Stark Law Update: All Children’s Settles False Claims Act Allegations

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All Children’s Health System (ACHS) will pay the federal government and state of Florida $7 million to settle allegations that it violated the federal and Florida False Claims Act statutes by submitting claims to Medicaid that were illegal under the Stark Law. The whistleblower in the case was the Director of Operations of Pediatric Physician Services, Inc., a subsidiary of ACHS that managed the physician staffing for ACHS facilities. The relator alleged that an ACHS executive negotiated certain physician compensation arrangements that exceeded fair market value and provided inappropriate productivity bonuses in violation of the Stark Law.

While the federal government declined to intervene in the case, it filed a Statement of Interest concluding that the Stark Law applies to both Medicaid and Medicare referrals despite the muddied regulatory history on this point. While healthcare providers have been on high alert with headlines of eight- and nine-figure judgments and settlements of late in Stark Law cases, All Children’s seemingly low settlement at $7 million is still impactful for its unique application to Medicaid referrals. The state of Florida will receive a significant share of the judgment because the referrals were for Medicaid-covered services.

Many states are facing lean budgets and have significantly expanded their Medicaid fraud detection and enforcement activities to reduce waste and reclaim dollars. Accordingly, providers should be prepared for other states to be inspired by the financial success Florida realized in this case and potentially pursue False Claims Act cases for Stark Law violations involving a large number of Medicaid referrals.

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