How to Avoid a $46 Million-Plus Compliance Mistake

November 25, 2019

Hey, have you heard this one?

What do you get when you cross a compliance officer with a whistleblower?

In the case of Sutter Health and Sacramento Cardiovascular Surgeons Medical Group, Inc. (“Sac Cardio”), you get an agreement to pay the United States a total of $46,123,516.36 to resolve allegations related to reimbursement claims they submitted to the Medicare program.

Laurie Hanvey was employed by Sutter as its compliance officer at Sutter Medical Center, Sacramento. When, as she alleges, Sutter entered into a string of noncompliant financial relationships with Sac Cardio and other medical groups in contravention of her oversight and of Stark and the federal Anti-Kickback Statute (“AKS”), she blew the whistle. That is, she became the relator in a False Claims Act lawsuit.

Of the various claims made, that lawsuit resulted in a $500,000 plus settlement by Sac Cardio and a $30 million plus settlement by Sutter in regard to their relationship.

The balance of the total settlement consists of an additional $15 million to be paid by Sutter for other self-disclosed compliance improprieties.

According to the press release issued by the U.S. Attorney’s office, those self-disclosed violations resulted from referrals by physicians to whom Sutter facilities “(1) paid compensation under personal services arrangements that exceeded the fair market value of the services provided; (2) leased office space at below-market rates; and (3) paid reimbursements of physician-recruitment expenses that exceeded the actual recruitment expenses at issue.  Additionally, several Sutter ambulatory surgical centers double-billed the Medicare program by submitting claims that included radiological services for which Medicare separately paid another entity that had performed those services.”

The allegations brought by Ms. Hanley in regard to Sutter’s relationship with Sac Cardio are particularly instructive for physicians and medical groups.

Among the allegations were that Sutter “stacked” a series of agreements providing aggregate annual compensation exceeding $1.9 million to Sac Cardio, which amount was commercially unreasonable and grossly in excess of fair market value, all to reward the group for its high-volume referrals. As a result, the complaint claimed that the overall arrangement violated both Stark and the AKS.

Specifically, the elements of the arrangement included:

  • A series of cardiovascular call coverage agreements paying up to $912,500 annually, an amount that increased drastically over the time period covered by the complaint. The complaint alleges that Sac Cardio received that deal to the exclusion of all other cardiovascular surgeons on staff at the hospital.
  • A “Physician Assistants Agreement” that obligated Sutter to pay Sac Cardio for four PAs at the rate of $170,000 per FTE, a total of $680,000 per year. As part of the arrangement, Sac Cardio was not to bill for the PAs’ services, yet it was alleged that Sac Cardio did in fact bill third party payers, including Medicare.
  • A series of medical director agreements that paid Sac Cardio up to a total of $318,264 per year.

Here are some additional takeaways for you:

1. Just because a large entity, for example, a hospital or a surgery center management company, tells you that a deal’s been vetted by their lawyers and is “legal,” don’t bet on it. Vet it through your own counsel and assess your own risk. As in carpentry, measure (assess) twice, cut (do the deal) once. Or don’t do the deal – you get the idea.

2. Whether or not you see a series of financial arrangements as related, in other words, as a total arrangement, whistleblowers and the government will. Make sure that the overall relationship passes muster. That includes the fact that overall compensation is within the range of fair market value. Sticking a wet finger in the air to see which way the valuation wind is blowing does not generate sufficient data to support your defense.

3. And, remember, as one of my early mentors was fond of saying, pigs get fat, hogs get slaughtered.

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