CMS And DOJ Wake From One Hundred Year Slumber to Enforce the Stark Law In Several Significant Cases

Kissed by the “prince” of persistent and well-informed relators, CMS and the Department of Justice finally woke from a lengthy nap to enforce the Stark Law in a series of high-profile cases that were widely publicized last year. What does this mean for the Stark Act and where do enforcement actions go from here?

The most talked about case in the past year was United State ex rel. Drakeford v. Tuomey. That hard fought case finally ended after ten years in a $237 million victory for DOJ (later reduced to $72.4 million through a post-appeal ability to pay settlement) in a case that had a long and tortuous ride through the courts. The facts of Tuomey are really quite simply. The defendant hospital paid employed physician a bonus that varied with the number of procedures they performed at the hospital, violating the Stark Law’s prohibition on compensation that varies with the volume or value of referrals. Tuomey had some colorful window dressing, including an opinion by the much-utilized defense expert, Kevin McAnaney, that the employment agreement raised “red flags” under Stark because of the bonus provision and that a contention by the hospital that the contracts did not compensate the physicians above Fair Market Value would not “pass the red fact test,” which Tuomey fought mightily to keep the jury from hearing.

Another case that is of note is United States ex rel Baklid-Kunz v. Halifax Hospital, which was litigated in the Middle District of Florida. In that case, it took the Department of Justice a few years to establish the proposition that employed physicians cannot receive bonuses from a pool that includes reimbursement for services, such as technical fees, they did not personally perform. Given that CMS has clearly stated that the employment exception only expressly permits productivity bonuses to be paid to employed physicians for services they personally perform, 69 Fed. Reg. 16066, the Government’s $*** settlement with Halifax Hospital hardly broke new ground.

In a case in which the writer was counsel, United States ex rel Barker v. Columbus Regional Hospital, the Government reached a $35 million settlement, albeit in record time in an FCA cases (four months after the case was filed) to resolve allegations that the medical oncologist at the John B. Amos Cancer Center in Columbus, Georgia was paid above FMV because, at least in part, his compensation was based upon work performed by others, and on upcoded services. These cases build on other settlements, such as the 2010 St. Joseph Medical Center case in which this writer participated on behalf of the Government, where the hospital paid a $22 million fine under the Antikickback Statute to resolve allegations that it compensated a group of independent cardiologists above FMV for their services in exchange for referrals. Enforcement by DOJ and CMS has otherwise been sporadic, however, despite educated observations that compensation arrangements violating Stark and the Antikickback Statute are rife in the health care industry.

Why is it that DOJ and CMS are having so much trouble enforcing Stark, including relatively uncontroversial propositions such as those at issue in Tuomey and Halifax? In both cases the defendants publicly and vigorously disputed DOJ’s right to enforce the “technical” requirements of Stark through the False Claims Act, with its treble damages and penalties. This idea that Stark is a collection of technical requirements with no substantive meaning has impeded the government’s enforcement efforts, and in this regard, the government has been the author of its own difficulties. CMS and DOJ have themselves treated Stark as a “technical” requirement in many settings. CMS in particular has been quick to water down the statute by recently promulgating regulations that substantially undermine the requirement of a written agreement.

What CMS and DOJ have overlooked their best offense, which is the fact that Stark is a substantive statute. It was passed to correct real harms. Under the Stark Law and the AKS the overutilization of health services and corruption of medical judgment that results from improper remuneration relationships are presumed. United States ex rel. Kosenske v. Carlisle HMA Inc., 2007 WL 3490537 at * 5 (W.D. Pa. Nov. 14, 2007). Accord United States ex rel. Drakeford v. Tuomey, 792 F.2d 364, 385 (4th Cir. 2015)(“Stark law expresses Congress’ judgment that all services provided in violation of that law are medically unnecessary”). DOJ and CMS should remember this when they look at potential enforcement action going forward. The real evil that Stark and the AKS were designed to correct is the harm that occurs when doctors make treatment decisions based upon what will put the most money in their pockets, not based upon what is best for their patients.

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