FCA Attorneys Bemoan Missed Chance at Stark Trial

A recent False Claims Act settlement has left many health-care fraud attorneys asking “what if …?” because of the paucity of federal court decisions on whether technical Stark law violations really are “fraud.”

The government’s settlement, with co-defendants Hamot Medical Center of the City of Erie and Medicor Associates, resolved whistleblower fraud allegations for $20.75 million the day before trial was scheduled to commence with jury selection (United States ex rel. Emanuele v. MedicorAssocs., E.D. Pa., No. 10-cv-245, settlement announced 11/7/17).

The settlement ended allegations that Hamot created medical directorship positions for Medicor cardiologists without the signed contracts required under the Stark physician self-referral law. In the process, however, the settlement also extinguished what health-care fraud lawyers saw as an opportunity to test the Stark law’s technical writing requirements in a trial, and see whether a jury would view violations of those requirements as fraud.

“Unfortunately, the settlement of the case deprives us of a vehicle to get a judicial ruling on whether technical writing deficiencies in meeting Stark exceptions are material for purposes of the False Claims Act,” said S. Craig Holden, a partner with Baker Donelson in Baltimore who represents health-care providers.

That sentiment was shared by Anna M. Grizzle with Bass, Berry & Sims PLC in Nashville, Tenn., who said she wasn’t surprised at the settlement on the eve of trial, which allows a provider a level of certainty about how much the litigation will cost versus the uncertainty of very significant FCA damages from a jury trial and judgment.

The litigation dealt with the complex intersection of Stark law compliance and FCA liability in the area of medical directorships, which have received a lot of attention over the years. Although providers have used medical directorships as a sham to generate referrals, asking little or nothing from the doctors involved, even legitimate directorships can lead to potential FCA liability where, as in this case, they were not adequately memorialized and updated.

Health-care attorneys were closely following the litigation to see how a jury would judge the Stark law dispute, Grizzle told me. “Absent the trial, we still don’t know how a jury would view the writing requirements,” said Grizzle, who frequently represents providers in health-care enforcement and compliance matters.

It seems that Hamot and Medicor preferred not to find out, deciding to cough up $20.8 million between them rather than risk a more expensive answer.

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