Hospitals and health systems often need the help of members of their independent medical staffs to engage in improvement processes, such as the LEAN service value stream management system or Six Sigma efforts. Physicians also are needed to provide their expertise in their particular specialty to advise the entity on adopting new technologies or processes or for participation on hospital committees. Since these physicians are also building their own medical practices, healthcare organizations often compensate these physicians for their participation in these endeavors.
Yet, hospital administrators and their in house counsel should exercise caution when structuring these kinds of compensation arrangements. To avoid violations of the False Claims Act, these arrangements must comply with the Stark anti-referral Law and the Anti-Kickback Law, as well as fair market value and commercial reasonableness standards.
A recent case which has brought these requirements to light the United States ex rel. DePace v. Cooper Health System settlement. Under a qui tam lawsuit filed in 2008 by a cardiologist in Cooper’s service area, the complaint alleged that Cooper had violated both the state and federal Anti-Kickback Statutes by paying kickbacks to physicians to induce referrals of their patients to Cooper.
The payments were made to physicians who served as ‘advisors’ to the Cooper Heart Institute Advisory Board (CHIAB). Their contracts stated the physicians were to provide consulting services and advise the Institute about innovative technologies, management strategies, and appropriate research initiatives, among other things. They were also required to attend bi-monthly meetings of the Advisory Board and were supposed to be paid $272.50 per hour for their consultative services.
The relator identified several issues with the operation of CHIAB that raised concerns in his mind:
- election of advisors appeared to be focused on patient volume rather than an individual’s credentials—a sizable portion of the advisors were primary care providers rather than cardiovascular specialists;
- meeting agendas depicted that the ‘advisors’ were actually engaged in free Continuing Medical Education sessions rather than laboring in ‘working’ meetings; and
- physicians were allegedly paid at the compensation rate of $562.50 per hour and only ‘worked’ for 32 hours per annum rather than receiving the agreed upon amount and working for 17 hours for each meeting as stated in the contract.
Accordingly, Cooper settled by agreeing to pay $12.6 million in fines related to the allegations in the complaint and paid approximately $400,000 to cover the relator’s attorneys’ fees. The cardiologist relator received $2.4 million of the overall settlement amount.
Some interesting lessons learned from this case:
- the ‘whistleblower’ wasn’t a disgruntled employee or a physician who’d been excluded from the program—he was a participant who’d believed something was wrong and took legal action—to reduce your risk, your communications about the legal basis of the structure should all be transparent and consistent;
- it is critically important for you to have effective legal counsel to ensure that these arrangements are structured properly; and
- you should have vigorous compliance policies both in place and operational to monitor these arrangements.