Texas Court Allows FCA Case to Proceed Based on Purchasing “Future Referrals”

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In United States ex rel. Roshan v. E. Tex. Med. Ctr., 2020 U.S. Dist. LEXIS 252092, 2020 WL 8918651 (E.D. Tex. (Nov. 24, 2020)), a Texas federal court partially dismissed a relator’s claim alleging the defendants engaged in various billing and referral practices that violated the False Claims Act (FCA), the Stark Law, and Anti-Kickback Statute (AKS). While dismissing certain of the relator’s claims for failure to plead with the requisite particularity, the court allowed the case to proceed on the allegations concerning a single practice purchase compensating the seller for “future referrals” and pressure on the employee relator himself to refer more hospital-based procedures. This case serves as reminder that healthcare providers should always be cautious when discussing patient referrals, particularly when negotiating financial arrangements with physicians.

The case was initially brought by a former physician employee Iraj Roshan, M.D. (“Roshan”) against his employer, East Texas Medical Center (ETMC), CHRISTUS Trinity-Mother Frances Health System, CHRISTUS Health, Tyler Radiology Associates (TRA), and Tyler Cardiovascular Consultants (CVC) for engaging in several practices that allegedly violated the FCA. Specifically, Roshan alleged ETMC violated the FCA by: (1) billing for services not performed (e.g., radiology services that were generated by technologists but not reviewed by radiologists), (2) billing for unnecessary services (e.g., cardiac tests as hospital outpatient services instead of physician office visit service), (3) upcoding, and (4) establishing a “mandatory referral system” in violation of the Stark Law and the AKS.  The government declined to intervene in the case, and at earlier stages, a number of defendants were released.

In earlier rulings in this case, the court focused special attention to the relator’s allegations that ETMC ran a “mandatory referral system” and paid employee-physicians based on volume and values of their referrals. Roshan asserted that as a part of its “mandatory referral system,” ETMC negotiated deals with physicians when purchasing their practices for a percentage of future referrals. Specifically, ETMC allegedly purchased a cardiology practice for 20 to 40 percent of future referrals value and tracked the seller’s potential referrals using reports during deal negotiations. Additionally, Roshan alleged that ETMC compensated employee-physicians based on referrals using redline reports. Ultimately, the court dismissed all claims against the defendants, but allowed Roshan to file a second amended complaint and revisited ETMC “mandatory referral system” and employee referral compensation allegations in this opinion.

In response to the second amended complaint, while Roshan failed to show ETMC maintained a “referral system” with other practices, the court ruled that Roshan sufficiently alleged fraud with respect to the single cardiology practice transaction. The court rejected ETMC’s motion of dismissal regarding this one cardiology practice transaction rejecting ETMC’s reliance on CMS guidance that, “anticipated future referrals is not enough to show that compensation takes volume or value of referrals into account.” Instead, with a purchase exhibit detailing deal compensation based on referrals, the court believed Roshan’s allegations were corroborated. Additionally, the court found that Roshan sufficiently alleged that ETMC threatened his employment when unsatisfied with his volume or referrals, which ultimately lead to him referring thousands of patients to ETMC-owned practices to survive a motion to dismiss. Roshan was able to name specific officers demanding more referrals and an incident where an executive pushed for his termination as he “lacked loyalty” by failing to refer patients.

Although the court ultimately dismisses other parts of Roshan’s second amended complaint that alleged the cardiology practice and his own employment were part of a widespread behavior, the case highlights how attentive and cautious healthcare providers should be regarding patient referrals when entering financial relationships with physicians. Discussion of referral volumes, particularly coupled with pressure (explicitly or implicitly), can lead to challenges related to the AKS and the Stark Law. Healthcare providers should be reminded to take care with patient referrals when negotiating or entering into transactions with physicians. Further, if providers share referral metrics with physicians, it should be based on clinical metrics and appropriateness, not mandates to reach financial goals.

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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