Facing as much as $1.1 billion in damages and civil penalties and having already spent more than $15 million in legal fees, Halifax Hospital in Daytona, Florida, averted jury selection in its upcoming trial by reaching an $85 million tentative settlement with the Department of Justice, according to the whistleblower's legal counsel. 

If confirmed, the settlement would represent one of the largest Stark Act settlements in history, albeit well behind the $237 million judgment against Tuomey Healthcare System last year — which unlike Halifax, gambled its case with the jury. 

The settlement follows the federal court's November 13, 2013, ruling that Halifax's compensation of physicians violated the Stark Law's prohibition against paying for Medicare referrals, even though the physicians were employees of the hospital and were paid from a pool in proportion to their personally-performed services.

The case, United States et al. v. Halifax Hospital Medical Center et al., Case No. 6:09-cv-Orl-31TBS, Fla. Middle Dist., arose when a Halifax compliance officer turned whistleblower and filed a qui tam action alleging that the hospital's compensation of its six employed medical oncologists violated the Stark Law. At issue was the oncologists' bonus formula. 

The complaint alleged that Halifax had agreed to pay each physician a portion of an incentive pool equal to 15 percent of the "operating margin" for the hospital's medical oncology program. The pool included not only the physicians' billings for the professional services they personally performed, but also the fees earned by the hospital for the physicians' referrals to the hospital. According to the court's prior ruling, the fatal flaw, from a Stark standpoint, was the inclusion of technical component revenue derived from the oncologists' own referrals — and the flaw was not remedied by the subsequent division of the pool among the physicians in proportion to each physician's personal share of the group's total professional service billings.

In constructing the compensation formula, Halifax had relied on an opinion from outside counsel that the bonuses "arguably" complied with Stark's employment exception. However, the court ruled that the compensation of an employee cannot be determined in a manner that takes into account, directly or indirectly, the volume or value of the employee's Medicare referrals to the employer. In this case, the court ruled, the physicians' individual bonuses varied on the basis of referrals because bonuses were based on operating margin of the entire oncology program — including fees for hospital services — and that margin would be improved by the physicians' referrals in addition to the services that they themselves personally performed. 

The only proof of "referral" required by the court was the physician's listing as "attending,"  "operating" or "other" physician on UB-92 and/or UB-04 forms. With more than 75,000 tainted claims totaling more than $34 million in Medicare referrals, Halifax's settlement — if finalized — could avert the potential for a $1 billion adverse verdict after treble damages, $11,000 per claim fines and whistleblower's attorney's fees are added.

Costly settlements are the Hobson's choice more providers may face as whistleblower suits and federal enforcement of the Stark Act continue to ramp up.