Corporate Compliance

1. South Dakota hospital pays $6 million for Stark violations
2. California sues drug companies for mark-ups
3. Pay-per-view: The new generation of compliance
4. DOJ sues Tenet over diagnosis codes
5. Tip: Ease your staff's privacy rule worries

Compliance Monitor, January 15, 2003

Want to receive articles like this one in your inbox? Subscribe to Compliance Monitor!

1. South Dakota hospital pays $6 million for Stark violations

A South Dakota hospital on December 20 settled allegations that it violated the self-referral regulations known as the Stark law, according to the United States Department of Justice (DOJ). The $6 million settlement is the largest Stark-related penalty ever.

In the lawsuit, a whistleblower alleged that Rapid City Regional Hospital rented office space to a physicians' group from 1992 to 2000 for only 10% of the fair market value, and also paid one doctor a $20,000 stipend to direct a hospital affiliate. The hospital will pay an additional $525,000 to settle allegations that the physicians' group overcharged Medicare patients for office visits, the DOJ said.

The Stark law is designed to prevent providers from making referrals to other providers with whom they have certain financial relationships. According to U.S. Attorney James McMahon, the financial relationship between the hospital and the group of physicians, Oncology Associates, was set up to generate referrals to the hospital.

Dr. Larry Ebbert, a partner in Oncology Associates, disputed the appropriateness of the settlement, and cited the difficulties of complying with Stark in rural areas. "Those laws were not made for western South Dakota," he said in the Argus Leader, a local newspaper. "Where else am I going to send my patients? We've only got one hospital."

Karen Johnson-Pochardt, a former hospital employee, filed the whistleblower lawsuit.


2. California sues drug companies for mark-ups

California is suing two major pharmaceutical companies, alleging that they misrepresented the prices of their drugs to gain more reimbursement from the Medi-Cal program, according to Attorney General Bill Lockyer.

Abbott Laboratories and Wyeth are accused of reporting false pricing information for drugs such as Vancomycin and Ativan. Medi-Cal used this information to set reimbursement rates, which were much higher than the actual cost to pharmacies. In the case of Vancomycin, Abbott is accused of marking up the drug's price by 752%, from $6.29 to $55.59 for a one-gram dose.

According to the attorney general, the Vancomycin case is particularly troubling, because the drug is frequently used as a "last resort" antibiotic to fight bacteria that have become resistant to other drugs. "Abbott has created a large financial inducement for physicians and pharmacies to prescribe Vancomycin in scenarios where it may not have been necessary," Lockyer said in a statement.

The whistleblower lawsuit was brought to the state's attention by Ven-A-Care, a California pharmacy that gathered data on the prices it was paying for drugs, and the amounts being charged to the Medi-Cal program. Lockyer said he expects to file additional lawsuits against other pharmaceutical companies.


3. Pay-per-view

The new generation of compliance

Create compliant hospital-physician financial arrangements (Part one of a three-part series.)

Entering financial relationships with physicians can be costly and time-consuming for hospitals. The practical aspects of structuring the financial transactions are often just as complex as the legal issues.

Financial relationships with physicians often implicate Stark or the anti-kickback statute, as well as numerous state laws.

You can read this article—and much more—in the entire January issue of Strategies for Health Care Compliance. For the $30 issue, you'll get four informative stories! You'll find a list of suggested compliance resolutions for 2003, and hints and tips for meeting the HIPAA privacy rule deadline. Also, look for insight into the OIG's priorities for 2003. Issues are in PDF format for just $30. Online subscribers have free access to this issue; print newsletter subscribers can find it in their mailboxes. Click on the title to order the issue that you can either save to your desktop or print!

Back to top


On the same day that Tenet Healthcare announced that its negotiations with the Department of Justice (DOJ) had failed, the DOJ filed a lawsuit accusing the company's hospitals of assigning improper diagnosis codes between 1992 and 1998, according to the Associated Press.

The DOJ, which filed the lawsuit January 9 in Los Angeles district court, seeks damages that could reach $323 million.

The lawsuit is unrelated to an Office of Inspector General audit of Tenet's outlier payments, which have made headlines for being well above state and national averages.


5. Ease your staff's privacy rule worries

It will cost $22.5 billon to implement the medical privacy rule nationwide, according to the American Hospital Association. But how much of that money will providers use to help them diminish their workers' fears and concerns about the rule? Not much, according to a recent Boston Globe article. The Globe reported on January 13 that many providers are anxious, angry, and confused over the complex rule. They are unsure, the Globe discovered, of how to comply with it, and fear that the time they spend on it could unintentionally distract from medical care and research.

It is easy to get caught up in the implementation process and to lose sight of the trepidation your staff might be feeling. So as you train your workers, consider the human factors.

Begin by listening. Pay careful attention to the members of your staff who seem to have the most difficulty understanding the privacy rule. Target these employees for additional training. You'll be glad you did.

Resistance to change is understandable, considering the difficulty of complying with a regulation that is essentially a moving target. So, in these final three months, look closely at the level of uneasiness and fear in your organization, take steps to alleviate these things, and create a level of confidence.

This column was written by Hank Vanderbeek, MPA, CIA, CFE. IRP, Inc.



Want to receive articles like this one in your inbox? Subscribe to Compliance Monitor!

    Strategies for Health Care Compliance

  • Strategies for Health Care Compliance

    News and real-life examples to increase the effectiveness of your compliance program. Strategies for Health Care Compliance...

  • Compliance Monitor

    This HTML e-mail newsletter delivers news on Medicare and Medicaid fraud and abuse, as well as recent documents and targets...

  • Medicare Weekly Update

    Each issue of Medicare Weekly Update includes the latest CMS proposed and final rules, CMS manual revisions, and...

  • Medicare Update for Physician Services

    Medicare Update for Physician Services is a free, monthly e-zine that delivers news and information to help physician...

Most Popular

Related Articles