What a $345M Stark law ruling means for physician pay structure 

Indianapolis-based Community Health Network recently agreed to pay $345 million to resolve claims it violated the False Claims Act and Stark law, indicating the importance for providers to pay close attention to physician compensation arrangements, law firm Baker Donelson wrote in a Jan. 22 article published by JDSupra

The suit, which stems from a whistleblower complaint filed in 2014 by the nonprofit health system's former CFO and COO under the qui tam provisions of the False Claims Act, "underscores the enormous stakes of structuring physician compensation appropriately, notwithstanding competitive pressures," the article said. 

The United States sued CHN in 2020, alleging the health system gave appraisers false information on multiple occasions, doubled physicians' salaries based on what they earned in private practice and ignored multiple warnings about disconnects between high compensation of physicians and productivity. 

The suit also alleged an incentive component in compensation —- pay was explicitly dependent on physicians' technical referrals made in a compensation period. 

The allegation that the health system calculated incremental ancillary profits from integrating physicians, for example, is at odds with the actual compensation approach, which was based on fixed guaranteed compensation or wRVU-based compensation. According to the article, the government deemed this in conflict with the anti-kickback statute. 

"The most significant issue with backing into guarantee amounts and/or wRVU rates by estimating anticipated technical profits is that the resulting guarantee amounts and wRVU rates offered by the health system seemed exorbitantly high from a fair market value perspective," the article said. "... Perhaps the government was implicitly taking the position that if a health system was causing the physicians to be paid in excess of fair market value, the reasoning for that must have been to incentivize referrals even in instances in which the compensation was a set guaranteed amount or wRVU-based."

The article recommended health systems investigate whether the in-office ancillary services exception is available to its physician enterprises. These enterprises could implicate indirect compensation arrangements if they pay physicians for referrals to affiliated hospitals. 

"This is completely unrelated to the quality and appropriateness of the care Community provided to patients," CHN Spokesperson Kris Kirschner said in a statement shared with Becker's. "This settlement, like those involving other health systems and hospitals, relates to the complex, highly regulated area of physician compensation. Community has consistently prioritized the highest regulatory and ethical standards in all our business processes." 

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