Docs Earn Millions for Sketchy Referrals; Now What?

Alicia Gallegos

February 16, 2021

For years, orthopedic surgeons Anthony L. Cruse, DO, and R. J. Langerman, Jr, DO, made among the highest number of patient referrals to the Oklahoma Center for Orthopaedic and Multi-Specialty Surgery (OCOM), a specialty hospital based in Oklahoma City, Oklahoma. The physicians were paid handsomely for their referrals, according to a lawsuit levied by a whistleblower against the physicians and their medical group, Southwest Orthopaedic Specialists, PLLC (SOS).

In return for a high volume of high-value referrals, the hospital provided Cruse free office space and employed scrub-techs for both doctors. It also allowed Cruse to use his personal credit card to purchase surgical supplies so that Cruse could collect the credit card reward points, according to the complaint, which was joined by the US Department of Justice (DOJ).

But these special financial rewards were just the beginning, the DOJ says. In exchange for OCOM referrals, the hospital also provided improper remuneration to the doctors and their physician group in the form of excessive compensation and highly valuable OCOM equity, the government alleges. SOS physicians who referred the greatest volume and value of services to the hospital allegedly had the first opportunity to purchase OCOM shares in violation of an agreement that required all OCOM owners to be offered available equity.

In exchange for these referrals, the hospital also bore the costs of recruiting new SOS physicians and paid the physician group a rental fee to fund practice space for the new recruits, according to the lawsuit. The more high-value patients referred to OCOM by new doctors, the more the hospital allegedly paid the physician group in "rental fees."

In July 2020, OCOM, its management company USP OKC, SOS, and physicians Cruse and Langerman agreed to pay the government $72.3 million to resolve claims under the False Claims Act (FCA) and the Oklahoma Medicaid False Claims Act.

"Offering illegal financial incentives to physicians in return for patient referrals undermines the integrity of our health care system," then-DOJ Acting Assistant Attorney General Ethan P. Davis said in a statement. "Patients deserve the independent and objective judgment of their health care professionals."

An OCOM spokesperson said the organization has since improved its protections.

"We resolved the litigation in 2020 and are a much stronger organization today having strengthened our compliance safeguards," the spokesperson said in a statement.

Attorney Bradley Beskin, who represented the whistleblower in the suit, said the case should send a resounding message that the healthcare integrity laws matter and that the government will enforce these laws strictly against individual physicians.

"We hope this case causes health care providers from the operating room to the board room to think twice before letting kickbacks flow into their bank accounts," he said.

Attorneys for SOS, subsequently renamed Southwest Orthopaedic and Reconstructive Specialists, did not return messages seeking comment.

Financial arrangements among physicians, physician groups, and hospitals have become an area ripe for abuse, particularly as more healthcare entities have partnered and integrated, says Eva Gunasekera, a whistleblower attorney based in Washington, DC, and a former DOJ senior counsel for healthcare fraud. In fiscal year 2020, the DOJ recovered an estimated $2.2 billion in settlements and judgments involving fraud and false claims, $1.8 billion of which related to the healthcare industry.

"Physicians and hospitals have always engaged in these types of arrangements," Gunasekera said. "It's just that it's happening more often with integrated healthcare. Practitioners and others in this space are becoming more aware of abuses in these arrangements and coming forward with their concerns."

Although there is no universally accepted definition of an "excessive" physician payment, the government is clear that to comply with the Anti-Kickback Statute (AKS) and the Stark Law, physician compensation must generally be consistent with fair market value. The Centers for Medicare & Medicaid Services recently clarified the definition of fair market value to mean "the value in an arms-length transaction...consistent with the general market value of the transaction." Fair market value does not include the value or volume of hospital or in-house referrals.

As government scrutiny of such hospital-physician transactions has heightened in recent years, more instances of improper payments have come to light, from a West Virginia obstetrician-gynecologist who was allegedly paid $1.2 million a year to a Montana orthopedic surgeon whose salary rose to $800,000 to a Georgia hospital that allegedly paid $4.2 million in bonuses to employed physicians.

The Southwest Orthopaedic Specialists case is unique, however, because individual physicians were included in the ultimate payout. In many cases, only hospitals ― not doctors ― are held responsible for monetary recoveries, say legal experts.

"It is not unusual to see individual physicians named as defendants in AKS and Stark lawsuits, but it is less common to see civil settlements with those individual practitioners," Gunasekera explained.

The growing lawsuits serve as a reminder for physicians to pay close attention to their financial arrangements with hospitals and take steps to prevent improper payments. But the cases also raise sticky questions about the role and responsibility of physicians in questionable financial relationships with hospitals. Some say that physicians in these arrangements are not properly being held accountable.

"It takes two to tango," says Robert Hagen, MD, a retired orthopedic surgeon based in Lafayette, Indiana, and a former member of the Board of Councilors for the American Academy of Orthopaedic Surgeons. "It takes two people to make an agreement that's not appropriate to patients. Physicians who are paid excessively above fair market value are rarely included in Department of Justice civil actions. In my opinion, they should shoulder some of the blame."

Why Physicians Are Not Often Pursued

For several reasons, the government generally concentrates on the hospital regarding improper arrangements with physicians, Gunasekera said.

"Civil enforcement efforts in AKS/Stark arrangements focus on the big players ― whether they are hospitals, pharmaceutical companies, device manufacturers, or other larger healthcare entities, because typically, it is those players that approach practitioners with the improper arrangements and have the most to gain," Gunasekera said.

Discouraging future improper arrangements and violations really lies on the hospitals and larger entities, adds Renée Brooker, a whistleblower attorney based in Washington, DC, and former DOJ assistant director for civil frauds.

"I don't think the enforcement should be on the physician side," Brooker said. "That's looking for the smaller guy and not really pursuing the real fraudster. If you want to see impact and change from enforcement efforts, it's necessary to focus on pursuing the big players who have come up with the fraud scheme and who have enticed the physicians to participate in the fraud scheme."

Physicians and physician groups, on the other hand, are sometimes needed by the enforcement agency as a cooperating entity or witness to help investigators analyze the fraudulent arrangement, Gunasekera explained. In some cases, physicians are the whistleblowers who come forward with details about the improper relationship, she said.

"For AKS violations, you have to prove intent," she said. "You have to prove there was an intent to induce referrals with some type of renumeration, and that typically may require documentary evidence or testimony from a physician or practice group to substantiate that intent."

There are instances in which physicians are held responsible for their role in such arrangements, Gunasekera noted, particularly in cases in which doctors receive excessive payments. In April 2020, for example, Centra Health Inc and physician practice group Blue Ridge Ear, Nose, Throat and Plastic Surgery, Inc, agreed to pay the government more than $9 million to settle claims alleging they violated the FCA by engaging in improper financial relationships. In November 2019, several hospitals owned by Sutter Health and Sacramento Cardiovascular Surgeons Medical Group Inc, a three-physician surgeon practice, agreed to pay $46 million to settle allegations that they violated Stark Law through improper financial relationships.

In the Oklahoma City case, Southwest Orthopaedic and Reconstructive Specialists, PLLC, and physicians Cruse and Langerman were responsible for about $6 million of the total $72 million settlement.

In many cases, however, physicians involved in questionable relationships with hospitals did not fully understand what they were getting into or were uneducated about the extent of health fraud laws, said Allison Shuren, a health law attorney based in Washington, DC, who defends healthcare providers. The Stark Law in particular is a cumbersome, challenging law that is difficult enough for health law attorneys to understand, she said.

"I find it almost unfair to expect physicians and their business counterparts to be able to understand the law," she said. "There are a lot of situations where individuals certainly never meant not to comply with the law and in fact figure out later that they did not have a correct interpretation. In some instances, they have been guided by lawyers who thought they gave the right advice but who don't have regular experience with Stark Law, so maybe their advice was not particularly complete."

Would More Physician Accountability Change Conduct?

But Hagen believes physicians should not be let off the hook so easily. In his 33 years of practice in Indiana, he has observed many instances in which hospitals overpaid physicians, he said. There is resentment among independent physicians over these excessive salaries and concerns about patient care, he said.

"Patients are unaware the underlying reason they are being referred to a certain facility," Hagen said. "They need to be informed that the doctor is choosing where to go for healthcare because of his or her employer, not because that is the best or most cost-effective care for the patient," he said.

Hagan has received criticism from other doctors for advocating more accountability for physicians involved in improper financial relationships, he noted. The primary criticism has been that physicians should be able to make as much money as the market will bear.

"But unfortunately, you can't do that at the expense of Medicaid and Medicare dollars," he said. "It's one thing if you're a businessman earning that money. It's another thing if the government's money is being used in that fashion."

In his area, Hagen points to a recent DOJ complaint filed against Community Health Network Inc, an integrated health system in central Indiana. The health system is accused of violating the Stark Law by paying physicians well above fair market value and paying bonuses on the condition that physicians achieve a minimum target of referral revenues to the hospital, according to the complaint issued in January 2020. Vascular surgeons, for instance, were paid an average of $1,311,189 in 2013, well above the 90th percentile for vascular surgeons that year, which was $619,735, the lawsuit contends.

Regardless of the role they play, physicians and individual providers must be held accountable for any fraud they commit, said Beskin, the Austin attorney who represented the whistleblower in the Oklahoma City case.

"Holding individual physicians responsible for violating the FCA is perhaps the most effective deterrent for stopping future kickback and Stark law schemes," he said. "When the healthcare community sees physicians held responsible, it affects changes in behavior to a much greater extent than seeing large, monolithic healthcare companies pay large settlements and fines."

Beskin notes that the government's focus on larger entities reflects the reality that many individual physicians do not have the assets to satisfy large FCA judgments. However, increasingly, the government appears to be holding individual actors accountable, he said.

"This may signal a change in the government's enforcement priorities," he said. "We will soon see the new administration's stance towards the enforcement of the healthcare integrity laws, which we expect to be more robust. Ultimately, accountability at the provider level is a positive thing. Physicians must be deterred from partaking in kickback schemes and improper financial relationships."

How Doctors Can Prevent Questionable Financial Relationships

Education is key to avoiding arrangements with hospitals that could be considered improper, Brooker said.

Many physicians are not always steeped in the legal issues involved in the False Claims Act, the Stark Law, and the AKS. It's beneficial to seek out resources and guidance on the subjects, she said. For example, the Office of Inspector General of the Department of Health and Human Services offers a Roadmap for New Physicians that outlines the various health fraud laws and provides advice on physician arrangements with hospitals. In addition, doctors should keep updated on changes made to health fraud laws, such as the modifications the Centers for Medicare & Medicaid Services made to the Stark Law in late 2020.

Brooker also encourages physicians to step up and report any instances of potential antikickback or Stark Law violations they may encounter.

"Report when they see and if they think they are being illegally enticed by a hospital," she said. "Physicians should be wary and ask questions. If there is a channel within their organization for reporting fraud, waste, and abuse or a compliance office, that should be the first stop. Hopefully, tips and reports can be made anonymously. But at the end of the day, if reasonable efforts to stop the conduct have been made and the conduct persists, the physician could report the conduct to a whistleblower attorney."

Another good idea is to have a compliance program in your practice and a dedicated compliance officer, said Shuren. If you feel you and your staff could use a refresher or more education, consider more compliance training or educational sessions.

"Good compliance officers for physicians can be extremely helpful as a first line of defense," Shuren said.

When entering into an arrangement with a hospital, it may be worthwhile to have an outside attorney review the arrangement to ensure that it's proper, adds Ellee Cochran, a health law attorney based in Austin, Texas, who specializes in regulatory compliance. This is particularly so if the arrangement is nontraditional or involves referrals for compensation in some form, she said.

"Anything that is untraditional, new, novel, and you are doing a contractual arrangement with a healthcare provider such as a hospital ― that's when you should start slowing down and looking at things from a government entity perspective, rather than just your own," she said. "If this seems like a really good deal for all sides, make sure one of those sides includes Medicare and Medicaid."

On the back end, if physicians feel they might already be in an arrangement with a hospital that could be improper, it's not too late to review the relationship and seek guidance.

"It's 100% worth it to raise the issue and document your concerns," Cochran said. "Documentation of your attempts to make things compliant is huge. You can always amend arrangements. It's so much better to fix it than just keep going and hope nobody sees."

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