United States Ex Rel. Singh v. Bradford Regional Medical Center
752 F.Supp.2d 602, 2010 U.S. Dist. LEXIS 119355, 2010 WL 4687739 (2010)
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Rule of Law:
A compensation arrangement "takes into account" the volume or value of referrals, creating a prohibited financial relationship under the Stark Act, when the compensation is inflated to account for the physicians' ability to generate revenue, even if the payment amount is fixed. Such an arrangement is not considered to be at "fair market value" under the Act if it is determined in any manner that considers the value of anticipated or actual patient referrals.
Facts:
- Drs. Peter Vaccaro and Kamran Saleh, practicing as V&S Medical Associates (V&S), were a major source of patient referrals, particularly for nuclear imaging, to Bradford Regional Medical Center (BRMC).
- In 2001, V&S planned to acquire its own nuclear imaging camera, which would allow the practice to perform tests in-house and divert a substantial portion of referral revenue away from BRMC.
- In response, BRMC's CEO expressed concern over the financial impact, and the hospital subsequently adopted a policy threatening to revoke hospital privileges for physicians with competing financial interests.
- After V&S acquired its camera in June 2001 and began performing tests in-house, BRMC threatened the doctors with the loss of privileges under the new policy, leading to protracted negotiations.
- Effective October 1, 2003, the parties entered into an Equipment Sublease where BRMC would pay V&S a monthly fee to sublease the camera, plus an additional payment of $23,655 per month for a covenant not to compete.
- BRMC's internal valuation report (the Day Report), which was used to justify the sublease payments, based its calculations on the assumption that the doctors would refer their nuclear imaging business back to the hospital.
- Despite the sublease stating the camera would be moved to BRMC, it remained at V&S's office, and BRMC paid V&S additional fees for rent, services, and a 10% billing fee on collections for tests performed there.
- Later, BRMC guaranteed and reimbursed V&S for a $200,000 early buyout of the original camera lease and for the lease of a new Philips camera, even though V&S retained ownership of the original camera and later donated it to another hospital.
Procedural Posture:
- Dilbagh Singh, M.D., and other physicians (Relators) filed a qui tam action under the False Claims Act against Bradford Regional Medical Center, V&S Medical Associates, and its physician-owners in the U.S. District Court for the Western District of Pennsylvania.
- The Relators alleged that the defendants submitted false claims to Medicare arising from a financial arrangement that violated the Stark Act and the Anti-Kickback Act.
- Following discovery, the Relators filed a motion for summary judgment on their claims.
- The defendants filed cross-motions for summary judgment, seeking dismissal of the complaint.
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Issue:
Does a hospital's sublease and non-compete agreement with referring physicians, where the compensation is calculated based on the anticipated value of their patient referrals, constitute a prohibited "financial relationship" under the Stark Act, thus making subsequent Medicare claims for those referrals false claims?
Opinions:
Majority - Maurice B. Cohill, Jr.
Yes, the sublease and non-compete agreement constitute a prohibited financial relationship under the Stark Act. The court found that both a direct and indirect financial relationship existed. A direct relationship existed because the doctors signed the agreements individually and received remuneration when BRMC's payments relieved them of personal liability on a $200,000 lease buyout. An indirect relationship existed because the compensation from BRMC to V&S 'took into account' the volume or value of anticipated referrals. Evidence, including BRMC's own valuation report and CEO testimony, showed that the non-compete payments were calculated based on the expected revenue from the doctors' referrals. This meant the compensation was not 'fair market value' as defined by the Stark Act, which prohibits determining value in any manner that considers referrals. Because the compensation was not at fair market value and other parts of the arrangement were not set forth in writing, no statutory exceptions applied. Therefore, the court granted summary judgment to the Relators on the Stark Act violation.
Analysis:
This decision clarifies the 'takes into account' standard within the Stark Act, establishing that even a fixed-payment arrangement violates the law if the amount was calculated based on the value of anticipated referrals. It reinforces that the Stark Act is a strict liability statute where intent is irrelevant, unlike the Anti-Kickback Act. The court's rejection of the defendants' 'negotiated fair market value' argument solidifies the principle that compliance requires an objective valuation that excludes the value of referrals, not merely a price that seems reasonable to the interested parties. The ruling provides a roadmap for plaintiffs in False Claims Act cases, demonstrating that internal documents showing referrals were considered in setting compensation can be dispositive evidence of a Stark Act violation.
