Why Contract Review is Needed in Healthcare

Westerly Hospital in Rhode Island recently settled allegations of improper payments to and arrangements with physicians following an investigation by the federal government.  The settlement amount was $500,000.  Westerly was a party to nine potentially improper agreements with physicians, with issues including failure to document and update leases and allowing an outside physician group to run one of the hospital’s service lines in return for the group not competing with the hospital.

The government investigation began in November 2010 and focused on allegations that arrangements between Westerly and various physician groups violated the Stark Law.  In February 2012, after a special master was appointed, Westerly self-reported additional violations.  Also operating in the background was the sale of Westerly to a new owner.  The Westerly settlement is not the only recent settlement following a self-disclosure.  Intermountain Healthcare in Utah also settled a self-reported Stark violation, but did so for $25.2 million.

As an initial matter, why is compliance with the Stark Law important?  The Stark Law governs the referral by one provider to another for certain designated health services when a financial relationship between the providers exists.  For a referral relationship to comply with Stark, it must fall outside the purview of Stark of satisfy an exception.  Otherwise, the government, specifically under Medicare, will not pay for claims submitted in connection with the improper relationship and can recoup any claims that were paid once an issue is found.

The results of the Westerly and Intermountain are far apart monetarily, but amounts can quickly add up.  The results of the two settlements demonstrate why a healthcare provider should constantly review its agreements.  Overtime an agreement can fall out of compliance because it is not properly renewed, a term is not followed, or any other number of reasons. If the issue keeps recurring (or just happens once) it can undermine the basis for a relationship.

However, there are ways to avoid Stark problems.  Agreements can be set up to comply with Stark’s requirements from the start or modified during their course, in certain circumstances, to come into compliance.  Stark and its implementing regulations are convoluted and complex though and should not be taken lightly.  A careful assessment of each agreement and arrangement is necessary because every situation is different.

If you have concerns about an agreement or would like assistance in assessing your agreements, contact the Mirick O’Connell Health Law Group.

About Matt Fisher

Matt is the chair of Mirick O'Connell's Health Law Group and a partner in the firm's Business Group. Matt focuses his practice on health law and all areas of corporate transactions. Matt's health law practice includes advising clients with regulatory, fraud, abuse, and compliance issues. With regard to regulatory matters, Matt advises clients to ensure that contracts, agreements and other business arrangements meet both federal and state statutory and regulatory requirements. Matt's regulatory advice focuses on complying with requirements of the Stark Law, Anti-Kickback Statute, fraud and abuse regulations, licensing requirements and HIPAA. Matt also advises clients on compliance policies to develop appropriate monitoring and oversight of operations.
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