As the government continues to aggressively pursue claims against health care providers for violations of the False Claims Act, recent cases demonstrate the importance of a robust compliance program. Because False Claims Act liability can arise from underlying regulatory violations, it is necessary to detect potential regulatory issues as quickly as possible in order to limit exposure to potential false claims.

Take for example, the recent settlement of C.R. Bard, Inc. (Bard). In that case, Bard agreed to pay $48.26 million to resolve allegations that it caused false claims to be submitted to the Medicare program. The government claimed that Bard provided illegal remuneration to customers and physicians as an inducement to purchase Bard’s brachytherapy seeds used to treat prostate cancer. It was alleged that Bard provided certain rebates, conference fees, marketing assistance and/or free medical equipment to customers and physicians that used Bard’s seeds in the treatment of prostate cancer.

Similarly, ISTA Pharmaceuticals, Inc. (ISTA) agreed to pay $33.5 million to settle criminal and civil liability arising from the marketing, distribution and sale of its drug Xibrom. The allegations against ISTA included claims that ISTA violated the False Claims Act by providing illegal remuneration to physicians with the intent to induce those physicians to refer individuals to pharmacies to dispense its drug. The illegal remuneration took the form of monetary sponsorship payments to a non-profit group associated with a particular physician, a golf outing, a wine-tasting, paid consulting or speaker arrangements, and honoraria for participating in advisory meetings that were intended as marketing meetings.

In both of these cases, the government alleged that the remuneration the companies provided to certain physicians constituted violations of the Anti-Kickback Statute. Effectively, the government used violations of the Anti-Kickback Statute and other regulatory violations as a predicate to claim that the False Claims Act was also violated. The government claimed that submissions to federal health care programs following such regulatory violations “tainted” all transactions related to those regulatory violations, making them false claims.

Most, if not all hospitals now have significant financial relationships with many physicians. These relationships are heavily regulated. It is imperative that all payments made to physicians be scrutinized from a compliance perspective, as small mistakes involving otherwise permissible payments can lead to significant negative consequences. As these cases demonstrate, such mistakes regarding physician relationships can lead the government to pursue recoveries under the False Claims Act.

All hospitals should take notice of these cases, and many others like them, as they make evident that violations of federal health care regulations can have significant secondary consequences. One way hospitals can seek to avoid regulatory violations, and in turn, potential False Claims Act liability, is to establish a thorough compliance program that educates all hospital staff members regarding proper compliance behavior and uncovers any potential issues as early as possible so that those concerns can be addressed. By paying close attention to its compliance program, hospitals can avoid False Claims Act liability.