August 1, 2019
CLINICAL RESEARCH ENFORCEMENT ACTIVITY
For many years, the United States (U.S.) Department of Justice (DOJ) has focused intense scrutiny on the pharmaceutical and medical device industries. In fact, it has been difficult on a daily basis to pick up a newspaper without encountering reports of questionable marketing practices, inflated product costs to federal programs and exorbitant executive compensation schemes. As clinical trial sponsors, pharmaceutical and medical device manufacturers have routinely made headlines for alleged violations of the multitude of regulations and statutes governing human subject research. Enforcement activity has now shifted to physicians and hospital leadership with the recent $82.74 million settlement agreement entered into by Beaumont Health serving as a sobering reminder that clinical research activity, if not structured and conducted appropriately, can pose significant risk not only to industry sponsors, but also to other parties involved in study conduct. Furthermore, ongoing investigations appear to indicate that the government will continue to closely monitor provider and health system research-related engagements.
Clearly, clinical research is an important aspect of many medical institutions’ regular activities and is a necessary step in finding lifesaving cures and making critical public health discoveries. While financial profitability should not be the goal of this activity, breaking even is certainly an important component of sustainability. Therefore, balancing cost and remuneration is of utmost importance. Payment for clinical trial services should be a somewhat low risk proposition based upon the inherent processes of pre-set budgets and tightly monitored recordkeeping. However, certain Beaumont findings illustrate how improper relationships with referring research physicians can expose researchers to risk. While the cited Beaumont conduct appears to be egregious in its ethical violations, where financial incentives are not structured correctly, even inadvertent activity can pose risk.
Among the myriad of laws and regulations governing research activity are the Stark Medicare self-referral prohibitions, the Medicare/Medicaid Anti-kickback Statute, the False Claims Act, the Medicare Secondary Payer Rule and the Sunshine Act. Relevant to the Beaumont settlement are the Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (the Stark Law). The AKS prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally funded programs. The Stark Law prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has an improper financial arrangement, including the payment of compensation that exceeds the fair market value of the services actually provided by the physician and the provision of free or below-market rent and office staff. Both the AKS and the Stark Law are intended to ensure that physicians’ medical judgments are not compromised by improper financial incentives and instead are based on the best interests of their patients and research participants.
THE BEAUMONT SETTLEMENT AGREEMENT
William Beaumont Hospital, a regional hospital system based in the Detroit, Michigan area recently entered into a settlement agreement to resolve allegations under the False Claims Act of improper relationships with eight referring physicians, resulting in the submission of false claims to the Medicare, Medicaid and TRICARE programs. Under the settlement, Beaumont also will enter into a five-year corporate integrity agreement with the U.S. Department of Health and Human Services. Beaumont will pay $82.74 million to the federal government and $1.76 million to the state of Michigan to settle allegations related to clinical research activities as well as inappropriate physician incentives including, among others, fraudulent medical directorships (for which there were no job descriptions, tracking or reporting mechanisms in place) and below market lease arrangements. The DOJ contends that physician compensation was excessive and in violation of the AKS and the Stark Law. Under the allegations, the excessive above fair market value physician compensation was paid to induce patient referrals and prevent physicians leaving for other competing hospitals.
Research relationships between the hospital and key physicians presented special concerns to DOJ. One of the primary allegations made in the investigation was that the hospital permitted physicians to report time spent in research conduct as a clinical care activity to be rolled up to the Medicare Cost Report. Through double payments received from the sponsor and the payor, a surplus account was created that was used to pay for unfunded research, personal travel, and fraudulent “investigator fees.” Other violative financial models included billing non-standard-of-care study-related procedures to private insurance or Medicare and rolling up research salaries for support staff (i.e., for nurses) onto the Medicare Cost Report, rather than charging them to the research budget.
Other alleged inappropriate research activity involved:
• Physicians conducting private research activities and billing associated costs to Medicare and private insurers,
• Researchers utilizing at no cost Beaumont-provided funds (i.e., 501(c)(3)), staff (i.e., nurses, fellows), and other resources (i.e., office space paid for by the Beaumont Research Institute),
• Physicians using research funding from one clinical trial budget to fund another,
• Below-market leases with research physicians, free advertising, marketing and tickets to sporting events and educational seminars,
• Fraudulently using NIH grant funding to pay for services that were not rendered,
• Hospital leasing MRI facilities from a physicians’ group as a financial incentive for the group to refer more patients to Beaumont, despite having enough MRIs on its own,
• Hospital permitting physicians to essentially rely on a claim of engaging in “research” to bulk up incomes (i.e., a payment scheme involving the Director of Urology Research was alleged to have allowed the physician holding the position to claim he spent 40% of his time performing research duties (and thus it was the position that 40% of his salary was related to such research activities)), but in actuality he was involved in so many other activities, such as personally overseeing several commercial studies, maintaining a full clinical practice, and participating in two NIH studies, that such a time commitment was implausible, and
• Hospital not being made whole for leased space (i.e., physician receiving 100% payment for the cost of his office space to be used solely for research purposes, while also using the office space to treat patients and bill third parties).
Given the current enforcement environment, providers, hospitals and health systems engaged in clinical trial conduct should consider a careful risk assessment to evaluate whether payments to investigators and others involved in conducting clinical trials conform to fair market value. All research activities should be evaluated and monitored to ensure the compliance of all parties involved. Balancing the need for speed in a study with quality and compliance can be challenging, but prospective considerations on budgeting, staffing and other conduct issues can help set enforceable expectations about policies and ethics. To mitigate potential risk, particular attention should be given to standardized approaches, rigorous monitoring and auditing plans and transparency and review of financial information including transfers of value in the context of research. A comprehensive legal review of all clinical documentation is advisable, including clinical trial agreements, budgets, informed consent forms, and facility use and services agreements.
For more information on this topic, contact a member of our Life Sciences team.
The information contained in this advisory is for general educational purposes only. It is presented with the understanding that neither the author nor Hancock, Daniel & Johnson, P.C., is offering any legal or other professional services. Since the law in many areas is complex and can change rapidly, this information may not apply to a given factual situation and can become outdated. Individuals desiring legal advice should consult legal counsel for up-to-date and fact-specific advice. Under no circumstances will the author or Hancock, Daniel & Johnson, P.C. be liable for any direct, indirect, or consequential damages resulting from the use of this material.