By: Joe Aguilar, MBA, MPH, MSN, CVA; Partner, HMS Valuation Partners
Everyday physicians establish a variety of financial relationships with their employer, health systems, ancillary services, insurance companies, medical technology firms, and other entities. These relationships can occur whether the physicians are in private practice or employed and can include arrangements that provide direct and/or indirect compensation to the physician. Some of the direct methods may include compensation through speaking/consulting fees, supplies or services, business-related travel, meal expenses, research payments, and/or royalty agreements; while some of the indirect means occur based on the physician’s position and influence to sway purchasing decisions to entities where they and/or family members have a financial interest.
While these arrangements, as well as physicians having decision-making power, are commonplace, they carry a risk for a potential conflict of interest. A conflict of interest occurs when a physician puts his/her interest, financial or otherwise, above the interest of the health system, medical staff colleagues, or patients. These conflicts arise often and in the areas of daily practice, research, graduate medical education, etc. Given the numerous regulations and severe penalties for engaging in activities that result in conflicts of interest, it is critical for health systems to recognize common areas of risk, understand the potential penalties, and manage these relationships to ensure compliance.
Common Compliance Risks
Physician relationships and potential conflicts of interest are highly regulated by federal law, a variety of state-specific fraud and abuse statutes, and government agencies. The activities and transactions of most physicians in private practice and those employed by health systems are impacted by these regulations, which include the Physician Payments Sunshine Act (PPSA), Stark Law, Anti-Kickback Statute (AKS), the False Claims Act (FCA), and a variety of government agencies. Physicians and advanced practice providers (APPs) work in the context of providing the highest quality care to patients, through procuring necessary supplies and durable medical equipment, conducting medical research, and meeting the requirements of payors for reimbursement. A conflict of interest can occur at any of these intersections as shown by these common examples.
Conflict of Interest in Patient Care/Payors
- Disproportionately prescribing specific medications and/or utilizing specific supplies or durable medical equipment from vendors in which the provider has a financial interest or has received certain benefits.
- Medical care decision-making affected by the physician’s financial interest in terms of compensation in the context of risk sharing arrangements.
- Engaging in activities for personal benefit that detracts from one’s ability to perform their required duties to the health system.
Conflict of Interest in Medical Research
- Endorsing a pharmaceutical or medical device publicly without disclosing the financial relationship with the company
- Enrolling patients in clinical trials based on financial incentives rather than patients’ best interests.
- Designing research in such a way that the outcomes favor a particular stakeholder, perhaps under the influence of that stakeholder.
Conflicts of Interest with Vendors/Health System
- Using the health system or practice resources for personal gain.
- A physician exercises any form of influence over practice or hospital purchasing decisions for equipment, technology, supplies, or services from entities that they or a family member have a financial interest.
- Disclosure of private health system, practice, and/or patient information for financial gain.
- Maintaining a financial interest in an entity that does business with the health system.
- Accepting money, gifts, and/or other benefits from vendors to the health systems.
Physicians and practices enter many arrangements that may result in a conflict of interest leading to potential regulatory and compliance risk. For instance, the federal Physician Self-referral Law (aka, the”PSL” or “Stark”) is a strict liability statute that does not require intent by the physician or health system to result in a violation. In addition, the civil and criminal penalties under Stark and the related Anti-kickback Statute (“AKS”), respectively, cannot be understated. Violations under Stark and AKS may result in civil monetary penalties, exclusion from programs, FCA liability, non-payment for services, and refunds to beneficiaries. Furthermore, under AKS, a violation may also result in a criminal felony subject to imprisonment. Furthermore, even if an accused violator is exonerated of any wrongdoing, defending the allegations also can be particularly costly. The following penalties are geared more toward physician, practices, and health systems.
Penalties for violating the Stark Law can include:
- Denial of payment
- Refund of payment
- Civil monetary penalty of $15,000 per claim (i.e., per each referral of a designated health service made by the physician to the DHS entity, when the physician and DHS entity have a prohibited financial arrangement)
- Civil monetary penalty of $100,000 for each arrangement considered to be a circumvention scheme
- Exclusion from federal healthcare programs
Penalties for violating AKS can include:
- Conviction of a felony
- Fines up to $100,000 and/or imprisonment of up to 10 years
- Civil monetary penalty of up to $100,000 for each violation
- Exclusion from federal healthcare programs
False Claims Act
Penalties for violating FCA can include:
- Civil monetary penalties per claim of between approximately $13,500 and $27,000 ( (as of Jan 30, 2023 – figures are adjusted annually for inflation)
- Three times the government’s actual damages
Physician Payments Sunshine Act
The penalties under the PPSA are more for medical manufactures and other purchasing/distributor companies. Penalties paid by those medical manufacturing and other entities for failing to report payments and thereby, violating the PPSA can include:
- Unreported payments: $1,000–$10,000 per unreported payment, up to a maximum of $150,000 per year
- Deliberate failure to report payments: $10,000 to $100,000 per unreported payment, up to a maximum of $1,000,000 per year
Addressing Compliance Risks
To address the potential compliance risk associated with the conflicts of interest that may arise out of various provider relationships, health systems will need to establish a clear policy of disclosure as well as an institutional culture of compliance. Here are some key strategies to address the compliance risks.
Establish a culture of compliance
- Clearly define the policy regarding conflicts of interest. The policy should be written and actively managed/updated as needed by an appointed member or committee from the compliance team.
- Health system leaders and key provider stakeholders need to embrace this culture and set the tone.
- Create a set of standards through the policy and apply procedures consistently across all providers.
- Emphasize that a successful culture of compliance is not punitive, but one centered around disclosure.
- Include contractual representation regarding conflicts of interest in physician agreements.
Provide routine training and guidance to physicians and non-physician staff
- Mandatory compliance training should be provided to all incoming physicians and non-physician staff. Annual training courses should also continue to reinforce compliance.
- Document training in employees’ records.
- Guide providers in ways to foster collaboration with industry and other outside entities for research and patient care while also maintaining compliance.
- Distribute an annual disclosure questionnaire to document any potential conflicts of interest. Potential conflicts are best obtained through a questionnaire geared toward making physicians, APPs, and other key health system figures contemplate their financial relationships.
- Establish a procedure for addressing and documenting situational conflicts that may arise.
- Monitor and assess for potential prescribing patterns and/or disproportionate durable medical equipment (DME) use.
- Establish an open-door policy for reporting potential conflicts.
- Investigate leads from different sources and evaluate each circumstance thoroughly and consistently.
- Perform routine audits and establish policies for monitoring procurements for potential conflicts of interest.
- Address disclosures at any time the need arises—not just at the annual review. These could be incidental situations, project-related, or third-party disclosures.
- Establish a compliance hotline voicemail for third-party disclosures.
Given the potential ramifications of unmanaged conflicts of interest on patient care, research, and the broader healthcare system, it’s clear why managing these relationships is of paramount importance. Most health systems, healthcare entities, professional medical societies and academic institutions have established guidelines to identify, disclose, and manage these conflicts effectively. It is important to review these guidelines routinely and understand that managing conflicts of interest is a multi-faceted endeavor.
Download Key Takeaways here.