On the heels of the landmark Tuomey case (see the October 3, 2013 issue of the Health Law Update), the federal government recently has seen success in two more False Claims Act cases predicated on alleged Stark Law violations.

Halifax Hospital Medical Center

In November, a federal district court judge in Florida granted partial summary judgment in favor of the government, finding that Halifax Hospital Medical Center (Halifax) violated the Stark Law by entering into prohibited financial relationships with six medical oncologists who referred patients to the hospital.

The medical oncologists’ employment agreements provided for access to an incentive bonus pool equal to 15 percent of the operating margin of Halifax’s medical oncology program. While the bonus pool was divided up based on each physician’s personally performed services, fees for designated health services, including outpatient prescription drugs and outpatient services not personally performed by the physicians, were included in the calculation of the total bonus pool.

The court held the bona fide employee exception was not available to protect the arrangements because the bonuses took into account the volume or value of the physicians’ referrals to the hospital for designated health services by including revenues from the physicians’ referrals for designated health services in the overall pool.

A jury now will determine the amount of damages under the Stark Law and whether Halifax had the intent required to establish a False Claims Act violation. The jury also will determine whether its employment agreements with three neurosurgeons failed to satisfy the employee exception due to fair market value and commercial reasonableness issues. Damages and penalties easily could exceed half a billion dollars if the government is successful in proving its allegations to the jury.

All Children’s Health System

All Children’s Health System’s (ACHS) motion to dismiss a relator’s complaint in a False Claims Act case predicated on alleged Stark Law violations for Medicaid claims recently was denied in part by a federal district judge in Florida. The relator alleges that ACHS’s compensation arrangements with 17 physicians exceeded fair market value and that four physicians were paid illegal productivity bonuses.

ACHS offered several arguments supporting its motion to dismiss, including that its submission of claims to Florida Medicaid resulting from referrals from physicians with whom it may have had prohibited financial relationships under the Stark Law could not give rise to a False Claims Act violation.

The court relied on the plain language of the statutes, regulations and previous decisions in rejecting ACHS’s argument that False Claims Act liability cannot attach to illegal referrals for Medicaid claims.

These decisions confirm that the government, whistleblowers and courts are scrutinizing financial relationships with referring physicians at an unprecedented level. Moreover, the ACHS case and previous rulings in the Halifax case demonstrate that the Stark Law clearly is not limited to the Medicare world in the eyes of federal judges.