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Antifraud Compliance Getting More Complex for Hospitals

Regulatory enforcement agencies intensifying focus on hospital-physician contractual arrangements

NEW YORK · April 21, 2008 /PRNewswire/ – The Deloitte Forensic Center reports that complying with federal statutes and regulations continues to get more complex for hospitals. Almost all physicians have ethical, mutually beneficial relationships with their hospitals, health systems, and suppliers. That doesn't mean, however, that hospitals or the physicians they enter into contractual arrangements with can ignore required documentation that helps support that the arrangement is valid and meets the appropriate regulatory requirements.

Intended to address perceived abuse of Medicare and Medicaid spending, these statutes and their regulations keep growing in scope and in disclosure requirements as public officials strive to address different varieties of healthcare fraud. Regulatory agencies estimate that fraud and self-dealing could be costing Medicare and Medicaid as much as $200 billion per year.

Additionally, last September regulators announced a new information-collection program requiring about 500 hospitals to file comprehensive reports on their contractual relationships with physicians. The timing of this requirement is still unknown.

To help clarify the issue, the Deloitte Forensic Center released an outline of the federal anti-kickback and physician self-referral statutes that have generated a number of government investigations. Gary Keilty, a principal in Deloitte Financial Advisory Services LLP, explained "Even though most physicians maintain careful, arm's-length relationships with hospitals, they are still the main 'gatekeepers' into the U.S. health system, so they remain the focus of regulators' attention. This latest round of rule changes and enforcement initiatives are just a reflection of that."

The new information-collection program announced in September imposes stiff penalties ($10,000 per day) for late filings. There will be much more scrutiny on the contractual relationships that physicians have with hospitals, other health systems, imaging centers, durable medical equipment suppliers, and other health professionals. Figuring out whether their physician relationships – from recruiting through medical directorships – will take much more careful effort on the part of hospitals and their senior management.

Why Monitoring Hospital-Physician Relationships Is Getting Harder

Two federal laws address hospital-physician relationships: an anti-kickback statute with criminal penalties, and a physician "self-referral" statute (the "Stark Law"), with civil penalties. The Office of the Inspector General (OIG) has been enforcing these statutes aggressively, with more than a dozen settlements with hospitals or health systems in the last three years.

Hospital employees have an incentive to report violations: "Whistleblower" statutes can result in rewards of up to 30 percent of any penalties the government collects. With millions of dollars at stake, these incentives can be very powerful.

According to Jack Gilbertson, senior manager in Deloitte & Touche LLP's Regulatory and Capital Markets practice, "The OIG's 'hot' enforcement areas for 2008 include services provided by non-physicians 'incident to' physician services, business relationships that include imaging services, billing for independent diagnostic and ultrasound services, and fraud related to reassignment of a physician's right to Medicare payments."

If a hospital uncovers a problem and wants to disclose it, the OIG has a "Self-Disclosure Protocol" that can lead to less painful settlements and penalties. This process can also mitigate the pain of ongoing compliance sanctions.

A hospital doing its own internal investigation should focus on potential problem areas such as (a) physician office space leases, (b) medical directorships and on-call agreements; (c) recruiting agreements; and (d) joint ventures and other partnerships that include physicians.

Hospitals may need to work with outside counsel or other consultants to manage an initial investigation of their hospital-physician contractual arrangements and to design a robust system to monitor them in the future.

The skills that make a good doctor do not necessarily translate to good record keeping. Hospitals may need to provide additional resources to make ongoing compliance and monitoring as effortless as possible for the physicians they have contractual arrangements with.


 Monitoring Hospital-Physician Contractual Arrangements

  • Healthcare fraud estimated at as much as $200 billion annually
  • Office of the Inspector General enforcing federal anti-fraud and self-referral statutes aggressively - with more than a dozen settlements in the past three years
  • "Whistleblower" statutes give employees a strong incentive to report abuses - Potentially up to 30% of any penalties the government collects as a reward
  • About 500 hospitals may be subject to extra requirements to report all contractual relationships with physicians
  • Self-reporting "safety valve" can reduce penalties and ongoing compliance burdens for hospitals that find and disclose violations
  • As "gatekeepers" into the medical system, physicians have many ways they can be connected to hospitals, imaging centers, clinics, durable medical equipment suppliers - so documenting all possible arrangements is a big challenge
  • Hospitals may need help examining existing arrangements and required documentation and to set up workable monitoring programs going forward

About the Deloitte Forensic Center

The Deloitte Forensic Center (DFC) is a think tank aimed at exploring new approaches for mitigating the costs, risks, and effects of fraud, corruption, and other issues facing the global business community. Unique to the marketplace, the DFC aims to advance the state of thinking in areas such as fraud and corruption by exploring issues from the perspective of forensic accountants, corporate leaders, and other professionals involved in forensic matters. The DFC strives to provide multidisciplinary analyses that companies and official organizations will find practical and helpful. A particular focus will be placed on the use of technology as a means of providing solutions to fraud and corruption detection, mitigation, and prevention. In addition to encouraging a public dialog on these issues, the DFC also will contribute to the development of the forensic accounting profession and raise its profile in discussions of issues of public importance. The DFC will accomplish its goals by bringing together leading professionals from a wide variety of backgrounds, including business, academia, law, government, and regulatory affairs. The Deloitte Forensic Center is sponsored by Deloitte Financial Advisory Services LLP.

About Deloitte

As used in this document, "Deloitte" means Deloitte Financial Advisory Services LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/about for details of the legal structure of Deloitte LLP and its subsidiaries.

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