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Tuomey Landmark Stark Case Comes to an End: Lessons Learned and Tips for Compliance Officers

The United States Department of Justice (DOJ) announced that it resolved the judgment against Tuomey Healthcare System. The United States will receive $72.4 million under the settlement and Tuomey will be sold to Palmetto Health. After losing two jury trials and multiple appeals, and expending over $20 million in defending its case, the court ruled for the United States and had ordered Tuomey to pay $237 million in penalties, a sum greater than its annual revenue. The original case arose from a qui tam filing, alleging that Tuomey violated the False Claims Act (FCA) by submitting tens of thousands of illegal bills to Medicare. The illegal submissions allegedly stemmed from corrupt arrangements with specialty doctors that Tuomey improperly compensated in violation of the Stark Laws.

For many years, the DOJ and OIG’s number-one enforcement priority centers on corrupt arrangements with referral sources that violate the Stark Laws and Anti-Kickback Statute (AKS). As such, compliance officers translate this high priority into ongoing monitoring and auditing activity. However, compliance officers in most organizations are often reluctant to question the work of attorneys developing these arrangements. The Tuomey case shows that using internal or external legal counsel to prepare documents does not guarantee risk-free engagements. Tuomey teaches several other lessons including:

  • Tuomey contended that it relied upon its attorneys in creating physician compensation arrangements. The court rejected this argument, noting that other experts had raised concerns about the proposed contracts even without seeing the compensation value determinations. In reality, Tuomey had obtained other experts to provide a desirable opinion in reckless disregard of warnings about the questionable nature of the proposed agreements. The court warned against “opinion shopping” and disregarding adverse legal and expert advice.
  • Tuomey made other arguments that revolved around their reliance on advisors. However, the case demonstrated that compliance officers must not stand back merely because attorneys helped develop the physician arrangements. The attorneys developing agreements with physicians may not be sufficiently competent to address all issues related to the Stark Laws and Anti-Kickback Statute (AKS). Even the best attorneys may not be fully aware of the facts surrounding the decision to enter into such arrangements. Other factors to consider may include: the basis for determining the need for physician services; the method for determining Fair Market Value (FMV); and management discussions regarding the reasons for selecting certain physicians for an arrangement. For the DOJ, the most important and commonly used evidence for proving corrupt arrangements is not the agreements themselves, but management’s discussions and communications about using an arrangement for gaining market share or increasing referrals. If the organization relies on “advice of counsel” to defend its arrangements, it must be prepared to open its files to the government.
  • Compensation to physicians must be consistent with As a safeguard, only qualified independent parties should determine FMV. As a result, the arrangement will be defensible, and will have documentation supporting the FMV and how the organization determined compensation. The court in Tuomey also stressed that an organization working backwards from what it wants to pay and finding a FMV determination that meets its desired figure can be evidence of a violation of the law. Finally, the commercial reasonableness analysis under Stark must be thorough and supportable.
  • Agreements must clearly define specific duties and services that physicians will perform. Once agreements are in effect, the organization should verify performance under terms of the agreement before making any payments. Also, productivity bonuses should not begin until after work is performed and verified.

Compliance officers must recognize these issues to meet their obligations for ensuring proper ongoing monitoring and auditing of this high risk area. They should look for consistency in arrangements, as deviations from them should be considered a warning signal. Any arrangements designed to reward loyalty are not defensible. No agreement should take the volume or value of referrals into consideration.

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  1. If compliance officers do not feel qualified to review arrangements, they should use outside experts, under direction of legal counsel, to assist. The review can be a separate contract or within the scope of work for a full compliance program effectiveness evaluation. However, using a law firm for this review could create the problem of a “second opinion” especially with a legal finding showing that the arrangements may implicate Stark or AKS. Non-law firm experts cannot render legal opinions and would therefore be a better choice.
  1. All organizations should maintain a database of physician arrangements that includes relevant information regarding the purpose of the arrangement, the process for selecting the physicians, details about FMV determinations, details of the services to be performed under the arrangement, and so forth. Any reluctance to keep accurate records, including those regarding deliberations on arrangements, should be a warning signal.
  1. When raised, compliance officers should promptly investigate and resolve any questions regarding an arrangement. Further, the organization should settle any potential violations with the government as quickly as possible to limit the magnitude of potential damages.

The best advice regarding arrangements with physicians is: if it doesn’t feel right, reconsider going forward with the arrangement regardless of what advisors say.

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