Health Law Updates
U.S. v. Campbell: Not All Hospital/Physician Employment Relationships Are Created Equally
Because the majority of Stark law enforcement actions have focused on hospitals, there is a common misconception that the Stark law does not pose a significant liability risk for individual physicians. Some physicians and hospitals also believe that an employment relationship between a hospital and a physician always insulates the parties from Stark law liability. A recent case from the U.S. District Court for the District of New Jersey indicates just the opposite.
At issue in U.S. v. Campbell, 2011 WL 43013, No. 08-1951 (D. N.J., Jan. 4, 2011) was an effort by the University of Medicine and Dentistry of New Jersey (“UMDNJ”) to maintain its status as a Level I Trauma Center by increasing referrals for certain cardiac procedures. UMDNJ, New Jersey’s state university for health sciences, recruited local cardiologists by entering into employment contracts whereby the cardiologists would serve as part-time “Clinical Assistant Professors.” The cardiologists received annual compensation ranging from $50,000 to $180,000, and the employment contracts specified eight specific duties.
Defendant Joseph Campbell, M.D. (“Dr. Campbell”) was one of the recruited cardiologists. Prior to offering Dr. Campbell an employment contract, UMDNJ administration advised Dr. Campbell that it would “confirm that the employment contract and arrangement did not violate the Stark act.” Several weeks later, UMDNJ administration advised Dr. Campbell that “UMDNJ’s attorneys had confirmed that the proposed employment contract and arrangement were lawful and acceptable.” Based on these representations, Dr. Campbell accepted the employment contract without seeking independent legal counsel. From January 2003 through December 2003, UMDNJ paid Dr. Campbell approximately $70,000 pursuant to the employment contract. During the same period, Dr. Campbell referred at least eight patients from his private cardiology practice to UMDNJ for cardiac related medical procedures. UMDNJ’s Medicare reimbursement related to the eight procedures was $230,000.
On November 13, 2006, following a five-month investigation of UMDNJ’s cardiology program, a federal monitor concluded that UMDNJ had devised an illegal scheme to pay cardiologists for patient referrals. The monitor noted that UMDNJ had paid $2.2 million to settle a matter where another physician claimed he was fired for protesting the illegal scheme. UMDNJ ultimately paid $8.33 million to settle claims made against it relating to the illegal employment relationships.
Following UMDNJ’s settlement, the United States filed a seven count complaint against Dr. Campbell based on Dr. Campbell’s illegal employment relationship with UMDNJ. The complaint included claims made under the False Claims Act. Dr. Campbell filed a third party complaint against UMDNJ and certain individual UMDNJ administrators based on their representations as to the legality of the employment contract.
The United States requested a partial summary judgment on its claims related to the False Claims Act. Dr. Campbell argued that summary judgment was inappropriate because (1) he did not submit false claims or “cause” false claims to be submitted to Medicare, (2) he personally treated the patients he referred to UMDNJ, (3) he had an employment relationship with UMDNJ that qualified for the Stark law’s exception based on bona fide employment relationships, and (4) he did not “knowingly” or “recklessly” submit false claims, as is required for liability under the False Claims Act.
The District Court summarily rejected Dr. Campbell’s first two arguments. The Court noted that Dr. Campbell admitted he knew the referred patients were Medicare patients for which UMDNJ would charge Medicare a facility and service fee. The Court acknowledged that Dr. Campbell’s personally performed services were not “referrals” within the meaning of the Stark law, but pointed out that the hospital service, technical component, and facility fees charged by UMDNJ in connection with Dr. Campbell’s personally performed services did constitute referrals.
The District Court also held that Dr. Campbell’s financial relationship with UMDNJ was not protected by the Stark law’s exception for bona fide employment relationships because Dr. Campbell never believed that he would be required to perform all of the duties outlined in his employment contract and, in fact, did not perform all of the duties. Therefore, the amounts that UMDNJ paid him were not commercially reasonable and did not constitute fair market value for services rendered.
The District Court ultimately denied the United States’ motion for partial summary judgment because Dr. Campbell’s state of mind (i.e., whether he acted “knowingly” or “recklessly”) could only be determined at trial. The District Court did, however, grant the United States’ motion for summary judgment as to Dr. Campbell’s third party complaint because False Claims Act defendants cannot pursue claims for indemnification and contribution that are based on their liability under the False Claims Act or have the same effect as offsetting False Claims Act liability.
Campbell is not the first time a hospital/physician employment relationship has been scrutinized under the Stark law. For instance, Covenant Medical Center in Waterloo, Iowa paid $4.5 million in 2009 to settle allegations that it overpaid five employed physicians. Nor will Campbell be the last time a hospital/physician employment relationship is scrutinized under the Stark law.
The Stark law is implicated whenever something of value passes between a hospital and a physician. Examples include not only employment relationships, but also independent contractor relationships and joint ventures. As was evident in Campbell, liability for Stark law violations can and often is significant. Stark law compliance demands that hospitals and physicians obtain solid legal analysis and advice prior to entering into any financial relationship. The attorneys at the Health Law Firm have advised numerous clients as to Stark law compliance issues and have successfully defended multiple lawsuits alleging Stark law violations. If you or your organization is confronted with a potential Stark law issue, please contact us immediately.
The 60-Day Rule: As if “Foward” False Claims Weren’t Enough
With the Fraud Enforcement and Recovery Act of 2009 (“FERA”), the federal government’s “most potent weapon” to fight fraud against the United States became even stronger. Since its inception, the False Claims Act has punished anyone who knowingly submits a “false” claim for payment to the United States. A claim is “false” when the person or entity who submits the claim is not entitled to be paid. In the healthcare context, the most basic example of a false claim is a provider who intentionally submits claims for services that were never provided. Penalties under the False Claims Act are severe, and include treble damages (three times the amount of claims improperly paid), administrative sanctions, and potential exclusion from participation in federal healthcare programs. In some cases, criminal liability is also a possibility.
“Unknowingly” submitting a false claim does not violate the False Claims Act – at least not prior to FERA. With FERA, Congress amended the False Claims Act to cover the knowing retention of payments received pursuant to a false claim (a “reverse” false claim), even when the false claim was not knowingly submitted. The Patient Protection and Affordable Care Act of 2011 further strengthened FERA by adding the “60 Day Rule.” Under the rule, once a provider “identifies” a payment to which it is not entitled (i.e., “knows” about the claim), the provider must return the payment within (a) 60 days, or (b) the date the corresponding cost report is due.
There has been much debate in the legal community as to when a payment is “identified,” and no regulatory guidance has been published to date. At least one federal district court has held that FERA does not apply retroactively and that “reverse false claims” under FERA are limited to payments received after FERA’s May 20, 2009 effective date. U.S. ex rel. Stone v. OmniCare, Inc., 2011 WL 2669659, No. 09 C 4319 (N.D. Ill., July 7, 2011).
Providers may be able to stop the 60-day clock from running by notifying the government as to the existence of a questionable payment. For instance, the Centers for Medicare and Medicaid Services has recently promulgated a voluntary Self Referral Disclosure Protocol that providers may use to self report violations of the physician self referral law (sometimes called the “Stark law”). Although the protocol offers no guarantees as to avoiding liability altogether, acceptance into the protocol does “stop the clock,” under the 60-Day Rule, thereby limiting potential exposure under the False Claims Act.
False Claims Act cases are almost always complex and demand competent legal representation. The attorneys at the Health Law Firm have successfully defended multiple False Claims Act cases with millions of dollars at stake. If you have any concerns regarding your organization’s liability under the False Claims Act, please contact us immediately.