Is it time to review your physician compensation arrangements?

14 minute read

As part of its General Compliance Program Guidance issued in November 2023, the U.S. Department of Health and Human Services Office of Inspector General advised that an entity should consider including identifying and periodically updating risks to the organization in its compliance program and then auditing and/or monitoring them.[1] For many, one such significant risk involves the entity’s compensation arrangements with physicians that implicate the federal Physician Self-Referral Law (PSL)—also known as the Stark Law[2] —and/or the federal Anti-Kickback Statute (AKS).[3] In light of recent government enforcement actions and settlement, it is apparent that the time to review physician compensation arrangements may be now.

From the beginning of 2023 to the present, enforcement actions and settlements with the government involving allegations that the PSL and/or the AKS were violated appear to have been announced with increasing frequency. Many of these had one common allegation that the compensation paid to referring physicians greatly exceeded the fair market value (FMV) for the services provided and thus violated the PSL and the AKS. Many of the defendants received or sought independent FMV valuations; however, due to various alleged actions by the defendants, these valuations were not reliable and did not shield the defendants from the allegations. This includes the largest PSL settlement ever entered into; Community Health Network agreed to pay $345 million to resolve allegations it violated the PSL.[4] (The dollar value of this settlement has been compared to the U.S. ex rel. Drakeford v. Tuomey Healthcare Sys., Inc. case, which was ultimately settled for $72.4 million but only after a $237 million jury verdict was entered against it.)[5] Covenant Healthcare System and two physicians agreed to pay $69 million to resolve allegations they violated both the PSL and AKS.[6] Cardiac Imaging Inc. and its CEO agreed to pay $85.5 million to resolve allegations they violated the PSL;[7] and the government recently filed a complaint in intervention alleging PSL violations against Steward Health Care System.[8]

Each of these cases—and others to be subsequently discussed—provide important considerations for compliance professionals and suggests that periodic reviews of physician compensation arrangements for both contractual and operational compliance are essential to an effective compliance program.

Note: Each settlement discussed herein contained allegations only, and any person or entity did not determine liability concerning any of the allegations.

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