Articles on Compliance Strategies

Featured Health Business Daily Story February 6, 2008

Pressure Mounts for Audits of Physician Contracts; Tax Forms Are Used to ID Problems

Reprinted from REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

By Nina Youngtrom, Managing Editor, (nyoungstrom@aispub.com)

Over the years, the two biggest compliance issues faced by Trinity Health stemmed from physician financial relationships. While there were also occasional billing problems to resolve with the government, the potential for staggering liability under the Stark law — as well as the anti-kickback law and IRS intermediate sanctions for private inurement — led Trinity Health to develop an auditing program that goes far beyond contract review, says Michael Holper, senior vice president of organizational integrity and audit services for the Michigan-based nonprofit integrated delivery system.

"You can have a lot of billing-related issues that, when you add them all up, wouldn't come close to approximating the potential financial exposure to an organization resulting from bad physician arrangements because of the way the Stark law applies to Medicare," says Holper. If a hospital's financial relationship with a physician violates Stark, all of the hospital services provided or referred by that physician are tainted - which means Medicare won't pay for them. The reimbursement has to be returned, and the hospital faces fines.

A lot of organizations, he says, don't have auditing and monitoring programs for physician-relationship minefields. "When I talk to compliance officers, I find there is a lot of auditing and monitoring around billing compliance in their organizations. When asked about auditing and monitoring of physician financial relationships, many compliance officers will point to legal counsel and say, 'They're responsible for physician contracts,'" Holper says. The problem is that legal review can ensure compliance only to a point. When organizations enter arrangements with physicians, lawyers give a stamp of approval in terms of Stark, kickback and IRS compliance.

"But compliance issues may occur outside of the four corners of the contract," he says. "It is…the administration of these arrangements, outside of the contracts, that can present additional compliance exposure."

So Trinity Health internal auditors regularly review whether the contracts, as they live and breathe, comply with system policies on the Stark and anti-kickback laws and the IRS prohibition against private inurement and private benefit (which imposes intermediate sanctions on insiders, such as executives and physicians, who derive personal benefit from tax-exempt funds).

It's a one-two punch: Implement policies that require compliance with these laws and regulations, and then monitor compliance with the policies. "We wanted to establish a set of policies and procedures that we knew, if followed, would essentially ensure our compliance with all three laws and regulations," says Holper, who also spoke on this topic with Cynthia Wisner, Trinity Health's assistant general counsel, at the Health Care Compliance Assn.'s annual institute in April.

First, Trinity Health put in place a high-level board policy, which set the direction for the organization when entering into or renewing relationships with physicians, says Wisner. The board policy set forth five elements required before CEOs or service-line surgery center operators, for example, could sign contracts, she says:

• Written agreements with physicians.
• Documentation of fair-market value.
• Documentation of the business purpose or community need of a financial agreement.
• Review and approval of the contract by legal counsel. Board of trustees' approval.

Then it developed administrative-level policies that further address requirements related to each of those five elements (e.g., how to assess and document fair-market value for physician compensation arrangements using external benchmark surveys, how to document legal counsel review), Wisner says.

Auditors Check Master List Against Tax Forms

Periodically, Trinity Health internal auditors perform reviews to determine whether policies are being complied with in practice, not just on paper. "The auditors are not attorneys," Wisner notes. The auditor gets a list of physician relationships with the Trinity Health organization (e.g., hospital, home health agency). Then the auditor meets with the manager responsible for the financial arrangement (e.g., lease, employment agreement). The documentation in the contract file is examined to determine whether it's complete. Is fair-market value documented? Is a final contract on file, signed by both parties? Is there evidence of board or board committee approval? Was a legal counsel review performed and documented?

The auditor also gets a computer file of current, active medical staff and all their W-2 and 1099 forms to make sure that he or she has a complete list of financial arrangements. "We want to know if there are other arrangements outside of what they've given us," Holper says.

Routine audits like these play an important part in ensuring the effectiveness of an organization's policies and internal controls over financial relationships with physicians and can identify issues that require further attention, he says. For example:

(1) Compensation reported on the W-2 or 1099 that is not on the original list of contracts.

(2) Differences in reported compensation on a W-2 or 1099 from that reported on the contract list.

(3) Issues with respect to proper tax reporting of compensation (employee versus independent contractor), particularly when physicians may have multiple arrangements.

Auditors also should check into controls on the accounts-payable side. "There should be a mechanism to prevent payments to physicians by accounts payable unless there's a valid contract," Holper contends. "Auto-pays" are more vulnerable to abuse, he says, because payments keep rolling on until someone intervenes to stop them. Regular review and confirmation of payment amounts for compliance with contract terms require close cooperation between accounts payable/finance and other areas of the organization.

Compliance with laws and regulations impacting financial relationships with physicians will become even more critical if CMS finalizes a proposed period of disallowance under Stark. The period of disallowance refers to the time period during which a financial relationship between an entity that provides designated health services and a referring physician violates Stark (which means it doesn't meet any Stark exception).

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