Supplemental Compliance Guidance Recommends Stark and Kickback Compliance Procedures

Scott - head DSC_8910

The Chief Counsel to the Inspector General identifies Stark and kickback compliance as a “significant concern for hospitals” in its Supplemental Compliance Guidance for Hospitals (the “Supplement”) (see OIG Draft Supplemental Compliance Program Guidance for Hospitals, issued June 8, 2004). The Stark and kickback risks are tremendous: civil monetary penalties of up to $15,000 per service under Stark and $50,000 per violation under federal anti-kickback law, plus possible criminal kickback sanctions. Stark also expressly prohibits hospitals from receiving payment on claims for designated health services furnished pursuant to a referral prohibited by Stark.

The Supplement acknowledges that knowingly violating the Stark law may trigger False Claims Act liability. Additionally, False Claims Act liability may arise where the anti-kickback statute violation results in the submission of a claim for payment under a Federal health care program. Bootstrapping Stark and kickback claims into False Claims Act violations allows qui tam relators to enforce Stark and kickback laws and adds monetary penalties of up to $11,000 per claim on top of already staggering fines.

Hospitals must continue vigilance for violations in the risk areas highlighted in the Inspector General’s 1998 Compliance Guidance for Hospitals, such as upcoding, unbundling, medically unnecessary services, insufficient documentation and false cost reports. Most hospitals have focused their compliance efforts on such claims preparation and submission issues. Stark and kickback compliance procedures are often non-existent or superficial, limited to verifying that written contracts meet safe harbor requirements.

The greater dangers in Stark and kickback compliance are that contract requirements are not followed in actual practice and hospitals are compensating physicians in undocumented arrangements. The Supplement warns that “[p]arties to an arrangement cannot obtain safe harbor protection by entering into a sham contract that complies with the written requirement of a safe harbor and appears, on paper, to meet all of the other safe harbor requirements, but does not reflect the actual arrangement between the parties.”


The Supplement suggests some inquiries to focus hospitals’ assessments of financial arrangements with physicians. This Stark and Kickback Compliance Questionnaire summarizes the suggested inquiries. The Questionnaire focuses on four categories highlighted by the Supplement: (a) joint ventures; (b) compensation arrangements with physicians; (c) recruitment arrangements; and (d) malpractice insurance subsidies. These four categories certainly do not cover the gamut of arrangements that may violate Stark or kickback, and providers may wish to expand the focus of the Questionnaire to include other appropriate categories of Stark and kickback risk. The Chief Compliance Officer should oversee completion of the Stark and Kickback Compliance Questionnaire at least annually and maintain copies to document the compliance process.

This Employee Questionnaire poses specific questions to all hospital employees designed to uncover undocumented or noncompliant physician benefits. Hospital employees may be disregarding potentially compliant written contracts or compliance procedures by providing free goods and services to assist non-employed physicians in their own private practices. The Employee Questionnaire may evoke the complaints of potential qui tam relators before they resort to plaintiffs’ counsel. Completed Employee Questionnaires may also provide evidence that senior hospital management did not know about any alleged kickbacks despite diligent compliance efforts.

Stark and Kickback Database

The Chief Compliance Officer should oversee the design of a system to disseminate and collect the Employee Questionnaires, and to summarize and act on the responses. The system ultimately should identify and maintain a database on all financial and compensation relationships with physicians because such relationships implicate both the Stark and kickback laws. In addition, the system should identify relationships with non-physician entities for kickback compliance (Stark applies only to physician relationships), including verification that the non-physician entity is not indirectly benefiting physician stakeholders. The system should be updated at least annually. An example of a Stark and Kickback Database Entry Form is here.

Stark Exception Analysis

The Supplement rightly concludes that the “statutory and regulatory exceptions are the key to compliance with the Stark law.” Unlike the kickback safe harbors, which are voluntary, fitting in an exception is mandatory under Stark. With the so-called Stark II regulations becoming effective on July 26, 2004, providers should review and update their procedures for ensuring compliance with the Stark exceptions. A summary of the available Stark exceptions is located here, including cross-references to the relevant statutory and regulatory authority.

One or more Stark exceptions should be assigned to each financial and compensation arrangement with a physician identified by the system and stored in the database, whether the arrangement is documented or undocumented. Furthermore, the database should include periodic verification that each individual element of the applicable exception still is met in actual practice. For example, each lease of office space to a physician should (i) be in writing and signed, (ii) specify the premises, (iii) specify the term, (iv) have a term of not less than one year, (v) set rent in advance consistent with fair market value and not tied to referrals, and (vi) not exceed the premises reasonable and necessary to accomplish the business purpose of the lease. Sampling may be appropriate at this level of detail, but given the high stakes of noncompliance, each arrangement should be reviewed for continuing compliance every 2-3 years.

Kickback Safe Harbor Analysis

Although the kickback law makes safe harbors voluntary, hospital compliance procedures should be more rigorous. Like the Stark compliance procedures, one or more kickback safe harbors should be assigned to each financial and compensation arrangement with both physicians and non-physicians identified by the system and stored in the database, whether the arrangement is documented or undocumented. A summary of the available kickback safe harbors is located here, including cross-references to the relevant statutory and regulatory authority.

Hospitals must ensure that each physician arrangement fits within both a Stark exception and a kickback safe harbor. The Stark exceptions and kickback safe harbors frequently differ, requiring careful and detailed analysis. The Supplement focuses on Stark and kickback laws and thus signals the need for hospitals to undertake the challenging task of structuring and implementing effective Stark and kickback compliance procedures now.