FCA UPDATE
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
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Congress Examining Stark Law Reform This Year

By , and on Jul 19, 2016
Posted In , ,

On July 12, 2016, the US Senate Finance Committee held a hearing to “examine ways to improve and reform the Stark Law” as a follow up to releasing a white paper on June 30 titled Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models. The white paper summarizes comments and recommendations gathered during a roundtable discussion held by the Senate Finance Committee and the US House Committee on Ways and Means in December 2015 as well as written comments submitted by roundtable participants and other stakeholders on topics taken up by the roundtable in the weeks following the meeting.

Senate Finance Committee Chairman Senator Orrin Hatch commented in a press release that “[t]he health care industry has changed significantly since Stark was first implemented, and while the original goals of the Stark law were appropriate, today it is presenting a real burden for hospitals and doctors trying to find new ways to provide high quality care while reducing costs as they work to implement recent health care reforms. . . [The] paper reflects critical feedback from the stakeholder community on the law’s ambiguities, its unintended consequences and the need for reform, and I am hopeful it jumpstarts the discussion on how Congress can modernize the law to make it work for patients, providers and taxpayers.”

Congress’ attention to Stark Law reform would address the significant False Claims Act exposure Stark Law violations can pose, which has been a very active topic for relators and government investigations in recent years.

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The ‘Practice Losses’ Theory as an Enterprise Risk

By on Dec 9, 2015
Posted In

Three recent, significant FCA settlements with hospitals involving Stark law allegations may also have unexpected governance implications. To varying degrees in these settlements, the Department of Justice (DOJ) appears to advance the highly controversial position that the Stark law is violated when a health system pays employed physicians more than the net professional income the physician generates. While DOJ has in the past expressed skepticism regarding health system tolerance for practice losses, the formal pursuit of such an enforcement theory could be fundamentally problematic to the continued operation of an integrated delivery system. Thus, this enforcement theory is precisely the type of information that would benefit from disclosure to system leadership through the board’s enterprise risk management process.

Read the full article from Bloomberg BNA Health Care Fraud Report™.



Health System Practice ‘Losses’ Make Headlines, Plaintiffs Make New Stark ‘Law’

By and on Nov 25, 2015
Posted In

Health systems routinely employ physicians, either directly or through corporate affiliates. Media reports and anecdotal evidence suggest such practices routinely, perhaps uniformly, result in net practices losses for the system when measured solely based on physician practice revenues. Does this fact have any legal import under the Stark Law?

Read the full article from Bloomberg BNA Health Care Fraud Report™.



Ten Years Later — The End of Tuomey’s Journey

By on Oct 21, 2015
Posted In ,

In October 2005, Dr. Michael Drakeford filed his qui tam against Tuomey Healthcare System alleging Stark Law and False Claims Act violations. After ten years of investigation and litigation, including two jury trials, two trips to the Fourth Circuit U.S. Court of Appeals, and a staggering judgment of $237 million, on October 16, 2015, the Department of Justice announced that it reached a settlement with Tuomey to pay $72.4 million before its sale to Palmetto Health. Dr. Drakeford received a 25 percent share ($18.1 million) plus an additional $2.5 million payment for attorneys’ costs and fees.

We have previously analyzed the Fourth Circuit’s July decision affirming the 2013 jury verdict and judgment here, and the Tuomey litigation in great detail here.

Consistent with DOJ’s policy announced in the Yates Memorandum (see post), the settlement agreement only releases Tuomey, and does not release any corporate officers, directors or employees. Moreover, the settlement contains some unusual provisions concerning two such officers, noting that Tuomey had agreed to indemnify Jay Cox and Gregg Martin, the CEO and COO respectively during the relevant time period, for their attorney fees and expenses relating to the conduct covered by the settlement. According to the settlement, Tuomey has informed the United States how much Tuomey has already advanced Cox and Martin, and Tuomey assigned to the United States all claims or potential claims Tuomey has or may have against Cox and Martin for reimbursement of fees and costs advanced to them.

Tuomey also entered into a five-year corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General as part of the settlement. The CIA requires that Tuomey retain a law firm as a “Legal IRO” to perform reviews of Tuomey’s process for entering into arrangements with referral sources as well as reviewing specific arrangements.  The CIA also contains a requirement that is starting to appear in more recent CIAs — certifications of compliance from both the compliance officer and the chief executive officer instead of only the compliance officer.



A Post-Tuomey Future: Huge Stark Law Hospital Settlements

By and on Oct 7, 2015
Posted In

After the federal government’s victory against Tuomey Healthcare System Inc., we have seen an increasing number of large False Claims Act settlements with hospitals involving Stark Law allegations. Relators are even citing, as evidence of ongoing recklessness, that hospital executives have been emailing articles about the Tuomey case to their staff. Given the Stark Law’s intricate requirements, it is unsurprising that many hospitals are presented with Stark Law compliance questions. However, the U.S. Department of Justice has not shown much leniency in its treatment of these cases, as shown by two recent settlements.

Read the full article from Law360.



Huge Stark Law Hospital Settlements and Physician Culpability – The New Normal Post-Tuomey?

By and on Sep 29, 2015
Posted In ,

After the federal government’s victory against Tuomey Hospital, we have seen an increasing number of large False Claims Act (FCA) settlements with hospitals involving Stark Law allegations. Despite the intricacies of Stark Law compliance, the U.S. Department of Justice (DOJ) has not shown much leniency in its treatment of these cases, as shown by two recent settlements involving Columbus Regional Healthcare System and North Broward Hospital District. This On the Subject explores some “lessons learned” from these settlements as well as DOJ’s emerging interpretation of the Stark Law that may put vertically integrated health systems’ physicians arrangements at risk for scrutiny.

Read the full On the Subject.



Huge Stark Law Hospital Settlements and Physician Culpability – The New Normal Post-Tuomey?

By and on Sep 25, 2015
Posted In

After the federal government’s victory against Tuomey Hospital, we have seen an increasing number of large False Claims Act (FCA) settlements with hospitals involving Stark Law allegations. Relators are even citing, as evidence of ongoing recklessness, that hospital executives have been e-mailing articles about the Tuomey case to their staff. Given the Stark Law’s intricate requirements, it is un-surprising that many hospitals are presented with Stark Law compliance questions. However, the U.S. Department of Justice (DOJ) has not shown much leniency in its treatment of these cases, as shown by two recent settlements. (more…)



Adventist Health System Settles Stark Law & FCA Matters

By on Sep 23, 2015
Posted In ,

Adventist Health System (Adventist) entered into a settlement agreement with the United States and with the states of Florida and North Carolina on September 21, 2015, resolving Stark Law issues that Adventist disclosed regarding a certain physician employment compensation model and certain other financial arrangements.  The settlement agreements also fully resolve the allegations in two separate qui tam actions, discussed below.

Adventist’s settlement agreement with the United States does not require that it enter into a Corporate Integrity Agreement with the Office of the Inspector General (OIG).  Adventist paid $115 million to the United States as part of the settlement.

In December 2012, three Adventist employees filed a qui tam action under seal (later amended), on behalf of the United States, Florida, Georgia, Illinois, North Carolina, Tennessee and Texas, alleging violations of the Stark Law and other federal and state laws.

In January 2013, Adventist voluntarily disclosed to the United States Department of Justice that it had submitted claims to the Medicare program pursuant to the referrals of certain physicians that were potentially in violation of federal law.  In April 2013, another Adventist employee filed a second qui tam action under seal (later amended), on behalf of the United States, Florida, Illinois, North Carolina and Texas, alleging violations of the Stark Law and other federal and state laws.

On September 21, 2015, the United States intervened in both qui tam actions with respect to relators’ allegations that were consistent with Adventist’s disclosure of its employment compensation models.  The United States also intervened in the first action with respect to allegations that certain Adventist entities miscoded claims for physician services to Medicare.  The United States declined to intervene, however, in any other allegations in the complaints, including in allegations of violations of the federal Anti-Kickback Statute, and these allegations were dismissed with prejudice by each relator.

While the states of Florida, North Carolina, Tennessee and Texas intervened with respect to certain claims asserted by relators on their behalf, the states of Georgia and Illinois declined to intervene in either action, and the relators’ claims in these two states were dismissed with prejudice as to the relators.



Deconstructing Tuomey: 25 Years on, Is It Time for Congress to Revisit the Stark Law?

By and on Sep 14, 2015
Posted In , ,

In 1989, Congress enacted the Ethics in Patient Referrals Act. Twenty-five years later, in United States ex rel. Drakeford v. Tuomey, the Fourth Circuit upheld the largest False Claims Act (FCA) judgment predicated on Stark Law violations to date: $237 million. Writing in concurrence, Judge Wynn summarized the situation as “[a]n impenetrably complex set of laws and regulations that will result in a likely death sentence for a community hospital in an already medically underserved area,” concluding that “even for well-intentioned health care providers, the Stark Law has become a booby trap rigged with strict liability and potentially ruinous exposure—especially when coupled with the False Claims Act.”

The court’s opinion did not quarrel with this assessment: “we do not discount the concerns raised by our concurring colleague regarding the result in this case. But having found no cause to upset the jury’s verdict in this case and no constitutional error, it is for Congress to consider whether changes to the Stark Law’s reach are in order.”

This is not the first time that serious concerns have been raised about the breadth, complexity, and inscrutability of the Stark Law as currently implemented. As part of the Balanced Budget Act (BBA) of 1995, Congress voted to repeal the Stark Law as applied to compensation arrangements, but the BBA was vetoed by President Bill Clinton. More recently, the law’s namesake, former Representative Fortney “Pete” Stark, has urged its repeal.

This article is not intended to summarize all the facts of Tuomey or its extended procedural history, which have been recounted elsewhere. Rather, we seek to comment on three key aspects of the case: (1) the defendant’s advice of counsel/ scienter defense; (2) the court’s application of the “takes into account” prong to Tuomey’s physician employment agreements; and (3) certain inherent tensions in the Stark Law that the Tuomey odyssey underscores.

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Can Satisfying A Regulatory Requirement Now Equate To Providing Illegal Remuneration?

By and on Sep 9, 2015
Posted In , ,

Defending False Claims Act litigation is often a costly budget item. The disposal of weak cases by the government through the intervention decision making process has always been a critical safety valve for non-culpable defendants. Two of the more concerning trends in False Claims Act litigation, however, are (1) the increasing likelihood of relators pursuing factually and legally weak allegations after the government declines to intervene, and (2) courts allowing such cases to survive a Rule 9(b) motion to dismiss. A recent case in the Middle District of Florida involving the unintended consequences of a health system’s adherence to a local zoning obligation serves as a prime example of these troubling trends.

On August 14, 2015, in U.S. ex rel. Bingham v. BayCare Health System, the court denied the defendants’ motion to dismiss relator’s claim that BayCare Health System (BayCare) and an independent third party real estate developer, St. Pete MOB, LLC (St. Pete’s)—referred to by relator as BayCare’s “proxy”—entered into a “scheme” to enable BayCare to pass remuneration to physicians in violation of the Stark Law and Anti-Kickback Statute (AKS). According to the relator, the heart of this “scheme” is BayCare’s ground lease to St. Pete’s on a BayCare hospital’s campus to build a medical office building (MOB).

In this ground lease, BayCare provided a non-exclusive easement for MOB tenants to use the hospital’s parking facilities.  As pleaded by the relator, and acknowledged by the court, this easement was included in the lease “to satisfy zoning and other governmental requirements.”  Despite this salient fact, relator turns this legally-required easement into illegal remuneration under the Stark Law and AKS simply by alleging that one of BayCare’s purposes in providing the easement was for St. Pete to avoid incurring the costs to lease additional land and to build a parking garage, and then for St. Pete to “pass some or all of the millions of dollars in savings to physician tenants to encourage them to make or increase referrals.” However, the relator does not appear to have mustered support for this bald conclusion. The relator does not appear to allege that the terms of the physicians’ leases with St. Pete’s are problematic, other than suggesting that amending the leases in 2013 to allow the physicians, staff and patients to use the parking facilities to access the MOB at no charge is another sign of improper remuneration.  The relator also asserts that BayCare provided a “rent concession” to the tenant physicians (even though BayCare is not the landlord) by claiming a tax exemption for what is alleged to be non-exempt property, which saved St. Pete’s about $140,000 in real property taxes. The relator alleges, with little support, that this tax exemption resulted in lower rent charged to the physician tenants and that BayCare is culpable for this alleged remuneration even though St. Pete’s was the lessor.

The legal theory and factual problems with this case are multifold. BayCare’s legal obligation to meet the local zoning requirement for the easement should raise significant challenges for [...]

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