Earlier this month a federal court stunned Tuomey Healthcare System by finding the healthcare provider’s compensation system to physicians for referrals violated the Stark law, which imposes limits on physicians and health systems profiting from referrals, and the False Claims Act.

Tuomey faces penalties as high as $357 million for the violations. But more importantly, their case means federal prosecutors are serious about anti-kickback statutes and hospitals should be pulling out their contracts with physicians to determine if they, too, might be in violation.

Lexology has published an excellent summary of the case and, more importantly, offered critical advice to healthcare providers to make certain that they avoid the scrutiny of federal prosecutors. “In light of the Tuomey verdict and case law, hospitals should review their existing compensation arrangements with physicians,” advise Elizabeth F. Hodge and Ari H Gerstin of the firm Akerman Senterfitt. “Also, going forward, it is clear that hospitals and physicians cannot consider anticipated referrals of designated health services when structuring physician compensation.”

Where Tuomey went awry, according to the article, was when it enacted a structured payment system to prevent its clinical staff from performing outpatient procedures outside the Tuomey system. Tuomey negotiated contracts with 19 specialists that tied their services to Tuomey-owned facilities.

“Central to the case was the fact that Tuomey paid each physician an annual base salary that fluctuated based on Tuomey’s net cash collections for the outpatient procedures,” write the authors. “Tuomey further agreed to pay each physician a ‘productivity bonus’ equal to 80 percent of the net collections.” The physicians also could earn an incentive bonus of up to 7 percent.

“Physicians should be compensated only for the services they actually provide, i.e., the hospital cannot pay the physicians for the technical component that the procedures performed by the physician generates for the hospital,” the authors write.