Feldstein v. Nash Community Health Services, Inc.
1999 WL 427994, 1999 U.S. Dist. LEXIS 5924, 51 F.Supp.2d 673 (1999)
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Rule of Law:
A physician recruitment agreement that provides substantial financial remuneration is not illegal per se under the federal Anti-Kickback Statute; if the contract contains ambiguous language regarding the intent to induce patient referrals, the legality of the agreement becomes a genuine issue of material fact for a jury to decide, precluding summary judgment.
Facts:
- In June 1996, Dr. Jeffrey Feldstein, a physician practicing in Arizona, entered into a recruitment agreement with Community Hospital of Rocky Mount, Inc. (HRM) to relocate his family and practice to Rocky Mount, North Carolina.
- The agreement provided Feldstein with substantial financial incentives, including a guaranteed monthly cash collection of $20,000, a $10,000 signing bonus, free office space, and payment for malpractice insurance and relocation expenses.
- A key provision of the agreement required Feldstein to 'maintain in good standing membership in the Active medical staff' of Community Hospital.
- The agreement also contained a clause stating that Feldstein's compensation was 'not conditional on the use of any item or service offered by this Hospital' and that his choice of services must be made 'ONLY with regard to the best interests of the patients themselves.'
- In January 1997, Community Hospital's assets were sold to a subsidiary, NEWCO, which assumed Feldstein's contract.
- Subsequently, Nash Health Care Systems, the parent of defendants Nash Community Health Services, Inc. (NCHS) and Nash Hospitals, Inc. (NHI), acquired NEWCO and merged it into NCHS.
- Following the merger, NCHS closed Community Hospital and ceased making payments to Feldstein under the assumed agreement, claiming the contract was illegal.
- Prior to its closure, Community Hospital had granted Feldstein temporary medical staff privileges, but its Board of Trustees never voted on his application for full, active membership.
Procedural Posture:
- Dr. Jeffrey Feldstein filed a lawsuit for breach of contract against Nash Community Health Services, Inc. and Nash Hospitals, Inc. in the U.S. District Court for the Eastern District of North Carolina.
- Defendants filed an answer, asserting as an affirmative defense that the contract was illegal under the federal Anti-Kickback Statute and therefore unenforceable.
- Following discovery, both plaintiff and defendants filed cross-motions for summary judgment on the issue of the contract's legality and other contractual defenses.
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Issue:
Does a physician recruitment agreement that provides significant financial incentives to a physician violate the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), as a matter of law when the contract contains ambiguous language regarding whether the remuneration is intended to induce patient referrals?
Opinions:
Majority - Britt, District Judge
No, a physician recruitment agreement with significant financial incentives does not violate the federal Anti-Kickback Statute as a matter of law when its language regarding intent is ambiguous. To prove a violation of the statute, there must be evidence that at least one purpose of the remuneration was to knowingly and willfully induce patient referrals. Unlike the agreement in Polk County v. Peters, which explicitly required referrals, the contract here contains contradictory language. It includes both suggestive phrasing that the hospital is a 'convenient acute care medical facility for the majority of patients' and an explicit disclaimer that compensation is not conditional on referrals. This creates an ambiguity as to the parties' intent, which is a question of fact that must be resolved by a jury, not by the court on a motion for summary judgment.
Analysis:
This decision clarifies that the legality of physician recruitment agreements under the Anti-Kickback Statute hinges on a factual determination of intent, not merely on the magnitude of the financial incentives offered. By finding the contractual language ambiguous and denying summary judgment, the court prevents defendants from unilaterally voiding a contract by claiming it is illegal after they have already assumed it and benefited from it. The ruling establishes that a disclaimer clause, while not dispositive, can create a triable issue of fact, making it more difficult to resolve such cases without a full trial on the merits. This precedent strengthens the position of physicians in disputes over recruitment contracts, as it requires a hospital to prove illicit intent rather than simply pointing to the generosity of the package.
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