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A Hospital’s Deserving Stark and AKS Victory—But At What Cost?

This April, providers cheered when a federal district court in the Middle District of Florida found insufficient evidence to support a relator’s theory that a hospital had provided free parking to physicians, in violation of the Stark Law and Anti-Kickback Statute (AKS). In the Report and Recommendation for United States ex rel. Bingham v. BayCare Health Systems, 2017 WL 126597, M.D. Fla., No. 8:14-cv-73, Judge Steven D. Merryday of the Middle District of Florida endorsed magistrate judge Julie Sneed’s recommendation that Plaintiff Thomas Bingham’s Motion for Partial Summary Judgment be denied and that Defendant BayCare Health System’s Motion for Summary Judgment be granted. However, as we discussed in a previous FCA blog post regarding these allegations, this type of case encapsulates a worrying and costly trend where courts allow thinly pleaded relator claims in which the government opted not to intervene, to survive past the motion to dismiss stage into the discovery phase of the litigation.

Bingham is a serial relator who practices as a certified real estate appraiser in Tennessee and was unaffiliated with BayCare. In his latest attempt, Bingham alleged that BayCare Health System had violated the Stark Law and the AKS by providing affiliated physicians free parking, valet services and tax benefits to induce physicians to refer patients to the health system.

Bingham claimed that BayCare provided complimentary parking benefits to referring physicians, thus creating a direct compensation arrangement under the Stark Law. Bingham cited to a ground lease between BayCare and a third-party real estate developer (St. Pete MOB) to support his contention that a direct compensation relationship that included free parking privileges existed between BayCare and the referring physicians. However, the court did not agree given that the physicians were not parties to the ground lease and received the parking benefit through their office leases with the third-party real estate developer. Similarly, the court found insufficient evidence supporting Bingham’s argument that the physicians received free valet parking because he provided no evidence substantiating that the physicians used valet services.

The court went on to grant BayCare’s Stark motion for summary judgment because Bingham had provided insufficient facts to establish any material dispute of fact as to whether an indirect compensation arrangement existed. Under Stark, an indirect compensation arrangement exists when:

1) there exists an unbroken chain of any number of persons or entities having financial relationships between them (that is, each link in the chain has either an ownership or investment interest or a compensation arrangement with the preceding link);

2) the referring physician receives aggregate compensation from the person or entity in the chain with which the physician has a direct financial relationship that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the designated health service (DHS); and

3) the hospital has either actual knowledge or acts in reckless disregard or deliberate ignorance of the fact that the referring physician receives the described aggregate compensation.

BayCare conceded that the first prong of the indirect compensation definition existed; however, the court found that Bingham failed to provide the requisite evidence to support the second prong of the definition. Specifically, Bingham provided no evidence that the aggregate compensation paid to the physicians varied with or took into account, the volume or value of referrals generated by the referring physicians for BayCare. In examining this prong, the court looked to whether the aggregate compensation in the physicians’ employment agreements with their respective practices varied with or took into account the volume or value of DHS referrals to the hospital and found it did not since the physicians’ compensation was composed of a base salary and a bonus based on personally performed services (which is permitted under Stark’s compensation rules). The court also found no evidence cited by Bingham to support the third prong.

As related to the AKS claims, the court found that Bingham lacked evidence showing either that the tenant’s rental payments took parking into account or that the rental payments were not within the range of fair market value. While the lease did not include parking charges as a specific line-item, BayCare presented evidence indicating that parking is a common amenity for an office building that is typically included in the overall rent and that the rent charged here was within fair market value. Further, the court found that Bingham offered no evidence indicating the referring physicians were offered valet services or that they used valet services.

The district court went on to state that even assuming that parking services were provided for free or below fair market value, Bingham had presented no evidence that BayCare offered or paid for such services for the purpose of inducing referrals to its hospital.

Bingham also argued that BayCare had provided a rent concession in the form of tax savings to referring physicians, constituting remuneration under the AKS. However, the district court found no evidence that the tenants (physicians) failed to pay required taxes under their leases with the third party entities or that BayCare intended to pay remuneration to induce patient referrals.

This qui tam suit, though correctly dismissed, did not squarely address the Stark indirect compensation analysis when the physician group subtenant has physician owners who would “stand in the shoes” of their practice. Under this analysis, the relevant compensation link in the chain would likely have been the sublease between the group and St. Pete MOB. However, it is likely that this analysis would have led to the same conclusion based on the court’s discussion of the rent’s fair market value in dismissing the AKS claims.

The greater concern that bears watching, however, is that the initial denial of the hospital’s motion to dismiss forced the defendant to spend another year and a half on a time-consuming and costly discovery and motion practice to finally defeat a relator who apparently had no evidence to support his claims. The reluctance of courts to dismiss weakly pled qui tam complaints is a continuing area of concern as providers develop their strategies for defending against clearly meritless allegations.

© 2019 McDermott Will & Emery

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About this Author

Tony Maida Health Care Attorney McDermott WIll Law Firm
Partner

Tony Maida is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal Anti-Kickback and Physician Self-Referral/Stark laws, false claims and overpayments, and government investigations.    He works closely with our health and white collar teams on criminal, civil, and administrative investigations and counseling clients on corporate transactions and compliance programs.

Tony previously served...

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T Reed Stephens Attorney McDermott Will
Partner

T. Reed Stephens is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Washington, D.C., office.  Reed represents clients involved in the Life Sciences industry, including pharmaceutical and biotech manufacturers, wholesalers, and individuals, as well as health care systems and non-health care related companies in the financial services industry.  In addition to representing clients in matters involving state and federal government law enforcement, voluntary disclosures, and congressional investigations Reed advises clients on mergers & acquisitions, public policy and legislative matters, intellectual property protection and an array of regulatory compliance matters involving product marketing, import/export controls, government drug price reporting and sales to government purchasers such as the Department of Veterans Affairs and the Department of Defense.

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Nicholas Alarif, McDermott Law Firm, Healthcare Law Attorney
Associate

Nicholas Francis Alarif focuses his practice in health care regulatory and fraud and abuse matters, including the physician self-referral law (Stark Law), False Claims Act (FCA), the Federal Anti-Kickback Statute and other health care compliance matters. He also advises clients on the complex legal and factual issues surrounding Medicare Parts A–D reimbursement and other Centers for Medicare & Medicaid Services (CMS) payment policies.

202-756-8382