Texas Hospital Self-Reports Stark Violation to Feds, Winds Up With $400,000 Settlement despite Voluntary Reporting

Reprinted from REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

By Nina Youngstrom, Managing Editor, (nyoungstrom@aispub.com)

When the new management at Hardeman County Memorial Hospital realized that a lease agreement with one physician — negotiated by the previous management — possibly violated the Stark self-referral law, the hospital self-reported it to the feds. The hospital now has settled for nearly $400,000, the U.S. Attorney's Office for the Northern District of Texas said March 17.

Hardeman CEO Scott Nail thinks the government was too unforgiving considering the self-disclosure, which he says will deter other hospitals from coming forward to reveal their violations.

The hospital completed the HHS Office of Inspector General's (OIG) Self-Disclosure Protocol (SDP), but the case was ultimately resolved by the U.S. attorney's office.

According to the settlement with Hardeman, a physician was receiving "free rent and utilities in a clinical building owned by [the hospital] for many years." Hardeman also "acknowledged" to the feds that the physician referred Medicare beneficiaries to the hospital for all types of health care items and services between 1994 and 2005, the document says. So all claims submitted to Medicare during that time stemming from the physician's referrals would have been improper and violated the False Claims Act, the feds allege.

"This is not just a run-of-the-mill Stark violation — it is a pretty serious violation of Stark and the anti-kickback statute if it's true," says former OIG Chief Counsel D. McCarty Thornton. "In voluntary disclosures, the government will usually cut [the hospital] a break, but even so, Hardeman got hit fairly hard for this violation."

The SDP was created in 1998 as an avenue for providers to voluntarily disclose irregularities in their dealings with federal health programs in exchange for the opportunity to avoid a full-scale OIG audit or investigation and potentially negotiate a reduced settlement and escape Medicare exclusion. But apparently providers weren't using the SDP much for Stark and anti-kickback issues. So in April 2006, OIG sweetened the deal in an "open letter" that told providers they could resolve these cases for fines "near the lower end of the continuum" as long as OIG is satisfied with their SDP participation, according to the letter.

In a statement, the U.S. attorney's office says the Medicare program paid Hardeman "substantial sums" for services referred by the physician, but that the government agreed to significantly reduce the settlement amount and allow it to be paid over two years because Hardeman "demonstrated ongoing financial difficulties." The hospital does not admit any wrongdoing and denies all liability. It fully cooperated with the investigation, the U.S. attorney's statement says.

Nail tells RMC that Hardeman tried to do the right thing in self-reporting, but he contends that the outcome is unfair. "We made the decision with legal counsel to do a self-disclosure because we thought it was in our best interest. The [Department of Justice] and the OIG — their take on this and how they handled it — doesn't [encourage] other hospitals to self-disclose," he says.

"This is a $400,000 settlement against a small hospital. I know it could have been more severe than that, but this was obviously not something that was purposefully done, and we are the only hospital in town, so the physician wasn't going to refer patients to any other facility anyway," Nail continues. He also says that, to his knowledge, the physician is not repaying the government and was not even investigated.

"Any time that you have something that you don't want to do, you see the unfairness in it," he says. "But as this information [about this case] gets out and other hospitals think about self-disclosing, I would think that they would not do it because $400,000 on a budget like ours is a lot of money, and it's having an impact on the facility and the community," he says.

Greg Demske, OIG assistant inspector general for legal affairs, wouldn't comment specifically on the Hardeman case, but says the use of the SDP for Stark and anti-kickback violations has increased since the release of OIG's open letter. "The open letter was a success," he says. When providers bring violations to the SDP, he adds, "we are almost always resolving them at the lower end of the continuum" in terms of fines and penalties.

CIA Requires 'Arrangements Database'

Hardeman signed a three-year corporate integrity agreement (CIA) with OIG as part of the settlement. Among other things, the CIA requires the hospital to set up an "arrangements database" to track its contracts with physicians. Hardeman also must hire an independent review organization to review all the arrangements.

Thornton, who is a lawyer with the Washington, D.C., office of Sonnenschein, Nath & Rosenthal LLC, says both of these provisions are typical in these types of cases, but that hospitals should already be watching their deals with physicians very closely through something like an arrangements database. "Mistakes are easy to make in these relationships, and the Stark statute is quite unforgiving in the sense that if contracts are not signed on time or expire with no one paying attention, you could find yourself with violations that could easily have been prevented," he says.

New management or owners also can learn from this case, Thornton adds.

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