FCA new weapon for Stark and anti-kickback violations

The next phase of enforcement for the anti-kickback statute and Stark II self-referral laws, which are rarely enforced on their own terms, is likely to be fueled by False Claims Act (FCA) lawsuits, warn several health care attorneys.

According to health care attorney Craig Holden of Ober Kaler in Baltimore, only a handful of prosecutions have been brought under the anti-kickback statute, which is a criminal statute, and a handful of settlements under the civil monetary penalty provision. Nor has there been any administrative enforcement of Stark, he adds.

That may be changing. Buried in phase one of the final Stark II regulation is a line that says wrongful conduct, such as knowingly submitting a claim in violation of Stark, can be punished through recoupment of overpayments, imposition of penalties, the False Claims Act, and other statutory and common law remedies, Holden notes.

"They are setting the table to bring actions under the False Claims Act," warns Holden. Increasingly, regulation of these areas will be driven by qui tam plaintiffs, he predicts.

Last year, the Department of Justice (DOJ) told Rep. Pete Stark (D-CA) that the law that bears his name offers "a straightforward framework" for identifying false claims and overpayments resulting from illegal kickbacks or self-referral schemes. DOJ added that more than 50 such qui tam suits were pending.

The Department of Health and Human Services Office of Inspector General (OIG) responded to DOJ’s missive by pointing out that since the Stark II regulations became effective in 1995, physician/payment arrangements involving payments that vary with referrals have largely disappeared. The OIG also maintained that it had not observed any significant disruption to the health care industry as a result of this development.

Several cases already have been brought, including one in the Southern District of Texas, in which false claims allegations were brought for violations of the anti-kickback statute, on the theory that when a hospital submits a cost report, it attests to comply with all applicable federal laws, Holden reports.

"They take the position that, if you sign that, you violated the anti-kickback statute and you have a false certification in your cost report," says Holden. The government submitted an affidavit in that case suggesting that full compliance is a pre-condition for payment, he explains.

Holden also points to a line in the decision essentially stating that if a provider files claims knowing them to be ineligible for payment because of Stark violations, that is actionable under the FCA. And he cites at least three cases that involve alleged violations of the anti-kickback statute or Stark in which the government has intervened.

In Goodstein v. McLaren Regional Medical Center, physicians leased a suite to a hospital for use as a therapy center in return for a lease payment from the hospital. When the physicians later appealed an increase in their tax assessment on the grounds that the contract with the hospital was in excess of fair market value, the two attorneys who represented the taxing authority filed a qui tam suit based on a Stark violation.

To the surprise of many, the government intervened, says Holden. That case is scheduled for trial in a few months.

Another example is Pastor Medical Center, where it was alleged that, from 1992 to 1997, a physician group failed to meet the group practice definition under Stark because it distributed income to employed physicians based in part upon their referrals of lab tests. If a group is not a qualifying "group practice," it cannot take advantage of the in-office ancillary services exception, despite the fact that during the period at issue there were no final regulations and neither the Centers for Medicare and Medicaid Services nor providers could determine the parameters of the Stark prohibition, says Robert Homchick, a partner with Davis Wright Tremaine in Seattle.

The government intervened in this case and extracted a settlement of several hundred thousand dollars. "It is disturbing that the government would press this case and puzzling why the group would settle," says Homchick.