Is the Stark Law’s “Signed Writing” Requirement Material to Payment: One Federal Court Says Yes

In a case of first impression, a federal court found that the federal physician self-referral law’s (Stark Law) requirement that financial arrangements with physicians be memorialized in a signed writing could be material to the government’s payment decision. This case raises troubling questions about applying the False Claims Act (FCA) to what many in the industry consider “technical” Stark issues, especially given the Supreme Court’s description of the materiality test as “demanding” and not satisfied by “minor or insubstantial” regulatory noncompliance.

United States ex rel. Tullio Emanuele v. Medicor Associates (Emanuele), in the US District Court for the Western District of Pennsylvania, involves Medicor Associates, Inc., a private medical group practice (Medicor), and Hamot Medical Center’s (Hamot) exclusive provider of cardiology coverage. Tullio Emanuele, a qui tam relator and former physician member of Medicor, alleged that Hamot, Medicor, and four of Medicor’s shareholder-employee cardiologists (the Physicians) violated the FCA and Stark Law because Hamot’s multiple medical director compensation arrangements with Medicor failed to satisfy the signed writing requirement in the Stark Law’s personal services or fair market value exceptions during various periods of time. The US Department of Justice declined to intervene in the case, but filed a statement of interest in the summary judgment stage supporting the relator’s position.

In ruling on the summary judgment motions, the court agreed with defendants that six of the eight arrangements met the signed writing requirement, but agreed with relator that a jury could find that two arrangements did not satisfy the signed writing requirement. The court also denied Hamot and Medicor’s motions for summary judgment on the FCA scienter and materiality issues.

The court’s opinion is the first to consider the crucial question of whether and when a false certification of compliance with the signed writing requirements of the applicable Stark Law exception(s) is material to the Medicare program’s payment decision for FCA purposes. First, the court noted that the Stark Law contains an express payment prohibition for claims that originate from referrals by physicians with financial relationships that do not meet an exception, and the relevant exceptions in this case contained a signed writing requirement. Second, the court found that a violation of the signed writing requirement was not “minor or insubstantial” because the requirement creates “transparency and verifiability” and “plays a role in preventing fraud and abuse.” Finally, the court referenced Centers for Medicare and Medicaid Services (CMS) Self-Referral Disclosure Protocol (SRDP) settlements, where disclosures of noncompliance with the Stark Law’s signed writing requirements are common, as an indication that CMS views the writing requirement as material to payment.

While the signed writing requirement helps assure “transparency and verifiability” and plays a role in preventing fraud and abuse, this rationale confuses the materiality of the signed writing to compliance with the Stark Law with the materiality of the signed writing to CMS’ payment decision under the FCA. In the SRDP, CMS consistently allows disclosing parties that have not complied with the signed writing requirement to keep, and not refund, most of the Medicare payments at issue when the violations are discovered and disclosed. This has meant retention of tens, perhaps hundreds, of millions of dollars in Medicare payments by hospitals that did not comply with the signed writing requirement, and, in and of itself, demonstrates that even CMS appears to consider such violations to be garden-variety and relatively minor. Further, the outcome in Emanuele seems inconsistent with the Supreme Court’s direction to interpret the materiality standard as “demanding” and caution that the FCA is not an all-purpose antifraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations.

The argument for treating a failure to satisfy the signed writing requirement as “minor or insubstantial” is not an argument that the requirement is not meaningful and important to the prevention of fraud and abuse or to compliance with the Stark Law. It goes without saying that, if Congress included a signed writing requirement in the law, the requirement is important, and noncompliance with the requirement is noncompliance with the Stark Law. However, the fact that the signed writing requirement is meaningful and important to both the prevention of fraud and abuse, and to compliance with the Stark Law, does not end the examination of whether such noncompliance is necessarily material to Medicare’s payment decision for purposes of the FCA.

Many hospitals and health systems today have contract management and accounts payable protocols in place that reduce the risk of noncompliance with the Stark Law’s signed writing requirements and, importantly, help establish that any particular failure was not deliberate or due to reckless disregard for compliance with the requirement. Emanuele is a discouraging reminder that even an innocent failure to discover and disclose signed writing or other technical Stark violations could result in the harsh choice between a high-risk trial or an expensive settlement under the FCA.

See our AHLA Weekly article for more in-depth analysis.

Daniel H. Melvin
Daniel H. Melvin counsels clients on Stark, Anti-Kickback and Medicare compliance issues such as physician compensation matters, and assists clients in investigating and addressing potential or alleged violations, including self-disclosures and defense of Stark- and Anti-Kickback-related qui tam actions. He also works with hospitals and physicians on coordinated care and other alternative service delivery models, including bundled payment and cost savings models, providing regulatory and transactional counsel and support. Read Daniel H. Melvin's full bio.

Joshua T. Buchman
Joshua (Josh) T. Buchman focuses his practice on white-collar criminal defense, internal investigations and complex commercial litigation. He represents corporate clients in the health care, manufacturing and defense contracting industries, in civil litigation and in corporate internal investigations. Josh has deep knowledge of False Claims Act litigation, and obtained a complete victory for a defense contractor client in a case involving $600 million in single damages exposure. He also represents individuals involved in government investigations. Read Joshua T. Buchman's full bio.

Joan Polacheck
Joan Polacheck advises clients on a variety of health care compliance and regulatory issues, including fraud and abuse, Stark law, Anti-Kickback Law and Medicare reimbursement issues. She represents a broad range of health care industry clients, including hospitals, suppliers, and drug and device companies. Read Joan Polacheck's full bio.

Rebecca Waltuch
Rebecca Waltuch provides legal counsel on general health law, including the representation of hospitals, health systems and other health care clients. She focuses her practice on counseling clients on a range of regulatory issues, including federal health care program fraud and abuse and the Stark law, as well as the Health Insurance Portability and Accountability Act (HIPAA). Rebecca serves as the lead lawyer for physician contracting matters for a large hospital system. She advises accountable care organization (ACO) clients on legal and regulatory issues, including the preparation of ACO waivers. She also has experience in matters related to physician network affiliations and managed care contracting. Read Rebecca Waltuch's full bio.

Tony Maida
Tony Maida counsels health care and life sciences clients on government investigations, regulatory compliance and compliance program development. Having served as a government official, Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal and state Anti-Kickback and Stark Laws and Medicare and Medicaid coverage and payment rules. He represents clients in False Claims Act (FCA) qui tam matters, government audits, civil monetary penalty and exclusion investigations, and Centers for Medicare and Medicaid Services (CMS) suspension, and revocation actions, negotiating and implementing corporate integrity agreements, and making government self-disclosures. Read Tony Maida's full bio.