Navigating Changes in the Recovery Audit Contractor Landscape

I recently interviewed Rachel Rose, a lawyer in Houston. Rachel has worked both on Capitol Hill and in private practice and kindly shared her knowledge about the problems physicians face from Recovery Audit Contractor (RAC) audits.

MM: What is the history of the Recovery Audit Contractor Program?    

RR: Adopted as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) in an effort to protect the fiscal integrity of the Medicare program, the RAC Program began a three-year demonstration period.

Congress subsequently made the RAC program permanent and mandated nationwide adoption by 2010.  

MM: How does Medicare define medical necessity and what impact does it have on a provider’s reimbursement and audit exposure?

RR: The Medicare definition of medical necessity under Title XVIII of the Social Security Act, section 1862 (a)(1)(a) states: Notwithstanding any other provisions of this title, no payment
may be made under Part A or Part B for any expenses incurred for items or services, which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

Given the broad definition, this gives a great deal of latitude for RAC contractors denying
claims, which can be both costly and time consuming to appeal. Moreover, and significantly for physicians, Connolly, Inc., who had previously been tasked with “reviewing past claims for physician and hospital services in 15 states will start scrutinizing the billing of office visits, claims that had previously been off-limits to Recovery Audit Contractors.” (Charles Fiegl, Medicare Auditor Targets E&M Services for Review, Oct. 1, 2012; available at www.ama-assn.org). Limiting reviews to the southeast and mid-Atlantic and utilizing statistical sampling, Connolly will determine how many incorrect payments occurred under the evaluation and management (E&M) code 99215. Ibid. Therefore, increasing a physician’s audit exposure and highlighting the need for substantiating the medical record.

MM: Who conducts the audits? (two types of audits – automated and complex; medical director is required by law).

RR: There are many types of contractors that conduct audits including: RACs, Medicare Audit Contractors (MACs) and Zone Program Integrity Contractors (ZPICs). RACs are required to post the areas they are reviewing on each contractor’s website, so providers have a semblance of what to focus on. Not surprisingly, medical necessity was at the top of the list.

MM: What is the maximum number of charts that can be requested for review?

RR: On March 15, 2012, additional guidance on documentation request limits was provided. Suppliers and physicians were not included. (CMS, Medicare Fee-for-Service Recovery Audit Program – Additional Documentation Limits for Medicare Providers; available at www.cms.gov)
Key takeaways include:

• Maximum request amount is per campus – meaning “one or more facilities under the same Tax Identification Number (TIN) located in the same area (the first three digits in a ZIP code). For example, Provider A has two physical locations in ZIP codes 12345 and 12356. These two locations count as a single campus unit because the first three digits of the ZIP code are the same. Provider B has two physical locations in ZIP codes 12345 and 21345. Because the first three digits are different, this counts as two campus units and the formula for the number of records which can be requested applies to both locations.

• A provider’s prior calendar year Medicare claims volume provides the basis for the number of records, which can be requested.

• The request limits may be exceeded in one of two ways: by CMS on its own initiative or by a recovery auditor (RA) requesting permission. Either way, a provider is notified in writing by either CMS or the RA.

MM: What is “pre-review” versus “post-review”?

RR: The RAC Program is typically classified as a “post-review.” That is, either the automated or the complex review occurs after the claim has been processed. In August 2012, the Prepayment Review Demonstration website was established. The purpose of the pre-review program, which runs from January 2012 through December 2014, is to lower the error rate and prevent improper payments on certain conditions. These are listed on the website. Initially, the program will apply to states HEAT [with high populations of fraud and errors] (CA, FL, IL, LA, MI, NY, and TX) plus MI, OH, NC, and PA.

Physicians should check this website and the respective RAC website frequently to mitigate the risk of an audit and appreciate highlighted areas of vulnerability.

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States Should Be Wary of Expanding Medicaid Under ACA

As I listened a few weeks ago to a presentation on the financial factors favoring expansion of Medicaid under the Affordable Care Act, a thought occurred to me which made the whole subject much more interesting: “Dear Lord, they are salting the mines!”

Although I have previously studied and written on most of the provisions of the reform law – complex numbers make my head hurt.  Given the 50/50 chance Mitt Romney would be elected, I selfishly had half a hope that I just might be able to skate altogether on how the federal government intended to convince states to buy into expanding Medicaid rolls. Alas, the fates were against my laziness. So it was a month after the election that I found myself crestfallen, listening to a lecture on complex numbers. Then, like a blue tick hound, my ears perked up.

I was born in the Smokey Mountains, and I know a “scam” when I hear one, and certainly know what “salting” is.   Salting occurs when a land owner, wishing to sell an essentially worthless gold mine, fills buckshot shells with solid gold. Then, he literally blasts gold into the walls of the mine. On the surface, the result looks like the veins in a genuine gold mine. It isn’t until the victim invests his money (and the seller is long gone) that the mine is revealed to be worthless.

Medicaid under Title XIX of the Social Security Act of 1965 has always been something of a “wedge” issue. Care for the poor had historically been a local matter, and in the South in no small way, there was a racial component. Care for poor minorities in many states fell woefully short; “separate but equal,” existing in name only.  In the mid-60s, state’s rights advocates conceding that change was inevitable, nonetheless wanted to keep the federal government out of the delivery of healthcare, and more importantly, did not want a huge new federal bureaucracy. If at all, conservatives felt the government should deliver block grants of money to the states to be administered as they saw fit.

After much debate (and arm-twisting), Congress decided that Medicare for the elderly would be the sole responsibility of the federal government. The states would administer Medicaid funds for the poor, with federal government picking up just over half of the tab. Simply being poor, however, did not make someone automatically eligible.  In most states, a person must be poor, plus some other qualifier such as pregnancy, disability, or being below the age of 18.

The Affordable Care Act expands coverage in 2014 to anyone up to 133 percent of the federal poverty level for all states which participate. The U.S. Supreme Court upheld the reform law in National Federation of Independent Business v. Sebelius in part because participation in this new Medicaid expansion by the states is “voluntary.” Realizing that expansion of Medicaid would create new financial burdens and new administrative nightmares, one might reasonably ask, “Why would any state agree?”

This is where the “salting of the mines” comes into play.  The federal government front-loaded the deal with golden buckshot, and blasted it into the sides of the mine. “We will give you 100 percent of the funds to pay for the expansion,” the feds told the states. “It won’t cost you anything.” At least, that is, forthree years.

That’s when my ears perked up. The feds are up to something. Could it be what looks like a gold mine, will play out quite differently?  The way this works is simple, but takes a little thought.  The expansion of Medicaid would come as a great relief to both the poor and hospitals (who must treat emergencies without regard to ability to pay) alike. Although the poor are not politically powerful, hospital associations are. The federal government salts the mine with free dollars, counting on hospital groups to pressure states into buying in.

After three years, when the 100 percent subsidy begins to expire, the federal government is banking that it will be politically impossible for state-elected officials to take away an entitlement once the poor have gotten used to medical insurance as a welfare benefit. (Some also suspect that this is a Democratic master plan to give the poor a reason to vote.) Once the states have bought in, many fear the states are in for a rude awakening. The federal government will then “cost shift” to the states in the name of balancing the federal budget. 

How do doctor’s groups feel about this? According to a December 12 story by David Pittman, writing for MedPage Today, many state medical associations have kept a low profile on the topic. Although many governors, including Texas’ Rick Perry have vowed to refuse to expand Medicaid under the reform law, the Texas Medical Association hasn’t taken a stance on the issue. “We’re vetting the issue right now,” spokeswoman Pam Udall told MedPage Today. “We won’t have a firm position until late December.”

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Concierge Medicine: The Cash-only Solution to a Successful Practice

“Atlas Shrugged,” the 1957 novel by Ayn Rand, explores a dystopian United States where many of society’s most productive citizens refuse to be exploited by increasing taxation and government regulations. The novel poses the question: What would happen if Atlas (representing the minds that drive society’s growth and productivity) grew tired of holding up the world, and simply “shrugged” instead? Rand poses that a world in which the individual is not free to create is doomed. That civilization cannot exist where every person is a slave to society and government, and that the destruction of the loss of profit motive leads to the collapse of society.

In a playful nod to Rand, “Atlas MD,” is a concierge medical practice which has indeed “shrugged.” Featured in the December 3, 2012 Bloomberg Businessweek cover story by Devind Leonard, “Atlas MD” is one of many of a growing number of “cash-only” practices, run by physicians Josh Umbehr and Doug Nunamaker which does not accept government or traditional insurance plans, (although two-thirds of their actually patients have insurance) .

While concierge practices used to refer only to high-end practices for the wealthy, more and more, “cash-only” practices provide affordable primary care at reasonable rates, which at the same time, provide a more holistic approach to care. This leads to a more satisfying practice for physicians, many of whom are tired of being exploited to prop up a failed insurance model.

In eschewing government and managed-care programs, “cash-only” practices have also shrugged off liability under Stark Law, the Anti-kickback Statute, the False Claims Act, the Civil Monetary Penalties Statute, and the Exclusionary Statute; no more RAC audits and no more sweating CPT Code chart documentation. Most importantly, no more endless phone trees waiting for approval, or second-guessing from medical students moonlighting as managed care “medical directors.” In fact, concierge primary-care physicians report the same level of income from seeing as few as 400 patients. While conventional practices require an average of four staffers to deal with insurance company headaches, “cash-only” practices require none.  

Leonard’s Bloomberg article reports, “There are 4,400 concierge doctors in the U.S., 30 percent more than there were last year, according to the American Academy of Private Physicians, their professional association. ‘This is all doctors want to talk about,’ says Jeff Goldsmith, a health-care industry analyst and trend spotter.” According to the article, more and more doctors report the sentiment, “I want to go off the grid. I’m done billing Blue Cross. I can’t deal with this anymore. It’s destroying my life and my relationship with my patients.”

Statistics support the frustration. According to Bloomberg and Leonard, “[i]n 2011, the average American medical practice spent $82,975 per doctor dealing with insurers …that same doctor has 3,281 active patients over a three-year period.” Further, the physician rarely has time to see them for more than a few minutes. The attraction of concierge medicine for the physician isn’t hard to fathom: They can winnow down their patient roster, spend more time with each, and do away with insurance-related headaches.

Critics worry that all isn’t well with the “cash-only” alternative. To many, there is something un-American about refusing to accept the governments’ below-cost reimbursement scheme. They argue “cash-only” practices will lead to a shortage of primary-care physicians, because the model “become[s] more enticing in 2014 when the Affordable Care Act’s individual mandate requires everyone to be insured,” Bloomberg reports. “The law will enable 30 million previously uninsured people to get coverage through an expansion of Medicaid. They’ll need primary care, but it’s not yet clear who will give it to them.”

But in a very real way, it is the very essence of American ingenuity to identify a problem, and come up with a free-market solution.

Finally, shrugging off Medicare isn’t as easy as simply deciding one day that you will no longer accept government patients. As with anything the government does, there are complex sets of rules, which we covered earlier this year in this blog.

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Understanding How Federal Health Laws Are Published and Organized

As a physician, it is important that you keep abreast of what is required of you under rapidly changing federal laws. But to follow the law, you must be able to find it in a sea of gibberish and the strange sets of numbers and abbreviations following the common names of laws. If you have ever been frustrated by this, let’s take away some of the mystery.

Federal health law normally comes from two sources: Congress and federal agencies. Only Congress makes statutes, while agencies make administrative regulations. Statutes are initially only found by using the common name (and abbreviations and numbers that follow common names) such as the Affordable Care Act, “Pub. L. 111-48, 124 Stat. 119.” Later, portions of some of these statutes will be cut and pasted into the appropriate United States Code, (such as 42 U.S.C. 1395nn.) Regulations adopted by agencies such as CMS, OIG, and HHS will be accompanied with the citation, “Code of Federal Regulations” (i.e.,42 C.F.R 411.350) and/or the Federal Register (i.e., 72 F.R. 51012). Let’s look at how these laws get these confusing abbreviations and numbers, and what they mean.

Acts of Congress
The Constitution grants to Congress the power “to make all Laws which shall be necessary and proper.”  Traditionally, these acts were printed on parchment. Congress will usually give the act a common name, such as the “Patient Protection and Affordable Care Act.”  (Although others, such as “Obamacare” may stick.)  Individual Acts of Congress, are numbered chronologically in the order in which they become law. (Public Law 111-48 is the 48th law passed by the 111th Congress.) At the end of the term of Congress, the various acts are placed in a sequential bound set of books called the “United States Statutes at Large,” (citations look like this: “64 Stat. 980”). But this only tells a part of the tale.                               

Acts of Congress are like grocery bags in that a single act often contains provisions for many different organizations who depend upon them – with a paragraph here on “defense,” and a section there on “taxes”- but with no organization.  Even when the acts are bound together in a volume of session laws, they are basically like bags on a shelf.  You can’t find anything – even if you know generally when the act was passed.  

How do these acts get organized so that we can find them? Simple. Somebody has to put the “groceries” away in an organized fashion. That’s where the Office of the Law Revision Counsel (LRC) of the U.S. House of Representatives springs into action and the United States Codes (U.S.C.) come into being.

The United States Code is divided into “titles” (based on overall topics) numbered 1 through 51. Title 42 contains Medicare and Medicaid statutes (for example, “Stark Law” was originally 42 USC §1395nn). The United States Code is actually a “revisionist’s history” in which the LCR editors take virtual scissors (and paste) to Acts of Congress, in an effort to carry out Congress’ intent of adding to, deleting, and modifying laws. Pieces of a single act may end up in many different volumes, and are usually completely renumbered to match the paragraphs of the U.S.C.  The Roman numerals are not important under the U.S.C. because the Code numbering system is unique, (there is only one 42 U.S.C. §1395nn, while there are many Title XVIIs used by Congress.)

While the U.S.C. is better organized for finding things than official acts or public laws, there are still problems. Until an act is placed into the U.S.C., it can be difficult for mere mortals to find something like the “Sunshine Act,” (because it is actually a small part of the ACA, not a free-standing law.)  

Adding to the misery, when Congress or an agency refer to, add to, take away, or amend a law (seemingly just to annoy us,) the government won’t use the simpler U.S.C. system. Instead, the government uses the original chapters, titles, and sections contained in the original loose-leaf “Pub. L” or “Stat.” version. (Example, the “Sunshine Act” in ACA was an Act to Amend Title XI of the Social Security Act – and not the United States Code Section where the amended statute could more easily be found.) Although necessary, this can drive a person crazy unless you actually work on Capitol Hill and cross-reference for a living.

“Alphabet Agency” Regulations
 Congress enacts major legislation, but may delegate day-to-day rule-making to what are commonly termed the “alphabet agencies,” which are actually part of the executive branch of government. CMS for example, is part of a department headed by the President’s Cabinet-level appointee, the Secretary of Health and Human Services (HHS.)  

Regulations of the alphabet agencies are first published in the federal register (see below) and in the C.F.R. volume matching the enabling statute or Act of Congress under the U.S.C. Thus, Medicare regulations are published in the multi-volume 42 C.F.R, which matches the volume number of Medicare statutes under 42 U.S.C. It is often difficult to know whether there are federal regulations in addition to a Congressional Statute. (For example, Stark Law is comprised of both Statutes 42 U.S.C. 1395nn. and three different versions of federal regulations under 42 C.F.R. 411.350 et seq.)

The Federal Register
Much like a cash register, the Federal Register is published daily and records everything the government does. The federal register is not good for finding things if you do not have the volume and page. It is said to be where the government “thinks out loud.” Anything can go into the Federal Register, including proposed rules for public comment, or public laws prior to codification. Because the Federal Register is published daily, it serves the useful purpose of providing an immediate volume and page number for government action (such as 72 F.R. 51012.)  However, because the Federal Register is only organized in chronological order, it does not match the U.S.C. or C.F.R. numbering system.  

So how do you find laws and regulations? Fortunately, we have the Internet. All of the statutes, codes, and regulations are published in full text on the Internet. To find them, it is often easiest to look up an article written by healthcare professional or lawyer that contains a hyperlink to the law discussed, then simply “click.” I can’t promise what you read will make sense, but at least you will understand what all the abbreviations and numbers mean.

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The Basics of Independent Practice Associations

Independent Practice Associations (IPAs) can eliminate the isolation, headaches, risks, and expense associated with independent private practice, while preserving your independence. IPAs can eliminate much of the duplication of expenses, such as office management, EHR compliance, coordinated care systems, and case management systems, and certain IT hardware.

As state and federal governments seek to encourage cost savings measures which are equal parts “carrot” (shared savings plans or accountable care organizations) and “stick” (fraud and abuse enforcement) now more than ever, circling the wagons through the formation of IPAs would seem to be clearly indicated. There are several types of IPAs, with different characteristics and goals. Not all are created alike – so you will need to be aware of the differences.

The most common type of IPA in California and the West Coast, are those in which the IPA negotiates a managed care contract under a capitated HMO-style medical services agreement. These are also the type of existing IPAs which are most readily able to convert to an ACO model, because they are accustomed to capitated risk-sharing models.

In other areas of the country, (Texas, in particular) IPAs were initially thought to be a useful way to collectively bargain for higher payments under fee-for-service insurance plans. The idea was that physicians could band together and refuse to treat patients in a town unless the insurance plan agreed to meet the IPA members agreed upon minimum price. If enough physicians banded together, the insurance plan would have no choice but to meet the IPA’s terms. While this seemed like a great idea to the physicians, it is what the FTC termed in 2005, a text-book example of “wheel and spoke” criminal horizontal price fixing under the Sherman Anti-Trust Act. Here’s a very good summary of what the FTC considers illegal, beginning on page 21.

In part, because price fixing is illegal, IPAs in non-HMO country began to focus upon benefits of sharing of costs, and administrative overhead for independent physicians. Today, the government is pushing everyone toward HMO- style shared savings ACOs. IPAs which become clinically integrated could provide the very model for this change. Here’s an excellent article on this topic from Marisa Torrieri of Physicians Practice.

As a physician considering joining an IPA, before you sign anything, you should consult a healthcare attorney to review all documents. IPA agreements are notorious for being short and seemingly simple on the front end, while incorporating by reference many other documents which you agree you have read and understood, when you really haven’t, and you really don’t. (Under contract laws in most states, you are bound by anything you should have read before signing, but failed to do so.) An experienced a health lawyer can also ensure that Stark Law and Anti-Kickback Statute issues have been addressed in the contracts.

There will be much more in the coming months on the conversion of IPAs into ACOs in Physicians Practice.com.

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When It is Legally Acceptable to Accept Gifts at Your Medical Practice

In this third installment of the series on gifts and payments from the industry to physicians, we will cover some of the more common issues under AMA Ethics Opinion 8.061, Stark Law and the Anti-Kickback Statute (AKS).

It all starts during internships and residency programs with three-foot-long subway sandwiches and pizza offered to exhausted doctors in training. Later, boxes of expensive gifts arrive in your established practice. You may be offered free educational trips, employment contracts, or research grants. Or, you may be offered free stuff to hand out to your patients. This is all designed to condition physicians to associate pharmaceutical detailers with “goodies,” and to condition the human response so well known to Madison Avenue’s “Mad Men.” If you give someone freebies, the gift triggers a human instinct to reciprocate; even if the reciprocation involves nothing more than giving the detail person a few moments of your time.  The more successful you become, (defined by how many prescriptions you write) pizza boxes are replaced by offers of free trips or contracts to serve as a “thought leader” who shapes opinions in your field, on the pharmaceutical company’s nickel.  And it works – studies are able to link spikes in prescription activity to pharmaceutical giveaways.

The government has also figured this out. Stark Law, 42 U.S.C 1395nn and the AKS 42 U.S.C §1320a-7b and the new Sunshine Act under the Affordable Care Act have fairly well put an end to the days of cash kickbacks and free or discounted product to be sold for profit, at least with major pharmaceutical companies.

AMA ethics opinions are the source material for many Stark Law and AKS rules.  Although the government may not expressly say so, it does seek to defer to, and reconcile Medicare and Medicaid Fraud and Abuse Laws with AMA Ethics Rules (See, AMA Ethics Opinion 8,061 “Gifts to Physicians from Industry.”)   

The question remains: What can you accept from the industry? First as AMA Opinion 8.061 (7) makes clear: “No gifts should be accepted if there are strings attached.” In governmental AKS parlance, you may not accept a gift or employment, if the idea is that you will write prescriptions in exchange for the consideration. Additionally, employment compensation must do no more than compensate you for the time spent. With that in mind, let’s start with the simple, less complex examples, and progress to more sophisticated (and expensive) giveaways. Think of “kickbacks” in terms of an accounting balance sheet. Anything given which adds to the “income” side, or gives away something you ordinarily must pay for on the “expenses” side, is suspect. Income for doing work should balance against the time you lost seeing patents while doing the work. Under the AKS, if what you gave for something is out of balance with what you received, you may have kickback issues. 

It’s Just Lunch

Can a pharmaceutical detail person still buy you or your staff a pizza? Probably. Especially where lunch is a forum for learning about a drug or device that may help you serve your patients. Do not accept cash or gifts cards redeemable anywhere. Although HHS has grumbled, there is a link between lunches and prescribing practices, the practice is still legal, to a point. See, HHS’ Roadmap to Physicians. The Roadmap notes, (as I wrote in “Stark Laws and Gifts Sent to Your Medical Practice,”) under the Sunshine Act, gifts will be reported. Additionally, you cannot ask for a free lunch, and you can’t, under the AKS, offer to write a prescription in exchange for a free meal. (That’s selling patronage to the highest bidder.) Currently, the occasional meal won’t likely land you on the OIG’s 10 most wanted list, even if HHS doesn’t like free lunches.   

Free Specimen Cups and More Expensive Glucometers

Because AMA Ethics Opinion 8.061 makes clear, “gifts to your practice from the industry should be of primary benefit to the patient,” pharmaceutical and device companies may offer everything from free specimen cups to more expensive free gulcometers to be given to insulin-dependent patients. It is one thing to accept a few specimen cups, pens, or writing pads to save a trip to the supply store; it is another to accept medical devices which have real value, with the intent they be given to patients. Remember, you may not ordinarily ethically give anything of value to a patient to induce the patient to come to you. This is because often, someone else is paying the bill, and the patient should be motivated solely by his medical needs. This is especially true if the patient is a government program beneficiary, it does not matter where you got the thing of value, nor does it matter that it did not cost you anything. It is a felony to offer freebies of significant value to get medicare/medicaid patients in your door.

Free Drug Samples

Everyone gives away free samples.  Particularly prior to Medicare Part D, it was somewhat understood that physicians might be able to identify those patients who could not afford a prescription, and distribute accordingly. What you may not do is sell free samples as though you paid for them. Further, it is the safest practice to give away no more than is necessary to start the patient on therapy, until he can get the prescription filled. In some states, such as Texas, the limit you may hand out is codified (72-hour supply). You must also have a system in place to separate free samples from those administered under Medicare Part B to ensure that free samples are not comingled with those for which reimbursement may be sought.

Trips

The basic ethics rule is that educational trips paid for by pharmaceutical and device manufacturers should not be “fun.” (Many False Claims Act cases involve trips to Scotland to play golf.) Trips ethically should be educational in nature, and should not be simply payment of a free trip to listen to a short infomercial. Certainly, the trip should not come with strings attached.

Employment

According to the HHS Roadmap for Physicians: “Some pharmaceutical and device companies have used sham consulting agreements and other arrangements to buy physician loyalty to their products. As a practicing physician, you may have opportunities to work as a consultant or promotional speaker for the drug or device industry. For every financial relationship offered to you, evaluate the link between the services you can provide and the compensation you will receive.”

The Roadmap for Physicians lists a series of questions which you should ask yourself before accepting employment. These questions might seem a bit ridiculous. I assure you, the OIG takes these very seriously. Further, employment agreements must meet the safe harbors under Stark Law and the AKS.

If you are paid $1,500 to write and deliver a speech, you are likely going to be fine, as long as you spend $1,500 in time writing and delivering the address. The larger the contract, or the greater the length of time you are retained as a consultant, the more likely you will wish to seek the advice of an experienced Stark Law attorney to ensure that the employment agreement meets the safe harbors.  

Finally, the Roadmap for Physicians lists a set of resources on page 9, under the “help” graphic.

Next week, I’ll take a look at Independent Practice Associations, or IPAs.

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Stark Law, the AKS, and AMA Ethical Opinions on Drugs and Devices

In last week’s installment, we covered how the troubles of Lance Armstrong relate to the Amgen “fraud-on-the- market” case currently pending before the U. S. Supreme Court. This week, let’s talk about the ethics involved.

The late 1980s marked the beginning of the “Golden Era” of what amounted to a medical technological gold rush. Small biotech companies and university research facilities funded by the National Institute of Health were able to license new drugs to major pharmaceutical companies – and Wall Street went nuts.

Marketing departments unleashed an army of drug reps bent on signing contracts with hospitals, clinics, and individual physicians with promises of free drugs, hidden discounts, and other kickback schemes. The federal response to all of this fraud has been legendary. Today, the major firms have gotten the message. It is much less likely a physician will be presented with a scheme from a major pharmaceutical company which is patently illegal (It’s the smaller operations you must watch out for.)

While federal anti-kickback regulations can be confusing, all you really need to know is contained in AMA Ethics Opinion 8.06. Follow these guidelines, and you should be in compliance with federal law.

Opinion 8.06 – Prescribing and Dispensing Drugs and Devices

(1) Physicians should prescribe drugs, devices, and other treatments based solely upon medical considerations and patient need and reasonable expectations of the effectiveness of the drug, device, or other treatment for the particular patient.

(2) Physicians may not accept any kind of payment or compensation from a drug company or device manufacturer for prescribing its products. Furthermore, physicians should not be influenced in the prescribing of drugs, devices, or appliances by a direct or indirect financial interest in a firm or other supplier, regardless of whether the firm is a manufacturer, distributor, wholesaler, or repackager of the products involved.                                                                  . . .

(3) A third party’s offer to indemnify a physician for lawsuits arising from the physician’s prescription or use of the third party’s drug, device, or other product, introduces inappropriate incentives into medical decision making. Such offers, regardless of their limitations, therefore constitute unacceptable gifts. This does not address contractual assignments of liability between employers or in research arrangements, nor does it address government indemnification plans.

For the most part, as a physician, you can “feel it in your bones” when someone is trying to buy patronage. Some of the schemes, however, contain hidden kickbacks.

Next week, this three-part series will conclude with a discussion of federal regulations derived from fee-splitting ethics opinions, together with a discussion of the types of reported cases involving hidden kickbacks (those which involve “in-kind” as opposed to cash payments.)

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Stark Law and Pharmaceutical Company Kickbacks

This week, Lance Armstrong desperately fought to preserve his “Livestrong” Foundation after details emerged of an illegal blood-doping scheme, which resulted in the erasure of his seven Tour de France championships.

Lance Armstrong’s downfall, though tragic, provides an excellent starting point for a three-part series studying the ethics of gift-giving schemes and the consequences under federal, civil, and criminal law, in the event your practice should consider accepting illegal gifts from drug companies, medical device manufacturers, home health companies, and others.

Exactly how do Lance Armstrong’s blood- doping problems relate to your practice? The answer as it turns out, is “quite a bit more than you might think.”

In the 2011 documentary novel by Kathleen Sharp, “Blood Feud: The Man Who Blew the Whistle on One of the Deadliest Prescription Drugs Ever,” (New York: Penguin Group Publishing) the book’s author exposes the dark side of pharmaceutical marketing. “Blood Feud” is a behind-the-scenes true account told from the perspective of Mark Duxbury, a fresh Johnson & Johnson drug representative who was given the task of selling the new anemia drug “Procrit” to physicians and hospitals in the Pacific Northwest.

Sharp details how in 1981 the tiny biotech firm, Applied Molecular Genetics (Amgen), isolated and synthesized human erythropoietin (epo) – a hormone naturally produced by the kidney which stimulates the production of red blood cells. Although according to Sharp, Amgen had created the world’s first big genetically engineered drug, Amgen was also strapped for cash from the lengthy FDA approval process. In 1989, Amgen practically gave the patent away when it sold a huge (but ill-defined) share of the marketing rights to Johnson & Johnson.

Because market share in the simple five-page contract was poorly worded, a battle for market share ensued between partners who were selling identical drugs: J & J’s “Procrit,” and Amgen’s “Epogen.” Sharp describes how Druxbury’s bosses soon demanded that he steal Amgen’s clients, by offering illegal (but cleverly hidden) 8 percent kickbacks and thinly disguised “research” grants to physicians and hospitals, which were designed to win patronage through perverse incentives. Sharp then details how much to the surprise of both Amgen and J & J, professional bicycle racers (apparently including Lance Armstrong) began acquiring illegal supplies of Procrit and Epogen to cheat in bicycle races.

If the story isn’t seedy enough, it gets much worse. Sharp also recounts Duxbury’s shock at the realization that veterinarians had begun writing J & J to claim an 8 percent bonus for injecting race horses and dogs with Procrit. In order to understand just how bad this is, we need to unpack this. Veterinarians were: 1.) illegally injecting animals with human epo hormone; 2.) allowing criminals to illegally cheat on; 3.) gambling activities; then 4.) were claiming the illegal 8 percent kickback for illegally prescribing a human drug to animals, in order to illegally cheat on racing.

Amgen, for its part, allegedly had a much more clever way of offering kickbacks to physicians. Amgen allegedly began overfilling single-dose vials of its drug, then encouraged doctors to harvest the overfill. Amgen internal marketing documents show that the company encouraged doctors to bill the government as if the doctors had actually paid for the harvested dose (which would be a form of kickback.)

Although Amgen recently set aside nearly $1 billion to settle state and federal whistleblower lawsuits, it has appealed the whistleblower cases to the United States Supreme Court. An excellent brief

(written in opposition to Amgen by a retirement fund in support of the plaintiffs) details the systemic fraud allegedly perpetrated by the pharmaceutical industry.

Although the federal regulations on accepting gifts can be quite confusing, physicians may fairly well steer clear of all federal offenses by simply adhering to a few rules contained in the AMA Code of Medical Ethics.

Next week, we will discuss what those rules are.

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Weighing Whether an ACO is Right for Your Medical Practice

A poll published Thursday by The Kaiser Foundation revealed that 9 out of 10 seniors are very satisfied with their Medicare coverage.

“Fifty million Americans are relying on the program and they’re very satisfied with it,” said pollster Rebecca Ray. “They like the current version. They like the version they’re receiving now.”

CMS is currently conducting pilot programs which change the way Medicare pays for physician services. Accountable care organizations (ACOs) are very similar to the old HMO models which ration care under a capitation, or per-person basis. If the ACO saves the government money, the group of physicians who formed the HMO earn a bonus.

In 1965, Congress brought to seniors a package of Medicare benefits, backed by the full faith and credit of the U.S. Treasury. Congress did it again in 2003.  Much like the Wizard of Oz, Congress seemingly had the power to grant wishes as if all things are magically possible. Medicare Part D added a drug benefit to the package.

But even in the Land of Oz, all things are not magically possible. There is this curtain, you see.  And if you pull it back, things get ugly. We can’t pay for all those benefits. Back in 1965, physicians were promised two things: one, the government would pay 80 percent of the usual and customary fee for services; and two, the government would not seek volume discounts from physicians. Over time, the government reneged on these promises. CMS has literally tried everything to bring down the costs of Medicare, from fee schedules, all-inclusive rates, mandatory bundling, and payments to hospitals based upon diagnosis – and we still can’t afford to keep Medicare solvent.

According to a recent Forbes Magazine article, by 2019, further cuts in physician fee schedules will be “so draconian that payments become even lower than Medicaid, a system by which doctors already lose money and most refuse to accept patients.”

ACOs are a tricky subject both in the halls of Congress and medical industry groups. Seniors like the system the way it is. It is thought to be political suicide to threaten to limit benefits. It is not clear how CMS plans to encourage seniors to sign up to trade freedom of choice, for what is essentially an HMO. Medical associations are naturally wary of any promise made by Washington, D.C.  

Historically, the government has sold a new program by making the initial deal too good to pass up. With ACOs, however, even in the beginning the carrot frankly doesn’t sound all that tempting. In fact, the greatest selling point for physicians may be the fear of being left out of an ACO, with a fee-for-service schedule lower than current Medicaid levels.

At this point, it is difficult to even know the right questions to ask. Fortunately, the American Academy of Family Physicians (AAFP) has published an excellent list of frequently asked questions about ACOs, subtitled “Everything you need to know about Accountable Care Organizations (in plain English).”  

Here, the AAFP answers many questions, such as: 1.) whether you should sell your practice to an ACO, or be left out; 2.) whether the monetary incentives are sufficient to transform practice patterns, or if ACOs are just a passing fad; and 3.) what actions you can take immediately. As with any time of great transition, education and careful investigation of your options can be the greatest investment of your time to ensure you make the decision which is right for you. 

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Stark Law and Gifts Sent to Your Medical Practice

It is the holiday season, and that means two things: I must avoid shopping malls and my office will be inundated with calls from physicians and vendors wondering if it is permissible to give or accept gifts. The short answer: If the gift is cash, or anything like cash, (such as a Visa gift card redeemable for cash,) just say ‘no.”

As the credit card tagline goes, “for everything else,” there’s a regulation.  First, anything of value directly or indirectly provided to a physician (or their family members and office staff) may implicate the federal law prohibiting certain referrals by physicians, 42 U.S.C. § 1395nn (the “Stark Law”) and the federal anti-kickback statute, 42 U.S.C. § 1320 a-7b (b) (the “Antikickback Statute”). Hospitals organized under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code” or the “IRC”) are also subject to certain restrictions and reporting obligations in connection with such gifts and incidental benefits (the “Federal Tax Requirements”).

Second, effective January 2012, the Sunshine Act required that pharmaceutical companies and durable medical equipments suppliers report gifts to physicians in excess of $25. But CMS was bombarded with comments following the release of draft regulations. CMS now says it will not begin collecting data until 2013. This delay, however, should not be read to mean that until 2013, you can accept a gift certificate to Pebble Beach Golf Resort “just this once.” The delay simply means the vendor need not report a gift to the government. Stark Law and Anti- Kickback Statute regulations remain in full effect.

Stark Law and the Anti- Kickback Statute consider “gifts” a form of “compensation” arrangement. Stark Law regulations published in 2007 contain a Safe Harbor for non-monetary compensation. The aggregate limit was $300, and has been adjusted for inflation each year. Today the limit is in the range of $330. Medical staff gifts have a limit of $25 per gift, adjusted each year, with no aggregate limit.

In addition, the gift may not be solicited by the physician or your staff. There are a few other rules: (a) amount of the gift cannot be determined in a manner that takes into account the volume or value of referrals; (b) the gift must not violate the Anti- Kickback Statute; and (c) cash and cash equivalents are strictly prohibited, as are gifts or free items offered to group practices (e.g., medical equipment), even if the thresholds are not exceeded in the aggregate.

Particularly suspect are gifts which are given after each referral, or after a particularly successful referral.

The AMA, addressed vendor gifts in Ethical Opinion 8.061, “Gifts to Physicians from Industry.” Although the AMA recognizes that gifts given to physicians by companies in the pharmaceutical, device, and medical equipment industries often serve an important and beneficial function, the AMA Ethical Opinion recommends that certain guidelines be followed (click on the link above), including that any gifts accepted by physicians should primarily entail a benefit to patients and should not be of substantial value.

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