On March 15, 2017, the United States District Court for the Western District of Pennsylvania issued an opinion that sheds insight on how courts view the “writing” requirement of various exceptions under the federal physician self-referral law (or “Stark Law”). The ruling involved the FCA qui tam case, United States ex rel. Emanuele v. Medicor Assocs., No. 1:10-cv-245, 2017 U.S. Dist. LEXIS 36593 (W.D. Pa. Mar. 15, 2017), involving a cardiology practice (Medicor Associates, Inc.) and the Hamot Medical Center. The Court’s detailed discussion of the Stark Law in its summary judgment opinion provides guidance as to what may or may not constitute a “collection of documents” for purposes of satisfying a Stark Law exception.

This opinion is of particular note because it marks the first time that a physician arrangement has been analyzed since the Stark Law was most recently amended in November 2015, at which time the Centers for Medicare and Medicaid Services (“CMS”) clarified and codified its longstanding interpretation of when the writing requirement is satisfied under various exceptions.

Arrangements Established by a “Collection of Documents”

Both the “professional services arrangement” and “fair market value” exceptions were potentially applicable, and require that the arrangement be “in writing” and signed. However, two of the medical directorships were not reduced to a formal written agreement. The Defendants identified the following collection of documents as evidence that the writing requirement was satisfied:

  • Emails regarding a general initiative between Hamot and Medicor for cardiac services, but without any specific information regarding directorship positions, duties or compensation.
  • Letter correspondence between Hamot and Medicor discussing the potential establishment of a director position for the women’s cardiac program.
  • Internal summary that identified a Medicor physician as the director of the women’s cardiac program.
  • Unsigned draft Agreement for Medical Supervision and Direction of the Women’s Cardiac Services Program.
  • A one page letter appointing a Medicor physician as the CV Chair and identifying a three-year term that expired June 30, 2008.

The Court said that although “these kinds of documents may generally be considered in determining whether the writing requirement is satisfied, it is essential that the documents outline, at an absolute minimum, identifiable services, a timeframe, and a rate of compensation.” (emphasis added). In addition, the Court noted that CMS requires that at least one of the documents in the collection be signed by each party. After confirming that these “critical” terms were missing from the documents described above, the Court concluded that no reasonable jury could find that either arrangement was set forth in writing in order to satisfy Stark’s fair market value exception or personal service arrangement exception.

Expired Arrangements

Other directorships were initially memorialized in signed, formal written contracts, but they all terminated pursuant to their terms on December 31, 2006 and were not formally extended or renewed in writing on or prior to their termination. Thereafter, Medicor continued to provide services and Hamot continued to make payments under the agreements. The parties eventually executed a series of “addendums” to extend the term of each arrangement, although these addenda had a prior effective date. During the timeframe between when the agreements expired and when the addenda were executed, invoices were continuously submitted and paid.

Plaintiff argued that the failure to execute timely written extensions in advance of renewals resulted in a failure of all six arrangements to meet the “writing” requirement under a relevant Stark Law exception. The Court disagreed, explaining that there is no requirement that the “writing” be a single formal agreement and CMS has provided guidance as to the type of collection of documents that could be considered when determining if the writing requirement is met at the time of the physician referral. In this case, the Defendants specifically relied upon the invoices from Medicor to Hamot and the checks that were sent in payment thereof.

In deciding that a reasonable jury could find that there was a sufficient collection of documents, the Court denied Plaintiff/Relator’s motion for summary judgment with respect to these six ‘expiring” directorships, and the case will proceed to trial on these claims.

Hospitals should carefully consider this opinion when auditing Stark Law compliance of their physician arrangements. A more detailed article analyzing this case will be published in the July edition of Compliance Today.

As discussed previously in this blog, efforts to curb fraud, waste and abuse are generally “bi-partisan.” Given the significant monetary recoveries the Government enjoys through enforcement of the federal False Claims Act (“FCA”), we have predicted that efforts in this arena will continue under a Trump administration. However, this is dependent, in part, on the priorities of the new administration and the resources it devotes in this arena. To this end, the testimony of Attorney General nominee Sessions during his confirmation hearing on January 10th may have given us some insight into how he views the FCA.

Notably, as part of his opening testimony, Attorney General nominee Sessions said:

“Further, this government must improve its ability to protect the United States Treasury from waste, fraud, and abuse. This is a federal responsibility. We cannot afford to lose a single dollar to corruption and you can be sure that if I am confirmed, I will make it a high priority of the Department to root out and prosecute fraud in federal programs and to recover any monies lost due to fraud or false claims.”

During questioning by Senate Judiciary Committee Chairman Charles Grassley (R. IA.), Sessions elaborated on his intent to focus on the FCA. When asked whether he would “pledge to vigorously enforce the False Claims Act and devote adequate resources to investigating and prosecuting False Claims Act cases,” Sessions testified:

“In the qui tam provisions and the part of that, I’m aware of those. I think they are valid and an effective method of rooting out fraud and abuse. I even filed one myself one time as a private lawyer…. It has saved this country lots of money and probably has caused companies to be more cautious because they can have a whistleblower that would blow the whistle on them if they try to do something that’s improper. So, I think it’s been a very healthy thing…”

In addition, after commenting that, in his opinion, some qui tam cases remain under seal for an “awfully long time,” Sessions testified that, if confirmed, he would provide Congress with “regular timely updates on the status of…. False Claims Act cases including statistics as to how many are under seal and the average length of seal time.”

Sessions’ testimony seems to have offered something to those on “both sides” of the FCA. His statements suggest that he recognizes the value of the FCA and its qui tam provisions; indeed, we learned that he even brought a qui tam case when he was in private practice. However, his testimony also reflects concern about unreasonably long seal periods, which are a significant problem for defendants in FCA cases. Extended seal periods plainly provide a unilateral litigation advantage to the Government and qui tam Relators by allowing extensive time to investigate while providing defendants no corresponding opportunity. Instead, extended seal periods often force defendants to be relegated to face aged claims once they are finally able to defend themselves. (Most FCA actions are filed under whistleblower, or qui tam, provisions. According to the Department of Justice, whistleblowers filed 702 qui tam suits in fiscal year 2016—an average of 13.5 new cases every week.) Only time will tell if a Justice Department under Attorney General Sessions will press to expedite consideration of FCA cases and improve the “playing field” in the process.

The federal government continues to secure significant recoveries through settlements and court awards related to its enforcement of the False Claims Act (FCA), particularly resulting from actions brought by qui tam relators. In fiscal year (FY) 2016, the federal government reported that it recovered $2.5 billion from the health care industry. Of that $2.5 billion, $1.2 billion was recovered from the drug and medical device industry.  Another $360 million was recovered from hospitals and outpatient clinics.

Government Intervention Drives Recoveries

The FY 2016 FCA statistics reflect that more than 97% of the recoveries from qui tam cases resulted from matters in which the government elected to intervene and pursue directly. Government intervention remains a real danger to health care entities.

However, more than 80% of new FCA matters were filed by qui tam relators; relator share awards reached almost $520 million in FY 2016. The financial incentives to pursue these matters are significant and well recognized; last year, the number of new qui tam FCA cases was the second highest since 1987.

Enforcement Climate Became Worse for Individuals in FY 2016—and Will Likely Continue

The government’s focus on individual liability, as reflected in the “Yates Memo,” is expected to continue. This focus on individual accountability has recently resulted in substantial FCA recoveries from physicians, a former hospital CEO, a nursing home CFO, and even the Chair of a board of directors.[1]  On the administrative side, such focus has resulted in the 20-year exclusion of a physician specializing in urogynecology whom the government alleged billed for services not performed or not medically necessary. Indeed, this focus continues: just last week, the government filed a FCA complaint against a mental health and substance abuse clinic and its owner in his individual capacity.

Regulatory Changes in 2016 Created More Financial Exposure

The monetary exposure faced by health care industry participants under the FCA is increasing. In June, the Department of Justice released an interim final rule increasing the minimum per-claim penalty under Section 3729(a)(1) of the FCA from $5,500 to $10,781 and increasing the maximum per-claim penalty from $11,000 to $21,563.

The Government’s Use of Technology

The use of technology has markedly enhanced the government’s recovery efforts. Federal and state governments, along with some commercial insurers, are investing in the use of predictive analytics that can analyze large volumes of health care data to identify fraud, waste, and abuse. Notably, the government reportedly enjoyed an $11.60 return for each dollar it spent on its investment in these technologies in 2015.  The use of such technology is expected to continue under the new administration.

The Risk of Enforcement Is Real

The FY 2016 FCA statistics reflect the government’s belief that devoting time and resources to FCA cases makes “good business sense.” This realization is very unlikely to change. Health care entities—as well as individuals—must be alert to potential violations and have strong compliance functions to deal with compliance-related matters in a way that prevents claims and litigation.

Enforcement in a Trump Administration and Opportunities to Reshape the Landscape

Enthusiasm for efforts to curb fraud, waste, and abuse is bipartisan. As a result, government enforcement is likely to stay on its present course with the incoming administration, in good part due to the high return on investment in government fraud investigations and no public policy outcry to reduce such enforcement efforts.

While the growth of the federal government’s investment in enforcement efforts might slow due to both the anticipated federal worker hiring freeze and President-elect Trump’s pledge to reduce regulations, health care entities should not ignore the real risk that they face in this area.

A new administration, however, may bring opportunities to reshape part of the enforcement landscape. President-elect Trump promised to repeal and replace the Affordable Care Act (“ACA”). Included within the ACA were several provisions that made it easier for qui tam relators to bring FCA cases.[2] While it is likely that such provisions—which plainly benefit the government—would be pressed for exemption from any repeal, this does present the potential for legislative changes beneficial to potential FCA defendants. Additionally, given the real likelihood of multiple U.S. Supreme Court appointments, along with the need to fill the more than 100 current federal district court vacancies, more legal challenges to efforts to expand the reach of the FCA can be anticipated.

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[1] See Press Release, Department of Justice, North American Health Care Inc. to Pay $28.5 Million to Settle Claims for Medically Unnecessary Rehabilitation Therapy Services (Sept. 19, 2016), https://www.justice.gov/opa/pr/north-american-health-care-inc-pay-285-million-settle-claims-medically-unnecessary; Press Release, Department of Justice, Former Chief Executive of South Carolina Hospital Pays $1 Million and Agrees to Exclusion to Settle Claims Related to Illegal Payments to Referring Physicians (Sept. 27, 2016), https://www.justice.gov/opa/pr/former-chief-executive-south-carolina-hospital-pays-1-million-and-agrees-exclusion-settle.

[2] The ACA impacted the FCA by narrowing the Public Disclosure Bar (31 U.S.C. § 3730(e)(4)(A)), expanding the scope of the “original source” exception for the Public Disclosure Bar (31 U.S.C. § 3730(e)(4)(B)), relaxing intent requirement for violations of the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(h)), and providing that claims resulting from Anti-Kickback Statute violations would also be considered false claims (42 U.S.C. § 1320a-7b(g)).