Court Rules Florida Hospital Violated Stark Law in Oncologist Payment Case

On November 13, 2013, the district court in United States ex rel. Baklid-Kunz v. Halifax Hospital Med. Ctr. et al., No. 6:09-cv-1002 (M.D. Fla.), issued a significant decision interpreting the Stark Law. In Halifax, the relator alleged, among other things, that the hospital defendant submitted false claims under the False Claims Act resulting from referrals to the hospital made by six employed oncologists whose employment arrangements allegedly did not satisfy a Stark Law exception. As an aside, the relator was the hospital’s compliance officer. The United States intervened and also asserted common law claims (unjust enrichment and payment by mistake of fact).

The hospital paid the oncologists a salary plus a bonus. The bonus was a percentage of a bonus pool, which consisted of the profits earned by the oncology department. The Court agreed with the relator and the Government that the bonus component violated the Stark Law. The employment exception that the hospital was relying upon does not permit hospitals to pay employed physicians in a manner that varies with or takes into account the volume or value of referrals. The Court held that the revenues of the oncology department, and therefore its profits, vary with the volume of patients that the oncologists treat at the hospital. The more patients that the oncologists treat at the hospital, the greater the oncology department’s facility fee revenue. Therefore, the bonus component of the oncologists’ compensation varied with the volume or value of referrals.

In addition, citing CMS’s instructions for completing a UB-04 claim form, the Court ruled that evidence that a physician is listed on a UB-04 claim form as either the “attending physician” or “operating physician” constitutes evidence that the physician made a referral under the Stark Law. Because the hospital did not present any evidence to rebut the UB-04 claims evidence, the Court granted summary judgment for the Government on the issue of whether the oncologists made referrals. This aspect is significant in that it simplifies the Government’s job of proving referrals.

Based on these rulings, the Court granted summary judgment for the Government and the relator on the issue of whether Stark Law violations occurred. The Court denied the Government’s motion for summary judgment as to the precise amount of damages and the number of false claims submitted. The Government asserts damages of approximately $27 million. In addition, the Court held that there was a material issue of disputed fact as to whether the hospital acted “knowingly” under the False Claims Act. The Court set a trial date in March 2014 for trial of these issues, as well as other Stark Law claims and additional Medicare billing allegations that were not raised in the Government’s summary judgment motion.

A key point briefly mentioned in the Court’s opinion is that the hospital obtained a letter from outside counsel that the bonus compensation arrangement satisfied the employment exception to the Stark Law. That opinion was provided after the agreement was already in place and was used to support the payment of the final year of bonus. The hospital waived attorney-client privilege and used the outside counsel opinion as evidence that it did not act knowingly, and is presumably how the hospital defeated summary judgment on the False Claims Act liability issue. Because the Stark Law is a strict liability statute, the letter from outside counsel did not serve as a defense to the underlying issue of whether the Stark Law was violated and may not provide defense to the Government’s common law claims.