaches.

The Stark law banning physician self-dealing doesn't distinguish between these technical “paperwork” violations and the more substantive issues the law was designed to prevent. Yet both kinds of illegalities require the hospital to return all Medicare funds paid under tainted contracts.

Experts say the Stark law's large penalty for technical violations has fueled a new campaign to give hospitals and their physicians a better way to reconcile the paperwork violations and move on with business. A bill creating a flat-fee penalty that does not put the entire payment at risk is nearing introduction soon, according to lawyers at Hall, Render, Killian, Heath & Lyman.

It would be the second such effort at changing the law to remove the technical violations trap. The Patient Protection and Affordable Care Act contained a provision ordering the CMS to implement a program to reduce penalties for less-severe violations of the Stark law if providers voluntarily reported the oversights. But a surge of self-reported violations has bogged down the program, allowing the CMS to resolve only 23 of the more than 250 submissions after two years.

The idea of a new technical violation policy allowing hospitals and physician practices to cure technical violations with flat fees, as is being proposed now, was praised by Stark's critics. They include Kevin McAnaney, who helped write the original Stark rules.

McAnaney, an attorney in private practice who served as chief of industry guidance for HHS' inspector general's office from 1997 to 2003, said the rules today have been warped into a thicket of regulation with extraordinary punitive impact for violations that don't affect the law's fundamental purpose of protecting patients from profit-seeking physician referrals.

“What Stark didn't want was compensation arrangements that basically incentivized physicians to refer,” McAnaney said. “Where you can show that the requirements were met, even if it wasn't always documented, then what harm has been done?”

Creating a new Stark exception to disclose and quickly resolve paperwork violations is not without detractors. Some critics say lawyers will want to exploit the technical exception to mask actual fraud. And Congress may be wary of taking any steps that could make it appear weak on fraud, even though proponents note that Stark was not intended as an anti-fraud law.

The Stark law—which is actually a collection of statutes named for its architect, former Rep. Fortney “Pete” Stark of California—was originally intended to prevent doctors from referring Medicare patients to facilities in which they have a financial stake, including labs and diagnostic centers they own and hospitals they do business with, because such incentives can influence patient care for financial gains.

Today, the Stark law and related commentary stretches more than 200 pages in the Federal Register, and is the subject of scores of quasi-binding advisory opinions by the CMS. A cottage industry of legal advisers and compliance experts presides over the rules, accounting for an untold number of billable hours whose costs could otherwise be devoted to healthcare.

“In terms of just trying to comply with the law, I don't think there's a healthcare law attorney out there that would consider this law easy to communicate to business folks … It just begs for change,” said Robert Azar, chief legal officer for Norton Healthcare, a five-hospital system based in Louisville, Ky. “The more money you spend on those kinds of things, the less there is to deal with patient care issues.”

Proponents of such a change always note that technical violations tend to be the results of administrative oversights resulting from the sheer volume of contracts by hospitals, and the complexity of deals that are struck by multiple parties who often never meet face to face.

“Our closings are all virtual. I can't remember the last time I was in the room with someone for a deal. We just show each other signed pages via scanned documents,” said New Orleans-based physicians' attorney Kathleen DeBruhl. “There's always some CEO who's on an airplane and is never available.”

In September 2010, the CMS launched its Self Referral Disclosure Protocol through which it has the power to review cases where providers say they have discovered non-fraudulent violations of Stark and are seeking to lower their total potential liability by turning themselves in. As of March, healthcare providers had made 258 disclosures into the program—less than 10% of which have been resolved.

“I think it was more popular than CMS anticipated, and that it has received more disclosures than they originally calculated,” said Troy Barsky, who left his role as CMS director in charge of technical payment policy this year to become a attorney with Crowell & Moring in Washington.

Barsky praised the self-disclosure program, which was created at the CMS under his watch, for creating a “clear avenue” to disclose legal problems to the government. But critics say the decreased penalties available through it are offset by the long response times and the lack of clarity about what relief the CMS is granting.

John Williams, a Stark lobbyist for hospitals with Indianapolis-based Hall, Render, Killian, Heath & Lyman, said the existing disclosure program is inadequate to hospitals' needs.

“I think CMS has a backlog problem, and yes, there is a delay problem,” Williams said. “We have attorneys in our firm that have made disclosures, and two years down the road, all they can find out is, 'Yes, we have received your disclosures.' … They have no idea when things are going to be resolved.”

The hospitals and health systems say they are seeking a quicker and clearer way to resolve technical violations of a law so complex that lawyers say complying with its terms requires standalone software programs and teams of lawyers and compliance officials at larger health systems.

The proposal, which is being vetted with Republican and Democratic senators and representatives, would allow hospitals to pay up to $10,000 for self-disclosing “technical violations” such as unsigned or expired contracts.

The key is that such agreements would have to be truly technical, and not substantive violations cloaked in a veil of technicality.

Robert Iwrey, a founding partner with the Health Law Partners law firm in Southfield, Mich., said it may be tough to craft definitions tight enough to have their intended effect.

“As an attorney, I'm going to argue that anything my client did was a technical violation,” he said. “I actually think it makes sense for truly technical violations, but what is considered technical?”

For example, Williams said, unwritten, handshake agreements could be covered by a technical-violation exception because such deals can be considered by state contract law. Other legal experts said they were less sure that that aspect would ever pass muster with Congress.

Barsky and McAnaney, who were both lawyers in HHS divisions overseeing Stark compliance, agreed the Justice Department may raise objections to a change because it could affect how fraud cases are prosecuted under the False Claims Act. Although the Stark law doesn't target fraud, such violations are often the basis for more-severe false claims cases when prosecutors can show the acts were intentional.

“The Justice Department, they don't want to make their lives harder. They don't want to go and fight lawyers who are going to say, 'Wait, this is just a technical violation,' ” McAnaney said. “I think it becomes easy for opponents to say this is going soft on fraud and abuse. And no one wants to be seen as soft on fraud and abuse.”

Follow Joe Carlson on Twitter: @MHJCarlson

(This story has been updated with a correction.)