Advisory Law Group, a Professional Corporation

The healthcare law world is abuzz over a new, rare federal court opinion, commonly known as the "Carlisle Case," construing Stark.  But what does the case really mean for your medical group?
I'm going to give you the boiled down facts followed by my contrarian view of what the case really means for you and what you need to do right away.
Basic Facts of, and Behind, the Case
In 1992, an anesthesia group and a hospital entered into an exclusive contract.  The agreement covered intraoperative anesthesia but contemplated that the group might later provide chronic pain management services.  The 1992 agreement also gave the group certain option and first refusal rights to enter into exclusive contracts at future hospital-related facilities. 
During the second year of the exclusive contract term, the group began providing chronic pain management services at the hospital.

Then, in 1998, the hospital opened an outpatient clinic which included a pain management center.  The group and the hospital did not enter into any new or additional agreement, or modify their 1992 agreement, in respect of the pain center but the group operated it on an exclusive basis.  At the pain center, the hospital provided the group with free use of office space, including a waiting room, exam rooms and secretarial space, as well as free use of furniture, equipment and staffing.

Some patients received consults by group pain doctors and were prescribed medication.  Those professional services were billed by the group; there was no facility fee charged.  Other patients received consults and then were referred by the group physicians to the outpatient center for diagnostic testing and for procedures.  In respect of this second subset of patients, the group billed for its professional services and the hospital billed facility fees for the tests and procedures.  The patients of the pain center included individuals covered by Medicare and other federally funded healthcare programs. 

Later, one of physician-owners left the group and opened a competing pain management practice.  He claimed that without fair market consideration from the group to the hospital for the space, equipment and services the hospital provided at the pain center, the group was receiving remuneration for the referral of pain management patients for tests and procedures at the hospital clinic.  Therefore, the arrangement was in violation, in respect of Medicare, Medicaid and other federally funded patients, of the federal anti-kickback law and Stark. 

The Lawsuit and Opinion

The former group member filed a whistleblower action under the False Claims Act, claiming that the hospital falsified certification of its compliance with the federal anti-kickback law and with Stark, a requirement imposed on the hospital in order to obtain payment from federally funded healthcare programs.
In its defense, the hospital claimed that the 1992 agreement applied to the pain center and that the situation was covered by the personal services exception to Stark and the federal anti-kickback law. Those exceptions require a written agreement. 

On appeal (United States Of America Ex Rel. Ted D. Kosenske, M.D. v. Carlisle HMA, Inc.; Health Management Associates, Inc.), the United States Court of Appeals for the Third Circuit had to determine whether the arrangement between the group and the hospital complied with the personal services exception.  If it did, there could be no False Claims Act violation. 
The court found that the group referred federally funded patients to the pain center for diagnostic tests and procedures.  It held that the hospital's provision of free pain clinic space, equipment and support personnel constituted remuneration to the group under the anti-kickback statute and Stark for those referrals.
The court strictly analyzed Stark's personal services exception, which is similar to that of the anti-kickback statute.  The only written agreement between the group and the hospital was the 1992 exclusive contract.  The court found that it did not apply in respect of the pain center.

The court stated that the 1992 exclusive agreement did not explicitly include the pain center within its scope - there was no pain center at the time, such that the 1992 agreement could not apply to a nonexistent facility.  The hospital's argument that Medicare considered the outpatient facility to be a part of the hospital for billing under its provider number, such that the pain center arrangement was included within the 1992 exclusive agreement, was rejected as having nothing to do with Stark Act concerns. 
The court also stated that even if the 1992 agreement could be read to apply to the pain center, it did not mention the pain management space, equipment and services, whether at the hospital or at a later free-standing pain clinic.  There was no arms-length negotiation over the fair market value of the space and services provided, but even if there were, the fact of negotiation alone does not establish fair market value.

What This Case Really Means to You
     Audit every arrangement between your group and a facility to which you refer patients.  In order for your deals to comply with the personal service exceptions to Stark and the federal anti-kickback statute, your written agreements must document the parties' respective obligations and remuneration with a high degree of specificity.  If they don't, fix them immediately.
     If the scope of performance or amount of remuneration changes, you must immediately re-analyze Stark and anti-kickback law compliance.  If the relationship can permissibly continue, the revised relationship must be completely documented. 
     Option and first refusal rights as to other facilities in an agreement to provide services at one location should be assumed to not be specific enough to cover the provision of services at those other facilities. 

     Every arrangement in which the level of services or support provided by the hospital, or the scope of services provided by the group, has changed since its inception must be audited for strict compliance with Stark and the federal anti-kickback law.

     Arrangements that often go unquestioned due to the lack of an exclusive contract are even more vulnerable to attack.  Therefore it is even more essential that those arrangements be audited for compliance.

     Fair market valuation in respect of hospital-physician arrangements, whether or not reduced to a formal exclusive contract, must be supported by documentation. 

     There's more than one way to attack an agreement between a physician group and a facility, whether or not it's an exclusive contract.  The Carlisle case is an illustration of the use of the False Claims Act to disrupt the exclusive relationship between a hospital and a physician group. 
     Even if your practice has no federally funded patients, you can expect that state courts construing state law counterparts to Stark (that is, prohibitions on "self-referral") and state anti-kickback laws will be influenced by the opinion in the Carlisle case.
     Your partner (or employee or subcontractor) may be your downfall.  In the Carlisle case, the whistleblower was a physician who was a partner in the group which benefited from the violation of Stark and the anti-kickback law.  Pick your partners and other colleagues carefully.  Although not a panacea, groups must avail themselves of all possible noncompetition and similar restrictive provisions to dissuade competition that, once contemplated, might lead to indirect competitive attacks, such as a False Claims Act allegation.  

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Obtaining a highly favorable exclusive contract or other long term agreement with a hospital requires far more than engaging in the face-to-face phase of negotiation:  You must carefully position your group and the story of the benefit it provides to the facility.

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