Stark Law (by Naira Matevosyan)

STARK LAW
Cases, Scenarios, Discussions
Naira R. Matevosyan, MD, PhD, MSJ
Medical Doctor, Jurist, Scientist, Musician, Mother
09.18.2016

STARK LAW IS NOT A SHARK-LAW
An “anti-shark” law,
it secures welfare-
justice by
prohibiting
physician self-
referrals of
Medicare patients
for the designated
health services
(DHS), including when the physician (or an immediate family
member) has a financial relationship with the entities
providing DHS.
The ”who, why, whom, how, what, when, and where” questions
are addressed in the next slides.

SOME FACTS BEFORE WE STARTSOME FACTS BEFORE WE START
FIGHTING FRAUD IS A WISE INVESTMENT
The return-on-investment (ROI) for Health Care Fraud and
Abuse Control (HCFAC) program:
- Since 1997, $4.9 returned for every $1.0 expended.
- Three-year average (2008-2010), $6.8 returned for every
$1.0 expended.
$1.0 expeded
FIGHTING FRAUD IS A TEAMWORK
A joint effort by the Department of Health & Human Services
(DHHS) and the Department of Justice recovered a record $4
billion from fraudsters in FY 2010.

CONTENTSCONTENTS

Singularities of the laws against Medicare Fraud:
The AKS, FCA, and STARK decision trees

Basic elements of Stark:
- Physician practices, Group practice
- Designated health services (DHS)
- Financial relationships, ownership or investment interests,
aggregate compensations, “standing-in-the-shoes,” and more

Penalties

Substantive v. technical violations

Self-disclosure

The 60-day over-payment rule

Stark exceptions

CMS regulatory preambles and the future of the Stark Law

State Stark Laws and their overlaps with the Federal Stark:
Baby Stark (MD), Codey Law (NY), Baby Stark (NY), Mini Stark Law-21
(CO), Corporate Practice of Medicine (CA), etc.
5-19
20-41
42, 43
44, 45
46-48
49, 50
51-92
93, 94
95-103

FEDERAL LAWS AGAINST HEALTHCARE FRAUD & ABUSEFEDERAL LAWS AGAINST HEALTHCARE FRAUD & ABUSE
5

Anti-Kickback Statute – 42 U.S.C. § 1320a-7b - a criminal statute
that prohibits exchange (or an offer to exchange) of anything
valuable in an effort to induce (or reward) the referral of federal
health care program business.

Stark Law – 42 U.S.C. § 1395nn - a compound (civil and criminal)
and strict liability statute that prohibits a physician from referring
Medicare patients for DHS to an entity with which the physician (or
immediate family member) has a financial relationship; prohibits the
DHS entity from submitting reimbursement claims for unlawfully
referred services.

False Claims Act or the Lincoln Law - 31 U.S.C. §§ 3729 - 3733
- imposes liability on persons and companies (typically federal
contractors) who defraud governmental programs.

Civil Monetary Penalties Law (CMPL), and Exclusion
Authorities - prohibit inducements to beneficiaries - 42 CFR
§1003.101, 65 FR 24400 - 9 and §1128A(a)(5) of the Social Security
Act; prohibit hospitals paying inducements to physicians to limit care
- 42 CFR § 413.65.

WHO are the legislative & judiciary coordination?
The Department of Justice (DOJ)
The Department of Health & Human
Services (DHHS) Office of Inspector
General (OIG)
The Centers for Medicare &
Medicaid Services (CMS)
6

WHY?
The necessity of Federal Compliance Programs was a round-table talk since the 70s. One
of the reasons - out of the several others - is provided below.
In Edelman v. Jordan (1974), the respondent filed for declaratory and positive injunction
against the IL Department of Public Aid, alleging “improper authorization” for
administering Federal Aid programs to the Aged, Blind, and Disabled (AABD) in a
manner that was inconsistent with various federal regulations as well as the 14th
Amendment to the U.S. Constitution.1
Under the Social Security Act, the AABD program was funded by the state and federal
governments.2
The Department of Health, Education,& Welfare (DHEW), which was in
charge of administering payments for the federal government, issued regulations
prescribing maximum permissible time standards with which the participant states had
to process the AABD applications. Since 1968, these regulations required that eligibility
determinations might be made by the states within 30 days from the receipt of
applications for aiding seniors and blind, and within 45 days from the applications for
aiding the disabled.3
Yet, during the “checking-in” periods, Illinois officials were
administering benefits pursuant to their own regulations as provided in the Categorical
Assistance Manual of the IL Department of Public Aid.
THE ISSUE: whether a federal court could require a state to restore money wrongfully
withheld from citizens by the state, if the order to restore the funds was in the form of
an injunction requiring the state to stop its wrongful possession of those funds.1
The Supreme Court held that "private litigants could not avoid the bar of state sovereign
immunity by manipulating the doctrine of ex parte," and affirmed the decision of the
Court of Appeals.
(1) 415 US 651 - Supreme Court 1974; (2) 42 U. S. C. §§ 801-805 (1970 ed., Supp. II); (3) 45 CFR §
206.10 (a) (3)
7

WHAT?The 17 supreme compliance risk areas as identified by the Office of Inspector General's
(OIG) and published in the 1998's OIG primary guidance:4
1. Billing for items or services not actually rendered
2. Duplicate billing
3. Providing medically unnecessary services
4. “DRG creep” - upgrading, upcoding, or regrouping of patients to increase hospital
income
5. Outpatient services rendered in connection with inpatient stays
6. Teaching-physician or instructor-resident requirements for academic hospitals
7. False cost reports
8. Unbundling
9. Billing for discharge in lieu of transfer
10. Patients’ freedom of choice
11. Failure to refund credit balances
12. Hospital incentives that violate the AKS, FCA, Stark, and CMPL
13. Joint ventures
14. Financial arrangements between hospitals and hospital-based physicians
15. Physician self-referrals
16. Knowing failure to provide covered services or necessary care to members of a health
maintenance organization
17. Patient dumping (enforced attrition).
(4) Office of Inspector General , HHS (1998). Publication of the OIG Compliance Program
Guidance for Hospitals. Federal Register/Notices ; 63 (35) 8

WHAT ELSE?
The following risk areas are identified under the 'Fraud and Abuse' section of
the 2005's OIG supplemental guidance: 5
18. Submission of accurate claims and information
19. Referral statutes
20. Payments to reduce or limit services
21. Emergency Medical Treatment and Labor Act (EMTALA)
22. Substandard care
23. Relationships with federal health care beneficiaries
24. HIPAA privacy and security rules
25. Billing Medicare or Medicaid substantially in excess of usual charges.
(5) Office of Inspector General , HHS (2005). OIG Supplemental Compliance Program
Guidance for Hospitals. Federal Register/Notices; 70 (19).
9

Very Briefly:Very Briefly: AKS, FCA, STARK Differences & OverlapsAKS, FCA, STARK Differences & Overlaps
10
The Federal
Law:
Anti-Kickback
Statute (AKS)
False Claims Act
(FCA)
Stark
Forbids whom? Anyone Health care providers Physicians only
Forbids what?
Offering, paying,
soliciting or receiving
anything of value (over-
utilization, overrated
costs, corruption of
medical decision making,
patent steering, free
vacations, unfair
competition) to
induce/reward referrals
or generate Federal
healthcare business.
(1) Knowingly making or
inducing a false record in
order to have a fraudster
claim reimbursed by the
government;
(2) Knowingly presenting
or inducing to present to
the Federal government a
false/ fraudulent claim for
payment or approval.
(1) Referring of Medicare
patients for a DHS entity
with which physician (or
an immediate family
member) has a financial
relationship;
(2) The DHS entity claims
to Medicare for
fraudulently referred
services.
Intent to
defraud:
Mens rea in
remuneration must be
proven during the
settlement or by the
grand jury (in the
sealed indictment).
Under the civil FCA, no
specific intent to defraud
is required. Criminal FCA
(18 U.S.C. § 287) considers
the level of scienter in
sentencing (slide 11). **
A strict liability statute:
intent is unimportant for
criminal charges. Intent
is viewed only in respect
to the civil monetary
penalties.
This table is continued to the slides 12, 13.This table is continued to the slides 12, 13.

More about the FCA Intent Requirement
* *
General INTENT requirement of the False Claims Act (FCA) is that one
must knowingly engage in the prohibited activity. Yet, the word
"knowingly" has different power and meaning in various contexts.
Congress vests that in order to satisfy the "knowing" requirement, the
government (or Qui Tam relator) must establish that defendant:
- had "actual knowledge" of the false or fraudulent information
presented to the government,
- acted in "deliberate ignorance" of the truth of falsity of the information,
or
- acted in "reckless disregard" of the truth of falsity of the information. 6
(6) False Claims Act, 31 U.S.C.A. § 3729 et seq
11

Differences & OverlapsDifferences & Overlaps (continued)(continued)
The Law: AKS FCA Stark
Services: Any Any DHS
Qui Tam
relator:
Under 42 USC § 1320a-
7b(b), a private individual
(" whistleblower") with
knowledge of improper
kickbacks in the healthcare
sector, can bring suit on
behalf of the Federal
government.
Under 31 USC § 3729 et
seq, a private individual
("whistleblower") with
knowledge of past or
present fraud committed
against the Federal
government, can bring suit
on its behalf.
42 USC §1395nn:
In addition, qui tam relators
are encouraged to act
through a qualified counsel
to avoid their own liability
for the false accusations.
Penalties:
 Criminal: jail time, and
prison up to 5 years.
 Administrative
sanctions: exclusion
from participating in
Federal health-care
programs.
 Civil (42 U.S.C. § 1320a-
7a(a)(5)): penalties of up
to $50,000 per kickback
plus the treble amount
of remuneration.
 Civil: > $5,000 and <
$10,000, as adjusted by
the Federal Civil Penalties
Inflation Adjustment Act
(28 USC 2461), plus
restitution in the treble
amount of damages. In
reduced inter alia, it is >
of the double amount.
 Criminal: not a stand-
alone provision. Prison-
terms depend on the
defrauded amount.
Civil:
 Over-payment or refund
obligation.
 Potential $15,000 penalty
for each service.
 Restitution of up to the
treble amount assessed.
 Criminal: If a FCA liability.
 Administrative:
Medicare/Medicaid
exclusions.
12

AKS, FCA, STARKAKS, FCA, STARK (continued)(continued)
13
The Federal
Law:
AKS FCA Stark
Exceptions:
Voluntary Safe
Harbors -
42 CFR § 1001.952
Depend on whether
the certification is
actually or legally
false?** (see details
in slides -14-16)
Mandatory Exceptions
(see details in slides 51 -
92)
Notable
Cases:
U.S. v. Greber 7
U.S. V. McClatchey8
U.S. v. Starks 9
U.S. ex rel. Grubbs
v. Kanneganti 10
U.S. v. Krizek 11
U.S. ex rel. Kosenske
v. Carlisle HMA, Inc 12
U.S. v. Rogan 13
Cite:
(7) 760 F.2d 68 (3d Cir.
Pa. 1985)
(8) 160 F. Supp. 2d
1254 (D. Kan. 2001)
(9) 157 F.3d 833 (11 Cir.
1998)
(10) 565 F. 3d 180 -
Court of Appeals ( 5th
Circ. 2009)
(11) 111 F.3d 934 (DC.
Cir. 1997)
(12) 554 F. 3d 88 - (Court
of Appeals, 3rd Circ.
2009)
(13) 459 F. Supp. 2d 692
- Dist. Court, ND Illinois,
2006)

FALSE CERTIFICATION
FRAUD is an intentional misrepresentation, concealment, or nondisclosure
for the purpose of inducing another in reliance upon it to part with
some valuable thing, or to surrender a legal right.14
The court's
determination to "false" or "fraudulent" links the government's
decision to pay. A claim is false if the government wouldn't have paid,
had it known about the alleged misconduct. A misrepresentation must
be material to the government's decision to pay. Hence, the current
FCA statute is amended to include the notion of "material."
These FALSE CERTIFICATIONS are classified in two ways. Firstly, distinction is
made between the factually false and legally false conducts.

Factually false claim relates to situations, when a payment is maid for
services or items that were never actually delivered, or not delivered
in the way were claimed.

Legally false claim is when the claimant knowingly and falsely certifies
that the services have been rendered in a manner consistent with a
condition for government's payment.
(14) Biegelman MT, Bartow JT ( 2012). Executive Roadmap to Fraud Prevention and
Internal Control: Wiley - Business & Economics Series 14

FALSE CERTIFICATION (continued)
According to the second classification, False Certifications can be expressed
or implied.
Expressed - when the provider charges for services that were entirely
unnecessary.
Implied - involves situations when a condition of payment is not actually
printed on claim form, but is nonetheless an implicit condition of
payment the absence of which would result in the government's
nonpayment of the claim. This type generates the majority of litigation.
The majority of courts have limited the scope of Implied Certification claims.
For example, in the United Health Group decision, 15
, the 3rd
Circuit ruled
that “defendant's alleged violation of Medicare marketing regulations did
not provide basis for Implied FCA liability, because the compliance with
marketing requirements was not a condition for payment.” 15
Nonetheless, the Court disagreed. Thus, the FCA under the violation of
the AKS provides with a basis for the implied false certification.
(15) United States ex rel. Wilkins v. United Health Group, Inc; Civ. No. 08-3425, 2010
15

CIRCUIT SPLIT OVER THE RULE 9(b)
Intensified by the Congress in Deficit Reduction Act of 2005, thirty-two states
have enacted their own False Claim Acts (FCA). Concurrently, a few states
have established their own Offices of Inspector General (OIG). For example, NJ
has its own Stark Law as well as a Medical Fraud Control Unit to fight against
corruption in healthcare, pharmaceutical and medical device industries.
Under Rule 9(b) of the Federal Rules of Civil Procedure, allegations of fraud or
mistake must be pleaded with particularity. The application of the Rule 9(b)
has, however, generated a split amid the federal appeal courts surrounding
the specificity of the factual matter. While the 1st
Circuit 16
has ruled that the
FCA whistleblowers are not required to allege specific false claims to satisfy
Rule 9(b), the 5th
, 6th
, 7th
, 8th
, 10th
and 11th
Circuits have all found that
plaintiffs must allege specific false claims.17-22
(16) U. S. ex rel. Duxbury v. Ortho Biotech Products, L.P., 579 F.3d 13 (1st Cir. 2009)
(17) U.S.ex rel. John Spicer; 12-10858 (5th
Circ. 2014);
(18) PH Sanderson v. The Health Care Company et al; 01-00580 (6th
Circ. 2006)
(19) U.S. Lusby v. Rolls Roys Co; 08-3593 (7th
Circ. 2009)
(20) U.S. ex rel. Rudy Vigil v. Nelnet, Inc. et al; 10-1784 (8th
Circ. 2011)
(21) U.S. Sikkenga v. Regence BlueCross BlueShield of Utah; 05-4088 (10th
Circ. 2006)
(22) J. Hopper et al. v. Solvey Pharmaceuticals et al; 08-15810 (11th
Circ. 2009) 16

Corporate “Whistleblower” Protection
Between 1987 and 2013, the federal government has recovered $38.9
billion solely under the FCA. Of this amount, $27.2 billion (70%) has been
from qui tam cases brought by the relators.
Since the passage of the U.S. Department of Labor's Occupational Safety &
Health Administration Act (OSHA) in 1970, Congress has expanded the
whistleblower authority to protect workers from discrimination under
twenty-one federal laws. The retaliated or discriminated employees have
the right to file a complaint with OSHA within 30 days of the alleged
adverse action. Protection from discrimination means that an employer
cannot retaliate by taking "adverse action" against workers, including:
Firing or laying off ; Blacklisting; Demoting; Denying overtime or promotion;
Disciplining; Denying benefits; Failure to hire or rehire; Intimidation;
Making threats; Reassignment affecting prospects for promotion; and
Reducing pay or hours.23 -25
(23) The U.S. Department of Labor. Occupational Safety & Health Administration Act
http://www.whistleblowers.gov/
(24) Fleming v. Correctional Healthcare Solutions Inc., 164 N.J. 90 (2000)
(25) Employee Protection Act (EPA) or Whistleblower Act, N.J.S.A. 34:19-1 to -8
17

AKS & FCA Disposition AlgorithmAKS & FCA Disposition Algorithm
1) Is there an economic benefit? If No →
If Yes ↓
2) Is there a referral? If Yes →
If Yes ↓
3) Is there a statutory exception? If Yes →
If No ↓
4) Is there a safe harbor? If Yes →
If No ↓
5) Is there a risk of abuse in discretion? If Yes, there is
a problem !
If No ↓
6) Go to Stark analysis.
18

Stark Disposition AlgorithmStark Disposition Algorithm
19
1) Is there a physician or immediate family member?
If No →
If Yes ↓
2) Is there a direct or indirect financial relationship?
If No →
If Yes ↓
3) Is there a self-referral?
If No →
If Yes ↓
4) Is that referral for designated health services?
If No →
If Yes ↓
5) Is there a statutory exception? If Yes →
If No ↓
6) Is there a regulatory exception?
A problem !

BASIC ELEMENTS OF STARK
The Stark law 26
prohibits:
- physician(s) or immediate family member(s), with financial relationship with
an entity, from making a referral to that entity for furnishing of a designated
health service (DHS) payable by Medicare;
- an entity from presenting or causing to present a claim for DHS furnished
due to an outlawed referral.
Therefore, basic four elements of the Stark are:
(1) A physician practice (MD, OT, DDS, DMD, chiropractor, podiatrist, except
psychologist) 27
and family member (spouse, biological or adoptive parent,
child, or sibling; stepparent, stepchild, stepbrother, or stepsister; two
generation in-laws; grandparent, grandchild and their spouses).
(2) Financial relationship - a direct or indirect compensation or ownership
relationship with the entity that provides with DHS.
(3) Referral - a request or order by a physician, or certifying/re-certifying of the
need for any DHS for which payment may be made under Medicare Part-B,
including a request for a consultation with another physician and any test or
procedure ordered by or to be performed by or supervised by the other
physician. Referral is also the establishment of a plan of care which includes
provision of DSH, as well as certifying or re-certifying of a plan of care.
(4) DHS (see the next slide).
(26) 42 U.S.C. § 1395nn5n; (27) 42 C.F.R. §§411.351, 411.352 20

DESIGNATED HEALTH SERVICES
(1) Clinical lab services
(2) Physical therapy
(3) Occupational therapy and outpatient speech-language pathology
services
(4) Radiology an other imaging services, including nuclear medicine
(5) Radiation therapy services and supplies
(6) Durable medical equipment services and supplies
(7) Parental and enteral nutrient equipment and supplies
(8) Prosthetics and orthotics
(9) Home health services
(10) Outpatient/inpatient hospitalization services and prescription of drugs.
DHS include two components: professional (PC), and technical (TC).
Personally performed services do not constitute referrals. Those are just
extended attendances of the patient. If the fourth component of the
Stark is not proven by the claimant, there is no violation.
21

PHYSICIAN-PRACTICE
A “physician practice” 28
is a medical practice by two or more physicians organized
to provide patient care services (regardless of its legal form: LLC, LLP, Corp, etc).
A group of physicians may practice together, even so not meeting all
requirements for the “group practice” 29
standard to satisfy the physician services
and in-office ancillary services exceptions.
The “physician organizations” or “physician practices” are not mandated to have a
physician owner. As for the group practice (i.e. “physician organization”), the
single legal entity may be organized by any party or parties, including - but not
limited to - physicians, health care facilities, or other persons or entities.
A hospital (or other Part-A provider) is not considered to be a “physician
organization” because it has employment or contractual arrangements with
physicians for provision of patient care services. Exclusions are:

Hospitals and other Part-A providers of services

Federally qualified health centers

A single legal entity (that does not satisfy the requirements of a group practice
for purposes of §411.352) that encompasses (operates) a faculty practice plan
AND either a medical school or hospital, or both

A medical school that does not operate a faculty practice plan but employs
physicians to provide clinical and academic services.
(28) 42 CFR §411.351; (29) 42 CFR §411.352 22

GROUP PRACTICE
Why is Stark's physician practice exception so important?
Because the DHS also include inter-specialty (cardiologist-to-cardiologist), or large
multi-specialty (internist- orthopedist) referrals. This referrals are legitimate if they
fall under the Stark exceptions.
Group-practice is defined under §411. 352,29
and is explained in eight paragraphs.
(1) Single Legal Entity:
- Operates primarily for the purpose of a group practice. Examples: partnership,
LLC, foundation, non-profit, faculty practice plan, singular association;
- May be owned and operated by any party/parties, including physicians or
healthcare facilities;
- A practicing physician under the state's license is a single entity separate from
the hospital; physicians directly employed by a hospital will not be a single entity.
(2) At least two physicians ("members of the group") are required:
-"Members" include owners, employees, locum tenets, on-call physicians.
(3) Each physician must furnish full range of patient care services through joint
use of shared office space, facilities, equipment and personnel:
- The group members must act coherently in a unit, avoiding loose associations. 23

GROUP PRACTICE (continued)
(4) "Substantial all" test:
- Substantially all (at least 75%) of the patient care services provided by the group
members must be furnished through the group and billed under one group billing
number assigned to that group.
(5) Allocation and distribution of expenses and income must be set in advance:
- The group practice should not take in account the volume and value of referrals
for the DHS services.
(6) Unified Business Test:
- The group practice is a centralized decision-making body in terms of provision of
care and solidarity in billing.
- Location and specialty-based compensation are permitted with respect to revenues
derived from services that are not DHS.
- There is a safe harbor for the revenues derived from DHS under the special rule for
the profit shares and productivity bonuses (see slide-25).
(7) No compensation based on the volume or value of referrals:
- obviously enough.
(8) At least 75% of patient encounters must be conducted by the group members:
- Share of profits may not be determined in any manner that's directly relates to the
volume or value of referrals for DHS.
- Bonus may be based on personally performed services or services "incident to" such
services but not directly related to the volume or value of referrals for DHS.
24

GROUP PRACTICE SAFE HARBORS
The group-practice definition strikes a balance between the
improper referrals and bona fide referrals. The following harbor
methodologies are provided to ensure that physicians are
functioning in a coherent unit by pulling out their expertise and
resources in compliance with the unity:
(1) profits are divided per capita;
(2) Revenues from the DHS are distributed in the same way as in
other revenue scenarios;
(3) The DHS revenues are less than 5% of the group total
revenue and 5% or less of each physician's compensation from
the group.
Exceptions exist:
(see slides 51- 92).
25

CMS Opinion A0-2011-01
The non-compete provision restricts the physician from establishing, operating,
or providing professional medical services at any medical office, clinic, or
other health care facility at any location within a 25-mile radius of the
hospital for a period of one year following the earlier termination or
expiration of the arrangement. Such a provision does not impose practice
restrictions in a certain geographic area.
In reaching such a conclusions, the CMS evaluates several factors :
(1) Time period: restriction of one-year is reasonable.
(2) Distance: the 25-mile radius is reasonable based on the geographic area
served by the hospital.
(3) Fairness: even with the time period and distance restrictions, the physician
would still be permitted to practice at certain hospitals both within and
outside of the hospital's geographic service area within the one-year time
period.
(4) The requestor's certification: the non-compete provision must comply with
the applicable state laws.30
(30) CMS Advisory Opinion AO-2011-01
26

FINANCIAL RELATIONSHIP
Financial relationships include either (i) direct or indirect ownership investment
interest in any entity that furnishes DHS;31
or (ii) direct or indirect
compensation arrangement with an entity that furnishes DHS.32
A direct financial relationship exists if remuneration passes between the referring
physician (or immediate family member) and the entity furnishing DHS without
any intervening persons or entities between the DHS setting and the referring
physician (or immediate family member).
Example: A physician prescribes a lab test in his own laboratory or a laboratory
that is owned by his mother-in-law.
An indirect financial relationship exists between the referring physician (or
immediate family member) and the entity furnishing DHS where there is an
unbroken chain of any number of persons or entities having ownership or
investment interests; and the DHS setting has actual knowledge of, or acts in
reckless disregard or deliberate ignorance of, the fact of that relationship
(referral, ownership, debt, investment).
Example: A GP refers the patient to a specialist (endocrinologist) who then
prescribes pancreatic MRI and the technician performing the MRI is the
referring physician's (GP) wife and is employed (or paid) by the referred
specialist (endocrinologist).
(31) 42 CFR 411.354(b)(5); (32) 42 CFR 411.354(c)(2)
27

REMUNERATION
Remuneration33
is any payment, discount, forgiveness of debt or
other benefits made directly or indirectly, overtly, in cash or in kind.
Example 1: Sharing profits with a group's physician owners
constitutes remuneration, even though those payments are not
compensations but ownership distributions.
Example 2: Distribution of revenue to all physicians in the group,
regardless of ownership status, is also remuneration under the
Stark.
Example 3: A physician invests a imaging center, the products of
which he might order or to which he might refer his patients, and
he has an investment interest for a nominal capital contribution. He
also believes he will be likely referring more patients for the
imaging services provided by the venture through that investment.
(33) 42 U.S. Code § 1395nn
28

PRACTICE MODELS ACCEPTABLE BY THE STARK
The Patient Protection and Affordable Care Act (ACA): (1) promotes the coordination of
care; (2) compensates providers based on quality rather than quantity of the services
provided. For that, it offers the following models:
I. Entire Practice Acquisition Model:
- the hospital buys the tangible assets for the entire practice
- the hospital assumes all of the practice's space and equipment leases
- directly employs all of the practice's physicians and non-physician personnel.
Three exceptions apply:
1) Purchase of assets - isolated transaction exception
2) Physician employment - employment exception
3) Physician compensation - fair market value or personally performed services
exceptions.
II. Employment & Practice Lease Model:
- the hospital employs the physicians
- the hospital leases the other resources (practice's space, equipment, non-physician
personnel).
Three exceptions apply:
1) Exception for Rental of Office Space and Equipment.
2) Personal Services Arrangement Exception or Fair Market Value Exception
3) Bona fide Services Exception.
29

PRACTICE MODELS (continued)
III. Leasing Entire Practice Agreement:
Hospital leases everything and the physicians serve as contractors.
Same exceptions as in (I) Employment & Practice Lease Model - except that
there is a personal services arrangement between the hospital and the
practice, instead of the employment relationships.
Key benefit from this model is that physicians can share profits and earn
bonuses based indirectly on the referrals. This is possible under the
group-practice arrangement and not available if a physician is employed
by the hospital.
IV. Electronic Health Records:
Exceptions of this model are provided in the “Exceptions” section, slides 51-
92.
30

OWNERSHIP OR INVESTMENT INTEREST
Inclusions: Equity, debt, interest, ownership, or incentives in a
DHS furnishing entity.34
(1) An ownership or investment interest includes stock, as well as
options not described in § 411.354(b)(3)(ii), partnership shares,
limited liability company memberships, loans, bonds, or other
financial instruments that are secured with an entity's property
or revenue or a portion of it.
(2) An ownership or investment interest in a subsidiary company is
neither an ownership or investment interest in the parent
company, nor in any other subsidiary, unless the subsidiary itself
has an ownership or investment interest in the parent. It may,
however, be part of an indirect financial relationship.
(34) § 411.354(b)(3)(ii)
31

OWNERSHIP OR INVESTMENT INTEREST
Exclusions of this provision include: 35
(i) An interest in an entity that arises from a retirement plan offered by that entity
to the physician (or immediate family member) through physician's (or
immediate family member's) employment with that entity;
(ii) Stock options and convertible securities received as compensation until the
stock options are exercised, or the convertible securities are converted, to
equity;
(iii) An unsecured loan subordinated to a credit facility which is a compensation
arrangement as defined in paragraph (c) of this section;
(iv) An “under arrangement” contract between hospitals and entities owned by
one or more physicians providing DHS “under arrangements” with the hospital;
(v) A security interest held by a physician in equipment sold by the physician to a
hospital and financed through a loan from the physician to the hospital;
The ownership or investment interest that meets an exception set forth in §411.355
or § 411.356 do not need to meet an exception for compensation arrangements
set forth in § 411.357 with respect to profit distributions, dividends, or interest
payments on secured obligations.
(35) 42 CFR § 411.355, § 411.356 32

INDIRECT OWNERSHIP OR INVESTMENT INTEREST
Physician referrals are governed by both § 1877 of Social Security
Act and the Stark Law §§ 411.354 – 357.
Indirect ownership or investment interest exists when:
- between the referring physician (or immediate family member)
and the DHS entity there is an unbroken chain of more than
one person or entity having ownership or investment
interests; and
- the entity furnishing DHS has actual knowledge of, or acts in
reckless disregard or deliberate ignorance of, the fact that the
referring physician (or immediate family member) has some
ownership or investment interest in the entity furnishing the
DHS.
Common ownership or investment in an entity does not establish
an indirect ownership or investment interest by one common
owner or investor in another common owner or investor.36
(36) 42 CFR § 411.355, § 411.356 33

COMPENSATION ARRANGEMENT
- is any arrangement involving remuneration - direct or indirect - between a
physician (or an immediate family member) and any entity. 37, 38
An “under arrangements” contract between a hospital and a DHS entity creates a
compensation arrangement.
A compensation arrangement does not include the portion of any business
arrangement that consists solely of the remuneration under the Stark Law.33
However, any other portion of the arrangement may still constitute a
compensation arrangement.
Special Rules:
(1) Compensation is considered “set in advance” if the aggregate compensation, a
time-based or per-unit of service-based amount, or a specific formula for
calculating the compensation is set out in writing before the furnishing of the
items or services for which the compensation is to be paid.
(2) Unit-based compensation (including time-based) excludes “the volume or
value of referrals,” or “private pay” healthcare business, if the compensation is
fair market value for services or items actually provided and does not vary
during the course of the compensation arrangement in any manner that takes
into account referrals to DHS.
(37) 42CFR § 411.351 ; (38) 42 CFR § 1877(h)(1)(C) 34

DIRECT COMPENSATION ARRANGEMENT:
“STANDING-IN-THE-SHOES”
A direct compensation arrangement exists if remuneration passes
between the referring physician (or an immediate family
member) and the DHS entity without any intervening persons or
entities.
Exception:
A physician is deemed to “stand in the shoes” of his physician
organization and have a direct compensation arrangement with
a DHS entity if -
(A) The only intervening entity between the physician and the DHS
entity is his physician organization; and
(B) The physician has an ownership or investment interest in the
physician organization.39
(39) 42 CFR § 411.351(c)(3)(ii)(C)
35

INDIRECT COMPENSATION ARRANGEMENT
The referring physician (or immediate family member) receives aggregate
compensation from the person or entity in the chain with which the physician
(or immediate family member) has a direct financial relationship that varies
with, or takes into account, the volume or value of referrals or other business
generated by the referring physician for the DHS entity, regardless of whether
the individual unit of compensation satisfies the special rules.40
If a direct financial relationship is an ownership or investment interest, the
determination whether an aggregate compensation varies with, or takes into
account, the volume or value of referrals or other business generated by the
referring physician for the DHS entity, will be measured by the non-ownership
or non-investment interest closest to the referring physician (or immediate
family member). Put simply, if a referring physician has an ownership interest
in company A, which owns company B, which has a compensation
arrangement with company C, which has a compensation arrangement with
the entity D that furnishes DHS, the compensation between company B and
company C would be seen as aggregate.41
(40) 42 CFR § 411.351 (d)(2) or (d)(3); (41) 42 CFR §411.351, (c)(2)(ii).
36

An “Aggregate” Compensation
The word “aggregate” is used to describe the indirect financial
relationships, when:
1) there is an unbroken chain of financial relationships between the
physician, physician's family member, and the designated health services
(DHS);
2) the referring physician receives aggregate compensation that varies with
or takes into account volume or value of referrals;
3) the entity furnishing DHS knows about it, otherwise acts with reckless
disregard or deliberate ignorance of physician's compensation (including
stand-in-shoes chaining situations).
In the context of STARK, aggregate means an arrangement where the
physician is compensated by:
- formula based on revenue from services performed, or
- receives a per-unit based compensation.
Such types of arrangements are aggregate compensations as they are
sensitive to, and accounted from, the values or volumes of the referrals.
37

How does the Volume-or-Value Standard in definition of indirect
compensation arrangement differ from the Volume-or-Value Standard in
exception of indirect compensation arrangement ?
In the definition of indirect compensation arrangement (ICA), the core inquiry focuses
on compensation in its entirely.
In the ICA exceptions, the inquiry focuses on the individual units of compensation and
compensation formula.
Can a “flat” compensation amount ( a fixed annual amount or a set annual
rate) ever be considered to “take into account the volume or value of
referrals”?
Yes: There is a a deviation between the ICA definition and ICA exceptions for the volume
and value standard of referrals in terms of the per-total or per-unit catch.42
Takeovers from Tuomey 43
and Bradford, 44
is that compensation can implicate the
“volume or value standard” even if it is not explicitly tied to variations in volume or
revenue. Further, if compensation is above the fair market value or is designed to
compensate physicians for actual/anticipated referrals, it implicates this standard.
Lastly, the compensation (even a flat one) must not violate the Anti-Kickback statute
and the False Claim Act (FSA) as such coupling violations will intensify the charges.
(42) Phase I Preambles at 66 Fed. Reg,876-879
(43) U.S .ex. rel. Drakeford v. Tuomey Healthcare System, 5 F. 3d 394 -Court of Appeals, 4th
Circuit, 2012
(44) U.S. ex. rel Singh v. Bradford Regional Medical Center, 752 F. Supp. 2d 602 -Dist. Court,
WD Pennsylvania, 2010
38

INDIRECT COMPENSATION ARRANGEMENT:
“STANDING-IN-THE-SHOES”
In an indirect compensation arrangement as described in slide-36, a physician is
deemed to “stand in the shoes” of his physician organization if he has an
ownership or investment interest in that physician organization.45
Exception
to this rule is provided by paragraph(C).46
A physician (other than a physician described in paragraph- (A) is permitted to
“stand in the shoes” of his physician organization.47
Paragraph- (A) provisions apply during the original term or the ongoing renewal
term of an arrangement that has satisfied the requirements of §411.357(p)
as of September 2007,46
but do not apply to an arrangement that satisfies
the requirements of § 411.355(e).48, 49
As of August 2008, an arrangement structured to comply with an exception in
§411.357 (other than § 411.357(p)), but which would otherwise qualify as an
indirect compensation arrangement under this paragraph, need not be
restructured to satisfy the requirements of § 411.357(p) until the expiration
of the original term or current renewal term of the arrangement. 48, 49
Stay-in-the shoe rule may apply to physicians employed by a group practice.
Stay-in-the shoe rule always applies (a must) to physician-owners.
(45) 42 CFR § 411.351 (c)(2)(i); (46) 42 CFR § 411.351 (c)(3)(ii)(C);
(47) 42 CFR § 411.351 (c)(2)(iv)(A); (48) 42 CFR § 411. 357 (p); (49) 42 CFR § 411. 357 (e)
39

SUMMARY OF FINANCIAL RELATIONSHIPS
Under the Stark, “financial relationships” exist when the physician (or an
immediate family member) has a:

direct ownership or investment interest in a DHS entity

indirect ownership or investment interest in a DHS entity

direct compensation arrangement with a DHS entity

indirect compensation arrangement with a DHS entity.
Under the Stark, an “ownership or investment interest” :

Includes interests through equity, debt, or “other means” and interest in an
entity that holds an ownership or investment interest in any entity that
furnishes DHS

Does not include interest in a retirement plan; stock options earned as
compensation until exercised; unsecured loans; “under arrangements”
contracts; security interest held by a physician in equipment sold by the
physician to a hospital (when financed through a loan to the hospital).
40

STARK DIAGRAMS
Direct ownership/interest: Indirect ownership/interest
- between B and C:
Direct compensation arrangement:
Deemed direct compensation arrangement (“stand-in-the-shoes”:
Physician
DHS entity
Owner
B C
A
Physician
DHS entity
DHS entityRemuneration
41
Physician
DHS entity
Physician organization
Owner
Remuneration DHS entity

PENALTIESPenalties under the Stark include:

government's denial of payment or refund

imposition of $15,000 per service civil monetary penalty

imposition of a $100,000 civil monetary penalty for each arrangement
considered to be a circumvention scheme.
The Bradford case 44
was around a nuclear camera sublease arrangement. Bradford
RMC paid the physicians $6,545 per month for leasing a camera (reflecting the
lease with General Electric) and $23,655 per month for the non-compete code
under the sublease.
The Court held that payments under the sublease (which included substantial
amounts attributable to a non-to-compete agreement) took into account the
volume and value of referrals and were not in fair market value because the
amount of such payments exceeded the physicians' personal collection arrived at
by taking into account anticipated referrals. Hence, the sublease created an
indirect compensation arrangement (ICA).
The lawsuit caused BRMC more than $20 million plus several millions in FCA
mandatory penalties. In 2015, however, the CMS announced a 1% reduction of
reimbursement penalties for 758 hospitals from 10/2015 to 10/2016. Earning a
score of 4.12 under the program, the BRMC is currently forgiven $70,000.50
(44) U.S. ex. rel Singh v. Bradford Regional Medical Center, 752 F. Supp. 2d 602 -Dist. Court,
WD Pennsylvania, 2010 ;
(50 https://www.brmc.com/news-events/articles/quality-efforts-showing-results-at-brmc-
and-ogh 42

Assuming that the “incentive pool” in Halifax47
only included revenues with
respect to the professional component of the oncology services. Would the
Court have reached a different conclusion?
Halifax was paying each physician a portion of an incentive pool equal to 15 % of
the"operating margin" for the hospital's medical oncology program. The pool
included not only the physicians' billings for their professional services, but also fees
earned by the hospital for the physicians' referrals to the hospital.
In hearing the qui tam action,51
the Court targeted the technical component revenue
derived from the oncologists' own referrals —and the flaw was not remedied by the
subsequent division of the pool among the physicians in proportion to each
physician's personal share of the group's total professional service billings. It held
that the physicians' individual bonuses varied on the basis of referrals because
bonuses were based on operating margin of the entire oncology program —
including fees for hospital services —and that margin would be improved by the
physicians' referrals in addition to the services that they personally performed.
It is likely, that the Court would reach the same conclusion in terms of the professional
component, as reasoned that “... the Stark regulations seek to ensure that
hospitals and other healthcare providers compensate physicians only for the work or
services they actually perform, not for their ability to generate other revenues for
the provider through referrals." 51
Taking the technical component off, there would
still remain FMV questions, fee-variation per service-unit question, as well as
productivity bonus question as it was about a group-practice. Those questions are
leading to the Court's mentioned “other revenues” cluster.
The settlement costed Halifax 85 million dollars.
(51) U.S. v. Halifax Hospital & Medical Center, Relator v. Case No: 6:09-cv-1002-Orl-31TBS
43

SUBSTANTIVE v. TECHNICAL VIOLATIONS
The Stark does not distinguish between “substantive” and “technical” breaches,
since all violations are subject to the same penalties. Technical violations commonly
are inadvertent and tricky for discovery. They surface during the:
1) internal compliance reviews;
2) diligence pursuant to a merger or acquisition;
3) routine governmental audit.
Case 1 (internal compliance reviews) – technical violations are often reported to
the government pursuant to the Medicare self-referral disclosure protocol. In 2013,
Intermountain Healthcare settled with the DOJ alleged Stark violations involving
payments to more than 200 doctors for $25,500,000.00 52
Case 2 (merger acquisitions) - In 2010, the Detroit Medical Center (DMC) agreed to
pay the DOJ $30,000,000.00 to settle alleged “engagement in improper financial
relationships with referring physicians, as well as improper perks, special
entertainment, unreasonable lease deals” in connection to the DMC's sale to
Vanguard Health Systems, Inc.53
Case 3 (governmental investigation) - Westerly Hospital in Rhode Island settled
$500,000.00 to allegations of improper payment arrangements with physicians
following a different audit for failing to maintain accurate records of compensation
arrangements, poor lease documentation, and “sloppy Paperwork.”54
(52) Carlson J (2013). Intermountain to Pay $25.5 Million to Settle Stark Case. Modern Healthcare
(53) Burda D (2011). Detroit Medical Center to Pay $30 Million Settlement. Modern Healthcare
(54) Faulkner DP (2013). Settlement Outlines Investigation. The Westerly Sun 44

How to Avoid “Technical” Violations of the Stark?
(1) Financial Relationship Sign-Off: The Stark's broad definition of “financial
relationship” covering both direct and indirect bonds 55
may mislead the parties to
improper financial relationships. Additionally, arrangements with physicians whose
family members are also physicians practicing in the community, or whose family
members otherwise have financial relationships with the DHS entity, may lead to
violations. Thus, the DHS entity should require annual provision of a conflict-of-
interest statement to timely tackle problematic arrangements.
(2) Drafting Checklist – to determine whether the agreement: (A) contains an
evergreen clause to prevent termination while the parties continue to perform
under it; (B) satisfies each element of an applicable Stark exception; (C) was cross-
referenced against and added to the DHS entity’s master list of agreements.
(3) Drafting Techniques: An evergreen clause allows an agreement to automatically
renew unless otherwise terminated. Yet, such clauses should not be used where
fair market value is reviewed periodically. Often, a DHS entity may desire to include
certain provisions that proactively anticipate a potential holdover of the contract. If
a holdover rental premium is included in the contract, for example, the premium
must still be consistent with fair market value at the time the agreement is entered.
(4) Contract Management: The DHS entities should consider adopting contract
management software to: (A) closely assess and alert agreement expiration dates;
(B) aggregate all contracts in a comprehensive repository; (C) customize workflows
and verify mandatory elements of the contract.
(5) Seek Advice of a Legal Counsel – especially prior the self-disclosure.
(55) 42 CFR § 411.354(a)
45

SELF-DISCLOSURE
WHY? In 2010, the ACA § 6409 (a) established a Medicare self-referral disclosure
protocol (SRDP) enabling providers of services and suppliers to self-disclose to
the CMS actual or potential violations of the Stark federal statute. It gives the
DHHS Secretary the authority to reduce the penalty amount for the violations of
§1877 of the Act. It also gives the disclosing party the opportunity to (1) avoid
exclusions as part of a settlement; (2) be protected from a potential or viable qui
tam whistleblower action and expenses.
The CMS timely submits reports of the disclosure outcomes to Congress. It also
provides special instructions for the SRDP involving solely noncompliance with
42 CFR § 411.362(b)(3)(ii)(C) (requiring physician-owned hospitals and rural
providers to disclose on any public website for the hospital and in any public
advertisement that the hospital is owned or invested in by physicians).

HOW? The complete disclosure must be submitted electronically to
1877SRDP@cms.hhs.gov, with a copy to David.Walczak@cms.hhs.gov, and
with a subject line: “Website and advertisement disclosures.”
Disclosure must include a signed certification. A hard copy of the signed
certification only should be mailed to: Division of Technical Payment Policy,
ATTN: Provider and Supplier Self-Disclosure, Centers for Medicare & Medicaid
Services, 7500 Security Boulevard, Mailstop C4-25-02, Baltimore, MD 21244-1850.
(56) Patient Protection and Affordable Care Act, Section 6409 (2010, 2011)
46

DISCLOSING WHAT?
Pursuant to the OMB Control No: 0938-1106, parties disclosing solely
noncompliance with 42 CFR § 411.362(b)(3)(ii)(C) need only to report the
following:
Hospital's name, address, CNN, NPI, TIN, name of the contact person;
Period(s) of noncompliance - the months during which the hospital had at
least one instance of noncompliance, excluding months during which the
hospital was in compliance;46, 51
Certify that, during each of the months in the reported period(s) of
noncompliance, at least one physician owner/investor made referrals to the
hospital for DHS, and the hospital billed Medicare for these services;
Certify that the hospital met other requirements of 42 C.F.R. § 411.362 and
the remaining requirements of 42 C.F.R. § 411.356(c)(1) or (c)(3), if applicable;
Certify that no other exception to the physician self-referral law was
available during the reported period(s) of noncompliance to except referrals
from physicians with ownership or investment interests in the hospital;
Certify that no other exception to the physician self-referral law was available
during the period(s) of the reported noncompliance to except referrals from
physicians with ownership or investment interests in the hospital. 47

SAMPLE EXCERPTS FROM CMS's REPORT TO CONGRESS
48

THE 60-DAY OVERPAYMENT RULE
Since the inception of section 6402(a) of the Affordable Care Act (ACA), there has been
confusion among providers, lawyers, regulators, and courts regarding the
requirements, scope, and impact of Social Security Act section 1128J(d), which
mandates a person in receipt of an overpayment to report and return the overpaid
amount within 60 days of identification or the date any corresponding cost report is
due.
Six years after enacting the authorizing statute, the CMS has published the awaited
Final Rule about the requirements of reporting and returning Medicare Part A and
B overpayment.57
Failure to report and return the overpayment is an obligation for
the purpose of the False Claims Act. 58
Look-Back Period:
The Proposed Rule of 2012 offered a 10-year look-back period, based on the outer
limit of the FCA’s statute of limitations. The Final Rule settles on a 6-year look-back
period effective March 2016, which is not retroactive.59
Reopening:
Under the Stark 60
the reopening is extended to 6 years and must be requested only by
the provider61
or supplier.62
(57) 81 Fed. Reg. 7654-7684 (Feb. 12, 2016) ; (58) 31 USC § 3729(a)(1)(G)
(59) 81 Fed. Reg. At 7671; (60) 42 CFR § 405.980(c)(4); (61) 42 CFR. § 401.305
(62) 81 Fed. Reg. At 7673
49

THE 60-DAY OVERPAYMENT (continued)
The 60-day clock does not start running until after the reasonable diligence
period has concluded, which may take “at most 6 months from receipt of
credible information, absent extraordinary circumstances.” 63
The Final Rule
acknowledges that complex investigations, like a Stark Law violation, that are
referred to the CMS Voluntary Self-Referral Disclosure Protocol, fall within this
“extraordinary circumstances” category.
Failing to conduct diligence with all deliberate speed after obtaining the
information, may result in the “provider or supplier knowingly retaining an
overpayment because it acted in reckless disregard or deliberate ignorance of
whether it received such an overpayment.” 64
The overpayment liability can, in
turn, result in False Claims Act liability as in “reverse” false claims.65
Lastly an overpayment is not “identified” until the amount of the refund has
been “quantified.”66
That means an 8-month period, of which 6 months for
timely investigation, plus 60 days for reporting and returning of the
overpayment.
(63) 81 Fed. Reg. At 7662; (64) id. At 7659;
(65) 31 USC § 3729(a)(1)(G); (66) id. At 7661;
50

STARK EXCEPTIONS
In its nutshell, there are three main types of STARK exceptions:
- For the ownership/investment interests (§411.356)
- For compensation arrangements (§411.357)
- For certain “services” (§§ 411.352, 355).
In particular, STARK exceptions relate to the:
- Fair market value (§ 1877nn(h)(3))
- Rental office space (§411.357(a))
- Bona fide employment (§411.357(c))
- Personal service arrangements (§411.357(d))
- Physician recruitment (§411.357(e))
- Isolated transactions (§411.357(f))
- Non-monetary compensation (§411.357(k))
- Medical staff incidental benefits (§411.357(m))
- In-office ancillary services (§411.352)
- Temporary non-compliance (§411.353(f))
- Grace period for signature (§411.353(g)). 51

FAIR MARKET VALUE
Value in arms-length transactions consistent with the general market value:67
- The price that is the result of bona fide bargaining between well - informed
parties.
Fair market value (FMV) is the key element in the Stark exceptions and is
measured through the:
- Market metric, extrapolation, comparisons, Revenue Ruling 5-60
- National benchmark sources (AHRQ, MGMA, CAMP, Sullivan Cotter)
- Valuation experts ( real estate appraisers, clinical performance evaluators).
An entity cannot bill Medicare for DHS referred by physicians with whom the
entity has a financial relationship unless the relationship falls within a Stark's
exception.
• Most compensation exceptions require FMV
• Space and Equipment Leases
• PSA’s
• Employment
• Payments by Physicians
• FMV Exception.
Remuneration must be FMV and not determined - directly or indirectly - in a
way that takes into account the volume or value of referrals (or other business)
to the DHS entity.
(67) 42 U.S.C. 1877nn(h)(3); (64) Goodstein v. McLaren, 202 F. Supp. 2d 671 (E.D. Mich 2002)
52

What's included in FMV?
All of the cash flows associated with the operating assets of the
entity:
• Tangible assets - like equipment
• Working capital – accounts receivable
• Enterprise goodwill
• Personal goodwill
• Double counting results in a payment that exceeds fair market
value
• Common problem with physician practice valuation and post-
purchase physician compensation.

What Do We Need for Measuring FMV?
The FMV is not necessarily established through:
 Earnest negotiations
 An amount that is requested
 Opportunity cost.
The FMV can be measured through three approaches:
 Income approach
 Market approach
 Cost approach.
Documentation used to evaluate the FMV include: 1) data on market
comparable; 2) a valuation from an outside expert; 3) national salary
comparisons; 4) a lease or real estate appraisal.
Parameters for measuring FMV include: (1) volume of services (working
hours); (2) the specialty; (3) provider's credentials and qualifications; (4)
specific services contemplated by the arrangement.
54

U.S. ex rel Goodstein v. McLaren Regional Medical Center
Did Goodstein's court 68
find that the parties engaged in an arms’ length
transaction? What factors supported the court’s conclusion?
Here, defendants (Family Orthopedic Associates Family Orthopedic Realty,
McLaren Regional Medical Center) were accused of paying above-market
rents in exchange for referrals, which constituted a violation under the Stark
and AKS. The parties agreed to conduct a bifurcated bench-trial, so the Court
would first consider whether the lease agreement - the crux of the FCA
allegations - was negotiated at arm's length and whether it met the fair
market value (FMV) standard?
After hearing the testimonies of three defense experts and one expert witness
for the government, and after considering their credibility, the Court
dismissed the case in its entirely. By doing so, the Court reasoned that the
material evidence and testimonies supported defendant's argument that the
rents were in FMV. The government's expert failed to present a number of
measurable and comparable parameters (except a Tax Tribunal from 1996)
and with that he imposed undue restriction on the market being analyzed.
The Court concluded that the parties were engaged in protracted
negotiations which have resulted in a balanced agreement that did not
overtly favor either party.
(68) United States ex rel Goodstein v. McLaren Regional Medical Center, 202
F.Supp.2d 671 (2002)
55

COMMERCIAL REASONABLENESS
Considering the aggregate terms of the overall arrangement, it asks the question, “Does
this deal make sense?” The fundamentals ensuring that sense are: (1) a prudent
business agreement; (2) commercial sense, (4) parties contracting out of the referrals,
and (4) for reasonably necessary services. The commercial reasonableness analysis
assembles its key measures from the:
I. Regulatory Guidance
II. Courts
III. Application of Guidance to Assess Commercial Reasonableness.
(I): Regulatory Definitions
CMS: An arrangement is commercially reasonable if it's “a sensible, prudent business
agreement, from the perspective of particular parties involved, even in the absence of
any potential referrals.” (see Stark II, Phase II regulations at 69 F.R. 16093, 2004)69
STARK: An arrangement is “commercially reasonable in the absence of referrals if the
arrangement makes commercial sense if entered into by a reasonable entity of similar
type and size and a reasonable physician of similar scope and specialty, even if there
were no potential DHS referrals.” (see 42 CFR §411.351).70
OIG: In order to meet the threshold of commercial reasonableness, compensation
arrangements with physicians should be “reasonable and necessary.”(see OIG Supp, 70
F.R. 4866, 2005).71
(II): Courts – see U.S. ex. rel., Kaczmarczyk v. SCCI Hospital Ventures (2004); U.S. v.
Campbell (2011) 72, 73
(III): Applications – (1) Business purpose analysis; (2) Service provider analysis; (3)
Provider/demand index analysis; (4) Faculty analysis; (5) Resource analysis; (6) Independent
audit or oversight analysis.
56

GENERAL MARKET VALUE
Price that an asset would bring, as the result of bona fide bargaining
and agreement between well-informed parties who are not
otherwise in a position to generate business for the other party, on
the date of acquisition of an asset or at the time of the service
agreement: 70
• Price of bona fide sales for assets of like type, quality and quantity in
particular market;
• Compensation includes bona fide service agreement with
comparable terms at the time;
• Not determined in any manner that it takes into account the volume
or value of anticipated or actual referrals.
** The inclusion of "general market value" in regulatory definitions is to
draw important distinctions between the regulatory and statutory
definitions, to establish the government's view of the FMV.
(70) 42 CFR § 411.351 57

VALUATION MODEL: Noncompetes and Referrals
- considers the business lost by the holder of the noncompete if it were
violated.
The value of a noncompete is part of the enterprise level operating
cashflows of a business.
For compensation arrangements, local law needs to be evaluated to
see if continued employment is adequate compensation for the
noncompete.
58
VALUATION MODEL: Income Approach
Valuation is about future cashflow (not historical cashflow), and its
multiple based upon the risk of that future cashflow.
Simple formula: Cashflow x Valuation Multiple = Value
• Risk is based upon empirical evidence and judgment and a risk
assessment targets: regulatory risk, investment risk, size risk, specific
market risk, reimbursement risk.
Underestimating risk overstates value.
Overestimating risk understates value.

The greatest risk of overestimating value in implications of Stark or AKS is in
improper or unrealistic assumptions as to the future profits.
• For Part-B Medicare, history of Medicare Conversion Factor and Producer Price
Index must be robustly revisited.
• For Part-A Medicare, there is usually a market basket update (similar to
inflation).
• Profit margins often erode as costs rise faster than per unit revenues leading to
increased utilization to maintain profits –which then leads to regulatory or
legislative action.
59
VALUATION MODEL: Income Growth Approach
VALUATION MODEL: Market Approach
- is premised on finding and applying comparable data to the subject of valuation.
• Generic Valuation - Comparable transactions (the FMV is the price at which
bona fide sales have been consummated for assets such as profile, quality, and
quantity in a particular market at the time of acquisition)
• Business Valuation - via two methods: (1) Guideline Publicly Traded Company
Method; (2) Merged and Acquired Company Method or Direct Market Method
• Direct Market Method – The Stark regents create special rules – what is
relevance of a transaction in Ohio to a proposed transaction in Texas? 74
(74) Caracci, 98 AFTR 2nd
2006-5264 (CA -5, 2006) – the tax court appeals

RENTAL OFFICE SPACE EXCEPTION
Specifies the premises it covers.75
Term of agreement is at least 1 year. If the agreement is pre-terminated with or without
cause, parties may not enter a new agreement during first year of original term of
agreement.
Space does not exceed what is reasonable and necessary for the legitimate business
purposes of lease or rental.
Space is used exclusively by the lessee, except that lessee may make pro rata payments
for use of space consisting of common areas. Shared space must be block leased
because of the “exclusive use” requirement.
Rental charges over term of the agreement are:
- Set in advance
- Consistent with fair market value
- Not determined in manner that takes into account volume or value of any referrals
or other business generated between the parties
- Not determined using a formula based on “ percentage of revenue raised, earned,
billed, collected, or otherwise attributable to services performed in the office space”; or
“per-unit of service rental charges to the extent that such charges reflect services provided
to patients referred by the lessor to the lessee.”
Commercially reasonable even if no referrals were made between the lessee and the
lessor.
Holdover month-to-month rental for up to 6 months immediately following expiration
of an agreement of at least 1 year that meets the other requirements of the exception
may also satisfy the exception, provided that holdover rental is on same terms and
conditions as the immediately preceding agreement.
(75) 42 CFR §411.357(a)
60

EXAMPLE 1:
Hypothetically, the “Strong Bones, LLC” owns a portable x-ray machine. The
“Trauma Watch, Inc.” agrees to lease the equipment from “Strong
Bones” for what it pays the “Strong Bones” 100 for each x-ray
performed. In this scenario, the compensation is a per-unit or "per-click"
arrangement, which is not covered by the “rental-unit” harbor.
EXAMPLE 2:
Let's assume the “Strong Bones, LLC” asks a payment amounting the 15%
of all revenues the the “Trauma Watch” gets for services it provides
using the leased X-ray machine. Does this case fall under the Stark's
rental-agreement exception?
NO. The compensation is still barred because it is based on the percentage
of the revenue related to the referrals.
However, a compensation based on the percentage of square footage of
sub-leased space is permitted under this exception.
61

BONA FIDE EMPLOYMENT EXCEPTION
The employment is for identifiable services.
The amount of remuneration under the employment is:
- Consistent with the fair market value of services; and
- Is not determined in a manner that takes into account (directly or
indirectly) the volume or value of the referral(s), except for certain
productivity bonuses (see below).76
The remuneration is provided under an agreement that would be
commercially reasonable even if no referrals were made to the
employer.
Payment of remuneration in the form of productivity bonus based on
services performed personally by the physician (or immediate family
member of the physician) is permissible.
The bona fide exception seems straight forward; however, two things need
to be considered:
- the employment agreement has not to be in writing
- this exception allows the physician to be paid.
(76) 42 C.F.R. §411.357(c) 62

EXAMPLE:
Hypothetically, Dr. Osborn works as an attending OB/GYN in the
maternity ward of “Queen Beatrice” Hospital. The hospital pays
her a $200,000/year wage. She also gets $100 for each baby she
delivers. This is a general bona fide arrangement.
What if the bonus is from the 20% of all revenue generated from
delivering babies? In such a scenario, the arrangement would
NOT be covered by this exception. However, Dr. Osborn will get
the bonus and the 20% of the professional component of her
deliveries.
63

PERSONAL SERVICES ARRANGEMENT EXCEPTION
Specifies the services covered by the arrangement. 77
Covers all services to be furnished by physician (or immediate family members) to
the DHS entity. Can have separate arrangements between entity and physician (or any
family member) if agreements incorporate each other by reference or cross-reference
master list of contracts maintained and updated centrally.
Physician or family member can “furnish” services through employees through a
wholly-owned entity, or through locum tenens physicians;
Aggregate services do not exceed those that are reasonable and necessary for the
legitimate business purposes of the arrangement(s).
Term of arrangement is at least 1 year. If arrangement is pre-terminated with or
without cause, parties may not enter into same or substantially the same arrangement
during first year of original term of the arrangement.
Services to be furnished under each arrangement do not involve counseling or
promotion of a business arrangement or other activity that violates any federal or state
law.
Compensation is:
- set in advance
- does not exceed fair market value
- except in the case of “physician incentive plan,” is not determined in manner that
takes into account the volume or value of any referrals or other business generated
between the parties.
Holdover personal service arrangement for up to 6 months following the expiration of
an agreement of at least 1 year, that meets other requirements of this exception, may
also satisfy this exception, as holdover personal service arrangement is on the same
terms and conditions as in preceding agreement.
(77) 42 C.F.R. §411.357(d)
64

U.S. ex. rel Kosenske v. Carlisle HMA
Kosenkse was a qui tam relator who brought a False Claim Act (FCA) action against
HMA and its parent company,78
upon the discovery that the Blue Mountain
Anesthesiology Associates (BMAA) was paying no rent to the hospital (HMA)
and receiving physician support services at no cost. In addition, the hospital
wasn't receiving facility fees for a portion of BMAA’s pain management services,
and was therefore uncompensated for BMAA’s use of the pain clinic, which was
a newly-formed physicians practice group. But the hospital did not have a
written agreement with the anesthesiology group for pain management
services.
ISSUE: Whether a financial relationship existed between the hospital and the
anesthesia group to provide outpatient pain management services at the HMA
clinic; and if so, did that relationship trigger restrictions placed by the Stark and
Anti-Kickback (AKS) laws?79
The Court held that the Stark and AKS were implicated. Unlike the Stark (strict
liability law), the AKS looks for scienter. Therefore, Kesenske carried the burden
to show that defendants: (1) caused claims to be submitted to the government,
(2) remunerated physicians with an intent to induce referrals, and (3) knew that
their actions violated the AKS. (continued to the next slide)
(78) US ex. rel Kosenske v. Carlisle HMA, 31 U.S.C. §§ 3729-3733 (MDPA, 2006)
(79) 42 U.S.C. § 1320a-7b 65

Kosenske 78
(continued)
Unlike the Stark's professional service arrangement (PSA) exception, the AKS 79
is
violated if one purpose of payment - tendered from the hospital to a physician - is
to induce future referrals, even if the payments were also intended to compensate
for professional services.
The Court held that the pain management arrangement did not meet the PSA
exception under the Stark.
HOLDING: The District Court held than the arrangement satisfied the Stark law
personal services exception, and thus granted summary judgment to the HMA.
The Circuit Court reversed and remanded on the grounds that the arrangement did
not satisfy the personal services and fair market value(FMV) exceptions.
The last inquiry was whether this remuneration was meant to induce referrals? The
final Court established that the HMA did provide BMAA with remuneration and
these benefits constitute remuneration in-kind. In rejecting the District Court's
FMV analysis, it reasoned that:
▪ in-kind remuneration, including free office space and equipment, can serve as the
basis for finding a Stark violation;
▪ the anesthesiologists who provide pain management services are viewed as referral
sources;
▪ what may have constituted fair market value consideration at the signing of an
agreement must be able to withstand a current fair market value analysis in light of
changed circumstances.79
66

The “Master List” of PSA Exception
. Under the § 411.351, the PSA covers all services to be furnished by the physician (or
immediate family member) to the entity. This requirement is met if all separate
arrangements between the entity, physician, and immediate family members, cross-
refer in a master list of contracts that is maintained and updated centrally and is
available for review by the Secretary. The master list must be maintained in a
manner that preserves the historical record of contracts.
Under the Stark II, Phase III Regulations the use of master list is permissive but not
required, but if a DHS entity chooses to comply in such a manner, the list must
contain all PSA with any physician or group practices, and must cover all performed
services.
The purpose of the master list (as a safe-harbor) is to reduce the burden and
prescriptive (evolutionary) nature of the rule while applying the statute and
maintaining the integrity of the regulatory framework. Put somewhat differently,
the master list intends to provide some flexibility to providers so that all
arrangements between the parties are set forth in a centralized location, which
reduces the risk for "hidden" compensation being paid for improper referrals.
For example, arrangements between an entity and a physician (or immediate family
member) may change from time to time as a result of new protocols, terminations,
renewals. The CMS finds that the PSA exception should only require a reference to
a master list of contracts that could be updated periodically and would be
transparent to the DHS.
(80) 42 C.F.R. §1001.952(d)
67

PHYSICIAN RECRUITMENT EXCEPTION
Arrangement must be set out in writing and may not be conditioned on
physician’s referral of patients to the hospital.81
Except of the actual cost of service, the remuneration must be "passed directly
through to" or "remain with" the recruited physician.
Records must be kept for 5 years.
Hospital may not determine amount of remuneration based on volume or value
of the actual or anticipated referrals or other business generated between the
parties.
Physician must be allowed to establish staff privileges at any other hospitals and
to refer business to other entities.
Payments made to induce physician to relocate to “geographic area served by
hospital” and join the hospital’s medical staff.
- GSA is defined as lowest number of contiguous zip codes drawing > 75% of
inpatients.
- Physician must join hospital’s medical staff (that is, no prior privileges, including
courtesy).
- Relocation is when the recruited physician moves his/her practice location from
outside hospital’s service area into hospital’s service area if:
1) Moving at least 25 miles, or
2) Deriving >75% of revenues from new patients during preceding 3 years.
(81) 42 C.F.R. §411.357(e)
68

LOCATION
The DHS must be furnished in either the same building where the group practice
commonly provides services, or in a "centralized building" used for the provision
of DHS.
Centralized Building: all part of the building, including the mobile vehicle or trailer
parking lot used full time and exclusively used by the group practice. It does not
include a place or vehicle or trailer that is shared between more than one
providers.
Location requirement is intended to prevent the proliferation of the Pub-Labs.
- An example: the revenue from the DHS -inclusive pathology services is shared
between the physician and the pathologist.82
Scenario: Dr. Dynamo is a solo practitioner-internist who also owns a large amount of
real estate. His full-time medical office is located at 111 Ardor Avenue, Suite A. He's
now looking to open a clinical laboratory considering the following locations: (a) in
the office building across the street from 111 Ardor Avenue; (b) Suite B in the 111
Ardor Avenue location, which is currently vacant; (c) in a mobile medical van owned
by him; and (d) in Suite C of 111 Ardor Avenue which would be shared with the Fast-
Lab,LLC, an existing tenant - clinical laboratory.
Which option is permissible under the Stark?
Options(b) and (c) are acceptable because the "centralized building" requirement
allows: (1) a lab to set up in the same building as the physician's existing practice;
and 2) it specifically includes mobile vans.
(82) 42 CFR §411.357
69

ISOLATED TRANSACTION EXCEPTION
Isolated transactions (such as one-time sale of property or practice) do
not constitute financial relationships if:
The amount of remuneration under the transaction is:
- Consistent with fair market value;
- Not determined in any manner that takes into account volume
and value of the referrals.
Agreement is commercially reasonable even without any referrals
made.
There are no additional transactions between the parties for six
months after the isolated transaction.
There is no writings or setting in advance.83
(83) 42 C.F.R. §411.357(f)
70

NONMONETARY COMPENSATION EXCEPTION
Inclusions: Meals, sporting tickets; Concerts, theatre; Transportation; Flowers or plants
sent to congratulate the physician on his new office, new home, marriage, or birth of
a child; Rounds of golf; Birthday presents; Use of entity-owned vacation home.
Exclusions: Cash and cash equivalents (gift certificates and gift cards).
Compensation from entity to physician in form of items or services (not including
cash or cash equivalents) is not seen as a financial relationship if:
- Not determined in any manner that takes into account the volume or value of
referrals or other business generated by the referring physician.
- May not be solicited by the physician or the physician's practice (including
employees and staff members).
- Arrangement does not violate the AKS (§ 1128B(b)) or any federal or state law
governing billing or claims submission.
Where an entity has inadvertently provided nonmonetary compensation to a
physician in excess, such compensation is deemed to be within the limit if:
- The value of the excess nonmonetary compensation is no more than 50% of the
limit; and
- The physician returns the excess nonmonetary compensation within 180
consecutive calendar days following the date it was received by the end of the
calendar year in which it was received.
The ability to pay back excess nonmonetary compensation and remain in
compliance with the exception may be used by an entity only once every 3 years
with respect to the same referring physician.
(84) 42 C.F.R. §411.357(k) 71

MEDICAL STAFF INCIDENTAL BENEFITS EXCEPTION
Applies to the Items and services, but not cash or cash equivalents:
- Free parking
- Meals while on-call
- Free computer/Internet access
Applies to all members of medical staff within same specialty
Is not based on volume and value of referrals
Is offered only during rounds or performance of duties that benefit the
hospital and patients
Is provided and used only on hospital’s campus
Is reasonably related to delivery of medical services at hospital
Is consistent with what other hospitals in region offer
Amounts less than $25-value for each occurrence (indexed)
Does not violate the Anti-Kickback Statute.85
(85) 42 C.F.R. §411.357(m) 72

SERVICES EXCEPTIONS 86, 87
Physician services
In-office ancillary services
Services furnished by an organization (or its contractors or
subcontractors) to the enrollees (prepaid health plans)
Academic Medical Centers (AMC)
Implants furnished by an Ambulatory Surgery Center (ASC)
Erythropoietin (EPO) and other dialysis-related medications
Preventive screening tests, immunizations, vaccines
Eyeglass and contact lens applications following cataract
surgery
Intra-family rural referrals.
(86) §411.352; (87) § 411.355 73

IN-OFFICE ANCILLARY SERVICES EXCEPTION
Includes all DHS except certain durable medical equipment (DME) and
parenteral and enteral nutrients, equipment, and supplies (PEN)
(see the next slides for details).
This exception has three main requirements:
WHO: The services must be furnished by referring physician or
another physician in the same group practice or someone
supervised by either physician (see the “group-practice” definition in the
next slide);88
WHERE: location must be in a centralized building or in the same
building;
HOW: services must be billed by performing or supervising
physician, his/her group, an entity wholly owned by any of the
above, or a 3rd
party billing company as agent for any of the above.
(88) 42 CFR §411.352 74

DME & PEN
Stark's in-office ancillary services exception implies if specific criteria are
satisfied. However, this exception excludes most DME and PEN. The only
permitted items are crutches, canes, walkers, folding wheelchairs, blood
glucose monitors, and infusion pumps (but not pumps used for PEN). In
addition, prosthetics, orthotics and prosthetic devices and supplies may
be provided under the in-office ancillary services exception.89
The OIG cautions against certain arrangements between health care
practitioners and DME suppliers — arrangements designed to ensure
ready access to prescribed DME and PEN. In its 2006's advisory opinion,
the OIG determines two programs between a DME supplier and
physicians that "could potentially generate prohibited remuneration
under the Stark and AKS."
(I) Contractual Joint Venture
(II) Supplier-prime Program
(see details in the next slide).
(89) 42 CFR §411.352
75

OIG: Contractual Venture Program
1) The requestor would sell the DME and PEN to the physician practice using a
discounted fee schedule that fits within the discount safe harbor. The physician
practice would bill the commercial insurer under its own billing number.
2) The requestor would supply Continuous Passive Motion machines at a daily rental
rate on an as-needed basis. The rental amount would be consistent with fair market
value but the aggregate would not be set in advance.
3) The requestor would provide a trained technician to provide any required orthotic
fitting, patient instruction, or in-home DME set-up.
4) The requestor would provide coding, billing, and collection services for a fixed
monthly fee that would satisfy the personal services and management safe harbor.
OIG: Suppler-prime Program
-DME and PEN are furnished to both non-federal and federal patients and the requestor
remains the DME supplier responsible for billing for any products sold or rented to the
physician practice's patients. The program has three components:
1) The requestor rents storage space from the practice for a fixed monthly fee and
consign its DME and PEN products to the practice to be stored in the rented space.
The rental fee conforms to the space rental safe harbor.
2) The physician practice receives a percentage of the DME/PEN revenue in exchange for
the practice personnel providing inventory management and other administrative
services related to the consignment and storage of requestor's products.
3) The physician practice pays a fixed monthly fee for services of requestor's trained
technician, who provides orthotic fitting, patient instruction, or in-home DME set-up.

Problems with the OIG Proposals
The OIG skips with visiting why the practice would pay for a service that appears
to be a service the supplier was already obligated to provide?
Additionally, the consignment and physical presence of the leased technician
may create additional opportunities to influence on, and “reward” the referrals.
Health care providers do have the option of becoming an enrolled supplier,
which enables them to order inventory and have a stock of DME and PEN readily
available for patients. Yet, to become and remain durable medical
equipment/prosthetic/orthotics (DMEPOS) supplier under Medicare, a provider
must satisfy the 21 federal suppliers standards.90
The National Supplier
Clearinghouse (NSC) is the CMS contractor responsible for performing the initial
and ongoing period inspections of the standards. If the NSC determines that the
supplier is not in compliance with any one or more of the 21 standards and if the
and CMS concurs, the NCS may - upon 15-day notice - revoke the supplier
number.91
Once revoked, the burden is on the supplier to demonstrate that the
standard or standards at issue are satisfied.
Among the 21 standards is the requirement that the supplier conduct its business
at an appropriate physical location (locum standard, see next slide).
Lastly, the DMEPOS suppliers may face more stringent requirements, updated on
a pretty much regular basis.
(90) 42 C.F.R. § 424.57(c); (91) 42 C.F.R. § 405.874(b) 77

MediSource Corporation v. CMS
- a seminal case identifying pitfalls associated with choosing a supplier's physical location.
At the time MediSource's Medicare supplier number was revoked by the NSC, MediSource
was operating its supplier business from a home-based location. The NSC determined
that MediSource did not meet supplier standard (8) under §424.57(c) , because its
physical location was not accessible to the public during reasonable business hours. The
applicable zoning requirements also did not allow for a business to be conducted at the
supplier's physical location.92
Following the revocation, MediSource submitted a new enrollment application to the NSC
indicating a new physical location. The NSC then identified that an existing supplier,
Express Care Pharmacy, was operating from the same physical address and rejected
MediSource's application.
The Hearing Officer in MediSource Corporation v. CMS noted that the supplier standards are
silent with regard to whether two suppliers may share the same physical location.
Nonetheless, several factors supported the conclusion that MediSource failed again to
maintain an appropriate physical site within the Express Care Pharmacy location:
(1) The business records of MediSource were still being maintained at the applicant's home,
the original supplier site location. The multi-site supplier standard allowing records to be
stored at a centralized location did not allow this single-site supplier to store records in an
off-site location. (2) The inventory at the Express Care Pharmacy shared space was
minimal ( a “consultation room”) compared to the inventory maintained at the original
home location. The “Consultation Room” signage suggested that MediSource did not have
exclusive use of this room and thus, could not protect the confidentiality of its records. (3)
Lastly, the telephone number listed on the MediSource signage was not the same number
listed on MediSource's enrollment application.
(92) MediSource Corporation v. CMS, DAB Docket No. A-05-112 (Jan. 31, 2006)
78

ELECTRONIC HEALTH RECORDS EXCEPTIONS
(1) E -prescribing Exception:
- the DHS entity may provide only hardware, software, or IT and training services that
are necessary and used solely for e-prescribing information
- it may not provide monetary remuneration
- e -prescribing items must be provided by:
[A] hospital to a physician who is a staff member;
[B] group practice to a member physician;
[C] Medicare Part-D sponsor or Medicare Advantage organization to a prescribing
physician;
[D] items and services must be provided in connection with an e-prescription drug
program that meets applicable standards under Medicare Part-D sponsor or Medicare
Advantage plan;
[E] do not restrict a physician's ability to use the items or services with other e-
prescribing or e-health records for any patient;
[F] a physician cannot make the receipt, amount or nature of items or services a
condition of doing business with the donor;
[G] eligibility of physician for items or services and nature or amount of items or
services can't take into account volume or value of referrals or other business;
[H] arrangement must be in a signed agreement that specifies:
- all items and services being provided
- donor's costs of items and services including all electronic prescriptions
- non monetary remuneration covering software or IT and training services needed
and is used to create, maintain, send or receive e-health records.
(93) 42 CFR Sec 411.357w
79

EHR EXCEPTIONS (continued)
2) The EHR software must meet the inter-operability requirements, it must
communicate and exchange data accurately, securely, and consistently in
various networks, keeping the data unaltered.
3) Physician is responsible for at least 15% of the donor's costs for the items
and services.
4) The items and services must not include staffing of physician offices and
can't be used primarily for personal or non-medical business.
5) The EHR software must contain electronic compatibility to interface with the
physician's EP system.
Takeovers:

These exceptions do not allow enough flexibility for healthcare providers to
help physicians' transition to EHR technology, as they are too expensive for
a sole-practice

Access to and acceptance of the EHR technology would allow greater
connectivity and collaboration between the providers.
(93) 42 CFR Sec 411.357w 80

Differences & Overlaps between the
E-Prescribing, and Electronic Health Records Exceptions.
E-prescribing (EP) exception and Electronic Health Records (EHR)
exception mostly overlap. Yet, there are a few differences:
(1) While the EHR exception allows the provision of items and services
by any DHS entity to a physician; the EP exception limits this
provision to the hospitals, group practices, Medicare Part-D
sponsors, and Medicare Advantage organizations.
(2) The EHR exception has an additional condition that is absent in the
EP exception: the donor does not shift the costs of donation to any
federal health care program.
(93) 42 USC §411. 357w
(94) Morse CM (2007). E-prescribing and EHR exceptions. Ober Kaler, Health Law
Alert Newsletter
81

ACADEMIC MEDICAL CENTER EXCEPTION
In recognition of unique aspects of the Academic Medical Centers (AMC), the CMS has
refined Phase II and Phase III regulations for attending a special AMC exception.95
In physician relationship regulations, this excepts the faculty referrals to any AMC
component that furnishes DHS - so long as the AMC criteria are satisfied.
Yet, the utility exception is still constrained by the limitations it placed on permissible
faculty compensation. The trick is, that the faculty practice plans are “group
practices” under the Stark law which creates conflicts between the PSA and AMC
exceptions. Therefore, the AMC components must be analyzed in the context of
Stark's indirect compensation arrangements. It is still unclear from the Phases II and
III, whether common AMC practices are deemed to create indirect compensation
arrangements with the faculty physicians and if so, whether their meet the indirect
compensation exception?
Typically, the faculty physicians do not have ownership interests in any component of
AMC. Rather, the physicians receive compensation through a faculty practice plan,
which may be organized as a single, large, multi-specialty group, or as an
unincorporated division of the medical school or teaching hospital. Additionally, the
faculty may receive direct payments from other components of the AMC, such as
financial subsidy from the faculty practice plan, or separate medical directorship,
administrative, or supervisory payments , from an affiliated teaching hospital.
In order for all these services and payments satisfy the Stark's AMC exception, the
referring physician's compensation must meet the “set in advance,” and ” fair
market value” standards, and must not violate the AKS or FCA (see details further).
(95) 42 CFR §411.355 (e)
82

AMC EXCEPTION (continued)
1. Physician requirements: The referring physician is: (A) is a bona fide employee
of a component46 of the AMC on a full-time or substantial part-time basis;
(B) licensed to practice medicine in the state(s) in which he practices
medicine; (C) has a bona fide faculty appointment at the affiliated medical
school or at one or more of the educational programs at the accredited
academic hospital; and (D) provides either substantial academic services or
substantial clinical teaching services (or both) for which the faculty member
receives compensation as part of his or her employment relationship with the
academic medical center. A physician will be deemed to meet this
requirement if he spends at least 20 % of his professional time or 8 hours per
week providing academic services or clinical teaching services (or both).95
2. Compensation requirements: (A) The total compensation paid by each AMC
component to the referring physician must be set in advance. (B) In the
aggregate, the compensation paid by all AMC components to the referring
physician must not exceed fair market value for the services provided. (C) The
total compensation paid by each AMC component must not be determined in
a manner that takes into account the volume or value of any referrals or other
business generated by the referring physician within the academic medical
center.96
(95) § 411.355(e)(1)(i)(A)−(D) (2007); (96) 42 C.F.R. § 411.355(e)(1)(ii)(A)−(C) (2007)
83

3. Requirements concerning the relationship between the separate
component Institutions: This entry consists of two subcategories: (A) issues of
accreditation, affiliation, and staffing, and (B) issues of organization and internal
financial transfers between the academic institution and the hospital.
Under the category-A, the purported AMC must consist of: (a) An accredited
medical school (including a university, when appropriate) or an accredited
academic hospital; (b) one or more faculty practice plans affiliated with the
medical school, the affiliated hospital(s), or the accredited academic hospital;
and (c) one or more affiliated hospitals in which a majority of the physicians on
the medical staff consists of physicians who are faculty members and a majority
of all hospital admissions is made by physicians who are faculty members.97
Under the category-B: (a) All transfers of money between components of the AMC
must directly or indirectly support the missions of teaching, indigent care,
research, or community service. (b) The relationship of the components of the
AMC must be set forth in one or more written agreements or other written
documents that have been adopted by the governing body of each component.
(c) All money paid to a referring physician for research must be used solely to
support bona fide research or teaching and must be consistent with the terms
and conditions of the grant. 98, 99
(97) § 411.355(e)(3) ; (98) § 411.355(e)(2);
(99) U.S. ex rel. Villafane v. Solinger, 543 F. Supp. 2d 678, 690 (W.D. Ky. 2008)
84

4. General Anti-Kickback requirements:
The referring physicians must avoid the inference that they “knowingly and
willfully” paid or received money to induce patient referrals. Further,
compliance with the Stark does not necessarily mean that a physician is
not receiving illegal kickbacks:
“Although many of the standards within the Stark exceptions are very
similar to the standards in the Anti-Kickback safe harbors, compliance
with a Stark exception does not guarantee compliance with an Anti-
Kickback safe harbor. Indeed, Stark sets forth only the minimum
standards for permitted financial relationships, not the full range of
legally permissible activity.” 100
(100) Deaton, supra note 7, at 555 (in citing Phase I, supra note 22, at 863; Medicare and
State Health Care Programs: Fraud and Abuse; Clarification of the Initial OIG Safe
Harbor Provisions and Establishment of Additional Safe Harbor Provisions Under the
Anti-Kickback Statute, 64 Fed. Reg. 63,518–19 (1999) (42 C.F.R. §§ 1001.951, 1001.952
(2007)). 85

Villafane v. Solinger 99
CLAIM: Plaintiff Juan Villafane, a pediatric cardiologist and a former professor at
the University of Louisville Medical School (hereto, School), was suing the
School’s research foundation and fund, several pediatric cardiologists employed
by the School , several physicians- faculty members, Norton Hospitals, Inc.,
d/b/a/ Kosair Children’s Hospital, Kentucky’s only freestanding, full-service
pediatric hospital, and Larry Cook - the chief of its medical staff.
FINDINGS: The lawsuit concerned to the cash flow between Kosair and the
individual physician defendants. Defendant-physicians participated in the
School’s faculty practice plan. Under this arrangement, faculty salaries were
funded not only by grants, donations, and contributions from various sources,
but also by a portion of the revenue from the physician private practices.
Further, faculty salaries were also funded by contributions from hospitals,
including Kosair, where all defendant- physician extensively practiced and to
which they referred their patients. Therefore, it was undisputed that the faculty
salaries were partly generated from the patient referrals.99
HOLDING: Relying on Greber,7 the Court concluded that although the arrangement
between Kosair and defendant-physicians predated the adoption of the AMC
exception, that exception75
“still applied because it is an administrative
interpretation of what Congress intended in the Stark Law.” 7, 95, 99
(99) U.S. ex rel. Villafane v. Solinger, 543 F. Supp. 2d 678, 688 (W.D. Ky. 2008)
(7) U.S. v. Greber, 760 F.2d 68, 71 (3d. Cir. 1985); (95) 42 CFR § 411.355(e)(1)(i)(A)−(D)
86

Villafane v. Solinger (continued)
REASONING:
(1) Stark requirements imposed to the physicians. – In visiting the “substantial
academic or substantial clinical teaching services” claim, the Court found
uncertainty with the term “substantial,” for it created confusion as to the
reach of this requirement. Although, the eligibility for the AMC exception
requires that the physicians must spend at least 20 % of professional time or
8 hours per week providing academic services or clinical teaching services (or
both), Stark Phase II provides “the academic medical centers with
flexibility”99
and that safe harbor “‘is not an absolute requirement.” The
Court also noted that physicians are not required to keep any particular
timekeeping system, and thus it did not find determinative that the only
assessment of the defendants’ time was based on general estimates
reported by the doctors themselves.
(2) Requirements concerning the compensation. - The court saw that the term
“total compensation” referred only to the faculty salaries paid to defendant
doctors. It went on to hold that such faculty salaries did not exceed fair
market value because they were paid at levels consistent with their abilities
and responsibilities.99
In addition, the third requirement, the value–volume
correlation, was met as well, if “the faculty salary paid to the physician is
initially set at fair market value and does not vary once set ” - basing this
determination on HCFA’s language.
87

Villafane v. Solinger (continued)
REASONING:
(3) Requirements concerning accreditation, affiliation, and staffing. - The Court
held that since the defendant doctors provided evidence that the majority of the
staff at Kosair were faculty members who generated the majority of the
hospital’s net revenue, the arrangement was “sufficiently focused on the
academic medical center’s core mission” and therefore it satisfied this
requirement.83, 88
Moreover, no authority required a specific type of
documentation to verify the relationship. Even though, the documents
exchanged between Kosair and the Medical School included mutual agreements
purporting to establish an automatically continued relationship.
(4) Anti-Kickback Statute provisions. - The Court held that the arrangement did
not violate the AKS. 83
It noted that the 6th
Circuit had not explicitly spoken “to
the question of whether payments made partly - but not entirely - to induce
referrals would satisfy the intent element,” and rejected the “one purpose” test,
instead stepping-up with interpreting “the AMC exception’s incorporation of the
AKS’s provisions so as not to effectively countermand the broader purpose of the
AMC exception itself.” 79
It focused on defendants’ sworn assertions that “no
improper intent was behind Kosair’s payments to the Research Foundation,” as
well as found that the plaintiff's assertion that “the full-service children’s hospital
in Kentucky would need to induce referrals through kickbacks to physicians” was
almost illogical. 101
(101) 42 CFR § 1001.952
88

Post - Villafane
In the wake of the Villafane's decision,99
several issues surfaced with the AMC
exception. Congress's passing of the Stark Law in 1989 intended to provide a
bright-line in guiding physicians with respect to their financial relationships.
Yet, after Villafane, such an objective was seen as “elusive.”
It became crucial to identify many troubling aspects to the Villagane's analysis
highlighting the structural flaws of the AMC exception,95
and potential
difficulties with achieving compliance even under considering the “flexibility”
of the AMC exception.
This forced to fit into a more complex exception, because in Villafane 99
the
Court did not entirely address the issue as to whether the financial
relationships between the faculty - School- and a full-time hospital were
indirect compensation arrangements. Plaintiffs alleged that an indirect
compensation arrangement existed between the entities, which constituted
in defendant physicians’ total compensation from the School in a way that
varied with the volume or value of referrals. However, the Court’s
determined that the arrangement satisfied the second set of AMC exception
requirements, and by doing so it proceeded to a complex analysis, extensive
testamentary and fact-finding.
(95) 42 CFR § 411.355(e)(1)(i)(A)−(D) (99) 543 F. Supp. 2d 678, 688 (W.D. Ky. 2008) 89

Stark Law (by Naira Matevosyan)

Stark Law (by Naira Matevosyan)

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Stark Law (by Naira Matevosyan)

Similar to Stark Law (by Naira Matevosyan) (20)

More from Naira R. Matevosyan, MD, MSJ, PhD

More from Naira R. Matevosyan, MD, MSJ, PhD (17)

Recently uploaded

Recently uploaded (20)

Stark Law (by Naira Matevosyan)