This article describes the dilemma facing health care providers that discover Stark Law violations. It also discusses proposed legislation to solve the dilemma. The article was originally published in BNA Health Law Reporter, in December 2009.

1. A BNA’s
HEALTH CARE !
FRAUD REPORT
Reproduced with permission from Health Care Fraud
Report, BNA’s Health Care Fraud Report, 12/02/2009.
Copyright 2009 by The Bureau of National Affairs,
Inc. (800-372-1033) http://www.bna.com
Will Congress Fix The Stark Law Disclosure Dilemma?
BY JESSE A. WITTEN Second, in May, Congress enacted the Fraud En-
forcement and Recovery Act of 2009 (FERA; Pub. L.
ne of the most difficult compliance issues facing
O health care providers is what to do when their or-
ganizations discover insignificant or ‘‘technical’’
violations of the Physician Self-Referral Law, i.e., the
111-21) which amended the False Claims Act in ways
that increase the risk of liability for entities that dis-
cover past or ongoing violations of one of the Stark
law’s many technical requirements.
Stark law, 42 U.S.C. § 1395nn.
The current situation is unfair, absurd, and breeds a
Hospitals and other entities that discover Stark law
disrespect for the law. Members of Congress are aware
violations face the risk of enormous potential exposure
of the issue, however, and are considering legislation
that is completely out of proportion to any harm caused
that would require the HHS secretary to establish a self-
to the government or to society, yet the government
disclosure protocol for Stark law violations and that
currently has no established process to enable entities
would allow the Centers for Medicare & Medicaid Ser-
to disclose and resolve Stark law violations on a reason-
vices to compromise the government’s claims based on
able basis.
Stark law violations.
The risk of ruinous liability arises because the Stark
Law and its regulations are widely understood as re-
quiring health care providers to refund to Medicare any Background
amounts received from Medicare in violation of the stat-
ute. The Stark law prohibits a physician from referring a
Two events of the past year that have exacerbated the patient to an entity with which the physician (or a fam-
problem. ily member) has a financial relationship for the furnish-
First, in March, the Department of Health and Hu- ing of certain designated health services (including in-
man Services Office of Inspector General announced it patient and outpatient hospital services), unless an ex-
would no longer allow health care entities to self- ception applies.1 In addition, the law prohibits the entity
disclose Stark law violations under the OIG’s self- from submitting claims to Medicare for furnishing des-
disclosure protocol unless there were other potential ignated health services if there has been a prohibited re-
violations present as well, such as a ‘‘colorable’’ viola- ferral.2 It further provides that ‘‘no payment shall be
tion of the anti-kickback statute. made’’ to an entity if there was a referral that violated
the Stark Law.3
The Stark Law and its regulations also impose an
Witten is an attorney in the Washington, D.C., after-the-fact refund obligation. According to the stat-
office of Drinker Biddle & Reath LLP. He pre- ute, an entity that has billed and received Medicare re-
viously served as Deputy Associate Attorney imbursement following a prohibited referral must re-
General of the Department of Justice. He can
be reached at Jesse.Witten@dbr.com or (202) 1
42 U.S.C. § 1395nn(a)(1)(A).
230-5146. 2
42 U.S.C. § 1395nn(a)(1)(B).
3
42 U.S.C. § 1395nn(g)(1).
COPYRIGHT 2009 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1092-1079

2. 2
fund copayments and deductibles; the statute states nancial relationship that did not fit within a Stark law
that if ‘‘a person collects any amounts that were billed exception.
in violation of [the Stark Law], the person shall be liable Furthermore, as noted, insignificant paperwork is-
to the individual for, and shall refund on a timely basis sues can equate to Stark law ‘‘violations.’’ For example,
to the individual, any amounts so collected.’’4 The ‘‘in- if a lease arrangement or a personal services arrange-
dividual’’ referred to in the statute is the Medicare ben- ment between a hospital and a physician is not fully ex-
eficiary. ecuted, all referrals of patients by the physician to the
CMS, however, has promulgated a regulation that on hospital violate the Stark law even if the economic sub-
its face seemingly imposes a broader refund obligation. stance of the transaction is entirely bona fide. The mere
Although it is unclear whether CMS has the authority to failure to obtain signatures of all parties on a timely ba-
enlarge a health care entity’s refund obligation, the sis triggers the Stark law violation.
CMS regulation provides that ‘‘[a]n entity that collects In similar fashion, a personal services agreement be-
payment for a designated health service that was per- tween a hospital and a physician violates the Stark law
formed under a prohibited referral must refund all col- if it does not cross-reference other agreements between
lected amounts on a timely basis [within 60 days].’’5 the parties. In many cases, the hospital or health care
entity do not learn of these non-substantive ‘‘violations’’
The government has asserted that the regulation re-
until months or even years have passed.
quires that an entity refund all amounts collected for
the service, and not merely copayments and deductibles By that point, the liability under a refund obligation,
received from Medicare beneficiaries, and that under- let alone treble damages under the FCA, can be stagger-
standing of the regulation is widely shared among ing even though Medicare has not overpaid a single
health care attorneys.6 penny, no patient has been injured, and there has been
no risk of corruption of medical decision-making.
In addition, CMS officials have taken the position
that they are limited in their authority to compromise
the government’s claim to a full refund of all Medicare OIG Self-Disclosure Protocol
reimbursement in the event of a Stark law violation.
The Federal Claims Collection Act provides that the The OIG has acknowledged the predicament facing
head of an executive agency may only compromise hospitals and other health care entities that discover
claims of the United States that do not exceed Stark law violations. In an April 24, 2006, Open Letter,
$100,000.7 Compromises in excess of $100,000 require the OIG stated that it ‘‘has heard from hospitals that,
the approval of high-level officials within the Depart- through their compliance programs, they are discover-
ment of Justice.8 ing improper arrangements’’ under the Stark law and
‘‘are seeking a way to resolve violations.’’10 In response,
Meanwhile, the FERA amendments to the False the OIG announced a ‘‘new initiative’’ to encourage
Claims Act (FCA) have increased the risks of liability to hospitals and other health care entities to disclose po-
hospitals or other health care that discover Stark law tential Stark law and anti-kickback act violations under
violations. The amendments, among other things, ex- the OIG’s self-disclosure protocol.
panded the scope of the so-called ‘‘reverse false claims’’ Many providers apparently responded to this initia-
provisions. tive. In an Open Letter dated March 24, 2009, the OIG
After FERA, the FCA’s reverse false claims provisions announced that it was narrowing the self-disclosure
now impose treble damages on any person who ‘‘know- protocol to exclude disclosures of Stark law violations
ingly and improperly avoids or decreases an obligation because of the OIG’s limited resources to handle the
to pay or transmit money to the Government.’’9 volume of self-disclosures.
Putting the FCA amendments together with the Stark In the Open Letter, the OIG announced that, under its
law refund obligation means that health care entities self-disclosure protocol, it will accept disclosures of
now face potentially ruinous liability if they discover a Stark law violations only if the disclosure also encom-
Stark law violation. Under the FCA, a health care entity passes at least a ‘‘colorable’’ violation of the anti-
could be liable for three times the amount that Medi- kickback statute.
care paid for all referrals made by a physician with a fi- The effect of the March 2009 Open Letter was to pre-
clude health care providers from using the OIG’s self-
4
disclosure protocol to disclose insignificant or ‘‘techni-
42 U.S.C. § 1395nn(g)(2). cal’’ Stark law violations, i.e., paperwork violations.
5
42 C.F.R. § 411.353(d).
6
For example, in a recent civil case, citing 42 C.F.R.
§ 411.353(d), the government asserted that ‘‘[a]ny entity that What Now?
collects Medicare payment for [designated health services]
rendered pursuant to a prohibited referral must refund all col- The OIG’s March 2009 Open Letter has left hospitals
lected amounts.’’ Complaint ¶ 8, United States v. Prakash, No. and other health care providers in a quandary. The gov-
08-1879 (D.N.J. April 16, 2008). ernment now has no established process to enable par-
7
See 31 U.S.C. § 3711(a)(2).
8
The Assistant Attorney General for the Civil Division may
ties to disclose and resolve Stark law violations, despite
compromise claims up to $2 million. See 28 C.F.R. § 0.160(a). the laws and regulations that impose utterly unfair and
A compromise on a claim in excess of $2 million requires the disproportionate liability.
approval of the Associate Attorney General, the third highest Health care entities currently should consider
official in the Department of Justice. See 28 C.F.R. § 0.161. whether it makes sense to disclose Stark law violations,
9
31 U.S.C. § 3729(a)(1)(G). According to the Senate report unaccompanied by colorable anti-kickback statute vio-
on FERA, ‘‘[t]he new definition of ‘obligation’ includes an ex-
press statement that the obligation under the FCA includes
10
‘the retention of overpayment.’ ’’ S. Rep. 111-10, at 15. See 31 The OIG’s Open Letters are available on its website,
U.S.C. § 3729(b) (definition of ‘‘obligation’’). http://www.oig.hhs.gov.
12-2-09 COPYRIGHT 2009 BY THE BUREAU OF NATIONAL AFFAIRS, INC. HFRA ISSN 1092-1079

3. 3
lations, to their Medicare contractor (fiscal intermedi- s Such other factors as the secretary considers ap-
ary), to CMS, to the Department of Justice (e.g, through propriate.
their local U.S. attorney’s office), or to the OIG but out- The House and Senate bills make the Stark law self-
side the self-disclosure protocol. Each of these ap- disclosure protocol especially necessary because they
proaches has drawbacks. also contain provisions that would expressly require
Fortunately, there are signs that Congress intends to health care providers to refund all ‘‘known’’ Medicare
address the problem. The leading health care reform and Medicaid overpayments within 60 days. The bills
proposals contain identical provisions that would re- would impose False Claims Act liability on a provider
quire the HHS secretary to establish a protocol to ac- that does not refund an overpayment within 60 days,
cept disclosures of Stark law violations. i.e., a provider would face FCA liability if the refund oc-
The leading legislative proposals—H.R. 3962 (the curred on the 61st day.
‘‘Affordable Health Care for America Act’’ or the ‘‘Pe-
losi Bill,’’ which passed the House Nov. 7), and the ‘‘Pa- Finally, both bills would require the secretary to re-
tient Protection and Affordable Care Act,’’ i.e., the Sen- port to Congress, within 18 months after establishing
ate ‘‘merged bill’’ introduced Nov. 18 by Senate Major- the disclosure protocol. Under the bills, the report must
ity Leader Harry Reid (D-Nev.), would require the include the number of entities making disclosures un-
secretary, in cooperation with the OIG, to create a self- der the protocol, the amounts collected under the pro-
disclosure protocol to enable health care providers and tocol, the types of violations reported, and other infor-
suppliers to disclose ‘‘actual or potential’’ Stark law vio- mation necessary to evaluate the impact of the protocol.
lations.
These bills would direct the secretary to establish the
protocol within six months, and the protocol would Conclusion
have to identify a specific person, official, or office to
whom or to which the disclosures may be made. If Congress acts, the current dilemma of how to deal
In addition, the bills would authorize the secretary to with a discovered Stark law violation may become
settle claims for less than the full amount otherwise due much simpler. It is possible that Congress will not act
under the Stark law. Under the bills, the secretary may on this issue separately from a larger overall effort to
take the following factors into consideration when de- enact health care reform, however, and it is difficult to
ciding whether to compromise the government’s predict how the health care reform effort will play out.
claims: Until Congress acts (assuming it acts), and until the
s The nature and extent of the improper or illegal disclosure protocol is established some time thereafter,
practice; health care providers will continue to face potentially
s The timeliness of the self-disclosure; ruinous liability for trivial Stark law violations with no
s The party’s cooperation in providing additional in- established mechanism to facilitate self-disclosure and
formation related to the disclosure; and fair resolution.
HEALTH CARE FRAUD REPORT ISSN 1092-1079 BNA 12-2-09