On January 8, 2014, the U.S. district judge in the Halifax Hospital Medical Center (Hospital) case pending in the Middle District of Florida granted the Hospital’s motion to dismiss all of the relator’s anti-kickback law claims. This False Claims Act case is partially predicated on alleged violations of the Stark Law and the anti-kickback law arising from financial relationships with physicians. In November, the court granted partial summary judgment in favor of the government, finding that the Hospital’s compensation arrangement with employed oncologists violated the Stark Law. See the December 12, 2013 issue of the Health Law Update.

The government had elected not to intervene in the anti-kickback law claims, which turned out to be a wise decision as the district judge held the bona fide employment exception to the anti-kickback law protected the arrangements with the physicians despite the physicians being employed by a separate legal entity, Halifax Staffing. Noting that Halifax Staffing was an instrumentality and alter ego of the Hospital, the district judge applied the common law agency test and determined that the relator failed to establish that the physicians actually were controlled by Halifax Staffing rather than the Hospital or that the physicians otherwise were independent contractors of the Hospital. As a result, the compensation paid to the physicians was protected under the bona fide employment exception to the anti-kickback law, which notably does not contain a fair market value standard or prohibit compensation that is based on the volume or value of the physicians’ referrals.

The court also granted the Hospital’s motion to dismiss the relator’s claim that the Hospital violated the Stark Law by entering into an unprotected medical director arrangement with a physician because the relator did not identify any prohibited referrals to the Hospital by the medical director. The Hospital was unsuccessful in obtaining dismissal of claims advanced as to two employed psychiatrists because it admitted in discovery that the psychiatrists had made referrals to the Hospital for designated health services. Because the psychiatrists’ compensation included a fixed salary and a productivity bonus equaling 100 percent of the hospital’s gross collections less billing and collection costs and their salaries, the court held that the physicians’ compensation varied with the volume or value of referrals. As a result, the Stark Law’s employee exception was inapplicable.

The court also allowed the relator’s False Claims Act claims predicated on medically unnecessary inpatient services, commonly called “short stays,” and conspiracy claims related to the False Claims Act violations to survive the Hospital’s motion for summary judgment.