Tuomey Doesn’t Justify Stark Law Revisions

I spent some time yesterday reviewing the testimony before the Senate Finance Committee a few weeks ago by health care providers and other organizations regarding the need for revisions to the Stark Law.

The general substance of the Stark Law is probably familiar to most people in the health care industry but likely not to those outside this realm. The law prohibits physician self-referrals of designated health services in Medicare and Medicaid.

In the testimony as well as surrounding statements, such as one by the American Hospital Association, I’ve seen a few sections concerning the Tuomey case and the chill that the result could put on the development of alternative payments to the flat fee for service system. The complexity of the law and the need for measures to stop health care cost inflation notwithstanding, these references to Tuomey are somewhat amusing.

The facts under Tuomey have been well developed with two trials and an appeal of the judgment to the 4th Circuit. Tuomey was a They entered into compensation arrangements for services with physicians that would refer them business. A doctor who was presented with the contract objected to its terms, concerned that the government would deem the relationship in violation of the Stark Law.

An expert on the Stark Law was brought in and told them that the contract contained a “red flag”, the government had prosecuted similar cases before, and that the DOJ would find this “an easy case to prosecute.”

What happened? You know where this is going. Tuomey went ahead with the deals anyway! The doctor became a whistleblower under the False Claims Act and reported them through the qui tam provisions to the Justice Department. The DOJ ultimately secured a $237 million judgment against Tuomey. They settled the case for $72.4 million and the company sold itself to Palmetto Health, a multi-system hospital system based in Columbia, South Carolina.

The healthcare organizations are now arguing that the law needs to be changed because it is too complex, it prevents them from developing innovative payment options and rewarding physicians for good patient outcomes. They further contend that the Anti-Kickback Statute can handle the concerns of bad referrals and that the Stark Law should be repealed or limited to ownership interests.

But I cringe when I see Tuomey cited by them as an example of the problems with the law. They were told what the law was and ignored the advice. They couldn’t be helped and at least in my judgment, weren’t an innocent victim.

It seems highly likely based on the Senators’ comments regarding the Stark Law that change is coming. The white paper titled “Why Stark, Why Now? led by Utah Republic and Senate Finance Committee Chairman Orrin Hatch suggests as much. The question is what will those reforms look like.

During this process, it is important to remember that health care fraud is still a huge problem. The concerns addressed by the Stark Law and Anti-Kickback Statute are important: patients must be able to trust that referrals for their medical care are based on their best interests and not the payment of a kickback to a doctor. And health care providers seem to be engaged in more fraud than ever, despite CMS announcing recently that it managed to save $42 billion over two years that would otherwise be lost to improper payments.

The Sunshine Payments Act was a good start in providing patients with the information that they need to evaluate potential biases of doctors. It would be a shame to role back the progress by eliminating the Stark Law. Does anyone outside of the healthcare providers really think that eliminating the law prohibiting referrals made based on a profit motive will lead to less expensive health services?

In the last few years, we have seen businesses call for improvements to the False Claims Act. The False Claims Act is typically used by whistleblowers to report false statements or false claims for payment to the U.S. Federal Government. It pays a reward to whistleblowers of between 15 and 30 percent of the recovery, as well as authorizes treble damages to the U.S. Government for its damages from the false claims and statements. Instead of improving it, these calls for reforms often request provisions that would undermine its core goal: fighting fraud.

If reforms of the Stark Law improve patient outcomes and decrease the costs of healthcare services, then they should be considered. But calls that the law is too complex and costly by providers should be watched carefully as they bring with them the potential to pull the wool over the eyes of the government and the watchdogs.

For additional information about the Stark Law, please contact one of our False Claims Act attorneys.

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