On March 12, 2015, U.S. District Judge Norma L. Shapiro dismissed Cooper v. Pottstown Hospital, Co. LLC, et al, a qui tam action based upon the Anti-Kickback Statute and False Claims Act, with prejudice. The case concerned on-call agreements between Alan E. Cooper, M.D. and Pottstown Memorial Medical Center (Pottstown), which Dr. Cooper alleged were traded for referrals. Judge Shapiro found that Dr. Cooper failed to plead sufficient facts to show that Pottstown entered into the agreements to induce referrals.

On August 7, 2014, Dr. Cooper filed an amended qui tam complaint against Pottstown and Community Health Systems Professional Services Corporation. Dr. Cooper was an employee of Pottstown Medical Specialists, Inc. and had privileges at Pottstown. From 1999 till July 2011, Dr. Cooper served as an orthopedic surgeon and independent contractor with Pottstown. In February 2010, Dr. Cooper entered into an on-call agreement with Pottstown. The agreement compensated Dr. Cooper a fixed fee for any day he provided on-call coverage for the emergency room. The agreement allowed either party to terminate without cause by providing 60 days written notice. In October 2010, Pottstown exercised its right to terminate the on-call agreement without cause following a meeting with Pottstown’s management in which they urged Dr. Cooper to divest his financial stake with a competitor hospital.

In April 2011, Pottstown entered into a new on-call agreement with Dr. Cooper, which allowed him to continue his affiliation with the competitor hospital, but added a restrictive covenant preventing him from contracting for professional services with any other facility within 30 miles of Pottstown without its prior written consent. Pottstown Medical Specialists, Inc., did not renew Dr. Cooper’s employment agreement in April 2011. Therefore, Dr. Cooper entered into an employment agreement with another hospital. Upon learning of Dr. Cooper’s new position with the other hospital, Pottstown invoked the restrictive covenant to terminate the on-call agreement.

In the amended complaint, Dr. Cooper claimed that Pottstown terminated his fist on-call agreement because Pottstown concluded that the purpose of the agreement, ensuring Dr. Cooper referred patients to Pottstown alone would be frustrated by Dr. Cooper’s financial interest in a competitor. Dr. Cooper further alleged that the second on-call agreement was also terminated because Pottstown realized that Dr. Cooper would not be in a position to refer patients exclusively to it after Dr. Cooper sought new employment with another hospital.

The court dismissed Dr. Cooper’s theory of kickbacks as “implausible”. The court found that there was an absence of any classic hallmark illegal intent by the hospital during the negotiations of the on-call agreements as the amended complaint relied solely on the hospital’s behavior after the agreements were in place for several months. Specifically, Judge Shapiro found that Dr. Cooper failed to plead sufficient facts to show that his contracts were not negotiated at arms-length. Dr. Cooper failed to allege that the hospital lacked a business need for on-call coverage by orthopedic surgeons. He also failed to allege that he was compensated in excess of fair market value. Additionally, Dr. Cooper warranted in each on-call agreement that no part of his compensation would be in exchange for the referral of patients to Pottstown and that he would be compensated in a manner that complied with state and federal laws, including the Anti-Kickback Statute. Therefore, the court concluded that Dr. Cooper had not alleged sufficient facts showing that the on-call contracts were meant to induce referrals.

Although this case ended on a positive note for the Hospital the ruling seems to be based on a unique set of facts. Thus we encourage you to be sure your agreements comply with State and federal laws.