Category: Stark

THIRD CIRCUIT CALLS wRVU COMPENSATION INTO QUESTION

Recently, the United States Court of Appeals for the Third Circuit issued a decision calling into question the work relative value unit (“wRVU”) compensation structure commonly utilized by hospitals.

In U.S. ex rel. Bookwalter v. UPMC, the University of Pittsburgh Medical Center’s (“UPMC”) subsidiary physician practice entities employed neurosurgeons who performed procedures at UPMC’s affiliated hospitals. The neurosurgeons’ employment agreements provided them with a base salary based upon an annual wRVU threshold.  If a neurosurgeon exceeded the threshold, the neurosurgeon would be paid a productivity bonus of $45.00 per wRVU.  Also, if a neurosurgeon failed to achieve the annual wRVU threshold during a contract year, UPMC had the right to reduce the physician’s future base salary accordingly.

The relators argued that the wRVU compensation structure violated the Stark Law because it was an indirect compensation arrangement that did not meet any exception under the Stark Law. There were additional allegations that the Third Circuit looked at closely.  First, it was alleged that the neurosurgeons claimed to assist on surgeries when they did not, that they billed for parts of surgeries that were never performed and that they performed medically unnecessary procedures.  Second, some of the neurosurgeons recorded wRVUs that were two to three times the 90th percentile nationally.  Third, some of the neurosurgeons were compensated at or above the 90th percentile nationally, including one whose bonus alone exceeded the 90th percentile.  The Third Circuit also noted that the neurosurgical department at UPMC was among the leaders in gross revenue nationally.

The federal government previously settled with UPMC on physician billing claims for $2.5 million, but did not intervene as to allegations of false claims on the hospital side. Below, the United States District Court for the Western District of Pennsylvania dismissed the complaint for failure to state a claim, and the relators consequently appealed to the Third Circuit.

In reversing the District Court’s decision, the Third Circuit ruled in favor of the relators adopting an interpretation of the Stark Law previously utilized by the U.S. Court of Appeals for the Fourth Circuit in U.S. ex rel. Drakeford v. Tuomey. The Third Circuit held that the relators had provided enough evidence to plausibly allege a violation of the Stark Law to allow the case to move forward to the discovery phase. The relators argued that because a neurosurgeon’s aggregate compensation varied with the volume or value of the surgeon’s referrals to UPMC’s hospitals, each time the surgeon performed a procedure at a UPMC hospital, the surgeon generated a referral for the associated hospital services that could potentially constitute a violation of the Stark Law.

The Third Circuit also noted that in some instances, the compensation paid exceeded collections received by UPMC and, in fact, in other instances, the wRVU conversion factor exceeded what UPMC collected. The court opined that a healthcare provider would not want to pay a physician compensation for the physician’s professional services that exceeded collections unless the provider was making up the revenue in another way, namely, referrals for hospital services.

The decision in this case would appear to contradict previous guidance issued by the Centers for Medicare and Medicaid Services (“CMS”) that stated that productivity-based compensation is permitted under the Stark Law.

Given the Third Circuit’s decision that the relators pled a plausible cause of action, the case will now proceed to discovery to allow the relators to more fully develop their claims.

Hospitals should not necessarily rush to discontinue the use of the wRVU compensation model.  This decision allows the case to proceed to discovery, but is not a final decision on the merits of whether the conduct in question constituted a Stark Law violation.  Additionally, it should not be ignored that this decision contravenes CMS guidance and that any ultimate ruling would likely be rendered moot if the current proposed rule from CMS to amend the Stark Law becomes final.  Nonetheless, hospitals must be careful to ensure that all compensation is fair market value, that documentation of fair market value is clear and that commercial reasonableness in all such arrangements exists as well.  Hospitals should not hesitate to obtain opinions on commercial reasonableness.

Stark Undergoes Another Change

The Stark Act, 42 U.S.C. § 1395nn, prohibits physicians from engaging in a “self-referral” when referring patients elsewhere for certain services. Generally, if a physician (or an immediate family member of such physician) has a financial relationship with an entity, then the physician may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made under Medicare. For example, an orthopedist may not refer a patient for imaging to a facility in which the physician or a member of her immediate family has an interest. The entity accepting the prohibited referral may not present or cause to be presented a claim to Medicare or bill to any individual, third party payor, or other entity. If the referral entity collects payments billed in violation of this prohibition, it must refund those amounts on a timely basis, typically within 60 days of identification.

Exceptions to Stark do exist, and on November 16, 2015, the Department of Health and Human Services, Centers for Medicare and Medicaid Services, (CMS) issued a final rule revising and adding further exceptions to offer providers additional flexibility in their efforts to comply with Stark. Some of the major changes include:

1.) CMS created a new exception for assistance to compensate a non-physician practitioner. The exception permits remuneration from a hospital, federally qualified health center, or rural health clinic to a physician to recruit a non-physician practitioner (physician assistants; nurse practitioners; clinical nurse specialists; certified nurse midwives, clinical social workers and clinical psychologists) where substantially all of the services furnished by the non-physician practitioner to the patients of the physician’s patients are for primary care services or mental health care services;

2.) CMS created a new timeshare arrangement exception to cover the use of some premises, equipment, personnel, items, supplies, or services. Compensation for such arrangements must be carefully structured. Percentage compensation and per-unit services fees are prohibited; hourly or half day rates are acceptable. The arrangement cannot be conditioned upon referrals and cannot convey a possessory interest in the office space;

3.) CMS revised the temporary noncompliance with signature requirement. Previously, parties who inadvertently failed to comply with the signature requirement had 90 days to comply with others having 30 days. The revision provides a flat 90 day period to comply with this requirement, regardless of whether the failure to obtain a signature was inadvertent or not;

4.) CMS created a new, indefinite holdover provision. An expired arrangement under the office space and equipment rental exceptions and the personal service arrangements exception can now be “held over” indefinitely rather than for only six months, provided the arrangement: (a) satisfies all of the requirements [list] at the time of expiration; (b) continues on the same terms and conditions; and (c) continues to satisfy all of the enumerated requirements during the holdover;

5.) CMS clarified the writing requirement, requiring only an arrangement need be set out in writing. Although CMS recommends having one signed written contract that satisfies every requirement of the exception, this requirement may also be satisfied through a collection of documents that relate to one another and to the exact arrangement.

These are only some of the revisions and only the highlights of a very technical set of regulations. It is critical that physicians, hospitals, health care facilities and business associates ensure that they are aware and up-to-date with all of the major changes to Stark. Complying with Stark in practice can be particularly complex and thus must be closely monitored.