U.S. District Court Finds Halifax Hospital Violated the Stark Law in Summary Judgment

by King & Spalding

A United States District Court in the Middle District of Florida recently granted partial summary judgment in favor of the United States in connection with its motion against Halifax Hospital Medical Center (Halifax Hospital), finding that Halifax Hospital’s submission of claims for designated health services (DHS) referred by certain medical oncologists violated the Stark Law.  The court, however, held that there was insufficient summary judgment evidence to establish the amount of the Stark Law damages and that a genuine issue of material fact remains as to whether Halifax Hospital’s conduct also violated the False Claims Act.

Halifax Hospital had an undisputed financial relationship with six medical oncologists who had employment agreements with Halifax Staffing, Inc. (Halifax Staffing), an instrumentality of Halifax Hospital that employs individuals who work in the hospital.  Halifax Hospital pays the expenses and obligations of Halifax Staffing, including payroll.  In 2005, the medical oncologists became eligible to receive a bonus pursuant to their employment agreements with Halifax Staffing, which established a bonus pool equal to 15% of Halifax Hospital’s operating margin for its outpatient oncology program.  The operating margin included fees for DHS that were not personally performed by the oncologists, such as fees for outpatient prescription drugs and other outpatient services.  The pool was to be divided between the six oncologists based on each individual oncologist’s personally performed services.  The oncologists received a  bonus in fiscal years 2005 – 2008. 

Because of the established financial relationship, Halifax Hospital had the burden of showing that the compensation arrangement with the medical oncologists fit within one of the Stark Law’s exceptions.  Halifax Hospital argued that the compensation arrangement fit within the employment exception.  However, the government argued, and the court agreed, it did not, noting that the pool from which each bonus was drawn took into account the volume or value of DHS referrals by the medical oncologist.  The court found that the bonus did not qualify for the exception for productivity bonuses based on personally performed services because, although the bonus pool was “divided up” based on services personally performed by the medical oncologists, it was “based on factors in addition to personally performed services – including revenue from referrals made by the [m]edical [o]ncologists for DHS.”  Thus, not meeting a Stark exception, the medical oncologists were prohibited from making referrals to Halifax Hospital for DHS, and Halifax Hospital was prohibited from submitting Medicare claims for services furnished pursuant to such referrals.

To prove that the oncologists made such referrals and that Halifax Hospital made claims for services furnished pursuant to such referrals, the government relied on claims forms submitted by Halifax Hospital, contending that the claims on which the medical oncologists appeared as attending, operating, or other physician identified the medical oncologists as the referring physician.  Halifax Hospital argued that the fact that one of the medical oncologist is identified as the attending or “other” physician on a Form UB-92 or as attending or operating provider on a Form UB-04 was not evidence that that physician made the referral for which the claim was submitted, the prerequisite for a violation of the Stark Law.  Although the court noted that Halifax Hospital did not have the burden of proof on the issue and was not required to produce evidence on the point, the court found it relevant that Halifax Hospital did not present rebuttal evidence, such as medical records, showing that the medical oncologists were not the referring physicians for the claims.  The court concluded that the claims forms relied on by the government were undisputed evidence of referrals for DHS made by the oncologists during the time period the bonus was in effect and evidence that Halifax Hospital submitted claims to Medicare for DHS furnished pursuant to such referrals, all in violation of the Stark Law.

However, for various reasons, the court found that the United States had failed to produce sufficient evidence to establish the number or value of the claims submitted by Halifax Hospital in violation of the Stark Law.  Accordingly, the court denied summary judgment as to the extent of the Stark Law violations involving the medical oncologists.  The court also denied partial summary judgment on the United States’ False Claims Act claim because there was insufficient evidence to establish that the hospital acted “knowingly.”  

The court’s order may be read here

Reporters, Adam Robison, Houston, +1 713 276 7306, arobison@kslaw.com and Christina A. Gonzalez, Houston, +1 713 276 7340, cagonzalez@kslaw.com.

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