Intermountain Healthcare Settlement – Dangers of Hospital Agreements with Physicians

doctorsHospitals continue to be under the Department of Justice-HHS/Office of Inspector General microscope.  DOJ-OIG is a potent combination and carry with them the threat of criminal prosecution, civil false claims enforcement and civil exclusion from federal healthcare programs.

Intermountain Healthcare is a hospital chain in Utah, which has 22 hospitals and 185 physician clinics.  In 2009, Intermountain voluntarily disclosed potential Stark Law violations.  In April of 2013, Intermountain agreed to a $25.5 million settlement with DOJ-OIG but escaped imposition of a Corporate Integrity Agreement which can impose a number of burdensome compliance requirements.

The Stark Law is a minefield for hospitals – financial relationships with physicians who refer patients to Intermountain must be “arms-length,” meaning they are at fair market value and must not compensate the physicians for any referrals.

Hospitals have to monitor all business relationships with physicians which have related business relationships.  Most significantly, physicians who have employment agreements, lease office space, or provide personal services to the hospital.doctors4

The description of the violations underscores the complete absence of corporate compliance controls over Intermountain’s agreements with physicians.  The agreements were drafted and executed with little regard for compliance with the Stark Law.

The violations included:

  • Nearly 40 contracts where the doctors’ were compensated with bonuses based on the number of referrals to Intermountain;
  • Almost 20 leases for office space without any written agreement; and
  • Over 150 agreements for personal services which were not memorialized in writing.

doctors2Hospitals need to carefully monitor all business relationships with physicians.  At a minimum, the agreements have to be in writing, executed, and monitored.  A legal review of each agreement should be conducted to ensure that the agreement is consistent with fair market value and does not contain any compensation which might be linked to referrals of patients to the hospital.  As always, the key to compliance is a procedure and documentation of the procedure.

Similar to a due diligence policy and procedure for third-party agents in the FCPA context, hospitals need to create Stark Law compliance procedures which capture all financial arrangements with physicians for a Stark Law compliance review.  Even in those cases where the agreement passes initial review, periodic monitoring of such arrangements should be conducted to ensure that there are no significant changes in the financial arrangement.doctors3

Internal controls should be developed so that any payment made to a doctor is subject to verification of an approved contract which has been reviewed for Stark Law compliance.

A training program should be developed to communicate the requirements to hospital employees involved in contracting with physicians.

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