A May 9, 2006, Los Angeles Times article (Lisa Girion, U.S. Programs May Exclude Tenet Hospital, The Los Angeles Times, May 9, 2006 at C9), it was reported that, “… the Department of Health and Human Services’ Office of Inspector General notified Dallas-based Tenet that it intended to exclude Alvarado Hospital Medical Center in San Diego from the Medicare program, the Medicaid plan for the poor and all other federal health programs. The decision is based on allegations that Alvarado paid kickbacks over 10 years in order to induce doctors to refer patients for services and items paid for by the federal programs. ” This action follows two mistrials in which jurors were unable to agree as to whether Tenet, Alvarado Hospital Medical Center and a former employee were guilty of related criminal charges. To read more, see The LA Times.
The “Stark” statute, 42 U.S.C. §1395nn, is also known as the Physician Self-Referral Law or Section 1877 of the Social Security Act. The Stark law was intended to prevent physicians from profiting (actually or potentially) from their own referrals. The Stark statute acts prospectively, i.e., it prohibits relationships that have been demonstrated to encourage over-utilization. Because it is a strict liability statute, there is no need to show knowledge or intent.
Medicare and Medicaid programs depend on physicians and other health care professionals to exercise independent judgment in the best interests of patients. Financial incentives tied to referrals have a tendency to corrupt the healthcare delivery system in ways that harm the federal programs and their beneficiaries. Corruption of medical decision-making can result when a physician refers a patient to a provider on the basis of the physician’s financial self-interest instead of the patient’s best interests. Restrictions on the practice of self-referral exist at both the state and federal levels.
Medical directorships, interest free loans/forgiveness of debts, illegal recruitment arrangements and improper discounts in the form of professional courtesy, may represent additional financial windfalls to physicians, resulting in hospital referrals and a violation of the “Stark” statute. A Stark scenario may also be present when a hospital circumvents potentially compliant contracts by providing outside of what appear to be legitimate contracts, office space, renovations, equipment, furniture, housekeeping services, office supplies, copy and fax machines, telephone, utility and transcription services to referring physicians for free or less than fair market value.
The pharmaceutical industry is attempting to curtail the success of the federal False Claims Act by discouraging its application and expansion to additional states. While big pharma lawyers argue that these cases are nothing more than a “lottery ticket,” Jill Kozeny, Senator Grassley’s spokeswoman, attributes the recovery of “billions of dollars that would have been otherwise lost to fraud” to federal False Claims Act as further discussed in a recent article that appeared in The Washington Drug Letter. (Stephen Langel, Industry Attorneys Warn States Not to Enact False Claims Acts, Washington Drug Letter (May 8, 2006).