Three recent settlements with the U.S. Department of Justice, (all qui tam"whistleblower" actions), highlight the Government's continuing efforts to scrutinize physician compensation arrangements for alleged violations of the federal Anti-Kickback Statute (42 U.S.C. §1320a-7b ); Stark Law (42 U.S.C. §1395nn), and False Claims Act (31 U.S.C. §§ 3729-33).

In the earliest settlement reported this month, the Department of Justice (DOJ) announced on September 4, 2015 that Columbus Regional Healthcare System (CRHS) and Andrew Pippas, M.D., agreed to pay more than $25 million to resolve allegations that they violated the False Claims Act (FCA) by submitting false claims in violation of the Stark Law. In addition to allegations related to fraudulent up-coding and claims for services not personally performed, the Government alleged that between 2003 and 2013, CRHS made excessive salary and medical directorship payments to Pippas in violation of the Stark Law. CRHS additionally agreed to enter into a five-year Corporate Integrity Agreement. Specifically, the Government alleged that Dr. Pippas was paid significantly in excess (at least twice the amount) of the collections/revenue CRHS received for the services he personally performed. The Government reasoned that, "[t]he only way his excessive compensation makes sense is if CRHS determined his compensation by indirectly calculating the financial benefits to CRHS of the DHS Dr. Pippas referred to the Defendant." In addition to the clinical compensation, Dr. Pippas was paid a stipend of $200,000 for serving as Medical Director of John B. Amos Cancer Center (JBACC), an off-site hospital outpatient department of The Medical Center, an acute care hospital owned and operated by CRHS, and $100,00 for serving as Director of Clinical Research for JBACC. The Government alleged that, of the ten oncologists who saw patients at JBACC, four of them were medical directors, thereby raising questions as to whether the positions were really commercially reasonable and necessary to the operation of the cancer center, and whether the medical directors had duplicative and overlapping job duties.

Of note in this case is that CRHS had obtained "fair market value" appraisals of Dr. Pippas' clinical compensation in 2008, 2009, and 2013, all of which indicated that Dr. Pippas' clinical compensation was over the 90th percentile of compensation paid to medical oncologists nationally. Neither the 2008 or 2009 appraisals opined as to whether Dr. Pippas' compensation was commercially reasonable, i.e., whether it would make commercial sense for CRHS to pay Dr. Pippas a salary at or above the 90th percentile in the absence of referrals to CRHS.

Following on the heels of the CRHS settlement, the DOJ announced on September 15, 2015 a $69.5 million settlement agreement between North Broward Hospital District (a special taxing district in the state of Florida that operates hospitals and other healthcare facilities in the Broward County, Florida, area) and the Government to resolve allegations that the hospital district provided compensation to nine employed physicians that exceed the fair market value of the services in violation of the Stark Law and False Claims Act. Similar to the CRHS settlement discussed above, the allegations arose from a qui tamlawsuit filed by a physician colleague with staff privileges at several of the hospital district's hospitals. The hospital district also agreed to enter into a five-year Corporate Integrity Agreement. The Government alleged that the North Broward Hospital District violated the Stark Law by "awarding lavish employment contracts to physicians with salaries far exceeding fair market value," with the hospital district's "own internal financial analysis of physician revenues and expense confirm[ing] that that such salaries contemplate[d] the value and volume of inpatient and outpatient referrals to Broward Health hospitals and clinics." Specific circumstances related to the allegations included the fact that the direct financial losses incurred by the physicians' practices were not explained by the level of charity care provided, and the 90th percentile compensation levels were not commensurate with the level of productivity personally performed by the physicians. Further, absent inclusion of the revenue attributed to the anticipated ancillary services referrals to the hospital district, the internal proformas would have reflected losses in the millions of dollars over the term of the employment agreements Additionally, the alleged physician compensation to collections ratio was double that of the 90th percentile.

Nearly one week later, on September 21, 2015, the DOJ announced that Adventist Health System, a non-profit healthcare system that operates hospitals and other healthcare facilities in across ten states, agreed to pay approximately $115 million to resolve FCA allegations related to improper compensation arrangements with referring physicians. The suit was filed in 2012 by three former employees of Adventist's Park Ridge Health hospital, with similar claims filed in a separate 2013 whistleblower lawsuit. This settlement is the largest amount obtained to date without litigation under the Stark Law.

While each of the above settlements involved allegations of fraud and abuse in addition to those related to improper physician compensation, these settlements highlight the fact the Government is "making good on its promise" issued earlier this year to heavily scrutinize physician compensation . On June 9, 2015 the Office of Inspector General (OIG) issued a special Fraud Alert warning that, "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 health care program business. OIG encourages physicians to carefully consider the terms and conditions or medical directorships and other compensation arrangements before entering into them." The OIG additionally announced that they would be hiring additional attorneys to assist them in their efforts to scrutinize such compensation arrangements. As explained by the DOJ regarding the North Broward settlement "The Department of Justice has long-standing concerns about improper financial relationships between health care providers and their referrals sources, because those relationships can alter a physician's judgment about the patient's true health care needs and drive up health care costs for everybody."

Given the likelihood that False Claims Act prosecutions based on underlying Stark Law and Anti-Kickback violations related to physician compensation will only intensify, physician compensation arrangements (both clinical as well as medical directorship/executive administration arrangements) should be reviewed by legal counsel for potential Stark Law and Anti-Kickback violations in order to ensure that the contracting parties are in compliance.

By way of background, the Stark Law prohibits a physician from referring Medicare patients for certain "designated health services" (including inpatient and outpatient hospital services) to an entity with which he has a "financial relationship" (including physician compensation arrangements, as well as ownership and investment interests) unless a statutory exception applies. The Stark Law provides a statutory exception for "bona fide" employment relationships between entities (such as hospitals) that bill for designated health services (DHS) and physicians, provided that the amount of remuneration paid to the physician under the employment agreement is, among other requirements: (1) consistent with the fair market value of services personally performed; (2) not determined directly or indirectly by taking into account the volume or value of any referrals made by the employed physician to the entity; and, (3) commercially reasonable even if no referrals were made to the employer by the employed physician.

Similarly, the Ant-Kickback Statute (AKS) prohibits the offer or payment of "anything of value" in return for referrals or the generation of federal healthcare business. Additionally, the AKS prohibits the entity receiving a prohibited referral from presenting or causing to be presented to Medicare any claim for referrals that are induced by kickbacks. The AKS has certain statutory and regulatory "safe harbors" that protect from prosecution specific remunerative arrangements if all terms of the safe harbors are met by the parties. Similar to the Stark Law exception for compensation paid to bona fide employed physicians that is commercially reasonable and fair market value for the services personally performed, the AKS Employment Safe Harbor provides that "...remuneration does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of an item or service for which payment may be made in whole or in part under the Medicare, Medicaid or other Federal health care programs.