FOR PHYSICIANS:
CMS Issues New Physician Fee Schedule and Identifies Nuclear Medicine as a “Designated Health Service” for Stark Purposes
In addition to further reductions in the Medicare physician fee schedule for 2006, CMS has proposed including “diagnostic nuclear medicine services and therapeutic nuclear medicine services and supplies” in its list of “designated health services.” See 70 Fed. Reg. 45764 (Aug. 8, 2005). Under the Physician Self-Referral Act (the “Stark law”), physicians cannot refer patients to entities in which they have a financial relationship for the provision of certain “designated health services” which are reimbursed by Medicare, unless a statutory or regulatory exception applies. “Radiology services” have always been “designated health services” subject to the Stark prohibitions. Initially, CMS did not believe that nuclear medicine fell under the same guise as other commonly considered radiology services. However, after receiving an increasing number of comments on nuclear medicine and reviewing studies on the increase of joint ventures involving nuclear medicine, in particular PET scanners, CMS has decided that “risk of abuse and anti-competitive behavior [is] inherent in physician self-referrals for nuclear medicine services” given the affordability of nuclear medicine equipment, Medicare’s “expansive coverage” of nuclear medicine and the setting in which most nuclear medicine services are primarily provided, i.e., physician offices and free-standing facilities. CMS is soliciting comments as to whether, or how, to minimize the impact on physicians who are currently parties to arrangements involving nuclear medicine services and supplies, such as a delayed effective date or by grandfathering certain arrangements.
FOR HOSPITALS:
OIG Issues New Advisory Opinion Regarding Donations to Academic Medical Center
In Advisory Opinion 05-11, the OIG ruled that it would not impose sanctions against a for-profit hospital that donated a medical office building to a university medical school. The for-profit hospital and the university’s medical school were both committed to the support of the university’s graduate medical program and related family practice clinic. The existing clinic had been located in an antiquated facility, with limited space and in an inconvenient location. The hospital desired to donate a medical office building to the university and enter into a long term ground lease with the university for a nominal, $1 annual rental amount. The OIG came to its conclusion based upon four factors. First, the movement of the medical school’s clinic to the new medical office building provided a community benefit. Second, the hospital and the medical school had a long-standing mutual commitment to graduate medical education and community care, reducing the likelihood that the donation was made to induce referrals. Third, the university imposed certain policies to limit the influence the substantial donation might have on referral patterns, e.g., the university would not require or track referrals to the hospital and would not base compensation on referrals to the hospital. Finally, as the university ultimately held title to the medical office building, the hospital would not be involved in any decision concerning the use of the building, including the types of services to be provided by the clinic.
Class Certified for Excessive Billing Claims Against Seattle’s Virginia Mason Medical Center
A Washington state court certified a class of thousands of patients who allege they were charged excessive, undisclosed fees for minor procedures by Virginia Mason Medical Center of Seattle. See Mill v. Virginia Mason Medical Center, Wash. Super. Ct., No. 05-2-02198-SEA (Sept. 6, 2005). The patients are suing under Washington’s Consumer Protection Act and are seeking damages that could rise to $60 million. The core of the claims revolve around procedures provided by Virginia Mason to patients at their downtown clinics that are charged higher rates than Virginia Mason’s suburban clinics. As alleged, one plaintiff incurred an additional $846 hospital facility charge out of a total medical bill of $1,451 when she went to her doctor for removal of a blemish, while another was charged $418 for a 30 second removal of a toenail. According to Virginia Mason, its differing fee schedules result directly from the fact that some of its downtown clinics are “provider based facilities” allowing it to charge typically higher hospital-based fees.
FOR PHARMACEUTICAL MANUFACTURERS AND PHARMACY BENEFIT MANAGERS
Advance PCS Settles False Claims Action for $137.5 Million
AdvancePCS, a pharmacy benefits manager for health plans covering federal employees and seniors covered by Medicare Plus Choice, agreed to pay $137.5 million to settle a False Claims Act and Anti-Kickback Act lawsuit brought by the U.S. Attorney’s Office in Philadelphia. After a six-year investigation of AdvancePCS, the OIG found that AdvancePCS had been accepted payments from pharmaceutical manufacturers in exchange for AdvancePCS’s favorable treatment of the manufacturers’ drugs in contracts with third-party payers and plan sponsors. The payments were hidden in the form of excessive administrative fees and over-priced products and services. In addition to the hefty civil fine, AdvancePCS entered into a consent order agreeing to inform health plans about its business practices and disclose payments received from drugmakers for five years. The company also agreed it would not engage in drug-switching that results in health plans or covered beneficiaries paying more than the cost of the drug that doctors prescribed. The consent order can be found at http://www.usdoj.gov/usao/pae/News/Pr/2005/sep/pcs%20Consent%20Order.pdf.
The investigation included whistle-blower claims filed under the federal False Claims Act and similar state versions of the whistle-blower law in 11 states and the District of Columbia. The investigations by the Attorneys General of the respective states and D.C. are still pending.
FOR PROVIDERS:
IRS Proposes New Rules on Intermediate Sanctions
The IRS has proposed clarification as to when an excess benefit transaction will result in not only intermediate sanctions but also revocation of the tax-exempt entity’s tax-exempt status. See 70 Fed. Reg. 53599 (Sept. 9, 2005). Section 4958 of the Code imposes certain excise taxes on transactions that provide excess economic benefits to disqualified persons with respect to public charities and social welfare organizations. An “excess benefit” is the amount by which the value of an economic benefit provided by an applicable tax-exempt organization directly or indirectly to or for the use of a disqualified person, e.g., senior management or even a medical director, exceeds the value of the consideration (including the performance of services) received for providing such benefit. Section 4958(a) imposes the liability for excise taxes on disqualified persons who receive an excess benefit from, and on certain organization managers who knowingly participate in, an excess benefit transaction. The proposed regulations identify a number of factors that the IRS will consider in determining whether to revoke a tax-exempt entity’s tax-exempt status in the event of an excess benefit transaction. For example, the IRS will consider the following: “(A) The size and scope of the organization's regular and ongoing activities that further exempt purposes before and after the excess benefit transaction or transactions occurred; (B) The size and scope of the excess benefit transaction or transactions (collectively, if more than one) in relation to the size and scope of the organization's regular and ongoing activities that further exempt purposes; (C) Whether the organization has been involved in repeated excess benefit transactions; (D) Whether the organization has implemented safeguards that are reasonably calculated to prevent future violations; and (E) Whether the excess benefit transaction has been corrected or the organization has made good faith efforts to seek correction from the disqualified persons who benefited from the excess benefit transaction.” The proposed regulations will also permit the IRS to deny an application for tax-exemption if the IRS determines the entity’s purpose or activities violate any provision of section 501(c)(3), including the inurement prohibition and the limitation on private benefit, even though such violation could serve as grounds for imposing excise taxes if the applicant's tax-exempt status were recognized. Comments to the proposed regulations are due to the IRS by December 8, 2005.
Eleventh Circuit Finds Anti-Kickback Violation Can Be Source of False Claims Act Liability
Following the lead of other circuits, the Eleventh Circuit affirmed a district court’s ruling that a Medicare provider’s violation of the Anti-Kickback Statute can be the basis of a claim brought under the federal False Claims Act. See U.S. ex rel. McNutt v. Haleyville Medical Supplies, Inc., 2005 WL 2179164 (Sept. 9, 2005). The purposes of the False Claims Act are to penalize individuals who submit improper or false claims for government reimbursement. The typical application of the False Claims Act is the submission of Medicare claims for services not rendered. In McNutt, however, the government alleged that a Medicare “provider's compliance with its provider agreement is a condition for receipt of payments from the Medicare program.” As a condition of participation, Medicare providers are required to enter a provider agreement with the government, and under the terms of the agreement, the Medicare provider certifies that it will comply with all laws and regulations concerning proper practices for Medicare providers. Because the provider had violated the Anti-Kickback Statute, the government alleged that the provider was no longer eligible to receive payments from Medicare, and therefore, any claims submitted would be claims that the provider knew were false as the provider was no longer eligible for reimbursement. The government alleged that the defendant medical supply and services company violated the Anti-Kickback Statute by paying kickbacks camouflaged as rental payments and commissions to pharmacists and other individuals. The payments to the referral sources were a percentage, typically 20 to 25 percent, of the amount the supply company received from Medicare for services provided to the patients referred by those pharmacists. To conceal the nature of the kickback payments, provider characterized each check as "rent" in the "memo" portion of the check. Finding that an Anti-Kickback Act violation can be the basis of a False Claims Act action, the court held “When a violator of government regulations is ineligible to participate in a government program and that violator persists in presenting claims for payment that the violator knows the government does not owe, that violator is liable, under the Act, for its submission of those false claims.”