Stark Law is Coming: Adventist Health System Pays $118.7 Million in Third Large September Settlement

Under the settlement, Adventist will pay $115 million to the federal government, $3.48 million to Florida, $198,453 to North Carolina, $66,897 to Tennessee, and $4,711 to Texas. This settlement is the third large Stark law-based FCA settlement announced by DOJ in September, coming on the heels of the settlements with Columbus Regional Healthcare System ($35 million) and the North Broward Hospital District ($69.5 million).

Allegations Resolved by the Settlement Agreement

The settlement agreement resolves allegations contained in two qui tam complaints. Initially, a qui tam action was filed in 2012 by a risk manager, an executive director of physician services, and a compliance officer for physician offices, all of whom worked at Adventist’s Park Ridge Health hospital in Hendersonville, North Carolina. A second qui tam action was filed in 2013 by an employee who worked at Adventist’s corporate office. The complaints contained a number of allegations, including that compensation paid to physicians and non-physician practitioners was above fair market value, as evidenced by consistent physician practice losses; above fair market value payments were made for part-time or non-productive work; bonuses were based on revenue from referrals, not just on personally performed services; employed physicians received perks, such as car lease payments and payments to cover the cost of office staff; contractual provisions to reduce salaries were not implemented; and Adventist did not correct physician miscoding.

Adventist did not admit to any liability, and the case was never litigated. However, the settlement ultimately resolved allegations that Adventist’s compensation arrangements with approximately 240 employed physicians, as well as a space lease with an immediate family member of an employed physician, violated the Stark law for periods of time from 2007 to 2012. According to the government’s press release, Adventist allegedly provided these employed physicians with bonuses based on a formula that improperly took into account the value of the physicians’ referrals to Adventist hospitals for tests and procedures. The settlement also resolves allegations that Adventist submitted falsely coded claims to the Medicare program for its employed physicians’ professional services from January 1, 2007, to March 31, 2014, as the result of using certain improper coding modifiers. As part of the settlement agreement, the whistleblowers also agreed to release all claims related to the allegations in their qui tam complaints on which the government did not intervene.

No Corporate Integrity Agreement Required

Adventist is not being required to enter into a corporate integrity agreement (CIA) with the U.S. Department of Health and Human Services Office of Inspector General (OIG) as part of the settlement. The government typically does not require a CIA only when it believes that the provider’s current compliance program already is so effective that it will prevent such issues from arising in the future. It also is possible that Adventist may have benefitted from self-disclosing at least some portion of the covered conduct. (As indicated by the settlement agreement, the initial qui tam complaint was filed in December 2012. However, Adventist issued a statement noting that it made a voluntary disclosure to the government related to employed physician compensation, as well as certain billing and coding issues, in early 2013.)

A dispute over the weight to be provided to Adventist’s self-disclosure also may explain why the whistleblowers’ share of the recovery has not yet been determined.

Take-Aways for Providers

DOJ’s settlement with Adventist was the third major FCA settlement based on a Stark law violation announced in September. Given the length of time it can take for FCA cases to reach resolution, it is too early to tell whether the announcement of these three settlements within weeks of each other is a coincidence, or reflects a rapid and significant escalation in the government’s enforcement of the Stark law. However, regardless of whether the proximity of these announcements reflects an intentional change in government priorities, the size of these settlement amounts is likely to catch the attention of other potential whistleblowers, increasing the likelihood that additional qui tam lawsuits based on Stark law violations will be filed.

In view of the ongoing risk of being the target of Stark law-based FCA actions and the huge liability that can result from even relatively minor violations of the law’s onerous requirements, hospitals and health systems (and other health care providers) must make sure that they are carefully scrutinizing all their financial arrangements with physicians (as well as arrangements with any “immediate family member” of physicians, as this term is broadly defined under the Stark law). Not only should providers ensure that these financial arrangements are compliant when they are initiated, but they also should continue to monitor these arrangements for compliance throughout their term. If and when potential compliance violations are discovered, they should be promptly and thoroughly investigated. If repayments are required, providers should carefully consider the most appropriate method for making the self-disclosure and taking any other appropriate corrective action. Recent cases demonstrate that prompt and thorough corrective action can be very beneficial when these types of matters are resolved. In any event, identified overpayments must be promptly returned to the government.