If you have not done so already, you should read the court’s opinion in United States ex rel. Singh v. Bradford Regional Medical Center, No. 04-186 (W.D. Pa. Nov. 10, 2010). The case examined an arrangement between Bradford Regional Medical Center (Hospital) and Drs. Vaccaro and Saleh and their practice entity (Physicians), and whether that arrangement violated the Stark law, federal anti-kickback statute, and federal False Claims Act. The Hospital adopted an economic credentialing policy permitting termination of medical staff privileges in the event a medical staff member financially competed with the Hospital. To avoid losing their privileges, the Physicians entered into a sublease with the Hospital for the Physicians’ nuclear camera. Under the sublease, the Hospital made a fixed monthly payment for the sublease of the equipment, and an additional flat monthly fee for a noncompetition agreement from the Physicians. The non-compete fee was calculated by an independent accountant, who determined Hospital’s expected revenue with and without the sublease in place. The court held that the arrangement violated the Stark law, finding that the compensation was not fair market value—despite the fact that compensation was set at a flat fee, and despite the FMV analysis the Hospital obtained. The case was set for trial on the factual issues of whether the parties knowingly violated the Stark law, and whether the Anti-kickback Statute was also violated.

The facts and the court’s opinion have a huge number of moving parts and many valuable lessons. We have distilled the opinion into the top 10 takeaway lessons:

  1. Deals done to avoid competition by referring physicians are an area of risk and are becoming an area of enforcement. A theme in the court’s opinion was that the Hospital’s actions were driven by its desire to regain the revenue lost after the Physicians purchased a nuclear camera.
  1. Letters that allege potential kickbacks can come back to haunt you. Before negotiating the sublease, the Physicians’ lawyers argued that the Hospital’s economic credentialing plans violated the anti-kickback statute; the letters were used by the court to demonstrate the party’s intent (including the Physicians’).
  1. Economic credentialing can be appropriate, but not as a threat or bluff. The Hospital’s threat to terminate Physicians’ medical staff privileges apparently was effective to get the Physicians to the table, but it also tainted the subsequent transaction as being done exclusively for referrals.
  1. Be careful about what data is shared with the Board to justify a transaction. The Hospital supported the deal by showing its Board the amount of revenue lost by the Physicians owning their own nuclear camera; while not part of the court’s holding, this was not a positive factor for the Hospital
  1. Independent consultant FMV opinions are not bulletproof. The Hospital obtained a FMV opinion from a consultant, but the court found that the payment was not FMV and, therefore, took into account the volume or value of anticipated referrals generated by the Physicians.
  1. You need to implement the deal documented. The original lease indicated that the nuclear camera would be moved to the Hospital, but the parties failed to move it (and the court took notice).
  1. Changes to the deal must be documented in written agreements. The original lease was fully documented, but there were additional payments for rent, billing services and a replacement camera that were not documented; the court held that the Hospital did not meet the Stark exception because of the lack of written agreements.
  1. Negotiations may feel like arms-length, but that does not mean that a court will view them as such. The Hospital argued that it negotiated hard with the doctors and the court accepted that premise, but nonetheless concluded that the resulting agreement reflected the anticipated volume of referrals.
  1. The court did not accept the relator’s argument that a hospital’s desire for and expectation of referrals means that the fixed rate compensation “takes into account” the volume or value of referrals. The court relied heavily upon CMS statement in a 2001 Stark regulation preamble, where CMS discussed the possibility that a fixed payment in excess of FMV could be considered as taking referrals into account.
  1. Not every Stark law violation is also a False Claims Act violation. The court held that the Hospital did not comply with the Stark law, but the court also found that it could not conclude that the Hospital did so in a knowing manner; the issue of whether the Hospital “knew” of the violation was set for a jury trial.