Monday, April 21, 2014

First to File Bar Based on Comparing Complaints and Not Settlements

Speaking of the first-to-file rule, 31 USC 3730(b)(5), a first-to-file relator in Texas sought to share in the qui tam settlement of a subsequent relator who filed suit against the same defendant as the first realtor but alleged a different scheme. See U.S. ex rel Smart v. Christus Health, et al, 2014 WL 1474282 (5th Cir. April 16 2014). In a case that was not selected for publication, the 5th Circuit, not surprisingly, rebuffed the first relator's attempt, pointing out that the two suits were very different with the exception that they named the same defendant: the first suit alleged that the hospital engaged in a scheme to induce doctors to refer patients to it by renting the doctors office space at below market, and the second suit alleged that the same hospital committed billing fraud by improperly using inpatient codes for outpatient procedures.

What is interesting about this case is that the first relator sought a share of the settlement proceeds because the settlement in the second filed suit released the defendant from any claims the government may have, including Stark/Anti-Kickback type of claims similar to those raised in the first filed suit (though not the same claims). The 5th Circuit noted, however, that "[w]hen deciding whether the first-to-file bar applies, this Court compares the complaints -- not the settlement agreements."

The first-to-file relator had also sought discovery to demonstrate that he was entitled to a share of the proceeds from the second filed suit, but the 5th Circuit was having none of that.

Though the 5th Circuit gave short shrift to the first relator, I think the relator deserves some sort of prize for creative argument.

A. Brian Albritton
April 21, 2014

The False Claims Act and the First to File Bar: DC Circuit Breaks with 10th, 7th, and 4th Circuits

I commend to you the recent post by Scott Stein and Catherine Kim of Sidley's Original Source blog and their article, "DC Circuit Opens Circuit Split on FCA's First-to-File Bar," addressing the D.C. Circuit's recent ruling in United States ex re Shea v. Cellco Partnership d/b/a Verizon Wireless, 2014 WL 1394687 (D.C. Cir. April 11, 2014). As they so ably explain, the Shea case is the first circuit court decision to adopt "the position that the first-to-file bar applies to an earlier-filed related suit, even after the original action is no longer 'pending.'" Applying a common sense construction to the "first-to-file" rule of 31 USC 3730(b)(5), the D.C. Circuit held in a 2-1 decision that the first-to-file rule bars relators from bringing subsequent suits alleging the same scheme as the first filed suit, even if the first filed suit is no longer pending and was not dismissed on the merits. Applying a plain language construction of the first-to-file rule, the 4th, 10th, and 7th Circuits have held that as long as a first filed qui tam suit is no longer pending, a subsequent relator may bring a qui tam on the same scheme as long as the second (or third) relator is an original source for the information contained in the second (or third) qui tam. See  In re Natural Gas Royalties Qui Tam Litigation, 566 F.3d 956 (10th Cir. 2009); U.S. ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361 (7th Cir. 2010); U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908 (4th Cir. 2013).

As Mr. Stein and Ms. Kim point out, "the D.C. Circuit’s decision provides significant protections for defendants by prohibiting relators from bringing suit when the government has already been put on notice of the relevant facts supporting the relator’s claims."

A. Brian Albritton
April 21, 2014

Wednesday, March 19, 2014

Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases

Dear Readers:

Joining the growing number of courts that limit or phase discovery in False Claims Act cases ("FCA"), the Southern District of Mississippi recently rejected attempts by the relators to obtain "unfettered discovery" so that they may search for new claims beyond the single claim for which they were an original source and on which they won at trial. See United States ex rel. Rigsby v. State Farm Fire and Casualty Co., 2014 WL 691500 (S.D. Miss., Feb. 21, 2014).

In Rigsby, two relators sued State Farm alleging that it engaged in a massive scheme to defraud the National Flood Insurance Program ("NFIP") in its administration of flood claims arising from Hurricane Katrina and they filed a list of 18 properties in which they asserted that State Farm had defrauded the NFIP. When initially considering case, the Court found that only one of the properties, the "McIntosh claim," was the sole "instance of State Farm's having submitted an allegedly false claim of which either relator had first hand knowledge." Having first hand knowledge of a single claim, the Court initially permitted the relators to obtain discovery about and proceed to trial on the McIntosh claim. The Court reserved ruling on whether to permit the relators to expand their suit and obtain additional discovery until after the trial of the McIntosh claim, stating it would "consider [then] whether additional discovery and further proceedings are warranted." The jury found that State Farm had presented a false claim for payment to the NFIP in connection with its processing of the McIntosh flood claim. Relators then asked the court to "initiate expanded discovery into claims on other properties insured by State Farm."

The Court refused to permit the relators additional discovery in order to expand their claims into areas where they did not have knowledge and when it was unclear whether other claims really existed. Relying on the 5th Circuit's decision in US ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009), the Court noted that satisfying Rule 9(b) with "sufficient detail" and defeating a motion to dismiss permits a relator access to the discovery process, but discovery should be "targeted" only to "the claims alleged, avoiding a search for new claims." Applying Grubbs, the Court observed: "Armed with knowledge of a purported scheme and evidence related to the single Mcintosh claim, Relators seek far-reaching, unfettered discovery in order to search for new claims beyond the Mcintosh claim, the only false claim which they have firsthand knowledge. Grubbs states that even if a complaint survives a Rule 9(b) challenge, discovery should be tailored to the claims alleged, so as to avoid a search for new claims. To allow expanded discovery in the fashion Relators seek would permit improper smuggling of additional claims beyond the single claim to which Relators have personal knowledge."

In short, the Court showed that simply satisfying Rule 9(b) as to one claim does not open the door for relators to go in search of other claims to which they do not have personal knowledge, even if they have broadly described a scheme to defraud for which they have only one example. Since "Relators have not pleaded sufficient details regarding any other claims to survive a Rule 9(b) challenge . . . . . discovery would necessarily be overly broad because the Amended Complaint lacks enough detail to permit the Court to craft reasonable discovery parameters."

A. Brian Albritton
March 19, 2014

Monday, March 3, 2014

The False Claims Act Is Not a Remedy for Technical Regulatory Violations

Dear Readers:

I recently came across another interesting example of a court refusing to permit the False Claims Act ("FCA") to be used as remedy for a technical regulatory violation that was unrelated to a claim for payment submitted to the government: US ex rel. Rostholder et al. v. Omnicare International, et al., (4th Cir., February 21, 2014).

In Omnicare, the 4th Circuit sustained the lower court's dismissal of False Claims Act claims due to the complaint's failure "to allege that the defendants made a false statement or acted with the necessary scienter." The Relator had alleged that the defendant, a drug manufacturer, violated a series of Food and Drug Administration ("FDA") safety regulations relating to the packaging of penicillin together with other drugs, the result of which caused the drugs to be "adulterated." Since federal law prohibits adulterated drugs from being sold in interstate commerce, Relator alleged that such mispacked drugs were no longer eligible for reimbursement by Medicare or Medicaid. For a drug to be eligible for reimbursement by Medicare and Medicaid, the FDA must have "approved [it]for safety and effectiveness" when it was submitted as a new drug.

Essentially, the Court found that the Relator did not state an FCA claim because complying with FDA safety regulations for a previously approved drug is not an express condition of reimbursement by Medicare or Medicaid. That is, defendants did not have to expressly certify compliance with the FDA in order to obtain payment for such a mispacked drug under Medicare and Medicaid. As a result, Relator was unable to identify "any false statement or other fraudulent misrepresentation that Omnicare made to the government," i.e., there was no "false claim" for payment under the FCA. The Court explained: "FCA liability based on a false certification to the government will lie only if compliance with the statues or regulations was a prerequisite to gaining a benefit, and the defendant affirmatively certified such compliance."

The Court observed that the FCA was not meant as a mechanism to promote "regulatory compliance," especially when in the case of the FDA, the government had established a "very remedial process" to enforce FDA regulations. The FDA's "significant remedial powers . . . buttresses our conclusion that Congress did not intend that the FCA be used as regulatory-compliance mechanism in the absence of a false statement or fraudulent conducted directed at the government."

Interestingly, the Court went further and found not only had the Relator not alleged a false statement or fraudulent conduct, but it also found as a matter of law that the Relator had not "plausibly" alleged that Omnicare knowingly submitted a false claim to the government. Since the Medicare and Medicaid statutes did not expressly prohibit reimbursement for "drugs packed in violation" of federal law, the Court essentially found that Omnicare could not have known that it was submitting a false claim.

While a welcome result, the Court made an easy call here. There is simply no connection between a claim for reimbursement under Medicare Part D and these technical FDA violations.

A. Brian Albritton
March 3, 2014

Wednesday, February 5, 2014

State Courts have Concurrent Jurisdiction Over False Claims Act Retaliation Claims

Perhaps everyone knows this, but I didn't: a relator may bring a False Claims Act (FCA) retaliation claim in state court.  

Recently, in Driscoll v. Superior Court of Madera County, 2014 WL 333411 (January 30, 2014, Cal. App. 5 Dist.), the Court addressed whether state courts have concurrent jurisdiction over FCA retaliation claims, 31 U.S.C. 3730(h), and the Court found that they do. Regardless of whether concurrent jurisdiction exists, you normally would not expect to see FCA retaliation claims in state court because you would expect a defendant to remove a FCA retaliation claim to federal court under federal question jurisdiction, 28 U.S.C 1331. In Driscoll, however, the defendant brought the FCA retaliation claim against the plaintiffs as a cross claim. The plaintiffs moved to dismiss the FCA retaliation claim brought against them on the grounds that the California state court did not have subject matter jurisdiction, and though they won in the trial court, the appellate court found that the state court had jurisdiction and could proceed with the defendant's FCA retaliation claim. In so ruling, the California 5th District Court of Appeals acknowledged that section 3730(h)(2) provides that "an action under this subsection may be brought in the appropriate district court of the United States" and that section 31 U.S.C. 3732(a) provides further that "Any action under section 3730 may be brought in any judicial district . . . " Yet, the Court noted that the FCA does not "contain an explicit statutory directive ousting state court jurisdiction" and the "FCA's jurisdiction provision does not mention state courts or their jurisdiction." Consequently, asserted the Court, "we presume state courts share concurrent jurisdiction over FCA claims." The Court explained further that in retaliation claims the federal government is not a party nor are such claims brought in the name of the United States. Rather, "retaliation claims are personal to the individual."

Another FCA fun fact.

A. Brian Albritton
February 5, 2014

Monday, January 6, 2014

DOJ Announces $3.8 Billion in False Claim Act Recoveries for FY 2013

The US Department of Justice recently announced another historic year in FY 2013 for False Claims Act (FCA) recoveries and judgments: a total of $3.8 billion, falling short of 2012's nearly $5 billion in FCA recoveries. Among the highlights featured in the DOJ's press release are:
  • Heath care fraud continued to constitute the largest portion of FCA recoveries: $2.6 billion, not including $443 million in recoveries by state Medicaid programs.
  • Of the $2.6 billion in health care related fraud recoveries, $1.8 billion resulted from claims relating to drug and medical devices. 
    • Abbott Labs alone paid $1.5 billion to resolve allegations that it illegally promoted the drug Depakote. $575 million of that amount related to FCA claims.
    • Amgen paid $762 million to settle allegations that it illegally promoted the drug Aranesp. $598.5 million of that related to FCA claims.
  • Procurement fraud, relating primarily to defense contracts, accounted for $890 million recovered.
    • The largest component of the procurement fraud recoveries arose from the $664 million judgment that USDOJ obtained against United Technologies Corp. "based on allegations of false claims and corruption involving government contracts."
  • Qui tam suits "soared" to 752, an increase of 100 from FY 2012, and 74% increase over 2009, when 433 qui tam suits were filed.
  • Of the total $3.8 billion in FCA recoveries, $2.9 billion or 76% arose from qui tam filings, and of that amount, Relators or what the DOJ refers to as "courageous individuals who exposed fraud" recovered $345 million.
  • Last year also saw one of the largest FCA recoveries against a single individual/physician: $26.3 million against a dermatologist, Steven J. Wasserman, M.D., relating to illegal kickbacks.
A. Brian Albritton
January 6, 2014

Wednesday, January 1, 2014

False Claims Act and Excessive Fines Clause: 4th Circuit Upholds Relator's Decision to Accept Smaller Judgment to Avoid Unconstitutional Result

Just recently, the U.S. Circuit Court of Appeals for the Fourth Circuit addressed whether the penalties assessed against a defendant under the False Claims Act ("FCA") can ever violate the 8th Amendment's protection against "excessive fines" in the appeal, United States ex rel Kurt Bunk & Daniel Heuser v. Birkart Globistics GmbH & Co et al., Case No. 12-1369 (4th Cir. 12/19/2013), a case about which I previously blogged. The 4th Circuit overturned the District Court's decision which had  found the $50 million in penalties to be an excessive fine in light of the government's lack of damages. Essentially, the 4th Circuit avoided the constitutional issue by agreeing to the Relator's offer to accept $24 million in penalties in lieu of the entire $50 million that the District Court believed the FCA required to be imposed on the defendant. A few observations about the decision:
  • This FCA case concerned defendant contractors who moved the furnishings of U.S. military service personnel overseas to Europe and whether they colluded with subcontractors, resulting in the defendants charging inflated moving prices to the military. The Court began its opinion by observing, "An army may march on its stomach, but when a fighting force is deployed to a foreign front, familiar furnishings also serve to fuel the foray." These personnel whose goods were being transported were going to "encamp" in Europe. Once the Court characterizes these military personnel as "fighting forces deployed to a foreign front," you know for certain that the defendants will be losing and the court will fudge the constitutional issue.
  • One of the Relators, Bunk, who actually prevailed in this action never pled or proved any monetary damages caused by the defendants. The defendants sought to challenge Bunk's standing to bring this action in the absence of any damages, but the 4th Circuit found Bunk had standing.
  • Other settling defendants had already paid the government $14 million, which the District Court found "was far in excess of the presumptive damages" which were $895,000. The defendant had already paid that as restitution in a parallel criminal case.
  • The 4th Circuit affirmed that penalties were to be imposed on the basis of the false certifications contained in a defendant's claims for payments submitted to the government and that each certification qualified as a false claim giving rise to a penalty. Unfortunately for this defendant, there were 9,136 false claims or bills, and that amount multiplied by the minimal $5,500 penalty came to just shy of $50 million.
  • The Court acknowledged that the "perceived tension between the FCA and the Excessive Fines Clause of the 8th Amendment . . . is a monster of our own creation." To its credit, the Court candidly stated that "the FCA as enacted could arguably have been construed as authorizing a total civil penalty not to exceed $11,000." But, the Court observed further that it was following precedent -- bereft of any "our hands are tied" complaints -- in concluding that "FCA liability . . . attaches to the claim for payment."
  • The Court avoided a finding that the $50 million in penalties qualified as an excessive fine because the Relator agreed to accept only $24 million. The Relator's "voluntary remittitur," the Court observed, was "just the sort of arrow that a plaintiff is presumed to possess within his quiver" and that a plaintiff's discretion to take a "lesser judgment . . . is virtually unbounded." Here again, the Court relied on a prior FCA case, U.S. v. Mackby, 339 F.3d 1013 (9th Cir. 2003), in permitting this remittitur.
  • Essentially, the Court states that a District Court "must permit the government or its assignee [the Relator] the freedom to navigate its FCA claims through the uncertain waters of the Eighth Amendment."
  • As for the $24 million, the Court upheld the constitutionality of that amount by apparently disregarding the lack of evidence of any harm and finding that the "notion [that the government suffered no injury] seemingly inconsistent with [defendant's] apparent profit motive in making the statements at issue." The Court went on that "there is no doubt" -- even though the Court cites no evidence otherwise -- that "the government has suffered significant opportunity costs from being deprived of the use of those funds for more than a decade."  
  • Finally, as mentioned above, the $24 million was not viewed as violating the Excessive Fines clause because it was not "grossly disproportionate" to the crime against the military. "The prevalence of defense contractor scams . . . shakes the public's faith in the government's competence and may encourage others similarly situated to act in a like fashion."
In short, given that the victim was the military, there was no way the Court was going find the FCA's penalties to be unconstitutional or use this decision as a vehicle to curb the FCA's excesses. Moreover, there is just something vaguely unsettling about hinging a court's determination of this statute's constitutionality not on its application and consequences, but on what the government and Relator will accept.

A. Brian Albritton
January 1, 2014

Tuesday, December 17, 2013

Refusing to Extend the Seal: Court Refuses Requests to Extend Seal of Qui Tams for Informal Discovery or Settlement Negotiations

Section 3730(2), Title 31, of the False Claims Act ("FCA") provides that when a qui tam relator files an FCA complaint under seal, the case may remain under seal for "at least 60 days" while the government investigates and decides on whether or not to intervene. It is the rare case that remains under seal only 60 days, however, and in some cases, the government keeps the qui tam under seal for years, even over the objection of the relator. For example, one case in the Middle District of Florida, the Wasserman case, was filed under seal in 2004, but the government did not unseal it until 2010.

Ben Vernia at False Claims Counsel blog recently wrote about one federal district court judge in South Carolina who has given notice that the court will no longer agree to these automatic extensions of the seal for qui tams. In a recent "standing order," U.S. District Court Judge Joseph Anderson, Jr. observed that in "recent years, this court has extended the seal period, at the request of the government, on eight occasions in two actions," only to be informed by the government after all that time that it was not going to intervene in those cases.

Judge Anderson noted that the 4th Circuit observed that there are four reasons why Congress adopted the sixty-day seal period: "(1) to permit the United States to determine whether it already was investigating the fraud allegations (either criminally or civilly); (2) to permit the United States to investigate the allegations to decide whether to intervene; (3) to prevent an alleged fraudster from being tipped off about an investigation; and, (4) to protect the reputation of a defendant in that the defendant is named in a fraud action brought in the name of the United States, but the United States has not yet decided whether to intervene." Am. Civil Liberties Union v. Holder, 673 F.3d 245, 250 (4th Cir. 2011). Judge Anderson, however, noted that "none of the foregoing reasons for extending the seal period involve discovery of documents from the putative defendant or settlement negotiations." In turn, the Court observed further that the FCA's legislative history provides that "with the vast majority of cases, 60 days is an adequate amount of time to allow Government coordination, review and decision."

In light of these considerations, Judge Anderson stated that in deciding whether "good cause" exists to continue the seal after 60 days, "henceforth, the court will no longer consider informal discovery and/or settlement negotiations as sufficient grounds for extending the seal period."

If widely adopted, Judge Anderson's position would radically change FCA practice both for relators and qui tam defendants.

A. Brian Albritton
December 16, 2013

Monday, December 16, 2013

Employment Arbitration Rulings, Qui Tam Retaliation Claims, and Collateral Estoppel

I recently came across an interesting case that further illustrates the perils to False Claim Act relators who split their employment and FCA retaliation claims. In the unpublished case of Kalyanaram v. New York Institute of Technology, 2013 WL 6482578 (2nd Cir., December 11, 2013), the Court dismissed the relator's retaliation claim against his employer on the grounds that it was barred by the doctrine of collateral estoppel. Collateral estoppel is the common law rule that prevents a party from re-litigating an issue or fact that has previously been decided, even if that issue or fact was decided in a different case, as long as there was "full and fair opportunity" to litigate the issue in the prior proceeding.  

In Kalyanaram, the relator's employer, a technical school, fired the relator, a teacher, on the grounds that he was engaging in professional misconduct. The relator contested his firing in an arbitration proceeding pursuant to a collective bargaining agreement. While that case was pending, the relator also filed a qui tam against his employer alleging that the school submitted false financial aid information so that its students would get federal and state financial aid and that the school retaliated against him for complaining about it.

The relator argued in his employment arbitration that the school retaliated against him for his complaints about the school's alleged deceptive and fraudulent practices. The relator, however, did not allege in the arbitration that the school retaliated against him because he had been either a qui tam whistleblower or had filed a False Claims Act suit. The arbitrator rejected his retaliation claims, such as they were, and found that the relator had engaged in professional misconduct by authoring pseudonymous emails "in order to convey unsubstantiated and potentially scurrilous innuendos and accusations to the detriment" of his employer. When the federal court that was hearing the relator's qui tam heard about the relator's adverse arbitration decision, the Court on its own motion ordered briefing on whether the relator's retaliation claim was barred by collateral estoppel and ultimately dismissed the retaliation claim on that ground.

The Second Circuit upheld the District Court's dismissal of the relator's retaliation claim. The Court observed that "collateral estoppel turns not on whether a prior adjudication found that an employer had a reasonable basis to discipline an employee, but on whether an employee raised a claim that behind the veil of reasonableness lay an impermissible motivating factor." Though the relator did not ever raise that he had filed a qui tam suit in the arbitration, given the relator's complaints about retaliation in that forum, the Court found that the arbitrator "actually and necessarily decided . . . that [the school] had not disciplined [the relator] in retaliation for his critiques of the school's fraudulent practices." Stated more simply, once the arbitrator found that there was a legitimate basis for discharging the relator and that the employer's reason for firing the relator was not a pretext for some other impermissible reason, that arbitration decision served to estopp and prevent the relator from claiming in the qui tam proceeding that he had been retaliated against by his employer for a different reason.

The relator complained in his appeal that he "never had a full and fair opportunity to present a compete picture of his whistleblower activities," but the Court found "he had only himself to blame." Essentially, the relator chose not to tell his arbitrator about the qui tam, even though the federal court permitted him to reveal it to the arbitrator and to "respond to any questions" about in it in that proceeding.

Of course, this case also appears as an application of that sometime informal rule of procedure known as the "bad man rule." That informal rule of procedure is normally found only in criminal cases, and frequently appears as the "real reason" for many otherwise unexplained court rulings. Though it did not explicitly reference the bad man rule, the Second Circuit did observe that the relator "repeatedly lied under oath," "presented an elaborate, fabricated defense," and "clung to this strategy through almost a year." In short, he was a "very bad man" who lied to the arbitrator and the Court and got what he deserved.

A. Brian Albritton
December 16, 2013

Wednesday, December 4, 2013

Stark Law Violations and the False Claims Act: US ex rel Baklid-Kunz v. Halifax Hospital Medical Center

In the ongoing qui tam case, US ex rel Baklid-Kunz v. Halifax Hospital Medical Center, case no. 6:09-cv-1002-Orl-31 (M.D. Fla.), which I have previously featured, the Court recently granted the Government's Motion for Partial Summary Judgment and found that the hospital's compensation arrangement with several oncologists that it employed violated the Stark Law. As there was a "factual issue" regarding whether the Hospital "knowingly" submitted claims for payment from Medicare or Medicaid arising from these Stark violations, the Court did not find --yet-- that the Hospital violated the False Claims Act. False Claims Act liability based on these Stark Law violations, however, remains a real possibility: if the Court or jury later determines that Halifax "knowingly" submitted claims for payment arising from Stark violations, then it could be subject to hundreds of millions of dollars in treble damages and penalties arising under the False Claims Act.

Halifax Hospital and a recent ruling in another Middle District of Florida case, US ex rel Schubert v. All Children's Health System, Inc., case no. 8:11-cv-01687-T-27, involving a Stark Law violation serving as the basis for a False Claims Act violation, demonstrate the incredible breath of the Stark Law, how easy it can be for hospitals to run afoul of it in compensating physicians, the incredible damage exposure to hospitals, and why such claims are especially attractive to relators seeking to bring False Claims Act cases. For example, the relator in Halifax Hospital is reported to be the hospital's former compliance officer.

The Stark Law, 42 USC 1395nn(a), prohibits physicians from referring Medicare/Medicaid patients to a whole host of business entities or "services," including hospitals, clinical labs, durable medical equipment providers, in which the physician or an immediate family member has a financial interest. In turn, hospitals are prohibited from submitting any claim for payment to Medicare or Medicaid that were furnished as a result of a prohibited referral. For example, if a physician has a "financial relationship" with a hospital that violates Stark and refers Medicare patients to the hospital, the hospital may not bill for any services rendered arising from that referral, regardless of whether the patient needed those services, was otherwise entitled to them, or what the services cost. Now, the reference to "financial relationship" does not refer only to some kind of under the table payment or kickback. Rather, the statute interprets "financial relationship" broadly to include "any arrangement involving remuneration between a physician (or an immediate family member of such physician) and an entity" and includes "any remuneration, directly or indirectly, overtly or covertly, in cash or in kind." 42 USC 1395nn(h)(1)(B).

According to the Court, Halifax Hospital ran afoul of Stark Law by employing six oncologists at the hospital for five years and paying them an "incentive bonus" which turned out to violate Stark Law. The Stark Law permits hospitals and other entities to employ physicians and others who might refer Medicare patients to them provided that a "bona fide employment relationship" exists. Whether an employment relationship is bona fide or not depends in large part on whether the entity, such as a hospital, pays the physician "consistent with the fair market value of the services," without regard to the "volume or value of any referrals made by the physicians, as reflected in a "commercially reasonable agreement." 42 USC 1395nn(e)(2). Basically, Halifax Hospital's incentive bonus for its oncologists turned out to be too generous and thus did not satisfy the bona fide employment exception. As a result, Halifax Hospital was prohibited by Stark from submitting Medicare claims for its services that were furnished pursuant to referrals from these ineligible oncologists employed by the hospital.

As a result of Halifax's violations, the Government sought reimbursement of $27,102,000 in Medicare payments generated as a result of these improper referrals. The Hospital did not have any way of lowering this damage figure. By that, I mean the Hospital cannot claim that the referrals were really warranted regardless of the improper bonus; that the bonus payment was immaterial to whether the referral for services was appropriately made; that services were really provided or needed; or that damages were the difference in value between normal referrals that comply with Stark and referrals allegedly made as a result of Stark violations. No, the result is particularly harsh because the services provided were simply not eligible for payment based solely on the ineligible referral source.

The Court found that Stark Law violations can give rise to False Claim Act liability if a hospital or other provider who accepted the illegal referral "falsely certified compliance with the Stark Law" in connection with submitting a claim to a federally funded insurance program such as Medicare. If, as the Government contends in Halifax Hospital, the Hospital is found to have violated the False Claims Act by submitting claims for payment arising from Stark Law violations, then the $27 million damage will be trebled and the hospital would additionally be subject to fines of $5,500 to $11,000 for each separate billing or claim submitted to Medicare. Damages could easily exceed $100 million. One press report stated that the Government was seeking damages in excess of $750 million. 

A. Brian Albritton
December 4, 2013