Martin Merritt

Every physician should be aware of the rule for romantic or sexual relations with a patients: It's forbidden.  When it comes to "sexual harassment" in the workplace, the kind brought to light in the "Me Too" movement, medical facilities may have slightly different rules than other employers. 

 "Sexual harassment" is a form of sex discrimination that violates Title VII of the Civil Rights Act of 1964. Title VII applies to employers with 15 or more employees, including state and local governments. It also applies to employment agencies and to labor organizations, as well as to the federal government. Title VII does not proscribe all conduct of a sexual nature in the workplace. Thus, it is crucial to a Title VII, to  clearly define sexual harassment: only unwelcome sexual conduct that is term of condition of employment constitutes a violation. 29 C.F.R. § 1604.11(a).
The Supreme Court in 1986 in Meritor Savings Bank v. Vinson, 106 S. Ct. 2399  (1986) affirmed the basic premises as a guide to employers who should take any complaint seriously. They should undertake the following analysis as soon as any evidence of sexual conduct is present:

• Determining whether sexual conduct is "unwelcome";
• Evaluating evidence of harassment;
• Determining whether a work environment is sexually "hostile";
• Prevention of sexual harassment by supervisors; and
• Evaluating preventive and remedial action taken in response to claims of sexual harassment.

, "Petty slights, annoyances, and isolated incidents (unless extremely serious) will not rise to the level of illegality. To be unlawful, the conduct must create a work environment that would be intimidating, hostile, or offensive to reasonable people."


The employer is liable for harassment by a supervisor that comes from something like termination, failure to promote or hire, and loss of wages, the EEOC states. "If the supervisor's harassment results in a hostile work environment, the employer can avoid liability only if it can prove that: 1) it reasonably tried to prevent and promptly correct the harassing behavior; and 2) the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer."

 physicians normally must adhere to higher standard.  Under  

"Sexual harassment" can be defined as unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature.

Sexual harassment in the practice of medicine is unethical. Sexual harassment exploits inequalities in status and power, abuses the rights and trust of those who are subjected to such conduct; interferes with an individual's work performance, and may influence or be perceived as influencing professional advancement in a manner unrelated to clinical or academic performance harm professional working relationships, and create an intimidating or hostile work environment; and is likely to jeopardize patient care. Sexual relationships between medical supervisors and trainees are not acceptable, even if consensual. The supervisory role should be eliminated if the parties wish to pursue their relationship. 

Physicians should promote and adhere to strict sexual harassment policies in medical workplaces. Physicians who participate in grievance committees should be broadly representative with respect to gender identity or sexual orientation, profession, and employment status, have the power to enforce harassment policies, and be accessible to the persons they are meant to serve.

The EEOC says that prvention is the best tool to eliminate sexual harassment in the workplace. Specifically, employers are encouraged to take steps necessary to prevent sexual harassment from occurring, which includes communicating to employees that sexual harassment will not be tolerated. "They can do so by providing sexual harassment training to their employees and by establishing an effective complaint or grievance process and taking immediate and appropriate action when an employee complains."

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When it comes to sexual harassment in the workplace, physicians must adhere to higher standard.

A Guide to Preventing Sexual Harassment at Your Practice 

As physicians continue feeling the squeeze of declining reimbursements, uncompensated care, and recoupments, many are exploring the revenue-generating potential of ancillary services.  There appears to be some confusion as to the Stark Law "in-office ancillary services" and "group practice" exception.   

The very first question I ask of a client is whether or not referrals of Medicare and Medicaid patients are being contemplated.  This is the first question you must always ask when considering increasing income through referrals.  If the answer is "yes", the next question is whether the service is a Designated Health Service (DHS) which include: clinical laboratory services ,physical therapy services, occupational therapy services, outpatient speech-language pathology services, radiology and certain other imaging services, radiation therapy services and supplies, durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services.

If the referral is for a DHS and Medicare/Medicaid covers the claim, Stark Law applies.  Stark Law prohibits physicians from referring Medicare and Medicaid patients for designated health services to any entity with which the referring physician (or immediate family member) has any direct or indirect financial relationship unless an exception applies. 42 U.S.C. § 1395nn.

Unlike the Anti-kickback Statute (AKS), when Stark Law applies, the only safe way to make a referral is to fit squarely within an exception.  (Under the AKS, safe harbors are not mandatory, and the government must still prove a kickback was intended.  Thus, if the referral is for Medicare/Medicaid patients and the item is a DHS, you must find an exception or you cannot make the referral if you have any direct or indirect financial relationship with the DHS provider.

The most obvious exception is the "in office ancillary services" exception under 42 U.S.C. §1395nn(b)(2)) (or if the practice is actually a group, then you are supposed to apply the "group practice" exception under 42 C.F.R. § 411.352.) This is where people seem to be getting confused.  In order to apply the "in-office ancillary services" exception, you do not go out and buy a pharmacy, or a CLIA lab and set up down the street, or across town.  The ancillary services must be performed in the office or in the same building, and the people performing the services must be directly supervised by the physician, or a physician in the group. The services must be billed by the physician, or his group, under the same NPI number, or by an entity that is wholly owned by such physician or such group practice. In other words, the NPI number on the HCFA 1500 claim form should normally be the same as the physician or group practice.

You cannot "go in" with other doctors to buy a CLIA lab, or pharmacy, if you are not truly a "group practice," which is a "single legal entity." That is, according to 42 C.F.R. § 411.352, the group practice must consist of a single legal entity operating primarily for the purpose of being a physician group practice in any organizational form recognized by the State in which the group practice achieves its legal status.

Further, a management services arrangement typically is problematic, where a number of referring physicians do not own the DHS provider but attempt to pull profits out through a management company,  because an "indirect financial relationship" exists  under 42 C.F.R. 411.354(c)(2),  which must be analyzed under the indirect compensation exception 42 C.F.R. 411.358(p). This provides an exception if compensation is fair-market value and not determined in any manner that takes into account the value or volume of business generated. The agreement must also not violate the antikickback statute or other state or federal laws.

Finally, there are state laws to be considered. Texas, for example, will not permit a physician to dispense prescription medications for more than a 72-hour supply without complying with the Pharmacy Act. This would tend to eliminate in office pharmacies altogether.

As always, it is best to consult an experienced health attorney in your state before undertaking any plan which may implicate Stark law.

Unlike the Anti-kickback Statute (AKS), when Stark Law applies, the only safe way to make a referral is to fit squarely within an exception.

Typical Mistakes When Applying a Common Stark Exception

Many financial arrangements between referring physicians and ancillary service providers are structured to involve "commercial-only" payers.  This is (half-jokingly) reputed to be because commercial payers "don't have badges and guns." A key distinguishing feature between commercial insurance fraud units and the [Office of the Inspector General] and the FBI.  In other words, because Stark Law and the federal Anti-Kickback Statutes (AKS) only apply to government payers, the HHS OIG would not have jurisdiction over commercial-only cases.  State laws (and certain federal laws), however, continue to apply.

Under the various state versions of patient solicitation, anti-kickback and/or self-referral laws, it may permissible for a referring physician to possess an investment interest in, or maintain financial arrangement, with a provider of ancillary services. These statutes may permit, for example, partial ownership by a physician in a Clinical Laboratory Improvement Amendments (CLIA) laboratory, or a medical directorship of nursing facility to which the physician refers, if properly structured to conform to state law.  

Often under state law, reliance upon AKS safe harbors are expressly permitted by statute, such as Tex. Occ. Code 102.003, which states "[The Texas Patient Solicitation Statute] permits any payment, business arrangement, or payment practice permitted by [the federal AKS] 42 U.S.C. Section 1320a-7b(b) or any regulation adopted under that law."

In most states, commercial plans not only lack "badges and guns," but cannot sue for violations of these laws because the statutes themselves do not create a private cause of action on the part of insurance companies.  It is often difficult for insurance entities to convince law enforcement to prosecute complex business arrangements. Therefore, insurance companies must often find fault on a more granular, or "devil's in the details" basis. 

As such, a steady  rise is occurring in insurance recoupment and "claw-back" lawsuits, which fault anything from  the failure to collect copayments/ coinsurance, to attacking  "block leases" (where the technical component is leased to a physician for a block of time, then returned to the license holder), on the grounds that the license was not transferable under state law.

One case which bears watching was filed September 29, 2017, 

in Aetna, Inc vs. The People's Choice Hospital

, et al., filed in federal court in the Pennsylvania Eastern District. Aetna has alleged that an Oklahoma hospital-based laboratory toxicology lab/ management arrangement, PCH Labs, was in fact, a sham arrangement, designed to allow other San Antonio, Texas based CLIA labs to defraud Aetna and its members out of $21 million in payments over a 16-month period. The suit , which also names a number of referring doctors as defendants, alleges  that the out-of-network labs caused over 10,000 false claim forms to be filed, which fraudulently represented the services were performed at an in-network hospital, when in fact, none of the services were ever performed at the hospital. 

The problem seems to be in the claim forms, also known as “HCFA 1500.”  This form contains data entry sections or “blocks,” where the lab is supposed to list identity of the "rendering provider" and "location" of the service.   Aetna alleges that these blocks were falsely reported, for three reasons. First, the in-network contract would pay the hospital about $2,250 per test, while reimbursement for a stand-alone toxicology lab is about $120. Second, not all plans have out-of-network benefits, depending upon the employer or member's preference. Thus, the out-of-network claims should not have been paid at all, in many cases. Third, the patient responsible portion is much higher in out-of-network plans. This would have both reduced the payments from Aetna and caused the patient to consider carefully whether an out of network lab would be preferable at all.  

Aetna also alleges that the disclosure given to the patient was misleading. The patient was informed services would be performed at an in-network hospital, when in fact they were performed at an out-of-network lab.  

The Aetna suit implies that the financial arrangement between the physicians and the other defendants, motivated the physicians to refer to the out of network CLIA labs, rather than a lower-cost, in-network labs.  Thus, although commercial payers lack the enforcement tools available in government cases, and   the arrangement may very well comply with state versions of kickback laws, the method by which companies operate can still be a source of concern.  Which is probably the message Aetna intends to send to commercial-only providers.

A recent case shows physicians that while commercial payers don't have badges and guns, they can hit your wallet hard. 

Commercial Payers Aggressively Pursue Financial Arrangements 

Increasingly, physicians is solo or small practices are giving up entrepreneurship in favor of becoming hospital employees. The first legal step, usually involves negotiating an entering into an employment agreement with the hospital.

One of the more significant provisions in a hospital/physician employment agreement is the treatment of "clawbacks," or recoupment of moneys paid by an insurance company.  Typically, there will be two agreements, one between the physician and insurance companies, which existed prior to the contemplated hospital employment. The second will be between the hospital and the various insurance companies. These two agreements will always call for a clawback in the event payments need to be reversed for some reason such as medical necessity, or a coding discrepancy. Either the provider can write a check or have the money deducted from further payments. 

The trouble begins when the physician becomes an employee of the hospital.  The recoupment which will be "deducted from future payments," no longer involves only the physician, but the hospital as well.   

Most physician-hospital agreements will contain language assigning the physician's income to the hospital, and which calls for cooperation in recoupment audits, as follows:

"Physician hereby agrees to cooperate in good faith with any post-service review, utilization review, post-payment review, audit or investigation of healthcare services rendered by physician during the term of this Agreement.  In furtherance thereof, Physician shall make himself or herself available at no additional cost to Hospital, and shall assist and cooperate in good faith with Hospital in responding to questions and inquiries concerning healthcare services rendered by Physician." 

The important language to watch is that which immediately follows, the part dealing with the allocation of the clawed back amount.   In fairness, the physician should bear responsibility for any recoupment occurring prior to employment with the hospital. This is fair because the hospital didn't receive any of this income. If the recoupment relates to post-employment services, then a fair allocation would require the physician to only pay back the portion of the recoupment that he received as compensation from the hospital - not the entire amount of the recoupment.

More aggressive language will require the physician to indemnify the hospital for any claims, regardless of when the claim arose and without recognizing the compensation formula, such as the following: 

Physician hereby indemnifies Hospital for any costs, including legal fees, incurred by the Hospital in responding to or refunding amounts to a payor based on any audit or recoupment action against Hospital related to Physician's services.

Provisions such as this must be negotiated to prevent the physician paying back the entire amount of the recoupment, when the physician only received a portion of the payment. 

As with any contract, it is important to seek the help of an experienced healthcare attorney in negotiating hospital employment contracts.

Watch out for aggressive language in hospital employment agreements requiring physicians to recoup all payments to insurance companies.  

Author | Martin Merritt

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