Fair Market Value Payments at Heart of Christiana Care Health System Settlement

Christiana Care Health System (CCHS) has agreed to pay the United States and the State of Delaware a combined $3.3 million to resolve allegations under the False Claims Act and Stark Act. The case originated as a qui tam lawsuit brought by two Willington, Delaware, neurologists who attempted to negotiate with CCHS to be the exclusive provider of electroencephalograms interpretations (EEG) for CCHS. CCHS had a longstanding agreement that existed since 1989 under an "evergreen" agreement with Neurology Associates, PA (NA) to provide the exclusive EEG interpretations. Due in part to its negotiations with the two qui tam neurologists, CCHS entered into a new contract with NA in 2002 that significantly lowered the fees paid by CCHS to NA for the EEG interpretations from the fees in the 1989 evergreen agreement. In fact, it was alleged in the lawsuit that CCHS was paying NA "multiples of what Medicare or Medicaid paid CCHS as reimbursement for those services …"

This case is important to hospitals for the following reasons:

1. Hospitals should monitor their financial arrangements with referring physicians annually to ensure that all such arrangements comply with the Stark Act and Anti-Kickback Statute, and that the compensation arrangement remains fair market value.
2. "Evergreen" contracts should be discouraged. If evergreen contracts are utilized, such agreements should be analyzed on an annual basis for fraud and abuse compliance. Of key importance is the evaluation that the payments being made remain within an acceptable fair market value range.
3. Paying physicians "multiples of what Medicare or Medicaid" pays as reimbursement for the same services could be above fair market value and may not be commercially reasonable.
4. The Settlement Agreement with CCHS stated that the claims submitted by CCHS for referrals from NA physicians "were not reimbursable because CCHS and the NA physicians had an impermissible 'financial relationship' as defined in the Stark Statute." Such impermissible "financial relationship" was primarily due to the payments to NA for the EEG interpretations being above fair market value. Thus, it is important to have vibrant documentation regarding each financial relationship with referring physicians supporting that the payments made are fair market value and commercially reasonable.