Steven Baruch - Health Care Compliance Association

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Stark and academic medical centers: A primer ...continued from page 29 December 2010 30 programs. Stark Phase III is the most recent articulation of the federal anti-referral statute. 5 The Stark Law identifies a number of specific financial arrangements that may qualify as “exceptions” to the basic anti-referral prohibition. It is important to note that these exceptions are based on very detailed requirements that must be met precisely in order for the referral relationship to be deemed legitimate under Stark. This list of exceptions includes the AMC exception. 6 Academic medical center exception Four basic elements must be satisfied to meet the AMC exception under Stark. First, in order to constitute an AMC under the exception, the entity must include: n an accredited medical school; n an FPP that is organized as a tax-exempt organization or is the part of a tax-exempt organization; and n a hospital in which the majority of medical staff are physician-faculty members and in which a majority of admissions are made by physician-faculty. Second, the referring physician who works within the qualified AMC must be a bona fide employee of a component of the academic health center, hold a bona fide faculty appointment at the medical school, and provide “substantial” academic or clinical teaching services for which the faculty receives compensation. The “substantial” requirement is met if the physician devotes a minimum of 20% or 8 hours of the work week to academic activities, which may include research, classroom, or clinical teaching responsibilities. The referring faculty physician’s compensation must be “set in advance,” not exceed fair market value (FMV), and not take into consideration the volume or value of referrals to any of the components of the AMC. Additional and specific regulatory guidance exists on the “set in advance” and FMV requirements under Stark. Third, transfers of money not based on services provided or leases from one entity within the AMC to another entity or faculty physician within the AMC must support the missions of teaching, research, indigent care, or community service. The relationship between/among the entities within the AMC must be articulated in writing and adopted by the governing bodies of each of the relevant entities in the AMC. Money paid to a physician for research by an entity within the AMC must be used solely to support research. Fourth, the money transfers made from one entity to another, or to a referring faculty physician, may not violate the federal Anti-kickback Statute. 7 Thus an independent anti-kickback analysis must also be conducted before an arrangement can be deemed to meet the AMC exception. 8 There is very little litigation or appellate precedent exploring the AMC exception. But, a federal district court in U.S. ex. rel. Villanfane v. Solinger et al. has taken a “relatively flexible approach to interpreting the various requirements of the AMC exception” and suggested that the exception will not be held to “hypertechnical” requirements. 9 Impact and limitations of the AMC exception The AMC exception, when satisfied, allows medical schools, FPPs, and affiliated hospitals to work together to meet the common goal of teaching, research, and clinical care for the community without running afoul of a complicated and frequently burdensome Stark analysis that otherwise would have to be resolved on a project-by-project, contributionby-contribution basis. Quite simply, if the AMC exception is met, Stark does not apply to referrals made by AMC physicians to AMC components. As importantly, satisfaction of the AMC exception will allow the granting of Health Care Compliance Association • 888-580-8373 • www.hcca-info.org funds for mission purposes from one entity (a teaching hospital) to another (typically a medical school). Although obvious, it is important to emphasize that Stark requirements still must be satisfied when faculty physicians establish financial relationships with entities outside of the AMC or when components of the AMC establish financial relationships with physicians outside the AMC. Despite the exception’s relatively clear elements and the suggestion from Solinger that future courts may take a “flexible” approach in its application, many AMCs will be unable to take advantage of its benefits. In some cases, the teaching hospital will not meet the requirement that faculty physicians constitute the threshold 50% of the hospital’s medical staff. In other AMC arrangements, faculty physicians will not account for 50% of the hospital admissions census. This may prove true, especially in teaching hospitals with open staff arrangements. Or, faculty physician admissions in a particular AMC setting might satisfy the 50% threshold for a teaching hospital in a given year, but fluctuate up and down in subsequent years. In such settings, if the financial arrangement between two or more AMC components (e.g., a teaching hospital, medical school, or FPP) is based on a multi-year contract, the failure to satisfy the 50% threshold during any year of the term could constitute a Stark violation. Much depends, as well, on the precise nature of the legal and financial organization of the FPP. The FPPs that most resemble traditional private group practice arrangements with profits distributed to the physician membership will obviously be the least likely to meet the exception; but plans that rely on salaried faculty physicians will typically be permitted. FPP arrangements that distribute bonuses to physicians based on performance measures should be scrutinized in order to ensure that they do not violate the requirement that the
total compensation of the referring physician be “set in advance.” But, performance incentives for faculty physicians may be allowable if they do not represent compensation for increasing referral volume or value. Consequently, FPP bonuses for teaching, research, quality, administrative activities, publication, and cost improvements may all be legitimate. Similarly, the AMC exception may not apply if the referring faculty physician is paid directly by the AMC entity (i.e., the teaching hospital) as an “independent contractor” instead of as a requirement and/or consequence of his or her employment with the medical school or FPP. 10 Stark analysis when the AMC exception cannot be met Congress undoubtedly intended to provide a “bright-line rule,” a clear test, so that faculty physicians and the components of AMCs would be free to pursue their joint missions together, but no AMC can be assured that it automatically meets the requirements of the exception. Some clearly will not. Given this reality and the complicated nature of the AMC exception analysis itself, attorneys and compliance advisors should be prepared to explore other means of ensuring that the overlapping and symbiotic associations in AMCs do not violate Stark prohibitions. As a result, many AMCs have found it either necessary, or prudent, to analyze the financial arrangements involving their component entities under other Stark exceptions, especially the exception earmarked for “indirect compensation” arrangements. Direct compensation relationships under Stark In absence of a valid AMC exception, the key to evaluating the Stark implications of a financial arrangement in an AMC setting is the determination of whether a “direct compensation relationship” or an “indirect compensation relationship” exists between the referring physician and the DHS entity. Distinct exceptions must be met for “direct” versus “indirect” compensation relationships. If neither a “direct” nor an “indirect” compensation arrangements exists, then Stark does not apply, and meeting an exception is not required. A “direct compensation relationship” is deemed to exist if payments are made to the referring faculty physician (or his or her immediate family member) by the DHS entity without any intervening person or entity. 11 A “direct” relationship will also exist when the referring physician has an ownership interest in the DHS entity to which patients are referred. Direct compensation relationships, as discussed above, are required to satisfy the highly restrictive and technical exceptions. It is true that teaching hospitals and other AMC entities contract for the services of faculty physicians who refer patients inside the AMC for DHSs. But, such contracts are typically with the medical school, FPP, or physician organization, rather than with the individual physicians themselves. For that reason, direct compensation relationships with faculty physicians are rare. Some faculty physicians may establish “direct” relationships with providers of DHS outside the AMC, and will therefore be required to meet one of the Stark exceptions in those settings, but that is usually not the case within the AMC. As a result, the majority of AMC financial arrangements will be analyzed under the “indirect” compensation test. Indirect compensation relationships under Stark In contrast to “direct” relationships, “indirect compensation relationships” are deemed to exist if: n there exists an unbroken chain of persons or entities that have financial relationships between the referring physician and the DHS provider; n the referring physician receives compensation from that DHS provider that varies Health Care Compliance Association • 888-580-8373 • www.hcca-info.org with the volume or value of referrals to that DHS provider; and n the DHS provider has actual knowledge or acts in reckless disregard or deliberate ignorance of the nature of its financial relationship with the referring physician. If an “indirect compensation” relationship exists, the indirect compensation exception must be met. 12 Although somewhat less onerous than the direct compensation exceptions, the application of the indirect exception is complex too, and requires knowledge of the special “unit-based compensation” rules under Stark and, as always, the advice of qualified legal counsel. 13 Again, if the arrangement meets the definition of neither a direct nor indirect relationship, Stark does not apply. Indirect compensation and Stark Phase III revisions Prior to the implementation of the 2007 Phase III Stark regulations, many AMCs relied heavily on the indirect compensation relationship to justify mission support payments between components of the AMC. In a common AMC arrangement, an FPP and/or its associated medical school employs faculty physicians who refer patients for care to DHS providers (e.g., teaching hospitals) within the AMC. Many AMCs took the position that mission support payments for teaching, research, community service, and indigent care from a teaching hospital to the FPP or medical school did not meet the definition of an indirect compensation relationship—the compensation paid to the referring physicians did not vary with or otherwise reflect the volume or value of referrals by the referring physician to the DHS entity. Under this line of reasoning, because there was also no “direct” financial relationship, the arrangement was not subject to Stark and was not required to conform to any of its exceptions. Continued on page 32 December 2010 31
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Steven Baruch - Health Care Compliance Association

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