St Joseph's Medical Center in Towson, Maryland (SJMC), agreed to pay $22 million to settle a case involving allegations of kickbacks to a cardiology practice with the intent to induce the cardiologists' referrals. The settlement involved 11 financial arrangements with MidAtlantic Cardiovascular Associates (MACVA). The case was brought by three whistleblowers who were cardiac surgeons and members of Cardiac Surgery Associates in Baltimore, Maryland. The settlement involves the alleged violation of the Anti-Kickback Statute, Stark Act and False Claims Act. It was alleged that SJMC violated the law by paying MACVA: i) payments above fair market value, ii) for services not rendered and iii) for services that were not commercially reasonable. It was alleged that SJMC entered into the financial arrangements with the purpose of inducing referrals from MACVA to SJMC.

It is important that all financial arrangements with referral sources be reviewed to ensure that such financial arrangements are fair market value and commercially reasonable. As such, providers should do the following:

  1. Establish a procedure to review and approve financial arrangements with referral sources. Such a procedure could include a committee of persons who are not directly involved in the proposed financial arrangement.
  2. Use national or regional compensation benchmark sources (such as Sullivan Cotter or Medical Group Management Association) or third-party reviewers to show that the compensation being paid to each referring physician is fair market value for the physician’s services. If, for example, a provider is paying compensation at the 75th percentile, the provider should document the reasons for paying the physician at the 75th percentile.
  3. Develop documentation prior to entering the financial arrangement regarding why the financial arrangement is commercially reasonable. By way of example, if a hospital intends to enter into a medical directorship with referring physicians, the medical or business purpose for such directorship should be documented.
  4. Carefully monitor each financial arrangement to ensure that the physicians are performing the services for which they are being compensated. By way of example, if a physician is supposed to provide a minimum of 10 hours of administrative services per month, hospitals should obtain supporting documentation regarding the amount of services rendered. Monthly timesheets or studies can be used to document these services.
  5. Conduct medical necessity reviews for services referred by physicians with whom hospitals have financial arrangements.