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Where's the line between fair pay and health care fraud?

All clinics and hospitals want to provide quality health care. Most want to keep improving. Often, that means recruiting the best and brightest physicians available. To recruit these doctors and specialists, the clinics and hospitals need to offer competitive salary, but what happens if they raise the bar too high?

The answer is that they might run afoul of the Stark Law. Like the members of Indiana’s Community Health Network, they could find themselves facing serious charges of health care fraud. Convictions could cost them millions of dollars as well as possible jail time. But how do we know whether the hospitals and clinics are committing fraud—or simply responding to market pressures?

How the Stark Law makes it illegal to pay physicians too much

The issue of physicians’ salaries is a legal concern thanks to the Stark Law, which was originally created in 1989. As Becker’s Hospital Review noted in a summary of the law, it has grown over time and is now a sprawling mass of legislation aimed largely at controlling health care costs. This includes the original statute, which made it illegal for physicians to self-refer and, thereby, make money off unnecessary tests and procedures. But it also includes provisions that limit physicians to fair-market compensation.

When the clinics, hospitals or physicians receive payment from government programs like Medicaid, violations of the Stark Law put them at risk of health care fraud charges.

Fraud requires both harm and intent

The central issue for Community Health may be its understanding of fair-market salaries. Generally, fraud charges require prosecutors to show:

  • An intentional misrepresentation of facts
  • That the defendant knew the matter was being misrepresented
  • A victim
  • Material damages

In the case of Community Health, there are clearly alleged victims and damages. The Department of Justice claims the health care provider cheated Medicaid and taxpayers out of millions of dollars due to inflated payments.

This leaves prosecutors to show that Community Health knew it was paying its physicians above their fair-market values. And according to the Indianapolis Star, prosecutors may have good footing. They have a whistleblower report, plus records from meetings in which board officials addressed the inflated salaries. However, that doesn’t make their case a given. Community Health has said it complied with the law and relied on a third-party valuator to set its salaries.

Not just for large networks

Of course, the Stark Law doesn’t just apply to large networks. It applies to all clinics and practices. And it’s sprawling and far-reaching enough that nearly anyone could find themselves under investigation.

At Kammen & Moudy, our attorneys are experienced with fraud charges and investigations. We know that many cases that may look like fraud on the outside are more complex on the inside. Accordingly, we work hard to bring the larger picture into view and spotlight any defenses and mitigating factors.

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