Posted by: Robert Markette
March 08, 2007
Topic: Fraud and Abuse, Self Referral, False Claims

For those of you that have been following the Aging Care case down in Louisiana, the district court recently ruled on the governments motion for summary judgment. The district court found in favor of the government and awarded judgment against the agency. The main issue in the case was Aging Cares relationship with its medical directors. (Yes, I said Medical Directors, plural.)

For those of you who are unaware of the details of the case, Aging Care was sued by a whistleblower under the false claims act. The case focused on Aging Cares relationship with 5 or 6 physicians it had designated as Medical Directors. Aging Care claimed that each of the physicians was paid to provide certain services, including chart review to the agency. The agency had medical director agreements in place with each physician, but they did not meet all of the Stark exception requirements for personal services agreements. The physicians themselves, however, provided the worst evidence. A number of them testified that they were basically paid by the agency for doing little or nothing.

Aging Care argued that it had done nothing wrong, because it complied with 42 CFR § 424.22(d). This regulation predated Stark and allowed a home health agency to bill for services referred by a financially related physician as long as the physician was paid less than a certain amount. This was not an exception contained within the Stark Law and Aging Care argued that this regulation provided an additional exception and that as long as they complied with it, they were safe.

Unfortunately for Aging Care, the Court ruled that the regulation was trumped by Congress passing the Stark physician self referral prohibition. The Court held that Stark II was effective and that the provider should have complied with the Stark II requirements as well as the other regulation. The court then went on to examine how Stark II applied to the situation and found in favor of the government, due to the failure of the provider to comply with Stark II.

If you have medical director agreements, you should be sure they comply with the personal services exception to the Stark law. In order to comply, the contract should meet all of the requirements of the exception. There are a number of specific requirements to this exception. The agreements in this case failed to specify the services provided and were not for a term of one year.

If you are going to have a medical director under contract, explain in the contract what he is supposed to be doing, otherwise, you are not complying with Stark. This is also a good idea as a matter of contract law. The purpose of a contract is to define the relationship between the parties. A professional services contract should define the services for which you are paying. How can you object to a physicians failures, if the contract does not specify what he is supposed to be doing for you. Expanding upon this concept, the contract should state how he documents the services provided, etc., this is not required by Stark, but allows you to document that you are getting something for what you are paying the physician.

This leads to the second point: fair market value means you should be paying for something, not just giving the physician money to do things she already does. OIG will not think you are paying fair market value if the physician is providing unnecessary services or duplicative services or services they would provide to patients anyways. In the Aging Care case, a number of the Medical Directors testified that they received payment for doing nothing.

One witness testified that the Physicians were paid to keep current on what was happening at Aging Care and were not asked to offer anything in return. Other physicians testified that they were being paid to provide services the provided to all of the other patients as well. Aging care was paying for nothing or paying too much for the services it was getting from referring physicians. This was one of the reasons the court found the relationship did not meet the exception-the court found there was no fair market value.

One final point, it is not just enough to say the doctor provided the services, you should be able to prove it. This means the physician should document the services she provides. If the physician is reviewing charts, the physician should document time spent, findings, etc. If the physician is providing clinical education, they should document this. This documentation will be proof of the services provided if the government ever has a question about the legitimacy of your medical director relationships. Aging Care was unable to produce any evidence of the services provided by the Medical Directors. (Although the testimony of the physicians indicated there were no services provided to document.)

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