CMS Self-Referral Disclosure Protocol

CMS issued its Self-Referral Disclosure Protocol on September 24, 2010. CMS mandated that CMS establish the SDRP when it passed the Affordable Care Act in March 2010. The purpose of the SRDP is to provide a process for health care providers to self-disclose potential and actual violations of the federal Stark law. Although CMS was given the authority to compromise the amounts owed due to a violation of the Stark law, it declined to directly exercise that authority in the SRDP. This significantly undercuts the utility of the SRDP to providers.

The Stark Compliance Dilemma

To establish a violation of the Stark law, the government needs to show:
• A financial relationship exists between a physician or a physician’s immediate family member and an entity that provides designated health services;
• The financial relationship does not fit within any of the Stark exceptions;
• The physician has referred a Medicare beneficiary to the entity for a designated health service; and
• The entity has billed Medicare for that service.

Unlike the Anti-kickback Statute, which requires some proof of intent to violate the statute, the Stark law is a strict liability statute and does not require any proof of intent.

The penalties for violating Stark include a civil monetary penalty of up to $15,000 per claim and possible exclusion from the Medicare and Medicaid programs. In addition, the entity has an obligation to refund any amounts paid by Medicare or the beneficiary.

The failure to refund any amounts paid can also constitute a violation of the federal False Claims Act, which was amended in 2009 to extend liability to knowingly and improperly avoiding an obligation to repay a known overpayment. The penalties for violating the False Claims Act are a civil penalty of up to $11,000 plus 3 times the amount of the damages.

Thus, a violation of the Stark statute, which has its own high penalties, can now lead to even further penalties under the False Claims Act. It also subjects the organization to qui tam suits by private plaintiffs attempting to collect the amounts owed under the statutes on behalf of the government. A number of plaintiff’s firms are actively soliciting qui tam plaintiffs who have knowledge of Anti-Kickback and Stark violations.

The amount of the potential pentalties under the Stark statute, particularly when combined with the penalties under the False Claims Act, are astronomical and often disproportionate to the harm caused by a violation. This disproportionality was noted by the American Health Lawyers Association, Public Interest Committee in its Stark white paper issued in August 2009:

Given the structure of the Law, innocent or highly technical violations can result in ruinous liability. For example, an administrator’s oversight in securing a physician’s signature can trigger the referral pohibition. The unlucky hospital is consequently prohibited from billing Medicare for all services ordered by that physician and if bills have been submitted, any amounts collected from the Medicare program are subject to recoupment. If the omission is not discovered for months or years, the hospital’s recoupment exposure mounts with each patient admitted and serivce ordered by the physician.

Compromising Stark Violations

Although Congress gave CMS the authority to reduce the amount due and owing for Stark violations, CMS chose not to directly exercise this authority in the SRDP. CMS is requiring a disclosing party to estimate the total amount of Medicare claims that were submitted in violation of the Stark law. The SRDP lists the factors that CMS will consider in reducing that amount:
1. The nature and extent of the improper or illegal practice;
2. The timeliness of the disclosure;
3. The cooperation in providing additional information related to the disclosure;
4. The litigation risk associated with the matter disclosed; and
5. The financial position of the disclosing party.

This approach provides cold comfort to a disclosing party. Even if CMS agrees to reduce the amount to 1% of the unlawful Medicare claims that were submitted, 1% of a big number is still a big number. Disclosing parties also have no way of estimating what the percentage reduction will be before they make the submission. This uncertainity will make it difficult for CFOs and auditing firms to account for the potential liability in year-end financial statements.

CMS has also reminded providers that they have an obligation to refund any amount owed to the Medicare beneficiaries who were the subject of the claims. It is not clear that CMS believes it has the ability to compromise these refund obligations. The SRDP states that any amounts collected must be refunded. Even if the amount of such refunds were reduced by the same percentage as the Medicare claims, there is a significant administrative burden associated with finding the current addresses for these patients, cutting the checks and tracking that the checks have been cashed. Any uncashed checks would need to be paid over to the State’s abandoned property department.

CMS could have addressed the disproportionality problem directly by establishing a schedule showing what the penalty would be for different types of so-called technical violations, such as allowing an existing agreement to lapse or failing to have a signed agreement in place prior to making any payments. This would have provided some certainty to providers on how much they would owe if they used the SRDP to report such violations. CMS’s unwillingness to do so has greatly diminished the utility to providers of using the SRDP to achieve Stark compliance and avoid a potential qui tam claim.

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