In a qui tam or whistleblower action brought under the federal False Claims Act, the Court of Appeals in the Third Circuit reversed the holding of the District Court granting the defendant's summary judgment based on compliance with the personal services exception to the Stark Law. The action was brought by an anesthesiologist who was a former member of an anesthesia group (Group) that held an exclusive contract to provide services at Carlisle Hospital (Hospital). At initiation of the contract, the Group provided only anesthesia services at the Hospital. The Hospital subsequently opened a pain management clinic at an outpatient facility of the Hospital, and the Group provided pain management services on an exclusive basis in the hospital-based facility. The qui tam plaintiff alleged that the arrangement in the outpatient facility constituted a financial relationship under the Stark Law for which no exception applied because the written contract only applied to services provided by the Group in the Hospital and not in the outpatient facility.

First, the court affirmed that falsely certifying compliance with the Stark and Anti-Kickback Laws is actionable under the federal False Claims Act. Moreover, noting that, in the context of the case under review, the requirements of the Stark and Anti-Kickback Laws were indistinguishable, the court limited its discussion to the Stark Law. The court then held that the benefits received by the Group relating to the provision of services in the pain management clinic constituted remuneration in kind from the Hospital to the Group, thereby triggering application of the Stark Law because the Group members referred Medicare patients to the Hospital for pain management services. The court also held that the arrangement did not qualify for the personal services exception under the Stark Law.

With respect to its holding regarding the existence of a financial relationship, the court noted that the benefits received by the Group (which established in kind remuneration), included the exclusive right to provide all anesthesia and pain management services and the receipt of office space, medical equipment and personnel.

The characterization of space, equipment, and personnel in the outpatient facility as remuneration received by the Group is of particular interest, in that the court also noted that the Hospital submitted claims for the facility and technical components of the pain management visits in the outpatient facility. In addition, in some cases, for some payors, the physician's fee likely was reduced because of the site of service adjustment.

The court also found that the "exclusive right to provide services" at the hospital constituted remuneration. This holding is in line with the valuation of exclusive supplier arrangements in numerous non-healthcare-related contexts. However, what the court did not address was how the physicians could compensate the Hospital for the "exclusive right to provide services," as such a payment would amount to little more than a prohibited payment for referrals.

Based upon its finding of a financial relationship between the Hospital and the Group, the existence of referrals for pain management services and the fact that the exclusive contract between the parties related only to services furnished in the Hospital and did not extend to the Hospital's outpatient clinic, the court found that the personal services safe harbor was not satisfied. In the absence of a written agreement, the arrangement did not comply with the personal services exception to the Stark Law.

In light of the ruling, hospitals should examine exclusive service agreements to assure that the agreement covers all locations at which the physicians will provide services and that the fair market value of all remuneration is properly considered. Moreover, consideration should be given to memorializing in writing all situations in which physicians perform services in facility-based outpatient clinics.