Health Care Alert: Valuing Non-Competes: The Bradford Decision


In an opinion substantively addressing the Stark law and Anti Kickback statute, a federal court issued summary judgment against a hospital, a physician practice and its physician owners finding that an equipment subleasing arrangement, and related non-compete agreement, improperly assigned value to the volume of “anticipated referrals” in violation of the Stark law. In United States ex rel. Singh v. Bradford Regional Medical Center, Civ. No. 04-186, 2010 U.S. LEXIS 119355 (W.D. Pa. Nov. 10, 2010), the United States District Court for the Western District of Pennsylvania was asked to evaluate claims brought against Bradford Regional Medical Center (BRMC), V&S Medical Associates, LLC (V&S) and its physician owners, Drs. Vaccaro and Saleh (the Physicians), pursuant to a qui tam action alleging that the defendants submitted, or caused to be submitted, false claims to the Medicare program arising out of referrals from Drs. Vaccaro and Saleh to BRMC. At the heart of the dispute was whether the payments under the sublease arrangement, which included substantial amounts attributable to a non-compete agreement, reflected fair market value. The relators alleged that a sublease agreement for a nuclear camera between BRMC and V&S was intended to gain patient referrals for BRMC in violation of the Stark law and Anti-Kickback statute. The government did not intervene in the action.

The defendant, BRMC, owned and operated a small community hospital at which the Physicians were on the medical staff. Prior to 2001, the Physicians were a significant source of referrals to BRMC for inpatient and outpatient hospital services, as well as for diagnostic imaging services provided on the hospital’s nuclear camera. Nevertheless, in June 2001, finding that they had enough nuclear medicine patients to support their own machine, the Physicians executed a lease to acquire their own nuclear camera from GE through their medical practice. Faced with declining referrals for nuclear imaging, BRMC executed a sublease agreement effective October 1, 2003 with V&S, pursuant to which BRMC was to sublease the nuclear camera from V&S and use it to provide diagnostic tests for BRMC patients.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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