excessive compensation to ensure a substantial referral stream. AGHS treated each physician as a cost center and tracked the “contribution margin” of every physician to ensure significant practice losses were allegedly made up through inpatient referrals for hospital services. This settlement demonstrates the importance of an effective compliance program to proactively address issues, as Cleveland Clinic received cooperation credit by making the self-disclosure and was able to resolve the allegations based upon single damages. In U.S. ex rel. Jennings v. Flower Mound Hospital Partners, LLC , Flower Mound Hospital Partners, LLC (Flower Mound Hospital) entered into a multi-million dollar settlement to resolve Stark Law allegations related to physician ownership. 207 The Stark Law’s “whole hospital” exception allows referring physicians to have physician ownership or investment interests in a hospital provided that the referring physician is authorized to perform services at the hospital and the ownership or investment interest is in the hospital itself. Decisions related to which physicians may have ownership interests cannot take into account the volume or value of a physician’s referrals to the hospital. Flower Mound Hospital, a partially physician-owned hospital in Flower Mound, Texas, agreed to pay $18.2 million for alleged Stark Law and AKS violations involving its repurchase of shares from physician-owners aged 63 or older and the re-selling of the same shares to younger physicians. The government alleged Flower Mound Hospital impermissibly took into account the volume or value of certain physicians’ referrals when it: (1) selected the physicians to whom the shares would be resold; and (2) determined the number of shares each physician would receive. In U.S. v. Genesis Glob. Healthcare , the relators filed suit against a vascular surgical center, its related entities, and several physician-investors alleging the physicians profited by way of referrals back to the entities in which they had ownership interests. 208 The relators alleged the physicians were told that if they invested $100,000, they would receive returns of $175,000 within the first year, and it made more sense for them financially to refer patients to the entities in which they had ownership interests than to third-party providers. The relators argued this arrangement was in direct violation of the Stark Law. The relators also claimed the physician-investors’ financial investments in the surgery center created a kickback scheme whereby the physician-investors would refer patients to the surgery center for (allegedly unnecessary) vascular procedures in exchange for profit distributions and “other payments.” The district court granted in part and denied in part the motions to dismiss filed by the defendants. Specifically, the district court concluded that the relators pled a viable AKS violation, but that aspects of the relator’s complaint constituted “quintessential shotgun pleading,” which the court gave the relators leave to address. In U.S. ex rel. Fitzer v. Allergan , the district court dismissed a qui tam action in which the relator, a bariatric surgeon, alleged two medical device companies engaged in an AKS scheme by providing surgeons free advertising in exchange for their high utilization of LAP-BAND medical devices in their surgeries. 209 Specifically, the relator alleged the
defendants operated a “physician locator” website that allowed potential patients to input their zip codes to identify bariatric surgeons in their area who could perform the surgery required to implant the LAP-BAND device. The locater would provide prospective patients with a link to the local surgeons’ websites and, for a period of time, their seminar schedules where patients could enroll in seminars and meet the surgeons listed on the website. The relator alleged the website became a powerful tool for patients to find surgeons who could perform LAP-BAND surgery and, in turn, “provided a constant flow of business to the included surgeons.” The defendants used the physician locator, the relator alleged, to conduct a kickback scheme “by providing surgeons with valuable free advertising on [their website] in order to induce surgeons to recommend” the defendants’ medical device “instead of alternative operations.” Central to the relator’s theory was the allegation that the defendants implemented a quota of LAP-BAND surgeries that a physician needed to perform each year to be included on the physician locator. The district court granted the defendant’s motion to dismiss based largely on the relator’s conclusory allegations that the defendants knew they were acting in violation of the AKS. The district court noted that “conclusory allegations [that] raise a mere possibility rather than a plausibility” that defendants acted with the requisite intent are not enough to sustain an AKS violation. In U.S. ex rel. Schroeder v. Medtronic, Inc. , the relator, a regional sales manager for a competitor medical device company, alleged Medtronic orchestrated unlawful kickback schemes at multiple hospitals in violation of the FCA. 210 Medtronic allegedly bribed hospital staff through unlawful kickbacks to purchase its devices over competitors and to purchase grossly excessive inventory so that Medtronic could increase the sales of its medical devices and create a near monopoly of its products at hospitals (allegedly also leading to unnecessary procedures). The relator further alleged the remuneration took the form of weekly/daily lunches for key hospital employees, iPads, iPhones, NASCAR and other entertainment tickets, as well as frequent nights at bars and restaurants in exchange for their purchasing Medtronic devices exclusively. The district court denied the defendant’s motion to dismiss the AKS claims, but granted its motion related to the medically unnecessary procedures and off-label marketing claims. In United States v. Health First, Inc . , the relator, a multi-specialty physician group, alleged the defendants, which included a multi-specialty physician group, a health system that owned the group, several of the group’s cardiologists and oncologists, and executives of both, engaged in a scheme to financially reward doctors for referring patients internally within the health system and for prescribing drugs billed to Medicare in violation of the AKS, the Stark Law and the FCA. 211 Among other things, the health system allegedly paid additional compensation to doctors in exchange for the doctors’ termination of their medical directorships with competitors. The health system also purportedly inflated the work relative value units conversion factor to artificially inflate physician compensation. The relator alleged internal referrals from the defendant physician group increased after the health system acquired the group and doctors who referred more patients received increased compensation.
207 https://www.justice.gov/opa/pr/flower-mound-hospital-pay-182-million-settle-federal-and-state-false- claims-act-allegations.
208 2021 WL 4268279 (S.D. Ga. Sept. 20, 2021). 209 2021 WL 4133713 (D. Md. Sept. 10, 2021).
210 2021 WL 4168140 (D. Kan. Sept. 14, 2021). 211 2021 WL 301089 (M.D. Fla. Jan. 22, 2021).
STARK LAW/ANTI-KICKBACK STATUTE BASS, BERRY & SIMS | 36
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