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Massive Stark Law settlement underscores continued government scrutiny of health system physician employment arrangements

April 15, 2024
Business Affairs

While the parties seemed to essentially ‘back in’ to prospective compensation amounts through financial projections that included ancillaries, the actual compensation approach for many specialties was either fixed guaranteed compensation or wRVU-based compensation for personally-performed services. That is, the actual compensation formulas under the written employment agreements for a majority of the specialties were generally approaches that have long been widely accepted as fully appropriate vis-a-vis Volume/Value Standard, as only a limited number of specialties had an incentive compensation component dependent on technical referrals. So, while some of the government’s arguments seem to be on shaky legal ground, the most significant issue with backing into guarantee amounts and/or wRVU rates by estimating anticipated technical profits is that the resulting guarantee amounts and wRVU rates offered by the health system seemed exorbitantly high from a fair market value perspective. The key takeaway though is that even in cases where the resulting compensation is supportable from a fair market value perspective, despite the flexibility that technically should be available to providers under the special rules, health systems should focus on factors other than ancillary profits in their discussions and negotiations with physicians regarding salaries and/or wRVU rates.

One modest source of potential comfort to providers from the government's approach in its legal filings is that the government's filings did not endorse the whistleblower’s assertion that the employed physician's compensation additionally violated the Anti-Kickback Statute. This omission may indicate an implicit acknowledgment by the Department of Justice of the breadth of the bona fide employment safe harbor under the Anti-Kickback Statute, which would be consistent with a recent favorable advisory opinion from the Office of Inspector General of the Department of Health and Human Services. However, unknown strategic reasons might have driven the government's approach in this particular case, and it is not fully clear that the Department of Justice will consistently take such a flexible approach to the Anti-Kickback Statute's employment safe harbor in the future.

The settlement underscores the enormous stakes of structuring physician compensation appropriately, no matter how great of competitive pressures a health system faces. In addition to the $345 million settlement itself, the health system will be under an onerous five-year corporate integrity agreement with a legal Independent Review Organization, a claims Independent Review Organization, and a compliance expert to the Board. Because of the inherent subjectivity of the concept of fair market value, among other reasons, it may not be possible to ever fully eliminate Stark Law risk and related risk under the False Claims Act in employed physician contracting. But organizations that adopt and enforce a thoughtful policy with reasonable guardrails, especially regarding establishing fair market value documentation for highly-compensated physicians, should be best-positioned to avoid staggering Stark Law and False Claims Act financial penalties and related consequences.

About the author: Joseph Keillor is of counsel at Baker Donelson in Baltimore, Maryland. He is a healthcare attorney who focuses his practice on complex health care regulatory matters.

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