Non-profit hospitals operate very differently from their for-profit counterparts. They value the services they provide based on their contribution to the community they serve, rather than their profit margins. They are subject to many of the same financial regulations as for-profit hospitals, however, and the differences in the way they control their finances may raise some red flags. For example, when physician compensation is not proportional to the profit lines of a particular department, it can seem at first glance like a Stark violation.
Stark Law prohibits physicians from referring Medicare patients to practitioners or facilities in which they have a financial interest. This preserves the integrity of patient care by preventing physicians from self-referring or prescribing unnecessary services in order to make financial gains. In many cases, the government identifies Stark violations by examining physician compensation and looking for inconsistencies, such as full-time benefits awarded for part-time work. A financial arrangement must appear “commercially reasonable” to avoid suspicion.
In non-profit hospitals, unprofitable departments may continue to be maintained because they are an asset to the community they serve. To subsidize these departments, funds are often redistributed from more profitable areas of the hospital. High physician compensation can seem commercially unreasonable in low-earning departments such as emergency rooms, which are required to be open 24 hours a day and to stabilize every patient that comes in. Unless a sound reasoning is provided for the disproportionate compensation, a hospital can be accused of self-referral.
Stark Violation Investigations
The best way to combat a Stark violation investigation is to preempt it with a pre-transaction document. Before a financial agreement is reached, the hospital must lay out its rationale for providing a certain level of compensation, including the value of providing this physician’s service to the community. Because non-profits operate by cross subsidizing, the document should establish how the transaction factors into the hospital’s overall mission rather than that of a specific department. The document should also include specifics about the benefits of this particular hire, including any specialized skills they possess and how they may help advance the strategic goals of the hospital.
Hospitals should also be careful to avoid certain “badges of fraud” when drafting a financial agreement. These can include incentives such as bonuses that include a percentage of the facility fee or full-time benefits packages for part-time employees. Deals should never be closed without ample time for a thorough compliance investigation, and if referrals are tracked, there must be a legitimate reason besides financial incentive. Hospitals must also be careful with whom they consult in drafting a transaction; if a valuation expert is unaware of Stark regulations, or a number of legal opinions are rejected in favor of a more desirable one, the government may suspect wrongdoing on the part of the hospital.
Philadelphia Health Care Lawyers at Michelman & Bricker, P.C. Assist Physicians With All Stark Law Matters
Violations of Stark Law carry serious penalties and are best avoided altogether by properly documenting all financial transactions. The knowledgeable, dedicated Pennsylvania health care lawyers at Michelman & Bricker, P.C. work with healthcare professionals and facilities to ensure full compliance with federal regulations. If you find yourself the subject of a Stark Law investigation, our experienced litigators will prepare a sound legal strategy to successfully protect your interests.
With offices conveniently located in Philadelphia, Pennsylvania, Cherry Hill, New Jersey and Longmeadow, Massachusetts, we represent medical professionals in all legal matters in the Harrisburg, Philadelphia, and Cherry Hill areas, and throughout Camden County. Call us today at 215-557-9440 or contact us online to review your case with a qualified Pennsylvania Health Care Attorney.