Lawsuit Highlights Dangers of Physician Self-Referral

March 12, 2015

If you as a physician have ownership interests in any facility that you refer patients to, be sure you are in compliance with federal and state statutes.

North Cypress Hospital (Houston, Texas) and its CEO Dr. Robert Behar are named in a lawsuit filed by Aetna. The allegations include fraudulent billing schemes, as well as violations of Texas Insurance Code and Racketeer Influenced and Corrupt Organizations Act (RICO). Fraudulent billings schemes often implicate both the Federal and Texas anti-kickback statutes, which may include criminal penalties.

In general, this case is about a 139-bed hospital located north of Houston's downtown, with reported annual gross revenues exceeding $1.5 billion per year. While some may say, "Wow, how can we achieve those earnings," others may ask, "Why are there revenues more than twice that of similarly situated hospitals that have more patients and a different case mix index?" The latter question is also the one Aetna's complaint alleges.

One area that should be of particular interest to physicians in this case is the fact that there are physician ownership interests in North Cypress Hospital. Moreover, Dr. Behar allegedly utilized a process to track both the volume and value of the referring physicians. While this practice may not be uncommon, what is uncommon is for ownership interests to increase or decrease based upon referrals. As set forth in the complaint, "Absent this, patients would not knowingly be treated at North Cypress and agree to pay much higher out-of-pocket amounts required under the terms of their plan, when they could get the same services at a fraction of the cost at hospitals in Aetna's network within close proximity of North Cypress."

North Cypress, in a press statement, indicated that "North Cypress has established that Aetna's upper management has engineered a scheme to sue out-of-network providers throughout the nation to coerce them into financially burdensome in-network contracts with Aetna, by filing suits alleging baseless violations of law which do not apply in commercial contexts, to release damaging press statements, and to 'bring down' any provider who dares oppose it."

For physicians, there are many takeaways:

• Do you know how you are ranked among your peers in terms of volume of procedures at any given place?

• Do you know how the hospital that you refer to and have privileges at ranks in terms of its PEPPER Report?

• Do you know if your ownership interest in any entity that you refer to meets the guidelines of the safe-harbors for the 40/60 Rule (referring physicians cannot comprise more than 40 percent of the ownership and cannot generate more than 40 percent of the total revenues)?

• Do you know if the state that you practice in has more stringent anti-kickback provisions than the Federal statute? For example, under Texas law, transactions that do not involve government dollars (i.e., Medicare or Medicaid) are covered under the State's statute.

• Do you have a compliance program in place and are you familiar with the 60-day Rule for self-reporting?