Stark case deals setback to government prosecutors

In one of the few reported cases applying the Stark self-referral law, a federal district court in Michigan last month ruled against the government, reports health care attorney Linda Baumann of Reed Smith in Washington, DC.

In the government’s suit against McLaren Regional Medical Center in Lansing, MI, the court found that a leasing arrangement did not violate either Stark or the anti-kickback statute because the payments were part of an arm’s-length transaction, were set at fair-market value, and did not reflect the volume or value of the physicians’ referrals, she explains.

The government had intervened in a qui tam case that had been brought under the False Claims Act, alleging that McLaren had entered into an improper arrangement to rent space from a company owned by several physicians.

According to the complaint, false claims were submitted because McLaren was paying the physicians an excessive amount of rent to compensate physicians for referrals to McLaren in violation of the Stark law and the anti-kickback statute.

The court dismissed the case with an opinion that is notable for several reasons, according to Baumann. "First, the court took a very pragmatic approach, focusing on whether the remuneration at issue constituted fair-market value’ payments for the space being leased, rather than undertaking a broader, legal analysis," she says.

In addition, Baumann says the methodology the court used to determine what constituted fair market value should provide helpful guidance to parties attempting to structure their relationships in compliance with the federal fraud and abuse laws.

Finally, Baumann says the case demonstrates the importance of reviewing the government’s allegations and documentation very carefully. "McLaren is yet another example of a case where providers have prevailed by challenging the deficiencies in the data presented by the government," she argues.

In recent months, Centers for Medicare & Medicaid Services Administrator Tom Scully repeatedly has promised modifications to Stark. Earlier this month, he responded to an inquiry by the Chicago-based American Hospital Association (AHA) that addressed several outstanding questions. One area AHA asked for guidance on was a provision that says hospitals can pay physicians for things unrelated to the provision of designated health services.

Scully’s letter says that hospitals may base their activities on "any reasonable interpretation" of the statute. But Craig Holden, a health care attorney with Ober Kaler in Baltimore, says it is unclear if that means anything a hospital pays is acceptable. "Does it mean that, since a hospital provides nothing but designated health services, nothing is protected?" he asks.