Is the Office of Inspector General Turning their Attention to Physician Issues?

Joette Derricks, CPC, CHC, CMPE, CSSGB
Vice President of Regulatory Affairs & Research, Anesthesia Business Consultants, Jackson, MI

A review of recent activity by the Health and Human Services Office of Inspector General (OIG) indicates that it may be physicians’ turn for a higher level of scrutiny. Over the past few years, the OIG has released three Special Fraud Alerts focusing on physicians’ arrangements. In 2013, the OIG issued a fraud alert about physician-owned device distributorships, and in 2014 it issued a fraud alert about lab payments to physicians. The third alert, issued June 9, 2015, addresses physician compensation arrangements that may result in significant liability under the federal Anti-Kickback Statute (AKS).

One purpose of the AKS is to protect patients from inappropriate medical referrals or recommendations by healthcare professionals who may be unduly influenced by financial incentives. Section 1128B(b) of the Social Security Act (the Act) makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any remuneration to induce, or in return for, referrals of items or services reimbursable by a Federal healthcare program. When remuneration is paid purposefully to induce or reward referrals of items or services payable by a Federal healthcare program, the antikickback statute is violated. By its terms, the statute ascribes criminal liability to parties on both sides of an impermissible “kickback” transaction. Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years, or both. Conviction will also lead to exclusion from Federal healthcare programs, including Medicare and Medicaid. The OIG may also initiate administrative (non-criminal) proceedings to exclude persons from the Federal healthcare programs or to impose civil money penalties for fraud, kickbacks, and other prohibited activities under sections 1128(b)(7) and 1128A(a) (7) of the Act.¹

Potential AKS violations may be pursued under the federal False Claims Act (FCA), which prohibits the knowing submission of false claims to the government.² The Affordable Care Act (ACA) amended the AKS in that claims submitted to the government for federal healthcare programs may be “false” if they were the product of illegal kickbacks in violation of the AKS.³ Penalties under the FCA greatly increase the potential financial harm of an AKS violation, with penalties of up to $11,000 per false claim and treble the amount of damages to the government.⁴

1. Physician Owned Distributorships (PODs)

The March 26, 2013 Special Fraud Alert: Physician-Owned Entities calls out PODs as “inherently suspect” under the AKS. This Special Fraud Alert addresses physician-owned entities that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers (ASCs).

The OIG has repeatedly expressed concerns about arrangements that exhibit questionable features with regard to the selection and retention of investors, the solicitation of capital contributions and the distribution of profits. Such questionable features may include, but are not limited to:

1. selecting investors because they are in a position to generate substantial business for the entity,
2. requiring investors who cease practicing in the service area to divest their ownership interests, and
3. distributing extraordinary returns on investment compared to the level of risk involved.

PODs that exhibit any of these or other questionable features potentially raise four major concerns typically associated with kickbacks—corruption of medical judgment, overutilization, increased costs to the Federal healthcare programs and beneficiaries and unfair competition. This is because the financial incentives PODs offer to their physician-owners may induce the physicians both to perform more procedures (or more extensive procedures) than are medically necessary and to use the devices the PODs sell in lieu of other, potentially more clinically appropriate, devices. The OIG is particularly concerned about the presence of such financial incentives in the implantable medical device context because such devices typically are “physician preference items,” meaning that both the choice of brand and the type of device may be made or strongly influenced by the physician, rather than being controlled by the hospital or ASC where the procedure is performed.

2. Laboratory Payments to Referring Physicians

This June 25, 2014 Special Fraud Alert addresses compensation paid by laboratories to referring physicians and physician group practices for blood specimen collection, processing and packaging and for submitting patient data to a registry or database. The OIG has repeatedly emphasized that providing free or below-market goods or services to a physician who is a source of referrals, or paying such a physician more than fair market value (FMV) for his or her services, could constitute illegal remuneration under the anti-kickback statute. Recently there has been an influx of laboratory AKS or FCA settlements in which both the laboratory and the physician or physician group have reached settlements with the OIG regarding allegations that the laboratory paid a physician more than fair market value for the physician’s services or for services the laboratory does not actually need or for which the physician is otherwise compensated. Such payments are suspect under the AKS because of the implication that one purpose of the payments is to induce the physician’s Federal healthcare program referrals. The OIG also historically has been concerned with arrangements in which the amounts paid to a referral source take into account the volume or value of business generated by the referral source.

Specimen processing arrangements typically involve payments from laboratories to physicians for certain specified duties, which may include collecting the blood specimens, centrifuging the specimens, maintaining the specimens at a particular temperature and packaging the specimens so that they are not damaged in transport. Payments under specimen processing arrangements typically are made on a per-specimen or per-patient-encounter basis and often are associated with expensive or specialized tests.

Medicare allows the person who collects a specimen to bill Medicare for a nominal specimen collection fee in certain circumstances, including times when the person draws a blood sample through venipuncture (i.e., inserting into a vein a needle with syringe or vacuum tube to draw the specimen). Medicare allows such billing only when: (1) it is the accepted and prevailing practice among physicians in the locality to make separate charges for drawing or collecting a specimen, and (2) it is the customary practice of the physician performing such services to bill separate charges for drawing or collecting the specimen. Only one collection fee is allowed for each type of specimen for each patient encounter, regardless of the number of specimens drawn.⁵ Physicians who satisfy the specimen collection fee criteria and choose to bill Medicare for the specimen collection must use Current Procedural Terminology (CPT) Code 36415, “Routine venipuncture – Collection of venous blood by venipuncture.”⁶

 Characteristics of a specimen processing arrangement that may be evidence of such unlawful purpose include, but are not limited to, the following:

• Payment exceeds fair market value for services actually rendered by the party receiving the payment.
• Payment is for services for which payment is also made by a third party, such as Medicare.
• Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.
• Payment is made on a per specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient or other basis that takes into account the volume or value of referrals.
• Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or tests that otherwise are not reasonable and necessary or reimbursable.
• Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

The OIG is also concerned about arrangements under which clinical laboratories are establishing, coordinating or maintaining databases, either directly or through an agent, purportedly to collect data on the demographics, presentation, diagnosis, treatment, outcomes or other attributes of patients who have undergone, or who may undergo, certain tests performed by the offering laboratories. Typically these are specialized and expensive tests paid for by Federal healthcare programs. This Special Fraud Alert addresses such “registries” or “registry arrangements,” whether they are referred to as “registries” or “observational outcomes databases” or by other terminology. Many times the laboratories that participate in registry arrangements assert that they are intended to advance clinical research to promote treatment, to provide physicians with valuable clinical knowledge for patients with similar disease profiles and to provide other benefits to physicians or the healthcare industry generally.

Registry arrangements may take various forms; however, they typically involve payments from laboratories to physicians for certain specified duties, including, by way of example only, submitting patient data to be incorporated into the registry, answering patient questions about the registry and reviewing registry reports.

With the growing interest in genetic testing some laboratories have been approaching physicians to solicit their patients through a registry arrangement. Components that may implicate the AKS in such arrangements include but are not limited to:

• The laboratory collects comparative data for the registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.
• Compensation paid to physicians pursuant to registry arrangements is on a per-patient or other basis that takes into account the value or volume of referrals.
• Compensation paid to physicians pursuant to registry arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.
• Compensation paid to physicians pursuant to registry arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.
• The laboratory offers registry arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.

3. Physician Compensation Arrangements That May Result in Significant Liability

The OIG advised in a June 9, 2015, Special Fraud Alert, that physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect FMV for bona fide services the physicians actually provide. Although many compensation arrangements are legitimate, a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal healthcare program business. OIG encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.

Prior to the release of the Special Alert, the OIG had reached settlements with 12 individual physicians who entered into questionable medical directorship and office staff arrangements. The OIG alleged that the compensation paid to these physicians under the medical directorship arrangements constituted improper remuneration under the anti-kickback statute for a number of reasons, including that:

• The payments took into account the physicians’ volume or value of referrals;
• The payments did not reflect FMV for the services to be performed; and
• The physicians did not actually provide the services called for under the agreements.

OIG also alleged that some of the 12 physicians had entered into arrangements under which an affiliated healthcare entity paid the salaries of the physicians’ front office staff. Because these arrangements relieved the physicians of a financial burden they otherwise would have incurred, OIG alleged that the salaries paid under these arrangements constituted improper remuneration to the physicians. OIG determined that the physicians were an integral part of the scheme and subject to liability under the Civil Monetary Penalties Law.⁷

Conclusion

Given the OIG’s focus on these physician issues, physicians must ensure that any medical director agreement includes appropriate compensation for the services provided. OIG directs physicians to its guidance on the topic, including its Roadmap for New Physicians. The Roadmap states that physicians accepting a medical directorship must assume substantial professional responsibility for the care at the facility by actively overseeing clinical care at the facility, leading the medical staff to meet the standard of care, ensuring proper training and education and identifying and addressing quality problems. The Roadmap discusses situations in which physicians signed improper medical director agreements that improperly paid for referrals and resulted in settlements of hundreds of thousands of dollars paid to the government.

Similarly, OIG’s concerns regarding specimen processing arrangements and PODs are not abated when those arrangements apply only to specimens collected, or devices placed from patients enrolled in a non-Federal healthcare program. Arrangements that “carve out” Federal healthcare program beneficiaries or business from otherwise questionable arrangements implicate the AKS and may violate it by disguising remuneration for Federal healthcare program business through the payment of amounts purportedly related to non-Federal health care program business. Because physicians typically wish to minimize the number of laboratories or other vendors to which they refer or order services or items for reasons of convenience and administrative efficiency, arrangements that carve out Federal healthcare program business may nevertheless be intended to influence physicians’ referrals of Federal healthcare program business to the offering laboratories or device manufacturer.

Notwithstanding the extremely high enforcement priority on this subject, most compliance officers fail to include this area in serious ongoing monitoring and auditing as called for by the OIG in their various compliance guidance documents. The reason for this reluctance arises out of the fact that arrangements with physicians generally involve either inside or outside legal counsel and compliance officers become convinced that since that is the case, the arrangements must be allowable. This is definitely not the case as is evidenced by the number of enforcement actions taken against such arrangements.

A closer look at these Alerts is warranted by all physicians in conjunction with legal counsel with expertise in the AKS and the physician’s Chief Compliance Officer.

1. 42 U.S.C. § 1302a-7b(b).
2. 31 U.S.C. § 3729-3733.
3. 42 U.S.C. § 1320a-7b(g).
4. 31 U.S.C. § 3729(a).
5. Section 1833(h)(3) of the Act; Medicare Claims Processing Manual, CMS Pub. 100-04, Chapter 16, section 60.1.
6. The five character codes and descriptions included in this document are obtained from Current Procedural Terminology (CPT®), copyright 2015 by the American Medical Association (AMA). CPT is developed by the AMA as a listing of descriptive terms and five character identifying codes and modifiers for reporting medical services and procedures. Any use of CPT outside of this document should refer to the most current version of the Current Procedural Terminology available from AMA.
7. http://oig.hhs.gov/compliance/alerts/guidance/Fraud_Alert_Physician_Compensation_06092015.pdf

Joette Derricks, CPC, CHC, CMPE, CSSGB serves as Vice President of Regulatory Affairs and Research for ABC. She has 30+ years of healthcare financial management and business experience. She is a member of MGMA, HCCA, AAPC and other associations and a regular speaker at practice management conferences. Ms. Derricks can be reached at Joette.Derricks@AnesthesiaLLC.com.