Government Intervenes in FCA Case Alleging Improper Financial Arrangements between Hospitals and Physician Groups

Ancillary revenue streams of physician practices, for example the technical component fees of MRIs, CT scans, etc, are valuable to hospital systems. Hospitals have packaged together compensation packages for physician groups that they simply could not refuse. However, to tiptoe around the Stark and Anti-kickback laws, they have structured these arrangements with fixed payouts, which were not specifically tied to future patient referrals.

A Pennsylvania federal district court has rejected this perceived workaround. In this groundbreaking case, United State ex rel. Singh v. Bradford Regional Medical Center, No. 014-186 (W.D. Pa. Nov. 10, 2010), the government alleges that a hospital sought to gain substantial patient referrals for diagnostic imaging from an area medical group. This particular group had a history of referring patients to the hospital for nuclear imaging until they invested in their own medical imaging camera. With their own camera, they no longer needed to refer patients to the hospital for imaging. The hospital approached the group and offered to sublease the camera from the medical group at a fixed monthly rate, with the tacit understanding that the group would refer its patients to the hospital for medical imaging.

Ultimately, a whistleblower filed a False Claims Act action against the medical group and the hospital, alleging that the financial arrangement violated the Stark and Anti-kickback laws. The court, assessing the legal viability of the Stark claims, granted summary judgment and the government subsequently intervened.

Both the Stark Act and the Anti-Kickback Act prohibit a health care entity from submitting claims to Medicare based on referrals from physicians who have a “financial relationship with the entity, unless a statutory or regulatory exception (or “safe harbor”) applies. 42 U.S.C. §§ 1395nn(a)(1); 1320a-7b(b).  “Falsely certifying compliance with the Stark or Anti-Kickback Acts in connection with a claim submitted to a federally funded insurance program is actionable under the FCA.” United States ex rel. Kosenke v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009) (citing United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004) (other citations omitted). Section 3729 of the False Claims Act imposes liability, in relevant part, on any person who:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; . . . .

31 U.S.C. § 3729(a)(1)-(2).

“Under the [Stark] Act, a physician has a ‘financial relationship’ with an entity if the physician has ‘an ownership or investment interest in the entity,’ or ‘a compensation arrangement’ with it.” Kosenke, 554 F.3d at 91, citing 42 U.S.C. § 1395nn(a)(2). A “compensation arrangement” is defined as “any arrangement involving any remuneration between a physician . . . and an entity.” 42 U.S.C. § 1395nn(h)(1)(A). “Remuneration,” in turn, is defined under the Stark Act as “any remuneration, directly or indirectly, overtly or covertly, in cash or in kind.” 42 U.S.C. § 1395nn(h)(1)(B).  An “indirect compensation arrangement” exists when the aggregate compensation received by the physician or medical group “varies with, or otherwise reflects [or ‘takes into account’], the volume or value of referrals or other business generated by the referring physician for the entity furnishing the D[esignated] H[ealth] S[ervices].” 42 C.F.R. § 411.354(c)(2)(ii).

Prior to this decision, some health care providers took comfort in structuring fixed payouts, like the one detailed in this case, because the payments did not vary based on the “volume or value of referrals.” The court shut the door on this argument when it held that these arrangements still run afoul of the Stark law, for they are structured to generally take into account the “anticipated referrals” the hospital will receive from the medical group. The court determined that even if there was not a variable payout based on referrals, the compensation arrangement was “inflated to compensate for the [doctors’] ability to generate other revenues.”

Highlighting the federal regulations’ definition for the “fair market value” of a compensation arrangement, the court stressed that the arrangement must be the “result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party . . . where the price or compensation has not been determined in any manner that takes in account the volume or value or anticipated or actual referrals.” Here, Stark was violated because “one of” the considerations in structuring the deal was to compensate the doctors for lost income from referred medical imaging patients.

For more information about qui tam law and Medicare fraud, contact Nolan and Auerbach, P.A.