A Stark Contrast

04.20.2009
Daily Journal

The U.S. Department of Health and Human Services Office of Inspector General has announced changes in the way health care providers may self-disclose violations of the Stark Law, leaving providers who wish to disclose such violations with fewer options, and potentially facing stiffer fines and penalties. The Stark Law is a complex federal law regulating financial and other dealings between physicians and hospitals (and other providers of designated health services). The Stark Law is of major concern to hospitals, physicians and other designated health services providers because of its broad sweep, its extremely large penalties and because it is primarily a "strict liability" statute in which the government does not have to prove criminal intent but only needs to prove a violation of the law's terms, even a "technical" violation.

On March 24, the Office of Inspector General presented its "Open Letter to Health Care Providers," of the same date to an American Health Lawyers Association conference focusing on the Stark Law. This open letter, the third in as many years, stated the office will no longer accept for its self-disclosure protocol self-disclosures for violations of the Stark Law only, i.e., "pure" violations of the law that do not entail violations of other federal fraud and abuse statutes, namely the Anti-Kickback Statute. The Office of Inspector General said it will only accept disclosures of violations of the Stark Law when they entail "colorable violations" of the Anti-Kickback Statute that involve a minimum settlement amount of $50,000. In other words, a hospital or other provider desiring to resolve a potential violation of the Stark Law may do so through the self-disclosure protocol only when disclosure of the Stark Law violation entails an Anti-Kickback Statute violation and the violation has a settlement value of at least $50,000 in damages or penalties.

The letter declared, "Kickbacks pose a serious risk to the integrity of the health care system, and deterring kickbacks remains a high priority" for the office. This appears to represent a healthy shift away from "gotcha" enforcement that severely penalizes providers for minor technical violations of an extremely complex statutory and regulatory scheme. Instead, the office seems to be saying, the government should focus on violations involving actual criminal intent, such as payments made or offered in return for physician referrals. In other words, a "failure to dot the 'i'" Stark Law violation is less worthy of enforcement than a "true" Stark Law violation where there is a benefit gained or sought by the forbidden activity. From an individual hospital or other provider perspective, this shift places providers wishing to self-disclose technical Stark violations in a difficult situation. From a public policy perspective, this shift could make sense, and overall be favorable for health care providers, in a limited-resources enforcement environment. The government should indeed concentrate on the crass sellers, the kickbacking dealmakers who corrupt the health care system. Those are the real "bad guys," and these situations are far different from situations of mere technical Stark Law errors.

The Stark Law, including the detailed requirements to meet the available exceptions to its penalties, is extremely complex. Often, in the course of the operations of a compliance program or other type of internal audit, providers discover long-standing violations, many of which can be quite technical. For example, the Stark Law requires, among many other conditions, that any leases between hospitals and referring physicians be in writing, be for fair market value, and be signed by the parties. In several cases, hospitals and other providers have discovered some leases were negotiated for fair market value, were in writing, but somehow were never signed by one of the parties. Since the Stark Law implicates all Medicare payments made or due to the hospital for all referrals of all physicians involved for the entire period of violation, such technical violations discovered years after the fact could implicate millions of dollars worth of potential penalties.

Until now, the self-disclosure protocol allowed a provider to self-disclose Stark Law violations to the Office of Inspector General. The office encouraged providers to self disclose violations of the federal fraud and abuse laws (and still does encourage providers to self-disclose violations except with regard to pure Stark Law violations). In return, one of the benefits the office offered through its protocol was the ability to resolve the matter for penalties on the low end of the continuum of available penalties. Also, prior to 2008 providers found to have violated the federal fraud and abuse laws, whether or not they self-disclosed the violations to the Office of Inspector General, were required to enter into a compliance integrity agreement with the Office of Inspector General. Such agreements have typically included harsh and expensive terms, detailed levels of reporting to the government, as well as multiple internal and external audits. In order to sweeten the protocol, in 2008 the office issued its second open letter, offering providers who cooperated with it in good faith throughout the self-disclosure protocol process a waiver of the compliance integrity agreement in a settlement. This, along with the potential for low penalties, provided a major incentive for hospitals to disclose potential violations of the fraud and abuse laws, including the Stark Law, to the office.

A Shift to New Priorities

In announcing the latest open letter, Office of Inspector General Senior Counsel Tony R. Maida told the assembled health care attorneys the purpose of the letter was to focus on efficiency and transparency - a move necessary to focus on agency priorities. Maida emphasized, "We are not saying kickbacks under $50,000 are OK and we are not saying Stark Law violations are unimportant." Rather, he said the open letter was intended to inform health care providers of the office's priorities and to help providers evaluate which Stark Law matters are truly appropriate for the self-disclosure protocol.

The office seems to be stating in this latest open letter that focusing on technical violations of the Stark Law that do not include conduct showing a criminal intent is time-consuming and inefficient. While this new letter will reduce the workload, it can also create confusion for providers who discover Stark Law violations. Maida said the office will continue to evaluate Stark cases for prosecution and added the Department of Justice, a separate federal agency from HHS, was in no way bound by what officials in the Office of Inspector General said.

Options for Providers

The open letter sends a mixed message to providers because even mere technical violations of the Stark Law can involve potentially huge penalties. Until this letter, providers could self-disclose violations to the office through the self-disclosure protocol and work toward a compromise resolution. Now the protocol is no longer an option for "pure" violations of the Stark Law.

The remaining options for resolving Stark Law violations are not promising: Providers can disclose violations to the Centers for Medicare and Medicaid Services, to their Medicare fiscal intermediaries or the Department of Justice via the local U.S. attorney's office. Centers for Medicare and Medicaid Services generally does not engage in discussions of potential violations of the Stark Law and, even if it should compromise a claim, it is required to go to the Justice Department. While disclosure to the local U.S. attorney's office is always an option, many health care attorneys do not recommend this except as a last resort because local U.S. attorneys offices do not specialize in health care fraud and abuse issues and because settlements with the Justice Department typically involve harsh terms. Finally, a provider could always disclose a Stark Law violation to its fiscal intermediary but the intermediaries have no settlement authority for crimes. Thus, there would be no ability to negotiate a reasonable settlement. A provider could always "disclose and repay" to the intermediary but the damages and penalties, absent a compromise resolution, likely would be astronomical. In addition, even if a provider did disclose and repay to the intermediary, the intermediary would be certain to forward the matter to the Office of Inspector General, which might disagree with the provider's analysis and would have every legal option for prosecution.

If a provider is aware of possible technical Stark Law violations but is unable to disclose them, the provider could be considered to be in violation of a federal law (42 U.S.C. Section 1320a) that makes it a felony to keep federal money, with fraudulent intent, where one knows he is not entitled to it.

Going Forward

This new open letter may create significant confusion for hospitals and other providers wishing to resolve violations of the Stark Law with the federal government. Hospitals and other providers aware of technical violations are encouraged to seek guidance from qualified health care attorneys.

On a broader level, this shift of priorities within the Office of Inspector General could amount to a statement implicitly supporting the health care industry - that there are numerous potential technical violations of the Stark Law in which the penalties are disproportionate to the crime and in which hospitals could be made to repay enormous amounts - at a time when the country faces serious economic problems. On the one hand, this new open letter makes it difficult for a hospital or other providers to determine whether to self disclose a Stark Law violation and to whom. On the other hand, the letter may actually be a cautious statement to the Congress that enforcement should focus on crimes involving criminal intent, such as kickbacks, rather than on penalizing providers for mere errors and for minor technical violations of the Stark Law's numerous complex requirements. Some observers think this letter could spur calls to Congress to amend or reduce the law's harsh penalties for technical violations. Only time will tell.

John Wagner is a seasoned healthcare lawyer with a broad practice, primarily focusing on healthcare litigation. His practice combines administrative cases, before federal and state agencies and court litigation. Richard Spohn chairs Nossaman's healthcare practice group and specializes in healthcare and administrative law.

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