Health Management Associates' University Medical Center (UMC) recruited Kevin Dennis to Lebanon, Tennessee under a physician recruitment agreement that required him to "apply for, receive and maintain active medical staff membership and appropriate clinical privileges." As is common, UMC's medical staff by-laws required Dennis to refer a minimum of 24 patients annually to the hospital for admission in order to maintain active status. The recruitment agreement, however, also stated that Dennis was not required to refer patients to UMC in order to receive financial recruitment benefits under the recruitment agreement. Dennis contended that this recital was "empty lip service" in light of the active medical staff requirement under the agreement.

After Dennis failed to meet UMC's expectations, he filed a whistleblower action alleging the recruitment agreement was a sham arrangement and that the receipt of financial remuneration under the recruitment agreement was conditioned upon his referral of patients for inpatient and/or outpatient hospital services, in violation of the Stark Law and the anti-kickback statute.

In evaluating Dennis's claims, the court found that a contractual requirement that a physician maintain active medical staff status is not equivalent to a referral requirement. The court further held that, even if "the requirement that recruited physicians maintain active staff status could somehow be construed as a referral requirement, CMS has determined in the context of recruitment that a hospital or other entity entering into a recruitment agreement 'may require as a condition for receiving benefits that the practitioner maintain staff privileges at the entity.' . . . It is a common and well known practice of hospitals to classify active staff based in part on the number of admissions per year, and CMS necessarily was aware of that fact when it chose not to prohibit staff membership as a requirement in physician recruitment agreements."

Consequently, reasonable active medical staff requirements within a recruitment agreement should be permissible. U.S. ex rel. Dennis v. Health Management Associates, Inc., No. 3:09-cv-00484 (M.D. Tenn. Jan. 14, 2013).